State Medicaid program unlikely to give providers a raise anytime soon

Big changes in Medicaid payments to providers and managed care plans aren’t likely this year as state budgets recover, Medicaid rolls shrink and the U.S. economy sheds its pandemic woes.

Medicaid dramatically grew during the pandemic, rising to 80 million enrollees last month. Lost jobs and income last year drove enrollment, which remains high because federal relief funding was contingent on states not kicking beneficiaries off the Medicaid during the public health emergency.

“States are in a better position than I think many anticipated at the start of all this,” said Rachel Garfield, co-director for the Kaiser Family Foundation’s Program on Medicaid and the Uninsured.

State budgets didn’t suffer nearly as much as many predicted when the COVID-19 pandemic reached the U.S. Massive infusions of federal dollars, sustained consumer spending and a strong stock market that drove high capital gains tax collections in many states counterbalanced the fiscal challenges the pandemic presented.

Tax revenue for the 15 most populous states was virtually unchanged during the 2020 pandemic compared to the year before, although some states experienced declines, Manatt Health found. States that rely heavily on income taxes, including California and New York, have seen collections rebound more quickly than states that depend on sales taxes and other levies, such as Florida and Texas. Arizona, Ohio and other states that tax online shopping—which boomed while consumers were stuck indoors—seem to have fared better than states that didn’t.

That could convince healthcare providers in fiscally strong states to lobby for Medicaid pay raises, especially after many of them struggled throughout the pandemic, said Anthony Fiori, a Manatt Health consultant. Plus, states have access to enhanced federal Medicaid funding through at least the end of the year, he said.

The near future of states’ economics and budgets are difficult to predict, which creates uncertainty for Medicaid programs. Enrollment could increase in some states if employment growth for poorer people lags the rest of the workforce, for instance.

“It’s not going to be an immediate return to previous enrollment and spending patterns,” Garfield said.

States will have to slog through a mammoth backlog of paperwork to figure out who’s still eligible for the program after the public health emergency ends. That means it will take at least a year for Medicaid enrollment to come down significantly, said Mari Cantwell, a director at the consultancy Sellers Dorsey and a former director of Medi-Cal, California’s Medicaid program.

The process could take even longer in states where the pandemic hit their economies the hardest and in states that saw the biggest Medicaid enrollment increases. States with outdated enrollment systems that require more hands-on labor from state workers could also take a while to sort out who still qualifies for the program, Cantwell said.

Those delays could buy policymakers much-needed time to figure out what to do about the millions of beneficiaries that are likely to become uninsured or seek another form of coverage, such as subsidized policies from a health insurance exchange.

“It’s going to be disruptive if you snap your fingers and 15 million people go from being covered by Medicaid to uninsured,” said Matt Salo, executive director of the National Association of Medicaid Directors.

Growing political pressure might compel states to keep more people on their Medicaid rolls as coverage losses loom, even after the enhanced federal funding goes away.

Most states will probably take a conservative approach to provider rate changes because it’s unclear whether the cost savings of declining Medicaid enrollment will offset lower Medicaid funding after the extra federal money goes away, Cantwell said.

States like California that temporarily boosted provider rates during the pandemic will probably let those increases, as well as solvency payments to safety-net providers, expire. But it could take a while for providers to see budget-related reimbursement cuts reversed.

Likewise, many states have grown concerned about overpaying Medicaid managed care plans for coverage that enrollees used less during the pandemic when demand for medical services fell. They may not be inclined to do anything about it in the short term though, Salo said.

“The optics are uncomfortable for everybody when we’re in the midst of a pandemic—and it looks like the plans are making out like bandits,” Salo said. “But if you’ve just signed contracts, it’s hard to go in there willy nilly and say, ‘Guess what? We’re going to pay less.'”

Several states established guardrails to provent significant over- and underpayments to Medicaid managed care organizations. That’s likely to continue as states learn more about how Medicaid beneficiaries use their coverage in a post-pandemic environment. Medicaid enrollees who signed on during the pandemic generally are healthier and use fewer healthcare services than the traditional Medicaid population, which includes senior citizens living in nursing homes, people with disabilities and those who are medically frail. On the other hand, greater utilization of telehealth services might lead to more spending in that area.

Medicaid managed care plans also may face high expenses from a pent-up demand among policyholders who delayed medical treatments during the pandemic. Some portion of those people will seek elective surgeries, care for chronic conditions and other other services, driving up costs for managed care plans.

“There’s a pretty good argument that, even if it looks like we’re overpaying plans now, they’re going to need to take every single dollar that we overpaid them and plow it right back into the surge,” Salo said.

Federal requirements constrain states’ authority to modify payments to Medicaid managed care organizations (MCOs), which partly divorces states’ decisions about this matter from their overall budgetary conditions.

“If the state budget is going up or down, the state may be able to cover more services or populations. But the rates that they pay to MCOs need to be actuarially sound,” said Craig Kennedy, CEO of Medicaid Health Plans of America CEO. Yet states could have trouble determining whether their MCO rates are actuarially sound, given that nobody knows precisely what utilization will look like after the pandemic is over.

“It can be as much an art as it is a science,” Salo said.