States absorb big increases in Medicaid for sicker-than-expected enrollees after COVID-19 pandemic

[February 08, 2025]  By MARC LEVY

HARRISBURG, Pa. (AP) — States are absorbing substantial increases in health care costs for the poor, as they realize that the people remaining on Medicaid rolls after the COVID-19 pandemic are sicker than anticipated — and costlier to care for.

In Pennsylvania, state budget makers recently unveiled the scale of that miscalculation, with Democratic Gov. Josh Shapiro proposing an increase of $2.5 billion in Medicaid spending in the next fiscal year.

That amounts to a roughly 5% increase in overall state spending, mostly driven by the cost to care for unexpectedly sick people remaining on the state's Medicaid rolls.

Costs went up partly because some people put off medical treatment during the pandemic, Shapiro's administration said. As a result, their conditions worsened and became costlier to treat.

“The delays in health care access have had a significant impact on this population — a lack of access to general and specialty care; delayed procedures; avoidable hospital stays and emergency department visits; development of comorbidities; and a lack of preventative medicine as a whole,” Shapiro's administration said.

The Alliance of Community Health Plans last fall asked the federal government to review Medicaid reimbursement rates in Pennsylvania and a handful of other states that it said were unrealistically low and relying on outdated claims data that showed a relatively healthier population of Medicaid enrollees.

The alliance's members — typically nonprofit insurers that have hospital systems and state Medicaid contracts — in several states were “facing an existential threat” from low reimbursement rates, said Dan Jones, the alliance's senior vice president for federal affairs.

Analysts say that pandemic-era protections that prevented states from disenrolling people from Medicaid had helped to cloak the relative sickness of those who would remain enrolled after states began reevaluating recipients’ eligibility.

Federal pandemic aid ended just as the average cost per recipient began rising.

Pennsylvania Gov. Josh Shapiro arrives to deliver his budget address for the 2025-26 fiscal year to a joint session of the state House and Senate at the Capitol, Tuesday, Feb. 4, 2025, in Harrisburg, Pa. (AP Photo/Matt Rourke)

"Over the course of last year, I heard that from states and from Medicaid directors and others that they were worried about it," said Edwin Park, a research professor for the Center for Children and Families at Georgetown University's McCourt School of Public Policy.

All states are seeing higher-than-expected per-Medicaid beneficiary costs, Park said.

Surveys from KFF last fall found that most responding states expected a Medicaid budget shortfall — a big change from prior surveys — and that most states reported seeking federal approval to increase reimbursement rates because enrollees were sicker than anticipated.

In Indiana, lawmakers last year imposed cutbacks after the state found that it had underestimated its Medicaid costs by nearly $1 billion.

In Pennsylvania, the $2.5 billion projected Medicaid cost increase will be a big pill to swallow in a state with a slow-growing economy and a shrinking workforce that is delivering relatively meager gains in tax collections.

Tax collections are projected to rise by less than $800 million in the 2025-26 fiscal year, and Republican lawmakers are wary about spending down the state's roughly $10.5 billion surplus for fear of depleting it within a few years.

Pennsylvania's Senate Appropriations Committee Chairman Scott Martin, R-Lancaster, said the pandemic amounted to a “pause button” on improving the efficiency of the state's Medicaid program because billions in federal aid helped pay for it.

President Donald Trump's first administration reshaped Medicaid by allowing states to introduce work requirements for recipients. Martin said he'll be interested to see whether the new Trump administration will give states more flexibility to put cost-saving limits on the program.

“These are big chunks of the budget that have impacts on your ability to do everything else on both sides, the federal side and the state side,” Martin said.

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