While issues of health care costs and affordability may not be at the forefront of this year’s election issues, they remain a major concern among the public. About a quarter of Americans say they or a family member struggled to pay their medical bills just in the past year, and in recent KFF polling, voters said that health care affordability was very important to discuss in the election.

This new issue brief describes the health cost and affordability issues and trends that could reemerge this year, ranging from recent or proposed prescription drug pricing and transparency requirements to changes in how medical debt is treated on credit reports.

This brief is available through the Peterson-KFF Health System Tracker, an online information hub dedicated to monitoring and assessing the performance of the U.S. health system.

Note: Originally published on Jan. 11, 2024, this post was updated on Jan. 24, 2024, to include more recent data.

Open enrollment for the Affordable Care Act (ACA) Marketplaces has wrapped up in most states with another record high number of people signing up for coverage. The number of people with Marketplace coverage has grown significantly each year under the Biden Administration, with enhanced subsidies in the American Rescue Plan Act and the Inflation Reduction Act driving most of this growth and increased marketing, outreach, and enrollment assistance also playing a role.

The latest data show that Marketplace signups have reached 21.3 million people, exceeding last year’s record high by another 5 million people. These signup data are not quite final because a few states have ongoing enrollment periods, so the total number of signups will likely inch up. (These signup figures are as of the end of open enrollment for HealthCare.gov and some State-Based Marketplaces, and are preliminary through January 13, 2024 for other State-Based Marketplaces.)

From 2023 to 2024, Marketplace signups grew by 30% or 5 million more people. Three states (Texas, Florida, and Georgia) account for half of the national growth in Marketplace enrollment this year. The five states with the highest percent increase in signups since last year are West Virginia (80%), Louisiana (76%), Ohio (62%), Indiana (60%), and Tennessee (59%). For more state data, see Table 1 below.

Drivers of ACA Marketplace Growth from 2023 to 2024

While enhanced subsidies have driven most of the enrollment growth since 2020, Medicaid unwinding is likely also contributing to 2023 to 2024 changes. KFF’s analysis shows that individual market enrollment was already elevated by at least 1 million people before open enrollment began. Some people losing Medicaid coverage made their way onto the ACA Marketplace mid-year 2023, while others may have waited for open enrollment to make the transition.

During most of the COVID-19 pandemic, states had been prohibited from disenrolling people from Medicaid, but these disenrollments started again in April 2023. Since then, while millions of people have been able to renew their Medicaid coverage, more than 15 million have been disenrolled. In some cases, people have been disenrolled because they were determined ineligible for the program, but others have been disenrolled for procedural reasons, meaning they were unable to complete the renewal process, and may still be eligible. Some of those losing Medicaid coverage have been able to reenroll in Medicaid, while others have moved to employer-based coverage or to the Children’s Health Insurance Program (CHIP); however, others have become uninsured. For those who are not eligible for Medicaid, CHIP, or affordable employer coverage, the Marketplace offers subsidies to make private coverage more affordable.

Unlike most previous years, the individual market grew mid-year, outside of the open enrollment window. From early April 2023 to the end of September 2023, before the 2024 open enrollment had begun, enrollment in the individual market (which includes the ACA Marketplaces, as well as off-exchange plans, many of which are also ACA-compliant), grew by 5.7%. This is approximately equivalent to a growth of just over 1 million individual market enrollees mid-year in 2023.

This mid-year growth in individual market enrollment is very unusual; in most recent years, there has been attrition from the market. The individual market is often a place where people come for insurance coverage when they are between other sources of coverage (for example, when they are between jobs or in school). As people leave mid-year, either for other sources of coverage or because they no longer find their Marketplace plan to be affordable, the number of people leaving usually exceeds the number of people coming into the market because there are only limited opportunities for other people to qualify for special enrollment opportunities and it can be burdensome to demonstrate eligibility to signup mid-year. Therefore, individual market enrollment tends to wane in the later part of the year. The only other time this market has seen mid-year growth in recent years was in 2021, when the enhanced subsidies in the American Rescue Plan Act were first rolled out and the Biden Administration and most state-based Marketplaces allowed broad opportunities for mid-year enrollment.

Additionally, the Biden Administration closed the family glitch starting in 2023, so some dependents of people getting employer-based care may be finding a better deal on the Marketplaces than the coverage offered through their family member’s employer.

The enhanced subsidies in the Inflation Reduction Act are also a factor, as enrollment has grown substantially each year since they first became available. People are continuing to find out about the extra premium subsidies through additional outreach, as federal marketing budgets and funding for navigators and in-person assisters have increased under the Biden Administration following substantial reductions under the Trump Administration. The enhanced subsidies make the transition from Medicaid to private coverage easier cost-wise, as zero-premium plans with enhanced subsidies are available for many low-income people, particularly in states that did not expand Medicaid. In addition to drawing new enrollees to the ACA Marketplaces, these enhanced subsidies may also be helping existing enrollees afford to maintain their coverage. In 2022, as shown in Figure 2, there was much less mid-year attrition than had been the case pre-pandemic.

The number of people signing up for ACA Marketplace coverage has grown so rapidly in the past 4 years that 2024 signup numbers are almost double the number of people that signed up in 2020. The enhanced subsidies in the Inflation Reduction Act have helped to make ACA Marketplace coverage more affordable for those transitioning off Medicaid. The enhanced subsidies will last through the end of 2025, at which point Congress must decide whether to let them expire or extend them further, requiring additional funding.

While issues of health care costs and affordability may not be at the forefront of this year’s election issues, they remain a major concern among the public. About a quarter of Americans say they or a family member struggled to pay their medical bills just in the past year, and in recent KFF polling, voters said that health care affordability was very important to discuss in the election.KFF’s new brief describes the health cost and affordability issues and trends that could reemerge this year, ranging from recent or proposed prescription drug pricing and transparency requirements to changes in how medical debt is treated on credit reports. In connection to these and other health cost and affordability challenges, key issues and trends to watch in 2024 include:

1.    Site-neutral payment reforms2.    Price transparency requirements and what they could mean for costs3.    Prescription drug pricing policies and the implications for spending and affordability4.    Policy changes that could affect PBMs, the so-called prescription drug middlemen   5.    New drugs and therapies that could influence health spending and outcomes 6.    What virtual care expansion means for costs, access, and affordability  7.    State cost control measures and spending8.    Recent surprise billing protections and their effects on private insurance premiums 9.    Policies addressing out-of-pocket health costs and consumer medical debt10.  Shifts to value-based payment and the impact on health care costs11.  Antitrust agencies’ efforts to address consolidation in healthcare markets

Drew Altman, KFF’s President and CEO, recently examined how health care costs and affordability are the two health care crises facing the U.S. Read his column.

For more on health costs, check out the latest analyses available through the Peterson-KFF Health System Tracker: How does cost affect access to health care?How do health expenditures vary across the population?How does health spending in the U.S. compare to other countries?What are the recent trends in employer-based health coverage?

State legislatures are currently gathering to develop new budgets for state fiscal year (FY) 2025. Heading into this budget cycle, state fiscal conditions are shifting, with state revenues starting to decline following steep revenue growth during the pandemic. While states reported favorable fiscal conditions in KFF’s recent budget survey, they noted uncertainty in their fiscal outlooks in the years ahead. At the same time, federal pandemic-era supports to state financing are expiring, requiring adjustments to state spending to maintain balanced budgets. Even though national economic indicators remain strong, pandemic-related supports for households have also expired and families are still struggling to cover costs from record inflation during the pandemic. This will all affect the development of state budgets going forward, including for Medicaid programs which are a large expenditure item as well as revenue source for states.

This issue brief examines trends in state fiscal conditions and discusses how state budgets and macroeconomic conditions may affect individuals and state Medicaid programs. Thirty-three states and DC will be adopting FY 2025 budgets this year; the other 17 states enacted biennial budgets last year, though some of these states may adopt a supplemental budget for FY 2025. The state budget cycle in most states runs from July to June, and Governor’s typically release their budget proposals by January followed by a convening of the legislature to finalize and enact a budget.

What are state fiscal conditions in FY 2024 and looking ahead to FY 2025?

State tax revenues are beginning to decline following years of strong growth (Figure 1). Most states saw strong revenue collections in FY 2021 and FY 2022, with revenue growth in the double digits collectively across states. Many states took the opportunity to make one time investments, enact tax cuts, build reserves, and pay down debts, with rainy day funds reaching historic levels. These favorable state fiscal conditions, combined with federal fiscal relief, mitigated the need for the widespread state spending cuts that occurred in prior recessions. While revenues remained higher than pre-pandemic levels as of November 2023, revenue growth has slowed and started to decline as a result of a number of factors, including state tax cuts. Although there was variation across revenue type and across states, changes in large states like California and New York have a substantial impact on the overall changes.

State revenue changes vary across states and revenue sources depending on state policy decisions and state characteristics such as tax structure and industry reliance. Almost all states with available data saw a decline in their average total tax revenue for the most recent 12 months (December 2022-November 2023) compared to the 12 months prior, though the declines ranged widely from -0.1% in Florida to -40.7% in Alaska (Figure 2). States are also experiencing revenue declines across all tax revenue types, including personal income tax, corporate income tax, and sales tax, though personal income taxes have seen the largest decline. This is largely attributable to state income tax rate cuts, as well as stock market losses in 2022 (though the market rebounded in 2023). Revenue from capital gains taxes have also declined and there has been a reduction in initial public offerings in states like California. Thirty states made cuts to income taxes in 2022 or 2023, and additional states provided other temporary tax relief such as tax credits, tax holidays, or rebates. Sales tax revenues are also weakening as consumer patterns have shifted away from purchasing taxable goods and overall decreases in consumption.

At the same time, pandemic-era federal funding for states has also expired or is expiring, including the phase out of the Medicaid enhanced federal funds at the end of 2023. For a three-year period following the onset of the COVID-19 pandemic, states provided continuous Medicaid enrollment in exchange for an increase in the federal share of Medicaid spending (known as the Federal Medical Assistance Percentage or “FMAP”), which kept state Medicaid spending below pre-pandemic levels. However, states are now in the process of “unwinding” the continuous enrollment provision, and the enhanced FMAP expired in December 2023, resulting in expectations of a temporary, sharp increase in state spending similar to what happened when fiscal relief provided during the Great recession expired (Figure 3). Other federal fiscal relief for states is also expired or has expired, including the enhanced federal matching funds for HCBS implemented as part of the American Rescue Plan Act (ARPA.)

How are people experiencing economic conditions?

At the same time states are beginning to contend with weakening fiscal conditions, some U.S. households are experiencing increases in financial hardships despite positive economic indicators (Figure 4.) The unemployment rate was 3.7% in November 2023 and has remained below 5% since September 2021. In addition, the rates of inflation have slowed and wages have increased. Despite these positive economic indicators, many Americans have a negative view of the economy that is somewhat difficult to understand. Part of the reason for these negative views includes high prices that remain much higher than before the pandemic. Also, pandemic-era relief initiatives for families — such as the expanded Child Tax Credit (CTC) and expanded Supplemental Nutrition Assistance Program (SNAP) benefits — expired, and student loan payments have restarted. After rising initially with the onset of the pandemic and then declining as the economy improved and pandemic aid was dispersed, the share of households with food insecurity and difficulty paying expenses has increased. KFF analysis of the Household Pulse Survey finds that 41% of household in October 2023 found it somewhat or very difficult to pay household expenses, up from a low of 26% in April 2021, and 13% of households could sometimes or often not afford enough to eat — up from a low of 8% in August 2021. Congress has reached a tentative bipartisan agreement to expand the CTC, and the Biden Administration has taken several actions to provide student debt relief, which could help families currently struggling with the high cost of living.

Amid increases in financial hardships for individuals, millions have recently been disenrolled from Medicaid due to the unwinding of the Medicaid continuous enrollment provision. Almost three-quarters of disenrollments so far have been for paperwork or procedural reasons, raising concerns that many people who remain eligible for Medicaid may be losing coverage and becoming uninsured. People without insurance coverage have lower access to care and are less likely to receive preventive care and needed services compared with people who are insured. Uninsured people are more likely to delay or forgo care due to costs and often face unaffordable medical bills when they do seek care. In a recent KFF focus group report participants noted that losing Medicaid results in substantial out of pocket costs and would be “devastating” to lose access to prescriptions and treatments for themselves or their children. Recent KFF polling shows that with less than one year until the 2024 election, inflation and the affordability of health care are the dominant issues that voters want candidates to be discussing. As many families continue to struggle with finances and/or health coverage, state policymakers will have to balance funding for public aid with stricter budgetary constraints.

How might the state fiscal outlook affect Medicaid Programs and Enrollees?

For the remainder of FY 2024, the unwinding of the continuous enrollment provision and enhanced FMAP will be dominant factors affecting Medicaid enrollment and spending. Declines in enrollment will contribute to lower overall Medicaid spending growth while the expiration of the enhanced federal matching funds will increase state Medicaid spending. Heading into FY 2025, considerable uncertainty remains about overall Medicaid enrollment as well as the acuity of members that will remain on the program after the unwinding.

In FY 2025, unwinding will be less of a factor driving changes in Medicaid enrollment and spending; however, state revenue declines may dampen enthusiasm for ongoing investments in Medicaid and could prompt spending reductions. Fewer financial resources will have implications for states’ ability to continue to support increases in reimbursement rates and expansions in benefits that have been made in recent years. Due to strong fiscal conditions and federal pandemic-era aid, an annual KFF report on state Medicaid budgets found that states were upping reimbursement rates to address workforce shortages, particularly for long-term services and supports (LTSS.) States have also prioritized improving access to care, especially for behavioral health services and rural areas. States have to keep their budgets balanced, and — as budgets get tighter — it’s uncertain whether states will continue to make expansions, focus more heavily on cost containment initiatives, or potentially consider cuts to the program. As a result of the federal matching structure, states seeking to save state dollars in Medicaid would need to make larger programmatic cuts and would lose federal Medicaid funding. Governor’s proposed budgets and legislative debate about the budget will reveal different approaches to how states manage any budget challenges.

Hispanic immigrants comprise the largest group of immigrants in the United States, and one in three Hispanic or Latino adults in the U.S. are immigrants. Most report a higher quality of life in the U.S. than in their countries of birth and believe their children’s lives will be better than their own. A large majority are working, and many send money to their family living outside the U.S. Hispanic immigrants are more likely than other immigrant groups to have limited English proficiency, be noncitizens, have lower incomes, lack health insurance, and have lower levels of educational attainment. About a quarter are likely undocumented. Despite such challenges, they remain resilient and optimistic.

These three charts explore select aspects of the Hispanic immigrant experience in the U.S., drawing on findings from a new KFF report based on data from the KFF-Los Angeles Times Survey of Immigrants. The survey provides a deep understanding of immigrant experiences, reflecting their varied countries of origin and histories, citizenship and immigration statuses, racial and ethnic identities, and social and economic circumstances.

1) Sixty-seven percent of Hispanic immigrants are employed, but about half of those who are employed say they have faced unfair treatment in the workplace, such as being paid less for doing the same job as others, not being paid for all hours worked, or getting fewer opportunities for promotions and raises than people born in the U.S. These experiences are even more common among those who are likely undocumented or have limited English proficiency. 

2) Most Hispanic immigrants are uncertain about public charge rules, that is, whether using assistance for food, housing, and health care may affect their immigration status. This reflects broader concerns among some Hispanic immigrants, especially among those who are likely undocumented, that they or a family member could be detained or deported.

3) Many Hispanic immigrants lack health insurance, especially those who are likely undocumented. Uninsured rates are also high among those who have lower incomes and limited English proficiency. These high rates reflect Hispanic immigrants’ disproportionate employment in lower income jobs that do not offer employer-based insurance and immigrant eligibility restrictions for public coverage. 

For more about Hispanic immigrants’ experiences beyond these three charts, including their reasons for coming to the U.S., their employment and financial situation, their experiences with discrimination and health care, and their understanding of immigration policies, read our new report, “Most Hispanic Immigrants Say Their Lives Are Better In The U.S. But Face Financial And Health Care Challenges: The 2023 KFF/LA Times Survey of Immigrants.”

This policy watch was updated on Jan. 16, 2024 to reflect ongoing policy changes.

As states unwind the continuous enrollment provision and complete redeterminations for all Medicaid enrollees, they face numerous challenges including staffing shortages and outdated systems. More than six months into the unwinding of the continuous enrollment provision, over 14 million individuals have been disenrolled with 71% due to procedural reasons. To give states additional tools to comply with federal renewal requirements, the Centers for Medicare and Medicaid Services (CMS) identified a range of strategies, including the availability of temporary waivers under section 1902(e)(14)(A) of the Social Security Act. Nearly all states adopted one or more of these temporary waivers. As of January 12, 2023, CMS had approved a total of 392 waivers for 49 states and the District of Columbia. At the end of December 2023, growing concern over loss of Medicaid coverage for children prompted federal officials to issue new data showing that adoption of waiver flexibilities influences renewal outcomes for children and additional guidance highlighting strategies to reduce procedural disenrollments. The guidance included an announcement that the waivers will be extended to be available through the end of 2024 (unless approved for a longer duration) instead of being tied to the unwinding period. The Secretary of HHS also sent letters to nine states with large declines in Medicaid child enrollment, urging them to take up additional policy options to prevent disenrollments due to paperwork or procedural issues.

How are states using unwinding waivers?

CMS groups available “1902(e)(14)(A)” waivers into four buckets: options to increase ex parte renewals, supporting enrollees in completing and submitting renewal forms, updating enrollee contact information, and facilitating reenrollment for individuals disenrolled for procedural terminations. States can also request authority to adopt additional strategies to protect enrollees during the unwinding; these waivers are counted in the Other category but discussed in the bucket where the strategy fits in best.

• Nearly all states (49) have approved waivers to help increase ex parte rates. Ex parte renewals work by eliminating the need for enrollees to submit renewal forms. Instead, state Medicaid staff use administrative data on income and other circumstances to determine eligibility. Of states with waivers in this category, 38 adopted waivers to allow for ex parte renewals for individuals with no income and /or income at or below 100% of the federal poverty level (FPL). Under this option, CMS allows an ex parte renewal if the most recent income determination was no earlier than March 2019 and the state has checked financial data sources and no information is received; without the waiver states would need to conduct new data matches or otherwise document that an individual has no or low-income. Thirty-three states have waivers to allow the state to assume no change in assets if there is no information returned through the asset verification systems or to allow states to renew eligibility based on a simplified asset verification process. More than half of states (27) have waivers to use Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF) eligibility to confirm ongoing Medicaid eligibility. Other approved waivers in this category include the use of Title II disability income data, suspending requirements to apply for other benefits, and requiring manual ex parte reviews before terminating coverage.
• Forty-four states have waivers to update enrollee contact information. Updating contact information is an important step to ensure that renewal forms are sent to the correct addresses. States can obtain updated contact information from the National Change of Address (NCOA) and/or USPS returned mail databases (37 states), MCOs (32 states), enrollment brokers who aid beneficiaries in enrollment (six states), or Programs of All-Inclusive Care for the Elderly (PACE) (six states). Five states have waivers allowing states to obtain contact information from other sources, including Qualified Health Plans and a state-designated Health Information Exchange.
• Twenty-eight states have waivers to help enrollees complete and submit renewal forms. Twenty-one states have waivers that allow managed care organizations (MCOs) to help enrollees complete sections of their renewal forms, beyond sections relating to managed care plan selection.  Eleven states have waivers that permit applicants and enrollees to designate an authorized representative over the phone without requiring a signed designation. This phone designation enables assisters and others who are helping enrollees complete renewals by phone to provide timely support without waiting for signed documents. Eleven states have flexibilities to waive the recording of telephonic enrollee signatures. One state (Alaska) has a waiver permitting the use of a simplified renewal form.
• A total of 19 states have waivers to help individuals re-enroll if they were disenrolled for procedural reasons. Seventeen waivers have been approved to reinstate coverage from the date of termination for individuals who were disenrolled for procedural reasons but later found to be eligible. This ensures that any health care services obtained after individuals were disenrolled are covered. Ten states obtained waivers to extend automatic reenrollment into an MCO plan from the standard 60 days up to 120 days. Twenty-four states have waivers to extend the amount of time to take final actions on fair hearing requests beyond the standard 90 days, and two states have other waivers that relate to fair hearing strategies (these are included in the other category). CMS allows waivers to designate state agencies or community organizations, pharmacies, and providers as qualified entities to determine presumptive eligibility for MAGI enrollees who were disenrolled for procedural reasons. However, no states have obtained either of these waivers yet.
• States vary widely in their use of 1902(e)(14)(A) waivers, ranging from 15 in Indiana and Tennessee to 0 in Florida. There may be several reasons for this variation in uptake related to differences in how state eligibility systems function, the need to address compliance issues, interest in maintaining coverage, and more.

What are the key issues to watch?

During the unwinding period, CMS has issued guidance on how to mitigate procedural disenrollments using multiple strategies. Data suggests that states that have taken advantage of unwinding flexibilities have reduced procedural terminations and kept more eligible children enrolled. On December 18, 2023 CMS sent letters to the nine states with the highest child disenrollment rates and encouraged them to adopt additional flexibilities to maintain coverage for eligible children, including 1902(e)(14)(A) waivers. CMS also announced that unwinding waivers will remain in effect until at least the end of 2024 and that states can request new waivers up until that point.

Efforts to improve renewal processes and reduce procedural disenrollments will likely last beyond the unwinding period, and CMS and states may look to extend some unwinding flexibilities and/or make some permanent for regular operations. A KFF brief based on interviews with state officials and others in four states provides insights into which waivers have been most effective at achieving the goals of increasing ex parte renewal rates, updating contact information, and reducing administrative burden. Input from these and other states can help to inform CMS decisions over whether to maintain some waiver options.

Children’s Medicaid and Children’s Health Insurance Program (CHIP) enrollment declined by 5.5%, or 2.3 million children, from March 2023, before the unwinding began, to September 2023, according to KFF’s latest analysis. Across all 50 states and DC, at least 14,377,000 people were disenrolled from Medicaid between April 1 and January 9, 2024.

Medicaid eligibility levels are higher for children, raising concerns that they may be losing coverage and becoming uninsured despite remaining eligible. Medicaid covers 8 in 10 children living in poverty and over half of Black, Hispanic, American Indian, and Alaska Native (AIAN) children.The loss of Medicaid could worsen economic stress for many families. Today, as household expenses remain high and most pandemic-era financial relief has ended, families with children are experiencing increased financial hardships and rising poverty rates.Children have the highest official poverty rates of any age group. In 2022, the percentage of children ages 0-18 living in poverty was about 16%. While the official poverty measure remained stable between 2021 and 2022, the supplemental poverty rate for children more than doubled, from 5.2% in 2021 (a record low) to 12.4% in 2022 likely due in part to the expiration of expanded tax credits, including the expanded Child Tax Credit. Supplemental poverty rates were highest in 2022 for children who identify as AIAN (25.9%), Hispanic (19.5%), or Black (17.8%).While children’s poverty rates and Medicaid coverage losses have increased, recent federal actions may help families cover expenses and maintain coverage in the future, including reports of a tentative bipartisan agreement to expand the Child Tax Credit as well as a 12-month continuous coverage requirement for children in Medicaid and the Children’s Health Insurance Program that started in 2024.

After a period of increased federal investment in children and families, pandemic-era programs and federal funding are expiring and overall federal spending on children began to decline in 2022. At the same time, millions are being disenrolled from Medicaid, including children, creating a host of challenges for households with children, who already fared worse throughout the pandemic compared to households without children. In December 2023, growing concern over loss of Medicaid coverage for children prompted the federal government to issue additional guidance with strategies to protect coverage and to write letters nine states with high numbers or shares of Medicaid child enrollment declines urging them to take up policy options to prevent disenrollments due to paperwork, or procedural, issues. Despite recent challenges, there have also been some recent federal actions that may help children and families, including reports of a tentative bipartisan agreement to expand the Child Tax Credit (CTC). This issue brief examines recent trends in children’s poverty rates and the impact of expiring federal aid, explores recent changes in Medicaid coverage for children, and discusses what to watch as families contend with these compounding changes.

What are recent trends in poverty rates for children?

Children have the highest official poverty rates compared to other age groups, and rates vary substantially by state (Figure 1). In 2022, the percent of children ages 0-18 living in poverty was 16.1% based on KFF analysis of the American Community Survey. This rate has remained stable in recent years and is higher than the share of adults ages 19-64 (11.7%) and adults 65 and older (10.9%). There is substantial variation in child poverty across states, ranging from 6.6% of children in New Hampshire living in poverty in 2022 to 25.9% of children in Mississippi. The child poverty rate in Puerto Rico, a U.S. territory, is 56.9%. These rates are based on the official poverty measure, which only accounts for pretax cash resources, including cash assistance programs such as social security and unemployment insurance.

A recent Census Bureau report found that while the official poverty measure remained stable from 2021 to 2022, the supplemental poverty rate for children more than doubled (Figure 2). The supplemental poverty measure (SPM) accounts for pretax cash resources but, unlike the official poverty measure, also includes refundable tax credits (such as the Child Tax Credit (CTC) and Earned Income Tax Credit) and noncash benefits (such as SNAP, school lunches, and WIC) while excluding some necessary expenses (such as taxes or medical expenses). Following the onset of the pandemic, the SPM rate for children fell from 12.6% in 2019 to 9.7% in 2020 and fell again to 5.2% in 2021, a record low. However, the SPM rate more than doubled to 12.4% in 2022, returning to pre-pandemic levels. The expiration of expanded tax credits, including the expanded CTC, and stimulus payments, both included in the SPM but not the official poverty measure, contributed to this increase. The Census Bureau also reported the CTC kept twice as many individuals out of poverty in 2021, when the expanded CTC was in place, compared with 2022 once the expansion had expired.

The supplemental poverty rate increased from 2021 to 2022 for children across all racial and ethnic groups (Figure 3). From 2019 to 2021, the SPM fell for all racial and ethnic groups shown here and helped narrow percentage point differences in supplemental poverty rates between children of color and White children. Black and Hispanic children experienced the largest SPM declines from 2019 to 2021, decreasing from 20.6% to 8.3% and 20.3% to 8.4%, respectively, which mirrors findings from another survey that found that the expanded CTC in 2021 disproportionately benefited Black and Hispanic families. However, from 2021 to 2022, the SPM more than doubled for most groups. The percentage point differences in supplemental poverty rates between children of color and White children widened once more, and SPM rates returned to pre-pandemic levels for all racial and ethnic groups aside from American Indian and Alaska Native (AIAN) children, whose SPM in 2022 (25.9%) was significantly higher than before the pandemic (14% in 2019). Overall, supplemental poverty rates were highest in 2022 for children who identify as AIAN (25.9%), Hispanic (19.5%), or Black (17.8%). Once the expanded CTC payments expired, a survey found families reported increased financial stress, including Hispanic parents who were more likely to experience difficulty with monthly expenses and food hardship following the expiration compared with White and Black parents.

Along with expiring pandemic-era federal financial relief and rising poverty rates, families have also dealt with the rising cost of household expenses due to inflation, all leading to increased financial hardships for families with children. The share of U.S. households with children in which children faced food insecurity increased from 6.2% in 2021 (or 2.3 million households) to 8.8% in 2022 (or 3.3 million households), meaning around 1 million more families could not provide adequate food for their children (Figure 3). The expiration of the CTC likely contributed to this increase, with one report finding most families used their expanded CTC in 2021 to fund basic needs including food, utilities, housing, clothing or education costs. High inflation over the past year reduced the purchasing power of families, also contributing to increased food insecurity and rising financial hardships. While inflation has cooled in recent months, prices remain much higher than before the pandemic. Other pandemic-era relief that helped families with household expenses, including increased childcare funding and expanded SNAP benefits, have also expired.

What are recent trends in children’s health coverage?

During the Medicaid continuous enrollment period, Medicaid enrollment increased substantially, and the uninsured rate declined. One report found that over half of children in the U.S. were covered by Medicaid or the Children’s Health Insurance Program (CHIP) at one point during the continuous enrollment period. Medicaid also covers 8 in 10 children living in poverty and over half of Black, Hispanic, and American Indian and Alaska Native children. The uninsured rate among children was 5.1% in 2022, down from 5.6% in 2019 and less than half the rate among nonelderly adults (11.3%), largely due to broader availability of Medicaid and CHIP coverage for children than for adults (Figure 4). People who are insured have better access to care and are more likely to receive preventive care or needed services compared with people without insurance. In 2022, nearly one-quarter (24.5%) of uninsured children had not seen a doctor in the past year compared to 5.7% of children with private coverage, and 8.6% of uninsured children went without needed care due to cost compared to less than 1% of children with private coverage. Further, a recent study released by the Congressional Budget Office (CBO) found that Medicaid enrollment in childhood can increase earnings and potentially reduce federal spending in the future.

However, amid increases in poverty and financial hardship, millions have recently been disenrolled from Medicaid due to the unwinding of the Medicaid continuous enrollment provision. KFF analysis of national data from the Centers for Medicare and Medicaid Services (CMS) reveals children’s Medicaid/CHIP enrollment declined by 5.5%, or 2.3 million children, from March 2023, before the unwinding began, to September 2023 (Figure 5). Other data through January 2024 show that net Medicaid enrollment declines have reached 3.3 million children. The KFF unwinding tracker shows that in 23 states reporting data, almost 4 in 10 (37%) of those disenrolled are children. Because Medicaid eligibility levels are higher for children and with three-quarters of overall disenrollments happening because of procedural or paperwork reasons, there are concerns that children may be losing coverage and becoming uninsured despite remaining eligible. A recent KFF focus group report found that while some enrollees found the Medicaid renewal process simple, others had difficulty navigating the process and ended up losing their coverage and, in some cases, becoming uninsured. Participants noted that losing Medicaid would be “devastating” and expressed anxiety at the thought of no longer having Medicaid coverage for themselves or their children. The CBO study also found that the loss of Medicaid coverage in childhood could result in reduced GDP and have negative long-term fiscal implications for federal spending.

What to watch?

Changes in poverty and family resources have implications for financial security, as does a loss of Medicaid, and, looking ahead, it will be important to track both. Though millions of individuals have already been disenrolled from Medicaid, considerable uncertainty remains as to how overall Medicaid enrollment will change and how many individuals, including children, will become uninsured as the unwinding continues. CMS is also monitoring the unwinding and took action to reinstate coverage for 500,000 individuals (mostly children) who were erroneously disenrolled. The agency also recently released unwinding data revealing that states who have adopted unwinding strategies, including temporary waivers, have been better at maintaining coverage for children. Given this evidence, CMS issued an informational bulletin reminding states about available flexibilities and sent letters encouraging the use of these strategies to the governors of the nine states with the highest disenrollment rates for children.

While children’s poverty rates and Medicaid coverage losses have increased, there have been some recent federal actions that may help children and families cover expenses and maintain coverage in the future. President Biden has repeatedly called for an expansion of the CTC, including proposals in his Build Back Better framework and fiscal year 2024 budget. There have also been various legislative proposals to expand the CTC over the past year, with reports of Congress recently reaching tentative a bipartisan agreement to expand the CTC (although on a somewhat smaller scale relative to the 2021 expansion). Further, as of January 2024, all states are also now required to provide 12-month continuous eligibility for Medicaid and CHIP children, which has been shown to reduce Medicaid disenrollment and churn rates. Three states also recently received approval to extend continuous eligibility for children in Medicaid for multiple years, which could help children maintain coverage beyond one year.

As of January 1, 2024, the American Rescue Plan Act (ARPA) lifted the cap on the total amount of rebates that Medicaid could collect from manufacturers who raise drug prices substantially over time. Anticipating the implementation of this policy, drug manufacturers have made various changes allowing them to avoid increased rebates resulting from the lifting of the cap. Recent changes that have garnered attention include price cuts for insulin, used to treat diabetes, and the discontinuation of Flovent, a frequently used asthma inhaler. While the insulin price cuts have been portrayed by drug manufacturers as a step to improve affordability, they may in fact be revenue maximizing efforts in response to the changes in the Medicaid rebate formula. This policy watch explains what the rebate cap is, examines how many drugs might be impacted, and explores the implications of recent manufacturer responses on Medicaid programs and enrollees.

What is the rebate cap?

ARPA eliminated the limit on Medicaid drug rebates manufacturers pay starting January 1, 2024. Under the Medicaid Drug Rebate Program, drug manufacturers provide rebates to the federal government and states in exchange for Medicaid coverage of their drugs. The rebate amount includes two main components: a rebate based on a percentage of average manufacturer price (AMP) (or the difference between AMP and “best price,” whichever is greater) and an inflationary component to account for price increases. The AMP is the price charged by drug manufacturers to wholesalers. Because of the inflationary component, the calculated rebate on a drug whose price increases quickly over time could be greater than the AMP for that drug. However, the total rebate amount had been capped at 100% of AMP since 2010. As a result, manufacturers who hit the rebate cap did not face additional Medicaid rebates if they continued to increase prices. Recent KFF analysis found rebates reduced Medicaid spending on prescription drugs by over half each year from fiscal year 2017 through 2022 (Figure 1). However, ARPA, enacted in March 2021, eliminated the 100% AMP cap on Medicaid drug rebates as of January 1, 2024.

The lifting of the rebate cap is expected to have a substantial impact on brand drugs, especially those drugs that have already hit the rebate cap or have price increases much faster than inflation over time. A prior KFF analysis of gross prescription drug spending in Medicaid found that more than a third (34%) of drugs had price increases above inflation between 2015 and 2019, though not all these drugs hit the rebate cap. Drugs with fewer drugs in their therapeutic class were more likely to have increases above inflation. Other research has shown that around 15%-20% of all brand drugs have reached the cap. Further, recent MACPAC analysis found a small proportion of all drugs (4.7%) reached the rebate cap in FY 2020 but estimates total rebates would equal 130.8% of gross spending on those drugs without the rebate cap.

What are the implications of lifting the rebate cap?

In response to the elimination of the rebate cap, some drug companies are lowering drug prices or discontinuing drugs in favor of lower priced alternatives to avoid paying additional Medicaid rebates. After years of increasing list prices, insulin manufacturers have recently cut prices of some insulin products up to 80%. The lifting of the rebate cap was a major contributor to this response; research has shown insulin manufacturer Eli Lilly was expected to pay $430 million and Novo Nordisk $350 million in additional rebates to Medicaid in 2024. While these insulin price decreases are quite large, drug manufacturers may not actually see reduced revenues given the rebate payments they will avoid as result. Another drugmaker GSK is cutting prices of some products as well as discontinuing their brand drugs Flovent HFA and Flovent Diskus, frequently used asthma inhalers, and will instead sell a generic alternative, with a lower list price. It remains to be seen how many more drugs will see price cuts or be discontinued, and it can be difficult to predict which drugs or manufacturers will be most affected by the policy change as data on drug AMPs and rebates is currently proprietary. However, an analysis of 2017 data found 25 drugs, most of which were for diabetes treatment, accounted for 85% of rebates reduced by the cap. Manufacturers may also respond in other ways, such as by raising launch prices.

While under current law Medicaid must cover nearly all of a rebating manufacturer’s FDA approved drugs, if a particular drug is discontinued, Medicaid enrollees may experience some administrative challenges when trying to access alternatives. Because Medicaid must cover nearly all of a participating manufacturer’s FDA approved drugs, Medicaid would cover a rebating manufacturer’s new generic (as in the case of Flovent). However, states can use an array of payment strategies and utilization controls to manage pharmacy expenditures, including preferred drug lists and prior authorization (PA) policies linked to clinical criteria, which can impact access. There could be some administrative challenges Medicaid enrollees may need to navigate depending on the state or health plan. Individuals may need to switch prescriptions to a different product on the preferred drug list or get approval to use a non-preferred drug which could lead to delays in accessing prescriptions. Asthma prevalence is higher for people with Medicaid compared with private insurance, and children may be uniquely impacted as the Flovent inhaler made it possible for young children to use the medication. Manufacturer responses may also result in changes in out-of-pocket costs for commercial and uninsured patients; however, Medicaid enrollees usually pay little or no copays for prescription drugs, including for insulin.

Lifting the rebate cap was expected to reduce Medicaid spending, though the level of savings is dependent on how drug companies respond as well as impacted by later provisions in the Inflation Reduction Act (IRA). When enacted, eliminating the rebate cap was projected by the Congressional Budget Office to reduce federal spending by more than $17 billion over ten years. However, cost savings under changes to the rebate cap will be dependent on manufacturer responses to the change in policy. Further, the IRA, passed in 2022, requires drug companies to pay a rebate to the government if drug prices rise faster than inflation in Medicare starting in 2023 (this requirement already exists in Medicaid). The Medicare inflation-related rebates will mean slower growth in drug prices over time, leading to lower Medicaid inflation-related rebates and increased Medicaid drug spending. The lifting of the rebate cap magnifies the effects of the Medicare inflation-related rebates in the IRA on Medicaid.

States and managed care plans may adjust their preferred drug lists (PDLs) as the landscape shifts in response to the lifting of the rebate cap. Rebates are typically higher for brand name drugs, so states sometimes favor brand drugs with high rebates over generics. For example, while this may be shifting, insulin utilization in Medicaid has been largely concentrated among brand-name drugs likely due to high rebate amounts. As prices of brand drugs change and generic drugs come on the market, states may adjust their PDLs to maximize savings. For example, Massachusetts Medicaid has removed the PA requirement for three brand alternatives for Flovent and has added a PA requirement for the generic Flovent. The state will allow the use of the generic Flovent without PA until March to smooth the transition for members. New York Medicaid has made a similar change. States continually take action like this to contain Medicaid prescription drug costs, with over two-thirds of states in KFF’s annual survey of state Medicaid programs reporting new or expanded initiatives to contain prescription drug costs, including significant PDL or rebate changes.