Medicaid spending in 2020 topped $679 billion

Medicaid spending in 2020 topped $679 billion

Who could have predicted how drastically the world of healthcare would change since the early days of the COVID-19 pandemic? Back then, it was unclear how healthcare utilization and spending would look in the coming months of uncertainty, but one thing was for certain – there would need to be a major shift in how care was administered, for the safety of everyone.

Some ups and downs

By the spring of 2020, healthcare use and spending dropped steeply due to cancellations of elective care. Hospitals needed the increased capacity and social distancing measures to lessen community spread of the coronavirus.

Telemedicine use increased exponentially but as the year progressed, in-person care resumed for hospital and lab services and healthcare use and spending started to rebound.

One area to realize a significant spending increase in 2020 was Medicaid managed care organizations (MCOs).

Medicaid and MCOs

Total Medicaid managed care spending grew 14.7% in Federal Fiscal Year (FFY) 2020. The rate of growth had decelerated in each of the previous four years.

Medicaid expenditures on medical services across all 50 states and six territories in FFY 2020 exceeded $649.4 billion, with over half of the total spend flowing through Medicaid managed care programs. In addition, total Medicaid spending on administrative services was $29.7 billion, bringing total managed care program expenditures to $679.1 billion.

MCO spending triggers

Managed care spending growth was due in large part to the COVID-19 pandemic and the resulting higher Medicaid enrollment. Also, the increase in enrollment was greatly fueled by the $1.9 trillion American Rescue Plan Act, boosting coverage under the Affordable Care Act (ACA) with the federal government’s decision to take on a 5% increase in Medicaid expenses.

The increase in spending is quite significant:

  • The increase from FFY 2019 to FFY 2020 was $46.1 billion compared to $6.8 billion from FFY 2018 to FFY 2019
  • Medicaid managed care spending increased at a rate of 14.75% compounded annual growth rate (CAGR) since FFY 2007, compared to a 5.8% growth in total Medicaid spending
  • Compared to FFY 2019, Medicaid managed care spending as a percent of total Medicaid spending in FFY 2020 increased by 2.6% to 55.4%

Spending trends still going strong for 2021

Recently, the Kaiser Family Foundation (KFF) and Health Management Associates (HMA) fielded a two-part rapid, mini-survey of Medicaid directors in all 50 states and the District of Columbia. The results predicted that on average, Medicaid enrollment would increase 8.2% in FFY 2021 (over FFY 2020) and total spending would increase by 8.4%. While this continued growth is good for Medicaid MCO Transportation, it is reflective of changes in the economy, as more people experience income and job loss and become eligible and enroll in Medicaid coverage.

As vaccinations continue to roll out rapidly across the US, Medicaid spending and enrollment trends will depend on the trajectory of the pandemic and the economic downturn as well as the duration of the public health emergency (PHE). In particular, the expiration of the PHE will have implications for state spending during 2022, onward.

Let’s Get Connected.