On February 9th, Congress enacted the Bipartisan Budget Act of 2018, which included temporary financial assistance critically needed by the Medicaid programs of Puerto Rico and the U.S. Virgin Islands as the islands struggle to recover from the devastation of Hurricanes Maria and Irma.  But Congress should also consider permanent Medicaid financing changes to sustain and strengthen the Medicaid programs in the U.S. territories over the long run.

A key component of the post-hurricane recovery in Puerto Rico and the U.S. Virgin Islands is providing sufficient federal financial support for their Medicaid programs.  In Puerto Rico, for example, residents disproportionately rely on Medicaid for their health coverage due to their low incomes and relative lack of access to private insurance.  Forty-eight percent of Puerto Rico residents were enrolled in Medicaid in 2016, according to Census Bureau data from the American Community Survey.  And more than 62 percent of Puerto Rican children received health coverage through Medicaid.  This is the case even though Puerto Rico’s Medicaid program sets lower income eligibility levels for certain populations, such as pregnant women, than the federal minimum income eligibility thresholds that apply to all states.

The disaster relief provisions of the Bipartisan Budget Act of 2018:

• Provides $4.8 billion in additional federal Medicaid funding for Puerto Rico and an additional $143 million for the U.S. Virgin Islands between January 1, 2018 and September 30, 2019. For the states, the federal government pays for a fixed share of their Medicaid costs.  But for Puerto Rico, the U.S. Virgin Islands and the other U.S. territories, the federal government provides Medicaid funding through a highly inadequate block grant — a fixed amount of federal funding that falls well below the territories’ actual Medicaid costs.  Once a U.S. territory’s Medicaid spending exceeds its federal block grant funding, it is fully responsible for all remaining Medicaid costs.  This meant, for example, that prior to the Affordable Care Act, the federal government effectively paid for only 15 percent to 20 percent of Puerto Rico’s Medicaid costs rather than half of costs under its statutory matching rate.  The resulting federal funding shortfalls were a major long-term contributor to Puerto Rico’s pre-hurricane fiscal crisis.  While the Affordable Care Act provided additional, temporary federal funding to supplement the territories’ block grant funding through September 2019, Puerto Rico was projected to fully exhaust those funds by next month.  As a result, prior to Hurricanes Maria and Irma, Puerto Rico would have likely have had to cut 500,000 to up to 900,000 low-income people from its Medicaid program, threatening health coverage and access for one-third to more than half of its current Medicaid enrollment, according to estimates from the Office of the Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services.

But now with the hurricanes, there is a significant risk that more residents of Puerto Rico and the U.S. Virgin Islands will likely become eligible for Medicaid in coming months — offset to some degree by the effects of overall population decline due to outmigration — and the average medical needs of beneficiaries may also increase.  This, in turn, would create even greater need for federal Medicaid funding.  Fortunately, the federal block grant funding increases included in the Bipartisan Budget Act of 2018 should be more than sufficient to fully sustain the Medicaid programs of Puerto Rico and the U.S. Virgin Islands over the next 15 months, including accounting for any post-hurricane spending demands as well as the temporary increase in the federal matching rate, as discussed below.

However, $1.2 billion of the funding increase for Puerto Rico and $35.6 million of the funding increase for the U.S. Virgin Islands is conditioned on the Secretary of Health and Human Services certifying that Puerto Rico and the U.S. Virgin Islands are taking reasonable and appropriate steps to implement modernized Medicaid data management systems and demonstrate progress toward establishing a Medicaid fraud control unit.  It is critical that Puerto Rico and the U.S. Virgin Islands immediately take any needed actions to demonstrate compliance and ensure they have access to the full federal Medicaid funding increase made available.  It is also essential that the Secretary does not unduly withhold certification or otherwise limit the full amount of federal Medicaid funding for which Puerto Rico and the U.S. Virgin Islands qualify.

• Establishes a temporary 100 percent federal Medicaid matching rate for Puerto Rico and the U.S. Virgin Islands with respect to such funds.  While states’ federal matching rates are set based on their per capita income relative to the nation, the U.S. territories currently receive a fixed matching rate of 55 percent.  (The Affordable Care Act increased the matching rate from 50 percent to 55 percent effective July 1, 2011.)  For example, due to its low per capita income, if Puerto Rico’s matching rate were set under the matching rate for states, it would equal 83 percent, the maximum permitted under Medicaid law.  This means that for every $1 of total Medicaid spending, the federal government contributes 55 cents and Puerto Rico and the U.S. Virgin Islands must contribute the other remaining 45 cents.  But the hurricanes have seriously damaged Puerto Rico’s and the U.S. Virgin Islands’ economies and drastically reduced their fiscal capacity.  Temporarily raising the federal matching rate to 100 percent (including for administrative costs) was therefore essential because neither Puerto Rico nor the U.S. Virgin Islands will be able to pay their current share of Medicaid costs anytime soon.

While the temporary Medicaid funding provisions enacted last month were a necessary first step in supporting the immediate post-hurricane recovery in Puerto Rico and the U.S. Virgin Islands, Congress should also consider permanent changes to federal Medicaid financing to better ensure the long-term viability of territorial Medicaid programs.  That would allow Puerto Rico and the U.S. Virgin Islands to maintain and expand Medicaid coverage for their low-income residents, improve access to and quality of care and strengthen their severely stressed and damaged health care systems.  It would also make their Medicaid programs more resilient and responsive in the event of another hurricane or other natural disaster.  Specifically, for Puerto Rico, the U.S. Virgin Islands and all of the other territories, Congress should:

• Eliminate the federal block grant funding cap over time. This would ensure that Puerto Rico, the U.S. Virgin Islands and the other territories do not experience federal funding shortfalls as in the past that have placed severe fiscal pressures on their programs and substantially weakened their health care systems.  It would also allow for federal funding to automatically increase in response to another hurricane or other natural disaster, as the federal government would now provide a fixed share of territorial Medicaid costs, rather than an arbitrary amount of federal funding as under a block grant.

• Raise the federal Medicaid matching rate over time, until it eventually equals the levels that would be otherwise determined under the formula that applies to the states. This would appropriately raise their Medicaid matching rates to account for the territories’ lower per capita incomes (and thus their lower fiscal capacity to contribute to the costs of their Medicaid programs).

• Require territorial Medicaid programs to come into fuller compliance over time with the same federal Medicaid requirements that apply to the states. As a condition of the eventual elimination of the federal funding cap and setting higher matching rates, the territories would have to begin raising their minimum Medicaid eligibility levels and strengthening benefit standards.  As noted, Puerto Rico effectively sets much lower income eligibility levels for Medicaid for populations like pregnant women than the federal minimum levels required of states by using a local poverty level rather than the federal poverty level, according to the Congressional Research Service.  Also, according to the Medicaid and CHIP Payment and Access Commission (MACPAC), Puerto Rico provides only 10 of the 17 mandatory benefits required by federal law (including not covering nursing home care) and very limited benefits under the comprehensive Early and Periodic Diagnostic Screening and Treatment (EPSDT) benefit for children.  EPSDT is particularly important in ensuring that children with special health care services have access to the treatment and services they need.