Medicaid Disenrollments: Navigating the Unintended Consequences

Unintended consequences have impacted healthcare and medicine throughout history. When Louis Pasteur found that mold growing on one of his Petri dishes prevented a bacteria culture from growing, his discovery of penicillin turned a negative into a positive—altering medical practice and public health forever.

In that same vein, innovation was sparked thanks to adaptations in the American healthcare system necessitated by the COVID-19 Public Health Emergency (PHE). But over the past year, with the anticipated unwinding phase of many PHE mandates such as the Medicaid continuous enrollment requirement, Guidehouse has sounded the alarm about unintended consequences as millions of Americans are expected to lose Medicaid enrollment over a short period of time.

The Centers for Medicare & Medicaid Services (CMS) acknowledged these concerns in their September State Health Official letter.¹ Meanwhile, providers and payers are determining whether certain innovations, such as hospital-at-home services and community-based services authorized by Appendix K and emergency waivers, should become permanent models of care. States and other stakeholders must be prepared for the challenges and opportunities ahead, including the potential for:

• Federally Qualified Health Centers (FQHCs) losing provider capacity
• Hospital financial strains and closures
• Worsening healthcare workforce challenges
• Excessive administrative Medicaid agency burdens and increased enrollment churn
• Updated CMS expectations after the unwind period

The Scope of the Impact

As the continuous enrollment provision ends, enabling states to resume disenrolling Medicaid enrollees as had been allowed before the pandemic, The Kaiser Family Foundation estimates that 17 million people may ultimately lose their Medicaid coverage. This includes members who will be correctly disenrolled because they no longer qualify for Medicaid due to income eligibility or other reasons, as well as members inadvertently disenrolled because of administrative issues such as not returning required paperwork.

As of October 2023, nearly three-quarters of all disenrollments were due to procedural reasons.² While not all of those affected were necessarily Medicaid-eligible, many of the disenrollments were tied to a widespread lack of response to state Medicaid agencies’ requests for information. This could be attributable to several factors beyond member non-compliance, such as mail delivery problems, backlogs in processing returned renewal forms, or misalignment between state renewal processing practices and related federal regulations.³

Lack of response presents an opportunity for identifying areas in which communication between state agencies and members can be improved. It’s imperative that states shift their priorities and outreach efforts to educate Medicaid members and promote behavior change—particularly in cases where agency eligibility units had limited contact with members during the PHE. And the sooner they do that, the better. A Guidehouse analysis found that how quickly states begin and complete their redetermination process will have a major impact on their budgets and monthly capitation rates.

Predicted Payer Mix Changes for FQHCs and Rural Health Clinics

FQHCs and rural health clinics both play a crucial role in the healthcare ecosystem—particularly in states that have chosen to expand Medicaid. These facilities are often a lifeline for underserved populations, offering access to essential healthcare services.

The anticipated disenrollment of a sizable portion of the Medicaid population raises red flags for FQHCs and rural health clinics alike. These facilities rely on a diverse payer mix to maintain their financial stability and effectively serve vulnerable communities. After the Affordable Care Act was implemented, states that chose to expand their Medicaid programs saw profound increases in FQHCs’ total revenues. Because FQHCs are obligated to provide care for anyone, regardless of insurance enrollment or ability to pay, the pandemic-era increases in Medicaid enrollment within the vulnerable populations they serve provided meaningful change in their payer mix—leading to increases in total reimbursements while chipping away at uncompensated care costs.⁴

This allowed for additional investments in staffing, growing use of low-cost, high-value preventative services in vulnerable communities, and general improvement in consistent access to healthcare services.⁵ But as massive numbers of Medicaid enrollees are rapidly dropped from states’ member rolls, FQHCs will experience an inverse change in their payer mix—resulting in greater uncompensated care costs and substantial financial pressures.⁶ And states that help subsidize the centers to keep them operating will feel the impact as well.

For facilities that have razor-thin margins, any reduction in revenue can be dire. For the vulnerable populations they serve, the impact can be similarly profound. FQHCs and rural health clinics are instrumental in leading health equity initiatives, driving improvements in health disparities, improving cost-access barriers to care, and delivering preventative health service utilization.⁷ That’s why it’s essential for state and federal agencies to support these facilities as they prepare for the results of unwinding.

Hospitals Facing Financial Downturn

Some hospitals will be disproportionately impacted by changes in Medicaid coverage, especially rural hospitals, as Medicaid coverage rates are often higher in rural areas.⁸ During the pandemic, two factors temporarily improved outcomes for hospitals: increased Medicaid member coverage and additional payments available through government relief funds. While 31 US rural hospitals either closed or stopped providing inpatient services during 2018-2019, only 10 did the same during the Medicaid continuous enrollments years of 2021-2022, according to an analysis by the University of North Carolina at Chapel Hill’s Cecil G. Sheps Center for Health Services Research.⁹

In addition to being called to serve a newly indigent population, rural hospitals are more likely to care for a patient population paid for by government payers, and, following industry trends, will likely see a reduced demand by those with employer-based insurance. Studies have shown individuals with employee-sponsored insurance delay care because of the cost. Many people are covered through high-deductible plans, and physicians are seeing up to 80% of their patients refuse or delay care due to cost.¹⁰ While covered by Medicaid, the state covered these costs instead of the patient. We expect that providers will see revenue decreases due to the reduced demand by correctly disenrolled Medicaid individuals. Unfortunately, these revenue decreases could lead to hospital closures. This is especially true for rural hospitals, which typically rely on more Medicaid revenue than hospitals in metropolitan areas.¹¹

According to a 2023 Fitch Ratings analysis, the anticipated spike in bad debt resulting from these disenrollments, combined with the end of government relief payments, will hit rural hospitals with a one-two punch.¹² Once pre-pandemic financial pressures return, rural hospitals across the nation will be more at risk of closure.

Excessive Administrative Burden and Churn Expected

The PHE’s continuous enrollment provision eliminated the routine, naturally distributed nature of Medicaid re-enrollment applications. But with that mandate going away, Medicaid agencies are left with a profound need to vigorously support enrollees who are suddenly expected to navigate the complexities of the re-enrollment process. In many cases, Medicaid agency budgets may not be sufficient to cover the administrative burden posed by these outreach endeavors at a time when the volume of re-enrollment applications coming in all at once is expected to be very high.¹³

Experts predict that agency staffers will likely be overwhelmed by that backlog of applications, which may lead to coverage lapses and unintended disenrollment due to tight renewal timelines. This can create a “choppiness” to the revenue streams of providers who rely heavily on Medicaid reimbursements.

Many home- and community-based services (HCBS) providers are often locally run “mom-and-pop shops” that serve medically fragile community members. Most of these clients are enrolled in Medicaid programs and have personal or medical needs that typically require nursing home care. These providers often lack the financial resources needed to weather temporary payment interruptions of any sort—let alone cover the losses that may accompany rapid, large-scale Medicaid disenrollment.

It's clear that large numbers of Medicaid disenrollments of nursing home residents due to procedural reasons will severely impact those facilities’ ability to remain open and operational. Even if eligibility is retroactively reinstated for many of those members, crucial revenue will be lost—causing permanent damage as some providers will be out of business. And their former patients may end up having nowhere else to turn for care in their communities.

Similar challenges will add pressure to independent rural pharmacies that have been facing harsh financial realties over the past two decades as pharmacy benefit managers and retail chain pharmacies have fundamentally changed the industry. Many independent rural pharmacies have sought to offset that financial tightening by expanding into other areas of retail just to keep the pharmacy open. Yet despite that adaptation, about one out of eight independent rural pharmacies in the US closed between 2003 and 2018 —resulting in more than 600 communities having no access to a local drugstore.¹⁴

As customers who rely heavily on Medicaid for prescription reimbursement experience re-enrollment delays or abrupt interruptions in coverage, struggling pharmacies that function as a key community support system may be even more likely to close.

Workforce Challenges and Care Access Concerns

Reduced revenues resulting from mass Medicaid disenrollment brought on by the PHE unwinding is expected to negatively affect workforce capacity—and not just at rural hospitals, FQHCs, and rural health clinics, but across the board. This in turn will challenge providers’ ability to support themselves and other healthcare professionals within their respective facilities.

While nursing shortages and overleveraged healthcare workforce concerns have been front and center for years, the type of large-scale interruption in patient coverage that could result from mass Medicaid disenrollment is likely to worsen existing staffing challenges.

For instance, some providers’ staff members routinely help patients with applying for Medicaid. During the PHE, the administrative burdens of facilitating Medicaid enrollment were reduced, freeing staff up to attend to other activities. But now, providers will need to return staff to these administration-intensive tasks—leaving fewer employees available to deliver medical care and perform other necessary non-administrative functions. All of this may mean that member access to providers will be compromised.

CMS Expectations After the Unwinding Ends

CMS has released guidance for handling the unwinding, which may require some clarification. It’s not certain whether states are expected to continue following these new procedures after enhanced federal participation percentages have disappeared. This is especially worrisome for those states that have substantially increased staffing to handle these new administrative obligations but aren’t sure whether or when they’ll be able to reduce staff as the unwinding ends. The pressure being applied on state budgets may result in staff being stretched too thin or states falling behind in renewal processing.

A specific example of the ambiguity in CMS’ guidance is the requirement that states refrain from disenrolling any member whose mailed notices are returned to the state without first reaching out to that member using two alternative approaches, such as sending texts or email messages. To support this requirement, CMS has funded state staff augmentation contracts. When that extra federal funding ends, states may be left without the ability to maintain these procedures should CMS continue to require them. Any penalties tied to non-compliance with these initiatives could further strain state Medicaid budgets and their ability to comply with the new requirements. If there is a need for states to reach out to members with returned mail and notices, regulations will need to be updated to reflect that—and CMS may consider opportunities to continue funding staff augmentation.

Furthermore, rules will need to continue to be examined and updated as CMS continues to recommend alternative approaches. For states to be effective and efficient, they will need ample opportunity to implement strategies that address changes and use good judgment when determining when and how to comply. Without regulatory adjustment, states may be challenged to effectively navigate processes and conflicting requirements that continue to develop and grow in complexity. States will also be at risk for state or federal audits, with potential paybacks based upon future interpretations of these rules.

The Bright Spots

While the current situation raises significant cause for concern, some positive outcomes have already occurred. For example, states are being asked to concentrate on connecting more deeply with members—a scenario that may yield long-term benefits. By sharing common pain points from the unwinding process, states are also better aligned with each other and have become less territorial. Additionally, most states have reported that collaboration with federal partners has created opportunities to identify eligibility weaknesses and provide solutions to address them. Hopefully, these positive outcomes will continue long after Medicaid re-enrollment issues have abated.

Recommendations for States

There are three key steps that states can take to improve their ability to adapt during the PHE unwinding and beyond.

1. Assess information-sharing capabilities and align systems to address short- and long-term needs

Effective communication with and about members is central to many of the challenges driving mass Medicaid disenrollment and downstream financial harm. States must assess their infrastructure to determine how easily and consistently they can communicate across social service providers and agencies. For instance, systems can be structured to enable local entities that gather information about Supplemental Nutrition Assistance Program eligibility and enrollment to pass that data along to Medicaid. Medicaid can then use that more accurate data about members’ financial situations and contact information to drive re-enrollment efforts.

To better align systems, states should review their governance and data-sharing agreements, using outside expertise as needed to determine whether they have sufficient regulatory infrastructure to allow for inter-program cooperation or need upgrades. More states are approaching this issue with an eye toward achieving a holistic customer experience by reducing redundant information requests, taking a whole-person approach, and centering design efforts on customer needs.

2. Develop collaborative partnerships

State agencies can partner directly with entities like FQHCs that have a finger on the pulse of the communities most likely to be impacted by the unwinding. Through this type of collaboration, individuals can get help with the renewal process, better understand their obligations and administrative requirements, and avoid being disenrolled from Medicaid.¹⁵ Such partnerships can also help coordinate care plans and access to other social services through structured assistance by state-employed, contracted, or supported social workers and care coordinators housed in FHQCs. Care coordination and social service synchronization is a powerful method to addressing social drivers of health and solving problems before they get worse. This model has yielded positive results in the Washington, DC, area and shows promise for adoption elsewhere.^16,17

3. Implement value-based purchasing and directed payment models (subject to CMS review and approval)

To address the financial crises that HCBS providers and other critical healthcare system access points such as FQHCs will face, these payment innovations can let states support revenue losses and provide innovative approaches to meeting the financial needs of non-traditional Medicaid providers. Keeping in mind the overall impact of payment limits on uncompensated care pools, states must forecast the implications of these changes and consider value-based and supplemental payment redesigns to achieve greater financial viability.

Tennessee Serves as Rural Health Leadership Model

Across several Guidehouse analyses of US rural hospital infrastructure challenges, a common theme of collaboration for success has emerged. Bringing together employers, providers, governmental agencies, community organizations, and payers has been a key part of every solution. Tennessee has demonstrated significant leadership in this arena by creating a rural hospital transformation program and rural health taskforce to provide comprehensive assistance—an approach that can be replicated by other states. Success can be measured in several ways, but one of the most compelling is the fact that no rural hospitals in Tennessee have closed since 2020.¹⁸

The Path Forward

Although the pandemic-caused PHE wasn’t a positive development like the discovery of penicillin, its silver lining was in shining a spotlight on several public health and social service practices in need of systemwide improvement and restructuring. The PHE unwinding will unquestionably stress an already stressed healthcare ecosystem, particularly when it comes to ensuring continuity of care for individuals losing Medicaid coverage. Yet with collective determination and ingenuity, everyone involved can work together to develop and implement best-practice solutions that will yield a better healthcare system in the long run.