Background

The federal government pays a percentage of total state expenditures under the Medicaid program. The amount is based on a formula that takes into account the states’ per capita income, but by law the federal share is set at a minimum of 50 percent and a maximum of 83 percent.^[1] Commonly referred to as the federal matching assistance percentage (FMAP), these matching dollars to states are calculated each year by the Secretary of Health and Human Services. For FY 2010, the FMAP ranges from a low of 50 percent to a high of 75.67 percent.

During economic downturns, Congress has increased the FMAP to assure that states that are economically strapped do not have to cut back on optional Medicaid benefits,  services or eligibility at a time when more people qualify for coverage because of lost jobs or reduced income. The American Recovery and Reinvestment Act of 2009 (ARRA) provides incentives to states to retain eligibility levels that were in place as of July 1, 2008.^[2] States that do not reduce income and resource limits for eligibility or reduce coverage receive a 6.2-percentage point increase in FMAP through December 31, 2010. In addition, these states will not see any FMAP reductions that would have otherwise resulted from application of the current law formula. ARRA also provided additional increase in FMAP to states that experience especially high unemployment.

FMAP for the five U.S. territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands) are not based on per capita income, but instead are set at 50 percent. In addition, federal law caps total federal expenditures under Medicaid for each territory. ARRA permitted territories to make a one-time choice between either a 6.2-percentage point increase in FMAP plus a 15-percent increase in their cap or retaining their current FMAP and receiving a 30-percent increase in their cap. Enhanced FMAP provided under ARRA expires on December 31, 2010.

Changes Made by the Health Reform Law
P.L. 111- 148, § 2001 and P.L. 111-152, § 1201

Effective January 1, 2014, the health reform law requires states to provide Medicaid coverage to individuals with incomes below 133 percent of the federal poverty level that were not otherwise eligible for Medicaid coverage. These “newly eligible” individuals are primarily single adults or parents without dependent children. Some states expanded coverage to these individuals prior to passage of the health reform law through waivers of federal Medicaid eligibility rules or by covering them with state-only dollars.

• Beginning in 2014 states that had not previously covered the newly eligible population will receive enhanced FMAP.  For the first two years, these states will receive 100 percent FMAP.  That amount will be phased down to 90 percent by 2020.
• Expansion states, those who covered all or part of the newly-eligible populations prior to July of 2009, will not initially see any increase in their FMAP for newly-eligibles. Over five years, however, their FMAP for this group will be gradually increased. By 2020, all states will receive 90 percent FMAP for newly-eligible populations.
• States may phase-in coverage for the newly eligible population or convert newly-eligibles from waiver coverage to their state plan amendments before 2014. Those that choose to provide coverage prior to January 1, 2014, will receive their regular FMAP. States that did not provide coverage for newly eligible individuals prior to July 2009 will not jeopardize their ability to receive enhanced FMAP by choosing to phase in coverage early.^[3]
• Beginning July 1, 2011, the health reform law increases FMAP to territories to 55 percent. It also increases the cap for territories that opt not to establish insurance exchanges.

Implementation

Agency and Timeline

The Center for Medicaid and State Operations within the Department of Health and Human Services’s Centers for Medicare and Medicaid Services (CMS) will implement this program as part of its authority over the Medicaid program. In addition to dates of implementation described above, the Secretary of HHS must determine that an exchange is fully operational before the maintenance of effort provisions expire. The Secretary is directed to submit an annual report to Congress beginning in April of 2015 on total enrollment and new enrollment in Medicaid.

Process

The health reform law does not provide specific direction to the Secretary regarding the administrative process used to implement the law. The agency therefore has the discretion to use a range of tools to implement the statute, such as publishing regulations in the Federal Register with a public notice and comment period or using other types of approaches, such as posted policy instructions, funding availability announcements (where applicable), official letters to affected entities (such as letters to state Medicaid agencies) and posted rulings and notices. Agency websites can be regularly checked for updates.

Key Implementation Issues

Tracking issues

• How do states track “old” eligibles versus new ones (for whom they get 100% FFP)?
• How does that tracking relate to people whose eligibility is determined by the exchange?
• How will individuals covered under waivers who are converted to state plan amendments be treated?

Enhanced match:

• Will the ARRA enhanced FMAP be extended?
• Is an enrollee “new” for FMAP purposes if they were eligible under a waiver that had been approved but not implemented?
• Is an enrollee “new” for FMAP purposes if they were approved but with capped enrollment and the cap had been hit?

Recent Agency Action

On April 9, 2010, the Director for the Center for Medicaid and State Operations within CMS issued a letter to State Medicaid Directors providing guidance on § 2001 announcing the availability of state matching funds for low-income adults. The Director indicated that a subsequent letter would be sent regarding FMAP.

Authorized Funding Level

As an entitlement program, Medicaid is not limited to a specified appropriation level under federal law. Each year, Congress appropriates, “such sums as may be necessary” for the federal government to meet its federal matching obligations to states. According to CBO, coverage expansions in Medicaid and CHIP will result in an increase of $20 billion over 10 years. CBO did not provide separate estimates for Medicaid and CHIP.