- Medicaid enrollment has surged, increasing by more than one million since 2015. The program now covers more than one-quarter of all Pennsylvanians.
- Medicaid is the largest program in the Pennsylvania state budget, and it consumes one-third of all state government spending. Eligibility expansion, policies that discourage working, a shrinking workforce, and structural problems all contribute to Medicaid’s high and rising costs.
- Under the federal COVID-19 public health emergency (PHE) order in March 2020, Pennsylvania’s Department of Human Services (DHS) ceased periodic eligibility verification. In exchange, Pennsylvania received enhanced federal funding. Extra funding did not cover new costs. DHS estimates over 500,000 Pennsylvanians enrolled in Medicaid are ineligible, a net cost of $23.9 million each month.
- The suspension of eligibility verification is expected to expire in October 2022. Pennsylvania should promptly restore verification, promote work, and end the Medicaid benefit cliff to empower recipients.
The Medicaid Challenge
Medicaid is a health insurance entitlement for low-income seniors, children, adults, and the disabled. It is jointly funded by the federal government and states, however, the federal government sets most of the rules. Since 2011, Medicaid spending has outpaced the economy and state spending, growing 80 percent. Without reform, Pennsylvania will be forced to cut benefits, raise taxes, or cut other parts of the state budget.
What Is Driving Medicaid Growth?
Eligibility changes: In 2015, Pennsylvania expanded Medicaid to all healthy low-income adults. From 2015 to 2020, Pennsylvania added 683,775 adults to Medicaid, annual costs for this expansion population fluctuates around $5 billion.
- In March 2020, the state suspended eligibility verification. Between March 2020 and March 2022, total enrollment increased by more than 650,000.
- The program now covers 3.5 million, more than a quarter of Pennsylvanians.
Shrinking workforce: The number of workers to Medicaid enrollees is shrinking. In 2011, there were 2.6 workers for every Pennsylvanian on Medicaid. With rising Medicaid enrollment, the worker-to-recipient ratio is down to 1.7.
Design flaw: Medicaid’s match-funding structure does not incentivize states to spend wisely. Federal contributions are based on how much the state spends regardless of health outcomes. Harrisburg’s eagerness to “pull down” more federal funds ignores the fact that Pennsylvanians pay federal taxes too.
- The federal share of funding is based on the Federal Medical Assistance Percentage (FMAP). Calculated annually, the FMAP formula averages out state per capita incomes to set each state’s rate. The lower a state’s per capita income, the higher its FMAP.
- States got a temporary 6.2 percent increase to the FMAP under the Families First Coronavirus Act (FFCRA). Pennsylvania’s FMAP for 2022 is 58.88 percent and for every dollar the state contributes, it receives $1.43 from the federal government.
- Inversely, to save one state tax dollar at the current FMAP, Pennsylvania must cut $2.43 in Medicaid expenditures. In other words, if the state secured $2.43 million in provider fraud recoveries or program efficiencies, it would keep just $1 million. By not allowing states to equally share in program savings, the federal government encourages higher Medicaid spending.
How to Prevent Forced Medicaid Benefit Cuts
Rising Medicaid costs and a slowing economy could force lawmakers to reduce Medicaid benefits. The following reforms preserve benefits and control costs.
- Work and community engagement requirements: Most working-age individuals receive health insurance through their employer. Requiring healthy adults to work, volunteer, or receive training to maintain coverage connects them to higher-quality insurance options. In addition, these requirements promote Medicaid’s stated goal, “to help such families and individuals attain or retain capacity for independence or self-care.”
- Program integrity: Incomes and household compositions often fluctuate. Reviewing Medicaid eligibility twice a year could direct more resources to the 12,000 Pennsylvanians waiting for home and community services. In addition, the legislature should consider reforms that guard against provider fraud, the most common form of Medicaid fraud. The Center for Medicare and Medicaid Services (CMS) estimated that 21 percent of Medicaid provider payments were improper in 2020.
- End the cliff: Medicaid, unlike other welfare programs, does not phase out. This creates a benefit cliff, where an individual’s total income declines even as their earned income increases. Graduated co-pays, premiums, or allowing enrollees to set aside resources in a Health Savings Account could address these perverse incentives.
How Much Does Medicaid Cost?
- Total Medicaid spending accounts for one-third of all state spending. Taxpayers spent more than $37 billion on Medicaid out of the $115 billion operating budget in fiscal year 2021. State General Fund Medicaid spending in 2021–22 is over $12.8 billion, or about one-third of all General Fund spending.
- Pennsylvania’s per capita Medicaid expenditures are among the highest in the nation. Overall, Pennsylvania spent $9,642 per enrollee in 2019, the most recent year available. Our per enrollee spending is the nation’s fifth highest.
- The federal government tied a 6.2 percent FMAP enhancement to continuous enrollment under the Families First Coronavirus Response Act. CMS notes that since the pandemic, “growth in Medicaid enrollment is largely due to the continuous enrollment” requirement.
- After the U.S. Department of Health and Human Services (HHS) ends the COVID PHE, Pennsylvania’s FMAP rate drops to 52 percent or $1.04.
- “Unwinding” the continuous enrollment will require DHS to process significant volumes of eligibility redeterminations in a short amount of time. DHS estimates that around 500,000 Pennsylvanians are receiving Medicaid benefits but are ineligible or in the wrong benefits category. Pennsylvania expects to disenroll around 270,000 of these individuals from Medicaid for a total savings of $471 million It is unclear when these savings will materialize since the end of the PHE is unknown.
Policy Solutions for Higher Quality Care
- House Bill 2379 (Rep. Seth Grove) would tie Medicaid eligibility to work and community engagement requirements for able-bodied adults. The Pennsylvania legislature passed similar legislation twice (2017 and 2018) to implement Medicaid work requirements for able-bodied adults, but the governor vetoed both bills.
- House Bill 2378 (Rep. Seth Grove) would require DHS to begin eligibility redeterminations immediately, prioritizing enrollees that are past due for a normal eligibility review, and complete reviews within three months. The legislation also prevents Pennsylvania from suspending eligibility reviews in the future.
- House Bill 2392 (Rep. Joe Hamm) would require DHS to verify Medicaid eligibility by cross checking lottery winnings, death records, employment and income, residency, and incarceration. It also requires verification of information such as residency, age, income, and household composition, before an individual can receive Medicaid benefits.
- House Bill 2393 (Rep. Perry Stambaugh) would penalize Medicaid healthy low-income adults that fail to report life changes impacting their eligibility. The penalty would deny eligibility for six months. The bill would also end automatic renewal and require DHS to redetermine eligibility every six months instead of annually.
Common Medicaid Questions
Are our seniors the main reason behind Pennsylvania’s rising Medicaid costs?
- No. Enrollment for seniors is stable. While spending for seniors increased by $1.4 billion between fiscal year 2020 and 2021, it pales in comparison to the growing costs of disabled Pennsylvanians, an additional $2.8 billion, and the expansion to low-income adults. Without low-income adults, Medicaid expenditures would have increased 75 percent since 2015, instead of doubling. Each year, about $5 billion is spent on healthy low-income adults, more than triple the state highway spending.
What is a low-income adult?
In Pennsylvania’s Medicaid program, a low-income adult has an income up to 138 percent of the poverty level. In 2022, 138 percent of the federal poverty line translates to $18,754 for an individual, $31,781 for a family of three, or $38,295 for a family of four.
Isn’t education the largest expenditure in the state budget?
- No. Medicaid surpassed education spending as the largest single program in 2015. The Independent Fiscal Office (IFO) projects Medicaid to grow at an average rate of 4.2 percent per annum for the next five years. In contrast, the IFO projects the Pennsylvania Department of Education’s expenditures to increase 2.6 percent per annum over the next five years.
Doesn’t expanded Medicaid help people get coverage?
- Virtually all Americans have access to coverage. The real problem is the cost of coverage. Medicaid is a costly alternative to private insurance with less access to care.
Does expanding Medicaid crowd out private insurance?
- Medicaid expansions incentivize individuals that already have insurance to switch to the taxpayer-funded option. As the share of the population under age 65 enrolled in Medicaid increased from 6.7 percent in 1978 to 20.2 percent in 2018, the proportion of uninsured fell from only 12 percent to 11 percent.
- According to the Foundation for Government Accountability, earlier Medicaid expansions in the 1990s and 2000s produced a crowd-out effect as high as 60 percent. For every ten new Medicaid enrollees, six gave up private insurance.
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Rep. Joe Hamm, House Bill 2392, Pennsylvania General Assembly, Referred to HEALTH, March 9, 2022 [House], https://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2021&sind=0&body=H&type=B&bn=2392.
Rep. Perry A. Stambaugh, House Bill 2393, Pennsylvania General Assembly, Referred to HEALTH, March 9, 2022 [House], https://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2021&sind=0&body=H&type=B&bn=2393.
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