States see rising enrollment in Medicaid as economy falters

With states confronting a weakening economy, enrollment in Medicaid began to rise last year with states expecting even larger increases for fiscal year 2009, according to a new 50-state survey released today by the Kaiser Family Foundation's Kaiser Commission on Medicaid and the Uninsured (KCMU). With the increased enrollment, Medicaid spending is also rising more rapidly than in the recent past, raising the potential for program cutbacks as states confront the combined impact of more enrollees and fewer available resources.

The survey finds that Medicaid enrollment across the country grew 2.1 percent in fiscal year 2008, more than erasing a slight decline in enrollment experienced the previous year. States also experienced spending growth of 5.3 percent, up significantly from the previous two years. For fiscal year 2009, states expect to see even larger increases in Medicaid enrollment (3.5 percent) and spending (5.8 percent).

The survey comes as states face serious financial constraints, with 30 states having confronted significant budget shortfalls as they prepared their fiscal year 2009 budgets. Looking ahead, two thirds of state Medicaid directors say that there is at least a 50-50 chance that they will face a shortfall in their Medicaid budgets during the current year. Such shortfalls could force mid-year changes to control costs, potentially including cuts in eligibility and outreach efforts.

"We're just beginning to see the impact of the economic slowdown, as growing Medicaid enrollment and shrinking revenues pose new threats for health coverage," said Diane Rowland, executive vice president of the Kaiser Family Foundation and Executive Director of KCMU.

Medicaid directors attributed the growth in enrollment and spending to the weakened economic outlook facing their states. During economic downturn, as unemployment rises people may lose employer-based coverage and incomes decline, making them potentially eligible for a state's Medicaid program. Ongoing state efforts to address the uninsured such as expanding Medicaid eligibility, improving outreach and simplifying enrollment procedures also played a role in the growth.

Medicaid Policy Initiatives for Fiscal Years 2008 and 2009

Conducted by Kaiser researchers with the KCMU and researchers with Health Management Associates, the eighth annual budget survey of state officials found that more states made restorations, enhancements or expansions to their Medicaid programs than made cuts for fiscal years 2008 and 2009. These include changes to provider reimbursement levels, in Medicaid eligibility requirements and enrollment processes, in benefits, and in home- and community-based services for long-term care.

The changes reflect efforts that began during the favorable economic climate in 2007, as states prepared their fiscal year 2008 budgets, and continued for fiscal year 2009, though this year's expansions were fewer and smaller in scope. This pattern is similar to what occurred at the start of the last economic downturn from 2001 to 2004, when states did not immediately implement widespread actions to cut Medicaid but made significant cuts later.

Other key findings from the survey include:

• Documentation requirements. Most states reported continuing problems related to the implementation of new documentation requirements for Medicaid enrollees and applicants to demonstrate their citizenship and identity, as required by the Deficit Reduction Act of 2005 (DRA). Overall, 30 states reported that the requirements significantly increased the time needed to determine eligibility; 24 states reported increased backlogs of applications; and 22 states reported an increase in the number of application denials.
  
• DRA authority on benefits, cost-sharing. A small number of states continue to make use of new approaches to alter Medicaid benefits, impose new cost-sharing requirements and permit certain providers to deny services to enrollees who fail to pay their co-payments, as authorized by the DRA. By 2008, eight states used this authority to modify benefits, four states used it to allow providers to deny services to some who did not make co-payments, and one state (Wisconsin) used it to impose nominal copayments to some enrollees in managed care.
  
• Use of managed care. In Fiscal Year 2008, nearly one third of states expanded their managed care programs. The most significant trends involved including people with disabilities in managed care, expanding managed care service areas and requiring enrollment into managed care when it had previously been voluntary. States continue to focus on quality efforts such as pay-for-performance and implementation of new information technology initiatives.
  
• Uncertainty about children's coverage. A number of states reported that they limited their expansion of coverage of children due to the new federal State Children's Health Insurance Program requirements or the uncertainty of ongoing funding, given Congress has only reauthorized the program through March 2009. Budget constraints resulting from the weakened economy add to this uncertainty.
  
• Looking ahead. When asked about the most significant issues facing the Medicaid program, Medicaid directors cited financing issues and the economy, the current status of the federal-state partnership around Medicaid, and the challenge of implementing new initiatives ranging from new information technology systems, quality initiatives or efforts to cover more of the uninsured. With a new Administration and Congress, the prospect of a broader discussion around national health reform and the trajectory of the economy also are expected to have implications for the Medicaid program over the next year or two.

Today's report, Headed for a Crunch: An Update on Medicaid Spending, Coverage and Policy Heading into an Economic Downturn - Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2008 and 2009, is available online. In addition, an audio press briefing on the release will be available after 6 p.m. ET today.