Health Reform WK-EDGE How the COVID-19 recession could affect health insurance coverage
Monday, May 11, 2020

How the COVID-19 recession could affect health insurance coverage

By Jeffrey H. Brochin, J.D.

With estimates of U.S. unemployment due to the Covid-19 pandemic ranging from 15 percent to 20 percent, 25 million to 43 million Americans could lose their Employer-Sponsored Health Insurance (ESI).

The nonprofit Urban Institute’s Health Policy Center has conducted a study aimed at estimating the impact of the Covid-19 recession on health insurance coverage, and has determined that, although several variables will affect the actual impact at the federal and state level, a rise to 20 percent unemployment will result in 25 million people losing their ESI coverage. The study also estimates how Medicaid expansion states and non-expansion states will deal with gap health insurance coverage.

Near-term unemployment forecasts. Thirty million American workers filed initial unemployment claims between March 15 and April 25, 2020, and near-term forecasts suggest the unemployment rate will likely be between 15 to 20 percent by June, with Standard & Poors economic forecasters predicting that the unemployment rate will reach 18 percent in May, and one estimate by the Federal Reserve Bank of St. Louis suggesting that the unemployment rate could reach as high as 30 percent. To put this in perspective, the pre-pandemic unemployment rate in the U.S. was 3.5 percent, and the unemployment rate during the Great Depression peaked at 25 percent in 1933.

Gauging ESI loss. The study’s authors noted that an estimated 160 million people under age 65 had ESI coverage before March 2020, and that if the unemployment rate rises to 20 percent, they estimate that 25 million people will lose their ESI coverage in their base scenario, and that 43 million would lose ESI coverage in their scenario based on a higher estimate of responsiveness to unemployment rate changes. Many of those workers will newly qualify for Medicaid coverage, particularly in states that expanded Medicaid eligibility under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), others will purchase individual coverage on the health insurance marketplaces, possibly with a subsidy to offset the premium cost (depending on their income), and some will be unable to replace their ESI coverage and will become uninsured.

Methodology using ACS. The authors estimated changes in health insurance coverage for the United States and each state in three steps. First, they obtained estimates of the labor force situation in each state before March 2020, when the COVID-19 crisis started leading to large increases in unemployment in the U.S.; then, used econometric estimates of how ESI rates change with the unemployment rate (estimates in the base scenario being from individual-level regression models using American Community Survey (ACS) data from 2008–18; and they computed the number of adults and children in each state expected to lose ESI if the state’s unemployment rate were to rise to 15, 20, or 25 percent. In the last step, given the estimated number losing ESI in each state, they estimated the number of adults and children likely to enroll in Medicaid, obtain marketplace or other private coverage, or become uninsured. Throughout the analysis, they excluded adults ages 65 or older because they are generally eligible for Medicare coverage.

Expansion states versus non-expansion states. In expansions states, under the base scenario, among people losing ESI, more than half (about 9 million under a 20 percent unemployment rate) are expected to enroll in Medicaid and less than a quarter (nearly 4 million) are expected to become uninsured. In the high scenario with 20 percent unemployment, the estimate is that more than 15 million will enroll in Medicaid and more than 6 million will become uninsured.

However, in non-expansion states, under our base scenario, among those losing their ESI coverage, about one-third (3 million under a 20 percent unemployment rate) are expected to gain Medicaid coverage while about 40 percent (3.5 million) are expected to become uninsured. In the high scenario with 20 percent unemployment, they estimate that more than 5 million will enroll in Medicaid and nearly 6 million will become uninsured. All unemployment scenarios indicate that millions of people under age 65 will lose ESI coverage throughout the country. States that have not expanded Medicaid under the ACA will see larger shares of those losing ESI coverage becoming uninsured.

Impact of expanded Medicaid under the ACA. The authors cited two examples of states where Medicaid expansion was adopted or not adopted: In California, which expanded Medicaid under the ACA, they estimated that more than 3 million people will lose ESI under a 20 percent unemployment rate. More than half of people losing ESI would gain Medicaid coverage (1.7 million), about 724,000 would obtain marketplace or other private coverage, and 649,000 would become uninsured. In Texas, which has not expanded Medicaid, they estimated that nearly 2.3 million people would lose ESI coverage if the state’s unemployment rate reaches 20 percent, of which about half (1.2 million) would become uninsured.

Proposed policy recommendations. Proposed policy recommendations such as temporary or permanent Medicaid expansions, expanding eligibility for subsidies for marketplace coverage, and providing subsidies for COBRA benefits could help mitigate the rise in un-insurance driven by the pandemic’s effects on the economy. Moreover, the study’s findings indicate that more than half of people estimated to lose ESI coverage in Medicaid expansion states will gain Medicaid coverage, that being the purpose of the Medicaid program, to provide a safety net to people in financial distress, including those with short-term changes in circumstances.

However, given that jobless rates may reach unprecedented heights under the COVID-19 pandemic, steep increases in Medicaid coverage will strain state budgets, restricting already limited resources in the very communities hardest hit by the crisis. To help blunt this, current legislation has already enhanced the federal matching rate for Medicaid financing, but further increasing the federal matching rate could help provide the critical resources needed to protect the states most in need.

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