The Medicaid Cliff

May 5, 2020

Photo by Pete Souza/Public Domain

Economic downturns push more people onto Medicaid while states have less money to spend. What can we learn from the last recession about what might happen to Medicaid this time around?

Listen to the full episode below, read the transcript or scroll down for more information.

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By the Numbers: Medicaid

million people covered by Medicaid nationwide¹

11-23 million

people estimated to join Medicaid due to COVID-19²

0 %
average portion of state Medicaid costs paid by federal government³

The Problem: Medicaid and Recessions

The same thing happens to Medicaid every time there’s a recession: Enrollment goes up as people lose their jobs, while at the same time states are bringing in less money and looking for places to cut. As one of states’ largest expenses, Medicaid is a constant target, even when more and more people need it.

State Medicaid programs have spent the last two months focused on making sure their members can continue to access care for regular services and COVID-19, leaving little time to prepare for this coming collision.

Then and Now: Ways to Save Money on Medicaid

There are limited options available to states looking to shrink their Medicaid costs. During the Great Recession, every state took advantage of some if not all of these methods, and they are the same choices available to states today, with some practical differences. 


States are required to cover some people including low-income families, pregnant women and people with disabilities, but many states cover other groups who they can stop covering if they need to save money.

Great Recession: Congress barred states from limiting eligibility if they wanted to receive additional federal support, effectively removing it as a cost-cutting mechanism. A small number states were able to limit eligibility by discontinuing coverage for groups covered under waivers.

COVID-19: Congress put the same restrictions in place this March, again removing it as an option.


Like eligibility, states are required to cover some benefits such as hospital stays, doctor visits and nursing home care. Other things, like prescription drugs, dental and vision, are optional.

Great Recession: About one-third of states reduced or eliminated benefits during the Great Recession, but experts say these cuts provide limited financial relief.

COVID-19: Congress has also blocked states from cutting benefits, eliminating a popular option.

Provider Rates

State Medicaid programs set the rates they pay to doctors, hospitals, nursing homes and addiction counselors. These rates are generally much lower than Medicare and private insurance, leading some providers to not accept Medicaid.

Great Recession: Almost every state cut provider rates a decade ago, making it by far the most popular cost-cutting tool.

COVID-19: Many state Medicaid programs have so far sought ways to increase support for providers who are struggling financially during the pandemic. So while rate cuts remain an option, they may be a harder sell during the present crisis.

Federal Help

States split the cost of Medicaid with the federal government, with the exact split varying from state to state. Congress can increase the federal share, leaving states with less to pay.

Great Recession: As part of the major 2009 stimulus package, Congress increased its share of Medicaid through June 2011, providing states an additional $100 billion. But the additional funding stopped before the effects of the recession were past, leading states to enact further cuts.

COVID-19: Congress passed a similar increase in March, which is expected to provide states an additional $50 billion this year and last until the national emergency declaration expires. That will likely happen before the effects of a recession are over and could lead to further cuts, including to eligibility. States are asking Congress to nearly double its initial increase and extend it until state economies have recovered.

The Evidence: Medicaid's Impact on Health and the Economy

Because there were so many things happening to people during the Great Recession — losing their health care, their homes, their jobs — it would’ve been hard for researchers to determine the impacts of the Medicaid cuts states imposed during the Great Recession.

Experts say the best evidence we have on what could happen if significant numbers of people lose access to Medicaid during this recession comes from research on the Affordable Care Act’s Medicaid expansion. Through more than 400 studies, researchers have found broad evidence that access to Medicaid improves people’s financial stability, access to care and health.

Several studies have also found positive impacts on state economies, and other research found that increased federal support of Medicaid during the Great Recession created jobs.

The Tradeoffs: Increasing Federal Investment in Medicaid

Increasing the federal share of Medicaid and prohibiting changes to eligibility prevented more drastic cuts to Medicaid during the Great Recession, although further cuts were required when increased federal support stopped before the economy had fully recovered.

The Affordable Care Act’s Medicaid expansion has allowed researchers to quantify the health and economic benefits of Medicaid. Experts fear those gains could be at risk if federal support and eligibility protections again end too soon and states make deeper cuts.

However, state Medicaid programs are just one of many groups looking for money from a federal government that has already provided around than $3 trillion in relief. Estimates suggest additional support for Medicaid could cost hundreds of billions of dollars just this year, adding to the already growing national debt.

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Episode Resources

Medicaid and Recessions:

COVID-19: Expected Implications for Medicaid and State Budgets (Robin Rudowitz, Kaiser Family Foundation, 4/3/2020)

Increasing Federal Medicaid Matching Rates to Provide Fiscal Relief to States During the COVID-19 Pandemic (John Holahan, Jennifer Haley, Matthew Buettgens, Caroline Elmendorf and Robin Wang; Urban Institute; April 2020)

Medicaid Protections in Families First Act Critical to Protecting Health Coverage (Judith Solomon, Jennifer Wagner and Aviva Aron-Dine; Center on Budget and Policy Priorities; 4/17/2020)

Trends in State Medicaid Programs: Looking Back and Looking Ahead (Laura Snyder and Robin Rudowitz, Kaiser Family Foundation; 2016)

Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act (Gabriel Chodorow-Reich, Laura Feiveson, Zachary Liscow and William Gui Woolston; American Economic Journal: Economic Policy; 2012; 2019 update)

Literature Review on Impacts of Medicaid:

The Effects of Medicaid Expansion under the ACA: Updated Findings from a Literature Review (Madeline Guth, Rachel Garfield, and Robin Rudowitz; Kaiser Family Foundation; 2020)

Episode Credits


MaryAnne Lindeblad, Washington State Medicaid Director

Tom Betlach, Former Arizona Medicaid Director

Ben Sommers, MD, PhD, Professor of Health Policy and Economics, Harvard

Helen Levy, PhD, Research Professor, University of Michigan School

Music composed by Ty Citerman, with additional music from Blue Dot Sessions and Bacon

This episode was reported, produced and mixed by Ryan Levi.

Additional thanks to:

Judy Solomon, Robin Rudowitz, Lindsey Browning, Stacey Mazer, John Baackes, Tom Buchmueller, Edwin Park, Vernon Smith, Julie Ward, Atheen Venkataramani, Renu Tipireni, Victoria Perez, Emma Sandoe, Amie Lulinski, Gabriel Chodrow-Reich, Mike Visser, Michael Chernew, Matt Broaddus, John Holahan, the Tradeoffs Advisory Board…

…and our stellar staff!