Health Insurance is a Burdensome, Unsustainable Funding Model: A Call for More Innovative Solutions to Finance Healthcare Systems
Review of Second Quarter 2025
The reconciliation, adoption, and signing of The One Big Beautiful Bill Act (OBBBA) into law has been the highlight of the second quarter. Consistent with its distinctive name, OBBBA encompasses a range of policy and structural reforms across multiple sectors, with government health insurance being a primary focus.
Politicians presented different perspectives on the new bill based on their political affiliations. Republicans argue it improves fiscal accountability, whereas Democrats highlight potential harm to American families and lost benefits. In healthcare, this legislation serves more as a political tool than a solution, distracting from its true purpose. The real issues emerge only when the bill’s underlying philosophy is closely examined.
As stated in the Healthcare Executive Highlights for Fourth Quarter 2024,(1) cooperation between the two government branches has enabled Trump’s 2017 tax cuts to become permanent, forming the core of OBBBA. This comes at an exorbitant cost estimated at $4.78 trillion over the next decade ($4.5 trillion in tax breaks, $150 billion in defense spending, and $129 billion in border control). To adjust for some of the incurred costs, the bill’s second component introduces spending reductions in select benefit programs — primarily within social and healthcare sectors — that could total up to $1.71 trillion over a ten-year period. This includes approximately $930 billion from Medicaid, $488 billion from clean energy initiatives, and $287 billion from food stamps and aid.(2)
OBBBA contains approximately 40 provisions related to healthcare.(3) These may affect healthcare organizations as they are implemented. The following is a list of key repercussions that leaders should consider:
Medicaid financing cuts. Several strategies are proposed to address this issue, such as aligning Federal Medical Assistance Percentages (FMAP) for emergency Medicaid with state levels, and adjusting states’ ability to fund Medicaid through Provider Tax by reducing the “safe harbor” threshold in expansion states from 6% to 3.5%. Currently, this threshold allows a state’s Provider Tax up to 6% of net patient revenue to automatically qualify providers for “hold harmless” status, which limits additional scrutiny. System and hospital executives may choose to either continue current funding approaches or explore alternative methods for financing their organizations.
Tightening up Medicaid eligibility. The implementation of new work requirements for able-bodied adults is likely to disproportionately increase the number of uninsured individuals within the 19-to-64 age group. Projections regarding the overall rise in uninsured patients as a result of this provision remain conservative. People without Medicaid may make up as much as 84% of uninsured patients at free and charitable clinics.(4)
Increasing Medicaid administrative and financial burden. Implementing biannual eligibility redetermination instead of an annual review, conducting quarterly provider screenings by states, and validating enrollee lists through checks against the Social Security Administration’s Death Master File are measures likely to increase both administrative and financial burdens. In particular, more frequent redeterminations also may elevate uncertainty for patients, clinicians, and healthcare leaders, thereby constraining effective strategic decision-making.
The bottom line is health insurance is a third-party healthcare payment model that is financially unsustainable, structurally flawed, raises patients’ healthcare costs, and undermines quality of care. In terms of public health, it shifts the focus from promoting good health standards, habits, and interventions, to financing illness.
Gross Domestic Product
According to the third estimate of U.S. real gross domestic product (GDP), the economy contracted at an annual rate of 0.5% in the first quarter of 2025. This marks the first instance of economic decline in three years and follows a 2.4% increase in the final quarter of 2024.
Within the overall net change of –0.5%, the healthcare sector was a positive contributor, accounting for 0.13 percentage points and ranking fourth behind real estate (0.66), information (0.56), and state and local government sectors (0.22).(5) Compared with the previous quarter, healthcare also maintained its fourth-place position with a growth rate of 1.7%, following information (11%), real estate (4.9%), and state and local government (2.9%).(6)
Fiscal and Monetary
President Trump’s Department of Government Efficiency (DOGE) is undertaking a fiscal initiative focused on streamlining the operations of the U.S. government and reducing expenditures. As the nation approaches a possible fiscal transition — of any magnitude — the combined impact of DOGE policies and the new OBBBA will be reflected in forthcoming budget figures. It is therefore essential to accurately assess the current fiscal landscape.
As of mid-2025, nine months into the federal government’s 2025 fiscal year, the status of the U.S. budget — outlined in the Congressional Budget Office’s Monthly Budget Review from June 2025 — highlights several significant points:
The U.S. budget is expected to shift significantly when OBBBA mandates begin (Table 1), with Medicare and Medicaid facing the largest impacts. This will require new strategies for financing our sector and organizations.
In addition to April, when the U.S. government typically reports surpluses due to incoming tax returns, June of the 2025 fiscal year recorded a surplus of $27.01 billion for the second time this year, primarily attributed to a 91% reduction in spending by the Department of Education.(8)
Regarding monetary policy, the Federal Reserve has maintained the federal funds rate at 4.25% to 4.50% during both second quarter meetings in May and June. There are four meetings remaining this year, with two meetings scheduled per quarter. Although some forecasts suggest that several of these meetings may result in rate cuts, a more conservative outlook anticipates between zero and one rate reductions, totaling 0 to 50 basis points.
Current economic indicators align more closely with the lower end of these projections regarding both the number and extent of potential rate cuts. The Federal Reserve’s decisions are expected to be influenced by the following two opposing factors:
The U.S. Federal Reserve System (Fed) currently is facing a complex situation. Although inflation indicators suggest maintaining the current policy with the possibility of tightening in the future, this approach contrasts with President Trump’s calls to lower interest rates.
As noted in the final line, significant political challenges may influence the Federal Reserve’s forthcoming decisions because of increased pressure from President Trump. Potential scenarios include: 1) the Federal Reserve Chair and committee adjusting policy by cutting rates by a quarter point, aligning with actions taken during Trump’s first term; 2) the Federal Reserve Chair and committee maintaining their position and addressing the issue in a professional manner, consistent with their approach during Trump’s current presidency; and 3) President Trump opting to remove Federal Reserve Chair Jerome Powell, potentially resulting in a legal dispute. The 2020 Supreme Court decision in Seila Law LLC v. Consumer Financial Protection Bureau altered previous interpretations regarding Congressional authority over presidential removal powers for independent agency members (Humphrey’s Executor v. United States, 295 US 602 (1935)).(9,10)
Inflation and Prices
In line with the opening quarter of the year, the subsequent two months’ numbers of the Consumer Price Index (CPI) continued to tame down lower than analysts’ expectations; then came the course reverser in June (Table 2). Annual core CPI for both April and May stood at 2.8%, with month-over-month readings of 0.2% and 0.1%, respectively. A deep dig into core CPI numbers reveals signs of defiance in food inflation, whereas energy prices show a degree of bifurcation in terms of consumer-sensitive products (e.g., gasoline) trending down or remaining relatively stable while consumer less-sensitive products (such as natural gas) moved up. It is anticipated that as real market factors begin to influence the economy, potentially during the last two quarters of the year, inflation may cease its current decline, first stabilizing and then potentially increasing if momentum increases.
Yearly and monthly CPI figures of the second quarter of 2025 are as follows:
April CPI = 2.3% (YoY); 0.2% (MoM);
May CPI = 2.4% (YoY); 0.1% (MoM); and
June CPI = 2.7% (YoY); 0.3% (MoM).
Producer prices came with a little bit of drama. During April, the Producer Price Index (PPI) unexpectedly dropped by a half point, the largest since December 2009, led by the service sector.(13) The next month PPI rebounded by 0.1%, supported by a 0.1% and 0.2% rise in services and goods prices, respectively.
Below is a summary of the producers prices for the period between April and June:
April PPI = 2.4% (YoY); –0.5% (MoM);
May PPI = 2.6% (YoY); 0.1% (MoM); and
June PPI = 2.3% (YoY); unchanged (MoM).
Labor and Productivity
The U.S. job market experienced a strong quarter, consistently exceeding expectations over all three months (Table 3). In April and May, payrolls increased by 177,000 and 139,000, surpassing projections of 138,000 and 126,000, respectively.(17,18) June saw an additional 147,000 jobs added.(19) The unemployment rate remained stable at 4.2% in both April and May before declining to 4.1% in June.
Looking Toward Third Quarter 2025
The upcoming quarter will be significant with regard to the incorporation of various scientific perspectives into national policies and public discourse. Key decisions are expected to be made on issues such as the etiology and underlying mechanisms of autism, a topic that has long been subject to discussion by Robert Kennedy, Jr., the current Secretary of Health and Human Services.
Considering President Trump’s stated intention to impose a 200% tariff on pharmaceuticals next year, trade tensions are expected to remain significant throughout the second half of the year. However, it is projected that these pressures may gradually subside as additional bilateral trade agreements are concluded and as other critical priorities begin to command attention over time.
In conclusion, there are several key due dates to be aware of in the second half of the year, as follows:
Federal budget-related health programs. The continuing resolution known as the Continuing Appropriations and Extensions Act of 2025 (H.R. 1968), signed on March 15, 2025, averted an impending federal shutdown and will keep the U.S. government afloat until it expires on September 30, 2025. This action affects several healthcare-associated issues, such as: Medicaid Disproportionate Share Hospital (DSH) relief, Medicare telehealth and hospital-at-home waivers, Medicare Rural Ambulance add-on payments, and others. The federal budget for fiscal year 2026 is a work in progress with some of the resolutions having been approved by the House of Representatives. The new budget’s effect on healthcare remains unclear.
Advanced Premium Tax Credits. Although the Premium Tax Credits (PTC) will continue beyond 2025, what is due to expire on December 31, 2025, is a temporary provision set by the American Rescue Plan Act (ARPA) and enacted under the Affordable Care Act (ACA), that expanded income eligibility and enhanced subsidy sums. The cost of extension is estimated at $355 billion over the next decade (fiscal years 2025 to 2034).(20) Despite the harmony between the executive and legislative branches of the government, it is hard to determine whether both sides are willing to agree on this issue.
References
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