Medicaid: What to Watch in 2023

As 2023 kicks off, a number of issues are at play that could affect coverage and financing under Medicaid, the primary program providing comprehensive health and long-term care coverage to low-income Americans. The Consolidated Appropriations Act, passed in December 2022, ends the Medicaid continuous enrollment provision on March 31, 2023 with a phase-down in enhanced federal matching funds. The unwinding of this provision, as well as the trajectory of the pandemic and the economy, will have implications for Medicaid enrollees, providers, managed care plans, and the states that operate these programs. A divided Congress will make it difficult to pass federal legislation, and while the Administration is expected to continue to use existing authority to improve coverage, access, and health equity, limited action at the federal level will push even more policy focus to the states. The first glimpse of state policy priorities will be revealed in Governors’ state of the state addresses and proposed budgets. Within this context, this issue brief examines key issues to watch in Medicaid in 2023.

Medicaid Coverage and Financing

The Medicaid continuous enrollment provision in place during the pandemic has increased enrollment and reduced the uninsured rate, but will end in March 2023. Provisions in the Families First Coronavirus Response Act (FFCRA) required states to ensure continuous enrollment in Medicaid in exchange for enhanced federal matching funds during the Public Health Emergency (PHE). Largely due to these policies, enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) grew to 91 million in September 2022, an increase of 27.9% from February 2020 (prior to the pandemic). KFF estimates that through federal fiscal year 2022, states received more than double the amount in federal fiscal relief relative to the costs of enrollment due to the continuous enrollment provision, with some variation across states. The Consolidated Appropriations Act ends the continuous enrollment provision on March 31, 2023, and phases down the enhanced federal Medicaid matching funds through December 2023. States can resume disenrollments beginning April 1 but must meet certain eligibility and reporting requirements to continue to be eligible for enhanced funding. An estimated 5 to 15 million people could lose Medicaid coverage during unwinding and how states manage the process could affect how many people are able to maintain coverage.

Debate about Medicaid expansion will shift back to the states. Democrats in Congress last year discussed a federal option to fill in the Medicaid coverage gap but ultimately did not pass it, and such an approach is now highly unlikely with divided control in Washington. The American Rescue Plan Act (ARPA) included a two-year fiscal incentive to encourage remaining “non-expansion” states to newly adopt the Affordable Care Act (ACA) Medicaid expansion. Over  2 million individuals living in the 11 states that have not adopted the ACA Medicaid expansion fall into the “coverage gap.” These individuals do not qualify for Medicaid (as their income exceeds Medicaid eligibility limits in their respective states) but have incomes below poverty, making them ineligible for premium subsidies in the ACA Marketplace. A KFF analysis shows that all non-expansion states would see a net fiscal benefit from the ARPA incentive for two years if they adopt the expansion. The ARPA federal incentive reignited discussion around Medicaid expansion in a few non-expansion states during the last state legislative session. Notably, every state that has adopted expansion since 2019 has done so not through legislative or executive processes, but as a result of a successful ballot initiative. Most recently, South Dakota became the 40th state to expand Medicaid after voters approved a ballot question in November 2022. Although expansion ballot initiatives have been successful in all seven states where they have gone to voters (Idaho, Maine, Missouri, Nebraska, Oklahoma, and Utah), most of the remaining non-expansion states do not have ballot initiative processes. North Carolina may be the state most likely to expand Medicaid next given how far efforts advanced last year, with active efforts in Kansas and Wyoming as well.

Some states and the Administration are expected to continue to implement incremental policies to expand coverage. ARPA included an option, made permanent in the Consolidated Appropriations Act, to allow states to extend postpartum coverage from 60 days to 12 months. Under current law, after the 60 days of postpartum coverage, many people who qualify for pregnancy-related Medicaid  lose that coverage because Medicaid eligibility levels for parents are much lower than for pregnant people in most states, and especially in non-expansion states. As of January 2023, more than two-thirds of the states have taken steps to extend postpartum coverage. The Consolidated Appropriations Act also included a requirement for all states to implement 12 months of continuous coverage for children. In addition, Oregon received waiver approval to provide continuous eligibility for children from birth to age 6 and 2 years of continuous eligibility for all enrollees ages 6 and up, including adults; other states are seeking similar waivers for multi-year continuous eligibility. KFF analysis shows that for children, continuous eligibility policies help to provide coverage stability. Finally, the Administration released a proposed regulation designed to make it easier for individuals to obtain and retain coverage.

New state and federal attention to Medicaid financing could emerge in 2023. Medicaid financing is shared by the federal government and the states. Consequently, economic factors that affect state revenues including inflation, supply chain issues, and declining labor force participation rates, along with phase-down of the enhanced FMAP tied to the end of the continuous enrollment provision will have fiscal implications for states. In our annual state survey, states noted that inflation and workforce shortages were driving higher labor costs and pressure from providers for rate increases. Many states use reimbursement methodologies for some provider types, such as nursing facilities, that may automatically adjust for inflation. In addition, at the federal level the House of Representatives is likely to focus on measures to reduce the federal deficit and, while unlikely to pass in the Senate, proposals to limit federal spending for Medicaid could be debated again in Congress.

What to Watch:

• What will happen to Medicaid enrollment during the unwinding of the continuous enrollment provision? How will changes vary across states? How many people losing Medicaid coverage will transition to other sources of insurance like the Affordable Care Act marketplaces, and what will happen to the number of uninsured?
• Will any additional states implement Medicaid expansion or other coverage expansions like 12-month postpartum coverage?
• How will administrative actions, including oversight of the unwinding of the continuous enrollment provision, waiver approvals, and new regulations contribute to changes in coverage?
• How will broader economic factors, like inflation, affect state financing of Medicaid and will Congress debate broader proposals to cap federal Medicaid spending?

Access and Health Equity

Capitated managed care remains the predominant delivery system for Medicaid in most states. More than three-quarters of states that contract with MCOs (35 of 41) reported that 75% or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2022. Several states have recently implemented Medicaid managed care programs. Beginning July 1, 2021, North Carolina implemented its first MCO program, enrolling more than 1.8 million Medicaid beneficiaries in MCOs as of December 2022. Missouri implemented the ACA Medicaid expansion in October 2021, enrolling all expansion adults in Medicaid MCOs, and Oklahoma expects to implement capitated, comprehensive Medicaid managed care in October 2023. State managed care contracts vary widely in the populations required to enroll, the services covered, and the quality and performance incentives and penalties employed. Five multi-state, for-profit “parent” firms – Centene, UnitedHealth Group, Anthem, Aetna/CVS, and Molina – each have Medicaid MCOs in 12 or more states and account for half of all Medicaid MCO enrollment. MCOs are expected to play a large role in helping enrollees maintain coverage during the unwinding of the continuous enrollment provision. The Administration is expected to release revised regulations about Medicaid managed care and assuring access in Medicaid in the Spring of 2023.

In response to the pandemic, all states took action to expand coverage and access to telehealth in Medicaid, particularly for behavioral health services. In particular, nearly all states added or expanded audio-only telehealth coverage. These policy changes contributed to high telehealth utilization by Medicaid enrollees during the pandemic, overall and especially for behavioral health services. The rapid expansion of Medicaid telehealth policies and utilization has prompted state and federal questions about the quality of services delivered via telehealth. Most states have implemented or are planning initiatives to assess telehealth quality, though many states report ongoing considerations and uncertainty over how to effectively evaluate quality. States also report actions to address other telehealth challenges, including access to technology and broadband, program integrity, outreach and education, and equity. Most states have or plan to adopt permanent Medicaid telehealth expansions that will remain in place after the pandemic, including expansions of allowable modalities, services, and providers. At the same time, some states are considering guardrails on such policies, particularly for audio-only telehealth.

Beyond telehealth, many states are taking steps to expand access to behavioral health services as the pandemic has heightened demand for these services. Nine in ten Americans believe the nation is in the midst of a mental health crisis. Behavioral health conditions (i.e., mental health and substance use disorders) are more prevalent in Medicaid enrollees compared to people with other coverage, with data from 2020 showing that approximately 39% of Medicaid enrollees were living with a mental health or substance use disorder. States have been expanding behavioral health benefits and access to care, including by adopting strategies to bolster the behavioral health workforce. These state efforts track with continued activity at the federal level: the Consolidated Appropriations Act and the 2022 Bipartisan Safer Communities Act included an array of provisions to expand access and funding for behavioral health, such as provisions to require guidance on expanding Medicaid-covered mental health services in schools, expand Certified Community Behavioral Health Clinics (CCBHC), fund new psychiatry residency positions, and eliminate administrative requirements to prescribe buprenorphine.

States and the Administration have identified advancing health equity as an important priority for the Medicaid program. The pandemic exacerbated longstanding racial and ethnic disparities in health and health care. Medicaid policies that could help address health equity include closing the “coverage gap” for adults in non-expansion states; increasing coverage among those eligible but not enrolled; and expanding benefits such as pregnancy and postpartum services, housing and housing-related supports, and community health worker services. High-quality, comprehensive data are essential for identifying and addressing health disparities and measuring progress over time and the majority of states are implementing strategies to improve race, ethnicity, and language (REL) data completeness. States are also using MCO financial quality incentives (e.g., performance bonuses, withholds) tied to health equity-related performance goals and other MCO contract requirements to advance health equity. Other reported state Medicaid initiatives to reduce racial health disparities include outreach to underserved populations, increasing cultural competency, and establishing departments and dedicated staff positions focused on promoting equity. In addition, states have received or are seeking Section 1115 waivers that aim to advance equity.

States and the Administration are implementing strategies to leverage Medicaid to address social determinants of health (SDOH) through managed care and Section 1115 waivers. The Biden Administration has encouraged states to propose waivers that expand coverage, reduce health disparities, and/or advance “whole-person care,” including by addressing health-related social needs (HRSN). Recent waivers approved in four states (AR, AZ, MA, and OR) include HRSN services to address food insecurity and/or housing instability for targeted populations. Additionally, following the approval of a California proposal to use “in lieu of” services (ILOS) to offer a menu of health-related services through managed care authority, the Centers for Medicare and Medicaid Services (CMS) recently released additional guidance on the use of in lieu of services and settings in Medicaid managed care to reduce health disparities and address unmet HRSN (such as housing instability and nutrition insecurity).

What to watch?

• How effective will state and administration efforts to leverage Medicaid be in addressing SDOH and reducing health disparities? How will states use authorities including Section 1115 and managed care to pursue these goals?
• What kinds of permanent telehealth expansions and/or guardrails will state Medicaid agencies adopt, and how will these policy changes be informed by data analyses, federal guidance, and cost concerns?
• Will the Administration release new guidance in 2023 to address access to care and what provisions will be included in the anticipated access and revised managed care regulations?
• Will Congress pass additional legislation and / or will states take additional actions to improve access to and funding for behavioral health services?

Enrollment and Access Among People Eligible for Medicaid through Age or Disability

The new proposed rule on eligibility and enrollment could increase enrollment among all Medicaid eligibility groups, but especially among seniors and people with disabilities. A proposed rule designed to make it easier for people to obtain and maintain coverage in Medicaid and CHIP includes provisions to simplify the enrollment and renewal processes for seniors and people with disabilities by applying many of the ACA’s simplified eligibility processes for children and other adult eligibility groups to these groups. There would also be simplified enrollment procedures for people who receive supplemental security income and people who are enrolled in Medicare but eligible for Medicaid coverage of Medicare premiums. KFF analysis finds that over one-third of Medicare-Medicaid enrollees lose Medicaid coverage within one year of their initial enrollment, which is one of the reasons for the proposed changes. CMS expects that the rule would increase Medicaid enrollment by nearly 3 million full-year equivalents, with seniors and people with disabilities accounting for over half of that total.

Staff and residents at long-term care facilities have been disproportionately affected by the pandemic. Over one-fifth of all deaths from COVID-19 were among residents and staff in long-term care facilities as of June 12, 2022. Although initial vaccination rates were high and the death rate among nursing facility residents and staff dropped, take-up of boosters and of the new bivalent booster has been much lower. Going into the 2022-2023 winter period, fewer than half of residents and one quarter of staff were up-to-date with their vaccinations, which may result in higher death rates moving forward. Compounding the challenges with COVID-19 illness is the ongoing workforce shortage for long-term care facilities. Whereas employment in most health care sectors has rebounded from the sharp drop in March 2020, employment in long-term care facilities remains well-below pre-pandemic levels.

The pandemic also highlighted workforce shortages and unmet need among people who use long-term services and supports (LTSS) delivered in home and community settings (HCBS). In a KFF survey of HCBS programs, nearly all states reported that workforce shortages were the number one impact of the COVID-19 pandemic on HCBS services and 44 states reported that at least one HCBS provider permanently closed. Virtually all states increased payment rates in response, but some of those increases are temporary rather than permanent. Many changes to HCBS programs relied on temporary funding through the ARPA or temporary authorities available during the PHE. Policymakers of both parties have called for additional and longer-term changes to HCBS including eliminating waiting lists for services, increasing opportunities for family members to be paid caregivers, enabling more people to live in their homes as they age, and permanently increasing wages for all HCBS providers.

There is bipartisan interest in improving the coordination for Medicare-Medicaid enrollees (also known as “dual eligibles”). People who are enrolled in both Medicare and Medicaid tend to have significant health and functional needs and higher health care spending than people with only Medicare or Medicaid. Policymakers have expressed interest in improving the coordination between Medicare and Medicaid with the goals of improved health outcomes and, possibly, reduced health care spending. Most recently, a bipartisan group of senators released a request for information, soliciting input from patients, providers, payors, and other stakeholders.

What to Watch:

• How will the final eligibility and enrollment rule increase enrollment for seniors and people with disabilities?
• Will nursing facility residents and staff be at increased risk of death as the virus evolves and immunity wanes among people who are vaccinated but not up to date? What efforts will emerge to improve rates of booster take-up?
• How will the end of ARPA funding and PHE authorities affect access to HCBS?
• Will bipartisan interest in improving the coordination between Medicare and Medicaid result in new legislation addressing Medicare-Medicare enrollees and their access to care?