Timing is Key for States Unwinding Public Health Emergency Provisions

With the end of the COVID-19 public health emergency (PHE), the Medicaid eligibility redetermination process will result in an estimated 5 million-14 million people losing Medicaid coverage and have a major impact on state budgets.¹  To understand the extent of this impact, it is important to examine the expected changes in Medicaid enrollment due to the redetermination process.

For this case study, Guidehouse used data from a state that has identified specific members who are expected to lose eligibility when medical assistance program redetermination resumes. This analysis leverages actual claims data from July 2016 to February 2022 for its Medicaid program to estimate the potential impact of what is now referred to as the "Continuous Enrollment Condition" by the Centers for Medicare & Medicaid Services (CMS). Guidehouse actuaries used this data to forecast various scenarios of the likely impact of the unwinding of the PHE by aid and service categories.

Our analysis identified two key implications for state budgets, Medicaid managed care programs, and Medicaid managed care rates:

1. How quickly states begin and can complete redeterminations will have a major impact on state budgets and will also affect monthly capitation rates
2. The related Medicaid disenrollment is likely to impact per member per month (PMPM) claims rates and expenditures within different service categories

This case study may be useful to other states in understanding the potential impact of the "unwinding period" on their budgets.

Background: How the PHE Increased the Amount of Medicaid Enrollees

In January 2020, the U.S. Administration for Strategic Preparedness and Response (ASPR) issued a national PHE, which is done either when “a) a disease or disorder presents a public health emergency; or b) a public health emergency, including significant outbreaks of infectious disease or bioterrorist attacks, otherwise exists.”²  Shortly thereafter, in March 2020, the Families First Coronavirus Response Act authorized states to receive an additional 6.2% in Federal Medical Assistance Percentage (FMAP).

Due to the PHE, state Medicaid programs suspended redetermination of Medicaid members as a condition of the increased FMAP, except in a few narrow cases such as death and relocation out of state.³  The redetermination suspension is referred to as Maintenance of Eligibility (MOE) or Continuous Eligibility. As a result, from February 2020 through September 2022, national Medicaid enrollment increased by more than 31%, and enrollment in the Children’s Health Insurance Program (CHIP) grew by 4%.⁴

On December 23, 2022, the H.R. 2617 Consolidated Appropriations Act of 2023 was signed, mandating that state Medicaid agencies begin reverifying Medicaid eligibility beginning April 1, 2023. During the resumption of Medicaid redeterminations after two years of continuous eligibility, states will have access to the enhanced FMAP through the end of calendar year (CY) 2023. This FMAP enhancement will be decreased from 6.2% to the following amounts each quarter: Q2 - 5.0%, Q3 - 2.5%, and Q4 - 1.5%.

The impact of this upcoming Medicaid enrollment churn is significant, as states are attempting to understand what it means for their Medicaid budgets. At this point, state budgets for either all or part of CY 2023 have been finalized. Medicaid redetermination and the subsequent decrease in Medicaid enrollment will significantly affect state budgets, particularly since Medicaid is almost one-third of a typical state budget, second only to public education.⁵

Continuous Enrollment Unwinding Impact on PMPM Claim Rates

Using claims data from the state case study and conducting comprehensive state budget modeling, Guidehouse discovered that there are substantial implications for states related to the end of the “Continuous Enrollment Condition.”⁶  Based on member-level claims and enrollment data, Guidehouse actuaries compared the claims experience of members who are likely to be disenrolled with those who are likely to remain enrolled.

This case study analysis included the state Medicaid Temporary Assistance for Needy Families (TANF) and CHIP claims and enrollment data. Other populations, such as aged, blind, and disabled, were not included, which is a limitation of this analysis. Our analysis, which also explored the budgetary implications of the enhanced FMAP continuing until the end of CY 2023, produced the following insights.

During the MOE period, we found that for this state, while the number of adults increased compared to the number of children, the average PMPM claim costs for both child and adult recipients decreased.

In total, Medicaid TANF and CHIP enrollment increased 33.1%. Of that, CHIP child membership increased 27.2% and TANF adult membership increased by 74.3%. This shifted the member mix as illustrated in Table 1.

Table 1

This shift is potentially significant because the cost of care for adults is usually higher than the cost of care for children.⁷  For the state's three fiscal years (SFYs) before February 2020, adult claims were more than two and a half times higher than child claims on a PMPM basis. Based on this data, the shift in member mix toward more adults would typically result in an overall increase in the aggregate PMPM for states. However, during the PHE, aggregate PMPM costs across adults and children have decreased.

As members have stayed on the state Medicaid rolls for longer periods, utilization has decreased significantly.

From SFY 2019 to SFY 2021, aggregate utilization per thousand members decreased by 12%, with adult utilization decreasing by 26.9% and child utilization decreasing by 11.5%. During this same time, the ratio of adult claim cost PMPM to child claim cost PMPM decreased from 260% to 210%. Thus, even as membership increased and more adults enrolled and remained on Medicaid, overall claims PMPM decreased by 9.4%.

Graph 1

The state had been identifying Medicaid members who are likely to become ineligible for Medicaid as the Maintenance of Effort portion of the PHE expires.

The state estimates that approximately 20% of members enrolled in CY 2021 are likely to terminate.

Those likely to terminate off Medicaid may decrease PMPM claims costs by up to 2.5%.

Based on the estimated number of individuals likely to disenroll, we removed those members and the claims to estimate what the state might expect to see in terms of shifts in total claims costs, claims PMPM, and member mix post-PHE. An analysis of CY 2021 revealed some surprising implications: although member months (MMs) decreased by 20%, claims decreased by 22%, resulting in an unexpected 2.5% decrease in aggregate PMPM costs. This was surprising because the general consensus was that members who are likely to terminate through redetermination are low utilizers with lower PMPM costs, implying that the remaining members would be more expensive, higher utilizers.

While overall PMPM costs decreased, the PMPMs increased when costs were reviewed by age cohort, as illustrated in Table 2.

 Table 2

The aggregate PMPM reduction is a result of an enrollment mix shift.

The reduction in aggregate PMPM appears to be due to a shift in the enrollment mix. During the PHE, children aged 1-14 made up about 62.5% of overall enrollment. After removing the state's estimated number of PHE members, children account for 66.5% of enrollment. Since children aged 1-14 are the least expensive age group, this shift explains why even as individual rate cell PMPMs increase, the aggregate PMPM decreases.

Graph 2

Table 3 further illustrates how, although PMPMs of those likely to be removed are lower than the PMPMs of those remaining at a rate cell level, the aggregate PMPM for those remaining is lower because of the shift in member mix.

Table 3

Continuous Enrollment Unwinding and Potential Impact on Service Mix

In addition to the enrollment mix shift, a shift in the mix of services utilized was observed. Each major category of service was reviewed for this case study, and it was found that only inpatient hospital and behavioral health services showed a significant difference in the percentage of total cost between those members likely to be removed and those likely to remain enrolled. For those likely to be removed, inpatient hospital costs accounted for 25% of total costs, while for those likely to remain, inpatient hospital costs accounted for only 15% of total costs. Behavioral health costs accounted for 9% of total cost for those likely to be removed and 14% for those likely to remain eligible.

While this observed shift in service mix may not be indicative of the service mix shifts for all states, it does suggest there may be some service mix shift as members are removed from the Medicaid eligibility rolls. It is important for states to understand this shift, as it may further help explain changes in PMPMs before and after Medicaid eligibility redetermination.

Graph 3

FMAP and State Budget Implications of Continuous Enrollment and PHE Unwinding

Guidehouse conducted a scenario analysis to examine the potential impact of Medicaid redetermination and the quarterly step down of the enhanced Federal Medical Assistance Percentage (eFMAP) on state budgets. While the analysis is based on general assumptions that are not specific to any particular state, it indicates that the longer states wait to reverify, the greater the potential impact on their budgets is likely to be.

Shifts in service mix, changing PMPM costs, and the decreasing eFMAP have significant implications for state budgets and Medicaid managed care plan rates. As states consider the most cost-effective ways to remove members from the rolls, they must keep in mind the changing claims costs and the eFMAP quarterly step down, which begins in April 2023 and continues through the end of the year. Whatever strategies state Medicaid agencies employ to remove individuals from the rolls could have significant budgetary implications.

As part of our study, we have analyzed three scenarios to illustrate the likely budgetary impact of reverifying Medicaid eligibility at different rates. It should be noted that the data presented is for modeling purposes only and is not specific to any state. The scenarios include a baseline scenario based on what states may have originally expected with the eFMAP ending in March 2023, as well as front-loaded and back-loaded scenarios that reflect CMS guidance that states should initiate renewals for no more than 1/9th of the state's total caseload in a given month.⁸

The assumptions used in this case study are:⁹

• Regular FMAP of 66%
• Percentage of members likely to be removed: Child = 18% and Adult = 30%
• Overall PMPM percentage increase due to member mix change: Child = 1% and Adult = 6%

Sample calculations for baseline scenario: The baseline budget of $386.07 million was reached by assuming a regular FMAP share of 66% and an additional eFMAP of 6.2% ending March 31, 2023. This was combined with a 25% reduction of redetermination members per quarter. Table 4 illustrates the baseline scenario development.

Table 4

Table 5

 Summary of Findings

Table 5 illustrates how the rate at which eligibility redetermination occurs could impact SFY 2024 budgets. From a state budgetary perspective, the best-case scenario is Scenario 2, where states complete all the redeterminations in the first three quarters of the unwinding period (33% per quarter, the maximum CMS will allow), and the state budget decreases 5% compared to the baseline. The least-desired scenario is Scenario 3, where states’ redetermination is back-loaded to the final three quarters of the unwinding period—a considerable portion of which is after the enhanced portion of the FMAP has expired, thus their budget only decreases by 2% compared to the baseline.

Of further note is that the FMAP step-down approach outlined in the omnibus bill is more favorable to state budgets by 3% than the previously assumed eFMAP with an end date of March 31, 2023, if the state reverifies one-quarter of members in each quarter from April 2024 through March 2025.

Implications for States Based on Case Study and Unwinding Scenario Modeling

Given the significant impact that timing of redeterminations and the eFMAP step-down can have on state Medicaid budgets, it is imperative that each state evaluate its readiness to reverify members while considering the socio-political appetite within that state. At minimum, evaluating the ability of state Medicaid budgets to meet increased pressure due to slower redeterminations seems prudent.

As states begin the process of redetermination and budgeting for the next fiscal year, it is important to understand the shift in member mix and how it could impact overall budget projections. On an aggregate PMPM basis, states should not assume that the members remaining after redetermination will be more costly than those terming. They could potentially be less costly. The impact on service mix and PMPM rate will have implications for future managed care organization rate setting and budgeting.

Analysis Limitations

The claims and enrollment analysis was limited to one state’s adult and child experience, excluding aged, blind, disabled, expansion, and long-term services and supports populations. The budgetary analysis was developed for illustrative purposes only and is not specific to any state. This analysis solely considers member claims costs, and does not opine on the appropriateness of managed care capitation rate adjustments for changes in member acuity and risk mitigation elements such as risk corridors, as states should be having those conversations with their actuaries. The results may not be representative of all states, in particular depending on each state’s unique growth rates of adults and children and utilization by category of service. 

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¹https://www.kff.org/medicaid/issue-brief/10-things-to-know-about-the-unwinding-of-the-medicaid-continuous-enrollment-provision/
²https://aspr.hhs.gov/legal/PHE/Pages/default.aspx
³https://www.kff.org/coronavirus-covid-19/issue-brief/key-questions-about-the-new-increase-in-federal-medicaid-matching-funds-for-covid-19/
⁴https://www.medicaid.gov/sites/default/files/2023-01/september-2022-medicaid-chip-enrollment-trend-snapshot.pdf
⁵https://www.kff.org/medicaid/issue-brief/medicaid-financing-the-basics/#:~:text=According%20to%20data%20from%20the,other%20fund%20spending%2C%20a%20distant
⁶https://www.medicaid.gov/federal-policy-guidance/downloads/sho23002.pdf
⁷https://www.medicaid.gov/state-overviews/scorecard/how-much-states-spend-per-medicaid-enrollee/index.html
⁸www.medicaid.gov/resources-for-states/downloads/eligibility-enrollment-rules.pdf
⁹Numbers and assumptions in this table are used for illustrative purposes and are not specific to any state.