The Medicaid Crisis Is Here: How Congressional Handcuffs Are Causing Medicaid to Implode

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KEY FINDINGS

Overview

Medicaid is at a tipping point. In the spring of 2020, Congress passed a set of bills that set the stage for a tidal wave of increased Medicaid costs and enrollment. The biggest problem: a little-known provision that severely restricted states’ ability to manage their Medicaid programs.1https://thefga.org/paper/covid-19-medicaid-funds2 https://thefga.org/paper/covid-19-medicaid-funding

As part of the Families First Coronavirus Response Act (FFCRA), Congress offered states an additional 6.2 percentage point increase in funding for their traditional Medicaid costs.3https://www.congress.gov/116/bills/hr6201/BILLS-116hr6201enr.pdf While this was portrayed as pandemic-related relief, there was an insidious catch: In exchange for the increase in funding, states had to relinquish control over significant aspects of their Medicaid programs.4https://thefga.org/paper/covid-19-medicaid-funds

As long as states accept the funding boost, they cannot change Medicaid eligibility standards, adjust enrollment processes, or remove individuals from their Medicaid rolls—even if they have become ineligible or were never eligible in the first place.5https://thefga.org/paper/covid-19-medicaid-funds Individuals can only be removed from the program if they voluntarily disenroll or leave the state.6https://thefga.org/paper/covid-19-medicaid-funds

Unsurprisingly, these federal handcuffs caused Medicaid enrollment to spike to record-high levels, including individuals who were only briefly eligible during the pandemic and individuals who were enrolled into the program improperly. States are powerless to remove any of these ineligible enrollees from the program—unless they take action to unlock the Medicaid handcuffs.

Medicaid enrollment has reached nearly 90 million—a record high 

In February 2020—before the COVID-19 pandemic hit—Medicaid enrollment sat at more than 74 million people.7https://www.medicaid.gov/medicaid/program-information/downloads/viii-group-break-out-q1-2021.xlsx This figure was already astonishingly high after years of expansions and lax program integrity. However, it was no match for what was to come.

Since then, Medicaid enrollment has spiked to 89 million—a nearly 16 million person increase in less than two years.8Authors’ calculations based upon data provided by the U.S. Department of Health and Human Services and state Medicaid agencies on total Medicaid enrollment between February 2020 and the most recent month available. This is the largest increase in the history of the Medicaid program—even greater than when states first expanded Medicaid to a new class of able-bodied adults under ObamaCare.9https://www.macpac.gov/wp-content/uploads/2015/11/EXHIBIT-10.-Medicaid-Enrollment-and-Total-Spending-Levels-and-Annual-Growth-FYs-1970%E2%80%932020.pdf Since the pandemic hit, Medicaid enrollment has grown by nearly 17 percent annually.10Authors’ calculations based upon data provided by the U.S. Department of Health and Human Services and state Medicaid agencies on total Medicaid enrollment between February 2020 and the most recent month available.11https://www.macpac.gov/wp-content/uploads/2015/11/EXHIBIT-10.-Medicaid-Enrollment-and-Total-Spending-Levels-and-Annual-Growth-FYs-1970%E2%80%932020.pdf At this level, more than one in every four Americans is on Medicaid.12https://www2.census.gov/programs-surveys/popest/tables/2020-2021/state/totals/NST-EST2021-POP.xlsx

In reality, the true enrollment figure is likely even higher. Numerous states have severely lagged enrollment data, with many states’ data out of date by more than six months. Trending these states through December 2021 indicates that total enrollment is likely above 91 million.13Authors’ calculations based upon data provided by the U.S. Department of Health and Human Services and state Medicaid agencies on total Medicaid enrollment between February 2020 and the most recent month available, trended forward to December 2021 with each state’s geometric average annual enrollment growth since February 2020.

Enrollment is being driven by Medicaid lock-ins

Based on the number of Medicaid “lock-ins”—those who have remained on the program due to Medicaid handcuffs despite being ineligible—roughly 90 percent of all new Medicaid enrollees during the pandemic are no longer eligible, based on available data from 17 states.14Authors’ calculations based upon data provided by the U.S. Department of Health and Human Services and state Medicaid agencies on total change in Medicaid enrollment since February 2020 and reported lock-ins. Nationwide, that means up to 17 million Medicaid enrollees were ineligible by December 2021.15Authors’ calculations based upon data provided by the U.S. Department of Health and Human Services and state Medicaid agencies on total change in each state’s Medicaid enrollment since February 2020 and the share of new enrollment attributable to reported lock-ins in the 17 states with available data.

These individuals will remain on Medicaid for as long as states continue to accept the FFCRA’s Medicaid funding boost. Unfortunately, for taxpayers and the truly needy alike, this is a bad deal all around.

Federal handcuffs come at a cost of more than $14 billion per month 

Keeping these ineligible enrollees on Medicaid costs taxpayers billions. By December 2021, taxpayers were paying an estimated $11.3 billion per month for ineligible Medicaid enrollees who were locked in due to the handcuffs.16Authors’ calculations based upon data provided by a proprietary microsimulation model that incorporates data on monthly Medicaid enrollment disaggregated by state, per capita monthly costs disaggregated by state and eligibility group, the distribution of ineligible enrollees at annual redetermination disaggregated by eligibility group, states’ blended FMAP rate based on the distribution of expected ineligibles due to lock-ins, and the share of new enrollment attributable to reported lock-ins disaggregated by state. States are picking up roughly one-third of these expenses, with the federal government financing the rest with new debt.17Authors’ calculations based upon data provided by a proprietary microsimulation model that incorporates data on monthly Medicaid enrollment disaggregated by state, per capita monthly costs disaggregated by state and eligibility group, the distribution of ineligible enrollees at annual redetermination disaggregated by eligibility group, states’ blended FMAP rate based on the distribution of expected ineligibles due to lock-ins, and the share of new enrollment attributable to reported lock-ins disaggregated by state.

In addition, federal taxpayers are on the hook for another $2.9 billion per month in enhanced Medicaid funds to states—for as long as they keep the handcuffs on—via the increased funding from the FFCRA.18https://www.medicaid.gov/medicaid/financial-management/downloads/ffcra-increased-fmap-posting-q1-fy21.xlsx

In total, state and federal taxpayers are footing the bill for more than $14 billion per month under these provisions.19Authors’ calculations based upon data provided by a proprietary microsimulation model that incorporates data on monthly Medicaid enrollment disaggregated by state, per capita monthly costs disaggregated by state and eligibility group, the distribution of ineligible enrollees at annual redetermination disaggregated by eligibility group, states’ blended FMAP rate based on the distribution of expected ineligibles due to lock-ins, and the share of new enrollment attributable to reported lock-ins disaggregated by state, and data provided by the U.S. Department of Health and Human Services on additional Section 6008 expenditures disaggregated by state. The longer these handcuffs are in effect, the more costs will continue to add up as new individuals become “locked in” to coverage—leaving few resources available for the truly needy.

BOTTOM LINE: Policymakers must roll back Medicaid handcuffs

Not only must Congress resist efforts to renew or extend these Medicaid handcuffs—which are set to expire at the end of the public health emergency—but they must also resist new attempts to expand these handcuffs. For example, President Biden’s Build Back Better legislation would extend the handcuffs to at least September 2022, gradually reduce the enhanced Medicaid funds provided to states to zero, and limit states’ ability to remove all ineligible individuals in a timely fashion even once the handcuffs are off.20https://www.finance.senate.gov/chairmans-news/finance-committee-releases-updated-build-back-better-text

In the absence of federal action, states can take the lead by opting out of the handcuffs now. This decision by state policymakers would preserve resources for the most vulnerable and save taxpayers billions of dollars. It would also allow states to reassert control over their Medicaid programs for the first time since the pandemic began.

In order to truly return to normal, policymakers must act to restore common sense to Medicaid and unshackle the handcuffs states have been forced to wear. 

APPENDIX 1: MEDICAID ENROLLMENT BY STATE

Total enrollment as of the most recent date reported

APPENDIX 2: ANNUALIZED MEDICAID ENROLLMENT GROWTH SINCE MARCH 2020 BY STATE

APPENDIX 3: ESTIMATED MEDICAID ENROLLMENT IN DECEMBER 2021 BY STATE