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MANAGEMENT UPDATE.

STATE MEDICAID FUNDING PRESSURE ON THE HORIZON

There’s been a great deal of attention paid in recent months to millions of Americans who found themselves disenrolled from the Medicaid program, as the continuous coverage requirements put in place during the pandemic have come to an end. You might think that would take fiscal pressures off the states, but the opposite turns out to be true.


Explains Kaiser Family Foundation’s (KFF) CEO Drew Altman in a recent “Beyond the Data” column, “We are seeing a decline in federal Medicaid funding as fiscal relief to states in the form of higher matching funds is withdrawn . . . And it’s happening when revenues in most states are weakening. That can be expected to put pressure on state budgets, rekindle on again, off again, conflict in states about the share of the budget consumed by Medicaid and make it tougher for states to continue current efforts to strengthen their Medicaid programs.”



This isn’t coming as a huge surprise to state budgeters in most places, as Shelby Kerns, executive director of the National Association of State Budget Officers wrote to us in a recent e-mail, in which she commented that, “the federal funding decline is a return to “normal” budget pressures. Due to the uncertainty around when the Public Health Emergency (PHE) funding would end, states had to budget for its end in previous budget years.”


Although the budgeters aren’t shocked by declining federal match due to the end of the PHE, “state projections for Medicaid enrollment, costs and utilization are more complicated as states deal with the unwinding of the continuous coverage,” wrote Kerns. Challenges include costs of new or expanded benefits implemented during the PHE; increased provider rates due to workforce shortages and wage pressures, and uncertainty about the extent of medical needs and the size of program enrollment after unwinding.


Spending uncertainty isn’t new. Medicaid expenditures have historically been tricky to estimate accurately, leading to multiple issues in past years in which projected budgets turn out to be short of actual spending at year’s end.


Even if budgeters understand the pressures they are facing, they are an important part of the states’ fiscal future, according to Altman, who offers up some significant findings from KFF research.


  • “The Congressional Budget Office projects that states will receive $58 billion less in federal Medicaid outlays in FY2024 than they did in 2023. As a consequence, states report that their Medicaid spending will increase by 17.3% in FY2024.”


  • “States are spending to address rising costs in Medicaid and health care, but also long overdue needs, such as increasing some providers’ payment rates or putting more resources into home and community-based services or mental health and behavioral health services.”


  • “Medicaid will face blowback in state budget wars in many states as it eats up a larger share of the new funds available in state budgets that legislatures, cabinet agencies and governors will want to direct to other priorities.”


As Altman concludes, “The question for the next several years is whether states will be able to continue to make targeted new commitments to strengthen Medicaid and mount innovative new programs in an environment of declining federal matching funds, weakening state revenues and competing state priorities.”


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