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Further Action Needed to Provide Adequate, Stable Medicaid Funding for Puerto Rico and the Territories

With key federal Medicaid funding for the U.S. Territories set to expire December 13, Congress must act before then — ideally in forthcoming economic legislation — to avoid leaving residents of the territories to face potentially deep cuts to eligibility and benefits.

Recently enacted appropriations legislation increased the federal government’s share of Medicaid costs paid in the U.S. Territories, from the usual 55 percent to 76 percent for Puerto Rico and to 83 percent for American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands. If policymakers let the rate fall back to 55 percent, the territories will likely have to cut provider rates, eligibility, and benefits. Medicaid serves more than 1.6 million people in the territories, 90 percent of whom live in Puerto Rico.

The territories repeatedly face Medicaid funding cliffs because their residents are treated far less favorably than residents of the states. Unlike the states, whose federal funding covers a specified share of their Medicaid spending, the territories receive a fixed amount of federal funding in the form of a capped block grant. And while each state’s matching rate is tied to its per capita income and can go as high as 83 percent, the territories’ usual matching rate is fixed at 55 percent, even though average per capita income in the territories is below the level in the poorest states. This means that U.S. Territories have to pay a far larger share of Medicaid costs for their residents than most states have to pay, despite the states having higher average incomes.

Since 2010, Congress has needed to provide territories with time-limited tranches of supplemental funding and increases in their federal matching rates because the underlying funding for the program is too low to keep their programs afloat and avoid massive cuts in benefits, provider rates, or eligibility. But these temporary fixes haven’t been enough to allow territories to provide coverage and benefits equal to the states or even to improve their programs. Funding remains inadequate, leaving many territory residents without a stable source of health care.

Currently, the territories’ block grants are based on the amounts Congress provided for 2020 and 2021 (increased annually by the medical care component of the Consumer Price Index.) These amounts are significantly greater than the previous statutory allotments. But over time they’re not likely to keep up with need, especially if there’s another recession or natural disaster, or if the pandemic continues or a new one arises. And these higher funding amounts still don’t provide the stable, adequate funding the territories need to improve their programs and align them with those in the states.

Even if the block grants end up being sufficient in the short term, reverting to the 55 percent rate in December could mean that the territories won’t be able to provide the matching funds needed to draw down all of the federal funds because of their own budgetary shortfalls. It’s happened before.

An important first step to address these problems would be for Congress to permanently increase the territories’ allotments to a level more in line with their needs and increase their federal matching rates to be more on par with states’. This would reduce the need for stopgap measures, bring stability to Medicaid in the territories, and strengthen health care delivery systems weakened during the pandemic. And it would pave the way for the best long-term solution: full funding parity with states.

Ultimately, creating full funding parity — that is, eliminating the block grant structure and providing open-ended federal funding like states receive — is needed to help the territories provide high-quality health care to their residents, better weather economic downturns, recover from natural disasters, and respond to other emergencies.