Medicaid and COVID-19: At the Center of Both Health and Economic Crises

Nearly 3 months into the coronavirus disease 2019 (COVID-19) pandemic, more than 40 million individuals in the US have filed for unemployment. Without jobs and with lower incomes, millions will lose their health insurance, which will lead to a surge of new enrollees in Medicaid. This is particularly true in the 37 states that implemented Affordable Care Act (ACA) Medicaid expansions, through which most low-income adults other than undocumented or recent immigrants can qualify for coverage. However, in nonexpansion states millions will remain ineligible.

Large increases in enrollment during recessions are an essential feature in “countercyclical” programs like Medicaid, meaning tax revenues that support the program decline while expenditures for the program increase. As such, Medicaid has a key role in helping provide coverage during an economic crisis, but at the same time, this pattern places substantial pressure on state budgets. COVID-19 is no ordinary economic crisis, as Medicaid agencies will likely incur large but uncertain increases in medical expenditures related to the direct effects of the pandemic and many clinicians and hospitals face unprecedented financial distress.¹

Medicaid’s financing structure draws on both state and federal resources. The federal government’s share of Medicaid costs, called the Federal Medical Assistance Percentages (FMAP) or “match rate,” depends on the type of enrollee and the state (poorer states receive a higher match rate than wealthier states). There is currently no cap on what the federal government will pay for Medicaid, but the states have to pay their share.

Yet the landscape differs substantially between the 37 expansion states (including Washington, DC) and the 14 nonexpansion states. For the ACA expansion–eligible population, the match rate is 90% for those qualifying for Medicaid under expansion. A recent study found 24% higher growth in program spending in expansion vs nonexpansion states though 2018, but these costs were subsidized entirely by the federal government.² Case studies of expansion states indicate that budget offsets—that is, related reductions in other categories of state spending (such as direct funding to safety-net hospitals)—allow states to expand coverage without significantly increasing spending from state revenues. Importantly, this means that Medicaid expansion costs are not competing with other spending priorities.² Even so, the significant increase in demand for health insurance over the coming year or more may put some states in financial jeopardy, particularly since state tax revenues are likely to decline. However, the economic and health devastation caused by the pandemic will be substantially mitigated for low-income populations in states that have expanded Medicaid.

The situation is somewhat different for traditional Medicaid. Among those eligible for Medicaid prior to the ACA are low-income children, pregnant women, parents of dependent children, and people with disabilities or older than 65 years. Income eligibility for traditional Medicaid varies widely by state, and the match rate averages 57% (from 50% in high-income states, like New York, Alaska, and California, to 77.8% in the poorest state, Mississippi). Many individuals enrolled in traditional Medicaid are at high risk for COVID-19 complications because of preexisting health conditions, older age, or both. A major driver of spending in Medicaid is long-term care, and many long-term care facilities have experienced devastating COVID outbreaks. States can expect to see a substantial increase in expenditures related to intensive care and rehabilitation afterward for these individuals, and because care for this group is much less heavily subsidized by the federal government than for the expansion population, this will put even more pressure on state budgets.

It is likely that funding to support Medicaid during the pandemic will have to come from the federal government. In a time when tens of millions of people are losing jobs and health insurance, closing the so-called “Medicaid gap” in nonexpansion states should be a top priority. To increase the incentive for states to expand, Congress should offer newly expanding states 3 years of 100% federal contribution to align with the provisions experienced by states that first expanded Medicaid in 2014 and potentially increase the long-term ACA-eligible FMAP back to 95%, as it was in 2017 for all expansion states. But some states may still object to expanding, and Congress should intervene to make all low-income adults in the coverage gap eligible for the ACA’s subsidized private insurance (currently, only those with incomes above 100% of the poverty level can receive subsidies). This would be a sensible form of fiscal stimulus and also provide needed health coverage to millions affected by the pandemic.

With regard to traditional Medicaid populations, the first stimulus package (ie, the Coronavirus Aid, Relief, and Economic Security [CARES] Act) included a temporary increase in the nonexpansion FMAP of 6.2 percentage points through September 2021. This was an important first step, but states have argued this will be insufficient both in scope and duration.³ Congress should consider increasing this supplement in upcoming stimulus packages, as the House of Representatives did in its recent Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act legislation, which has yet to be taken up by the Senate.

The Medicaid and CHIP Payment and Access Commission (MACPAC), which advises Congress on the program, recently reviewed policy options for making Medicaid more flexible in times of crisis. Some experts have suggested establishing an automatic trigger based on the unemployment rate and increasing the match rate proportional to the amount by which a state exceeds a particular threshold.⁴ Such changes would bolster state budgets and infuse struggling economies with funds when they are needed most.

But financing changes are not the only way that Medicaid can serve an important role in the COVID-19 epidemic. As in previous health crises, such as the attacks of September 11, 2001, and Hurricane Katrina, the Centers for Medicare & Medicaid Services (CMS) is allowing states considerable Medicaid waiver flexibility.¹ CMS has approved Disaster Relief State Plan Amendments (SPAs) from 36 states to temporarily address coverage and access issues related to COVID-19.⁵ A handful of states have used SPAs to eliminate cost-sharing in Medicaid, while others will pay for COVID-19 testing and testing-related services for the uninsured. In April, CMS approved elements of Washington State’s Section 1115 waiver allowing the state to establish a COVID-19 Disaster Relief Fund without budget neutrality offsets, similar to previous crises. However, CMS rejected several innovative elements of the waiver, such as creating a temporary eligibility category that would allow Medicaid to subsidize premiums and cost-sharing for new marketplace enrollees below 200% of the poverty level, and temporarily subsidizing clinicians who serve patients with Medicaid who have experienced substantial declines in revenue related to social distancing and patients’ deferring care.

The urgent needs of the pandemic may lead some states toward expansion. Nebraska, which passed a ballot initiative in favor of expansion in 2018 but had not yet implemented it, recently accelerated implementing its Medicaid expansion in light of COVID. Congressional support as outlined above could hasten this process in other states as well.

In terms of broader Medicaid budget concerns, most states have laws prohibiting deficit spending. States vary considerably in their “rainy day” reserves, and COVID-19 will require increased spending in other social programs, including unemployment. This raises the possibility that some states could make significant cuts in Medicaid to balance their budgets, at a time when the program is most critical. However, capping or reducing enrollment to keep Medicaid within budget is not a likely option. The CARES Act included several “maintenance of effort” requirements in Medicaid, which, in exchange for the increased federal match rate, would prohibit states from disenrolling anyone after March 18, 2020, changing eligibility criteria, or implementing policies that would make enrollment more difficult.

While eligibility cuts are not permissible, states often respond to economic downturns by cutting Medicaid spending in other ways. In the 2009 recession, for instance, many states reduced reimbursements to clinicians and hospitals and eliminated optional benefits such as dentistry and podiatry.⁶ This may be a path that some states will consider, but doing so would risk further destabilizing Medicaid’s network of clinicians and health care centers at a time when many are already experiencing financial difficulty due to the substantial reduction in outpatient care unrelated to COVID-19.

Just as important as what states will do is what they will not do in response to the pandemic. Several recent Medicaid proposals are likely to become less popular in the coming year. For example, states have recently backed off from the pursuit of work requirements in Medicaid, including Utah, which explicitly tied the cancellation of its requirement to the pandemic. Medicaid work requirements have been repeatedly struck down in court, while research shows they have no significant effect on employment and instead create bureaucratic hurdles to maintaining coverage among eligible enrollees.⁷ In the COVID-19 crisis, with soaring unemployment, this policy makes even less sense.

The incoming surge of people who will be eligible for Medicaid also underscores the risks associated with the Healthy Adult Opportunity initiative introduced by the Trump administration, which caps Medicaid funding in exchange for increased state flexibility. States are unlikely to accept a new financial agreement with the federal government that does not take into consideration meaningful economic declines or pandemics.

The next 12 months will be a time of reckoning for Medicaid. The program is a critical tool in the economic and public health response to COVID-19. But states will need substantially greater support from the federal government to avoid significant deficits and detrimental cutbacks. Increasing the Medicaid match rate and incentivizing Medicaid expansions are mechanisms to support states financially while shoring up the health care safety net and, even more importantly, to provide millions of low-income individuals in the US a lifeline during this crisis.

Corresponding Author: Heidi L. Allen, PhD, MSW, School of Social Work, Columbia University, 1255 Amsterdam Ave, Room 709, New York, NY 10027 (ha2332@columbia.edu).

Published Online: June 11, 2020. doi:10.1001/jama.2020.10553

Conflict of Interest Disclosures: Dr Allen reported receiving grants from the Robert Wood Johnson Foundation and the National Institutes of Health and receiving personal fees from the Health Resources and Services Administration, Society for Social Work Research, BioPharmaceutical Technology Center Institute, Redscout, and Milbank Memorial Fund. Dr Sommers reported receiving personal fees from the Health Research & Educational Trust and the Massachusetts Medical Society and receiving grants from Baylor Scott & White.