As the COVID-19 pandemic continues to challenge local economies and healthcare systems across the country, the Medicaid program is expected to see significant growth. With Medicaid enrollment surges, states will be faced with important decisions regarding program eligibility and benefits, annual budgets, and the trajectory of ongoing program and reform initiatives—making for a complex, and state-specific outlook.

Avalere offers a few observations across 10 key drivers as healthcare stakeholders anticipate what’s next in Medicaid.

1. Economic disruption will lead to significant Medicaid enrollment growth, with high rates of churn.

The pause on economic activity and surge in unemployment across the US will cause millions to lose their employer-sponsored health insurance coverage. While some may find affordable coverage on the exchanges and others may remain uninsured, Medicaid is expected to see the largest enrollment increase of all markets. Notably, there will be substantial “churn” across coverage sources as income shifts and individuals move between employment status. This could particularly impact individuals receiving unemployment compensation. Given that base unemployment compensation is countable income for determining Medicaid eligibility, some individuals may not initially qualify for Medicaid but move into Medicaid once their unemployment compensation ends. Multiple changes in coverage can create care disruptions and pose logistical challenges for states, health plans, and patients.

2. States face mounting financial pressure and budget deficits with uncertain federal assistance.

States are experiencing unprecedented financial strain due to rising Medicaid enrollment, the costs of COVID-19 testing and treatment, and lower state tax revenues due to economic shutdowns. Though Congress has approved some financial support (e.g., temporary increase in Federal Medical Assistance Percentage [FMAP]), the timing and level of additional federal support remains uncertain. The budgetary impact and the extent to which federal funding mitigates deficits will be highly variable across states based on each state’s prevalence and severity of COVID-19, types of industries and jobs, Medicaid eligibility parameters, and budgetary status before the pandemic. Many states will likely seek to identify near-term sources of savings within their programs, such as cuts to managed care capitation rates. Longer term, states may consider eligibility restrictions, provider rate reductions, or broader programmatic reforms to manage spending more efficiently or predictably, such as leveraging managed care (e.g., transitioning long-term supports and services into managed care).

3. Paused legislative sessions inhibit swift state response.

Most state legislatures have either suspended their legislative sessions or adjourned earlier than originally scheduled. While some states intend to resume sessions this spring or summer, many may be pushed further back as the pandemic evolves and guidance continues to encourage social distancing. As a result, some states will be unable to finish their respective state legislative sessions, finalize state-wide budgets, and enact timely healthcare policies and critical funding measures.

4. Key waiver flexibilities and enhanced funding are slated to expire at the end of the public health emergency.

The federal government has offered states wide-ranging flexibilities to pursue changes to Medicaid within the context of the public health emergency period, including through state plan amendments and Section 1115, 1135, and 1915(c) waivers. Most states have implemented a combination of these programmatic changes to expand access to COVID-19 testing and treatment, reduce cost sharing and premiums, suspend prior authorization requirements, and expand provider access via telehealth. In addition, the Families First Coronavirus Response Act provides eligible states with a temporary 6.2% increase in FMAP to offset additional costs. However, most of these changes are slated to expire at the end of the public health emergency period. While that end date is unknown, it raises questions of whether some flexibilities could and should be extended, or which other avenues states may pursue following the emergency period. Extension of emergency funding is not unprecedented—in response to the 2008 recession, Congress enacted a time-limited FMAP increase from October 2008 through December 2010, which was eventually extended for another 6 months.

5. Shifts in service utilization affect Medicaid managed care.

Utilization of medical care has been greatly affected by the pandemic, with an influx of COVID-19-related services and significant declines in non-urgent appointments and procedures. A dramatic shift in service utilization across this year and next may not be accounted for in Medicaid managed care organization (MCO) capitation rates. For states working though contracting with new MCOs, these dynamics could be particularly complex.

6. Providers’ long-term outlook is in question—particularly for some providers commonly serving Medicaid beneficiaries.

Given the drastic decline in use of non-urgent medical services, many providers’ solvency is uncertain. Providers who largely serve Medicaid populations—such as behavioral health providers and those in rural areas—are especially vulnerable. The CMS has requested provider-level Medicaid payment information from states, which could signal future federal relief targeted at Medicaid-focused providers. If providers close, this could exacerbate access challenges for Medicaid beneficiaries and for states and MCOs creating provider networks.

7. The Medicaid expansion outlook is shifting.

Some states that have not taken up the Affordable Care Act Medicaid eligibility expansion have considered expanding during the duration of the emergency or expanding coverage for COVID-19-related services to uninsured individuals. With growing attention on access to medical care, states that have not yet expanded are also under increased stakeholder pressure to consider expansion as a long-term policy. As part of these decisions, states must consider the financial and economic impacts of covering a larger group of eligible individuals, and so may opt to couple eligibility expansion with cost-saving reforms, such as block grant or per capita cap approaches (e.g., a Healthy Adult Opportunity [HAO] demonstration). Groups in some states (e.g., Missouri, Oklahoma) have continued with ballot initiatives on Medicaid expansion slated for later this year.

8. States are taking varied approaches to previously planned reforms.

Though some states are proceeding with planned waiver requests for reforms unrelated to COVID-19 (e.g., Oklahoma’s HAO waiver to use a per capita cap financing approach), other states are delaying reform efforts (e.g., California’s CalAIM payment and delivery reform initiative). The trajectory of future reforms—including the implementation of managed care, changes to drug management, and benefit changes—will likely be shaped by long-term enrollment shifts and funding concerns.

9. Medicaid beneficiaries—particularly children—will need to catch up on preventive services.

Due to the pandemic, Medicaid beneficiaries are not receiving standard preventive medical care, such as vaccination and wellness visits, as they typically would. Though states and health plans have taken efforts to ensure beneficiaries can receive needed care through telehealth and other modalities, there will still be a backlog of missed preventive care. For traditional Medicaid adults, this could exacerbate existing gaps in preventive services coverage. While children in Medicaid are entitled to immunizations under the Vaccines for Children program, COVID-19 will likely continue to impact pediatric visits and routine childhood vaccination. States and health plans will need to consider whether they need to undertake creative efforts to ensure that beneficiaries receive this care.

10. Trajectory of national and local economic recovery will shape long-term Medicaid outlook.

Significant uncertainty remains around how long the pandemic itself and the ensuing economic impacts will persist. The trajectory of recovery over the coming weeks and months will influence the long-term, state-by-state enrollment growth, the size of budget deficits, and key decisions that states make with regard to their Medicaid programs. Avalere anticipates the enrollment shifts due to COVID-19, including growth in Medicaid, will persist for years following the pandemic period.

To learn more about Avalere’s work related to Medicaid and COVID-19, connect with us.

Check out our  COVID-19 Intel Center.