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According to the latest Monthly Treasury Statement, federal spending on Medicaid increased noticeably in April. The government spent 31 percent more in that month than it did in March, and that one-month growth is the largest since the Great Recession. The rise can be attributed to two factors that stem from the coronavirus (COVID-19) pandemic: an expected growth in the number of Americans eligible for and enrolling in Medicaid and recent legislation that has expanded both the program and the federal contribution to its cost.
Medicaid is a program financed jointly by federal and state governments that provides health insurance mostly to low-income individuals. By design, participation in the program tends to rise during economic downturns when people are laid off, lose health coverage, and see their incomes reduced. For example, Medicaid enrollment grew significantly during and after the Great Recession — at an average monthly growth rate of 7.0 percent between 2009 and 2010 — and slowed subsequently as the economy recovered. Spending on the program followed a similar trend; the annual rate of spending growth peaked at 7.6 percent in 2009 and slowed thereafter.
Since the COVID-19 outbreak prompted a national lockdown in mid-March of this year, almost 43 million individuals have filed for unemployment — which dwarfs the numbers of claims from the past recession. While the latest data on Medicaid enrollment is not yet available, federal spending on the program already reflects the economic turmoil.
Legislative changes also contributed to additional federal spending on Medicaid. In March, policymakers enacted the Families First Coronavirus Response Act (FFCRA) to help Americans affected by the pandemic. The legislation extends Medicaid coverage to include COVID-19 testing with no cost sharing and enables states to cover testing for individuals not originally eligible for Medicaid. The FFCRA also authorizes an increase the Federal Medical Assistance Percentage (FMAP), the proportion of spending for the program covered by the federal government. The FMAP varies by state and ranged from 50 to 78 percent before the outbreak; the FFCRA increased the federal contribution by 6.2 percentage points until the public health emergency period terminates.
Federal spending on Medicaid will likely continue to increase in the near future as individuals who experienced a loss of income enroll in the program. As a part of the social safety net, Medicaid and other income security programs are designed to encompass more Americans in need when the economy contracts — as we have seen so far during the pandemic.
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