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The coronavirus (COVID-19) pandemic has caused federal spending on Medicaid to rise sharply as millions of Americans seek benefits under the program. Since April, when the unemployment rate rose to a historical high, the government has spent an average of $43 billion per month — which significantly exceeds the average monthly outlays of $35 billion recorded in 2019. The rise in spending can be attributed to two factors that stem from the COVID-19 pandemic: growth in the number of Americans eligible for Medicaid as a result of job loss and recent legislation that has expanded both the program and the federal funding for its cost.
Medicaid is a program financed jointly by federal and state governments that provides health insurance primarily 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, 73 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 boosted 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 coverage under Medicaid and the Children’s Health Insurance Program (CHIP) to include COVID-19 testing with no cost sharing and enables states to cover testing for individuals not originally eligible for those programs. The FFCRA also authorizes an increase in Medicaid’s Federal Medical Assistance Percentage (FMAP), the proportion of spending for the program covered by the federal government. Before the outbreak, the FMAP varied by state and ranged from 50 to 78 percent; the FFCRA increased the federal contribution by 6.2 percentage points until the public health emergency period ends. The Congressional Budget Office estimated that those provisions will increase federal spending by $52 billion in 2020 and 2021.
In addition, the Coronavirus Aid, Relief, and Economic Security Act and the Paycheck Protection Program and Health Care Enhancement Act together authorized $175 billion to support healthcare providers combatting COVID-19. Part of the disbursements have been made to certain eligible Medicaid providers and therefore contributed to the increase in federal outlays for the program. Furthermore, the Department of Health and Human Services announced in June that an additional $15 billion of the relief funds have been earmarked for Medicaid and CHIP providers that have not received payments from the initial disbursements.
Federal spending on Medicaid may continue to increase in the near future relative to its historical average 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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