Sweeping changes in Affordable Care Act and Medicaid markets are hitting the balance sheets of some of America's largest health care companies, based on quarterly earnings issued this week.

Why it matters: Insurers and health systems already are feeling the effects of significant enrollment drops and changes in who's paying for care.

• The full effect of some of the biggest policy shifts won't be felt until after the midterm elections.

Driving the news: UnitedHealth Group yesterday said it's contending with declining ACA and Medicaid enrollment and rising health costs, even though it raised its overall earnings guidance for the year.

• New Medicaid work requirements stemming from last year's Republican tax-and-spending package helped drive down enrollment by 525,000 at its UnitedHealthcare unit. Executives told CNBC they expect a loss of roughly 500,000 members in ACA plans in 2026.
• Elevance Health reported membership dropped by 469,000, driven in large part by losses in ACA plans and Medicaid. Executives reported they are leaving the D.C. Medicaid program and eyeing additional exits in the next 18 months.

The changes also are hitting big hospital chains. HCA took a $400 million hit from patients dropping off ACA exchanges.

• Overall, the company said, changes in the ACA market will cost it $1 billion to $1.2 billion this year.

The big picture: Any rise in the uninsured rate will put more stress on the health system, squeezing providers and payers at the same time medical costs are rising.

• The companies are navigating fallout from Congress' refusal to extend enhanced ACA subsidies, which has led millions to drop marketplace coverage, and Medicaid cuts and first-time work requirements.
• But the tough environment extends beyond government insurance.

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Eli Lilly became the latest big drugmaker to bet on psychedelic therapies for depression, agreeing to buy mental health biotech AtaiBeckley yesterday in a deal worth up to $3.8 billion.

Why it matters: The Trump administration is promoting more research on psychedelics, and AbbVie signed its own big deal for an experimental treatment last year.

• Recent research indicates that treatment-resistant depression and other mental health conditions may be due to the brain's inability to form and strengthen connections in regions critical to mood regulation.
• The thinking is that psychedelics could help grow new neural connections, in contrast to antidepressants that primarily target levels of chemicals in the brain.

Driving the news: Lilly is acquiring an experimental psychedelic nasal spray from AtaiBeckley that the FDA designated a breakthrough therapy and is now in late-stage clinical trials.

• It and a second experimental treatment that comes in the form of an oral strip are based on dimethyltryptamine, or DMT, a potent hallucinogen.
• UBS analyst Michael Yee said the Lilly lead product could compete with Johnson & Johnson's Spravato ketamine treatment, as well as psilocybin-based psychedelics.

Lilly pioneered a new approach to depression with Prozac, which the FDA approved in 1987 and was the first in a class of psychiatric drugs called selective serotonin reuptake inhibitors.

🏛️ The Senate rejected a Democratic bid to repeal an AI-powered program introducing prior authorization requirements to fee-for-service Medicare. (Modern Healthcare)

💊 The FDA approved a new cholesterol pill from Merck that could provide an alternative to statins. (NYT)

💵 Kalshi is expanding in biotechnology by offering sports-style betting on the outcomes of clinical trials and regulatory decisions. (Bloomberg)