Congress Should Provide Additional Medicaid Funding and Also Block Medicaid Fiscal Accountability Rule

Despite the House passing the HEROES Act (H.R. 6800) in May, the Senate has not considered further major legislation to respond to the worsening COVID-19 health and economic crisis.  But it is expected that Congress will finally act over the next two weeks.  As I have explained, an additional, substantial increase in the federal Medicaid matching rate (FMAP) is essential to addressing the costs of expected higher Medicaid enrollment and overall state budget deficits resulting from the crisis.

The HEROES Act, for example, would increase the FMAP by a total of 14 percentage points for one year starting July 1, 2020 (including the 6.2 percentage point increase enacted as part of the Families First COVID-19 legislation).  In a July 10th letter to Congress, the National Governors Association, the National Conference of State Legislatures, the U.S. Conference of Mayors, the National Association of Counties, among other state and local government groups, as well as many health care provider and advocacy organizations, similarly support a FMAP increase of 12 percentage points or more that would remain in place until unemployment has declined significantly.

But it’s also essential that Congress block the highly damaging Medicaid Fiscal Accountability Rule (MFAR) proposed by the Trump Administration, which would adversely affect 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.  While it did not receive widespread attention, the Office of Management and Budget recently indicated that the Administration now plans to finalize the rule in September in the middle of the ongoing COVID-19 crisis.

As our CCF public comments, my Health Affairs blog post and public comments from numerous state Medicaid agencies have all explained, if finalized, the rule would have the harmful effect of reducing the amount of state funding for Medicaid now available to draw down federal Medicaid matching funds.  This would make it more difficult to sustain states’ existing Medicaid programs, let alone address higher costs resulting from greater Medicaid enrollment and COVID-19 testing and treatment.  In addition, by reducing supplemental payments to providers and leading to overall provider reimbursement cuts, the rule would also financially destabilize hospitals and other health care providers facing higher COVID-19 related costs and/or sharply reduced revenues.  It would also further enlarge the overall budget deficits states are facing and make Medicaid less able to serve its critical countercyclical function in an economic downturn, essentially canceling out much of the fiscal relief provided by the Families First FMAP increase.  Finally, the rule would also prohibit or limit states’ ability to add new or expand existing state financing sources to help support their Medicaid programs and address the budget shortfalls they are facing, as states did in the aftermath of the Great Recession.

That is why the National Governors Association and other state and local government organizations are asking Congress to not only provide a further, large FMAP increase but to also block the MFAR rule:

“Additionally, we urge that the proposed Medicaid Fiscal Accountability Rule be rescinded.  We believe this rule would reduce the ability of states and localities to finance the non-federal share of Medicaid, resulting in a reduction in federal Medicaid funding for the public health and hospital systems and destabilizing them at a time when healthcare and public health services are needed most.”

The House-passed HEROES Act would prevent the Trump Administration from finalizing its damaging MFAR rule for the duration of the public health emergency.  Such a provision, or a provision blocking MFAR from being finalized permanently, is therefore another essential element of the COVID-19 response legislation that Congress will be considering over the next two weeks

Edwin Park
Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy.