Medicaid Growth

Medicaid enrollment and spending have grown substantially since the start of the pandemic. Such growth is expected during an economic downturn as unemployment rises, hours worked fall, and people become eligible for Medicaid coverage. However, the program has also been growing faster than other categories of health care spending over the past ten years. This is primarily due to the expansion of Medicaid through the Affordable Care Act (ACA). The ACA allowed states to expand their Medicaid program to include adults under the age of 65 whose income is less than 138% of the poverty threshold.  Originally, 23 states and the District of Columbia expanded Medicaid. Since then, another 15 states have expanded the program, leaving only 12 that have not expanded.1 The ACA made Medicaid expansion attractive to the states, with the federal government picking up 100% of the cost in the first year and reducing its share by only 10% by the tenth year. This means that the federal government will pay 90% of the cost of expansion in the long run.  In contrast, states pay for up to 50% of Medicaid’s other costs with high income states like New York paying 50% and low-income states like Mississippi paying 22%.

Congress is again thinking about expanding Medicaid in the Build Back Better Act. The Act would expand premium tax credits to lower income adults and create Medicaid programs in the states that have not yet expanded Medicaid and would give current expansion states the incentive to continue their current level of coverage and eligibility.2
 
Here, we’ll first look at Medicaid spending trends at the national level over the last two business cycles. Next, Medicaid spending in expansion and non-expansion states is contrasted. Lastly, Medicaid enrollment since the start of the pandemic in expansion and non-expansion states is compared.
Real, or inflation-adjusted, Medicaid spending per person in the United States based on Bureau of Economic Analysis (BEA) data is presented in Figure 1.  While less than a quarter of the population is covered by Medicaid, we present per capita spending for comparison to national health care spending per capita. By the second quarter of 2021, per capita Medicaid spending stood at $2,221.  From 2006 to 2019, the latest year available in the national health care expenditures data, total health care spending per capita grew 29.5%, or 2.0% annually.  In contrast, per capita Medicaid spending based on BEA data grew 51.3% over the same period, or 3.2% annually. 
 
The figure illustrates how Medicaid spending grew during and after the Great Recession, followed by the increase due to the ACA’s Medicaid expansion beginning in 2014.  From the end of 2016 to the fourth quarter of 2019, the end of the last business-cycle expansion, Medicaid per capita did not grow appreciably as employment rose and enrollment declined. However, real Medicaid spending per capita rose 13.5% from the start of the COVID Recession to the second quarter of 2021, even after the temporary drop during the first quarter of 2020. 

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Figure 2 presents Medicaid spending per capita in three sets of states. The original expansion states are the states that expanded as soon as allowable under the ACA. There are 24 states including the District of Columbia in the first set. Large states among the original expansion states include California and New York. The second set of states are those that expanded sometime after January 2014 but before July 2021, or after 2014:Q1 and before 2021:Q3. There are 13 states in this group including large states Michigan and Pennsylvania. The final set of states are those states that have not expanded or expanded in July 2021 or later. This set includes 14 states: 12 states that have not expanded, along with Missouri, slated to expand in October 2021, and Oklahoma which expanded in July 2021. Large states in the non-expansion group include Florida and Texas.
 
In the original expansion states, real per capita spending grew 41% between 2014:Q1 and 2021:Q2. Real per capita spending grew most rapidly in the states that expanded the program during the time horizon captured in the figure. From 2014:Q1 to 2021:Q2, real per capita Medicaid spending grew 60% in these states as enrollment of the newly eligible grew. The states that had not expanded Medicaid prior to July 2021 had the lowest growth in real per capita Medicaid spending at 19.3% between 2014:Q1 to 2021:Q2.  Nationally, real per capita spending grew 37% over the same period. From the start of the COVID recession in 2019:Q4 to 2021:Q2, real per capita spending grew 14.1% in the original expansion states, by 18.2% in the states that expanded after January of 2014, and by 10.5% in the non-expansion states.

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Medicaid enrollment counts from January 2019 to April 2021 are depicted in Figure 3 for same three sets of states.  Overall Medicaid enrollment grew by 11.1 million, or over 15%, between February 2020 and the start of the COVID Recession, and April 2021. Enrollment grew by 5.9 million between February 2020 and April 2021, or 14.4%, in the original expansion states. Enrollment grew by 2 million, or by 17.5%, in over this same period in the states that expanded Medicaid after January 2014 but before July 2021.  This higher growth in not surprising given that within this group of 13 states, Idaho and Utah had expanded in January 2020, just before the start of the pandemic and Nebraska expanded in October 2020. Enrollment grew by 3.1 million in the non-expansion states, or by 16.9%.

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Medicaid enrollment and spending have grown during the pandemic. This is expected during an economic downturn. The COVID Recession’s negative and lingering effects on employment in the Leisure and Hospitality industry has had a distinct impact on lower-earning workers who have become eligible for Medicaid. Employment in this industry sector remains well below its pre-pandemic level. But as noted, Medicaid spending has been growing more rapidly than other health care spending categories due in large part to enrollment growth in states that have expanded their Medicaid program since 2014. Spending has also grown more rapidly in the original expansion states.  Persuading the remaining non-expansion states to accept the federal payments will raise our federal burden at a time of ever-growing deficits.
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Footnotes
1 See Kaiser Family Foundation, Status of State Medicaid Expansion Decisions: Interactive Map, Sep 8, 2021. https://www.kff.org/medicaid/issue-brief/status-of-state-medicaid-expansion-decisions-interactive-map/
2 See Association of American Medical College, House Begins Mark-ups of the Build Back Better Act, https://www.aamc.org/advocacy-policy/washington-highlights/house-begins-mark-ups-build-back-better-act

Posted: October 01, 2021 by Andrew J. Rettenmaier