OBBBA Cut Nearly $1 Trillion From Medicaid. Here's What That Means for Health Tech Vendors.
Federal spending cuts, work requirements, and negative MCO margins are hitting at the same time. What that means for your pipeline, your pricing, and your next buyer conversation.
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I’ve had more conversations about Medicaid in the past four months than in the previous two years combined.
Some are with vendors who’ve been selling to Medicaid MCOs for years and are watching their renewals get delayed, their pricing challenged, and their buyer contacts go quiet. Some are with companies expanding from MA into Medicaid who built pipeline in Q4 and are now sitting on accounts where the budget picture has fundamentally shifted. And a few are with Medicaid MCO executives themselves, who are telling me things like: “We’re reviewing every vendor line item against reprocurement criteria. If it doesn’t tie directly to a state metric, it’s getting cut.”
Here's what we're looking at. The One Big Beautiful Bill Act (OBBBA) cut nearly $1 trillion in federal Medicaid spending over the next decade, and the effects are compounding faster than most vendors realize. States are building their FY2027 budgets right now, with nearly two-thirds of Medicaid directors rating the chance of a budget shortfall as "50-50" or worse. Work requirements will take effect by the end of 2026, which means MCOs are simultaneously preparing for 7.5 to 10 million members to lose coverage while losing one of their most reliable financing tools (the provider tax safe harbor is dropping from 6% to 3.5%, and states can no longer create new provider taxes or increase existing ones). Every one of these pressures is hitting your buyer at once.
This article is a guide to what these changes mean for your pipeline, your pricing model, and your next conversation with a Medicaid MCO buyer. Whether you’ve been in Medicaid for years or you’re just starting, the selling environment shifted underneath everyone. I’ll cover what happened to your Medicaid buyer’s budget, the five selling dynamics that changed post-OBBBA, which pricing models are getting rejected (and what’s replacing them), where the growth segments actually are, and how to position when your buyer’s budget is getting cut.
Your Medicaid Buyer’s Budget Just Got Rewritten
The Medicaid MCO you’re selling into is not the same organization it was nine months ago. And if you’re an incumbent vendor, don’t assume your renewal is safe just because the relationship is strong.
McKinsey projects that Medicaid EBITDA will decline to negative levels through 2025 and 2026, with OBBBA-driven disenrollments pushing EBITDA to approximately negative $7 billion by 2028. But here’s what makes this different from past Medicaid budget cycles: McKinsey’s payer outlook shows every other sub-segment (large group, stop loss, MA, individual, even ACA) recovering from 2024 lows and posting positive growth trajectories by 2029. Medicaid is the only segment that doesn’t participate in that recovery. (see illustration below).
The rest of the payer world gets better. Medicaid doesn’t.
And this isn’t happening in isolation. Plans operating across both MA and Medicaid are getting hit from multiple directions. The near-zero rate increase CMS proposed for 2027 on the MA side compounds with OBBBA cuts on the Medicaid side. If you’re selling to a plan with both books of business, their CFO is managing two margin crises simultaneously, except the MA book has a recovery trajectory and the Medicaid book doesn’t.
Here’s what that means inside the organizations you’re prospecting (or already contracted with). When every other line of business is recovering, but Medicaid margins stay negative, the internal budget conversation becomes: “Why are we spending discretionary dollars on the book of business that isn’t recovering?” Vendor categories without a direct tie to reprocurement or regulatory compliance get reallocated to the segments where margins are actually improving. Your solution might be excellent, and your outcomes might be real, but if it doesn’t answer a question the MCO’s state regulator is asking, it moves from “budget line” to “nice to have.” Simply put, nice-to-haves don’t survive when the CFO has a recovering MA book competing for the same dollars.
For context (especially if you’re sharing this with your sales team or board): Medicaid MCOs don’t compete for members the way MA plans do. They compete for state contracts through procurement cycles, and those cycles are binary. You either win the bid or you lose the entire book of business. That’s why every budget decision inside an MCO gets filtered through one question: Does this help us win or keep the contract? That filter was already strong before OBBBA. Now, with budgets contracting, member disenrollments accelerating, and no projected recovery in sight, it’s the only filter that matters.
Every vendor conversation inside a Medicaid MCO now runs through a single filter: does this help us survive reprocurement?
So before your next meeting with a Medicaid MCO, find out where they are in their state’s procurement cycle. If they’re 12 to 18 months from rebid, every conversation is about reprocurement readiness (whether they say so or not). If they recently won, you have a window of opportunity when they’re more open to capability investments. Either way, your pitch needs to connect to reprocurement metrics, because that’s the language their leadership is speaking internally.
Five Selling Dynamics That Changed After OBBBA
I wrote about the structural differences between selling to MA plans and selling to Medicaid MCOs last September. That piece covered the foundational gaps, but what’s changed since then is that the margin for error has collapsed for everyone, including vendors who’ve been in Medicaid for years and thought they had the buyer relationship dialed in.
Here are the five dynamics I keep seeing in conversations with both vendors and MCO executives:
1. Budget authority shifted upward. Before OBBBA, a VP of Medicaid Operations or a clinical director could often approve a vendor contract within their budget. Now that MCOs are running negative margins, vendor decisions (even the smaller stuff) are being elevated to plan presidents and CFOs. I’ve even heard of one renewal that was pulled into an enterprise-level budget review. The move here is to ask your current contact directly: “Is the approval process for vendor contracts the same as last year, or has it changed?” That question doesn’t offend anyone, and the answer tells you immediately whether you need to build a financial case for a new audience.
2. Proof points need to be state-specific. This was always true in Medicaid, but post-OBBBA the tolerance for generic outcomes data dropped to zero. Medicaid evaluators want impact on cost avoidance, access expansion, and regulatory compliance within their state’s specific reporting framework. For example, a care gap closure result in Florida means little to a buyer in Ohio who’s being evaluated on a completely different set of state contract metrics, so case studies only count if they map to your target state’s reprocurement scorecard. The fix is simple but time-consuming: pull your target state’s most recent reprocurement RFP and map your outcomes to the evaluation criteria. That mapping becomes your state-specific “proof” deck.
3. Urgency triggers changed. Reprocurement calendars and state legislative sessions have always driven Medicaid timelines, but the most acute urgency right now is around work requirement implementation by December 2026, six-month eligibility redetermination cycles (up from annual), and the provider tax changes that some states are facing as early as April 2026. Two-thirds of state Medicaid directors expect FY2026 budget shortfalls. Your urgency needs to match theirs, and right now theirs is about compliance infrastructure, not quality improvement timelines. If your outreach is anchored to Stars measurement periods or open enrollment cycles, you’re speaking a different language than your buyer right now.
4. Compliance scrutiny intensified. Medicaid plans were already more cautious than MA plans about what they’d approve around AI, member outreach, data sharing, and scripting (state regulators are closer and more hands-on than CMS). Post-OBBBA, that caution increased further. MCOs implementing new eligibility verification systems and work requirement processes aren’t going to layer on vendor programs that create additional compliance exposure. If your solution involves AI-driven outreach or automated member communications, lead with how you stay inside state-specific guardrails, not with your technology. Better yet, bring a compliance brief specific to the state you’re selling into that shows you’ve already done the regulatory homework.
5. Incumbent advantage got stronger…sorta. When budgets tighten, the default instinct is to stick with known vendors, as switching costs feel higher in uncertain times. But MCOs are also reviewing incumbent contracts with the same reprocurement filter they apply to new vendors: Does this directly protect our contract? Incumbents who can’t demonstrate that connection are getting cut, even with years of relationship equity. And new entrants who can demonstrate it have a real opening, because “we’ve always used them” is not a sufficient budget defense. So if you’re an incumbent, don’t wait for renewal to make the case. Instead, work proactively to connect your current results to reprocurement criteria now, before your buyer has to justify your line item in a budget review.
Each of the above dynamics hits differently depending on how long you’ve been in Medicaid and what you sell, but the pattern is the same: the post-OBBBA selling environment rewards vendors who understand the buyer’s fiscal reality and punishes those who act as if the market hasn’t significantly changed.
The Pricing Models That Are Getting Rejected (And What’s Replacing Them)
Frankly speaking, PMPM pricing is getting rejected in Medicaid right now. I hear it from both sides: from vendors who can’t close contracts they expected to win, and from Medicaid MCO executives who are sending back PMPM proposals without discussion.
MCO buyers, I’ve been talking to explain it very simply: When your membership is about to shrink by 10 to 15 percent over two years, and your margins are negative, adding fixed per-member costs to the balance sheet is the last thing finance will approve. That budget scrutiny that kills most vendor proposals at the CFO level is even more intense inside Medicaid MCOs right now because there’s no margin buffer to absorb a vendor that underdelivers.
So what are MCO executives telling me they’re gravitating toward instead? Effort-based pricing, fee-for-service arrangements, and hybrid models that pair a lower fixed component with a performance kicker. They want pricing that flexes down when membership shrinks and doesn’t lock them into commitments they can’t defend during budget review.
But there’s a trap in performance-based models that vendors need to watch out for. Full performance risk on care gap closure sounds appealing to plans (they only pay when gaps close), but the problem is threefold. First, the plan controls the timing and quality of the gap list. Second, the data is frequently stale or wrong. And third, the vendor often becomes the last resort for closing gaps that the plan's own team and other vendors have already failed to close. So, if you're taking full performance risk without means to account for data integrity, you're basically paying for the plan's bad data with your own margin.
Here’s the practical move instead: lower the fixed component, add a performance kicker, but protect yourself contractually. Define data freshness requirements (e.g., the gap list is no more than 30 days old), specify timing of gap list delivery (you need it in January, not March), and build exclusion clauses for gaps already being addressed by another vendor or program. These aren’t unreasonable requests, and sophisticated Medicaid buyers should expect them (and the ones who push back on data quality protections are telling you something about how they treat vendors).
D-SNPs, C-SNPs, and Rural Health: Where Medicaid Dollars Are Actually Growing
While broad Medicaid membership faces disenrollment pressure, specific segments are growing fast, and that's where the opportunity is for health tech vendors right now.
D-SNP enrollment hit 6.4 million in February 2026, up 16% from the prior year. C-SNP enrollment surged even faster, growing 49% to 1.6 million members. SNP growth accounted for 74% of all MA enrollment growth between February 2025 and February 2026. Specialized populations are expanding even as broad Medicaid membership faces disenrollment pressure.
Those D-SNP numbers point to the biggest near-term opening: duals alignment. CMS is requiring alignment between Medicare and Medicaid coverage for dual-eligible individuals, and roughly 50% of duals remain unaligned. Plans have a defined window to bring those members into integrated D-SNP products, and they need vendor support across care gap closure for dual-eligible populations, enrollment and brokerage, and clinical coordination across Medicare and Medicaid benefits. If your solution touches any of those functions, you're selling into a segment that's growing while the broader Medicaid population shrinks around it.
A few vendors are also starting to pivot from plan-paid arrangements to billing through the provider payment system, which removes the “is this a medical expense or an administrative expense?” question that stalls deals in MCO finance review. I wouldn’t overhaul your model around it yet, but if you have provider relationships and billing capability, it's a pathway that could avoid the MCO budget conversation entirely.
State-specific opportunities also exist for vendors with rural health capabilities. OBBBA’s Rural Health Transformation Program allocates $10 billion per year in state allotments through 2030. As such, all 50 states received FY2026 RHTP funding, and states are actively looking for technology and service partners to deploy those dollars toward access expansion, outcome improvement, and clinician recruitment.
And finally, keep in mind the impact of OBBBA’s spending cuts varies dramatically by state. Louisiana, Illinois, Nevada, and Oregon face 19% or greater reductions in federal Medicaid spending, while other states are only 4% to 5%. Vendors who treat Medicaid as a monolithic national market will get outmaneuvered by competitors who build state-specific strategies. Your pipeline, pricing, and positioning need to reflect those differences. This can’t be stressed enough.
We’ve covered much of what’s changed, where the money is moving, and what your buyers are dealing with right now. Below is how to position when budgets are getting cut, plus a conversation framework for your next Medicaid meeting.
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