Oct 26, 2022 - Health

States brace for Medicaid spending surge

Change in Medicaid spending
Data: Kaiser Family Foundation; Chart: Madison Dong/Axios Visuals

States could start the new year grappling with a surge in Medicaid spending to accompany supply chain pressures, workforce shortages and the effects of inflation.

The big picture: The end of the COVID-19 public health emergency could result in state Medicaid outlays growing at a rate of 16.3% in fiscal 2023, even with efforts underway to control future program costs, according to a report from the Kaiser Family Foundation.

  • The federal government increased its contribution to the safety-net program during the pandemic in exchange for state pledges to keep enrollees in the program through the crisis. But that additional money could run out as soon as March, if the Biden administration lets the public health emergency expire in January, as many expect.

What they're saying: "Inflationary pressures obviously put pressures on our members, but also on the state and on rates, which are really challenging to manage," Amanda Cassel Kraft, who leads Massachusetts' Medicaid program, said during a KFF call on the report. "If the economic picture shifts and we don't have the same level of revenue coming into this state to be able to make additional investments, it creates a real challenge."

  • Indiana is working on a plan to improve transparency and predictability around payment rates for providers, added Allison Taylor, the state's Medicaid director. "It won't solve all the problems but I think it's a nice tool in the toolbox for sustainability."

Zoom in: Medicaid is a huge component of state budgets. Because of balanced budget requirements, a surge in program costs can scramble broader revenue and spending projections.

  • Federal actuaries last spring projected per enrollee spending on Medicaid would increase 6.7% in 2022, and 6% in 2023.
  • Most states have turned to managed care plans to administer Medicaid benefits and better control spending on the health program.
  • But nearly a third of states in fiscal 2022 reported increased health provider or managed care costs were putting upward pressure on spending, per the KFF report.
  • Pent up demand from pandemic-related delays in care and higher spending for home and community-based services also were factors, the report said.

Yes, but: Most state Medicaid agencies surveyed between June and September weren't expecting state legislators to cut Medicaid budgets.

  • About half of survey respondents pointed to longer-term financial uncertainty in their states.

Worth noting: Nearly all states reported higher rates for at least one provider group in fiscal 2023. Half said they're decreasing or freezing at least one set of provider rates.

  • Nursing home and providers of home- and community-based services saw Medicaid payment increases most frequently this fiscal year.
  • Providers increasingly ask Medicaid agencies for payment increases due to inflation and labor costs, states told KFF.
  • None of the states reported restricting or scrapping any benefits in 2023, while 34 states said they're increasing benefit offerings.
  • States also didn't see legislative action to freeze or cut rates across all or most provider groups in 2022 or 2023.
  • "As always, it is an exciting and challenging time to serve as a Medicaid director," said Kathy Gifford, co-author of the report and a principal at Health Management Associates.
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