Medicaid Funding Boost for States Can’t Wait

Update, April 21, 2020: Please click here for an updated analysis that reflects Congressional Budget Office estimates and new 2018 state data, and that addresses anomalies in New York’s historical expenditure data that make the estimate below a significant overstatement of the state’s likely funding increase.

Update, March 13, 2020: We’ve updated this post to reflect the House bill reportedly under consideration, which would raise the federal Medicaid matching rate by 6.2 percentage points rather than 8 percentage points.

The House COVID-19 bill’s temporary Medicaid funding boost, if in effect for all of calendar year 2020, would deliver roughly $35 billion in immediate, needed relief to states, which will face growing costs due to the virus and a likely economic downturn. (See table for state-by-state estimates.) Similar measures have been a critical part of economic stimulus packages under both Democratic and Republican administrations, and policymakers should approve the increase as soon as possible.

Once they enact the legislation, policymakers should quickly move to take further bold steps to address the public health emergency, bolster an economy that could rapidly deteriorate, and address hardship from both the public health crisis and an economic downturn. These next steps should include additional Medicaid funding increases, help for workers who lose their jobs, and measures that boost incomes and purchasing power.

The House bill’s increase — a 6.2 percentage point boost in the federal matching rate (known as the federal medical assistance percentage, or FMAP) from January 1, 2020, until the end of the public health emergency — would:

• Help states address immediate public health needs. Responding to the virus is straining states financially as they move to make testing available, deliver care to infected individuals (particularly those requiring inpatient services), create and support quarantine environments, increase sanitation efforts in public spaces, and ramp up public communications efforts, among other actions. At the same time, state revenues will likely take a hit as the economy slows. A temporary FMAP increase would free up funding that states would otherwise need for Medicaid, enabling them to rapidly invest in critical measures to protect the public’s health during the emergency.
• Enable states to use Medicaid to cover COVID-19-related needs. Medicaid gives states wide flexibility to help address the crisis — from expanding eligibility to cover uninsured people who need testing and care, to broadening coverage of telehealth (i.e., using digital information and communication technologies to deliver health services remotely), to covering certain quarantine-related costs, as Washington State wants to do. A broad increase in federal Medicaid funding is the best way to help states make the targeted Medicaid changes that meet their needs.
• Prevent Medicaid cuts during the public health crisis. Without federal action, state policymakers — bound by state balanced budget requirements — face pressure to cut Medicaid costs during economic downturns, history shows. Medicaid enrollment naturally rises during any downturn even as state revenues fall, and a downturn coupled with a public health emergency places extra burdens on Medicaid to provide additional treatment as well. State cuts in eligibility, benefits, and provider payments like those in past recessions would undermine the public health response and create immense hardship for families. The House bill’s temporary FMAP increase would avert those cuts by giving states more funds and requiring them, as a condition of receiving them, to maintain current Medicaid eligibility levels throughout the public health emergency.
• Support the economy. With the pandemic likely to trigger an economic downturn, states will require federal fiscal relief to weather the storm. Rising unemployment and falling economic activity shrink state tax revenues even as demand for things like Medicaid and unemployment insurance rises. An FMAP increase is a proven way to deliver swift economic relief that saves or creates jobs and stimulates economic activity.

After raising the FMAP and adopting other policies in the House bill, policymakers should quickly enact additional needed steps to address the public health emergency, the significant threat of a rapid and steep economic downturn, and the fiscal relief that states will need as a result. This should include additional or longer-lasting FMAP increases linked to the state of the economy. The House bill’s 6.2 percentage point FMAP increase is:

• Less than what states would need to fill budget shortfalls resulting from even a 1 percentage point rise in unemployment, economists estimate. A severe economic downturn could lead to much greater unemployment increases, and states will also face the direct costs of COVID-19 response.
• Much less than what states received from the 2009 Recovery Act, which included an initial, 6.2 percentage point FMAP increase to all states plus increases based on state economic conditions. Ultimately, states’ FMAP rose by an average of almost 10 percent.

Also, the President and Congress should increase the federal share of costs for the Affordable Care Act’s Medicaid expansion to low-income adults. (The House bill doesn’t boost the federal share of Medicaid costs for the expansion population.) The expansion covers over 4 million people age 50 to 64 as well as millions of people of all ages who have chronic health conditions — two groups at elevated risk for serious complications associated with COVID-19. State actions to restrict coverage for these groups would be highly destructive. Conversely, convincing more states to adopt the expansion would be among the highest-impact ways to cover more people (particularly those at highest risk for virus-related complications), prevent sharp increases in uninsured rates if people lose their jobs due to a downturn, and provide additional fiscal stimulus to help revive the economy.