Medicaid provision provides an important step toward stabilizing state budgets amid COVID-19

One in 3 Louisianans currently get their health coverage through the Medicaid program. As Louisiana’s economy plunges into recession, Medicaid will be more important than ever in ensuring that people who lose their jobs due to the coronavirus pandemic have access to health services. 

But the pandemic will also put unprecedented financial strain on the program, which is financed with a mix of state and federal funding. As the state economy contracts, so will the state revenue available to spend on Medicaid. To fill that gap, Louisiana will need additional help from the federal government to ensure health coverage is not interrupted for those who need it, and that doctors, hospitals and other front-line health care providers continue to get paid. 

A recent federal stimulus bill provides some much-needed relief. But it won’t be enough to sustain the program through the difficult and uncertain months ahead.  

The Families First Coronavirus Response Act, approved in March, includes a vital 6.2% increase in the federal government’s share of Medicaid costs (the Federal Medical Assistance Percentage or FMAP). This change will inject approximately $36 billion in additional funding to cash-strapped state budgets. For Louisiana, the match rate change translates to $570 million in additional funding for Louisiana in 2020.

This increase comes at a critical time, as Medicaid enrollment is expected to grow as hundreds of thousands of Louisianans are laid off from their jobs, and many lose their employer-provided health insurance. Overall health care costs are also expected to rise as testing and treatment of COVID-19 patients add to the expenses that Medicaid has to cover. Since Medicaid funding is shared between states and the federal government, states will bear a portion of these extra costs. 

Louisiana is ill-equipped to meet these rising costs, as the state is required to maintain a balanced budget and tax revenues are projected to shrink as the economy contracts.  Without sufficient federal assistance, states will be forced to make painful cuts to vital state programs and services at the exact time they are needed most.

Medicaid’s funding structure – and its large footprint in the state budget – make the program an important tool the federal government can use to support state finances. During the Great Recession, for example, the federal cost share in Louisiana rose to 80%, which gave the state enough money to stave off cuts to health care services, education and other programs. 

The federal government’s share of state Medicaid costs varies by state, ranging from a low of 50% to a high of 77%, and changes each year to reflect changes in median income. States where the median workers earn less compared to the national average receive a higher federal cost-share. 

Louisiana currently gets 67% of its Medicaid costs covered by federal funding, leaving the state paying 33%. But under the Families First Act, Louisiana will only be responsible for 27% of costs, with change retroactive to Jan. 1. Assuming the higher federal match lasts through the end of the year, Louisiana will save at least $570 million. 

Unfortunately, the enhanced match rate does not apply to the nearly half-million low-income adults in the Medicaid expansion. This is particularly problematic as this is where the majority of enrollment growth is expected as workers lose their incomes and employer sponsored health insurance. The FMAP for Medicaid expansion was 100% in the early years of the program – in 2014, 2015 and 2016 – and gradually decreased to a fixed FMAP of 90% by 2020 with state budgets covering 10% of costs. This represents an opportunity for more meaningful help in the next round of federal legislation.   

As a condition of accepting the higher federal match rate, states have to agree to provide key protections for their Medicaid patients. They can’t take coverage away from anyone who was enrolled as of March 18, 2020 (the date of enactment); they can’t impose rules or procedures that make it harder to access and qualify for Medicaid; and they can’t charge Medicaid patients for testing or treatment of COVID-19.

While the Family First law is an important first step in helping low-income Louisianans maintain access to health care, it is not enough. The coming recession has the potential to devastate state budgets unless the federal government takes decisive action. The next round of federal legislation can do more to bolster state budgets through the Medicaid program: 

• Increase and extend the FMAP beyond the current 6.2% enhancement. The Medicaid match is one of the most effective tools for the federal government to alleviate pressure on state budgets during recessions, as it frees up scarce state general fund dollars to be used elsewhere in the budget where they may be needed. The next federal stimulus bill should build on this increase using the Great Recession average increase of 10% as a starting point, and should include the expansion population. 
• Extend the current enhancement period. The enhanced Medicaid match is now set to expire when the national emergency declaration ends. But the economic impacts of COVID-19 will last far longer. Instead of being tied to the emergency declaration, the match rate should be tied to a state-specific measure such as the unemployment rate to help ensure that it matches the need in each state. 
• Extend Medicaid coverage to uninsured individuals to include not just testing, but also treatment for COVID-19. Currently, Medicaid may be used to cover testing for COVID-19 for uninsured individuals regardless of income, but treatment and any future immunization is not covered. This oversight leaves uninsured people vulnerable to catastrophic healthcare costs if they get sick from the coronavirus, and make them less likely to get immunized when a vaccine becomes available. 

In addition to these legislative provisions, the Centers for Medicare and Medicaid Services (CMS) should avoid any actions that decrease health care funding or coverage during the COVID-19 national public health emergency. The federal government should discourage states from taking up the Healthy Adult Opportunities block grant waiver, which has been shown to underestimate the rising cost of health care during normal times, let alone when fighting a new disease. The administration should also delay or rescind its proposed Medicaid Fiscal Accountability Rule, a highly technical rule which affects both state financing methods for Medicaid and large supplemental payments to hospitals, nursing homes, and physicians. The far-reaching nature of this proposed rule means that it deserves full consideration, and a national public health emergency is not the time rush through the process. 

Medicaid has been and continues to be a valuable tool to combat recessions by bolstering state budgets as well as ensuring health care is available to those who can least afford it. The provisions in the Families First and CARES Acts provide an important first step. The next round of legislation should build on these investments in state budgets and public health.