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Congress Should Address Puerto Rico’s Medicaid Funding Shortfalls After Passing Bipartisan Debt Restructuring

Update, June 30:  Yesterday the Senate passed the debt restructuring bill for Puerto Rico previously passed by the House.  The bill now goes to the President for his signature.

The House will likely consider on Thursday bipartisan legislation, which the Administration strongly supports, that would address Puerto Rico’s immediate debt crisis.  Unfortunately, the bill doesn’t address the island’s inadequate Medicaid funding.  Unlike the 50 states and the District of Columbia, Puerto Rico is limited to a low, fixed amount of federal Medicaid funding each year irrespective of its actual Medicaid costs.  That’s a major cause of its budget troubles.

The federal government generally pays a specified share of states’ total Medicaid costs (known as the federal Medicaid matching rate or FMAP).  This share varies by state based on per-capita income, and it averages 57 percent.  Puerto Rico’s FMAP was 50 percent until 2011, when health reform permanently raised it to 55 percent.  But for Puerto Rico (and the other territories), that rate applies only up to a capped dollar amount of federal Medicaid funding each year; Puerto Rico must cover all costs above the cap. 

Due to this cap, Puerto Rico’s effective matching rate — how much of its total Medicaid costs the federal government actually pays — has generally been between 15 and 20 percent.  If Puerto Rico’s FMAP were based on per-capita income (as it is for states) and there were no funding cap, the federal government would likely pick up 83 percent of its total Medicaid costs.

These federal funding shortfalls both contribute to Puerto Rico’s troubled fiscal situation and add overwhelming stress to the island’s struggling health care system.  Health care providers in Puerto Rico heavily rely on Medicaid for reimbursement because a large share of their patients are covered by Medicaid.  Puerto Rico’s residents’ low incomes and less access to private insurance, on average, left about 40 percent of the population enrolled in Medicaid in 2014.  That’s despite the program’s much lower income eligibility limits for certain populations like children and pregnant women than the federal minimum levels required of all states. 

Along with permanently raising Puerto Rico’s FMAP, health reform provided a one-time Medicaid boost of about $6.4 billion for spending through 2019.  But Puerto Rico is expected to exhaust those funds in 2017.

To ensure that Puerto Rico has sufficient federal funding to sustain Medicaid, as part of its fiscal year 2017 budget, the Administration proposes to equitably treat Puerto Rico and the other territories like states by eliminating the funding cap and eventually setting their federal Medicaid matching rates in the same way as for states.  (The budget would also raise minimum Medicaid eligibility levels in the territories.) 

This sound proposal would help address the longer-term budgetary and economic issues facing Puerto Rico, as Treasury Secretary Jack Lew has emphasized.  It would also better ensure that its residents on Medicaid have access to needed care and shore up its health care system.  Congress should strongly consider this proposal — as well as proposals to extend the Earned Income Tax Credit to Puerto Rico’s working families — as part of follow-up legislation for Puerto Rico once it completes its work on the necessary debt restructuring bill.