Medicaid, SCHIP and Economic
Downturn: Policy Challenges and
Policy Responses
Analysis Prepared for the Kaiser Commission on
Medicaid and the Uninsured
Stan Dorn, Bowen Garrett, John Holahan and Aimee Williams
The Urban Institute
Alliance for Health Reform
February 15, 2008
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Effect of Economic Downturn on
Health Coverage
• Unemployment causes many workers and dependents
to lose employer-sponsored insurance (ESI)
• People who lose ESI either:
Become uninsured, increasing state and local
uncompensated care costs
Enroll in Medicaid or SCHIP
Enroll in another source of private coverage (spousal
ESI or non-group coverage)
• States experience revenue declines that affect ability to
fund Medicaid and pay for uncompensated care.
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The Impact of a 1% Point Increase in the Unemployment
Rate on the Number of Children and Non-Elderly Adults
with Various Types of Health Coverage: 2008
Children
Non-elderly
adults
ESI
-700,000
-1.7 million
-2.5 million
Medicaid/
SCHIP
+600,000
+400,000
+1.0 million
Uninsured
No statistically
significant change
+1.1 million
+1.1 million
Non-group
coverage
No statistically
significant change
+300,000
+400,000
Total
Source: Urban Institute, February 2008. Notes: (1) ESI is employer-sponsored insurance. (2) Totals may not add
because of rounding.
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The Impact of a 1% Point Increase in
Unemployment on Projected Medicaid and SCHIP
Costs: 2008, in Billions of $
Total
Baseline projected costs
Additional costs for
each 1.0 percentage
point increase in
unemployment rates
(Total)
$335.2b
(State)
$142.9b
Total
$3.4b
State share
$1.4b
Percentage
increase
1.0%
Sources: Urban Institute, February 2008; Congressional Budget Office, March 2007 Medicaid and SCHIP baseline. Notes: (1) ESI is
employer-sponsored insurance. (2) Totals may not add because of rounding.
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Impact of Economic Downturn on
State Revenue
• A one percentage point increase in the
unemployment rate leads to a 3 to 4 percent
decline in state revenues, according to Urban
Institute research by Kim Rueben
Assuming states must balance their budgets and
that all state spending would be cut
proportionately, Medicaid and SCHIP would face
3-4 percent cuts
• Revenue loss is thus a bigger fiscal problem
than increased enrollment
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State Budget Implications
• Unlike the federal government, almost all states are legally
required to balance their budgets
• To balance their budgets in hard times, states tend to
first
Tap reserves, borrow from trust funds, securitize
future revenue streams
Delay spending from one fiscal year to the next
and second
•
Raise taxes; and/or
Cut spending on Medicaid and other programs (e.g.,
infrastructure, post-secondary education) and aid to
localities
Latter state actions are procyclical , i.e. worsen economic
downturn
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What Fiscal Relief Was Provided
During the Last Economic Downturn?
• $10 billion in block grants distributed to states
• $10 billion in increased Federal Matching
Assistance Percentage (FMAP)
2.95 percentage point increase in FMAP for each
state
15 months (May 2003 – June 2004)
To qualify for increased FMAP, a state had to
agree not to reduce eligibility standards below
prior levels
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What Were the Effects of Medicaid
Fiscal Relief?
• States did not cut Medicaid eligibility during period covered
by temporary FMAP increase
• Federal funds prevented some (but not all) Medicaid cuts in
many states
• But delays in reaching federal agreement meant that many
states made large cuts before fiscal relief was first available
• States varied in length and depth of economic downturn, as
well as beginning and end points, so a single uniform FMAP
increase meant
Some states received windfalls, were able to devote funds to other
purposes, including building reserves
Other states got less help than they needed
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Economic Conditions Vary Greatly
Among States: December 2007
Number of
states
19
11
10
7
4
0% to 3.4%
3.5% to 4.4%
4.5% to 5.4%
5.5% to 6.4%
6.5+%
Unemployment rates
Source: BLS, January 2008, seasonally adjusted monthly unemployment rates.
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What Are Options for Providing States
Fiscal Relief Through Medicaid?
• Uniform FMAP increase for all states, with the amount
and duration defined by Congress
• Provide federal funds based on changes in
unemployment
Assistance should vary with the depth and length of
individual states’ economic distress
Assistance should begin and end based on state
unemployment changes
Funds should be sufficient to offset state costs associated
with increased enrollment AND the Medicaid “share” of the
projected revenue loss
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Summary
• When the economy declines
Medicaid/SCHIP costs rise, state revenues decline, and the
number of uninsured increases.
To balance their budgets, states may cutback on Medicaid,
which could reduce coverage and weaken economic
stimulus precisely when it is most needed
• 2003-2004 legislation preserved Medicaid eligibility and
helped states avoid many (but not all) Medicaid/SCHIP
cutbacks.
• As the country begins a new downturn, Congress can
and should design new Medicaid/SCHIP stimulus
legislation that improves on past policy by being more
timely and better targeted.
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