Medicaid Policy in 2025: Key Disruptions & Strategic Implications for 2026

At the same time, state Medicaid programs are coming under increasing budgetary pressures from a combination of COVID-era federal funding drying up, state revenue declining for several reasons, and states’ preparations for the implementation of HR 1. Today, 2025 is ending with uncertainty on whether current enrollment in the ACA Marketplace will continue without enhanced subsidies, and if Obamacare will be replaced with Trumpcare.

Sometimes called a “policy window,” this convergence of events signals a period of policy volatility that presents both risk and opportunity for manufacturers who will be faced with questions like:

• Should our company participate in the CMMI GENEROUS Model? 
• Will some of these Medicaid policy changes in H.R. 1 result in a larger uninsured population who will turn to state and manufacturers’ pharmaceutical assistance programs for access to their medications? 
• Will changes in federal HHS, FDA, and CMS policies result in transformative prescription drug approval processes, or stagger innovation? 
• Will state Prescription Drug Affordability Boards (PDABs) become even more activistic, including adopting upper payment limits? 
• Will both commercial and government payers put more pressure on manufacturers for higher rebates and implement stricter utilization management techniques?

The year 2026 will be the second year of the Trump Administration, historically referred to as entering the “lame duck” period of an administration. However, the second Trump Administration shows no signs of slowing down, and prescription drug pricing, additional Medicaid policy reform, 340B reform, PBM reform, and prescription drug reimportation are all policy issues expected to be a high priority for the Administration and Congress. Other proposals being discussed include:

• Changes to the Medicaid Drug Rebate Program (MDRP) including raising the minimum federal rebate percentage from 23.1% to 33.1% for brand-name drugs;
• Requiring manufacturers to report “real-world” clinical data to better understand and evaluate the value of prescription medications across populations and care settings;
• More movement toward Medicaid fiscal sustainability, program efficiencies, and increased scrutiny of waste, fraud and abuse adding pressure on states to make greater efforts at systemic reform and modernization to promote access and quality, while constraining cost; 
• Revisiting overall federal Medicaid outlays in the form of per capita allocations, changes in the FMAP, or block grants. 

We will see the actual effects of recent policy changes in 2026, both at the federal and state levels. In 2026, the first ten drugs whose prices were negotiated by Medicare under the Inflation Reduction Act (IRA) of 2022, will be offered to Medicare enrollees. In January 2025, fifteen additional drugs were selected for the second round of negotiations. Those negotiated prices will go into effect on January 1, 2027. The Trump Administration will continue to use this process for the foreseeable future.

Early in 2026, most states will be developing and passing their SFY 2026-27 budgets which will contain the most concrete examples of how these federal policies are affecting states. We have already seen initial major policy shifts like California suspending Medicaid coverage of undocumented persons using only state dollars, a reversal of coverage of GLP-1s in both California and North Carolina Medicaid programs, and several states announcing across the board and targeted Medicaid provider reimbursement rate cuts (which ultimately affects access to prescription medications).

While these measures may seem extreme, state Medicaid budgeting is actually returning to pre-COVID patterns in 2026. For the last two decades, Medicaid programs have generally been the first or second largest expenditure category in most state budgets (with prescription drug spending usually falling only behind inpatient and outpatient hospitalizations in terms of expenditures), so the balance of cost containment against access to high-quality healthcare for the most vulnerable is a long-standing issue in the program. 

Most states will be able to manage their Medicaid budgets with little difficulty. But some states will have to make the hard choices of cutting reimbursement rates, eliminating or restricting access to optional Medicaid services, or the least politically viable, eliminating optional eligibility categories.

On November 24, 2025, President Trump issued an Executive Order launching the Genesis Mission, a coordinated national effort to unleash a new age of AI‑accelerated innovation in the US. The Executive Order directs the Department of Energy (DOE) to build an integrated AI platform to harness federal scientific datasets to train scientific foundation models and create AI agents to test new hypotheses, automate research workflows, and accelerate scientific breakthroughs. 

The timing of the Genesis Mission is key to the pharmaceutical industry as it is predicted that the use of AI in all facets of health care delivery will increase in 2026, including pharmaceutical research and development; predictive modeling of health outcomes at the individual level; rooting out waste, fraud and abuse; and greater efficiency in Medicaid eligibility determination processes.

The next year will likely keep the pharmaceutical industry very busy trying to navigate the changes occurring at both the federal and state level. Less federal Medicaid expenditures will tighten state budgets, and state and local policymakers will be seeking creative solutions to ensure continued access to high-quality healthcare, including access to life-saving medications and treatments. 

The horses are lined up at the gate this New Year waiting for the call, “And they’re off!”

If your team is preparing for the changes ahead in 2026, Advantage+ can help. Our monthly webinars, subscriber briefings, and individualized consultations keep manufacturers informed, aligned, and ready to respond to new policy developments. Contact us to learn more.