The Potential Effect of Medicaid Unwinding on Community Health Centers

Background

In order to provide relief from the health and economic harm caused by the COVID-19 pandemic, the Families First Coronavirus Response Act (FFCRA) temporarily increased the federal Medicaid matching rate by 6.2 percentage points, provided that states agreed to suspend Medicaid’s normal eligibility redetermination process and keep beneficiaries continuously enrolled. Medicaid continuous enrollment was supposed to last throughout the federal COVID-19 Public Health Emergency (PHE), as determined by the Department of Health and Human Services (HHS) Secretary.

The newly-enacted Consolidated Appropriations Act (CAA) ends the link between the PHE and the Medicaid continuous enrollment policy by specifying March 31, 2023 as the date for ending continuous enrollment, regardless of when the PHE ends. The CAA also provides for new transitional federal funding rates during 2023, with the current 6.2 percentage point level decreasing first to 5.0 percentage points (April-June 2023), then 2.5 percentage points (July-September 2023), and finally, 1.5 percentage points for the remainder of the calendar year. It requires states to take additional steps to guard against erroneous disenrollment. The HHS Secretary can now order corrective action plans in states that fail to follow these special rules and importantly, to suspend disenrollments in states that fail to adhere to corrective plans.  

However, the CAA does not require certain safeguards, such as protecting coverage continuity for children and adults in the middle of ongoing treatment for serious and chronic health conditions. While the new federal funding added by the CAA can be used by states to support outreach and coordination efforts by health providers, like community health centers or Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) programs, and to provide enrollment support to beneficiaries, it does not require such operations.  

The FFCRA continuous enrollment rule led to a substantial increase in Medicaid enrollment since February 2020 and enrollment is expected to grow further through March 2023. CMS requires that states complete the process of reinstating the normal eligibility review process within 14 months.  Because the redetermination process must begin on April 1, 2023, it ends by the end of June 2024. This process has been called the Medicaid “unwinding.” Some states will be hastier to reduce their Medicaid caseloads, while others will take a more gradual pace to ensure that as many as possible can retain insurance coverage.

Redetermining eligibility for over 83 million Medicaid beneficiaries (as of September 2022) will be a mammoth undertaking. A number of studies have noted significant challenges ahead for ensuring continuous coverage under Medicaid or seamless transition to other coverage, including the Health Insurance Marketplace plans.

Because there is no precedent for such an undertaking, analysts are uncertain about how many will lose Medicaid by the end of the unwinding and there is even more uncertainty about how many will be able to gain other coverage. We do not yet know how quickly states will act and how effectively they will be able to accurately redetermine Medicaid eligibility, or how completely those losing Medicaid will be able to transition to other insurance.

Two recent estimates are worth noting. (However, neither precisely corresponds to the policies under the CAA; for example, neither anticipates the addition of transitional federal funding nor CMS monitoring and corrective action capability). In 2022, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) and the Urban Institute each estimated that about 15 million fewer people will be enrolled in Medicaid by the end of the unwinding, about a 17% reduction in the number enrolled just before unwinding. ASPE’s analysis estimates that about 8 million of those losing Medicaid coverage will no longer be income-eligible, while an additional 7 million will lose coverage because of administrative and paperwork problems (e.g., the people are still eligible, but the state did not properly assess their status, they did not receive a renewal application, etc.). It also notes that hundreds of thousands of those who lose Medicaid will not even be eligible for coverage by the Health Insurance Marketplaces because of the state’s coverage gap (i.e., their state did not expand Medicaid eligibility so that there is a gap between the highest Medicaid eligibility level and the lowest Marketplace income limits). The Urban Institute used its Health Insurance Policy Simulation model to estimate – with greater uncertainty – how many of those losing Medicaid might gain other health insurance. The researchers estimated that many of those losing Medicaid would gain other insurance, including employer-sponsored, Health Insurance Marketplace, Children’s Health Insurance Program (CHIP), and Medicare coverage, leading to a net increase of 3.8 million new uninsured, a 17% increase.

This brief focuses on the potential impact of Medicaid unwinding for community health centers (CHCs), which cared for over 30 million patients in 2021, in more than 14,000 service sites located in or serving medically underserved communities and populations. In 2021, almost half (48%) of all CHC patients – 14.4 million – had Medicaid coverage. Therefore, the end of continuous enrollment could have a substantial impact not only for their patients, but also for the CHCs themselves as operating revenue drops. Given the increase in Medicaid patients over the 2020-2021 time period, and expected growth in 2022 and 2023, there could be substantial harmful effects, leading to lower revenue, fewer patients who could be served, and fewer staff employed at community health centers.

Methods and Data

There is considerable uncertainty about the timing and final outcomes of the unwinding. To estimate the potential impact on community health centers, we used state-level estimates generated by the Urban Institute in December 2022 and HRSA’s 2021 Uniform Data System (UDS) data. The Urban Institute assumed that redeterminations and caseload reductions would begin in April 2023 and conclude by June 2024, consistent with the timetable under the CAA.

We applied the Urban Institute’s state-level Medicaid caseload reductions to the number of Medicaid patients receiving care in 2021 at CHCs in all 50 states and DC, based on the UDS data, and estimated  a 17% reduction overall. Based on the estimated number of health center patients expected to lose Medicaid coverage and the reported Medicaid revenue per patient in 2021, we calculated the estimated loss in Medicaid revenue on total CHC revenue. This reduction in total revenue will lead to a comparable reduction in staffing capacity and in the number of patients that health centers can serve (patient capacity).

Results

Table 1 shows an upper-bound estimate of the eventual impact of Medicaid unwinding on CHCs, based solely on the loss of Medicaid coverage, using 2021 data. We expect that the impact would actually be greater in 2024, based on expected growth in Medicaid patients served by CHCs in 2022 and 2023.

Medicaid revenue received by health centers would fall by 17% nationally after full unwinding. However, since Medicaid revenue is just a portion (albeit the largest component) of total CHC revenue, this translates into a 7% reduction in total health center revenue nationally. Because health centers must, by federal law, provide care for patients regardless of their insurance coverage, CHCs will continue to care for uninsured patients, but the loss of Medicaid revenue will reduce the financial capacity of health centers, necessitating that they reduce staffing and limit the number of patients who can be seen, unless other revenue sources are found. As seen in Table 1, this would result in 2.1 million fewer patients served by health centers nationwide. The number of staff members employed would need to be lowered by about 18.5 thousand full-time equivalent (FTE) staff.

Table 2 presents a lower-bound estimate of the impact, which accounts for the fact that many of those who lose Medicaid will subsequently gain other insurance coverage. However, this will not lead to a proportionate increase in CHC revenue. First, some CHC Medicaid patients who shift to other insurance types may migrate to other health care providers, such as private doctor’s offices or outpatient hospital clinics that are part of their provider networks. In many cases, CHCs are not in private insurance networks or are not preferred primary care providers, so patients must select other primary care providers. Second, even if patients stay at CHCs, private insurance payment rates are typically lower; Medicaid payment rates to health centers are enhanced under federal law. In addition, private insurance plans typically have substantial deductibles and cost-sharing; because CHCs have sliding scale fees for low-income patients, the CHCs must subsidize a portion of those deductibles or cost-sharing for low-income patients, so their revenue collections are even lower. Our estimates assume that replacement insurance coverage leads to retaining about half the revenue they would earn if the patients still had Medicaid.

As seen in Table 2, in this scenario, health center total revenue nationally will decline by about 4% due to the unwinding, about $1.5 billion. As a result, health centers nationwide would serve 1.2 million fewer patients and 10.7 thousand fewer FTE staff members would be employed.

We estimate that up to 2.5 million health center patients nationwide are at risk of losing their Medicaid coverage, which in turn would significantly reduce patient revenue and operational capacity. Although we also provide a lower bound impact estimate, the analysis overall suggests that Medicaid unwinding will have a profound negative effect for the nation’s community health centers, causing them to eventually lose between $1.5 billion to $2.5 billion (estimated using 2021 CHC data) in patient revenue, or about 4% to 7% of their total revenue. In turn, this means that CHCs will be able to serve between 1.2 million and 2.1 million fewer patients, and employ 10.7 thousand to 18.5 thousand fewer health center staff members. (Again, please note that actual impacts could be higher. We used 2021 data for these estimates, but anticipate CHCs served more patients and employed more staff members in 2022 and 2023.)

The levels will vary substantially across states. For example, California, the nation’s largest state, could lose capacity for 225,000 to 360,000 patients, while New York loses capacity for 89,000 to 155,000 patients. States with especially large proportionate reductions include Arizona, Colorado, Indiana, Minnesota, Oregon, Vermont, and Washington. These reductions would affect both urban and rural communities, especially those with lower-income populations. The loss of patient capacity would be harmful for both uninsured and insured patients, leading to reduced access to primary and preventive care services, including vaccinations, substance use disorder and mental health care, family planning services, and cancer screenings.

Two actions could help mitigate these losses. The first is careful and deliberative implementation of the Medicaid unwinding by state Medicaid agencies and their partners, such as private employers and Health Insurance Marketplaces, to minimize Medicaid enrollment losses and to help ensure orderly transitions to other insurance coverage. Community health centers, primary care associations and other safety net providers, such as hospitals, can have an important role, ensuring that their patients understand the new requirements, renew their Medicaid coverage if they are still eligible, or find other insurance coverage, such as job-based insurance, Health Insurance Marketplaces, or CHIP, if they lose their Medicaid coverage. The transitional federal funds provided under the Consolidated Appropriations Act could be used to strengthen operational capacities of states, such as by funding CHCs or other organizations to help in the renewal process.

A second important option is to increase federal grant funding for community health centers, such as Section 330 funding or other mandatory funds, to help offset the loss of Medicaid revenue, so that health centers can maintain essential patient care capacity and staffing in the future.