As Pandemic-Era Policies End, Medicaid Programs Focus on Enrollee Access and Reducing Health Disparities Amid Future Uncertainties: Results from an Annual Medicaid Budget Survey for State Fiscal Years 2024 and 2025

Executive Summary

At the end of state fiscal year (FY) 2024 and heading into FY 2025, states were wrapping up the unwinding of the pandemic-related continuous enrollment provision, focusing on an array of other priorities, and facing uncertainty about the stability of state revenues. States were also looking ahead to federal and state elections in November and the potential implications of those elections for Medicaid enrollees, states, and providers. As states have emerged from the now-expired COVID-19 Public Health Emergency, which profoundly affected Medicaid enrollment and spending, many are focused on using Medicaid to address long-standing health disparities (often exacerbated by the pandemic), improve access to behavioral health services and long-term services and supports (LTSS), address enrollee social determinants of health, and implement broader delivery system and value-based initiatives. Serving over one in five people living in the United States and accounting for nearly one-fifth of health care spending (and half of long-term care spending), Medicaid represents a large share of state budgets and is a key part of the overall health care system.

This report highlights certain policies in place in state Medicaid programs in FY 2024 and policy changes implemented or planned for FY 2025, which began on July 1, 2024 for most states.¹ The findings are drawn from the 24th annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by KFF and Health Management Associates (HMA), in collaboration with the National Association of Medicaid Directors (NAMD). States completed this survey in mid-summer of 2024, and 50 states responded to this year’s survey, although response rates for specific questions varied.² The District of Columbia is counted as a state for the purposes of this report. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis.

Key Take-Aways

Provider Rates and Managed Care

• States had implemented (in FY 2024) and were planning (in FY 2025) a wide range of fee-for-service (FFS) rate increases across provider types and very few states were implementing rate restrictions. In FY 2024 and FY 2025, states reported inflation and workforce shortages were driving higher labor costs, resulting in pressure to increase provider rates across provider types. In FY 2024 and FY 2025, states continue to report rate increases for nursing facilities and home and community-based services (HCBS) providers more often than for other provider categories, reflecting ongoing staffing challenges for LTSS services. More than half of states reported rate increases for outpatient behavioral health providers (34 states), primary care providers (33 states), and dentists (28 states) in FY 2024, signaling a continued focus on leveraging rates to preserve or increase access in these areas. Beginning in 2026, the recently finalized Access rule requires states to conduct comparative rate analyses for certain services, publish fee schedules for all FFS rates, disclose payment rates for HCBS, and ensure HCBS payment adequacy (payment adequacy provision effective in 2030). A separate Managed Care rule also requires states to submit an annual managed care payment analysis for certain services (also effective in 2026).
• Many states reported increases in hospital FFS base rates and hospital supplemental payments in FY 2024 and FY 2025. State FFS payments to hospitals fall into two broad categories: (1) FFS base rates and (2) supplemental payments (typically made in a lump sum for a fixed period). Supplemental payments are often used to cover hospital costs that exceed the amounts covered by their FFS base rates. While managed care organizations (MCOs) have flexibility to determine provider payment methods and amounts, they often pay rates similar to FFS rates. Many states that contract with MCOs use “state directed payments” (SDPs) to make uniform rate increases that are like FFS supplemental payments. This year states were asked about changes to hospital FFS base rates, total (non-DSH) FFS hospital supplemental payments, and managed care state directed payments for hospital services.
  • More than half of states (26 states) reported increasing both inpatient and outpatient hospital FFS base rates in FY 2024, and many states reported increases in both hospital FFS base rates and total non-DSH supplemental payments. States reported few decreases to hospital FFS payments (base rates or total supplemental payments).
  • Thirty-seven of 41 responding states that contract with MCOs reported SDP(s) for hospital services in place as of July 1, 2024. Most of these states (26 of 37 states) reported that hospital SDPs, as a percentage of total Medicaid hospital reimbursement, were projected to increase in FY 2025 (compared to FY 2024). A few states commented on plans to significantly increase hospital SDPs in FY 2025, including increases up to the average commercial rate (the new payment rate ceiling established by federal rules that is substantially higher than the Medicare payment ceiling used for other Medicaid FFS supplemental payments).
• About two-thirds of responding MCO states (25 of 41) reported seeking CMS approval for a capitation rate amendment to address shifts in the average risk profile (or “acuity”) of MCO members in FY 2024 and/or FY 2025. States and plans faced another period of heightened rate setting uncertainty when the public health emergency (PHE) continuous enrollment period expired on March 31, 2023. States may use a variety of mechanisms (e.g., medical loss ratios (MLRs) with remittance requirements and/or risk corridors) to adjust plan risk to ensure payments are not too high or too low. However, even with these strategies in place, states may determine rate amendments are necessary, for example, if their actual experience differs significantly from the assumptions used for the initial certified rates. While many states and plans anticipated that enrollees likely to retain coverage during “unwinding” would have higher health care needs and utilization patterns (on average) than those disenrolled, states can seek rate amendments if projections do not match experience.

Benefits and Prescription Drugs

• Most states continue to implement benefit enhancements, particularly for mental health and/or substance use disorder (SUD) services. Consistent with trends in recent years, states reported expanding services across the behavioral health care continuum. In conjunction with the ongoing implementation of the 988 Suicide and Crisis Lifeline, there was a particular focus on enhancing crisis services in FY 2024 and FY 2025, including mobile crisis services and crisis services for youth. States also continue to invest in more coordinated and integrated physical and behavioral health care. In addition to behavioral health expansions, states reported enhanced pregnancy and postpartum services. Frequently reported benefit actions include coverage of doula services and other benefit additions or expansions aimed at reducing maternal morbidity and mortality and addressing racial/ethnic health disparities.
• Twelve state Medicaid programs reported covering GLP-1s (glucagon-like peptide-1s) when prescribed for the treatment of obesity, under FFS as of July 1, 2024. GLP-1 agonists have been used as a treatment for type 2 diabetes for over a decade and are covered by state Medicaid programs for that purpose. However, newer forms of these drugs, such as Wegovy and Zepbound, have gained widespread attention for their effectiveness as a treatment for obesity. While states must cover nearly all FDA-approved drugs for medically accepted indications, a long-standing statutory exception allows states to choose whether to cover weight-loss drugs under Medicaid, leading to variation in coverage policies across states. Recent KFF analysis found most large employer firms do not cover GLP-1 drugs for weight loss, coverage in ACA Marketplace plans remains limited, and coverage in Medicare is prohibited. A majority of state Medicaid programs reported that cost was a key factor contributing to their obesity drug coverage decisions, though half of states that currently do not cover the drugs noted they were considering or evaluating adding coverage. Rising prescription drug costs are an ongoing concern for states and nearly three-quarters of states reported at least one new or expanded initiative to contain prescription drug costs in FY 2024 or FY 2025. Efforts to implement or expand value-based arrangements (VBAs) with pharmaceutical manufacturers were the most frequently mentioned cost containment initiative across states.

Social Determinants of Health and Reducing Health Disparities

• A number of states are expanding or enhancing Medicaid coverage to help address enrollee social determinants of health (SDOH) or associated health-related social needs (HRSN). In 2022, CMS released a new framework for covering HRSN services under Section 1115 waivers, expanding flexibility for states to add certain short-term housing and nutrition supports as Medicaid benefits. Additional guidance and resources that identify allowable HRSN services and supports were released by CMS in late 2023. HRSN approvals to date include coverage of rent/temporary housing and utilities and meal support (up to three meals per day), departing from long-standing prohibitions on payment of “room and board” in Medicaid.
• States are implementing strategies to reduce racial and ethnic health disparities, including through changes in managed care contracts. Some state MCO contracts incorporate requirements to reduce health disparities. For example, states can require MCOs to have a health equity plan in place, conduct staff training on health equity and/or implicit bias, report racial disparities data, or incorporate enrollee feedback (among other requirements). The number of states with at least one specified MCO requirement related to reducing disparities grew to 37 states in FY 2025 (from 16 in FY 2022). States may also tie MCO financial quality incentives to reducing health disparities. About one-third of states reported at least one MCO financial incentive tied to reducing racial/ethnic disparities in place in FY 2024, most commonly linking capitation withholds or pay for performance incentives to improving health disparities.

Heading into FY 2025, state Medicaid officials were focused on continued efforts to address key priorities but noted state budget and administrative issues as challenges. In terms of policy priorities, states highlighted continued efforts to expand access to behavioral health services and LTSS (including addressing workforce shortages), implement payment and delivery system reforms, and advance key initiatives related to SDOH and transitions from incarceration (two policy areas also linked to reducing health disparities). Tackling these issues is often complex and involves sustained effort over multiple years. States also noted a number of ongoing and emerging challenges including rising health care costs (particularly for LTSS and prescription drugs); uncertain trajectory for state budgets and limited administrative capacity (due to outdated systems and state workforce shortages) at the same time administrative demands are increasing, especially tied to the implementation of new federal rules. The implementation of new federal rules could be further complicated by a Supreme Court ruling that could increase legal challenges to federal regulations. State officials also commented on challenges dealing with a lot of program uncertainty, adjusting to a new “normal” following the unwinding and expiration of pandemic-era policies, and the upcoming election that could have major implications for the program.