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Ed Daranyi

Urban Prosperity and Rural Decline: What Recently Released Census Bureau Numbers Mean for Medicaid in Rural States


Rural Americans are not experiencing income increases that other areas of the country are experiencing, and these challenges affect how Medicaid is delivered in these areas.

Income for rural Americans not keeping pace with others

Current Population Survey (CPS) data released by the U.S. Census Bureau in September have been largely celebrated, and for good reason. Not only did median real income rise by 5.2% nationwide in 2015, the largest such increase on record since 1967, but the national poverty rate declined 1.2 percentage points to 13.5%. Although the overall gains were notable, one group in particular might wonder: Where is my piece of the pie?

Rural Americans, defined as those who live outside a metropolitan statistical area (MSA), may have actually seen their median income decline over the past year. The CPS indicates that rural incomes declined by 2% in 2015, although some of those findings may be explained by a redefinition of the precise boundaries of metropolitan areas. One thing is for sure—even if rural incomes performed better than the data show, they certainly did not keep pace with urban (and particularly suburban) areas.

Rural states need to take notice of the trends

These numbers should be a wake-up call to predominantly rural states and the health and human services agencies that serve them. As seen in CPS data relating to health insurance coverage, rural areas tend to have higher proportions of people using government health insurance programs such as Medicare and Medicaid.

While just 35.9% of Americans residing inside a metropolitan area were enrolled in a government health insurance plan, many more rural Americans—44.4%—were enrolled in one, a 1.8% increase from 2014. This rate of increase was 1.2 percentage points higher than the increase among metropolitan residents, indicating that rural Americans are increasingly reliant on government health insurance programs. At the same time, 60% of Primary Medical Professional Shortage Areas were in non-metropolitan areas indicating problems with healthcare access in the same areas that are experiencing income decline and rely on government-funded healthcare to stay healthy.

During the same one-year period, the number of people living in rural areas declined by over 10%—a dramatic decrease from 50 million to 44.4 million between 2014 and 2015, though this decline appears to be partially due to a change in the defined boundaries of metropolitan areas. That brought the number of rural Americans living in poverty down by 830,000 people, although the rural poverty rate still rose by 0.2% due to the significant population decline in rural areas.

Negative population growth and shrinking expansion of federal medical assistance percentages (FMAP) pose obstacles

Several rural states, including Mississippi, Maine, and West Virginia, had negative population growth in 2015. A shrinking or stagnant tax base, coupled with declining incomes, may quickly exacerbate many rural states’ already difficult budget situations.

The federal government assists states with their healthcare costs by providing funds based on FMAP, which are designed to help offset such trends and other state-by-state economic disparities. Within the current regulatory environment, there is room for the federal government to contribute higher FMAP percentages, as FMAP is statutorily capped at 83% and the highest current FMAP (as determined by a formula based on income per capita) is just under 75%. The troubling rural income trends coincide with the reduction of enhanced FMAP for Medicaid expansion populations, which will only increase the proportion of state budgets that go to healthcare costs for citizens enrolled in government operated health insurance plans.

Managed Care Organizations delivering mixed results for rural communities

For years, the states have been experimenting with methods for keeping Medicaid costs in check. Contracting with managed care organizations, or MCOs, to deliver care to their Medicaid beneficiaries is a popular reform. MCOs charge states a set monthly risk-based rate for each patient, rather than relying on a traditional fee-for-service arrangement, lowering payment volatility and encouraging providers to focus on value of care. As of July 1, 2014 (the latest data available), 77% of all Medicaid beneficiaries were enrolled in some form of MCO (61% in comprehensive MCOs), leaving only small additional marginal gains to be had.

While current strategies such as the managed care model have helped many states to contain the costs associated with Medicaid, many rural areas have been frustrated by the managed care model, which tends to work better for more densely populated areas.

Additional benefits from the MCO model may be particularly elusive for rural states, many of which have experienced difficulties adopting managed care models

New York experienced a large MCO leaving the market in the rural, western part of the state, and Kentucky grappled with another pulling out of the state entirely, reducing competition, and potentially access to care. A number of states are experimenting with models such as Accountable Care Organizations, Health Homes, and Patient-Centered Medical Homes that seek to control costs and improve outcomes through better-coordinated care, as well as shifting to more community-based care.

Although the new census data paints a difficult picture for rural areas, it will, in concert with data collected by each state’s health and human services agency, inform how states will need to plan for future action. The FMAP formula provides an automatic correction for states that become less affluent relative to the rest of the nation but does not take into account a fleeing tax base and a population that is more likely to use government-funded healthcare than others. Federal action examining other variables may be appropriate to help alleviate unique financial burdens that exist in predominantly rural states.

CMS continues to look at payment and delivery models

The states are often referred to as the “laboratories of democracy” and the Centers for Medicare and Medicaid Services’ (CMS) emphasis on state specific models for innovation through the specific grant and funding opportunities like the State Innovation Model (SIM) appears to support this adage. CMS also recently issued a Request for Information seeking input from states and other stakeholders interested in the future of its SIM program, which provides states with grants to test innovative payment and delivery models.

Rural states can use CMS’s continuing emphasis on innovation as a starting point for identifying new and effective ways to provide adequate care while maintaining financial stability, and should stay alert for any future opportunities presented by the SIM program.

We’ll continue to monitor the situation facing Medicaid agencies in rural areas and keep you informed as to what steps CMS and others take to address it.