The COVID-19 pandemic has put a massive dent in the US economy. Since early March, more than 36 million Americans have filed for unemployment — that’s over 17 percent of the working age population and the worst unemployment rate since the Great Depression. Even as some states begin to reopen, nearly 27 million people risk losing employer-sponsored health insurance (ESI) and becoming uninsured. Some of these people may have access to alternative coverage through a partner or spouse, and an estimated three-quarters are eligible for subsidized coverage through the Affordable Care Act marketplaces or Medicaid. Rising unemployment and loss of ESI could mean many Americans turning to Medicaid for health coverage, with recent estimates suggesting that Medicaid enrollment might increase by 5-18 million in the coming months.
- Why is Medicaid enrollment an important economic indicator? Medicaid enrollment and the strength of the economy are countercyclical: when the economy is not as strong, Medicaid enrollment tends to increase. In some ways, Medicaid enrollment is like a barometer for economic health.
- Is Medicaid enrollment increasing? Both expansion and non-expansion states are starting to report Medicaid enrollment increases. For example, New Mexico reported that 40 percent of the state’s population is now covered by Medicaid after enrollment increased by two percent (20,000 people) since February. Similarly, states are starting to project how much enrollment could increase. Florida and Ohio, for example, are estimating enrollment surges in the hundreds of thousands.
- Why is Medicaid enrollment increasing? In addition to unemployment increases and/or loss of ESI, the Families First Coronavirus Response Act increased states’ Federal Medical Assistance Percentage (FMAP) by 6.2 percentage points to quickly infuse more federal funds into states’ budgets. In order to receive the increased FMAP, states must meet maintenance of effort (MOE) conditions, including one stipulating that states must “provide continuous eligibility through the month the public health emergency ends.” States must suspend eligibility redeterminations, cannot limit eligibility, or change beneficiary cost-sharing policies while the public health emergency is in effect. In other words, new people are enrolling and fewer people are disenrolling.
- What does this mean for state budgets? States are facing significant budget shortfalls due to the pandemic’s impact on the economy (business closures, reduced tax revenue, delays in tax receipts, etc.) and a looming economic recession. To meet balanced-budget requirements, some states may look to reduce Medicaid spending — given that Medicaid accounts for a substantial portion of state budgets. However, common policies that states typically use to reduce Medicaid spending, such as eliminating optional benefits or restricting eligibility, are currently limited by the MOE criteria linked to the temporary FMAP increase in the Families First Act. Additionally, since Medicaid is jointly financed by states and the federal government, Medicaid budget cuts could adversely affect federal funds to states. Every $1 of state spending cut from the Medicaid budget also means at least a $1 reduction in federal dollars in the budget (if not more, depending on the state).
- What other options do states have? States could explore other Medicaid policy levers to alleviate the drain on state budgets, such as reducing allowable profit margins for managed care organizations, projecting savings from decreased utilization in fee-for-service programs, instituting provider taxes, and/or reducing provider and MCO rates. However, many Medicaid providers are financially strained, which may impact states’ decisions to implement provider taxes or reduce rates. Given this challenge, organizations like the National Governor’s Association have called on the federal government to provide an additional FMAP increase to offer more financial support to states and alleviate budget pressures.
- What’s the bottom line? Unemployment is continuing to rise and the economy is declining more sharply compared to the Great Recession of 2008. Over the coming months, Medicaid will be at the center of state policy strategies to lessen the impact of the pandemic on individuals’ health coverage, keep safety net providers afloat, and balance state budgets. These factors, coupled with the MOE requirements means that there will likely be unprecedented demand for Medicaid coverage and states will have few options available to substantially reduce Medicaid spending. Medicaid programs will be challenged to simultaneously provide coverage to more people, support safety net provider financial viability, and manage an unpredictable health care budget, while also contributing to budget reduction efforts at the state level.
What Else is Worth Watching?
- State Budget Basics: Interested in understanding the state budgeting process? The National Association of State Budget Officers recently published a helpful overview of state budgeting during an economic downturn.
- Looking to the Horizon: Telemedicine and Addiction Services: The COVID-19 pandemic is prompting tremendous advances in telemedicine and impacting services that historically have been delivered in-person, including addiction treatment services. Addiction stakeholders are now questioning whether these changes will continue once the public emergency subsides or continue in some other fashion.
- Health Disparities in the Wake of a Pandemic: COVID-19 has both amplified and exacerbated disparities in health outcomes in communities across the nation. Kaiser Family Foundation recently published a report examining this issue.