Failure to unwind: Erroneous Medicaid payments continue after pandemic, wasting billions

A new report released today from Center of the American Experiment exposes how federal policies implemented during the pandemic kept millions of people enrolled in Medicaid even after they gained other coverage through a new job or aged into Medicare. The report documents how millions who moved to new coverage were not even aware they were still enrolled in the federal program. As a result, billions of dollars in Medicaid premiums were billed and collected by Medicaid managed care organizations (MCOs), even though many of their enrollees had moved on to other coverage. Medicaid is the federal government's health care program for people with low income, administered by states.

When the pandemic hit in March of 2020, the federal government gave states additional Medicaid funding on the condition they maintained continuous enrollment throughout the pandemic. Even if someone had a life event that made them no longer eligible for Medicaid, they were required to remain enrolled by the state. States began "unwinding" Medicaid enrollees by verifying their eligibility for the program when this "continuous enrollment condition" finally ended on April 1, 2023.

American Experiment's review of data from the U.S. Census Bureau and the State Health Access Data Assistance Center (SHADAC) at the University of Minnesota shows how this federal policy kept millions of people unknowingly enrolled, which allowed Medicaid premiums to continue to be billed and collected in their name.

"The failure of the Medicaid continuous enrollment policy to target Medicaid funding to people who needed extra support during the pandemic wasted billions of dollars," said Peter Nelson, Senior Policy Fellow at Center of the American Experiment. "While some worry about unfair procedural disenrollments, the data shows this process largely disenrolled people who were no longer eligible for Medicaid and didn't even know they were still covered. Even so, premiums were still being paid on their behalf."

Key findings from the report include:

At the beginning of the COVID-19 pandemic, the federal government increased federal Medicaid funding to states with the condition that states agree to keep people continuously enrolled in Medicaid until the end of the pandemic-related public health emergency. This is referred to as the continuous enrollment condition.

As expected, Medicaid enrollment ballooned under the continuous enrollment condition, which created the need to unwind this enrollment increase when states resumed enforcing Medicaid eligibility requirements. This unwinding process began on April 1, 2023.

Much of the attention around the unwinding involves concerns over whether eligible people were being erroneously disenrolled from Medicaid during the unwinding. The main concern revolves around the high rate of procedural disenrollments due to an enrollee's failure to return a renewal form or other documentation to prove ongoing eligibility.

Surveys of health insurance coverage tend to undercount Medicaid coverage when compared to HHS administrative counts. This is commonly referred to as the "Medicaid undercount." Research shows the Medicaid undercount is mainly due to people misreporting not having Medicaid coverage on surveys.

After the continuous enrollment condition started, the Medicaid undercount rate doubled from 2019 to 2021 and jumped again in 2022. These numbers reveal that the growth in the Medicaid undercount — largely people who don't know they have Medicaid coverage — represents 70 percent of the growth in total Medicaid enrollment.

The fact that millions of people didn't know they had Medicaid coverage in 2021 and 2022 shines a spotlight on how the continuous enrollment condition failed to target federal funding to the people who needed to continue Medicaid coverage.

The failure to effectively target Medicaid funding during the pandemic suggests billions of federal dollars went to pay premiums to private Medicaid managed care organizations (MCOs). As a result, Medicaid MCO profitability soared to a $9.1 billion net underwriting gain in both 2021 and 2022 after averaging around $1.5 billion in the years before the pandemic.

This experience demonstrates why federal and state lawmakers should not add new continuous enrollment policies to Medicaid. Continuous enrollment policies suffer from the overly simplistic design that largely keeps all people covered regardless of a change in life circumstances.

A copy of the complete report can be accessed here: https://www.americanexperiment.org/reports/what-the-medicaid-undercount-reveals-about-the-medicaid-unwinding