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Medicaid Enrollment & Spending Growth: FY 2022 & 2023

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Key Takeaways

Since March 2020, the COVID-19 pandemic and its economic impact have had significant implications for Medicaid spending and enrollment. To provide broad fiscal relief to states while preventing coverage losses during the pandemic, Congress passed the Families First Coronavirus Response Act (FFCRA) early in the pandemic to provide a 6.2 percentage point increase in the federal Medicaid match rate (“FMAP”) for states that meet certain “maintenance of eligibility” (MOE) requirements, including a continuous enrollment requirement. These provisions have driven Medicaid enrollment to record highs and contributed to declines in the uninsured rate. Medicaid spending has also increased, though KFF estimates show the fiscal relief from the enhanced FMAP met or exceeded the state costs of the additional enrollment through federal fiscal year (FFY) 2022 in every state.

This brief analyzes Medicaid enrollment and spending trends for state fiscal year (FY) 2022 and FY 2023 (which for most states began on July 1), based on data provided by state Medicaid directors as part of the 22nd annual survey of Medicaid directors in states and the District of Columbia. Forty-nine states responded to the 2022 survey, although response rates for specific questions varied.

When the public health emergency (PHE) expires, the enhanced FMAP will continue through the end of the quarter and states must meet MOE requirements through the end of the month. Most responding state Medicaid agencies had assumed that the fiscal relief and continuous enrollment requirement would end by December 31, 2022 (including one-third of states that anticipated the continuous enrollment requirement would end October 31, 2022). The PHE, however, was recently extended to mid-January 2023, somewhat delaying the anticipated effects described in this brief. The methodology used to calculate enrollment and spending growth and additional information about Medicaid financing can be found at the end of the brief. Key survey findings include the following:

Enrollment growth: Following a sharp increase the previous year, responding state Medicaid agencies reported that Medicaid enrollment growth slowed in FY 2022 (to 8.4%) and is projected to decline (-0.4%) in FY 2023, based largely on the assumption that the PHE and the related MOE requirements would end by mid-FY 2023. Even larger enrollment declines are expected in the future as Medicaid renewals resume over a period of time.

Football Highlights

Spending growth: State Medicaid agencies expect total Medicaid spending (including both federal and state funds) to reach a peak growth rate of 12.5% in FY 2022 and slow to 4.2% in FY 2023. States identified enrollment growth as the primary driver of FY 2022 expenditure growth and assume slower enrollment growth will result in a lower total spending growth rate in FY 2023. States reported that the state (nonfederal) share of Medicaid spending grew by 9.9% in FY 2022 but projected a sharper growth rate of 16.3% in FY 2023 based on the assumption that the fiscal relief would expire by mid–FY 2023, shifting the state and federal spending shares even though total Medicaid spending growth is expected to slow.

While state economic conditions have improved and COVID-19 vaccines and boosters are broadly available, uncertainty remains about booster take-up and the trajectory of the pandemic. State officials responsible for the unwinding of the continuous enrollment requirement and for overall state budgeting also face planning and operational challenges due to the uncertainty of the PHE duration. At the time of this brief, the PHE is due to expire in mid-January 2023 but could be extended further. In keeping with the Biden administration’s pledge to provide states with 60 days-notice before the expiration of the PHE, if there is no notice by mid-November the PHE could be extended beyond January. If the PHE is extended, state spending increases and enrollment decreases that states anticipated for FY 2023 could occur later. Also, the longer the PHE lasts, states will continue to receive enhanced federal fiscal relief through the increased Medicaid match rate if they comply with the continuous enrollment requirements.

Context

Following declines from 2017 through 2019, total Medicaid and CHIP enrollment nationwide began to grow following the onset of the COVID-19 pandemic. Between February 2020 and June 2022, enrollment grew to 89.4 million, an increase of 18.2 million or 25.6%. Many factors have likely contributed to Medicaid enrollment growth during the pandemic, including the MOE continuous enrollment requirement, which kept people enrolled in the program irrespective of changes in income and halted churn, as well as other economic factors. Total Medicaid spending exceeded $728 billion in FY 2021, with 31% financed by states and 69% paid by the federal government – a somewhat higher federal share than in recent years due to the FFCRA enhanced FMAP that became available as of January 2020. Overall, Medicaid accounts for nearly one in six dollars spent in the health care system and over half of spending on long-term services and supports.

State economic conditions worsened rapidly when the pandemic hit in March 2020 but recovered quickly compared to past recessions. Following the onset of the pandemic, the unemployment rate soared to a peak of 14.7% in April 2020 as unemployment claims spiked. National economic indicators steadily improved in the ensuing months, and by July 2022 the 22 million jobs lost during the pandemic had been recovered and the national unemployment rate had fallen to its pre-pandemic rate of 3.5%. State revenues followed a similar pattern, with revenues generally declining early in the pandemic but rebounding quickly and then exceeding pre-pandemic revenue levels. The quick rebound was due, in part, to unprecedented amounts of federal aid, increased tax collections on purchased goods, and a strong stock market. Despite strong revenues overall, the speed of recovery has varied by state depending on state characteristics such as tax structure and industry reliance, and some states’ cumulative tax revenues remain below pre-COVID growth projections.

Improving state economic conditions as well as federal fiscal relief mitigated the need for the widespread state spending cuts that occurred in prior recessions. Due to stronger than expected state revenue gains, many states experienced surpluses in FY 2021 and FY 2022, and states took the opportunity to build reserves and pay down debts, enact tax cuts, and make additional investments, such as training programs or salary increases to address workforce challenges. State general fund spending grew by an estimated 13.6% in FY 2022, the largest annual growth rate since 1981, and 49 states found general fund revenues exceeded original projections. Further, state rainy-day funds reached record highs, increasing by 62% in FY 2021 with further increases projected for FY 2022.

State revenue growth is expected to slow in FY 2023 and states’ longer-term fiscal outlooks remain uncertain. Recent economic turmoil, including rising inflation, the Russian invasion of Ukraine, supply chain issues, and declining labor force participation rates, along with tapering federal fiscal relief, makes the state budget projection process challenging. Further, the real gross domestic product (GDP) declined in the first two quarters of 2022 which some indicate could signal a looming recession. State revenues, however, remain strong and are projected to continue to grow in FY 2023 but at a slower rate than in recent years. According to governors’ proposed budgets for FY 2023, states expect general fund spending to increase by 4.2% in FY 2023 (compared to 13.6% for FY 2022).

Key Findings

Trends in Enrollment Growth FY 2022 and FY 2023

After peaking in FY 2021, Medicaid enrollment growth slowed in FY 2022 and is expected to decline in FY 2023, reflecting state Medicaid agencies’ assumptions about the end of the MOE continuous enrollment requirement (Figure 1). After peaking in FY 2015 due to the implementation of the ACA, Medicaid enrollment growth tapered thereafter and actually declined in FY 2018 and FY 2019. Enrollment remained relatively flat in FY 2020, likely due to improving economic conditions and restrictions permitted under the Trump Administration. Enrollment then rose sharply, however, in FY 2021 (11.2%) and continued to grow, though more slowly, in FY 2022 (8.4%). In FY 2023, enrollment is projected to decline slightly (-0.4%) due to assumptions related to the duration of the PHE and related MOE requirements. States must meet MOE requirements through the end of the month in which the PHE ends, and most responding states assumed the MOE would end by mid-FY 2023 when producing the projections reported here, including almost one-third that anticipated an October 31, 2022, end date and nearly another third that anticipated a December 31, 2022, end date. These assumptions reflect enrollment growth projections over the entire fiscal year so could account for enrollment growth for the first part of the year and then gradual enrollment declines for the second part of the year once the MOE ends. The net effect yields national projections of relatively flat enrollment growth for FY 2023, though there was considerable variation across states. Following the end of the MOE, states will have 12 months to initiate redeterminations for all current enrollees. As redeterminations resume over time, individuals may lose Medicaid coverage if they are no longer eligible or are unable to navigate administrative barriers despite remaining eligible.

State Medicaid agencies largely attributed enrollment changes to the FFCRA’s MOE requirements. Almost all responding states reported that the MOE continuous enrollment requirement was the most significant factor driving FY 2022 enrollment growth. About one half of responding states reported that the MOE would continue to put upward pressure on enrollment growth for FY 2023, though many assumed that this upward pressure would end part way through the year. At the same time, over three-quarters of states identified the unwinding of the PHE and MOE requirements as the most significant downward pressure in FY 2023. Some states also cited improving economic conditions as a downward pressure on enrollment in FY 2022, and other states reported state population growth and expanded eligibility as upward pressures across both years. The vast majority of states reported implementing or planning to implement eligibility policy changes in either FY 2022 or FY 2023 (or both), with postpartum coverage extensions the most commonly reported eligibility policy change.

Trends in Spending Growth FY 2022 and FY 2023

Following the onset of the pandemic, the total Medicaid spending growth rate increased and is expected to peak at 12.5% in FY 2022 and slow to 4.2% in FY 2023 (Figure 1). High enrollment growth rates, tied first to the Great Recession and later to ACA implementation, were the primary drivers of total Medicaid spending growth over the last decade. Following ACA implementation but prior to the pandemic, declining or slowing enrollment growth resulted in more moderate spending growth. Spending growth increased sharply when the pandemic began in FY 2020 and continued to increase in FY 2021.

State Medicaid agencies reported enrollment changes as the most significant factor driving changes in total Medicaid spending. The rate of total spending growth continued to increase in FY 2022, with almost all states reporting enrollment growth as the most significant upward pressure. For FY 2023, the total spending growth rate is projected to slow, and the majority of states point to declines in enrollment at the end of the MOE as the main driver. However, about half of states cited enrollment as an upward pressure at least for part of the year, with some noting they expect enrollment levels to remain high as they take the maximum allotted time to process renewals following the end of the PHE.

Reporting state Medicaid agencies identified a number of factors beyond enrollment that were driving total spending growth. For FY 2022, almost one-third of states noted managed care and/or provider rate increases were putting upward pressure on spending. A few states reported increased utilization driven by a return to pre-pandemic levels or by pent up demand from pandemic-related delays in care were also contributing to spending growth, though a few states reported decreased utilization (thought to be still pandemic-related). While a few states reported declines in nursing home spending as a downward pressure for FY 2022, states also reported increases in expenditures for home and community-based services (HCBS) as upward pressures. Last year’s survey found that while most states saw declines in nursing facility utilization, a majority of states noted the decreased utilization was partially or fully offset by increased HCBS utilization. For FY 2023, states reported upward spending pressure coming from provider rate or cost increases, rising inflation, and HCBS spending.

Assumptions about the duration of the PHE and the expiration of the enhanced FMAP affected state Medicaid spending growth assumptions (Figure 2). The state share of Medicaid spending typically grows at a similar rate as total Medicaid spending growth unless there is a change in the FMAP rate. During the Great Recession, state spending for Medicaid declined in FY 2009 and FY 2010 due to fiscal relief from a temporary FMAP increase provided in the American Recovery and Reinvestment Act (ARRA). State spending increased sharply when that fiscal relief ended.

This pattern has repeated during the pandemic-induced economic downturn, with state Medicaid spending declining in FY 2020 and FY 2021, increasing but at a slower rate than total spending in FY 2022, and then projected to increase sharply in FY 2023 (surpassing total Medicaid spending) due to assumptions about the expiration of the FFCRA fiscal relief. The enhanced FMAP was available retroactively to states beginning January 1, 2020 and will continue through the quarter in which the PHE ends. Almost two-thirds of responding states assumed the enhanced FMAP would end December 31, 2022, though nearly one-third assumed an earlier end date.

The spike in state spending growth expected in FY 2023 reflects these assumptions. The recent PHE extension to mid-January 2023, however, extends the enhanced FMAP through at least March 2023, delaying the state spending increase that most states reported in the survey. When asked about how another PHE extension would impact spending and enrollment projections, most states reported they would expect enrollment growth to continue to increase total Medicaid spending projections and that the expected increase in state Medicaid spending would be delayed.

The vast majority of state Medicaid agencies at the time of the survey did not anticipate state revenue shortfalls or Medicaid budget cuts. About half of the states, however, did note uncertainty in their state’s longer term fiscal outlook due to economic factors such as rising inflation and costs of medical care, supply chain issues, workforce challenges, and the possibility of another recession. State responses also highlighted the importance of the enhanced FMAP to offset costs related to increased enrollment levels; however, a few states raised concerns that, following the end of the PHE, the enhanced FMAP would expire while enrollment remains elevated as states take the maximum allotted time to process renewals. In last year’s survey, nearly all responding states reported using the federal fiscal relief provided by the FFCRA enhanced FMAP to support costs related to increased Medicaid enrollment and to avert Medicaid budget shortfalls.

Looking Ahead

While state fiscal conditions have vastly improved since the pandemic began, recent economic developments have raised concerns and heightened uncertainty. Almost all states have adopted budgets for FY 2023 (which started July 1 in most states) that generally assumed strong revenue projections. However, states are beginning to contend with new challenges due to rising inflation, workforce shortages, and a slowing economy. How these issues will impact future state budgeting is uncertain. Medicaid plays a significant role in state budgets as both a spending and revenue source and has played a key role in the COVID-19 response and recovery across states. Unlike the federal government, states must meet balanced budget requirements, so dealing with macroeconomic uncertainties make it difficult for states to develop broader revenue and spending projections.

The PHE end date also remains uncertain and will have significant implications for Medicaid enrollment and spending. When the PHE and MOE requirements end, states will begin processing redeterminations and renewals, likely leading to enrollment declines and decreased total Medicaid spending growth. The end of the PHE, however, will also lead to the expiration of the enhanced FMAP. This will require increased state spending to replace the expiring federal funds. States will likely face pressure to contain growth in state spending after the enhanced FMAP ends. At the same time, states may need to overcome systems and staffing challenges to ensure eligible individuals remain enrolled or transition to other coverage sources. While changes in Medicaid enrollment and spending are an inevitable consequence of the end of the PHE and will likely vary by state, initial KFF estimates found millions could lose Medicaid coverage.

Definition of Medicaid Spending. Total Medicaid spending includes all payments to Medicaid providers for Medicaid-covered services provided to enrolled Medicaid beneficiaries. Medicaid spending also includes special disproportionate share hospital (DSH) payments that subsidize uncompensated hospital care for persons who are uninsured and unreimbursed costs of care for persons on Medicaid. Total Medicaid spending does not include Medicaid administrative costs and federally mandated state “Clawback” payments to help finance the Medicare Part D prescription drug benefit for Medicaid beneficiaries who are also enrolled in Medicare. States are also asked to exclude costs for the Children’s Health Insurance Program (CHIP). Total Medicaid spending includes payments financed from all sources, including state funds, local contributions, and federal matching funds. Historical state Medicaid spending refers to all nonfederal spending, which may include local funds and provider taxes and fees as well as state general fund dollars.

Methodology. KFF commissioned Health Management Associates (HMA) to survey Medicaid directors in all 50 states and DC to identify and track trends in Medicaid spending, enrollment, and policymaking. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis. This is the 22nd annual survey, conducted at the beginning of each state fiscal year from FY 2002 through FY 2023. The KFF/HMA Medicaid survey for this report was sent to each Medicaid director in June 2022. Forty-nine states provided survey responses by October 2022. The two states that did not respond by this time are Arkansas and Georgia.

For FY 2022 and FY 2023, annual rates of growth for Medicaid spending were calculated as weighted averages across all states. For FY 2022 and FY 2023, 49 states reported Medicaid expenditure growth rates. Weights for spending were derived from the most recent state Medicaid expenditure data for FY 2021, based on estimates prepared for KFF by the Urban Institute using CMS Form 64 reports, adjusted for state fiscal years. These CMS-64 data were also used for historic Medicaid spending and include all 50 states and DC. For FY 2018 and 2019, spending for New York was adjusted to reflect unexplained anomalies in the state spending on the CMS-64 data.

The average annual Medicaid enrollment growth rate for FY 2023 was calculated using weights based on Medicaid and CHIP preliminary monthly enrollment data for June 2022 published by CMS. For FY 2023, 46 states reported Medicaid enrollment growth rates. The data reported for FY 2022 and FY 2023 for Medicaid spending and FY 2023 for Medicaid enrollment are weighted averages, and therefore, data reported for states with larger enrollment and spending have a greater effect on the national average.

Historical enrollment trend data for FY 1998 to FY 2013 reflects the annual percentage change from June to June of monthly enrollment data for Medicaid beneficiaries collected from all states and DC. Enrollment trend data for FY 2014 to FY 2022 reflects growth in average monthly enrollment based on KFF analysis of the Medicaid & CHIP Monthly Applications, Eligibility Determinations, and Enrollment Reports from CMS for all 50 states and DC. Note that several states have revised monthly enrollment data as far back as June 2017 to better align with reporting criteria for the CMS, Medicaid & CHIP Monthly Applications, Eligibility Determinations, and Enrollment Reports. Data for months prior to June 2017 have not been revised and may use slightly different criteria for reporting monthly enrollment and generally result in larger enrollment totals.

Appendix

Medicaid Financing Structure. The federal government jointly funds the Medicaid program with states by matching qualifying state Medicaid expenditures. The federal match rate (known as the Federal Medical Assistance percentage, or “FMAP”) is calculated annually for each state using a statutory formula based on a state’s average personal income relative to the national average which results in higher FMAP rates for poorer states. The FMAP formula relies on three years of lagged personal income data, so data for federal fiscal years (FFYs) 2018 to 2020 was used to calculate FFY 2023 FMAP rates, which range from a floor of 50% (applicable to 12 states) to a high of 78% (for Mississippi). Because of the federal matching structure, Medicaid is both a state budget expenditure item and a source of federal revenue for states. In FY 2020 (the latest year of actual data), Medicaid accounted for 28.3% of total state spending, but 15.6% of state funds (general fund plus other state funds), a far second to spending on K-12 education (25.2% of state funds). Medicaid is the largest single source of federal funds for states, accounting for over half (53.2%) of all federal funds received by states (Figure 3).

Medicaid and the Economy. Medicaid is a countercyclical program. During economic downturns, more people qualify and enroll in Medicaid, increasing program spending at the same time that state tax revenues may be stagnating or falling. Prior to the current pandemic, to mitigate these budget pressures, Congress had twice passed temporary FMAP increases to help support states during economic downturns, most recently in 2009 as part of the American Recovery and Reinvestment Act (ARRA). However, the COVID-19 recession has differed from the Great Recession in a number of ways, including the overall scale of the federal fiscal relief, the passage of the ACA, and a continuous enrollment requirement tied to the FMAP increase.

Medicaid and the ACA. Effective January 1, 2014, the ACA expanded Medicaid eligibility to millions of non-elderly adults with income at or below 138% of the federal poverty level (FPL) –$18,754 per year for an individual in 2022. The law also provided 100% federal funding for expansion adults through 2016, phasing down to 90% in 2020 and future years. The June 2012 Supreme Court ruling on the ACA effectively made the Medicaid expansion optional for states; as of October 2022, 39 states (including DC) had adopted the expansion, including Missouri and Oklahoma, which adopted the expansion through ballot measures and implemented in state fiscal year 2022.

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