Demystifying Market Forces that Impact Medicaid

Market forces, like inflation, recessions, and labor markets, have a direct impact on the everyday operations of the Medicaid program. For example, these forces impact how many people qualify for Medicaid coverage or how many home health aides are available to provide care. But the push and pull of these forces is unpredictable, and they cannot be controlled by Medicaid leaders. Yet, Medicaid must always pay attention, knees bent and ready at the starting line, to respond to unexpected shifts in these market forces.

At NAMD’s 2022 Fall Conference, national experts from the Migration Policy Institute, the Congressional Budget Office and Moody’s Analytics shared their insight to help Medicaid leaders weather these disparate and sometimes unpredictable forces.

Here are four insights they shared to help make sense of market forces impacting Medicaid:

1. Medicaid should be modeling more than one economic scenario for its caseload projections. The big question, according to Dan White at Moody’s Analytics, is whether the U.S. will experience a recession in 2023 or just minimal growth. Overly aggressive rate hikes from the federal reserve or global supply shocks could easily tip the economy from no-growth-territory into a recession scenario. If this happens, more individuals will qualify for Medicaid coverage than predicted. Medicaid programs need to contemplate this scenario, even if it’s not the most likely one.
2. During the public health emergency unwinding, states should expect higher cost growth. Robert Stewart, principal analyst at the Congressional Budget Office, explained how the end of the public health emergency will impact Medicaid cost growth. Enhanced federal funding that was tied to the public health emergency is going to expire, which means state costs will grow as a portion of overall Medicaid spending, while federal cost growth slows.
3. After “unwinding” is complete, overall Medicaid costs (combined state and federal) will grow by about 5 percent between 2027 and 2032. This is what the Congressional Budget Office predicts, Robert Steward noted. Some of the factors that will be driving this growth in the out years include an aging population, general inflation, and government policy around drug pricing, and expansions of Medicaid coverage, like 12-month post-partum coverage.
4. Immigration isn’t likely to offset health care workforce shortages. Health care workforce shortages continue to be a major concern for Medicaid. And we know the immigrant workforce is important to the delivery of health care and long-term services and supports in the United States, Dr. Jeanne Batalova, an analyst at the Migration Policy Institute, explained. Almost 40 percent of home health aides are immigrant workers, many of whom bring linguistic diversity to the workforce. However, immigration has slowed in recent years, and this slower growth is expected to continue since Congress is unlikely to take up immigration policy. This means states should not expect an influx of immigrant workers will ease U.S. healthcare workforce shortages, and they will need to continue advancing other strategies to strengthen the pipeline.

Medicaid programs are going to face many operational and policy pressures in 2023, like unwinding the public health emergency’s continuous coverage requirement. But the program is also going to be challenged by market forces that go well beyond the purview of a state Medicaid program. These forces, like the state of the economy and labor market dynamics, will challenge us all. State leaders, federal policymakers, and the community of stakeholders and industry partners must be nimble and constantly lift our heads to respond to the broader forces at play.