The health and economic effects of the pandemic have significant implications for Medicaid.  Medicaid, which provides coverage of health and long-term care for low-income residents, is administered by states within broad federal rules and jointly funded by states and the federal government. Medicaid is a counter-cyclical program, meaning that more people become eligible and enroll during economic downturns; at the same time, states may face declines in revenues that make it difficult to fund the state share of funding for the program. As in past economic downturns, the federal government has provided additional financial assistance to states during the current pandemic to help them maintain their Medicaid programs at a time of growing need.  This brief presents the most current data for key indicators to help understand how various economic factors that could affect Medicaid enrollment and spending are changing in light of the pandemic as well as efforts to address the pandemic and the start of economic recovery.  An overview of the methods is in the Methods Box at the end of the brief, and a companion brief provides an overview of Medicaid Financing Basics.

What factors could affect Medicaid enrollment?

Medicaid enrollment is typically the primary driver of spending.  Administrative data for Medicaid show that after declines in enrollment from 2017 through 2019, total enrollment nationwide began to grow after February 2020, right before the pandemic began. Between February 2020 and January 2021, enrollment steadily increased to 80.5 million, an increase of 9.3 million, or 13.1%, from actual enrollment in February 2020. These trends in enrollment likely reflect changes in the economy as more people experience income and job loss and become eligible and enroll in Medicaid coverage as well as “maintenance of eligibility” (MOE) provisions in the Families First Coronavirus Response Act (FFCRA) that require states to ensure continuous coverage to current Medicaid enrollees to access a temporary increase in the federal Medicaid match rate.

Key economic indicators that could signal changes to Medicaid enrollment include those showing job and income loss such as the unemployment rate, unemployment insurance claims, and the employment-to-population ratio.  Unemployment rates and unemployment insurance filings capture people who are actively looking for or have recently lost employment, respectively, and may be affected by people who opt to leave the workforce altogether.  Employment-to-population ratios capture what share of the population is working overall.  All measures capture some aspect of income loss, which could make more people eligible for Medicaid. However, Medicaid enrollment changes may lag behind changes in broader economic metrics.  For example, when unemployment rises, increases in Medicaid enrollment may follow, but improvements in unemployment may not immediately translate to slower Medicaid growth. This effect was observed following the end of the Great Recession in 2009 when Medicaid spending and enrollment continued to grow in 2010 and 2011 and is due in part by MOE provisions that prevent states that accept additional federal funding from disenrolling Medicaid beneficiaries.

National data show sharp increases in the average unemployment rate and unemployment claims following the onset of the pandemic in March 2020, but they have moderated in more recent months.  Indicators of employment-to-population ratios also show precipitous declines at the start of the pandemic, unmatched by trends since 2008. While changes in indicators related to employment and jobs have moderated in more recent months, they are still not at pre-pandemic levels. For example, May 2021 saw a national unemployment rate of 5.8% across all states including DC, below the peak of 14.8% in April 2020 but still above 3.5% in February 2020, right before the pandemic.  Similarly, total unemployment claims peaked in May 2020 and have been steadily declining, but total claims in May 2021 were greater than February 2020.  Finally, the employment-to-population ratio dropped to a low of 51.3% in April 2020; the 58.0% ratio in May 2021 is below the February 2020 level of 61.1%.  Unemployment rates and unemployment claims were higher, and the employment-to-population ratios were lower relative to the Great Recession that started in December 2007.

For each employment indicator there was wide variation across states in the average over the most recent 12-month period compared to a year earlier.  Looking at the average for the most recent 12-month period (June 2020 to May 2021) compared to the same period in the prior year, the national unemployment rate increased by 36%; however growth across states varied significantly, from more than a 100% increase in Hawaii to slight decreases in Kentucky and South Dakota. Measures are improving, with some states starting to see declines in their average unemployment rate and number of unemployment claims as well as growth in their average employment-to-population ratio when comparing the most recent 12-month average to the year prior. Kentucky, Mississippi, Montana, and South Dakota were in the top 5 for the smallest changes in their 12-month averages for at least two of the three indicators, and Connecticut, Hawaii, and Nevada were hardest hit, being in the top 5 with the largest changes in their 12-month averages for at least two of the three indicators.

Employment-related economic consequences are directly related to the proportion of jobs a state has in more impacted sectors. States, like Hawaii and Nevada, which rely heavily on more exposed sectors (restaurants and bars, travel and transportation, entertainment, etc.), have seen larger changes in job-related indicators. On the other hand, states more reliant on less exposed sectors, like agriculture in the Midwestern states, have fared better. The leisure and hospitality industries experienced the highest unemployment rates at the start of the pandemic, but other industries also reliant on in-person work, like mining, are now seeing higher rates of unemployment. Many individuals enrolled in Medicaid even before the pandemic are employed in exposed sectors (such as food and other service industries) and are particularly at risk for income or job loss. Additionally, state issued stay-at-home orders and personal social-distancing behaviors varied across states and also contributed decreased economic activity.

What factors could affect states’ ability to finance Medicaid?

States generally fund their share of Medicaid costs through general revenue collected from residents, businesses, and sales taxes. States must adopt balanced budgets, so during economic downturns when demand for services and programs like Medicaid increases, state revenues typically decline, putting pressure on state budgets.  To provide broad fiscal relief to states and to help support increases in Medicaid enrollment, the Families First Coronavirus Response Act (FFCRA) authorized a 6.2 percentage point increase in the federal match rate (“FMAP”) for states that meet certain “maintenance of eligibility” (MOE) requirements. The additional funds were retroactively available to states beginning January 1, 2020 and continue through the quarter in which the PHE period ends. While the current PHE declaration expires 90 days from April 21, 2021, the Biden Administration has notified states that the PHE will likely remain in place throughout CY 2021 and that states will receive 60 days-notice before the end of the PHE.

Measures of changes in state revenue can provide insight into states’ ability to finance the state share of Medicaid.  State revenues are largely dependent on revenue from personal income taxes, corporate income taxes and sales taxes.  The share of revenue coming from each of these sources varies, and  9 states have no personal income tax at all.  In addition, each type of tax may be affected differently by changes in economic conditions.

State revenues overall have increased in recent months, and the annual change in average monthly revenue for the most recent 12-month period ending April 2021 grew sharply, showing the largest increase in revenue from the prior year since 2012.  For the most recent 12-month period (ending April 2021) compared to the prior year, average monthly total revenues are 13.2% higher. This is much improved from the 12-month period ending June 2020, the lowest point during the pandemic, which saw a 4.5% drop over the prior year. The substantial increase in the most recent average over the prior year is largely due to a sharp drop in revenues in April 2020 from delayed income tax filing deadlines and public health safety measures taken by the government and businesses early in the pandemic. Overall, throughout the pandemic, states have not experienced revenue declines as large as original projections, and 39 state governors proposed spending increases in their fiscal year 2022 budgets.

State revenue changes vary across revenue sources, with personal income taxes faring better than sales taxes during the pandemic compared to prior years. Corporate income tax revenues are volatile and can fluctuate considerably from month to month. For the most recent 12-month period (ending April 2021) compared to the prior year, average monthly personal income taxes increased by 23.3%, corporate income taxes grew by 42.2%, and sales taxes grew by 2.7%.  Most states pushed back their 2020 income tax filing deadline from April 15th to July 15th, delaying income tax revenue and affecting the annual averages compared to the prior year. In 2021, most states pushed their income tax filing deadline back to May 17th; therefore, personal income tax revenue will likely increase next month.

There is considerable variation across states with regard to changes in revenues. Most states are now seeing an increase in average monthly total tax revenue for the most recent 12-month period (ending April 2021) compared to the prior year, with only 6 states experiencing declines. Changes in overall average monthly tax collections ranged from a decline of 45% in Alaska to growth of 28% in Idaho for the most recent 12-month period compared to the prior year, and there was also variation by revenue source.  Since the pandemic has disproportionately affected low income workers in the service industry, most states experienced smaller declines in personal income tax revenue than expected, especially for states with progressive income tax structures, where people with higher incomes pay a higher share of income tax.  In addition, income tax withholdings on the supplemental federal unemployment benefits may have also sustained state income tax revenues.

States that issued stay-at-home orders saw reduced sales tax revenues, and states that rely heavily on tourism, like Hawaii, Florida, and Nevada, or oil and gas, like Alaska and North Dakota, experienced larger revenue declinesSales tax revenues were bolstered by $600 weekly federal unemployment benefits under the CARES Act that allowed consumers to continue spending and a 2018 Supreme Court decision that authorized states to collect sales tax on online purchases. While sales taxes on groceries have been shown to worsen income and racial inequalities, states that tax groceries saw smaller declines in sales tax revenue during the pandemic. Sales tax revenues are recovering more slowly than personal income and corporate income tax revenues, and states that rely more heavily on sales tax revenues and do not have an income tax experienced steeper declines in total tax revenues.

Looking Ahead

The ongoing health and economic effects of the pandemic will continue to have implications for Medicaid enrollment and financing.  As states adopt budgets for state fiscal year 2022 (which starts July 1 for most states), revenue and spending projections are likely to incorporate improvements in revenue tied to COVID-19 vaccination efforts and eased restrictions, the continuation of the temporary fiscal relief and continuous coverage requirements for Medicaid (tied to the duration of the PHE), and new federal stimulus funds that were part of the American Rescue Plan. While revenues and employment indicators are improving, there is a lot of variation across states.  In addition, while indicators are improving on average across states, it is unclear how quickly and how much jobs and revenue in certain sectors of the economy will improve.  As the economy improves, what happens in certain sectors could greatly affect Medicaid as there have been disproportionate effects on low-wage workers who could be eligible for Medicaid.

Methods Overview

The data in this analysis draws on a range of sources, including the Bureau of Labor Statistics, Department of Labor, and State and Local Finance Initiative at Urban Institute.  We draw on the most current data available for each specific indicator. For most indicators, we examined both national and state-by-state changes over time. We calculate changes based on a rolling average of the last 12 months compared to the prior year period to avoid major fluctuations using monthly data.

  • We calculate the percent change in the most recent 12-month average compared to the prior year by taking the average of the measure (revenue, unemployment rate, etc.) for the most recent 12-month period and comparing to the same 12-month period the prior year. For example, the percent change calculation for April 2021 compares the average tax revenue from May 2020-April 2021 to the average tax revenue from May 2019-April 2020. When the most recent month’s revenue is not available for a state, we shift the 12-month comparison back to the most recent 12-months available and add a note to the figure. For example, total tax revenue for Nevada is not available for April 2021 so the most recent 12-month average is calculated using April 2020-March 2021 and compared to April 2019-March 2020.
  • Monthly unemployment claims are calculated by combining reported initial and continued unemployment claims for each week, and then aggregating into months using the date in which the filing week ended.
  • For the state level revenue data, state data is removed if there is one revenue outlier that heavily skews the average calculations for that state. When this occurs, a note is added to the figure.
  • All other data is pulled directly from sources and no additional adjustments are made.

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