Critical Bipartisan House Legislation Would Avert Looming Fiscal Cliff for Medicaid Programs in the Territories

Editor’s Note: On July 21, 2021, the full House Energy and Commerce Committee, by voice vote, reported the bipartisan bill (H.R. 4406) to temporarily extend federal Medicaid funding for Puerto Rico and the other territories and avert the fiscal cliff.

On Thursday, July 15, 2021, the Health Subcommittee of the House Energy and Commerce Committee is scheduled to consider critical bipartisan legislation — the “Supporting Medicaid in the U.S. Territories Act of 2021” (H.R. 4406) — extending temporary federal Medicaid funding increases for Puerto Rico and the other territories.  Without this funding, the territories would be subject to a dire “fiscal cliff” at the end of September that would require them to make draconian cuts to their Medicaid programs, which already suffer from significant gaps including lacking coverage of mandatory eligibility groups and benefits.

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, which were available for two years.  But these funding increases, along with temporary increases in the territories’ federal Medicaid matching rates, expire after September 30, 2021.

If the temporary funding increases are allowed to 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 American Samoa, Guam 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.

These 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 show that in fiscal year 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 set the regular matching rates to 76 percent for Puerto Rico and 83 percent for the other territories for fiscal years 2020 and 2021.  The rates were further increased by 6.2 percentage points under the Families First COVID-19 relief legislation for the duration of the public health emergency.)

As a result, if this fiscal cliff takes effect as scheduled, Puerto Rico would likely have to roll back recent Medicaid improvements such as a temporary increase in reimbursement rates to physicians, hospitals and other providers and new coverage of a drug treating Hepatitis C for the first time.  In addition, it would likely have to eliminate its temporary eligibility expansion, which extended Medicaid eligibility to 150,000-200,000 more people by raising Puerto Rico’s poverty line to 85 percent of the federal poverty line.  (Puerto Rico would not be able to immediately eliminate coverage for those who were made newly eligible and have already enrolled until the expiration of the Families First continuous coverage requirement at the end of the public health emergency.)  Moreover, once it is permitted, Puerto Rico would likely have to cut existing 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.  Medicaid officials from Puerto Rico have similarly indicated that it would have no choice but to institute a combination of Medicaid cuts including enrollment reductions, substantial benefit reductions and elimination of the recent improvements.

The bipartisan bill that will be considered by the Health Subcommittee of the House Energy and Commerce Committee would take the essential step of addressing the looming fiscal cliff and averting the highly damaging Medicaid cuts the territories would otherwise have to make.  The bill would effectively extend current federal funding levels for Puerto Rico by five years (fiscal years 2022 through 2026) and for the other territories by eight years (fiscal years 2022 through 2029).  It would also extend the availability of the higher regular federal matching rates — 76 percent for Puerto Rico and 83 percent for the other territories — for the duration of these funding increases.  As a condition of this increased funding, Puerto Rico would be required to establish an asset verification program (which is now required of states), report on its progress towards reporting Medicaid quality measures and institute some contracting reforms.

The bill, however, offers only another round of temporary federal Medicaid funding increases and higher matching rates increases for the territories.  Moreover, because the funding increases are not adjusted annually, they may not be sufficient to sustain the territories’ existing Medicaid programs through the entire period they are available.  And importantly, the bill does not provide significant federal funding increases above current levels that would allow Puerto Rico and the other territories to continue to make needed improvements to their programs that expand access to needed care for their residents.

Even as Congress now takes the immediate action needed to avert the fiscal cliff, Congress should also concurrently consider proposals that address federal Medicaid funding for the territories over the long run.  As my Commonwealth Fund issue brief analyzing Puerto Rico’s Medicaid program discusses, this would include eliminating the territories’ block grants and instead paying a fixed percentage of territories’ Medicaid costs without limit on a permanent basis (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 would 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 over time 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.

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