Anticipating the Impact of COVID-19 on Medicaid Funding and Your Patient Revenue
One of the unknowns regarding the impact of COVID-19 that hospital, health system and medical practice financial leaders are trying to figure out is what’s going to happen with Medicaid. Specifically, it’s unknown how COVID-19 impacts on Medicaid enrollment and state Medicaid budgets will affect how much Medicaid will pay for care provided to recipients. Sorting it all out correctly will help your hospital, health system or medical practice understand how much Medicaid revenue to anticipate for the rest of 2020, as well as how much to plan for in 2021.
During economic downturns, more people enroll in Medicaid, increasing program spending at the same time state tax revenues may be falling.
To get started on evaluating this, we should look at a few things that we know, or at least think we know. Millions of people have lost their jobs and their employer sponsored insurance (ESI) because of the pandemic. A recent analysis by the Kaiser Family Foundation (KFF) projected that as many as 26.8 million people will become uninsured because they or someone in their family has lost their ESI. Please see our previous blog post for a more detailed discussion.
According to that same analysis, 16.8 million of those newly uninsured, or nearly 63 percent, will be eligible for Medicaid by January 2021. In other words, COVID-19 could boost Medicaid enrollment, because Medicaid is likely to absorb more than six in ten people who lost their ESI because of the pandemic.
The secondary impact on Medicaid budgets and spending is the subject of another report from KFF, based on a survey of Medicaid directors in 38 states. According to these directors, in response to questions about the effect of the COVID-19 outbreak on their states’ Medicaid enrollments and budgets:
94%
believe enrollment will be higher this year than budgeted, and 97% believe it will be higher in 2021 than their updated enrollment expectations for this year.
56%
said Medicaid spending will be higher this year than budgeted, and 97% said it will be higher in 2021 than their updated spending projections for this year.
89%
said a Medicaid budget shortfall for 2021 is “almost certain” or “likely.”
As a result, states may not have the state and federal funding to cover payments for care to the larger anticipated population of Medicaid recipients.
The KFF report warns that, “During economic downturns, more people enroll in Medicaid, increasing program spending at the same time state tax revenues may be falling.” This increases pressure on states to reduce funding, which exacerbates the fact that, even fully funded, Medicaid doesn’t cover providers’ costs of caring for recipients. According to the most recent data available from the American Hospital Association, Medicaid paid hospitals only 89 cents on the dollar for care in 2018. If the Medicaid directors surveyed by KFF are in the ballpark with their projections, that amount is likely to decrease even further.
TAKEAWAY
These shifts expose the healthcare industry to a “double hit” in caring for Medicaid populations. First, we believe hospitals and likely other types of providers will lose additional revenue on every new dollar that they spend on new Medicaid patients. Second, if those new Medicaid patients previously had ESI, providers will also lose whatever margin they earned on every dollar spent in caring for patients with private health insurance. In other words, for each patient who switches from ESI to Medicaid, you’re going from earning margin to operating at a loss.
Has your hospital, health system or medical practice evaluated the double financial hit you may incur from patients switching from ESI to Medicaid? Do you have a plan to make up the shortfall and appropriately maintain margins while continuing to improve your quality of care? Have you accounted in your projections for the newly uninsured in your patient population who will remain uninsured? How will you absorb the additional costs of uncompensated care? If you’re searching for answers, it may be time to speak with a strategic partner who understands the margin pressures the healthcare industry is facing and has the technology and expertise to help your health system face the immediate challenges and prepare for the future.
