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An economic downturn will increase enrollment—and strain state budgets.
Whether COVID-19 is going to tip the American economy into a long-lasting, full-fledged downturn is still uncertain. The economy contracted at a record rate during the second quarter, and the number of Americans receiving unemployment started to climb again in July.
Of course the state of the economy and job loss is going to affect health insurance coverage and may tip the balance toward public payers. Going into this year, enrollment in Medicaid was flat, mainly because of the strong jobs market. But the Kaiser Family Foundation (KFF) reported in late July that enrollment in Medicaid managed care started to climb in March in 16 states reporting enrollment data and that the median growth rate between March and May was 4.7%.
An earlier KFF report said that as many as 27 million Americans might have lost employer-based health insurance because of COVID-19 — and that was before July when cases, hospitalizations and deaths started to increase, waylaying hopes that the pandemic’s grip on the economy would loosen. The foundation’s experts estimated that about 80% of the newly uninsured would be eligible for publicly subsidized coverage of some kind, either Medicaid or an ACA exchange plan that would come with subsidies that will lower premium costs. The ACA may be supplying a health insurance safety net, but that still leaves 5.4 million Americans vulnerable to having no health insurance if the KFF projections hold up.
“The problem of inequities in insurance coverage always existed, but it took the pandemic to bring it to light,” says Daniel Wikler, Ph.D., a professor at the Harvard T.H. Chan School of Public Health.
Among the newly uninsured, almost half, or 12.7 million, are eligible for Medicaid and another 8.4 million are eligible for ACA subsidies in the marketplace, according to the KFF estimates. For others, coverage options include switching to a family member’s plan, Medicare or COBRA.
Barring extension of unemployment benefits, the KFF report predicted that by the beginning of next year nearly 17 million more Americans will be eligible for Medicaid and roughly 6 million for an ACA exchange plan. The report also predicted that a growing number of Americans will fall into the coverage gap, making too much to qualify for Medicaid but not enough to receive ACA subsidies.
According to a KFF health tracking poll in May, 31% of the households that have lost income because of COVID-19 said it is very or somewhat likely that they will turn to Medicaid for health insurance coverage in the next year.
John Baackes, CEO of L.A. Care Health Plan, the largest publicly operated health plan in the country, is daunted by the fact that 1 in 3 Californians were covered by Medi-Cal, the state’s Medicaid program, before the COVID-19 pandemic. When an economic downturn occurs and revenues flowing into state government coffers slacken, cuts to Medicaid tend to follow, threatening safety net providers. “This is putting a lot of providers out of business, leaving a hole in the safety net,” says Baackes. California state officials contemplated some deep cuts to Medi-Cal programs to help patch a $54 billion deficit in the the state’s 2020-21 budget, but eventually deals were struck that found the money elsewhere and Medi-Cal escaped relatively unscathed.
One thing that concerns Baackes is the 45- to 60-day waiting period once someone who is unemployed applies for Medicaid — because eligibility is determined by county social services, not by individual plans. L.A. Care and 26 other plans are standing behind a ruling for presumptive eligibility — immediate access to healthcare while applying for regular Medicaid or other health coverage — especially in the face of COVID-19. If it is determined later that members didn’t quality for coverage, those members would lose eligibility and coverage by plans like L.A.Care.
Margaret Murray, CEO of the Association for Community Affiliated Plans and a member of the Managed Healthcare Executive® editorial advisory board, says surveys of the association’s membership, which includes 76 health plans sponsored by community health centers and other safety net providers, show that they expect their enrollment to grow by 5% to 10% because of the COVID-19 pandemic, which would higher than the median growth rate reported by Kaiser. However. Murray says it is too soon to tell whether reality is going to match up to those expectations, partlybecause of the lag between when people get enrolled in Medicaid and membership in managed care health plan.
Murray’s group announced in June that it was launching a six-figure campaign on Google designed to direct people to healthcare.gov, the website for ACA exchange plans and Medicaid information, when they search on terms like unemployment and health insurance. “We would certainly encourage the administration to be more vocal that Medicaid is out there,” says Murray, adding that her group has also been concerned that the enrollment period for the ACA exchange plans was not extended.
Like for-profit insurers, Murray’s members saw a precipitous drop utilization this spring and therefore a decline in their medical expenditures. Partly out of concern about maintaining provider network, health plans have “tried to get money out to their providers as opposed to giving it back to the states,” says Murray (if their medical-loss ratios get too low, Medicaid managed care must return funds to the states they contract with). The plans have gotten money to providers by loosening their prior authorization rules, moving some providers to capitation payment and awarding quality bonus money in advance, according to Murray.
The role of Medicaid
“Medicaid is the biggest public health responder to the pandemic, making it especially amenable to changes states need to put in place during (the COVID-19 pandemic). All features make it the go-to program today,” said Sara Rosenbaum during a webinar series co-sponsored by The Commonwealth Fund. Rosenbaum is a professor at Milken School of Public Health at George Washington University.
She said that as a “matter of policy,” flexibility is Medicaid’s primary attribute because despite some administrative issues, it has no special enrollment period; people can enroll at point of care or when they need coverage, and the federal government can send money out the door when needed.
“Changes can be made rapidly,” Rosenbaum said, making it “much less cumbersome than in the commercial marketplace.”
“Medicaid’s retainer payment policy is the fastest way to transfer funds and allows states — once they address the formula issue — to rapidly draw down funds at an enhanced rate of payment versus a grant program for healthcare providers,” she said.
An expensive program
Medicaid, however, is also one of the largest, if not the largest, budget item for states. Its countercyclical nature — spending and enrollment typically rise during economic downturns when revenues drop — a dilemma for state budget officials.
“States have limited options to reduce spending,” says Robin Rudowitz, vice president at KFF and co-director for the Program on Medicaid and the Uninsured. “In prior downturns, states have turned to provider rate cuts and maybe restricting optional benefits, but given provider fiscal stress, these are not easy options. States cannot restrict eligibility as a condition for receipt of the additional Federal Medical Assistance Percentage (FMAP).”
The FMAP is computed from a formula that takes into account the average per capita income for each state relative to the national average (poorer states have a higher match). By law, the FMAP cannot be less than 50% and is currently 90% for expansion states.
“Because of the match, states need to make bigger program cuts and lose federal aid to save state dollars,” she says. Medicaid is funded from both federal and state funds, so states need to make substantial cuts to Medicaid to generate state savings. For example, if a state has a 50% match rate, a $100 cut to Medicaid will reduce state spending by $50 and federal spending by $50.
Enrollment and expenditures
Medicaid enrollment between 2020 and 2021 is expected to grow from 76.7 million to 77.6 million. From 2018 to 2027, the total number of Medicaid enrollees is projected to increase about 1.1% per year. Expenditures will rise from $672.5 billion to $709.2 billion between 2020 and 2021. The average federal share is 62%. However, these estimates were made prior to the pandemic.
Total Medicaid expenditures (federal and state combined) for benefits and administration are projected to top $1 trillion by 2027, while federal spending on Medicaid is projected to reach $624.8 billion that year, according to CMS. The largest expenditures are for capitation payments and premiums.
Baackes says his plan has 2.1 million covered lives and is seeing more people applying for CalFresh, California’s food stamp program, than for Medicaid. However, he anticipates that enrollment in L.A. Care will increase incrementally by 10% to 12% over the next several months due to the current recession.
According to a KFF poll of 38 responding states, nearly all those with enrollment projections and more than half with spending projections anticipate 2020 growth rates to exceed pre-pandemic estimates. Nearly all states with FY 2021 projections in enrollment and spending expect growth rates to exceed FY 2020.
The beginning of FY 2020 painted a very different picture: States anticipated flat enrollment growth due in part to changes in renewal processes and new functionality of upgraded eligibility systems.
Mari Edlin is a freelance journalist living in Sonoma, California.