Health Reform WK-EDGE Coronavirus has major implications for Medicaid in FY 2020 & 2021
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Thursday, October 29, 2020

Coronavirus has major implications for Medicaid in FY 2020 & 2021

By Sherri M. Schroeder, J.D.

Pandemic and temporary federal match rate increases drives Medicaid and spending trends as fiscal year 2020 ends and 2021 begins.

A recent issue brief by the Kaiser Family Foundation (KFF) analyzing Medicaid enrollment and spending trends for fiscal year (FY) 2020 and FY 2021 shows that the coronavirus pandemic is having a significant effect on enrollment and spending. Since Medicaid is a countercyclical program, as the economy takes a downturn, like what is happening during the pandemic, more people qualify and enroll in Medicaid, increasing program spending at the same time that state tax revenues may be falling. The brief, based on KFF’s survey of Medicaid directors in all 50 states and the District of Columbia with 43 states responding, shows that the concern in the responding states is serious. While enhanced federal relief supports Medicaid and provides broad fiscal relief to states, the issue brief’s authors note that it is unlikely to fully offset state revenue declines and fully address state budget shortfalls.

Background. According to the brief’s authors, Medicaid and CHIP provided coverage to about one in five Americans (approximately 73.5 million people) as of May 2020. Total Medicaid spending for FY 2019 was $604 billion, with 64.4 percent paid by the federal government and 35.6 percent by the states. Medicaid accounts for more than half of spending on long-term services and supports and accounts for one in six dollars spent in the health care system. State fiscal conditions were strong in FY 2020 before the pandemic—unemployment was low, revenues were expected to grow, and state general fund spending was on track to grow by 5.8 percent. State governors developed their budgets based on these strengths. The pandemic, however, resulted in a significant reversal in state fiscal condition. Some estimates show state budget shortfalls of up to $110 billion for FY 2020 and up to $290 billion for FY 2021. Early reports also show state revenue declines of up to 15 percent in FY 2020 and up to 30 percent for FY 2021 compared to pre-pandemic estimates of state revenue totals of $913 billion for FY 2020 and $944 billion for FY 2021.

Enrollment jump in FY 2021. After a relatively flat enrollment growth rate of 0.04 percent in FY 2020, states report an expected enrollment jump to 8.2 percent in FY 2021. This jump is attributed, along with the economic downturn, to the maintenance of eligibility requirements contained in the Families First Coronavirus Response Act (FFCRA), which authorized a 6.2 percentage point increase in the federal match rate (FMAP) for states that meet certain maintenance of eligibility requirements.

Medicaid spending growth. All reporting states are anticipating that total Medicaid growth will accelerate to 8.4 percent in FY 2021 compared to FY 2020’s 6.3 percent. The primary factor identified as putting upward pressure on expenditure growth is a high rate of enrollment. Additional upward pressure is supplied by spending on long-term services and supports and provider rate changes. Utilization is also a factor for about three-quarters of states.

No clear picture due to expiration of federal funding. The enhanced FMAP provided under the FFCRA was made retroactive to January 1, 2020, which was halfway through most state fiscal years, and was set to expire at the end of the quarter in which the public health emergency (the coronavirus pandemic) ends. On October 2, 2020, the emergency was extended from October 23, 2020, to January 21, 2021, leaving the enhanced FMAP in place through March of 2021. However, most states adopted their FY 2021 budgets prior to that extension, expecting the emergency would end by December 2020 or before. Based on the December date, states estimated that their Medicaid spending would decline in FY 2020 by 0.5 percent and then sharply increase by 12.2 percent in FY 2021. "The anticipated expiration of the enhanced FMAP in 2020 along with overall increases in base Medicaid spending expected in FY 2021 resulted in a spike in projected state spending," note the authors.

Use of federal relief. Approximately two-thirds of reporting states say federal fiscal relief is being used to mitigate provider rates and/or benefit cuts, while nearly all states indicate that the relief is being used to help address Medicaid or general budget shortfalls and to support costs related to increased Medicaid enrollment. In other previous economic downturns, states turned to provider rate and benefit restrictions to reduce Medicaid spending. As providers are now facing revenue shortfalls and enrollees are facing increased health risks due to the pandemic, these cost-control methods may not be as viable as in other years. In addition, previous recessions show that state spending increased sharply when temporary increases in the FMAP ended.

Looking ahead. A number of factors are seen to be affecting Medicaid enrollment and spending growth for FY 2021, making the future unsure. The outcome of November’s presidential election will have a significant effect, as goals for Medicaid and the Affordable Care Act differ greatly between the candidates. The outcome of state elections will also have an effect. In addition, it is unclear if the pandemic emergency will extend beyond January 21, 2021, which could mean an extension of the enhanced federal funding. States have called for, and the House has passed, legislation to increase the amount and durations of this federal fiscal relief, but the Senate has not considered these provisions to date.

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