The big spending bill heading for a vote in Washington this week would scramble the outlook for Medicaid in next year’s state budget, mostly for the better.

The $1.7 trillion federal package would end temporary policies which have barred states from enforcing normal Medicaid eligibility rules or taking other steps to manage costs while the federal pandemic emergency was in effect.

That caused New York’s program – which was already the costliest in the country on a per capita basis – to balloon even larger, adding 1.6 million enrollees and $17 billion in annual expenses.

If the omnibus bill passes into law, state officials could begin returning to normal – shifting excess enrollees into other coverage while implementing cost-control measures that have been frozen since they were enacted in the spring of 2020.

On the other hand, the state will gradually lose extra Medicaid funding the federal government has been sending to states, which has been worth about $3 billion a year for New York.

Overall, the package gives New York and other states more clarity about the timetable for returning to normal – along with a final allotment of federal aid to ease the transition.

The current pandemic-related Medicaid rules and funding date back to the Families First Coronavirus Response Act, a relief package approved by Congress and signed by former President Donald Trump in mid-March 2020.

As part of that package, the federal government offered to cover an extra 6.2 percent of states’ Medicaid costs, but the money came with strings attached:

  • A “continuous coverage” rule, which said states could not remove people from their Medicaid rolls, regardless of income, unless they died or moved to another state. 
  • A “maintenance of effort” policy, which barred states from changing their eligibility rules to become more restrictive.

As originally enacted, this three-part policy was due to stay in force until the end of the fiscal quarter in which the federal pandemic emergency was lifted – something President Biden has not yet ordered.

Under the legislation pending this week, the Medicaid policies would be uncoupled from the emergency order. The continuous coverage and maintenance of effort rules would end on March 31, 2023, and states would be mandated to prune their rolls over the ensuing year or more. Meanwhile, the enhanced federal funding would phase out over the following three fiscal quarters.

Here is a closer look at how these changes will affect New York:

Enrollment

New York’s Medicaid enrollment – which had been steady at about 6.1 million before the pandemic – surged to 7.7 million over the past two and one-half years. That increase reflects both a surge of new enrollees during the economic downturn and a lack of attrition due to the “continuous coverage” rule.

Anticipating that the federal emergency would end in March, the state Budget Division projected that Medicaid rolls would drop by 1.4 million, or 18 percent, over the next two years. Most of those people are eligible for other insurance through the government or their employers.

According to a federal study, 93 percent of people who lose Medicaid eligibility when “continuous coverage” expires will shift to other health plans. According to the study’s projections, about one-third will switch to subsidized coverage through the Affordable Care Act (including 21 percent who will qualify for zero-premium plans), 44 percent will sign up for employer-sponsored benefits and another 17 percent will buy commercial insurance on their own.

Three percent nationwide are expected to fall into a “coverage gap” affecting states that chose not to expand Medicaid – which is not an issue in New York. Two percent are expected to be offered employer-sponsored coverage and turn it down.

Another 6.8 million current enrollees nationwide are projected to remain eligible but fall off the rolls due to “administrative churn” – meaning avoidable issues such as bureaucratic mistakes or incomplete paperwork. To minimize churn, the omnibus package says states should not rely solely on processing renewals by mail, but also try to contact recipients by a second “modality” before cutting off their coverage.

Cost-cutting

In early 2020, as the coronavirus was first arriving in the U.S., Governor Cuomo reconvened his Medicaid Redesign Team to close a burgeoning shortfall in the program’s budget. The panel proposed almost $2 billion in cost-cutting reforms that were approved by the Legislature – but as part of a budget enacted in the thick of New York’s first wave.

By that time, Congress had already barred states from tightening Medicaid eligibility during the emergency – effectively freezing much of what Albany lawmakers had agreed to do.

With that federal policy soon to be lifted, the Health Department can be expected to move forward with those delayed policy changes – including key changes focused on New York’s costly and rapidly growing home care program.

One would establish a 30-month “look back” at applicants’ financial records, to check if they have transferred or otherwise shielded assets that could have been used to pay for their own care. Currently the state does a 60-month look-back before approving Medicaid coverage of nursing home bills, but puts no such requirement on people seeking home care.

Another would tighten the definition of who is disabled enough to qualify for Medicaid coverage of home-based services.

Federal aid

As a way of providing fiscal relief to states, Washington’s March 2020 pandemic bill temporarily increased the federal share of Medicaid costs by 6.2 percentage points.

In New York, that change has saved the state government about $3 billion a year.

The state’s financial plan has assumed that the aid would end on March 31, 2023, leaving a hole in the Medicaid budget to be filled either by spending more state funds or reducing costs.

Under the omnibus bill in Washington, extra federal aid would continue through December 2023, albeit at lower levels – dropping from 6.2 percentage points to 5 in April, 2.5 in July and 1.5 in October. That would provide about $1 billion in aid that the state had previously included in its financial plan.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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