HARRISBURG, Pa. — Following the COVID-19 pandemic, states are grappling with significant increases in health care expenses for low-income individuals, as it has become evident that those remaining on Medicaid are suffering from more severe health issues than previously thought, resulting in higher care costs.
In Pennsylvania, budget officials recently revealed their miscalculation of these expenses, as Democratic Governor Josh Shapiro put forward a proposal to increase Medicaid funding by $2.5 billion for the upcoming fiscal year.
This proposed increase represents an approximated 5% rise in the total state budget, largely attributed to the elevated costs associated with managing the health of unexpectedly ill individuals still enrolled in the Medicaid program.
One contributing factor to these increased costs is the postponement of medical treatments that many individuals faced during the pandemic, leading to a deterioration of their health and, consequently, more expensive treatment options. Governor Shapiro’s administration noted that the delays in obtaining healthcare services have severely impacted this vulnerable population, leading to issues such as inadequate access to general and specialized care, postponed procedures, avoidable hospital admissions, and a rise in related health conditions, alongside a general decline in preventive medicine practices.
Last fall, the Alliance of Community Health Plans urged the federal authorities to reevaluate Medicaid reimbursement rates in Pennsylvania, among a few other states, claiming they were far too low and based on outdated data reflecting a healthier Medicaid population.
Dan Jones, the alliance’s senior vice president for federal affairs, mentioned that members of the alliance, which generally include nonprofit insurers connected to hospital systems and state Medicaid contracts, were facing a “crisis” due to inadequate reimbursement rates.
Analysts point out that pandemic-related measures that temporarily prevented states from disenrolling individuals from Medicaid obscured the extent of health issues faced by those who would eventually remain after the reassessment of eligibility began.
With the cessation of federal pandemic funding coinciding with a rise in the average costs per Medicaid recipient, concerns have emerged. Edwin Park, a research professor at the Georgetown University Center for Children and Families, indicated that he had heard from various state officials feeling anxious about the impending financial burden last year.
Indeed, all states are experiencing per-beneficiary costs for Medicaid that exceed initial expectations, with surveys from KFF indicating a growing concern over Medicaid budget deficits among most responding states—an evident shift from earlier findings. Many states have been seeking federal approval to adjust their reimbursement rates due to the surprising health status of enrollees.
For instance, lawmakers in Indiana imposed cuts last year after discovering an almost $1 billion shortfall in Medicaid budgeting. In Pennsylvania, the proposed $2.5 billion increase in Medicaid expenses poses a challenge in a state grappling with an economy that is growing slowly and a diminishing workforce that is yielding limited tax revenue additions.
It is estimated that tax collections will increase by less than $800 million for the 2025-26 fiscal year, leading to hesitance among Republican legislators about utilizing the state’s approximately $10.5 billion surplus out of concern for exhausting it in the coming years.
Scott Martin, the chairman of the Pennsylvania Senate Appropriations Committee, clarified that the pandemic effectively acted as a “pause button” on the improvements intended for the state’s Medicaid operation, given that federal aid helped to support these costs. Martin expressed interest in seeing whether the new Trump administration would provide states with additional flexibility to implement cost-saving measures within the Medicaid program.
“These are substantial portions of the budget that influence your capability to manage everything else on both the federal and state level,” Martin stated.
