Report from the Center on Budget and Policy Priorities

February 3, 2009

PRELIMINARY ANALYSIS OF MEDICAID ASSISTANCE FOR STATES
IN THE HOUSE ECONOMIC RECOVERY PACKAGE
by Iris J. Lav, Edwin Park, Jason Levitis, and Matthew Broaddus

The economic recovery package passed by the House of Representatives includes an approximately $88 billion temporary increase in the share of the Medicaid program paid by the federal government over nine calendar quarters (October 1, 2008 through December 31, 2010).[1]  The states urgently need this type of assistance; states on their own are not able to provide critically needed health insurance under Medicaid as need swells in a recession and in its immediate aftermath.

• Medicaid rolls are soaring, as they have in previous recessions.  As people lose their jobs and their incomes, they often also lose their health insurance and qualify for Medicaid.  As employers try to cut costs, they drop health coverage.  And people who are still working but with reduced hours or income and who lack health insurance may newly qualify for Medicaid.  All of these factors drive up enrollment.

• State revenues are dropping.  As unemployment rises and consumption declines, state income and sales taxes dwindle.  States are projected to face deficits of $350 billion over the next 30 months.[2]  Since almost all states have to balance their budgets, most cannot afford to maintain their existing Medicaid programs, and certainly cannot afford to accommodate a large influx of new enrollees resulting from the recession.

• The gap between the need for Medicaid and states' ability to meet that need is large.  In a recent Kaiser Foundation report, the Urban Institute estimates that the gap over the next two and a half years between Medicaid costs and states' ability to meet those costs  - considering both enrollment increases and revenue losses  - would be approximately $100 billion if unemployment averages 9 percent.[3]  However, that was calculated as the estimated sum of the "exact" amount each state would need to meet its Medicaid costs.  Since it is not practically possible to craft legislation that would give each state exactly what it needs, total federal assistance would need to be significantly more than $100 billion to keep the program whole.

The House proposal would provide three elements of Medicaid fiscal relief assistance to states:

• First, all states would be "held harmless" for drops in the federal share of Medicaid - known as FMAP - that states would otherwise automatically experience this year (federal fiscal year 2009) and into federal fiscal year 2011.  This is necessary to prevent states from losing federal funding as a result of much stronger economic conditions that may have prevailed in a state three years ago, since FMAP is calculated based on a state's per capita income and with a substantial lag.

• Second, all states would receive a "base"4.9 percentage point increase in the share of the Medicaid program the federal government pays.  Thus in a state like New York in which the federal government usually pays 50 percent of the program, the base federal share for the period of assistance would equal 54.9 percent.  In a state like Mississippi in which the federal government usually pays approximately 76 percent of the program, the base federal share for the period of assistance would be 80.9 percent.[4]

• Third, states that are experiencing particularly poor economic conditions, as indicated by a significant increase in unemployment, would receive additional assistance.  Depending on the extent of the percentage point increase in the state's unemployment rate, a state could receive a 6 percent, 12 percent, or 14 percent reduction in the share of Medicaid that the state pays.  (See technical note for further explanation of these provisions.)

This fiscal assistance for states would be effective for the period October 1, 2008, through December 31, 2010.  The qualification of each state for a higher level of assistance because of unemployment rate increases would be evaluated each quarter, and states would receive the additional assistance if their economic situation worsens.  While a state's additional assistance could be increased, no state's additional assistance would be reduced as a result of dropping unemployment before July 1, 2010.

To receive any increased FMAP, a state must not have Medicaid eligibility levels that are more restrictive than were in effect on July 1, 2008. Restrictions on eligibility include changes that make it more difficult for recipients to meet procedural requirements for enrollment or periodic renewal of their coverage.  States that restrict eligibility would be allowed to reverse their actions and still qualify for an increased FMAP in the first calendar quarter they have restored their Medicaid eligibility.