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Millions of Ineligible Medicaid Enrollees Come at a High Cost to States

KEY FINDINGS

Overview

Facing the COVID-19 pandemic and government-imposed lockdowns, states experienced major fiscal uncertainty in the spring of 2020.1 In response, Congress offered states a 6.2 percent bump to their traditional Medicaid funding in the Families First Coronavirus Response Act (FFCRA).2 But that extra funding came with strings attached—strings woven around states’ Medicaid programs to form restrictive handcuffs.3 In order to receive the extra funding, states cannot change eligibility standards, adjust enrollment processes, or remove individuals from their Medicaid rolls—even those who are ineligible for the program.4

The policy has made Medicaid enrollment a one-way door. As expected, it has caused enrollment to spike with “lock-ins”—enrollees who are no longer eligible for the program but still enrolled because of Washington, D.C.’s restrictions—driving the way.5 These lock-ins are costing taxpayers billions of dollars every month.6

But beyond the cost to taxpayers, locking in ineligible enrollees takes away resources from the truly needy and crowds out funding for other core priorities.

Ineligible enrollees are costing states billions every month, and taxpayers are left to foot the bill.

Medicaid enrollment has soared to new record highs, reaching an estimated 91 million by December 2021.7 But nearly 90 percent of Medicaid enrollment growth has been driven by individuals who are ineligible for the program—yet continue to receive benefits because of the congressional handcuffs.8 Already, there are an estimated 17 million ineligible Medicaid enrollees receiving benefits.9 And as these handcuffs remain in place, more and more ineligible enrollees are being added to state Medicaid rolls with no end in sight.10 The result has been a fiscal disaster for states.

Taxpayers are paying an estimated $11 billion per month to cover ineligible enrollees, with states picking up roughly $3.5 billion of those costs and federal taxpayers covering the rest.11 In exchange for keeping these ineligible enrollees on the program, states receive a small bump in federal funding for their traditional Medicaid costs.12 But that funding bump does not even cover the states’ costs for keeping ineligible enrollees on the program.13 Keeping the Medicaid handcuffs in place is costing states nearly $655 million per month.14

For many states, the bump is not cost-effective, and covering ineligible enrollees has pushed these states into the red.

The bump in federal Medicaid support was presented as a way to make states financially better off amid declines in revenues.15 But across 32 states, the state share of spending on ineligible enrollees exceeds the benefit of the federal bump.16

Combined, these 32 states are estimated to be spending nearly a billion dollars per month more than they get from the federal bump to cover ineligible enrollees.17

In just a few months, the situation will continue to get worse.

By April 2022, when the public health emergency is set to expire barring another extension, there could be nearly 95 million enrollees on Medicaid.18-19 By then, all but 10 states will have passed the tipping point and will be spending more on ineligible enrollees than they receive from the bump in federal funding.20 Indeed, states would then be spending nearly $4.3 billion per month on ineligible enrollees—a net loss of close to $1.4 billion per month after accounting for the 6.2 percent Medicaid funding bump.21

The Build Back Better proposal would make matters even worse by extending the handcuffs in some form to at least September 2022 while gradually increasing states’ share of the burden by phasing out the enhanced federal contribution.22 States would also be severely limited in their ability to remove ineligible enrollees, even once the enhanced funding phases out.23 Under this scenario, states would end up back at the pre-pandemic financing arrangement, but still stuck paying for Medicaid lock-ins.

THE BOTTOM LINE: States must free themselves from the disastrous federal Medicaid handcuffs.

Since the start of the pandemic, states have allowed Washington, D.C. undue control over their Medicaid programs. This boondoggle has left states fiscally worse off and trapped people in government dependency. Waiting on the expiration of the public health emergency that has already been renewed eight times keeps ineligible enrollees locked into welfare—all at a high cost to taxpayers.24 Instead, states should unlock the federal handcuffs and start removing ineligible enrollees. Doing so will allow states to prioritize the truly needy while saving taxpayers billions.

REFERENCES

1. Nicholas Horton and Jonathan Ingram, “On the brink: State budgets in light of the COVID-19 outbreak,” Foundation for Government Accountability (2020), https://thefga.org/paper/covid-19-state-budgets.

2. Jonathan Ingram et al., “Extra COVID-19 Medicaid funds come at a high cost to states,” Foundation for Government Accountability (2020), https://thefga.org/paper/covid-19-medicaid-funds.

3. Ibid.

4. Ibid.

5. Hayden Dublois and Jonathan Ingram, “The Medicaid crisis is here: How congressional handcuffs are causing Medicaid to implode,” Foundation for Government Accountability (2022), https://thefga.org/paper/congressional-handcuffs-causing-medicaid-to-implode. 

6. Ibid.

7. Ibid.

8. Ibid.

9. Authors’ 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.

10. Bradley Corallo and Sophia Moreno, “Analysis of recent national trends in Medicaid and CHIP Enrollment,” Kaiser Family Foundation (2022), https://www.kff.org/coronavirus-covid-19/issue-brief/analysis-of-recent-national-trends-in-medicaid-and-chip-enrollment/.  

11. Authors’ 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.

12. Hayden Dublois and Jonathan Ingram, “The Medicaid crisis is here: How congressional handcuffs are causing Medicaid to implode,” Foundation for Government Accountability (2022), https://thefga.org/paper/congressional-handcuffs-causing-medicaid-to-implode.

13. Authors’ 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.

14. Ibid.

15. Tricia Brooks and Andy Schneider, “The Families First Coronavirus Response Act: Medicaid and CHIP provisions explained,” Georgetown University Health Policy Institute Center for Children and Families (2020), https://ccf.georgetown.edu/2020/03/22/families-first-coronavirus-response-act-medicaid-and-chip-provisions-explained/.

16. Authors’ 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.

17. Ibid.

18. Xavier Becerra, “Renewal of determination that a public health emergency exists,” U.S. Department of Health and Human Services (2022), https://aspr.hhs.gov/legal/PHE/Pages/COVID19-14Jan2022.aspx.  

19. Authors’ 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.

20. Ibid.

21. Ibid.

22. Hayden Dublois and Jonathan Ingram, “The Medicaid crisis is here: How congressional handcuffs are causing Medicaid to implode,” Foundation for Government Accountability (2022), https://thefga.org/paper/congressional-handcuffs-causing-medicaid-to-implode.

23. Ibid.

24. Xavier Becerra, “Renewal of determination that a public health emergency exists,” U.S. Department of Health and Human Services (2022), https://www.phe.gov/emergency/news/healthactions/phe/Pages/default.aspx.

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