The Florida legislature adjourned for 2014 without accepting the federal Medicaid funding on the table to extend coverage to as many as a million Floridians who would have been eligible. According to the state’s Social Services Estimating Conference, for the current fiscal year (which will end on June 30, the state could have received $1,258,054,808 with no state dollars required. As our factsheet details, an estimated 764,000 of the most vulnerable Floridians have fallen into a coverage gap because the state has left the federal dollars on the table.

That’s highly unfortunate for Floridians since the state already has one of the highest rates of uninsured adults in the country. And it is bad news for the state’s economy and especially the hospitals. Governor Scott, who came out in support of Medicaid expansion last year, did little to throw his back into the fight this year – by some accounts telling legislators not to send him a bill this year as he faces a tough reelection fight.

Assuming the legislature doesn’t come back into special session this year and take action on Medicaid, 2015 will be a pivotal year for Florida. A few weeks ago, the federal Centers for Medicare and Medicaid Services (CMS) sent a letter to Florida’s Medicaid Director, Justin Senior, outlining the direction that negotiations are headed with respect to renewing the state’s Section 1115 Medicaid waiver agreement.

As readers of SayAhhh! know, Florida’s waiver has been a big focus of mine over the years. While it was just last year that CMS  and the state came to an agreement on the major provisions related to the state’s use of managed care, which we explained in a research paper, this agreement took so long to negotiate that it is already expiring in a few months at the end of June 2014. I don’t expect many of these managed care issues to be revisited extensively in the forthcoming extension.

Typically, waiver extensions are three years long. What jumped out at me from the April 11 letter from CMS was the assertion that the demonstration itself will be extended for three years through June 30, 2017 (the norm), but a special feature of Florida’s waiver agreement which provides funding to hospitals – known as the Low Income Pool or LIP – will only be extended for one year – through June 30, 2015.

What is the Low Income Pool?

The Low Income Pool has been around ever since the inception of the demonstration in 2005. The Low Income Pool was designed to draw down federal funds to compensate hospitals and other safety net providers that were seeing large numbers of uninsured patients.  The state has been receiving approximately $2 billion in federal funds with the vast majority of state matching dollars coming from local hospital taxing districts. In its renewal request last fall, the state asked for a considerable increase in these federal funds to $4.5 billion.

This year’s renewal discussion about the continuation of the Low Income Pool is the first to have transpired since the Supreme Court made extending Medicaid coverage optional.  In its application, the state argued vehemently that the two issues were not related – stating “this request is made to improve the health of Floridians and … has no connection to the Medicaid expansion provisions of the Affordable Care Act.” However, that logic seems pretty hard to defend since accepting the billions of federal Medicaid matching dollars on the table as a result of the ACA would also improve the health of Floridians – not to mention the fiscal health of Florida’s hospitals, which was the whole point of the Low Income Pool in the first place.

So, while CMS’ letter doesn’t explicitly mention the connection, it’s not hard to read between the lines. The federal government plans to renew the bulk of the waiver provisions for three years – but not the Low Income Pool, which only received a one year extension. And while the final funding amount has not yet been determined, the letter states that it will be no more than $2.16 billion — essentially current funding levels with no increase.

This means that should the legislature fail to act in 2015, a very serious threat to hospital financing is looming for the state of Florida. And the consequences of that inaction will fall squarely on the shoulders of the state legislators – the writing is on the wall now – or should we say in the mail.