Medicaid: What to Watch in 2021

As the Biden Administration takes office, the ongoing effects of the coronavirus pandemic and related economic downturn are the key issues that will substantially shape Medicaid coverage and financing policy in the year ahead. Other issues to watch in 2021 include efforts to maintain and expand Medicaid coverage, potential changes in Medicaid demonstration waiver policy, issues around state budgets and Medicaid financing, initiatives to strengthen long-term services and supports and efforts to address social determinants of health.

Medicaid Coverage and Enrollment

Enrollment Prior to the Pandemic. Before the pandemic, Medicaid enrollment growth peaked after implementation of the Affordable Care Act (ACA). The ACA Medicaid expansion has been adopted by 39 states and covers more than 15 million adults. However, Medicaid enrollment declined from 2017 through 2019, which has contributed to increases in the overall number and rate of uninsured. Enrollment declines could reflect a more robust economy during those years, but experiences in some states suggest declines may have also been due to individuals experiencing challenges completing enrollment or renewal processes. In addition, the Trump Administration promoted a number of policies that restrict enrollment including issuance of the public charge rule that imposed new barriers to obtaining permanent immigration status or immigrating to the U.S. (leading to declines in participation in Medicaid and other programs broadly across immigrant families). The Trump Administration also supported proposals to repeal and replace the ACA as well as litigation to overturn the law that is pending at the Supreme Court.

Enrollment and COVID-19. As a counter-cyclical program, Medicaid enrollment grows during economic downturns when more people experience income and job loss and qualify for coverage. Since the start of the coronavirus pandemic, enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) grew to 76.5 million in August 2020, an increase of 5.3 million from February 2020 (7.4%). This trend likely reflects changes in the economy due to the pandemic and provisions in the Families First Coronavirus Response Act (FFCRA) that require states to ensure continuous coverage for current Medicaid enrollees to access a temporary increase in the Medicaid match rate. These FFCRA provisions are tied to the Public Health Emergency (PHE) period, which currently expires in April 2021 but may be extended longer.

Key Biden Priorities to Expand Coverage. Biden has proposed building on the ACA by increasing Marketplace premium assistance and creating a Medicare-like public option plan, which would be available to anyone and automatically cover people with low incomes in states that have not expanded Medicaid. While not as sweeping as proposals like Medicare for All, Biden’s proposals are broad changes that could be difficult to pass with a closely divided Senate even with Democrats in the majority. More narrow proposals to address those who fall into the coverage gap in states that have not adopted the expansion include legislation to reinstate the 100% federal matching rate for states that newly adopt the expansion for a period of time (the current match rate for the expansion is 90%), or extending ACA marketplace premium help to people below the poverty level. States that have already expanded Medicaid and are currently paying 10% of the cost might look for additional federal help as well. Twelve states have not adopted the Medicaid expansion, leaving many poor adults in a coverage gap, ineligible for Medicaid or Marketplace subsidies.

Other Options to Expand Coverage. There has been bi-partisan support for legislation that would allow states to extend postpartum Medicaid coverage from the current 60 days to 12 months. Another targeted bi-partisan legislative proposal is the Medicaid Reentry Act, which would allow states to cover services for Medicaid beneficiaries who are incarcerated during the 30 days preceding their release which could facilitate coverage and access to care post-release. In addition, Congress could consider legislation to allow states the options to cover recent immigrants on Medicaid (eliminating the current 5 year coverage ban for groups other than pregnant women and children).

What to Watch:

• How will the health and economic effects of the pandemic affect Medicaid enrollment?
• How long will the PHE and the maintenance of eligibility requirements be in place, and what will be the effects on Medicaid coverage when they end?
• What will happen with the ACA litigation pending at the Supreme Court?
• What efforts to protect and build on the ACA and expand Medicaid will the Biden Administration and Congress pursue?

Medicaid Demonstration Waivers

Section 1115 waivers generally reflect priorities identified by the states and the federal Centers for Medicare and Medicaid Services (CMS), as well as changing priorities from one presidential administration to another. Past administrations have used waivers to expand coverage, modify delivery systems, and restructure financing and other program elements. Although each administration has some discretion over which waivers to approve and encourage, that discretion is not unlimited.  Section 1115 waivers are governed by statutory requirements as well as longstanding executive branch policy that waivers be budget neutral to the federal government. The Trump administration’s Section 1115 waiver policy has emphasized work requirements and other eligibility restrictions, payment for institutional behavioral health services, and capped financing.

The Biden Administration can revise current demonstration waiver policy to focus on expanding coverage and rescind or reverse waivers or guidance that could limit coverage (including work requirements) or cap federal financing.  The Supreme Court is hearing cases involving the Arkansas and New Hampshire work requirement waivers this term. The Biden Administration also can encourage waivers that expand coverage to targeted groups or help make Marketplace coverage more affordable. This could include guidance to states about using Medicaid Section 1115 waivers in combination with Section 1332 waivers to advance public option proposals or other strategies to improve affordability for consumers and expand coverage.   In addition, while addressing behavioral health and substance use disorder through waivers is likely to remain a high priority, the Biden Administration may emphasize the need to provide services across a full care continuum, including institutional community based care. Waivers could also be used to address social determinants of health.

What to Watch:

• How will the Biden Administration use Section 1115 waivers?
• Will the Biden Administration rescind certain waivers that have already been approved?
• Will the Biden Administration issue guidance for states to use combination Section 1115 and 1332 waivers?
• What will the Supreme Court decide in pending litigation about work requirements?

Medicaid Financing

Medicaid’s current financing structure provides some protections for states facing higher costs during economic downturns, as federal matching funds (FMAP) automatically increase as enrollment grows. In addition, temporary increases in the federal share of Medicaid funds can provide fiscal relief to states, offsetting some state funds. The FFCRA provided an FMAP increase of 6.2 percentage points through the end of the quarter in which the PHE ends so provided states meet certain requirements to maintain coverage and provide access to COVID-19-related services. With the recent extension of the PHE, the FMAP will be in place through June 2021.  However, there is uncertainty about how long the fiscal relief will be in place, and many states are seeing year over year declines in revenues. States need to pass balanced budgets and may face tough choices to cut spending (including for Medicaid) in the upcoming fiscal year. Often during economic downturns, states implement provider rate cuts or benefit restrictions; however, these policies could be difficult given pandemic’s health effects, as states strive to support health care providers and maintain Medicaid provider networks. Changes to the FMAP require legislation and cannot be made through Administrative action alone.

President-elect Biden has indicated support for further increasing the FMAP and may try to work with Congress to enact legislation. Republican leaders have generally opposed substantial increases in state and local assistance during the pandemic and economic crisis, though an increase in federal Medicaid payments could be included in a budget reconciliation bill that requires just a simple majority to pass the Senate. The Medicaid and CHIP Payment and Access Commission (MACPAC) in December 2020 announced moving toward a recommendation calling for an automatic Medicaid countercyclical financing model based on earlier recommendations from the General Accountability Office. The HEROES Act passed by the House in May and then updated and passed again in October would have increased the enhanced FMAP to 14 percentage points through September 2021, providing states with an estimated $55.5 billion in federal support according to the Congressional Budget Office. Congress could also consider alternative options to target the relief to states experiencing higher enrollment increases. However, it remains unclear if Congress will provide additional relief through the FMAP or if they will revisit the maintenance of effort requirements as part of another coronavirus relief package.

Another Medicaid financing issue could be to re-examine the financing for Puerto Rico and the rest of the territories.  Federal funding for Medicaid in the territories is subject to a statutory cap and a fixed federal matching rate, unlike in the states, where federal Medicaid funding is not capped, and the federal share varies based on states’ per capita income. As a result of the capped financing, the effective FMAP is generally lower than the statutory levels.  Hurricanes and other emergencies exacerbated long-standing fiscal issues in the territories.  Additional funding support (through both increased amounts and increases in the FMAP) have been provided through the ACA and then in response to other emergencies.  For Puerto Rico, support is expected to expire at the end of FY 2021.  Congress could extend relief or make more permanent funding changes for Puerto Rico and other territories.

What to Watch:

• To what extent will the pandemic continue to affect state budgets and ability to finance Medicaid? Will states propose Medicaid cuts in the upcoming state fiscal year?
• How long will the PHE and the temporary increase in the FMAP remain in place?
• Will Congress consider proposals to adopt additional fiscal relief or a permanent counter-cyclical adjustment or address Medicaid financing in the territories?

Long-Term Services and Supports

Medicaid is a significant source of coverage for seniors and people with disabilities, including those who need long-term services and supports (LTSS). Most eligibility pathways based on old age or disability, and nearly all home and community-based services (HCBS), are optional for states, creating state variation. The COVID-19 public health crisis has highlighted the significance of Medicaid coverage for people with disabilities through the ACA expansion as well as optional eligibility pathways based on old age or disability and optional HCBS benefit packages, as these populations have been hit particularly hard by the pandemic. Many seniors and people with disabilities rely on Medicaid LTSS to meet daily self-care and independent living needs, which has taken on even greater consequence during the pandemic. At the same time, state budget shortfalls could make it challenging for states to maintain optional LTSS.

President-elect Biden supports legislative changes to increase federal Medicaid funding for and expand access to HCBS. More broadly, Congress could consider proposals to eliminate Medicaid’s historical institutional bias by making HCBS a mandatory benefit. Federal and state policymakers also are expected to continue focusing on nursing home oversight, including compliance with federal Medicaid and Medicare infection control and other care quality measures as the pandemic continues. As states rollout their vaccine priority plans, additional attention will focus on reaching LTSS users and staff beyond nursing facilities, including people receiving and delivering HCBS.

What to Watch

• What actions will states continue to take to address the pandemic’s disproportionate impact on seniors and people with disabilities, and will any of these policy changes continue after the PHE ends?
• Will Congress consider legislation to expand coverage and financing for Medicaid community-based LTSS?

Social Determinants of Health

Social determinants of health (SDOH) are the conditions in which people are born, grow, live, work, and age that shape health. Addressing SDOH is important for improving health and reducing longstanding disparities in health and health care. SDOH include but are not limited to housing, food, education, employment, healthy behaviors, transportation, and personal safety. Within the health care system, there are multi-payer federal and state initiatives as well as Medicaid-specific initiatives focused on addressing social needs. Although federal Medicaid rules prohibit expenditures for most non-medical services, states have been developing strategies to identify and address enrollee social needs both within and outside of managed care. Medicaid managed care plans may use administrative savings or state funds to provide some of these services. CMS released additional guidance for states about opportunities to use Medicaid and CHIP to address SDOH on January 7.  The pandemic has exacerbated the challenges for state Medicaid programs related to health care access and other SDOH and has shined a light on persistent health inequities due to the disparate impact of COVID-19 on people of color. Access to food and housing are areas of growing need as many people have lost jobs and income.

What to Watch: 

• How can Medicaid be leveraged to help address SDOH during the pandemic and beyond?
• How will efforts be implemented (e.g. through managed care, waivers, etc.)?
• How will efforts affect health and health disparities?