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Raising Federal Share of Medicaid Costs Would Help Prevent Provider Cuts

Federal policymakers should substantially increase the federal share of Medicaid costs to help prevent states from cutting payments to health care providers, which would likely hurt Medicaid patients and could threaten the sustainability of the health care workforce during the public health and economic crises.

Many health care providers that serve Medicaid enrollees are already losing significant revenue because of the sharp drop in patient visits due to the pandemic. Now, they also may face state cuts to their payment rates due to states’ dramatic budget shortfalls as a result of COVID-19 and the recession that it spurred. That’s why the National Governors Association and many provider and patient groups are urging the federal government to increase its share of Medicaid costs (known as the federal medical assistance percentage, or FMAP).

Many states are reporting sharp increases in Medicaid applications or enrollment, including Arizona, Arkansas, Connecticut, Florida, Georgia, Hawaii, Idaho, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Missouri, New Hampshire, New Mexico, New York, Nevada, North Carolina, Ohio, Oklahoma, Virginia, Washington, and Wisconsin. (Data for a number of states are available in this reporthis report from the Georgetown Center for Children and Families.) The actual increases are likely even greater and more widespread, given the lag in monthly enrollment reports. Urban Institute researchers estimate that 8 to 14 million more people will enroll in Medicaid or the Children’s Health Insurance Program if unemployment reaches 15 percent, which is roughly what the Congressional Budget Office (CBO) projects for the third quarter of 2020. That’s a 16 to 29 percent increase.

The growing need for Medicaid coincides with an unprecedented state budget crisis. States face estimated shortfalls of about $615 billion through state fiscal year 2022 — which is greater than during the Great Recession of a decade ago — and shortfalls are already materializing. The modest FMAP increases in the Families First Coronavirus Response Act of March and other state aid that federal policymakers have enacted this year will offset only a small fraction of these shortfalls.

Without more federal help, many states will likely cut Medicaid, exacerbating challenges for providers such as community-based behavioral health care clinics and primary care providers. In past economic downturns and state budget crises, many states cut provider payments. They also cut Medicaid eligibility, raised barriers for eligible people to enroll or stay covered, and eliminated or cut benefits — all of which made it harder for people to see their providers and get needed care.

While many providers faced payment cuts during the Great Recession, the 2009 Recovery Act’s FMAP increases helped 38 states avoid or limit those cuts in fiscal year 2009 and helped 35 states do so in 2010, a Kaiser Family Foundation survey found. States also reported that FMAP increases helped them avoid cutting benefits or eligibility. (See figure.)

FMAP increases also have come with coverage protections that benefit both beneficiaries and providers. The Families First Act, like the Recovery Act’s FMAP increase, includes “maintenance of effort” (MOE) protections that prevent states from restricting eligibility or ending people’s coverage while they’re receiving additional federal funds.

Some suggest that MOE protections hurt providers by prompting states to cut provider payment rates when they would otherwise have cut eligibility. Eligibility cuts, however, hurt providers as well as beneficiaries, since people losing coverage often don’t seek (or can’t pay for) health care. Coverage losses would also cause providers to lose revenue that’s directly tied to how many Medicaid enrollees they serve, such as “capitation” arrangements under which the state pays a Medicaid managed care plan a set monthly amount per enrollee for providing the enrollee’s care. Adequate FMAP increases coupled with strong MOE protections can protect providers against these losses, while also helping avert payment rate cuts.

Unfortunately, the Families First FMAP increase is much smaller than the Recovery Act’s, even though the current recession is expected to be much deeper. The increase is also slated to end whenever the Department of Health and Human Services declares the public health emergency over, even if the economy and state budgets are still in crisis. And the increase leaves out people covered through the Affordable Care Act’s Medicaid expansion, even though expansion states will see steeper enrollment increases because they will offer coverage to more of the people losing their jobs.

Some providers are getting short-term help from a provider fund enacted as part of the CARES Act. This stop-gap funding is meant to keep providers in business in the next few months by helping to fill their revenue gaps and meet the increased costs of COVID-19. But it won’t help providers weather their major revenue losses if states cut Medicaid payment rates as they confront large shortfalls for 2021 and beyond.

The best way to prevent these cuts and protect providers — and beneficiaries — is to raise states’ FMAPs further and maintain those higher FMAPs as long as needed.