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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 2020, when the unemployment rate rose to a historic high, the government has spent an average of $42 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 contribution to 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 last year, 113 million claims have been filed for unemployment — which dwarfs the numbers of claims from the past recession. Although Medicaid enrollment was on the decline before the pandemic, the Kaiser Family Foundation estimates that enrollment subsequently increased by 10.8 percent from February through November (the latest months for which data is available).
Legislative changes also boosted federal spending on Medicaid by increasing coverage and benefits, as well as providing additional financial support to states and healthcare providers. Some key provisions include:
Federal spending on Medicaid may continue at high levels relative to its historical average as individuals who experienced a loss of income enroll and remain in the program. As a part of the social safety net, Medicaid and other income security programs are designed to support more Americans in need when the economy contracts — as we have seen so far during the pandemic.
Related: How Do States Pay for Medicaid?
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