Emerging Trend: State Budgets and Medicaid Funding

As Medicaid programs begin to budget and plan for the end of the COVID-19 public health emergency (PHE), states need to navigate multiple moving parts — including redetermining Medicaid program eligibility for all Medicaid beneficiaries.

Many individuals will continue to be enrolled in the Medicaid program after the PHE, but a significant portion is at risk of losing their eligibility during their state’s redetermination period. This could create a significant shift in coverage, and many states are beginning to plan how they will transition these individuals into other types of coverage. The Health Insurance Marketplace (also known as Exchange) will be an important piece of this transition. States are actively considering how to work with their managed care organizations to facilitate the transition of coverage.

States begin to consider Medicaid eligibility redeterminations

In August 2021, the Biden Administration released processing, eligibility and redetermination guidance for states, which established that states have up to 12 months after the PHE ends to complete their redetermination process and remove individuals from enrollment who are no longer eligible. As a result, we anticipate some states will use the full 12-month timeframe and keep people covered under Medicaid for as long as possible, while others will quickly process redeterminations given the looming end of the enhanced federal medical assistance percentage (FMAP) and the corresponding budgetary impact.

While we still do not know when the PHE will end, the administration’s guidance established that they intend to extend it, at a minimum, through the end of 2021. Given the continued spread of the Delta variant and rise in infection rates, hospitalizations and deaths, it remains unclear how long, or how far beyond 2021, the administration plans to extend the PHE.

The administration also announced that it will give states notice in advance of the PHE ending to help with redetermination preparations and for the shift in enrollment. Following the PHE, states will have four months to resume their standard application processing timelines. This new guidance should allow states the time they need to process determinations at an appropriate rate based on their unique needs and dynamics. This additional flexibility, coupled by the enhanced consumer protections, will also likely result in a more gradual adjustment period as we move out of the PHE.

COVID-19 implications make it difficult for states to budget

State Medicaid programs, and the staff and teams that support them, were heavily impacted by the pandemic — and the uncertainty of when the PHE will end has made it challenging for states to budget for 2022 and 2023. While states received enhanced funding through the FMAP during the PHE, they also experienced a huge growth in their Medicaid program due to maintenance of eligibility (MOE) requirements, which created new demands and pressure. With multiple waivers and flexibilities built into their Medicaid programs, changes in utilization patterns, a backlog in the number of eligibility determinations that need to be processed, and new ways to access services, states now face multiple considerations as they anticipate a large shift in enrollment numbers.

States will also have to account for implications of the PHE when budgeting for the future of public programs like Medicaid. We don’t know the long-term challenges of caring for people who contracted COVID-19 or long-term COVID (Post-Acute Sequelae of SARS CoV-2 infection, PASC), the financial implications of administering the COVID-19 vaccine, or how many doses an individual will need to receive to stay healthy. While certain adaptions like telehealth have created ways to deliver more cost-effective care, it will likely take 3 to 5 years of data to determine the true impact of the pandemic on health care costs. Pent-up demand for care will resurface when the PHE is lifted and deferred care likely means an uptick in later-stage diagnosis, resulting in poorer outcomes and greater treatment costs.

High Medicaid enrollment creates opportunity to improve population health

Because states have such a large portion of their potentially eligible population covered at this time, it has created an opportunity to promote well-child visits and immunizations — especially now that so many families have missed or delayed appointments because of COVID-19. Providing this critical care now could help with care capacity and program budgeting in the future. More importantly, getting individuals and families back into regular routine preventative care patterns supports the necessary identification and treatment that improve outcomes.

States should also be thinking about how their quality programs have been impacted by the PHE, and how much will need to be adjusted moving forward to meet their metrics. Some states have already done this by adjusting their quality programs to reflect the burden to providers and the changes in ability for individuals to receive care in person.

By preparing now for these upcoming changes, states can create plans that will align with the needs of their communities while ensuring that coverage and care are sustainable for all.

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