Threat of Medicaid cuts weighs on outlook for safety-net providers

March 27, 2021

Maggie Van Dyke

It’s budget season in most states, meaning safety-net hospitals are anxiously waiting to hear whether their Medicaid payments will be cut.

The concerns regarding Medicaid reimbursement reductions are greater given the pandemic-related threat of an economic downturn, which generally translates to more people being added to the program when tax revenue may be falling.

“It’s this perfect storm that leads to states having to make some very difficult decisions,” said Matt Salo, executive director of the National Association of Medicaid Directors, who saw this pattern play out during the Great Recession of 2008 and the 2001 recession.

On a net basis, states lost $13.6 billion in Medicaid revenue comparing the periods of April through December in 2019 and 2020, in order to estimate the effects of the pandemic, according to the Urban Institute.

That sizable revenue loss is smaller, though, than what some expected. “The budget outlook looks a lot better than we thought it would, although there are certainly states with big revenue deficits,” Salo said.

This time around, states that rely heavily on tourism and oil and gas have seen much of the revenue declines. For instance, Alaska’s revenue fell by 41.4%, Florida’s by 11.3%, Texas’ by 10.4% and New York’s by 4.1%, according to the Urban Institute.

Meanwhile, 22 states collected more revenue during the pandemic months of 2020 (April-December) than they did during the same period in 2019, ranging from a 0.1% increase in Maryland to a 10.4% increase in Idaho.

Experts credit federal stimulus money, including unemployment supplement payments, with shoring up consumer spending and associated sales taxes. The 6.2% enhanced federal Medicaid match known as the federal medical assistance percentage, or FMAP, is also helping.

In addition, many states took advantage of risk corridors to carve back dollars from Medicaid managed-care plans when utilization fell dramatically due to COVID. These dollars helped some states, such as Michigan, cover COVID-related losses.

Impact on providers

Hospitals and other providers should not be shy if they want to influence state decisions related to Medicaid rates. Shawn Stack, director of perspectives and analysis at the Healthcare Financial Management Association, recommends having a dialogue with state policymakers. “Engagement is important, not only to contest Medicaid cuts, but to educate policy folks on what is happening real-time, both positively and negatively, in the healthcare community,” he said.

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