Rising Medical Debt and Healthcare Coverage Cuts: Sector Risks and Defensive Plays in Healthcare Stocks

The Senate's 2025 Megabill, a sweeping reconciliation bill targeting federal spending, has ignited concerns about its profound impact on U.S. healthcare. Among its most contentious provisions are Medicaid cuts totaling $625 billion over a decade, which could increase medical debt by $50 billion and leave 7.6 million more Americans uninsured by 2034. These changes pose significant risks to hospitals and insurers but also create opportunities for investors in defensive sectors like managed care and medical debt resolution. Here's how the bill reshapes the healthcare landscape and where investors should focus.

The Megabill's Impact on Medical Debt and Coverage

The bill's Medicaid provisions, including reduced federal matching rates for states that cover non-citizen immigrants, could force states to slash services, raise premiums, or increase work requirements for eligibility. For example, California faces a $27.45 billion funding shortfall, while New York's costs could rise by $15.5 billion. These cuts threaten the stability of rural hospitals and clinics reliant on Medicaid reimbursements.

The Congressional Budget Office (CBO) warns that the uninsured population could surge by 2034, leading to a 15% rise in medical debt. Uninsured patients often delay care, which escalates costs when they finally seek treatment. This dynamic strains hospital revenues, as unpaid bills accumulate.

Sector-Specific Risks: Hospital Stocks Under Pressure

Hospitals and for-profit healthcare providers are among the most vulnerable. Chains like Tenet Healthcare (THC) and HCA Healthcare (HCA), which operate in states like Texas and Florida, may see reduced reimbursement rates and higher bad debt.

HCA's shares have underperformed the broader market amid concerns about reimbursement pressures and rising costs.

The bill also caps payments to public hospitals and restricts state provider taxes—a key revenue source for rural facilities. This could force closures, particularly in states like California and New York, which already face capacity strains. Investors should consider trimming exposure to hospital stocks or hedging with put options.

Defensive Plays: Managed Care and Debt Resolution

While the Megabill creates headwinds for hospitals, it also opens doors for firms positioned to navigate or capitalize on the changes:

1. Managed Care: Stability in Uncertainty

Managed care companies like UnitedHealth Group (UNH) and Centene Corporation (CNC) could thrive if they secure state contracts to manage Medicaid enrollments. These firms often operate in high-penetration states and may benefit from cost-containment demands.

Centene has historically outperformed during regulatory shifts, leveraging its Medicaid expertise.

However, investors should scrutinize companies with heavy exposure to states facing the deepest cuts. For example, WellCare Health Plans (WCG), which serves Medicaid populations in Texas and Florida, may see enrollment declines if states reduce eligibility.

2. Medical Debt Resolution: A Growing Niche

As medical debt surges, firms specializing in debt collection or resolution could see demand rise. Encore Capital Group (ECP), which buys distressed debt portfolios, may benefit from higher defaults. Meanwhile, startups like Greenlight Capital Re (GLRE), which insures against medical debt risks, could gain traction.

Investors should also watch CVS Health (CVS) and Ocwen Financial (OCN), which have expanded into healthcare debt management. These firms may offer steady returns as unresolved debt grows.

Opportunities in Telehealth and Prevention

The Megabill's emphasis on cost-cutting could accelerate adoption of telehealth platforms like Teladoc Health (TDOC) or Amwell (TWEL), which reduce in-person care costs. Additionally, preventive care providers, such as Livongo Health (LVGO), may see demand rise as patients prioritize affordable wellness services over emergency care.

Investment Strategy: Avoid Hospitals, Embrace Defensives

• Avoid: Hospital operators (HCA, THC) and rural health systems.
• Hold: Managed care firms with diversified state exposure (UNH, CNC).
• Buy: Debt resolution specialists (ECP) and telehealth innovators (TDOC).

The Senate Megabill's Medicaid cuts are a catalyst for structural changes in healthcare. Investors must prioritize companies insulated from reimbursement pressures while capitalizing on the growing medical debt crisis.

As Congress races to finalize the bill before July 4, the healthcare sector is poised for volatility. Staying defensive—and focused on firms with scalable solutions—will be key to navigating this turbulent landscape.

Data as of June 2025. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.