Who Decides Whether Medicaid Will Pay For The Services

Medicaid represents $one out of every $vi spent on health care in the U.S. and is the major source of financing for states to provide coverage of wellness and long-term care for low-income residents. Medicaid is administered by states inside broad federal rules and jointly funded by states and the federal government. Medicaid is a counter-cyclical program, meaning that more people become eligible and enroll during economical downturns; at the same time states may face declines in revenues making it difficult to fund the country share. The health and economical effects of the pandemic have meaning implications for Medicaid enrollment and financing. A companion data collection examines current fiscal and state revenue data to assist understand how various economical factors that affect Medicaid are changing. This brief examines the post-obit key questions about Medicaid financing:

How does Medicaid financing work?
How much does Medicaid cost and how are funds spent?
What is the role of Medicaid in federal and land budgets?
What are the implications of the pandemic on Medicaid and state budgets?

How does Medicaid financing piece of work?

Under electric current police force, Medicaid provides a guarantee to individuals eligible for services and to states for federal matching payments with no pre-set limit. Medicaid provides an entitlement to eligible individuals. The federal government matches state spending for eligible beneficiaries and qualifying services without a limit. The federal share for traditional Medicaid (including spending for children, parents and non-ACA expansion adults, elderly and people with disabilities) is determined by a formula gear up in statute that is based on a state's per capita income relative to other states. The formula is designed then that the federal government pays a larger share of programme costs in poorer states. Under the formula, the federal share (FMAP) varies past country from a flooring of fifty pct to a high of 78 percent for FY 2022 (Figure ane). States may receive higher FMAPs for certain services or populations. In 2019, the federal government paid 64 percent of total Medicaid costs with usa paying 36 percentage. As discussed in more detail later on, to provide financial relief to states and support Medicaid in response to the coronavirus pandemic, federal legislation authorized a temporary increase of half dozen.2 percentage points in the federal friction match rate for traditional Medicaid spending for states that meet certain maintenance of eligibility conditions.

Effigy 1: States with lower per capita incomes have a higher federal matching rate for Medicaid.

To participate in Medicaid and receive federal matching dollars, states must meet core federal requirements .States must provide sure mandatory benefits (e.g., hospital, doc, and nursing dwelling services) to cadre populations (east.thou., poor pregnant women and children) without imposing waiting lists or enrollment caps. States may also receive federal matching funds to cover "optional" services (e.g., developed dental care) or "optional" groups (east.g., elderly with high medical expenses). States besides have discretion to determine how to purchase covered services (east.g., through fee-for-service or capitated managed care arrangements) and to ready provider payment amounts. Based on program flexibility, spending per Medicaid enrollee varies significantly across states.

In that location are special match rates for the ACA expansion grouping, administration, and other services. While the standard FMAP applies to the vast bulk of Medicaid spending, there are a few exceptions that provide higher lucifer rates for specific populations and services including family planning, some new options to expand community long-term care services, and well-nigh notably people covered under the Affordable Care Human action (ACA). The ACA provided 100 per centum federal financing for those made newly eligible by the constabulary from 2014 to 2016 (with that match phasing downwardly to 90 percentage by 2020). The ACA originally required all states to implement the expansion of Medicaid to all people with incomes upward to 138 pct of the poverty level, but a decision by the Supreme Court effectively made it optional. In general, costs incurred past states in administering the Medicaid program are matched by the federal government at a 50 per centum rate. At that place are, however, some types of administrative functions that are matched at college rates such as eligibility and enrollment systems. Medicaid authoritative costs in general correspond a relatively small portion of total Medicaid spending (5 percent or less).¹

Medicaid as well provides "disproportionate share infirmary" (DSH) payments to hospitals that serve a large number of Medicaid and depression-income uninsured patients. ² DSH payments totaled $17.seven billion in FFY 2019. While states accept considerable discretion in determining the amount of DSH payments to each DSH hospital, federal DSH funds are capped for the land and likewise capped at the facility level. Based on the assumption of increased coverage and therefore reduced uncompensated intendance costs nether the ACA, the law chosen for a reduction in federal DSH allotments starting in FFY 2014. The cuts have been delayed several times and are currently set to have issue in FFY 2024.

Dissimilar in the l states and D.C., annual federal funding for Medicaid in the U.S. territories is subject to a statutory cap and stock-still matching charge per unit .Notwithstanding temporary relief funds, once a territory exhausts its capped federal funds, it no longer receives federal financial back up for its Medicaid plan during that financial year. This places boosted force per unit area on territory resource if Medicaid spending continues across the federal cap – making the effective lucifer charge per unit lower than what is set up in statute. Over time, Congress has provided increases in federal funds for the territories broadly and in response to specific emergency events. The allotments for each of the territories for FY 2020 and FY 2021 are approximately seven times the statutory levels as a issue of additional funding added in the FY 2020 appropriation packet and the Families Beginning Coronavirus Response Act (FFCRA). In addition to increased federal funding, the traditional territory FMAP of 55 per centum was increased to 82 percent for Puerto Rico and 89 pct for the other territories through FY 2021. Unless Congress acts, there will be a major financing cliff in at the terminate of FY 2021 for the territories.

How much does Medicaid cost and how are funds spent?

Capitated payments to Medicaid managed care organizations (MCOs) and for other Medicaid managed intendance (east.g., principal care example management (PCCM) arrangements) account for 49 percent of Medicaid spending. In FY 2019, Medicaid spending (not including administrative costs) totaled $604 billion. Managed care and wellness plans^three accounted for the largest share of Medicaid spending (49 percentage) (with the majority of that share (46 percent) representing payments to comprehensive MCOs), 23 percentage of Medicaid spending is for fee-for-service acute care, 21 percent for fee-for-service long-term care, 3 percent for DSH, and three percent for Medicaid spending for Medicare premiums and cost-sharing on behalf of dual eligible beneficiaries (Figure 2).

Figure 2: Payments to comprehensive MCOs account for almost half of total national Medicaid spending.

More one-half of all Medicaid spending for services is attributable to the elderly and persons with disabilities, who brand up one in five Medicaid enrollees (Figure 3). Dual eligible beneficiaries – who are enrolled in both Medicare and Medicaid — business relationship for almost 34 percent of all spending. Although only approximately 5.5 percent of enrollees utilize long term services and supports, these enrollees account for nearly one-third of all Medicaid spending on benefits.

Figure 3: Medicaid spending is mostly for the elderly and people with disabilities.

Medicaid enrollment and spending increases during recessions. Medicaid spending is driven by multiple factors, including the number and mix of enrollees, medical price inflation, utilization, and state policy choices about benefits, provider payment rates, and other program factors. During economic downturns, enrollment in Medicaid grows, increasing state Medicaid costs at the same time that state tax revenues are declining. Figure iv shows peaks in Medicaid spending and enrollment in 2002 and 2009 due to recessions. Enrollment and spending also increased significantly following implementation of the ACA but accept moderated in more contempo years. Prior to the coronavirus pandemic which emerged in 2020, slower caseload growth helped to mitigate Medicaid spending growth in recent years; even so, higher costs for prescription drugs, long-term services and supports and behavioral wellness services, also every bit state policy decisions to implement targeted provider rate increases were factors states accept recently cited as putting upwardly force per unit area on Medicaid spending.

Figure 4: Percent change in Medicaid spending and enrollment, country financial years 1998-2021.

Based on current flexibility in the Medicaid plan, there is considerable variation in per enrollee costs across eligibility groups and across states. Total spending per enrollee ranged from a low of $4,970 in South Carolina to $12,580 in North Dakota in FY 2019 (Figure 5). Spending for the elderly and individuals with disabilities may be three to four times greater than the spending for developed enrollees and more six times spending for an boilerplate kid covered by the programme. In addition, fifty-fifty within a given state and eligibility grouping, per enrollee costs may vary significantly, particularly for individuals with disabilities.

Figure v: Medicaid spending per full-benefit enrollee in FY 2019 varies across states.

Medicaid growth per enrollee has been lower than private health spending. Because states share in the financing of Medicaid and states must balance their budgets annually, there is an incentive to constrain Medicaid spending. States may seek to control costs past restricting payment rates, controlling prescription drug costs, limiting befits and through implementing payment and delivery system reforms. Medicaid per enrollee spending grew slower than Medicare, national wellness expenditures, and individual health insurance for all time periods from 2007 to 2016. From 2016 to 2019, while standing to grow slower than national wellness expenditures and private wellness insurance, Medicaid per enrollee spending grew slightly faster than Medicare (Figure 6).

Figure half dozen: Medicaid spending per-enrollee has increased slower than national wellness expenditures per capita and individual insurance per enrollee.

In FY 2019, spending for the ACA expansion group was $93.8 billion, with the federal regime paying $84.9 billion of this toll. Overall, the expansion group represents 16 pct of overall Medicaid spending and 20 per centum of Medicaid enrollment. For the new adult expansion group, the vast bulk of expenditures were paid for with federal funds (Figure 7). After receiving a 100 percent federal friction match rate for the expansion group for CYs 2014-2016, the federal share gradually phased down to ninety pct past January 2020.

Figure 7: Medicaid expansion spending accounts for 16% of overall spending and is primarily federal funds.

Prior to the pandemic, how did Medicaid relate to federal and country budgets?

Medicaid accounted for 7 percentage of all federal outlays in FY 2020, post-obit spending for Social Security, Income Security, and Medicare (Figure 8). Medicaid accounts for a smaller share of federal spending than Medicare because Medicaid program costs are shared by the federal government and the states. Federal outlays for FY 2020 include big increases for unemployment compensation, primarily as a event of legislation that increased the do good corporeality and the duration of the benefit every bit well as overall increases in claims due to the economic effects of the pandemic. Overall, federal outlays for income security increased from 7 percent in FY 2019 to 16 percent in FY 2020. Federal outlays for Medicaid decreased from 9 percent in FY 2019 to 7 percent in FY 2020.

Figure eight: Medicaid accounts for 7% of full federal outlays in FY2020.

Medicaid is not but a spending item but also the largest source of federal revenues for state budgets. As a result of the federal matching structure, Medicaid has a unique role in country budgets as both an expenditure detail and a source of federal revenue for states. Co-ordinate to information from the National Association of State Budget Officers (NASBO), in SFY 2019, when looking at land spending from state and federal funds, Medicaid deemed for 29 pct of full state spending for all items in the state budget, but 16 percent of all country full general and other fund spending, a afar second to spending on K-12 instruction (25 pct of state general and other fund spending). Medicaid is the largest single source of federal funds for states, bookkeeping for more than than half (58 pct) of all federal funds for states in FY 2019 (Figure 9). Due to the friction match rate, as spending increases during economical downturns, and so does federal funding. During the two economic downturns prior to the pandemic, Congress enacted legislation to temporarily increase the federal share of Medicaid spending to provide increased support for states to help fund Medicaid.

Effigy 9: Medicaid spending as a share of full, country, and federal funds, actual data FY 2019.

States can use provider taxes and IGTs (intergovernmental transfers) to help finance the state share of Medicaid. States have some flexibility to use funding from local governments or acquirement collected from provider taxes and fees to assist finance the state share of Medicaid. All states (except Alaska) take at least one provider tax in place and many states have more than three (Effigy 10).

Figure 10: All states simply Alaska have at least 1 provider tax and 2-thirds of states have three or more provider taxes.

In responding to ii major recessions prior to the pandemic, states adopted an array of policies to command Medicaid spending growth. During economical downturns, every bit Medicaid enrollment grows, states typically implement policies to restrict provider reimbursement rates and trim benefits. States may restore some restrictions when economic conditions improve. Overall Medicaid provider payment rates tend to exist lower than other payers. These lower payment rates have contributed to the programs relatively low costs. In addition, states accept implemented an array of strategies to command the costs of prescription drugs, and most states refine these policies each yr. To address long-term strategies of price command and coordinated care, many states have moved to implement a range of payment and delivery system reforms (such every bit alternative payment models or value-based payments) either using managed care organizations or other models.

Research shows that the influx of federal dollars from Medicaid spending has positive effects for state economies.Medicaid spending flows through a country's economy and can generate impacts greater than the original spending lonely. The infusion of federal dollars into the state'due south economy results in a multiplier effect, directly affecting non only the providers who received Medicaid payments for the services they provide to beneficiaries, just also indirectly affecting other businesses and industries likewise. More than contempo analyses find positive furnishings of the Medicaid expansion on multiple economic outcomes, despite Medicaid enrollment growth initially exceeding projections in many states. Studies show that states expanding Medicaid under the ACA have realized upkeep savings, revenue gains, and overall economic growth.

What is the effect of the pandemic on Medicaid spending?

The coronavirus pandemic has generated both a public health crunch and an economic crunch, with major implications for Medicaid, a countercyclical program. To help support states as Medicaid enrollment grows and ensure continuous coverage for enrollees, the FFCRA authorized a half-dozen.2 percentage bespeak increase in the federal match rate for states that meet certain "maintenance of eligibility" (MOE) requirements. The additional funds were retroactively available to states get-go January 1, 2020 and go along through the quarter in which the PHE period ends. While the current PHE announcement expires xc days from April 21, 2021, the Biden Administration has notified states that the PHE will likely remain in place throughout CY 2021 and that states volition receive sixty days-notice before the terminate of the PHE to allow states time to prepare for the stop of emergency government and the resumption of pre-PHE rules. Federal Medicaid outlays grew at a rate of 12 pct in FFY 2020 (over FFY 2019) compared to five.ii percent in FFY 2019 (over FFY 2018). This increase in the rate of almanac outlays was largely attributable to accelerated growth in the second half of the fiscal year reflecting the onset of the pandemic and the commencement of enhanced federal Medicaid funds in late March.

Subsequently relatively apartment Medicaid enrollment growth in FY 2020 (0.4 per centum), states responding to KFF'due south annual Medicaid Budget Survey conducted in June-August 2020 projected, on average, that Medicaid enrollment would increase 8.2 percent in FY 2021 (over FY 2020) and total spending would increment by 8.4 per centum. Preliminary national data bear witness that total Medicaid and CHIP enrollment grew to 78.nine 1000000 in November 2020, an increase of 7.seven million, or x.viii percent, from February 2020. This growth likely reflects both changes in the economy, every bit more people feel income and job loss and go eligible and enroll in Medicaid coverage, and the FFCRA MOE provisions that require states to ensure continuous coverage for current Medicaid enrollees through the end of the calendar month in which the PHE ends. This growth represents a reversal of recent Medicaid enrollment trends in 2016 through 2019, when the rate of total Medicaid and Fleck enrollment growth was declining or negative.

All states are experiencing fiscal stress tied to the pandemic, although individual state experiences vary.The bear on of the pandemic on states depends on a diversity of factors including the limerick of country economies, tax structures, virus transmission levels, and state responses, among other factors. For example, states that are more dependent on tourism and the energy sector have seen larger economic and land acquirement impacts. Overall, notwithstanding, state revenues declined in FY 2020, and greater declines are expected in FY 2021, resulting in the kickoff general fund spending decrease in enacted budgets in more ten years every bit states brand reductions to meet balanced budget requirements. While the state financial relief provided by FFCRA has undoubtedly helped states avert more astringent budget cuts, some states all the same face upkeep gaps that they must accost. While states oft plow to provider rate and do good restrictions to constrain Medicaid spending during economic downturns, these cost containment approaches may not exist as viable with providers facing revenue shortfalls and enrollees facing increased health risks due to the pandemic.

The American Rescue Plan Act , the COVID-xix relief package that became police force on March xi, 2021, contains a number of Medicaid-related provisions designed to increase coverage, aggrandize benefits, and adjust federal financing for land Medicaid programs. The constabulary provides an boosted temporary fiscal incentive to encourage states that have non however adopted the ACA Medicaid expansion to do so; a new option to extend Medicaid coverage for postpartum women from the current 60 days to a full yr for five years beginning April 1, 2022, and a 10 pct point increment in federal matching funds for Medicaid domicile and community-based services (HCBS) for ane year get-go on April 1, 2021. The law besides eliminates the cap on prescription drug rebates that manufacturers pay to Medicaid in exchange for coverage of their FDA-approved drugs on December 31, 2023, which is estimated to effect in federal savings of $14.five billion. Finally, the new constabulary provides $8.v billion in FY 2021 for provider relief fund payments related to COVID-19 to rural Medicaid, CHIP, and Medicare providers.

Looking Alee

Medicaid spending and enrollment trends will continue to depend on the trajectory of the pandemic and the economical downturn, as well equally the elapsing of the PHE and the furnishings of the American Rescue Program that became law on March 11, 2021. The temporary federal fiscal relief and continuous coverage requirements for Medicaid are tied to the elapsing of the PHE. The Biden Administration has notified states that the PHE will likely remain in place throughout CY 2021 and that states will receive 60 days-notice earlier the end of the PHE to permit states time to prepare for the end of emergency authorities and the resumption of pre-PHE rules. In add-on, the American Rescue Programme includes a number of Medicaid related provisions designed to increase coverage, expand benefits, and arrange federal financing for state Medicaid programs. The new law as well includes funds to help address the pandemic and provide additional fiscal relief to individuals and states.