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COVID-19 and Medicaid: The Perfect Storm

Wednesday, June 24, 2020

The COVID-19 pandemic presents complex challenges for the US health care system and social safety net programs. In our latest blog post series, IMPAQ experts bring you timely updates and informed insights on the intersection of COVID-19 and pressing policy issues.

The economic impact of COVID-19 will have enormous implications for individuals who rely on Medicaid—the nation’s largest public health care program, serving over 70 million people—and for the states that operate Medicaid programs. The pandemic is likely to cause a wave of increased demand for health care generally, and among Medicaid beneficiaries in particular, many of whom already have disproportionately high rates of chronic conditions, behavioral health issues, and long-term care needs. At the same time, states will struggle with the administrative and financial impact of new enrollees whose health care needs may outstrip the available supply of providers and state budgets.

The national attention to COVID-19 has focused on managing the immediate clinical and public health impacts of the disease (e.g., expanding hospital capacity, implementing public health measures, accelerating vaccine and treatment research) and implementing public policy designed to ameliorate the immediate economic impact of the outbreak (e.g., expanding unemployment benefits, providing bridge capital, authorizing rent and mortgage forgiveness). In this post, we discuss the need to begin focusing on secondary, perhaps more sweeping, public health and economic impacts of the pandemic on state and local governments. In particular, we focus on the coming financial crisis arising from the increased demand for health care coverage and services, especially through Medicaid.

The First Wave of the Storm: Medicaid Enrollment Swells

From a coverage perspective, the nation’s current economic distress is likely to push Medicaid enrollment beyond state budget projections for 2020 and 2021. As businesses shutter and contract, many people who are already economically vulnerable are seeing jobs and health benefits disappear. As of May 23, 40 million Americans had applied for unemployment benefits since mid-March, when states began to issue stay-at-home orders in response to COVID-19. For individuals and families whose incomes were cut off by the pandemic, including those who may have had employer-sponsored health insurance, Medicaid will be one of the only programs available to meet their health care needs. One estimate projects that 5 to 18 million people will enroll in Medicaid by the end of 2020, with a large share of new enrollment happening in states that did not expand Medicaid under the Affordable Care Act.

One estimate projects that 5 to 18 million people will enroll in Medicaid by the end of 2020.

Part of the increase can be attributed to the economic downturn itself; more people are eligible and enrolling because the crisis has pushed them into poverty or led to a loss of employer sponsored coverage. Another part of the increase is attributable to requirements of the Families First Coronavirus Response Act, which generally requires states to maintain Medicaid eligibility requirements during the public health emergency in order to receive the enhanced federal assistance authorized by the statute.

The Second Wave: Pent-up Health Care Demand

At the same time that Medicaid enrollment is increasing, the health care needs of the Medicaid population—for both new and existing enrollees—will intensify. Numerous articles have highlighted the physical and mental toll the pandemic has taken on low-income populations. Job losses, isolation, misinformation, and fear of contracting the virus have severely affected low-income and racial minority populations, exacerbating existing conditions and limiting patients’ ability to seek care. A new analysis from the CDC suggests that people are staying away from the hospital and forgoing necessary care. Providers and advocates have warned about the especially large impact that the pandemic will have on those with mental health and substance use disorders, areas of health care in which Medicaid already struggles to meet demand.

The financial impact of this increased intensity and demand is unknown, but it is almost certain to push costs up beyond states’ original projections. While insurers, public and private, have seen cost growth slow during the pandemic, costs are nearly guaranteed to increase to pre-pandemic levels as beneficiaries and providers address care needs that were put off during the emergency. “Cost pressures will be driven by both demand/utilization and by cost, as new COVID requirements to ensure safety put upward pressure on provider operating costs,” according to Stephanie Jordan Brown, former Acting Chief of Behavioral Health for Massachusetts Medicaid and current independent consultant in Newton, Massachusetts. “Medicaid plans and state regulators will need to address not only enrollment growth, but also underlying rate adequacy at a time when budgets are tightest.”

The Third Wave: State Medicaid Revenues Will Contract and Flexibility is Limited 

As Medicaid enrollment expands, state revenues—which finance a large portion of Medicaid—are falling due to business closures, reduced tax revenue, and delays in tax receipts. According to an estimate from the Center on Budget and Policy Priorities (CBPP), the 2020 shortfall could be as great as 10 percent and the 2021 shortfall could grow to 25 percent. In states that are required to balance their budgets, addressing shortfalls of this magnitude, either by reducing benefits or services or increasing taxes, is a significant challenge over such a short period. This task is exacerbated by the fact that the single largest state expense is usually healthcare, and is largely driven by Medicaid, which, if cut, would only make the effects of the pandemic worse.   

One estimate projects that 5 to 18 million people will enroll in Medicaid by the end of 2020.

States that expanded Medicaid under the Affordable Care Act or the Families First Act receive a generous match, which they will lose if they seek to scale back their Medicaid benefits or eligibility. However, the vast majority of federal emergency funding has not gone directly to state Medicaid programs. Health care-related funding authorized under the CARES Act has gone largely to hospitals, state and local public health departments, and providers serving Medicare patients. In April, the National Association of Medicaid Directors pleaded with CMS to make additional “retainer” payments to keep Medicaid providers afloat during the pandemic.

CMS has since authorized $25 billion in funding for Medicaid and safety net providers: $15 billion to eligible Medicaid and CHIP providers that have not received a payment from the Provider Relief Fund General Allocation and $10 billion to safety net hospitals. The distribution comes more than two months after passage of the Act and the initial distribution of relief funds is only a fraction of total available funding, even though Medicaid is the single greatest source of health insurance coverage in the country. 

Adding to state uncertainty around funding and flexibility is the lack of consensus at the federal level about the need for state relief beyond what has already been authorized. CMS supported an initial round of funding for states, hospitals and providers, and provided emergency demonstration waivers to nearly every state to help their programs better address the impacts of COVID-19. At the same time, it is unclear what, if any, permanent flexibility and funding Congress or the Administration would support for states. 

One estimate projects that 5 to 18 million people will enroll in Medicaid by the end of 2020.

These factors combine to create the perfect storm for the Medicaid System

Looking Forward: How to Weather the Storm

Addressing the challenges facing the Medicaid program will require concerted action from lawmakers, federal and state administrators, advocates, and the research community. Complicating the discussion is the uncertainty surrounding federal support for state relief, either in the form of enhanced financial resources or program flexibility. 

As researchers, we should work with the federal government and states to support much-needed policy research and learning systems. This includes access and provider capacity, the impact of social isolation on mental illness and substance use disorders, the effects of insurance coverage on care and treatment of COVID and COVID-related issues, and the rate and financing stabilization in Medicaid. IMPAQ Health Medicaid experts are ready to assist CMS, states, and other stakeholders to help navigate these troubled waters.

To speak with IMPAQ experts about our work supporting Medicaid, contact us. To receive future posts in this COVID-19 blog series, subscribe to IMPAQ Health News.

Authors:
 

Timothy Hill, MPA, Senior Vice President, IMPAQ Health
Mr. Hill is a former 25-year senior-level career official with the Centers for Medicaid and Medicaid Services. Prior to joining IMPAQ, Mr. Hill was the Deputy Director for the Center for Medicaid and CHIP Services.

 

Melissa Hafner, MPP, Principal Research Associate, IMPAQ Health
Ms. Hafner is an expert in Medicaid managed care quality and compliance, and currently leads several Medicaid-related contracts at IMPAQ. Her other areas of expertise include value-based care and program implementation.