Federal policymakers have started to consider how to address a serious economic downturn that could result from the novel coronavirus (COVID-19) outbreak. For example, the Trump Administration is pursuing a temporary payroll tax cut and tax deferrals for certain industries, even though the proposal would not provide effective fiscal stimulus, as the Center on Budget and Policy Priorities explains.
An essential element of any economic stimulus should be a temporary increase in the federal Medicaid matching rate (known as the “FMAP”), which would mean the federal government would pick up a greater share of states’ Medicaid costs. Such an increase was included in stimulus legislation enacted during the last two recessions (see here and here).
Raising the matching rate would help states address higher Medicaid costs resulting from higher enrollment as more people become eligible for Medicaid as they lose their jobs or see their hours or wages reduced. It would also aid states facing higher-than-expected health costs in Medicaid due to COVID-19. Moreover, it would allow for greater financial support to a health care safety net that disproportionately serves Medicaid beneficiaries (and the uninsured) and is likely to face growing, severe stress in coming weeks and months. It would also provide overall fiscal relief to states that could face budget deficits as demand for public services increase and state revenues decline due to a downturn. Because nearly all states are required to balance their budgets, such fiscal relief would avert or limit budget cuts which states would otherwise have to make and which would deepen and lengthen any downturn. As a result, it would significantly strengthen Medicaid’s already important “countercyclical” function alongside other important programs such as SNAP.
According to the Kaiser Family Foundation, the increased federal funding for state Medicaid programs included in the American Recovery and Reinvestment Act (which was in effect starting October 1, 2008 and was available through June 30, 2011, following a 6 month extension) allowed states to “cover the costs of increased Medicaid caseloads, to maintain Medicaid benefits, to maintain payment rates for institutional providers and practitioners, and to support general state budget needs.” It also “clearly assisted state Medicaid programs and helped them avoid or mitigate program restrictions that would have occurred otherwise.”
As with the last two increases in the Medicaid matching rates, the increase should be tied, at minimum, to states maintaining their existing Medicaid programs by prohibiting states from cutting eligibility or making it harder for eligible individuals and families to enroll. (Such a protection is already in place for children in Medicaid and CHIP through federal fiscal year 2027.) Additional increases could be targeted to states that are particularly hard hit by the COVID-19 outbreak. The magnitude of the increase in each state could also be tied to the severity of an economic downturn to better ensure states receive sufficient funding increases to sustain their Medicaid programs. For example, one proposal outlined would vary federal Medicaid funding increases on a state-by-state basis based on percentage point changes in states’ unemployment rates once they exceed certain thresholds. That proposal would also establish matching rate increases as a permanent mechanism in Medicaid that could be automatically triggered on and off by changes in economic conditions. This would have the benefit of avoiding the need for Congressional action in the event of future recessions or downturns.