This data note analyzes federal Medicaid outlays in federal fiscal year (FFY) 2020, before and during the COVID-19 pandemic. Overall, federal Medicaid outlays totaled $458 billion and grew at a rate of 12.0% in FFY 2020 compared to 5.2% in FFY 2019. This increase in the rate of annual outlays was largely attributable to accelerated growth in the second half of the fiscal year reflecting the onset of the pandemic and the beginning of enhanced federal Medicaid funds in late March. Month-to-month growth in federal Medicaid outlays also increased during this time period, reversing previous trends of slowing monthly growth.
The outlay data analyzed in this data note comes from The Monthly Treasury Statement of Receipts and Outlays of the United States Government. The Bureau of the Fiscal Service (part of the U.S. Department of the Treasury) publishes these Monthly Treasury Statements, which summarize the financial activities of the U.S. federal government including receipts and outlays of funds. Specifically, this data note analyzes the Treasury data on outlays of the federal government classified as “grants to states for Medicaid.” This analysis examines annual growth as well as growth by quarter for FFY 2020 compared to FFY 2019 to understand the implications of the pandemic and the enhanced federal matching funds. Although federal Medicaid policy changes in FFY 2019 led to incremental changes to enrollment and spending, there were no major policy shifts that year, making it a useful baseline. Examining quarterly growth for the two year period allows for a comparison between FFY 2020 and what may be more typical quarterly variation.
As part of the federal response to the COVID-19 pandemic, states may access enhanced federal Medicaid funds. States and the federal government jointly finance Medicaid. The pandemic has generated both a public health crisis and an economic crisis, with major implications for Medicaid, a countercyclical program. During economic downturns, more people enroll in Medicaid as incomes fall, increasing program spending at the same time state tax revenues may be falling. To both support Medicaid and provide broad fiscal relief as state revenues declined precipitously, the Families First Coronavirus Response Act (FFCRA) authorized a 6.2 percentage point increase in the federal Medicaid match rate (“FMAP”) (retroactive to January 1, 2020) available if states meet certain “maintenance of eligibility” (MOE) requirements. This FMAP increase does not apply to the Affordable Care Act expansion group, for which the federal government already pays 90% of costs. States could draw down the increased federal matching funds beginning at the end of March for claims paid in the first quarter of 2020, and in early April for the second quarter of 2020.
Federal Medicaid outlays grew at an annual rate of 12.0% in FFY 2020 compared to 5.2% in FFY 2019, with much higher rates of growth during the second half of the year (Figure 1). Total outlays in Quarter 1 (October through December 2019) increased by 5.2% as compared to the prior year and total outlays in Quarter 2 (January through March 2020) increased by 4.5%. Quarter 1 growth was higher than the growth in the prior fiscal year (FFY 2019), but growth in the second quarter was similar to that of the prior year.
However, after the onset of the COVID-19 pandemic and the passage of the FFCRA in March 2020, federal Medicaid outlays increased more rapidly throughout the second half of FFY 2020. Total outlays in Quarter 3 (April through June 2020) increased by 22.5% as compared to the prior year (which saw 8.7% growth in Quarter 3). This significant increase likely reflects Medicaid claims retroactive to January that were made available at the end of March as well as enhanced matching funds for the second quarter. Higher growth relative to the prior year was sustained in the last quarter (14.9% in FFY 2020 compared to 6.7% in the prior year), reflecting the continued enhanced federal match as well as increased enrollment due to requirements that states maintain continuous coverage for Medicaid enrollees to access the enhanced match and also to the economic downturn. National data shows an increase in Medicaid enrollment of 6.1% from February to July 2020, a reversal of trends prior to the pandemic when enrollment was declining.
Higher average monthly growth at the end of FFY 2020 reverses a trend of slowing average monthly growth in the preceding three quarters (Figure 2). Average month-to-month growth slowed from the beginning of FFY 2019 through the first half of FFY 2020, when average monthly growth was negative. The pandemic and the enhanced match rate reversed this trend in average monthly growth rates.
Uncertainty remains about the duration and extent of federal fiscal relief to state Medicaid programs during the pandemic, which will affect both state and federal Medicaid spending in the future. The FMAP increase as authorized by the FFCRA will expire at the end of the quarter in which the public health emergency (PHE) ends, which is currently set for January 21, 2021 (which means the enhanced FMAP is slated to expire at the end of March 2021). This federal fiscal relief helps replace state spending, so federal Medicaid spending growth may continue to outpace state spending growth while the enhanced FMAP is in place. However, when the fiscal relief expires, federal spending growth will fall and state spending growth will increase sharply. When the most recent temporary FMAP increase prior to the pandemic (part of the American Recovery and Reinvestment Act of 2009) expired, state Medicaid spending spiked following two years of declines. Similarly, prior to the most recent extension of the PHE, states projected a spike in state Medicaid spending growth of 12.2% in SFY 2021 as most assumed that the fiscal relief would end by December 2020 (compared to total projected spending growth of 8.4%). If the PHE is not renewed again, the expiration of the FMAP could shift increased Medicaid spending from the federal to state governments as enrollment continues to rise and state revenues continue to fall.
In addition to the question of whether the Secretary of Health and Human Services will again renew the PHE, it is also uncertain whether Congress may act to increase the amount and/or duration of the FMAP increase in any future COVID-19 pandemic relief bills, as has been proposed by the HEROES Act passed by the U.S. House of Representatives in October 2020. The results of the November 2020 presidential election may also affect future state and federal Medicaid spending, as President-elect Joe Biden’s campaign has indicated that his administration would propose further increasing the FMAP in response to the pandemic.