End of the Year Appropriations Bill Would Avert Medicaid Fiscal Cliff for Puerto Rico and the Territories

[Editor’s Note: The bipartisan spending plan was approved by Congress and signed into law by the President on December 29, 2022. Read CCF’s brief to learn more.]

The bipartisan omnibus appropriations bill, which was unveiled early this morning by the Senate Appropriations Committee, would avert the dire Medicaid fiscal cliff facing Puerto Rico and the other territories — American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands.  (My colleague Anne Dwyer blogged about the mental health provisions and my colleague Joan Alker will be blogging about other Medicaid and CHIP provisions later today.)

Unlike for the states, federal Medicaid funding for Puerto Rico and the other territories is capped, with the regular block grant amounts set at highly inadequate levels.  Moreover, the regular federal Medicaid matching rate (known as the FMAP) for the territories is set at 55%, even though the FMAPs for the territories would equal 83% if they were calculated in the same way the matching rate for states is determined, due to the territories’ lower per-capita income.  This has forced the territories to operate Medicaid programs that are far less generous than those in the states, with the territories not meeting various federal eligibility, benefit and other requirements that apply to the states.  At the same time, the residents of the territories heavily rely on Medicaid for their health coverage: for example, according to data from the Census Bureau’s Puerto Rico Community Survey, in 2021, nearly 47 percent of all residents of Puerto Rico were covered by Medicaid alone or in combination with other health insurance and nearly 62 percent of all Puerto Rican children had Medicaid coverage.

However, over the last decade, on a temporary basis, Congress has provided to the territories additional federal Medicaid funding and FMAP increases to both avoid draconian cuts and allow the territories to institute modest eligibility, benefit and provider rate improvements.  Under the latest funding extensions, Puerto Rico’s FMAP was set at 76% and the FMAPs for American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands were set at 83%.  But after December 23, 2022, the FMAPs for all the territories will revert to the regular 55%.   (This fiscal cliff was to have originally taken effect on December 16, 2023 but it was pushed back one week under last week’s continuing resolution.)  This means that the federal government will pick up much less of the cost of the territories’ Medicaid programs.  The territories will then either have to make up the difference with their own funds, or as is far more likely, they will have to institute deep, damaging cuts over time to compensate for these large reductions in federal financial support.

The omnibus bill would extend the 76% FMAP for Puerto Rico for another five years (through the end of federal fiscal year 2027) and extend the 83% FMAPs for the other territories on a permanent basis.  It would also likely provide sufficient federal block grant funding for each of the next five years to not only sustain Puerto Rico’s Medicaid program at that higher level but also allow for further programmatic improvements.  This would ensure greatly needed fiscal stability for Puerto Rico for the medium term and for the other territories over the long term and thereby increase access to needed care for low-income individuals and families in Puerto Rico and the other territories.

The cost of this increased federal support for Puerto Rico and the territories would be offset by rolling back a 2021 decision from the Centers for Medicare and Medicaid Services (CMS) which found that under one of the previous federal funding increases enacted by Congress, the regular block grant amounts for Puerto Rico in fiscal year 2022 and future years would be significantly higher than was previously expected.  (Overturning the CMS interpretation was a key priority for some Congressional Republican leaders.)  While the bipartisan omnibus appropriations bill would drastically reduce federal funding for Puerto Rico after fiscal year 2027, relative to current law, it is important to note that the funding levels under the CMS interpretation would have still been highly insufficient to sustain Puerto Rico’s current program for the rest of fiscal year 2023 at a 76% FMAP, with potential federal funding shortfalls of as much as $600 million in 2023 alone.  In contrast, as noted above, the omnibus bill would provide sufficient block grant funding levels to sustain and improve Puerto Rico’s program at a 76% FMAP for the next five years (fiscal years 2023-2027).

Finally, the omnibus appropriations bill requires Puerto Rico and the other territories to satisfy several requirements as a condition of a portion of the funding and/or FMAP increases.  For example, Puerto Rico must continue to set a payment floor for physician services equal to 75 percent of Medicare rates, make annual reports to Congress on how the funding increases enhanced access, and designate a contracting and procurement lead for the Medicaid program.  In addition, Puerto Rico must implement an asset verification system by 2026, as is already required for states.

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