States to Get Enhanced Medicaid Funding Through 2021

The Biden Administration intends to keep the national Public Health Emergency (PHE) in place through “at least” 2021, the Department of Health and Human Services recently told governors, and that has important implications for states. Last year’s Families First Coronavirus Relief Act gives states a 6.2 percentage-point increase in their federal share of Medicaid spending (i.e., the federal medical assistance percentage, or FMAP) as long as the PHE is in place, which helps them cover higher costs related to COVID-19 and prevent damaging budget cuts.

The Trump Administration declared the PHE in January of 2020 and renewed it in 90-day increments, most recently on January 7, 2021. Uncertainty about the PHE’s duration and the additional relief that comes with it prompted some states to consider or enact Medicaid cuts last year. (To receive the FMAP increase, states may not cut eligibility or make it harder to enroll in or retain Medicaid; instead, states have enacted other health-related cuts such as reducing provider payment rates and cutting non-Medicaid behavioral health services.)

While reassuring governors that the PHE will be renewed through 2021 — so the additional relief will continue for at least 11 months — the Biden Administration also committed to giving states 60 days’ notice before ending the PHE. All of that will give states greater predictability as they begin this year’s legislative sessions, at a time when state revenues for the current fiscal year are down an estimated 7.8 percent compared to pre-COVID projections.

As our estimates in the table below show, states can count on $44.5 billion in additional relief for calendar 2021 (about $22.5 billion for the July-December period, which is the first half of the new fiscal year for most states), which should help states avert unnecessary, potentially damaging cuts as they craft their budgets for the coming year.

These additional federal dollars help states to:

• Continue to respond to rapidly changing public health needs. COVID-19 continues to strain states financially as they build the infrastructure to deliver vaccinations, make testing more widely available, deliver care to infected individuals (particularly those requiring inpatient care), create and support quarantine environments, and ramp up public communications efforts and contact tracing, among other actions.
• 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 vaccinations as well as testing and care, to broadening coverage of telehealth, covering certain quarantine-related costs, and expanding the availability of home- and community-based services. The enhanced FMAP helps states invest in targeted Medicaid changes that meet their needs.
• Prevent Medicaid cuts during the public health crisis. State policymakers — bound by balanced budget requirements — face pressure to cut Medicaid costs during economic downturns, history shows. Medicaid enrollment naturally rises during any downturn, while state revenues fall. Indeed, Medicaid enrollment has risen steadily since the pandemic began. A downturn coupled with a public health emergency puts extra burdens on Medicaid to provide additional treatment. The FMAP increase has helped bolster the public health response and ensured that Medicaid remains available to those who need it, including millions of workers in essential or front-line industries.
• Weather the economic downturn. Rising unemployment and falling economic activity have dramatically reduced state tax revenues while demand for programs like Medicaid and unemployment insurance has risen. States urgently need additional fiscal relief, but the FMAP increase has provided an important cushion, freeing up funding that states would otherwise need for Medicaid and enabling them to sustain funding for other critical needs.