[Editor’s Note: President Biden signed the American Rescue Plan into law on March 11, 2021. See Georgetown University CCF/CHIR brief for a summary of final health coverage provisions.]

On February 27, the House passed the American Rescue Plan Act of 2021 (H.R. 1319), its COVID-19 relief reconciliation bill.  The bill includes a number of provisions strengthening Medicaid and the Children’s Health Insurance Program (CHIP), including provisions that would encourage states to finally take up the Medicaid expansion and allow states to provide longer postpartum coverage for new mothers.  The Senate will now take up the COVID-19 relief bill.

Here is a brief summary of the Medicaid and CHIP provisions:

• Provides additional federal Medicaid funding to states that newly adopt the Medicaid expansion. States that newly expand Medicaid would receive an additional five percentage point increase in their regular federal Medicaid matching rate (FMAP) for two years, no matter when they newly expand.  This increase would be in addition to the temporary 6.2 percentage point FMAP increase enacted as part of the Families First COVID-19 relief legislation (P.L. 116-127) that is available through the duration of the COVID-19 public health emergency.  (The matching rate for the expansion itself would remain at 90 percent).  The 5-percentage point increase would not apply to other Medicaid spending that is not subject to the regular FMAP such as administrative costs as well as to Disproportionate Share Hospital (DSH) spending.  It would also not affect CHIP and Title IV matching rates and would not be taken into account in applying territorial funding caps.  The Kaiser Family Foundation (KFF) has issued estimates of how much current non-expansion states would receive in additional federal Medicaid funding under this provision if they newly adopt the expansion starting in federal fiscal year 2022, how much states would spend for their share of the cost of the expansion in the first two years, and the resulting net impact on state spending.  The KFF estimates find that the FMAP increase is expected to more than offset expansion costs in all of the non-expansion states in the two-year period.

• Establishes new option for states to extend postpartum coverage to new mothers for 12 months. States would have a new option to cover women in pregnancy-related Medicaid and CHIP coverage for one year after the end of pregnancy, extending their coverage well beyond the current cutoff of 60 days.  Currently, states can only receive federal matching funds to extend postpartum coverage beyond 60 days through a Section 1115 waiver, and though six states have applied to the Centers for Medicare and Medicaid Services (CMS), none have yet received approval.  States that opt to extend postpartum coverage must do so for both Medicaid and CHIP (if they cover pregnant women through CHIP).  The option will be available to states for seven years, beginning with the start of the first calendar year quarter one year after enactment.  (An earlier version of the provision, as reported by the House Energy and Commerce Committee, made the option available for five years.)  As we have explained, this option is critical in responding to the alarming maternal mortality crisis in the U.S., which disproportionately affects women of color.  When Medicaid and CHIP coverage ends at 60 days postpartum, many women are at risk of becoming uninsured and missing out on critical access to care that can prevent pregnancy-related deaths.

• Requires state Medicaid and CHIP programs to cover COVID-19 vaccines and treatment without cost-sharing, with full federal funding for vaccines. The American Rescue Plan Act would build on provisions in the Families First COVID-19 legislation that required Medicaid and CHIP coverage of COVID-19 testing without cost-sharing to explicitly require Medicaid and CHIP coverage of COVID-19 vaccines, treatment including prescription drugs, and treatment of conditions that complicate COVID-19 treatment, without the imposition of cost-sharing charges.  (The Families First legislation indirectly required states to cover COVID-19 testing and treatment without cost-sharing in Medicaid as part of its FMAP maintenance-of-effort requirement, but that provision did not apply to separate state CHIP programs.)  These requirements would apply through the end of the first calendar year quarter that starts one year after the end of the COVID-19 public health emergency.  In addition, the federal matching rate for COVID-19 vaccines and their administration would also be increased to 100 percent.[1]  Finally, the package would clarify that any drugs used for COVID-19 treatment would be subject to the Medicaid Drug Rebate Program, which would lower their cost for state Medicaid programs.

• Expands the state Medicaid option for coverage of COVID-19 testing for the uninsured to include coverage for COVID-19 vaccines and treatment. The Families First legislation included a Medicaid option for states to cover COVID-19 testing for the uninsured.  The federal government picks up 100 percent of the cost.  The House-passed COVID-19 relief reconciliation bill would expand the option to cover vaccines and treatment, including prescription drugs and treatment for complicating conditions.

• Provides additional federal Medicaid support for home- and community-based services (HCBS). States would have the option of receiving a 7.35 percentage point increase in their Medicaid matching rate for HCBS services (subject to a 95 percent limit) for one year starting April 1, 2021.  As a condition of the increase, states would be required to use this additional funding to expand and enhance HCBS in one or more enumerated ways, including increasing HCBS reimbursement rates and providing “retainer” payments to financially stressed providers; addressing HCBS providers’ higher COVID-19 related costs such as hazard and overtime pay, emergency supplies and equipment, training, education and recruitment; and reducing HCBS waiting lists.  States would be required to maintain, not supplant, their level of HCBS spending as of April 1, 2021.  The Congressional Budget Office estimates that the provision would increase federal spending on HCBS services by $9.3 billion.

• Increases Medicaid drug rebates for drug manufacturers that have imposed excessive price increases. As we have explained, the legislation would eliminate a cap on total drug rebates that manufacturers must pay state Medicaid programs.  Because the cap has effectively weakened the ability of the Medicaid Drug Rebate Program to discourage manufacturers from instituting excessive annual price increases, elimination of the cap has been recommended by the Medicaid and CHIP Payment and Access Commission (MACPAC) and has also enjoyed strong bipartisan support.  Based on CBO estimates, the provision would produce about $23.5 billion in prescription drug savings for both the federal government and the states over the next 10 years.

• Increases federal support for certain Indian Health Service providers. The House-passed reconciliation bill would also temporarily apply for two years the 100 percent FMAP now available to Indian Health Service (IHS) providers for furnishing care to Medicaid beneficiaries to services furnished by Urban Indian Health Programs and Native Hawaiian Health Care Systems.  Such providers are grantees of the IHS and serve IHS-eligible patients on Medicaid, but they are not formally part of the IHS and as a result, do not receive the 100 percent FMAP like other IHS providers.

• Includes several other Medicaid and CHIP provisions. The bill would also give states the option to provide community-based mobile crisis intervention services for five years, with an 85 percent FMAP.  The bill would also appropriate $250 million to support state-based “strike” teams to help respond to COVID-19 in nursing homes.  Finally, the bill would clarify that during the public health emergency when the Families First FMAP increase is in effect, states’ DSH allotments would be recalculated to ensure that total DSH payments remains at the same levels that would have been paid in the absence of the FMAP increase.

[1] The vaccine-related matching rate increase would be excluded from the territorial funding caps and in the case of CHIP, states’ CHIP allotments would be adjusted accordingly.