Trump-Era Medicaid Reform & the Stability of Institutional Care

Few policy debates in 2025 generated as much noise—and as much misunderstanding—as Medicaid reform under President Trump’s budget reconciliation package, commonly referred to as the “One Big Beautiful Bill.” That turbulence intensified further with the emergence of high-profile fraud investigations, including the Minnesota child care cases, which sharpened public scrutiny and fueled widespread concern about program integrity, eligibility enforcement, and the future of Medicaid itself.

As implementation begins and legal and regulatory guidance continues to emerge, it is worth revisiting the core assumptions that drove last year’s headlines. What follows is a grounded analysis of what the reforms actually changed, what they did not, and why institutional behavioral health care serving the severely mentally ill remains stable heading into 2026.

In the wake of President Trump’s One Big Beautiful Bill, passed in mid-2025, and the accompanying wave of media attention surrounding both policy reform and fraud investigations, one could certainly be forgiven for experiencing overwhelm at the sheer volume of catastrophic predictions. Commentators across the political spectrum warned of millions losing coverage, vulnerable populations abandoned, and safety nets shredded. As with so many policy debates in recent memory, however, the line between sober assessment and political theater blurred beyond recognition.

For thoughtful investors, the challenge is not to join the chorus of alarm, but to separate signal from noise. When it comes to Medicaid—and specifically the question of whether those served by providers partnering with Reliance Investing are at risk of losing coverage—the reality is remarkably clear: residents requiring institutional levels of behavioral health care remain firmly within Medicaid’s protected core and are not at risk of losing coverage.

The Political Hype Cycle

This is hardly the first time healthcare reform has triggered predictions of collapse. In 2017, Republican repeal efforts were described as heralding the end of American health insurance. In 2020, pandemic-era expansions were cast as either transformational breakthroughs or disastrous excesses. Throughout 2025, the debate over Trump’s budget reforms set off a familiar cycle of hysteria.

It is important to acknowledge that health policy does affect millions of people, but investors should also recognize how often the political framing diverges from policy details. As was widely observed during the 2025 debate, including at the Washington Post, the Congressional Budget Office’s estimates of massive Medicaid coverage losses have historically been “less than meets the eye,” with actual effects often far smaller than projected. States have consistently found creative ways to blunt federal restrictions, ensuring that worst-case scenarios rarely materialize.¹

What the Reforms Actually Target

As implementation has begun and federal guidance has taken clearer shape entering 2026, this core design has remained unchanged. Court decisions and administrative rule-making over the past several months have largely reinforced the original structure of the law, allowing contested provisions to move forward while preserving mandatory Medicaid coverage categories for people with disabilities and those requiring institutional levels of care.² Importantly, no subsequent guidance has altered Medicaid’s longstanding obligation to cover individuals with severe and persistent behavioral health conditions who cannot live independently.

The new law changes Medicaid in two main ways. First, it adds work requirements for able-bodied adults without dependents, requiring them to work, train, go to school, or volunteer. Second, it limits “provider taxes,” a state-level tactic for drawing down additional federal dollars. Both provisions have been hotly debated, but both also make clear that the target is able-bodied adults, not those with disabling conditions who cannot live independently. As seen recently in Minnesota, the controversies that have driven much of this debate are rooted in concerns about eligibility enforcement among able-bodied populations, not in the delivery of care for individuals with severe, disabling conditions, behavioral health-related or otherwise. 

The Heritage Foundation has underscored this point, noting that the purpose of Trump-era reforms is to retarget Medicaid resources toward the most vulnerable populations—children, low-income seniors, and those with disabilities.³ Medicaid law defines “disability” broadly, encompassing not just physical impairments but also severe mental illness, persistent substance use disorders, and cognitive conditions that prevent independent living. These categories describe precisely the populations served by the providers Reliance Investing sponsors and partners with, such as Pacific Ridge: adults with schizophrenia, severe and persistent behavioral health conditions, chronic homelessness, or lifelong institutional needs.

Far from being threatened, our network’s residents remain the core of Medicaid’s mandatory coverage obligations. In fact, reforms that curb eligibility for able-bodied, childless adults implicitly strengthen the program’s focus on those with the deepest needs.

The Trump administration itself has been emphatic that reforms will protect “deserving” recipients such as people with disabilities, low-income seniors, and children, while tightening eligibility for those who should not have been on Medicaid in the first place.⁴ Even media outlets critical of the reforms confirm this framing indirectly. The Daily Beast, for example, described the backlash against work requirements but conceded that the primary impact would fall on able-bodied adults, not on people with severe and persistent disabilities.⁵

Meanwhile, libertarian analysts at the Cato Institute add another critical layer to the analysis: what is described as a “cut” is in reality only a slowing of projected spending growth, from roughly 4.5 percent to 3 percent annually. Medicaid continues to expand, just at a more sustainable pace. As Cato’s Michael Cannon noted, Republicans are “scarcely tapping the brakes” on a program that will still grow by hundreds of billions over the coming decade.⁶ For institutional providers, that means funding streams remain not only intact but growing.

Subsequent analyses released late in 2025 and early 2026 have further clarified that projected “cuts” remain reductions in growth trajectories rather than absolute funding reversals. Medicaid spending continues to rise in nominal terms, and states retain significant flexibility in how they administer programs for high-need populations. For institutional providers, this distinction matters: reimbursement mechanisms tied to disability-based eligibility remain intact and operationally reliable.

A Rational View for Investors

For investors weighing the long-term stability of Behavioral Health, three key conclusions emerge from this body of analysis:

1. Policy Design – Mandatory coverage for the disabled, institutionalized, and low-income elderly remains unchanged. The populations served by Reliance-sponsored providers clearly fall within the “disabled” category.

2. Fiscal Reality – Medicaid spending will continue to rise; reforms slow the rate of growth but do not shrink the base.

3. Targeted Scope – The reforms are aimed squarely at able-bodied adults without disabilities and no dependents. Even critics acknowledge this distinction.

In Conclusion

It’s easy to get swept up in the theatrics of modern political debate, where every policy change is cast in apocalyptic terms. The hysteria surrounding recent Medicaid reform is a case study in how politics can obscure fundamentals. Nevertheless, fundamentals remain what matters most for investors and entrepreneurs involved in this space. In an environment shaped by legitimate concerns about program integrity,⁷ institutional providers that operate transparently, compliantly, and in service of clearly defined populations are positioned not as risks, but as stabilizing anchors within the system.

For the behavioral health projects Reliance sponsors, the question is not whether clients in our partner agencies' networks will be covered—they will—but how we continue in our mission to support the delivery of high-quality care to those who need it most.

References  

1)  Ponnuru, Ramesh. “Republican Medicaid Cuts Are Less Than Meets the Eye.” Washington Post, July 4, 2025.  

2)  Associated Press. “Coverage of Medicaid Implementation, Work Requirements, and Federal Guidance Following Passage of the 2025 Budget Reconciliation Law.” December 2025. 

3)  Heritage Foundation. Medicaid: How the Senate’s Reforms Would Retarget Federal Funding for America’s Most Vulnerable Citizens. 2017; Commonsense Medicaid Reforms for 2025. April 2025.  

4)  Politico. “White House Insists Medicaid Policy Won’t Cut People Who Deserve It.” June 2, 2025.

5)  The Daily Beast. “Republican Rep. Warren Davidson Hit With Furious Boos at Town Hall Disaster in JD Vance’s Backyard.” June 2025.  

6)  Cannon, Michael F. “Medicaid Is Driving Deficits: Republicans Are Scarcely Tapping the Brakes.” Cato Institute, May 2025. 

7) Associated Press. “Minnesota has a deadline to provide Trump administration data after child care fraud allegations go viral.” January 2, 2026.