In a move sparking debate across the U.S. healthcare sector, the proposed $674 million budget cut to the Centers for Medicare & Medicaid Services (CMS) for FY2025 signals a major shift in federal health policy priorities. While the government has indicated that it won’t impact Medicare and Medicaid beneficiaries in the short term, industry experts have been hinting toward profound operational consequences in the years ahead of us.
In this blog, I shall help you understand the proposal’s far-reaching effects, particularly focusing on the elimination of Diversity, Equity, and Inclusion (DEI) and health equity initiatives. It also suggests ways to mitigate these impacts with the help of AI and automation.
What’s Changing?
The proposed reduction of CMS’s budget specifically targets:
- Contracts supporting health equity outreach
- Initiatives under the Inflation Reduction Act (IRA), such as Part D prescription drug reforms
- DEI activities aimed at addressing Social Determinants of Health (SDOH) and care disparities
Even though the intention may be to streamline operations and cut costs, the underserved populations may face greater challenges in accessing equal healthcare.
Impact on CMS
1. Reduced Programmatic Capacity
CMS’s mission to close care gaps and advance value-based care is closely tied with DEI and health equity programs. Eliminating these efforts undermines national goals related to:
- Reducing racial and ethnic disparities in healthcare outcomes
- Promoting culturally competent care
- Advancing value-based payment models that reward outcomes over volume
These efforts were previously reinforced by policy papers, such as Advancing Health Equity Through Value-Based Care: CMS Innovation Centre Update and The Path Forward: Improving Data to Advance Health Equity.
Advancing Health Equity Through Value-Based Care: CMS Innovation Center Update | Health Affairs
2. Limited Education and Outreach
CMS is vital in educating beneficiaries, particularly vulnerable populations, on complex healthcare policy changes. For example, the Part D redesign under the IRA includes a $2,000 annual out-of-pocket cap on prescription drug costs. Without CMS-led outreach, beneficiaries, especially those with limited health literacy, may miss crucial benefits.
3. Operational Strain
Eliminating third-party support contracts means CMS staff will face increased workloads. This will likely cause delays in regulatory guidance, slower audits, and bottlenecks in providing technical assistance to Medicare Administrative Contractors (MACs) and health plans. According to a Government Accountability Office (GAO) report (GAO-14-417T), contractors and private plans play a pivotal role in administering benefits; thus, their reduced coordination capacity poses a systemic risk.
GAO-14-417T, Medicare: Contractors and Private Plans Play a Major Role in Administering Benefits
Impact on Health Plans (Payers)
1. Lack of Federal Guidance on Health Equity Metrics
Without centralized federal direction, health plans may find it harder to align internal equity strategies with national benchmarks such as the Health Equity Index (HEI) and Social Determinants of Health (SDOH) measures. This will result in fragmented care strategies and hinder efforts to advance whole-person care.
2. Increased Burden on Outreach and Education
Health plans will be expected to self-fund member education around IRA benefits like the Part D cap. This places strain on smaller or regional plans that lack the marketing budgets or in-house resources to run multilingual, accessible campaigns for low-income or minority members.
3. Strategic Misalignment and Reputational Risks
Many payers have already committed publicly to equity goals. The rollback of federal DEI initiatives may create a reputational challenge, forcing them to decide how to continue promoting inclusive care without aligning with federal policy trends. Internally, this could lead to budget reallocations, revised training programs, and shifts in partnership strategy.
How AI and Automation Can Mitigate the Impact
In a constrained financial landscape, the most effective way to maintain service levels, compliance, and quality is through strategic investments in automation and AI. By embracing digital transformation, CMS and health plans can:
- Automate administrative workflows to reduce headcount dependency and manual errors
- Deploy intelligent self-service tools that maintain member satisfaction while offloading pressure from call centres
- Use predictive analytics to detect high-risk members, forecast service demand, and prioritize intervention
- Accelerate real-time reporting and documentation using AI-based coding tools
- Streamline utilization management (UM), appeals, and grievances using smart workflows to reduce costly rework
- Support compliance with centralized Enterprise Content Management (ECM) systems for secure, audit-ready document handling
How can Newgen Help Health Plans Navigate these Changes?
Newgen offers immediate value in navigating the listed fiscal and operational challenges. Here’s how Newgen can help Health Plans with its solutions:
- Provider Lifecycle Management (PLM): Ensures provider network adequacy and transparency, supporting regulatory mandates
- Complaints, Appeals & Grievances Automation: Reduces manual intervention and boosts Medicare Star Ratings by enhancing resolution speed and accuracy
- AI-backed Claims Repair: Minimizes claim denials and rework through intelligent error detection and correction
- Enterprise Content Management (ECM): Provides a secure and centralized repository for various regulatory, clinical, and administrative documents, improving both accessibility and audit compliance
With CMS focusing more on operational efficiency and less on outreach, vendors offering automation will be critical allies for payers.
Reimagining Equity in a Leaner Environment
Healthcare equity doesn’t disappear with a line-item deletion in a federal budget. Instead, it evolves and must be driven by payer innovation, community partnerships, and technology.
Health Plans that proactively shift from manpower-heavy models to automation-first operating models will be better equipped to:
- Serve a diverse member base
- Navigate policy uncertainty
- Preserve compliance and profitability amid tightening margins
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