While state fiscal conditions remain stable heading into fiscal year (FY) 2025, the longer-term fiscal and policy outlook for Medicaid programs is less certain, according to an annual Medicaid budget survey by the Kaiser Family Foundation.
Reduced state revenue collections, expiration of pandemic-era federal funding, and economic uncertainty might discourage states from increasing funding for access to behavioral health, long-term services and supports, and provider reimbursement rates, which could prompt spending reductions. The upcoming election also contributes to a more uncertain outlook for states and their Medicaid programs
Key Takeaways
- States reported that inflation and workforce shortages drove higher labor costs, resulting in pressure to increase provider rates. Many states are implementing fee-for-service (FFS) rate increases across provider types.
- More than half of states (26 states) reported increases in hospital FFS base rates and hospital supplemental payments in FY 2024.
- Two-thirds of states using Medicaid managed care reported seeking Centers for Medicare & Medicaid Services approval for a capitation rate amendment to address shifts in the average risk profile.
- States continue to enhance benefits, particularly for mental health and substance use disorder services and to meet health-related social needs (HRSN).
- Strategies to reduce racial and ethnic health disparities — including a health equity plan, health equity staff training, and racial disparities data reporting — continue to increase, including through changes in managed care contracts. About one-third of states reported at least one managed care organization financial quality incentive is tied to a health equity initiative.
State Medicaid officials noted state budget and administrative issues are barriers to key priorities. Efforts to mitigate workforce shortages, implement payment and delivery system reform, and tackle HRSN are complex and will take several years to actualize while health care costs continue to rise and administrative demands increase.
Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.