CMS Should Withdraw Medicaid State Financing and Supplemental Payment Rule That Undercuts COVID-19 Relief Bill’s Enhanced Federal Medicaid Match

[Editor’s Note: On March 18, 2020 the Senate passed and the President signed into law the bipartisan Families First Coronavirus Response Act (H.R. 6201) after this blog was published.]

Today (March 18, 2020), the Senate is expected to pass the House-passed coronavirus relief bill (H.R. 6201) and send it to the President’s desk.  The bill includes a temporary increase in the federal Medicaid matching rate (known as the “FMAP”) of 6.2 percentage points, which would mean the federal government would pick up a greater share of states’ and territories’ Medicaid costs while the nation is dealing with the novel coronavirus (COVID-19) public health emergency.  As a condition of the increase, states cannot cut eligibility for Medicaid or make it harder for eligible individuals to enroll or stay enrolled in Medicaid.  They also must maintain continuous Medicaid coverage for currently and newly enrolled individuals during the emergency and cannot charge Medicaid cost-sharing for COVID-19 screening and treatment.  (The Center on Budget and Policy Priorities has provided estimates of the likely state-by-state impact.)

As I previously explained, raising the Medicaid matching rate would provide significant health and economic benefits.  It would help states address higher Medicaid costs resulting from higher enrollment as more people become eligible for Medicaid when they lose their jobs or see their hours or wages sharply reduced due to the economic impact of the COVID-19 outbreak.  It would also aid states facing higher-than-expected health costs in Medicaid due to the costs of treatment and related services for COVID-19 patients.  Moreover, it would allow for greater financial support to a health care safety net that disproportionately serves Medicaid beneficiaries (and the uninsured) and is facing rapidly growing, severe stress.  It would also provide overall fiscal relief to states that will now likely face substantial budget deficits as demand for public services increase and state revenues decline.  Because nearly all states are required to balance their budgets, such fiscal relief would avert or limit budget cuts that states would otherwise have to make and which would deepen and lengthen a downturn caused by COVID-19.  As a result, the coronavirus relief bill’s Medicaid matching rate increase would also strengthen Medicaid’s already important “countercyclical” function alongside other important programs such as SNAP.

The benefits of the increased Medicaid matching rate, however, would be seriously undercut if the Trump Administration finalizes its proposed “Medicaid Fiscal Accountability” rule (known as MFAR) later this year.  (The Administration’s fiscal year 2021 budget makes clear its intent to do so.)  The Administration should instead withdraw all or nearly all of the proposed rule.  Alternatively, Congress should consider barring the rule from being finalized.

As our CCF public comments and my Health Affairs blog post explain, the rule threatens to significantly alter how states finance their share of the cost of Medicaid programs and how states provide supplemental payments to hospitals, nursing homes, physicians and other health care providers.  The rule could therefore throw existing state financing and supplemental payment arrangements into chaos, undermine state budgets and substantially threaten the financial viability of providers serving Medicaid beneficiaries.  If, as is likely, states are forced to make sizable budget cuts to their Medicaid programs because they are unable to raise other revenues and increase provider payments in other ways, many low-income beneficiaries — including millions of children and their families who now rely on Medicaid for their health coverage — could see dramatically reduced access to needed care.

A number of the rule’s provisions would take effect immediately upon the rule being finalized.  By barring or limiting existing state financing arrangements, it would reduce the state funding for Medicaid available to draw down federal Medicaid matching funds (including the enhanced funds provided through the matching rate increase) to sustain states’ existing Medicaid programs, let alone address higher costs resulting from greater enrollment and COVID-19 treatment.  By reducing supplemental payments and leading to overall provider reimbursement rate cuts, it would financially destabilize hospitals and other health care providers facing unprecedented demands for care.  It would also enlarge the budget deficits states would otherwise face and make Medicaid less able to serve its critical countercyclical function in an economic downturn.  It would thus lead to Medicaid cuts harming beneficiaries and reducing access to needed care when the program is needed most by low-income individuals and families.  In other words, finalizing the rule could seriously blunt a significant share of the positive health and economic benefits the temporary Medicaid matching rate increase provides.  Moreover, while other provisions of the proposed rule would take effect two to three years after a final rule is issued, states may take steps well before then to eliminate or limit existing financing and supplemental payment arrangements out of fear and confusion.  They would be uncertain about whether their arrangements would continue to receive federal approval and be in full compliance with the rule’s new requirements and because of the advance time needed to plan their budgets and make required legislative changes.  (The rule, if finalized, would also sharply increase the administrative burdens on states, as the rule will force state Medicaid programs to institute major changes to their program related to financing and supplemental payments at the same time they are dealing with the demands and stresses of the COVID-19 outbreak and the resulting economic downturn.)

The harmful effects of the rule, if finalized, and how it would likely undercut the benefits of the temporary federal matching rate increase are clear from the public comments strongly opposing the rule submitted by a wide array of stakeholders including governors, providers, business groups, advocates, and analysts.  This includes public comments to the rule submitted by many state Medicaid agencies such as the following:

Alabama Medicaid Agency: “Alabama Medicaid urges CMS to withdraw the proposed rule, which threatens critical sources of public funding that have allowed the State to maintain these important services for many years…. If the rule is finalized as proposed, it will immediately disrupt the Medicaid program in Alabama and, we believe, across the country.  Alabama Medicaid supports CMS’ goal of transparency, but firmly believes MFAR, as currently proposed, will have many unintended consequences that will affect access to care in Alabama to our most vulnerable populations…. Striking a balance between the goals of this rule and the realities of its implementation is essential to assure no unintended consequences are experiences, especially considering that once the consequence is experienced it will be too late to reverse the damage done.”

Arizona Health Care Cost Containment System: “As currently proposed, the regulation will have significant implications for the ways in which States finance Medicaid programs and pay for Medicaid services…. The sudden prohibition of a previously approved health care-related tax would likely have adverse impacts on access to care….”

California Department of Health Care Services: “The Proposed Rule, nearly in its entirety, is significantly flawed and would have devastating impacts to State programs and budgets…. Of particular concern, the proposed changes governing acceptable sources of nonfederal state funds, namely intergovernmental transfers (IGTs), Certified Public Expenditures (CPEs), and provider taxes, seemingly threaten a sizeable portion of the funds that support services and administrative activities performed by safety net providers that are the foundation of California’s Medicaid Program…. Moreover, such impacts would almost assuredly diminish the ability of our beneficiaries to access timely care, would leave States hamstrung in pursuing value-based and other innovative payment and delivery initiatives, and would cause instability in health care markets even beyond Medicaid…. [T}he Proposed Rule would force States and their local public partners to make painful budgetary decisions, as it is simply not possible to replace all nonfederal share funds affected by the Proposed Rule…. Such a result would… set Medicaid back many years at a time when its importance has never been greater as a safety net to millions of residents.”

Joint Comments from Colorado Department of Health Care Policy & Financing, Illinois Department of Healthcare and Family Services, Louisiana Department of Health, Michigan Department of Health & Human Services, Missouri Department of Social Services, Oregon Health Authority, New York State Department of Health, Pennsylvania Department of Human Services, South Carolina Department of Health and Human Services, Tennessee Division of TennCare and Washington State Health Care Authority: “Of most concern, the proposed rule eliminates or substantially limits the sources of non-federal funding that have long been available to state Medicaid programs.  Given tight state budgets, and a lack of alternative funding available to support Medicaid, the MFAR… would likely force states to cut Medicaid eligibility, benefits and/or provider payments, which would have the effect of decreasing low-income individuals’ access to important health care services.”

Florida Agency for Health Care Administration: “[I]t is abundantly clear that CMS has not sufficiently assessed the substantial consequences this proposed rule would have on both the providers serving and the beneficiaries relying on Medicaid program services that would be impacted by a myriad of the draft provision…. Florida administers the fourth largest Medicaid program in the country, and our state finances hundreds of millions of dollars in charity care through federal Medicaid funding, all of which would be negatively and irreparably impacted by provisions in the proposed rule.  While we are unable to calculate the specific impact to all of our state programs… it is clear that the impact will be immediate and crippling.”

Maine Department of Health and Human Services: “…MFAR’s proposed changes are onerous and far-reaching.  If finalized as proposed, MFAR would require significant changes to MaineCare and could force the State to cut back on eligibility or services.  It would alter and, in some cases, eliminate long-standing, previously sanctions state options for accounting, financing, and payments…. Under MFAR, Maine DHHS would have to predict and would not know until a proposal is enacted and submitted for review whether it would meet CMS’ tests.  This could limit the ability of MaineCare to continue to finance essential services for low-income children and adults, people with disabilities, and older residents.”

North Carolina Department of Health and Human Services: “[T]he proposed rule as written would seriously undermine North Carolina’s Medicaid program, putting important policy goals shared by NC DHHS and CMS at risk…. The proposed rule would impact important financing mechanisms — including intergovernmental transfers (IGTs), certified public expenditures (CPEs) and provider taxes — used by states (including North Carolina) to finance the non-federal share of Medicaid payments….  This would introduce great uncertainty into North Carolina’s state budgeting assumptions and Medicaid provider payment levels, and could ultimately harm beneficiary access to care…. The breath of the proposed changes… represent a serious threat to North Carolina’s Medicaid financing and payment methodologies…. If finalized, the proposed rule could result in unintended consequences, limiting access to care for the more than 1.7 million North Carolinians, and undermining the State’s goal of transforming its Medicaid program to purchase health, not just healthcare, for the citizens of North Carolina.”

Pennsylvania Department of Human Services: “[The] dramatic changes proposed in MFAR will cause lasting and widespread negative effects on the Department’s ability to meet the needs of individuals we serve…. The Department has a mission of ‘assisting Pennsylvanians in achieving safe, healthy, and productive lives, while being an accountable steward of commonwealth resources,’ and we take this very seriously.  MFAR presents more barriers to achieving that mission than it does guidance….”

Tennessee Department of Finance & Administration, Division of TennCare: “However, the proposed rule raises several serious concerns.  Specifically, the proposed rule would significantly restrict the use of long-established funding mechanisms that states and the federal government have relied on to provide coverage to millions of Americans, and create gaps in state Medicaid funding that states have no immediate way to resolve…. [One] proposed requirement… would have an immediate and significant detrimental impact on the ability of states to finance the non-federal share of their Medicaid program…. [Another] proposed limitation would create significant hardships for states and hospitals, potentially leading to disruptions in such care.  This proposed restriction will have an adverse impact on access to care, particularly in high-risk communities which disproportionately rely on public hospitals for their care.”

As our comments indicated, the Trump Administration should immediately withdraw all or nearly all provisions of the proposed rule.  (Instead, if there is any final rule, it should only include limited public reporting and data collection requirements related to supplemental payments and state financing that would improve transparency and oversight, with the effective date for such requirements set well after the end of the COVID-19 public health emergency.)  The case for withdrawing the rule is now even stronger in the context of the COVID-19 outbreak and the House-passed coronavirus relief package.  Withdrawing the rule — or alternatively Congress blocking the rule from being finalized — would ensure that the full benefits of the temporary increase in the federal Medicaid matching rate (and of any additional assistance Congress provides to further support state Medicaid programs and provide fiscal relief to states) are realized in addressing the COVID-19 outbreak and the related economic downturn.  It would also make sure that states are better able to ensure that Medicaid is able to respond to epidemics and economic downturns in the future.

Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.