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LFA stress test: FMAP shifts and recessions could put hundreds of millions at risk for traditional Medicaid
Summary
LFA modeled economic and federal policy scenarios and estimated combined revenue and Medicaid expenditure risk between $387.5 million and $862.1 million over five years; findings show the ACA (expansion) population could be covered by the Medicaid ACA Fund but the traditional Medicaid program would likely exceed the stabilization account without additional buffers or policy changes.
The Legislative Fiscal Analyst Office told the Executive Appropriations Committee that changes in federal Medicaid participation (FMAP) and recession scenarios could expose Utah to hundreds of millions in budget risk over the next five years.
Noah Hanson, LFA staff economist, outlined stress testing based on four Moody Analytics economic scenarios (baseline, moderate recession, severe recession, stagflation) and two FMAP policy shocks: a 5% downward shift and an extreme 50/50 split of federal/state responsibility. He described the methodology — scenario‑driven enrollment forecasts, PMPM inflation using medical CPI, and extrapolation over a five‑year horizon — and then presented the results.
Across the standard economic scenarios alone, LFA estimated Medicaid expenditure value at risk between $373,400,000 and $800,800,000 over five years. When revenue effects are included, the combined value at risk ranged from about $387,500,000 to $862,100,000. In the FMAP scenarios, a 5% shift could increase state Medicaid exposure by roughly $84,300,000 per year on average versus current FMAP; under a 50/50 FMAP split the state could face average annual increases of roughly $221,400,000 versus baseline, and much larger increases if those policy changes coincided with a moderate or severe recession.
Hanson summarized available buffers: the Medicaid ACA Fund holds around $342,000,000 and the Medicaid budget stabilization restricted account about $107,200,000 (plus an $80,700,000 FY2026 appropriation). He concluded the expansion population (ACA) appears to have sufficient dedicated funding, but the traditional Medicaid population could exhaust the dedicated Medicaid stabilization buffers under several scenarios. "We estimate that between $373,400,000 to $800,800,000 at risk over the next 5 years," Hanson said.
Committee members asked whether the analysis accounted for recent state policy changes (work requirements and enrollment reductions) and were told the stress test used current law and historical‑series methods and did not incorporate the most recent legislative changes; LFA estimated the state‑level savings from one change at roughly $30,000,000 per year but cautioned that further work would be needed to quantify impacts on health care utilization and emergency room demand.
What happens next: LFA will include this stress testing in the December EAC materials; committee members and staff flagged statutory and constitutional constraints on moving some rainy‑day funds (notably voter‑approved ACA earmarks) and asked staff to study contingency options and statutory clarifications.
