Critical Need for Further, Large FMAP Increases to Sustain State Medicaid Programs During Economic Crisis

As part of the Families First COVID-19 legislation, Congress provided a temporary 6.2 percentage point increase in the federal Medicaid matching rate (FMAP) for the duration of the public health emergency.  The bipartisan National Governors Association and the National Association of Medicaid Directors are both urging Congress to provide further FMAP increases (totaling at least 12 percentage points including the Families First increase) as part of the next COVID-19 response bills.  That’s because the additional federal support provided by the Families First bill, while helpful, is clearly insufficient to address the sharply higher state Medicaid costs and overall budget deficits states will experience in coming weeks, months and years.

  • The Families First FMAP increase of 6.2 percentage points is considerably smaller than what was provided in response to the Great Recession. The American Recovery and Reinvestment Act of 2009 (ARRA) included a similar, minimum FMAP increase of 6.2 percentage points but also provided further state-specific increases based on the rise of state unemployment rates.  It also included a hold harmless provision, shielding states from scheduled FMAP reductions.  In the first quarter of federal fiscal year of 2010, for example, the resulting total FMAP increases ranged from 6.94 percentage points to 13.87 percentage points across the states (with an average increase of 10.5 percentage points) according to the Kaiser Family Foundation (KFF).
  • Medicaid enrollment increases related to the COVID-19 crisis — and the resulting Medicaid cost increases — are likely to be significantly greater than after the Great Recession. According to KFF, between December 2007 and December 2009, Medicaid enrollment increased by nearly 6 million as people lost their jobs and health insurance and became newly eligible for Medicaid.  According to the Bureau of Labor Statistics, the national unemployment rate stood at 5.0 percent in December 2007 and doubled to a high of 10 percent in October 2009.  (The unemployment rate low in 2007 was 4.4 percent in May 2007).

In contrast, BLS data show the unemployment rate before the COVID-19 crisis was about one percentage point lower than it was in the months before the start of the Great Recession: 3.5 percent in February 2020.  And the Congressional Budget Office now projects that the unemployment rate will hit a high of 16 percent in the 3rd quarter of 2020 and remain, on average, at 10.1 percent through 2021.  The Economic Policy Institute notes that the tens of millions of workers who newly applied for Unemployment Insurance (UI) benefits over the last six weeks translates into an even higher unemployment rate of 20.5 percent.

Moreover, the Affordable Care Act’s Medicaid expansion, which first took effect in 2014 and covers parents and other adults with incomes up to 138 percent of the federal poverty line, has now been adopted in all but 14 states.  In comparison, according to the annual KFF Medicaid and CHIP eligibility and enrollment survey, in 2008, the median Medicaid eligibility for working parents was only 63 percent of the federal poverty line and 41 percent for unemployed parents, with non-disabled adults without dependent children entirely ineligible in the vast majority of states.

In fact, new estimates from the Urban Institute conducted for the Robert Wood Johnson Foundation find that if the unemployment rate increases to 15 percent (similar to CBO’s unemployment projections), Medicaid enrollment would increase by 8.2 million to 14.3 million.  (The range depends on differing assumptions about the responsiveness of employer-sponsored insurance to unemployment.).  If the unemployment rate increases to 20 percent, Medicaid enrollment is projected to increase by 11.8 million to 20.6 million.  (Health Management Associates, a health policy consulting firm, has somewhat higher estimates.  It projects that if unemployment rises to 17.5 percent or 25 percent, Medicaid enrollment would increase by 16.5 million and 23 million respectively nationally.)

  • Overall state budget deficits will likely be far larger than what states experienced after the Great Recession. As the COVID-19 public health and economic crisis continues, the size of the budget deficits that states are facing is growing rapidly.  This is in large part due to plummeting sales tax and income tax revenues as economic activity drastically contracts.  For example, the Center on Budget and Policy Priorities now estimates that states will face aggregate budget shortfalls of $650 billion over three years, with the total fiscal year 2021 deficits of $350 billion exceeding by over 50 percent the largest single-year Great Recession-related deficits states experienced in 2010 (after adjusting for inflation).  Moreover, to make matters worse, while the CARES Act included $110 billion in general fiscal relief for states through its Coronavirus Relief Fund, the Treasury Department recently barred states from using those funds to close budget gaps caused by revenue declines resulting from the COVID-19 related recession.  States can only use these funds to pay for COVID-19 related spending increases that were not anticipated in their budgets, which would significantly limit the benefit to states of that funding.

As a result, it’s critical that Congress provide further large increases in the FMAP to shore up state Medicaid programs and help states address their overall budget deficits.  In addition, the duration of these increases should be tied to the length of the economic and fiscal crisis, as measured by economic indicators such as state unemployment rates as the economic impact of COVID-19 is likely to last well beyond the end of the public health emergency.

Moreover, such increases should continue to be subject to the same Maintenance of Effort (MOE) requirements that apply to the Families First FMAP increase.  As we have explained, during the duration of the FMAP increase, states cannot cut eligibility or make it harder for eligible families to enroll, cannot disenroll those currently on Medicaid or those who newly enroll, cannot charge higher premiums, must cover COVID-19 testing and treatment without cost-sharing and cannot shift the share of Medicaid costs to local governments.

Like Families First, further FMAP increases should continue to have the effect of increasing the matching rate for the Children’s Health Insurance Program (CHIP) although the annual CHIP allotments states receive should be adjusted to fully accommodate these matching rate increases.  A separately scheduled 11.5 percentage point decrease in the CHIP matching rate for fiscal year 2021 should also be delayed and the MOE disenrollment protection should be similarly applied to separate state CHIP programs.

Congress should also consider increasing the Medicaid matching rate for administrative spending to help offset the financial and workload burden on state eligibility systems and eligibility workers as Medicaid enrollment rises sharply.  Finally, Congress should block or delay the Trump Administration from finalizing its damaging Medicaid Fiscal Accountability Rule (MFAR).  As we have previously explained, the rule, if finalized, would lead to significant Medicaid cuts, worsen state budget deficits and undercut the benefits to states of the FMAP increase that has already been provided (and any additional FMAP increase or other fiscal relief that Congress provides).

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