House Hearing Will Examine the Looming Fiscal Cliff for Medicaid Programs in the Territories

On Wednesday, March 17, 2021, the Health Subcommittee of the House Energy and Commerce Committee will hold an important hearing on “Averting a Crisis: Protecting Access to Health Care in the U.S. Territories.”  In December 2019, Congress provided Puerto Rico and the other territories — American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands — their most recent temporary increases in federal Medicaid funding but these funding increases, along with temporary increases in the territories’ federal Medicaid matching rates, expire at the end of September.

Once the funding increases expire, the only federal funding available to the territories will be their fiscal year 2022 base block grants.  (Unlike the states, the territories operate their Medicaid programs under block grants: fixed amounts of federal funding that are not tied to their actual spending needs.) Medicaid and CHIP Payment and Access Commission (MACPAC) data indicate these base block grants would represent reductions in federal Medicaid funding of 85 percent for Guam, American Samoa, and the U.S. Virgin Islands, 88 percent for the Northern Mariana Islands, and 86 percent for Puerto Rico, compared to what they are currently receiving in fiscal year 2021.

The base block grants are highly inadequate.  The amounts they provide are far below what is needed to sustain the territories’ existing Medicaid programs.   Federal Medicaid spending data, for example, show that in 2019, these base block grants would have by themselves financed only 11.1 percent of total Medicaid spending in the Northern Mariana Islands, 12.1 percent in the U.S. Virgin Islands, 13.9 percent in Puerto Rico, 15.5 percent in Guam, and 22.2 percent in American Samoa.  (The regular matching rate for the territories is officially 55 percent, although the most recent infusion of federal funding raised the rates to 76 percent for Puerto Rico and 83 percent for the other territories.)

As a result, if allowed to take effect, this “fiscal cliff” would force the territories to make deep cuts to Medicaid programs that already suffer from significant gaps, including lacking coverage of mandatory eligibility groups and benefits.  For example, Puerto Rico would likely have to roll back recent improvements that have temporarily expanded eligibility to 150,000-200,000 more people, temporarily increased reimbursement rates to physicians, hospitals and other providers, and covered a drug treating Hepatitis C for the first time.  Moreover, Puerto Rico may have to cut enrollment by more than 450,000 additional beneficiaries, according to 2019 estimates conducted by MACPAC prior to enactment of the most recent funding increases for the territories.

In averting the looming fiscal cliff this fall, Congress, however, should not just consider providing another round of temporary federal Medicaid funding increases and matching rate increases for the territories.  As my recent Commonwealth Fund issue brief analyzing Puerto Rico’s Medicaid program concludes, Congress should instead consider permanently eliminating the territories’ block grants and instead pay a fixed percentage of territories’ Medicaid costs without limit (as it does for the states), with the matching rate equaling the federal maximum of 83 percent based on their low per capita income relative to the nation.  In exchange, the territories could be required to improve and expand their programs in areas such as eligibility and benefits, in order to come into fuller compliance with the minimum federal requirements that apply to the states.  How each of the territories would come into fuller compliance would likely have to be territory-specific due, among other factors, to considerable differences in their current programmatic gaps and their capacity to close them.

For further background, the Commonwealth Fund issue brief examines these issues facing Puerto Rico in more detail.  Key findings include:

  • Puerto Rico’s Medicaid block grant financing led to large federal funding shortfalls. Puerto Rico’s only permanent federal Medicaid funding is through its base block grant. On its own, the block grant financed, on average, only 15 percent of Puerto Rico’s total Medicaid spending between 2012 and 2019, which is well below Puerto Rico’s already artificially low, official federal matching rate of 55 percent.  If Puerto Rico were treated like a state, its matching rate would equal 83 percent.  As a result, Puerto Rico had to contribute much more of its own funding to sustain its Medicaid program over the decades, which was a key factor in its long-term fiscal problems and debt crisis.
  • The Medicaid program in Puerto Rico is far less generous than Medicaid programs in the states. Medicaid is the backbone of health coverage in Puerto Rico: nearly half of all Puerto Ricans rely on Medicaid (including Medicaid coverage financed through the Children’s Health Insurance Program — CHIP), with more than 60 percent of children covered by Medicaid and CHIP.  Yet because of inadequate federal financing, Puerto Rico’s permanent Medicaid eligibility levels are considerably lower than under the federal standards that apply to the states.  The Medicaid program in Puerto Rico also does not cover mandatory benefits like nursing home care and home health care as well as optional benefits such as home-and community-based long-term services and supports (LTSS).  It also significantly restricts some benefits like prescription drugs by using a restrictive formulary, unlike in the states.  The program also sets very low provider reimbursement rates, which have likely contributed to outmigration of health professionals and a highly stressed health care infrastructure overall.
  • Recent infusions of federal Medicaid funding allowed Puerto Rico to sustain its existing program and make temporary improvements to its Medicaid program. Over the last decade, Congress has provided multiple, temporary federal Medicaid funding increases to Puerto Rico (and to the other territories). These increases have not only sustained Puerto Rico’s existing program and averted large Medicaid cuts but have also allowed Puerto Rico to make some programmatic improvements.  As noted, these enhancements include increased provider reimbursement rates, more generous prescription drug coverage and as of December 2020, expanded eligibility.  However, because the funding increases have been temporary, these programmatic improvements are also largely temporary.  For example, the provider rate increases and eligibility expansions are scheduled to expire when the latest short-term funding increase for Puerto Rico and the other territories expires after September 30, 2021.  If no additional federal funding is provided beyond the base block grant, Puerto Rico would not only have to end these improvements but also make deep cuts to the rest of its program, including potentially cutting remaining enrollment by as much as 36 percent.
  • Providing sufficient federal Medicaid funding to Puerto Rico on a permanent basis could lead to significant long-term improvements to its Medicaid program and dramatically improve access to needed care.  Sufficient funding would provide considerable relief for Puerto Rico’s overall budget and help it emerge from its fiscal and debt crisis, which has been further exacerbated by the health and economic impact of the COVID-19 pandemic.  A House bill (H.R. 3371 in 2019, which has been reintroduced as H.R. 1722 this year) sponsored by Representative Nydia Velazquez offers a sound approach.  It would first significantly increase federal Medicaid funding for Puerto Rico and then, after several years, lift the federal funding cap permanently.  The matching rate would also immediately equal 83 percent based on the same formula used for the states.  In exchange, Puerto Rico would be required to make an increasing number of improvements over time to come into greater compliance with federal Medicaid requirements.  If Puerto Rico fails to roll out these changes by certain milestones, its matching rate would be reduced.  To help Puerto Rico plan for and implement these improvements, the bill also would temporarily increase the matching rate for administrative costs.
Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.