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Implementing the ACA: Medicaid Spending & Enrollment Growth for FY 2014 and FY 2015

Medicaid Enrollment and Spending Growth

Trends Affecting Medicaid Enrollment and Spending Growth

Economic Conditions

Over the past 15 years, Medicaid enrollment increased substantially during two major recessions, with annual growth peaking in FY 2001 at over 9 percent, and again at nearly 8 percent in FY 2009. During economic downturns, individuals lose jobs, incomes decline and more people qualify and enroll in Medicaid which increases program spending. At the same time, economic downturns negatively affect state tax revenues. This places additional pressure on state budgets as demand for other forms of assistance (i.e. food stamps and unemployment benefits) also increases. During economic downturns, states face difficulty balancing these pressures and affording their share of Medicaid spending increases.

In response, Congress has twice passed temporary increases to the FMAP rates to help support states during economic downturns, most recently in 2009 as part of the American Recovery and Reinvestment Act (ARRA.)  The most significant source of fiscal relief to states in ARRA was a temporary increase in the federal share of Medicaid costs. To be eligible for ARRA funds, states could not restrict eligibility or tighten enrollment procedures in Medicaid or CHIP. The ARRA-enhanced match rates provided states with over $100 billion in additional federal funds over 11 quarters, ending in June 2011, as states were on the threshold of FY 2012.

State economies have demonstrated slow but sustained improvement following the worst recession since the Great Depression. Gross State Product (GSP,) a measure of state economic activity, grew by 1.8 percent from 2012 to 2013 at the national level, slightly slower than the previous year, but the fourth year of consecutive growth at the national level. All but two states (Alaska and DC) experienced positive GSP growth from 2012 to 2013, ranging up to 9.7 percent.

At the same time, the national unemployment rate has continued to decline, falling to 5.9 percent in September 2014, the lowest rate since July 2008.1 The declining rate of unemployment was related both to a reduction in the labor force participation rate and to continued job growth.2 After 55 months of private-sector job growth, there were 1.6 million more private sector jobs in August 2014 than before the recession.3 From February 2010 to August 2014, private sector job growth increased by an average pace of 188,000 jobs a month, with the pace picking up during the last seven months (227,000 jobs a month). Despite the improving economy, an estimated 9.3 million people remain unemployed, over 30 percent of whom are long-term unemployed (those actively looking for work for 27+ weeks.4) While unemployment has declined, 11 states (including DC) had rates at or above seven percent in August 2014. (Figure 4)

Figure 4: Unemployment rates have declined in most states, though remain high in a few.

Figure 4: Unemployment rates have declined in most states, though remain high in a few.

On the whole, state revenue collections have also improved. After experiencing the sharpest decline in state tax revenues on record during the Great Recession, states had seen sixteen consecutive quarters of tax revenue growth before declining slightly in the first and second quarters of 2014 (-0.3 percent and -0.5 percent.) (Figure 5) These declines in 2014 were primarily driven by federal tax policy changes that went into effect in 2013 as well as changes in tax policy in some states largely affecting personal income tax collections. Other sources of tax revenues, such as sales taxes, showed continued growth.5

Figure 5: State tax revenues had grown for 16 consecutive quarters before declining slightly in the first quarters of 2014.

Figure 5: State tax revenues had grown for 16 consecutive quarters before declining slightly in the first quarters of 2014.

With the economy continuing to improve, Medicaid enrollment growth across the country slowed considerably in FY 2012 and FY 2013. Over those two years, average spending also slowed, but the end of the ARRA enhanced match rates at the end of SFY 2011 shifted state spending patterns as states tried to mitigate the loss of federal dollars in SFY 2012 resulting in a dip in spending in SFY 2012. With economic conditions improving, the largest driver of Medicaid enrollment and spending growth during fiscal years 2014 and 2015 has been related to the implementation of the ACA. (Figure 6)

Figure 6: Medicaid spending and enrollment are affected by changes in economic conditions and policy.

Figure 6: Medicaid spending and enrollment are affected by changes in economic conditions and policy.

The Affordable Care Act (ACA)

As enacted, the ACA broadened Medicaid’s role, making it the foundation of coverage for nearly all low-income Americans with incomes up to 138 percent of the federal poverty level (FPL) ($16,105 per year for an individual in 2014). However, the Supreme Court ruling on the ACA effectively made the decision to implement the Medicaid expansion an option for states. For states that expand Medicaid, the federal government will pay 100 percent of Medicaid costs of those newly eligible for Medicaid for up to three calendar years from 2014 to 2016. The federal share phases down to 95 percent in 2017, 94 percent in 2018, 93 percent in 2019 and 90 percent in 2020 and remains at 90 percent thereafter, well above traditional FMAP rates in every state. (See Appendix for more information on Medicaid financing).

While nearly all states saw enrollment increases due to changes in enrollment systems and increased outreach, much of the enrollment growth (and related spending growth) nationally was driven by states adopting the Medicaid expansion, which states could implement starting January 1, 2014, halfway through FY 2014 for most states.

During FY 2014, 26 states (including DC) implemented the ACA Medicaid expansion. In FY 2015, two additional states are implementing the Medicaid expansion – New Hampshire in July 2014 and Pennsylvania in January 2015 – bringing the total to 28 states. Other states continue to discuss the opportunity to extend Medicaid under the financial terms spelled out in the ACA, including state-specific approaches. Indiana has submitted a waiver proposal to expand Medicaid through the “Healthy Indiana 2.0” plan in 2015 and Utah is in active negotiations with CMS to use an alternative approach for the Medicaid expansion. Other states expect to consider the issue in legislative sessions in 2015. (Figure 7)

Figure 7: More than half of states are implementing the Medicaid expansion while debate continues in other states.

Figure 7: More than half of states are implementing the Medicaid expansion while debate continues in other states.

Medicaid Enrollment Growth FY 2014-FY 2015

Medicaid enrollment increased on average by 8.3 percent in FY 2014 across all states, slightly less than the 8.8 percent growth states had projected on average at the beginning of the fiscal year.6 These slightly slower rates could be partially due to enrollment system problems, particularly with Healthcare.gov in the earlier months of open enrollment for coverage in the Marketplace. Enrollment growth in FY 2014 was faster than FY 2012 and FY 2013 due to the implementation of the ACA mid-way through state fiscal year 2014. All states, regardless of their decisions to implement the Medicaid expansion, attributed enrollment growth to higher take up among those already eligible, due to referrals from the health insurance Marketplaces and greater awareness of Medicaid due to outreach and publicity surrounding the ACA coverage expansions. The ACA Medicaid expansion was a driver of significant enrollment growth in states that implemented it, driving up the national average as well. Already, higher enrollment in Medicaid in 2014 has contributed to recent declines in the number of non-elderly adults who are uninsured.7,8

States with the largest increases in Medicaid coverage in FY 2014 were those that implemented the ACA Medicaid expansion. States expanding Medicaid averaged enrollment growth of 12.2 percent in FY 2014, compared to growth among states not expanding that averaged 2.8 percent. (Figure 11) A total of seven expansion states experienced annual Medicaid enrollment growth in FY 2014 exceeding 20 percent (Arkansas, Colorado, Kentucky, Maryland, Nevada, Oregon and West Virginia.) Only four states (all non-expansion states) reported declines in Medicaid enrollment in FY 2014 (Louisiana, Missouri, Nebraska and Oklahoma).

In FY 2015, Medicaid enrollment is projected to increase across all states at a higher rate (12.2%) than in FY 2014 (8.3%), reflecting the first full year’s impact of the eligibility and enrollment changes in the ACA. This rate of growth is driven by continued increases in enrollment primarily in states adopting the ACA Medicaid expansion. Across the 28 states implementing the Medicaid expansion in FY 2015, the number of persons enrolled in Medicaid is expected to increase on average by 18.0 percent while enrollment growth across the 23 non-expansion states is projected to average 5.2 percent. (Figure 8)

Figure 8: Medicaid enrollment growth was substantially higher in states that expanded.

Figure 8: Medicaid enrollment growth was substantially higher in states that expanded.

States that implemented the Medicaid expansion estimated the portion of their total enrollment growth that was attributable to newly eligible individuals. The median estimate was that approximately 80 percent of the observed growth in enrollment was attributable to newly eligible enrollees, and 20 percent was attributable to those already eligible but not previously enrolled. A few states that had expanded coverage to adults before the ACA (e.g. Massachusetts, Minnesota, and New York) noted a much smaller share of enrollment growth attributable to the Medicaid expansion. Both expansion and non-expansion states noted higher take-up rates among persons who were eligible under pre-ACA eligibility rules, as individuals were referred to Medicaid from the new health insurance marketplaces, or responded to widespread publicity about the implementation of the ACA coverage options. A small number of states noted that without the ACA Medicaid expansion, enrollment might have declined due to the improving economy.

TOTAL SPENDING GROWTH FY 2014-FY 2015

Total Medicaid spending growth in FY 2014 increased across all states on average by 10.2 percent, virtually identical to the 10.3 percent originally appropriated by state legislatures. The primary factor listed by state officials as contributing to this growth in spending was enrollment growth driven by the ACA-related eligibility changes. While total spending growth increased at higher rates than previous years across all states due to increased enrollment, states that implemented the ACA Medicaid expansion reported significantly higher rates of growth in total spending (13.1%) than states that did not implement the Medicaid expansion (5.6%). (Figure 9) Total spending growth was right on target with state projections in the states that expanded in FY 2014; total spending growth for states that did not expand was substantially lower than original projections (5.6% growth reported compared to 6.8% projected).9  The coverage provisions of the ACA went into effect in January 2014, mid-way through the state fiscal year which begins on July 1 in most states.

In FY 2015 across all states, total Medicaid spending is projected to grow on average by 14.3 percent based on adopted budgets for FY 2015. Looking specifically at the 28 states that are implementing the ACA Medicaid expansion, total Medicaid spending was appropriated to increase on average by 18.3 percent. In comparison, across the 23 states not implementing the ACA Medicaid expansion at this time, spending growth was appropriated to increase on average by 6.5 percent. (Figure 9) The larger differential between growth rates for expanding and non-expanding states in FY 2015 was expected as it reflects the first full year of the Medicaid expansion.

Figure 9: Medicaid total spending growth was higher among states that expanded, due to the increase in federal funds.

Figure 9: Medicaid total spending growth was higher among states that expanded, due to the increase in federal funds.

Medicaid officials in the majority of states believed that the amount of funding legislatively appropriated for their Medicaid program for FY 2015 would be adequate. In only about one-quarter of states did officials believe that a Medicaid shortfall was likely. This is the second consecutive year in which the majority of Medicaid officials expressed confidence in the adequacy of the original legislative authorization for the upcoming year, which is a turnaround from the Medicaid experience during the recent recession when a majority of Medicaid officials expected a Medicaid budget shortfall at the start of each fiscal year.

State Spending for Medicaid

Historically, state and federal Medicaid spending have increased at similar rates. Differences between total and state spending growth are usually related to factors such as annual changes in the state-specific FMAPs, changes in contributions from local governments, special financing arrangements, or provider taxes. During the last two recessions, Congress enacted temporary enhancements to the FMAP to provide fiscal relief to states by reducing the state share of Medicaid spending. Due to this relief, there was a historic decline in state spending for Medicaid in FY 2009 and FY 2010 followed by substantial increases in FYs 2011 and 2012 due to the expiration of the enhanced-match rate. For FY 2014, state fund spending for Medicaid increased on average by 6.4 percent across all states compared to total spending growth of 10.2 percent. For FY 2015, state fund spending is projected to grow on average across all states by 5.2 percent, compared to total spending growth of 14.3 percent. The large gap between total and state spending growth is attributable to the higher FMAP available in states implementing the ACA Medicaid expansion. (Figure 10)

Figure 10: Total and state funds for Medicaid generally grow at similar rates, except when there are statutory changes in the FMAP.

Figure 10: Total and state funds for Medicaid generally grow at similar rates, except when there are statutory changes in the FMAP.

For expanding states, total Medicaid spending generally will grow at a rate similar to enrollment growth; state spending for Medicaid will grow more slowly due to the higher federal match for newly eligible individuals. In FY 2014, across states implementing the Medicaid expansion, total Medicaid spending increased on average by 13.1 percent, nearly double the rate of state spending growth of 6.6 percent. This pattern continues into FY 2015, but is more dramatic with the enhanced 100 percent federal match rate in effect for the entire fiscal year in most of the expansion states. States expanding Medicaid are expecting total Medicaid spending growth of 18.3 percent on average in FY 2015 –more than four times the rate of growth of state Medicaid spending in these states (4.4%). (Figure 11) Some states implementing the Medicaid expansion also noted they will see savings of state dollars in their Medicaid budget when individuals previously enrolled in limited-benefit, regular FMAP state Medicaid programs now gain full Medicaid coverage and thereby qualify for the “newly-eligible 100 percent match rate.”

Figure 11: Expansion states report higher enrollment and total spending tied to the ACA, but lower rates of state spending.

Figure 11: Expansion states report higher enrollment and total spending tied to the ACA, but lower rates of state spending.

States not implementing the expansion saw total Medicaid spending in FY 2014 increase by 5.6 percent and state spending increase on average by 6.1 percent – somewhat similar rates of growth, particularly in comparison to the rates of spending growth seen in expansion states. Both total and state spending growth rates for non-expanding states exceeded enrollment growth of 2.8 percent. Total and state spending for non-expanding states are expected to continue growth in FY 2015, again at similar rates (6.5 percent for total spending and 6.8 percent for state spending) as enrollment growth is expected to increase on average by 5.2 percent. (Figure 12)  Beyond the ACA changes such as the MAGI eligibility rules, increased publicity and the interface with the new Marketplaces, another important factor affecting state spending in FY 2014 and FY 2015 were changes in state FMAP rates due to annual updates to the formula.10 These factors contribute to differences between total and state spending growth across all states, but are primarily evident across states not adopting the ACA Medicaid expansion in FY 2014 and FY 2015.

Figure 12: Non expansion states report more consistent growth rates across enrollment, total spending and state spending.

Figure 12: Non expansion states report more consistent growth rates across enrollment, total spending and state spending.

In addition to increases in health coverage and reductions in the number of uninsured, state decisions about the Medicaid expansions have important fiscal implications due in part to the increase in federal funds to the state that support health care providers including hospitals, health centers, and nursing facilities, and other businesses, and have positive effects on jobs, household spending, and state and local tax collections.11

In this year’s survey, states expanding Medicaid also typically cited net state budget savings beyond Medicaid. States reported that expanded coverage through Medicaid could allow for reductions in state spending for services such as mental health, correctional health, state-funded programs for the uninsured and uncompensated care. These savings are outside the Medicaid program and Medicaid spending and enrollment data included in this report. States also referenced studies that projected drops in the number of uninsured and increases in state economic activity.12 (Figure 13)

Figure 13: The Medicaid expansion has coverage and fiscal implications for states.

Figure 13: The Medicaid expansion has coverage and fiscal implications for states.

Looking Ahead

Medicaid enrollment and spending trends have been largely driven by economic conditions, including two major recessions since 2000. In FYs 2012 and 2013, as economic conditions increasingly showed signs of improvement, states saw Medicaid enrollment growth slow. As anticipated, in FY 2014 and in budgets adopted for FY 2015, spending and enrollment have increased at a faster pace largely due to the implementation of the ACA’s major coverage provisions. Widespread outreach efforts and simplified enrollment procedures contributed to enrollment growth across all states. However, states that implemented the Medicaid expansion experienced substantially higher growth in enrollment compared to states that did not implement the ACA expansion in 2014. Total Medicaid spending also increased substantially, driven by increases in states implementing the Medicaid expansion, although the growth in these states was primarily driven by enrollment of the fully-federally-funded, newly eligible population. Medicaid spending from state funds increased at far lower rates than total Medicaid spending in states that implemented the Medicaid expansion. Looking ahead, the economy, ACA implementation and other Medicaid policy changes (such as major payment and delivery system reform efforts) are expected to continue to have a significant effect on future Medicaid spending and enrollment trends.

This Kaiser Commission on Medicaid and the Uninsured brief was prepared by Robin Rudowitz and Laura Snyder from the Kaiser Family Foundation, and Vernon K. Smith, Ph.D., Kathleen Gifford and Eileen Ellis with Health Management Associates.The authors express their appreciation to Dennis Roberts, who managed the database. We also thank the Medicaid directors and staff in all 50 states and the District of Columbia who completed the survey on which this brief is based.

Executive Summary Methodology

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