Medicaid Funding Cliff Looming April 1

E-newsletter Issue #67 | March 17, 2011

It’s no April Fool’s joke for states desperately trying to balance their budgets. A new analysis of enhanced Medicaid match rates under the 2009 American Recovery and Reinvestment Act found the average state will lose 21 cents in federal funding for every dollar the state puts toward paying Medicaid bills beginning April 1. This decrease follows on the heels of a 37-cent loss states suffered Jan. 1, according to The Council of State Governments’ report.

The Recovery Act provided fiscal relief to states struggling with rapidly increasing Medicaid rolls by increasing the federal match for states’ Medicaid programs. As Recovery Act funding comes to an end, states are beginning to see the increased federal Medicaid funding being phased out.

The CSG report found that on average, states gained $1.07 additional match for each dollar spent for Medicaid during the time of the Recovery Act enhanced matching rates. The average federal return on a state dollar rose from $1.61 in 2008 to $2.68 in late 2010. The additional match for states ranged from 56 cents in Alaska to $2.39 in Mississippi.

“This analysis underscores the dramatic impact on states when the enhanced FMAP ends,” said Vernon K. Smith, managing principal at Health Management Associates and consultant to the Kaiser Family Foundation and the National Governors Association. “It shows why the enhanced FMAP saved states during the worst years of the economic downturn. Flowing funds through Medicaid was very effective support to states. It prevented complete meltdowns in state economies, but it is coming to an end before state economies have had time to recover.”

Beth Jurek, executive director of the Office of Policy and Budget for Kentucky’s Cabinet for Health and Family Services, said the infusion of federal funding through the Medicaid match formula allowed states to move general fund dollars to other budget areas during the depths of the Great Recession. That helped prevent Draconian budget cuts.

Kentucky redirected $478 million in 2009 and 2010.

“The increased FMAP not only enabled Kentucky’s Medicaid program to meet its expenditures at a time when eligibles were growing at unprecedented levels, but allowed General Fund dollars to be redirected from Medicaid to other areas of state government, thereby avoiding even more drastic budget cuts elsewhere in state government,” Jurek said.

Each time the Medicaid match rate for states drops, states scurry to process claims before the funding decreases to capture as much federal funding as possible. In fact, Jurek said in Kentucky, claims processing increased earlier in the 2011 fiscal year when FMAP was at its highest level. That was before Dec. 31, 2010.

The drop-off of FMAP enhanced match will create additional challenges in financially strapped states.

“Inevitably, states will have to resort to dramatic measures to make up for the lost federal revenue,” said Smith.

In Kentucky, for instance, the state is looking at a 35 percent cut in provider reimbursement rates if the Kentucky General Assembly fails to take action, Gov. Steve Beshear has said. He called a special session of the legislature beginning March 14 to address the shortfall in the Medicaid budget. The state’s enacted budget planned for the loss of the enhanced federal match in the 2012 fiscal year, but presumed an additional $100 million in 2011 that Congress did not appropriate.

Kentucky isn’t the only state having to overcome the smaller-than-expected Medicaid match rates for Jan. 1 to June 30, 2011. An earlier CSG analysis estimated 24 states faced a combined shortage of $1.74 billion for that time period.

For New York state, the two-step phaseout of the enhanced match amounts to a loss of $4.3 billion. According to Diane Mathis, spokesperson for the New York State Department of Health, the state is taking cost-cutting measures. Gov. Andrew Cuomo is undertaking a major Medicaid redesign effort led by new Medicaid Director Jason Helgerson, who led a similar effort in Wisconsin in the last few years.

In its analysis of Medicaid match rates before, during and after the Recovery Act, CSG interprets Medicaid matching rates in a straightforward way: For every dollar a state spends for Medicaid, it calculates how many federal dollars flow to the state through the federal match. Chart 1 below shows the overall trend for states.

CSG Resources

  • States Face Medicaid Match Loss After Recovery Act Expires