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Puerto Rico Risks Health Care, Fiscal Crisis Without Medicaid Fix This Winter

October 21, 2022: We’ve updated this post.

Even before Hurricane Fiona struck Puerto Rico, the territory was facing a looming Medicaid funding crisis slated to hit when the latest appropriations legislation expires in December. Without congressional action, the more than 1 million residents in Puerto Rico who currently receive their health care through Medicaid could see deep cuts to eligibility and benefits and already low provider payments. Congressional action is even more important now as the territory attempts to recover from the devastation wrought by the hurricane and other recent natural disasters; the dislocation resulting from the hurricane could also increase the number of people who need coverage through Medicaid.

The 2022 Consolidated Appropriations Act increased the federal government’s share of Medicaid costs paid in the U.S. Territories, from the 55 percent set in statute to 76 percent for Puerto Rico and to 83 percent for Guam, the U.S. Virgin Islands, the Commonwealth of the Northern Mariana Islands, and American Samoa, but only until December 13, 2022. The recently enacted continuing resolution extended that deadline by a few days, to December 16.

Absent congressional action, the rate will revert to 55 percent, which means Puerto Rico will have to pay a much larger share of Medicaid costs.

While each state’s matching rate is tied to its per capita income and can reach as high as 83 percent, the territories’ matching rate is arbitrarily capped at 55 percent (except in recent years when Congress has temporarily raised it), even though their average per capita income is below the level in the poorest states. This means that territories must pay a much larger share of Medicaid costs for their residents than most states do, despite the states having higher average incomes.

But that isn’t the only funding challenge facing the territories’ Medicaid programs. Unlike the states, whose federal funding is uncapped, the territories receive a fixed amount of funding in the form of a capped block grant, or allotment. Generally, this block grant has fallen well short of the funding that’s needed, and well short of what the territories would have received if they had access to the same uncapped funding structure as is available to states.

Since 2010, Congress has periodically provided the territories with time-limited relief through supplemental funding and increased matching rates. But these temporary fixes and their associated funding cliffs have never provided the stable and adequate funding the territories need to improve their programs and provide coverage and benefits equal to the states. This funding uncertainty has meant that the territories operate precarious health care systems that are on the brink of draconian cuts in eligibility, benefits, and provider reimbursement rates. And the lack of open-ended funding means their Medicaid programs cannot respond to an increase in need during recessions, pandemics, and hurricanes and other natural disasters. Permanent changes to provide adequate allotments and matching rates would provide certainty and stability to make such changes possible.

In the case of Puerto Rico, the upcoming Medicaid funding cliff is like no other. Not only is the territory in danger of seeing its Medicaid matching rate drop to 55 percent, it could see a disastrous decrease in its allotment if Congress reverses the Centers for Medicare & Medicaid Services’ (CMS) interpretation that its future allotments should be based on its 2020 allotment. Reversing that interpretation would mean Puerto Rico’s block grant would plummet, decreasing from almost $3 billion to about $400 million in 2023. Members of the Republican Party have repeatedly and explicitly called for the repeal of the CMS interpretation. If Congress reverses the interpretation, it will need to provide a larger funding increase to Puerto Rico than would have been needed had the interpretation remained in place, to ensure that people in Puerto Rico have access to the Medicaid services they need. (CMS’ determination of allotments for the other territories is not in question although their allotments have also long been inadequate.)

A large decrease in Medicaid funding, as would occur if the CMS interpretation is overturned and adequate resources are not added, would be a massive shock to Puerto Rico’s health care system. Because the CMS interpretation provides permanent ongoing allotments well above the original statutory level, Puerto Rico no longer sets aside extra funding to compensate for a potential loss in federal Medicaid funding. Further, it would deal a massive blow to Puerto Rico’s balance sheet, as the territory would have to make up for any shortfalls in federal funding for its health care system. The latest fiscal plan certified by Puerto Rico’s fiscal oversight board includes contingencies for a drop in the territory’s federal matching rate in view of the expiration of the appropriations package in December, but not for the allotments.

A sudden loss of federal funding of this magnitude would almost certainly force Puerto Rico to find ways to prevent its Medicaid system from collapsing — and in doing so, it would also force the territory, within its limited means, to pull funding away from other critical areas. The immediate repercussions would likely include cuts in Medicaid eligibility, benefits, and provider payments; the elimination of contributions to a newly minted pension trust for public sector workers, which puts that system’s future at risk; and a reduction in funding for other areas critical to Puerto Rico’s economic health such as long-term capital investments and emergency reserve needs. These cuts would be nothing short of devastating for the territory, which is grappling with wide-scale damages caused by Hurricane Fiona while emerging from an arduous bankruptcy process, and still reeling from years of economic decline, natural disasters, and the COVID-19 pandemic.

Even with the higher Medicaid amounts under the CMS interpretation, Puerto Rico and the other territories still lack the stable, adequate funding to operate a Medicaid program on par in terms of eligibility, benefits, and provider payments with the programs in states. Come December, Congress should take a first step by increasing Puerto Rico and the other territories’ allotments to a level more in line with their needs, and increase their federal matching rates to be more comparable with states.

Ultimately, U.S. citizens and nationals in Puerto Rico and the other territories should have access to the same Medicaid program as those living in states. Establishing full funding parity — that is, eliminating the block grant structure and providing open-ended federal funding — is what’s ultimately 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.