Impact of the Recession on Medicaid

Impact of the Recession on Medicaid

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November 12, 2020
Impact of the Recession on Medicaid
Medicaid is a means -tested entitlement program that
(COVID-19) pandemic. From the onset of the recession
finances the delivery of primary and acute medical services
through July 2020, data from the Centers for Medicare &
as well as long-term services and supports. Medicaid is a
Medicaid Services show Medicaid enrollment increased
federal and state partnership that is jointly financed by both
6.7% nationally. Prior to the recession, Medicaid
the federal government and the states.
enrollment decreased 1.7% in 2019. The growth in
Medicaid enrollment varies by state from 2.5% to 14.9%,
The federal government’s share for most Medicaid
and one state (Montana) had an enrollment decrease of
expenditures is called the federal medical assistance
0.7% from February through June 2020. Figure 1 shows
percentage (FMAP). Generally determined annually, the
monthly Medicaid enrollment nationally from June 2017
FMAP formula is designed so that the federal government
through July 2020.
pays a larger portion of Medicaid costs in states with lower
per capita incomes relative to the national average (and vice
Figure 1. Monthly Medicaid Enrollment
versa for states with higher per capita incomes). Federal
June 2017-July 2020
Medicaid funding to states is open-ended.
Medicaid expenditures are influenced by economic,
demographic, and programmatic factors. Economic factors
include health care prices, unemployment rates, and
individuals’ wages. In addition, state-specific factors, such
as programmatic decisions and demographics, affect
Medicaid expenditures and cause Medicaid spending to
vary widely from state to state.
Countercyclical Program
Medicaid is a countercyclical program, and during periods
of economic downturn, s tate Medicaid programs face dual
pressures. First, program enrollment usually increases when

Source: Centers for Medicare & Medicaid Services, Medicaid and
job and income losses cause more people to become
CHIP Eligibility and Enrolment Performance Indicators, as of October
eligible for Medicaid. Second, states generally have more
30, 2020.
difficulty financing the state share of Medicaid
expenditures because state revenue growth tends to weaken
An analysis in Health Affairs, a health policy publication,
during economic downturns.
of state-level Medicaid enrollment data from March 1,
2020, through June 1, 2020, did not find a correlation
The Medicaid program can create a problem for state
between state-level Medicaid enrollment growth and job
budgets during economic downturns because Medicaid is
losses in the 26 states studied. However, the recession’s
one of the largest items in state budgets. When viewed
effects on Medicaid enrollment could lag job losses, for
nationally, Medicaid is the largest or second-largest item in
example, as individuals move off COBRA continuation
state budgets, depending on how it is measured. In terms of
coverage or resume utilizing health care services.
total state spending (i.e., funds from all state and federal
sources), according to the National Association of State
State tax collections tend to lag in a recession, yet states
Budget Officers’ (NASBO’s) State Expenditure Report,
already have experienced reductions in general fund
Medicaid was the largest budget item, at an estimated
revenues. According to NASBO, for SFY2020, which
28.9% of total state spending in state fiscal year (SFY)
ended on June 30, 2020 for most states, states experienced a
2019. However, Medicaid was the second-largest
6% shortfall in revenues compared with their revenue
component in terms of state general fund spending (i.e., the
estimates prepared before the recession. States experienced
portion that states must finance on their own through taxes
strong revenue growth for the first three quarters of
and other means). In SFY2019, Medicaid expenditures
SFY2020, but that growth was offset in the fourth quarter,
were an estimated 19.7% of state general fund spending,
when state revenues were negatively impacted by the
whereas elementary and secondary education spending was
recession. States expect revenue declines in SFY2021.
35.6%.
Estimates for SFY2021
Current Recession
According to a Kaiser Family Foundation (KFF) survey of
The National Bureau of Economic Research shows the
state Medicaid directors, the 43 responding states expect
United States entered the current recession in February
Medicaid enrollment to increase 8.2% nationally and
2020 following the start of the Coronavirus Disease 2019
Medicaid expenditures to increase 8.4% nationally in
SFY2021, which started on July 1, 2020, for most states.
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link to page 2 link to page 2 link to page 2 link to page 2 Impact of the Recession on Medicaid
States estimate increased Medicaid enrollment due to the
funding to states is already in place. Many states have
impact of the recession and the continuous coverage
indicated that past FMAP increases allowed the states to
requirement for the Families First Coronavirus Response
prevent further reductions to their Medicaid programs and
Act (FFCRA; P.L. 116-127) FMAP increase (see “Federal
other portions of their state budgets.
Assistance to States”). Increased enrollment was the
primary reason states provided for estimating increased
The federal government provided states with temporary
Medicaid expenditures for SFY2021.
FMAP rate increases to afford states fiscal relief on two
past occasions in response to (1) the 2001 recession,
According to the KFF survey, almost all responding states
through the Jobs and Growth Tax Relief Reconciliation Act
reported that the FFCRA FMAP increase has assisted with
of 2003 (P.L. 108-27), and (2) the Great Recession, through
the additional cost of the increased Medicaid enrollment. A
the American Recovery and Reinvestment Act of 2009
number of states also mentioned that the FMAP increase
(P.L. 111-5, as amended by P.L. 111-126).
prevented state action to reduce provider rates or cut
benefits.
Most recently, the FFCRA added a temporary Medicaid
FMAP increase of 6.2 percentage points beginning January
Potential State Budget Reductions
1, 2020, and continuing through the last day of the calendar
Even with the FFCRA FMAP increase, s ome states are
quarter in which the COVID-19 PHE period ends. Under
developing budget reduction plans that could impact
the current PHE declaration, the FFCRA FMAP increase is
Medicaid programs. Usually, states’ options for reducing
in place through March 31, 2021.
Medicaid expenditures include no longer covering optional
benefits or populations, reducing provider rates, or
To receive this increased FMAP rate, states, the District of
imposing Medicaid provider taxes. During the current
Columbia (DC), and the territories are required to (1)
recession, a couple of these options are more difficult than
ensure their Medicaid “eligibility standards, methodologies,
they have been in the past. Reducing Medicaid provider
and procedures” are no more restrictive than those that were
rates has been an option states have favored in the past,
in effect on January 1, 2020; (2) not impose premiums
because the reduction does not directly affect Medicaid
exceeding the amounts in place as of January 1, 2020; (3)
enrollees and the savings from provider rate reductions
provide continuous coverage of Medicaid enrollees during
impact the state budget relatively quickly. However, during
the COVID-19 PHE period; and (4) provide coverage
the pandemic, some Medicaid providers, such as physicians
(without the imposition of cost sharing) for testing services
or clinics, have experienced revenue losses due to lower
and treatments for COVID-19 (including vaccines,
utilization of services (e.g. preventive services), as other
specialized equipment, and therapies). States, DC, and the
providers, such as certain hospitals and nursing homes,
territories also cannot require local governments to fund a
have experienced increased costs during the pandemic.
larger percentage of a state’s nonfederal Medicaid
Reductions to Medicaid provider rates might put additional
expenditures for the Medicaid state plan or Medicaid
financial stress on both sets of providers.
disproportionate share hospital (DSH) payments than what
was required on March 11, 2020. (See CRS Report R46346,
In addition, two conditions of receiving the FFCRA FMAP
Medicaid Recession-Related FMAP Increases.)
increase of 6.2 percentage points (see “Federal Assistance
to States”) hinder states’ ability to achieve budget savings
Additional Federal Assistance
through changes to Medicaid eligibility. First, states are
A number of state organizations have requested Congress
required to ensure their Medicaid “eligibility standards,
further increase the FMAP rate from 6.2 percentage points
methodologies, and procedures” are no more restrictive
to 12 percentage points until at least September 30, 2021.
than those that were in effect on January 1, 2020. Second,
After that, states are asking for the FMAP increase to stay
states are required to keep Medicaid enrollees continuously
at 12 percentage points until the national unemployment
enrolled in the Medicaid program through the public health
rate falls below 5%.
emergency (PHE) period, even if they experience increases
in income that otherwise would make them lose eligibility.
The Heroes Act (H.R. 6800) and a revised version of the
Heroes Act (H.R. 925) include a provision that would
Since the federal government reimburses states for a portion
provide a 14-percentage-point increase to Medicaid FMAP
Medicaid expenditures, when states reduce the state
rates for FY2021 and, if the COVID-19 PHE continues
spending on Medicaid expenditures in response to revenue
after September 30, 2021, the FMAP increase would return
losses, they also reduce the federal funding for Medicaid
to 6.2 percentage points through the PHE period. The
expenditures. In FY2021, while states are receiving the
House of Representatives passed H.R. 6800 on May 15,
FFCRA FMAP increase of 6.2 percentage points, each $1
2020, and H.R. 925 on October 1, 2020. A bill to provide
reduction in a state’s Medicaid expenditures would reduce
COVID-19 relief (S. 4800) that includes the same FMAP
the federal Medicaid expenditures by $1.28 to $5.23,
provision as H.R. 6800 and H.R. 925 was introduced in the
depending on the state’s FMAP rate.
Senate on October 29, 2020.
Federal Assistance to States
Alison Mitchell, Specialist in Health Care Financing
The federal government sometimes provides fiscal relief to
states during recessions through adjustments to the FMAP
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rate because this process for getting federal Medicaid

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Impact of the Recession on Medicaid

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