The offices of the Alabama Medicaid Agency, as seen on Jan. 24, 2023. Alabama Medicaid is requesting one of its largest recent budget increases, citing rising health care costs, inflation and the end of pandemic-era funds. (Brian Lyman/Alabama Reflector)
Alabama Medicaid will seek one of its largest budget appropriations in recent years amid increased health care costs and pandemic-era funds running out.
Commissioner Stephanie Azar said in a meeting Thursday with the agency’s medical care advisory committee that she has submitted its fiscal year 2026 budget to the Executive Budget Office, with a request reflecting the increased need for state funding, though she did not state the amount. She said that rising health care costs and inflation are contributing factors, stressing that these challenges are not unique to Alabama.
“Health care inflation and a multitude of other factors affect that,” she said. “It’s not an Alabama problem. It’s a national issue that has to be dealt with. I’m optimistic that the budget I sent over hopefully will be approved and sent to the legislature, and then we’ll see how they handle that.”
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According to KFF, a national health policy research organization, individual state Medicaid spending rose by 19.2% in fiscal year 2024 nationwide due to the expiration of enhanced federal funding. KFF projects it will stabilize at 7% growth in FY 2025.
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While enrollment declines pushed spending downward, several factors are putting upward pressure on costs. Those include higher health care needs among enrollees who retained coverage; rate increases for health care providers and the phasing down of enhanced federal funding to states.
An increase of just 4.7% over the past year, or just over $45 million, would put the agency’s state budget at over $1 billion, which would still be only a fraction of the federal funding the state gets. For every dollar that is spent on Medicaid in Alabama, about 73 cents comes from the federal government.
Debbie Smith, campaign director for Arise’s Cover Alabama, which advocates for Medicaid expansion, said that if Alabama expanded Medicaid, the federal government would pay about 90 cents for every dollar that is spent on Medicaid in Alabama, which she feels is both a short- and long-term solution.
“Medicaid expansion is a part of the solution of addressing these costs, at least for our state for the short term, because we can shift some of the cost of the program over to the federal government,” Smith said, adding that the state could also benefit in the long term from a healthier population, she said.
“Overall, people will get healthier as they have coverage over the long-term and will need to use less services,” Smith said.
The Medicaid Agency’s budget request for fiscal year 2025 increased by over 10%, but the agency’s requests have varied in recent years, especially at the height of the pandemic. In fiscal year 2022, the agency reduced its request by more than 6% compared to the previous year due to enhanced federal funding. In 2023, it only raised its request by 3.2%, even though enrollment in Medicaid reached 1.375 million Medicaid enrollees from the 1.1 million pre-pandemic due to federal rules that prevented the state from cutting people’s coverage.
Azar said Medicaid eligibility stands at under 1.1 million now after the federal restrictions on disenrollment expired earlier this year.
“The 90 days has now ran for anyone to come back on the program that had come off the program, so now we should technically be completed with unwinding,” Azar said.
Despite the financial outlook, Azar said she does not anticipate service cuts “or anything like that.”
“That’s not at all (the case), I just want to give everybody ease on that,” she said.
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