Medicaid Unwinding Will Begin in April but There’s Good News in Congressional Funding Agreement

[Editor’s Note: The bipartisan spending plan was approved by Congress and signed into law by the President on December 29, 2022. Read CCF’s brief to learn more.]

Congress has just reached an end of the year funding agreement, and it has very significant implications for the more than 90 million people who rely on Medicaid and CHIP (mostly Medicaid) for their coverage. Approximately 41 million of these people are children – at least half of children in the United States are now covered through Medicaid.

As readers of SayAhhh! know, the Families First Coronavirus Response Act provided additional federal Medicaid funding during the COVID-19 public health emergency in exchange for state maintenance-of-effort requirements. These requirements included prohibitions on lowering income eligibility levels, imposing new premiums or other barriers to enrollment, and a new requirement that states do not involuntarily disenroll anyone. As a consequence, Medicaid enrollment has increased by 30 percent (an additional 19.5 million people according to federal data) and the uninsured rate has gone down (reversing the trend of the Trump years) as we wrote in our recent report on child coverage trends. These coverage trends are true for everyone, not just for children.

The text of the released spending bill confirms that Democrats and Republicans have agreed to start the Medicaid “unwinding” process on April 1st by lifting the continuous coverage protection, delinking the requirement from the Secretary’s declaration of the public health emergency.  Under current law, the earliest people could be disenrolled would be May 1st given the state of PHE declarations by Secretary Becerra. The bill also includes many provisions related to the unwinding including a phase down of federal enhanced match, some additional guardrails, and numerous data requirements for states with a penalty attached for non-reporting. More on that below…

This is a long bill and we will be unpacking it for many blogs to come, but on balance, Congressional negotiators scored some very significant victories. Important Medicaid and CHIP policy changes in the package include:

All states must cover children continuously for 12 months in Medicaid and CHIP.  The bill includes a new policy requiring that all states must cover children for 12 months in Medicaid and CHIP regardless of changes in circumstances. Today there are 17 states and DC that do neither: Arizona, Connecticut, DC, Georgia, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, Oklahoma, Rhode Island, South Dakota, Vermont, Virginia, and Wisconsin. Six states (Arkansas, Delaware, Nevada, Tennessee, Texas, Utah) only cover children in CHIP continuously for 12 months, so these states will have to apply this policy to the much larger number of children in Medicaid.

This policy is set to go into effect one year from the date of enactment of the bill – which will most likely be Jan. 1, 2024. So there will be a lag from when the unwinding starts which speaks to the importance of mitigating the damage as discussed below. However, we at CCF are thrilled to see this policy change which we have long sought to minimize gaps in coverage for children and families – especially families of color who have higher rates of churn. The policy will mitigate against red tape losses and is also truly “pro-work” — if a parent gets a small raise or a second job, they don’t put their child’s coverage at risk.

And in concert with a handful of states like Oregon that are already moving towards covering children from birth to age 6 continuously through Section 1115 waivers, this major policy change raises the floor and takes us a meaningful step closer to a day when no child in the United States is uninsured.

Puerto Rico and the territories: As my colleague Edwin Park explains, the omnibus appropriations bill would avert the dire Medicaid fiscal cliff facing Puerto Rico and the other territories — American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands.  It would prevent a scheduled reduction in the federal Medicaid matching rates for the territories.  Instead of dropping to 55%, the current 76% matching rate for Puerto Rico would be extended for five years (through the end of fiscal year 2027) and the current 83% matching rate for the other territories would be extended permanently.  In addition, the bill would likely provide sufficient federal block grant funding for the next five years to not only sustain Puerto Rico’s Medicaid program at a 76% matching rate but also allow for further programmatic improvements. This would ensure greatly needed fiscal stability for Puerto Rico for the medium term and for the other territories over the long term and thereby increase access to needed care for low-income individuals and families in Puerto Rico and the other territories.

Makes permanent the state option to extend Medicaid postpartum coverage to 12 months. This new state option provided under the American Rescue Plan for five years and has been very popular with a majority of states adopting it already, but it is a disappointment that this policy was not made mandatory. As of this writing, 14 states that have not yet moved to adopt postpartum coverage for 12 months include Alaska, Arkansas, Idaho, Iowa, Mississippi, Montana (the Governor recently announced he was putting this in his budget), Nebraska, New Hampshire, North Dakota, South Dakota, Texas, Utah, Wisconsin and Wyoming. This will no doubt be a hot topic in upcoming state legislative sessions in these states. My colleague Maggie Clark takes a deeper dive on the maternal health provisions in this blog.

Funding for the CHIP program and related policies is extended for two years. This includes an extension of important stability provisions for children whose income eligibility cannot be lowered, Express Lane Eligibility policies, and funding for pediatric quality measures and CHIP outreach and enrollment grants. Funding for CHIP will next have to be reauthorized by the end of federal fiscal year 2029 to avoid future funding lapses.

There are also a handful of provisions related to behavioral health and some steps forward for justice involved youth which my colleague Anne Dwyer unpacks in this blog.

And now more on the unwinding…

Extra federal funding ramps down in 2023 gradually. Current law ends the 6.2 percentage point FMAP increase entirely after the end of the quarter in which the PHE ends. However, rather than a stark drop off, the bill provides a set 6.2 percentage point FMAP bump through the first three months of 2023 and then extends and ramps down federal funding support under a new transitional FMAP bump extending through the 2023 calendar year. In order to receive the extra funding states must comply with certain guardrails. While a state could reject it to ignore the guardrails, there are important exceptions in the area of data transparency as discussed below.

States must meet the following requirements to receive the extra funds: the state must conduct eligibility redeterminations in accordance with federal rules, must use national databases to update contact information for Medicaid beneficiaries, and can’t disenroll anyone on the basis of returned mail without making another effort to contact the beneficiary through another means. States must also submit monthly reports that federal CMS will make public on the redetermination process with information on the number of renewals and coverage terminations, the number of procedural terminations, changes in CHIP enrollment, call center statistics including wait times and call abandonment rates and transfers to the federal or state run Marketplaces. Tricia Brooks dives deeper into these new guardrails here!

The new agreement sets out the following phase down for the extra federal funds:

  • From April to June of 2023, states receive a 5 percentage point FMAP increase
  • From June to September 2023, states receive a 2.5 percentage point FMAP increase
  • From October to December 2023, states receive a 1.5 percentage point FMAP increase

State data transparency requirements apply even if a state doesn’t take the extra federal funds. And there is a penalty – states that don’t comply with these reporting requirements will be subject to an automatic reduction of 0.25 percentage points in their regular FMAP for each quarter they are not in compliance on a cumulative basis — but not to exceed the loss of 1 percentage point of their federal funding. This penalty kicks in July, 2023.

The Secretary of HHS can require a corrective action plan if a state is found out of compliance with federal requirements related to redeterminations and/or the reporting requirements. In addition to the FMAP reduction, if a state fails to submit or implement a corrective action plan, the Secretary can order suspension for some or all terminations based on procedural reasons and may impose civil monetary penalties on states.

Medicaid is at a historic crossroads – the unwinding will not be easy and millions will likely lose coverage. But Congress has now provided many tools to mitigate the damage and brought much-needed transparency and some accountability to the process. As I have said many times, when it comes to children, Governors are the ones that hold the cards since they administer Medicaid and CHIP programs. It’s hard to imagine a more consequential year ahead for children and families who rely on Medicaid.

[The bipartisan spending plan was approved by Congress and signed into law by the President on December 29, 2022.]

Joan Alker is the Executive Director of the Center for Children and Families and a Research Professor at the Georgetown McCourt School of Public Policy.