New Executive Directive Builds on the Trump Administration’s Deregulatory Agenda but is Unlikely to Impact Medicaid or Marketplace Spending

Patti Boozang, Julian Polaris, and Michelle Savuto, Manatt Health

On February 26, President Trump signed an executive order (EO), Implementing the President’s “Department of Government Efficiency (DOGE)” Cost Efficiency Initiative. The EO introduces new requirements and limitations for “covered contracts and grants,” defined as discretionary spending through “federal contracts, grants, loans, and related instruments,” subject to certain exceptions.

Notably, because this EO applies only to discretionary spending, it is unlikely to impact mandatory healthcare program spending, such as federal Medicaid matching payments (whether under the state plan or section 1115 demonstration), or premium tax credits provided through the Marketplace, including section 1332 passthrough funding. In addition, the EO excludes “direct assistance to individuals,” and federal agency leadership also have the authority to exclude “other critical, acute, or emergency spending.”

This latest EO is in line with the Trump administration’s focus on scrutinizing all federal spending for alignment with the administration’s priorities. Since President Trump’s inauguration, he has issued a series of de-regulatory focused EOs aimed at eliminating or minimizing various aspects of the “administrative state,” reinforcing the role of the White House Office of Management and Budget as a central clearinghouse for agency policymaking, and empowering DOGE to promote administration priorities by directly engaging with agency staff and systems.[1]  

Directives for Federal Agencies Regarding Covered Contracts and Grants

Key directives in this latest EO include the following:

• Each agency must work with DOGE to build a centralized technological system to record all federal payments under covered contracts and grants, along with a “brief, written justification for each payment submitted by the agency employee who approved the payment.” Those justifications will be published except where prohibited by law. Furthermore, this payment system must allow the agency to “pause and rapidly review” any payment that lacks a written justification.
• All agencies must review all existing covered contracts or grants within 30 days (by March 28, 2025) for alignment with administration policy and opportunities to “reduce overall Federal spending.” The EO directs agencies to terminate, modify, or renegotiate contracts or grants as needed to achieve these ends, where appropriate and consistent with applicable law.

Within this 30-day timeframe, agencies must also comprehensively review the agency’s contracting policies, procedure, and personnel and, in consultation with DOGE, “issue guidance on signing new contracts or modifying existing contracts to promote Government efficiency” and administration policies.

Implications for States

As noted above, the EO is unlikely to impact Medicaid matching payments and Marketplace premium tax credits provided to enrollees. There are, however, several key outstanding questions that will determine the EO’s impact, notably including the scope of “covered contracts and grants” and the exception for “direct assistance to individuals.” It also remains to be seen how agencies will interpret the requirement for a “brief written justification” of each covered contract or grant, and how the centralized technological system will interact with existing government payment systems and approval requirements. Until these questions are resolved, the full implications of this EO remain uncertain.

Finally, it is important to remember that, while EOs can signal the administration’s priorities and reorganize internal federal operations, they cannot provide agencies with new authorities, modify requirements established in federal statutes or federal regulations, or waive the standard processes for agency rulemaking (including rulemakings to repeal or relax existing rules).

[1] Relevant EOs to date include: Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative (2/19); Commencing the Reduction of the Federal Bureaucracy (2/19); Ensuring Accountability for All Agencies (2/18); Implementing the President’s “Department of Government Efficiency” Workforce Optimization Initiative EO (2/11); and Unleashing Prosperity Through Deregulation EO (1/31).