The impact of COVID-19 on state budgets is expected to affect a range of vulnerable populations covered by Medicaid, including young children in low-income families. COVID-19 “lockdown” restrictions have created obstacles impeding vital services for this population, including well-child visits, home visiting, and early intervention. Simultaneously, state and local revenue shortfalls could threaten Medicaid budgets, including for young children and their families.

Increasing alignment between Medicaid and early childhood programs can help maximize program and service impact, particularly when resources are limited. Yet, opportunities to align these programs may be taking a back seat in the current environment. This blog post explores the potential fiscal impact of the COVID-19 pandemic on Medicaid and early childhood services and offers opportunities to sustain critical services. It draws from the experiences of states participating in Aligning Early Childhood and Medicaid, a national initiative led by the Center for Health Care Strategies with support from the Robert Wood Johnson Foundation.

Impending Budget Cuts in Response to COVID-19

While Medicaid is on the frontlines of the COVID-19 public health emergency, the program must continue to provide essential services to over 35 million children across the nation. That care includes ensuring that children receive timely well-child visits and immunizations. But Medicaid agencies are challenged by the economic fallout of COVID-19. When state revenues fall, Medicaid spending must be reduced to balance state budgets. Yet, since March 2020, nearly 50 million people have filed for unemployment, which will cause Medicaid enrollment to increase.

Compared to the 2008 recession, Medicaid directors expect this economic downturn to be more difficult — they must respond to a pandemic and fragile health care system at the same time they are confronting budget shortfalls and cuts. Medicaid programs have fewer policy levers available today to address budget shortfalls than they did during the 2008 recession. The Families First Coronavirus Response Act prohibits states from reducing eligibility or optional services during the public health emergency as a condition of receiving 6.2 percent in additional federal matching funds for Medicaid. This maintenance of effort requirement prevents states from using two of its key levers to trim budgets, i.e., eligibility and optional services. One of the main levers that remains is provider rate reductions. While taking this step may address Medicaid’s budget constraints, doing so directly impacts provider revenue and can lead to closures or limits in the use of essential early childhood services.

Impact of Budget Constraints on Early Childhood Services

The COVID-19 pandemic has significant financial implications for the future of many critical early childhood services that receive state funding, such as pediatric primary care, child care, and early intervention services. Substantial reductions in funds may force many of these programs to close. With fewer providers, there will be even greater access challenges for children and families with social needs and low incomes.

Perhaps most troubling for the long term is that there have already been significant reductions in pediatric primary care encounters, immunizations, developmental screenings, and well-child visits as a result of COVID-19. Medicaid-enrolled children, in particular, are showing a significant decline in well-child visits, which translates to declines in vaccination rates, as COVID-19 is having a disparate impact on families with low incomes. Well-child visits also provide an opportunity for families to be referred to resources that address social needs, including intimate partner violence, substance use disorder, food insecurity, and lack of transportation. HealthySteps, an enhanced pediatric program, has seen an increase in referrals for basic needs, like food and baby formula, as many families lose their employment. In the current economic crisis, connections to social services are more important than ever.

Further, the pandemic has significantly impacted the child care system. An insufficient public investment in the child care system made it particularly vulnerable even before the current crisis. Unlike K-12 education, which is mostly funded through public tax dollars, the cost of child care largely falls on families. Child care providers, most of which are small businesses, may be forced to close permanently as many of the families they serve are losing work and unable to pay for their services. Some 40 percent of child-care providers that existed pre-pandemic expect to close permanently unless they get additional public assistance soon, according to a survey of more than 5,000 child-care providers.

Early intervention is another system being severely disrupted by the COVID-19 pandemic. Funding for early intervention programs and services is a mix of local, state, and federal funds, with each state having the discretion to determine eligibility.  As states deal with the economic fallout of COVID-19, state funding for early intervention programs could be cut significantly, and eligibility guidelines may be revised, making fewer children eligible for these critical services. Many states are still in the process of budget adjustments for the current fiscal year and next year’s budget. Some states have passed provisional budgets but final decisions regarding reductions are ongoing and will most likely impact these services.

How Alignment Can Support Early Childhood Services During COVID-19

Upstream investments in prevention are critical for young children and their families. Cuts to these programs triggered by the COVID-19 environment will have lasting downstream implications. Aligning priorities between Medicaid and early childhood agencies can help achieve joint goals, especially in these challenging times. Below are several examples of ways early childhood agencies and Medicaid can work together:

  • Identify shared priorities and opportunities for budget efficiencies that can enable the continuation of core services;
  • Explore opportunities for alternative payment models that can provide funding flexibility and create efficiencies;
  • Be realistic and acknowledge that new services and spending will likely need to be put on hold; and
  • Keep building relationships across health care, early childhood, and social services — this work can continue even when budgets are tight.

Maintaining access to affordable health care and dependable early childhood services is critical to ensuring the overall well-being of young children and their families during the COVID-19 crisis and into the future.

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