30 Aug INSURERS FACE FINANCIAL PRESSURE FROM MEDICAID ENROLLMENT CHANGES
Throughout the pandemic, Medicaid enrollment surged due to federal measures that required states to maintain coverage for individuals, regardless of whether they gained other insurance. This regulation, carried out in March 2020, lasted three years and added over 23.3 million people to Medicaid, pushing the total number of recipients to 95 million at its peak. Private insurers managing Medicaid plans greatly benefited from this influx, as roughly 75% of Medicaid enrollees were under their care. Having said that, with the end of the public health emergency, states have started removing individuals from Medicaid, leading to more than 20 million people being disenrolled over the past year.
This decrease in members has resulted in a considerable drop in revenue for insurers. While the decrease in revenue was expected, the greater concern for insurers has been the shift in the demographic of remaining enrollees. As healthier individuals left Medicaid, those who remained tended to have higher healthcare costs. This unexpected trend has put pressure on insurers’ earnings, with companies like Centene, Elevance, and UnitedHealth experiencing increased Medicaid expenses this year.
In some cases, many disenrolled individuals had other coverage, including employer-sponsored plans, but were still being counted as Medicaid members. Some were even unaware of their continued Medicaid enrollment during the pandemic, further inflating the numbers of people who weren’t utilizing Medicaid services, yet still generating payments for insurers. This dynamic created a windfall for insurance companies, who were receiving funds from states for beneficiaries who didn’t access care.
The effect of these changes is being felt in the stock market. For instance, Elevance’s shares dropped when the company forecasted higher Medicaid costs in the latter half of the year. Molina, however, experienced a favorable trading response after reporting earnings that offset Medicaid-related pressures with other financial gains.
Medicaid businesses already operate on thin profit margins, and higher utilization rates exacerbate their financial challenges. Though insurers are working to obtain better rates from states to account for rising costs, the process is slow because of the decentralized nature of Medicaid, where each state establishes rates individually. Although eventual rate adjustments are anticipated to reduce some of the pressure, the road ahead for Medicaid insurers remains unclear and challenging as they navigate this transitional Medicaid enrollment period. To safeguard program resources, insurers must look to innovative ways to increase efficiency and reduce costs.