OLDWICK, N.J.--(BUSINESS WIRE)--Although the high U.S. unemployment rate and economic recession will lead to Medicaid enrollment gains for insurers, the pressures on state funding may strain programs and payments over the next six to 12 months and squeeze margins on Medicaid managed care, according to a new AM Best report.
The Best’s Special Report, titled, “COVID-19 Drives Up Medicaid Enrollment as State Budgets are Pressured,” notes that Medicaid enrollment is counter-cyclical to the economy. Enrollment declines during periods of economic strength and rises when the economy weakens. Additionally, Medicaid programs are financed through a combination of state and federal funding. Given that state budget revenues are being pressured by shelter-in-place orders, business closings and increased spending related to the COVID-19 pandemic, insurers’ earnings likely will be further pressured due to decreased payments to care providers and health plans. Moreover, payments from states also may be delayed, which, in combination with rate cuts, could materially affect revenue streams. The volatility in utilization trends based on the scope, duration, and intensity of COVID-19 infection rates and resulting delays in other procedures and surgeries could also affect earnings and lead to more medical loss ratio volatility.
More than 70% of the total 73 million Medicaid enrollees are enrolled in a managed Medicaid plan. “Although health insurers have participated in Medicaid managed care for some time, many companies saw the expansion of Medicaid under the Affordable Care Act as an opportunity to gain membership,” said Jason Hopper, associate director, industry research and analytics. “More and more carriers have bid for managed care contracts to enter new states or retain their existing contracts. The rise in Medicaid enrollment led to significant growth in insurers’ managed Medicaid programs.”
AM Best will continue monitoring the Medicaid markets for the impact of COVID-19 and the state funding pressures on health insurers that write Medicaid managed care contracts. Furthermore, AM Best will keep a close watch on legal arguments about the constitutionality of the Affordable Care Act, to be heard by the U.S. Supreme Court in late 2020. If the law is ruled invalid, Medicaid expansion coverage could be rescinded for millions of individuals.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=301552.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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