Medicaid is a countercyclical program; that is, enrollment and spending increase when a downturn in the economic cycle leads to rising unemployment, people losing employer-sponsored insurance, and concurrent growth in the low-income population. In early 2020, when the rapid spread of the novel coronavirus led to declaration of a national emergency and a swift economic contraction, Medicaid was seen as uniquely positioned to respond to the simultaneous public health and economic crisis.
This brief provides background information on how Medicaid functions as a countercyclical program, both by design and through congressional intervention, and shows how the program has responded during prior economic downturns. It also discusses the current pandemic situation using a range of potential enrollment scenarios to show the extent to which the current FMAP increase will offset the costs of additional Medicaid enrollment and what additional federal support might be needed to provide a larger countercyclical effect.
