Federal guidance that enhanced Medicaid funding will likely continue flowing through 2021 gives states, Washington D.C. and territories more budgetary breathing room to manage the COVID-19 pandemic’s fiscal wounds, says Fitch Ratings.
“Providing timely and direct fiscal aid to states limits their need to immediately pass on budget pressures to entities reliant on state funding, including school districts, public higher education institutions and healthcare providers,” Fitch’s Eric Kim, head of U.S. state ratings, said in a special report.
Lawmakers included an enhanced Medicaid Federal Medical Assistance Percentage, FMAP, in the Families First Coronavirus Response Act package that became law in March. It remains in place as long as a public health emergency is in effect.
The enhancement provided a 6.2% increase, or about $34 billion, in funding to states, Washington D.C., and territories last year and a similar amount is now expected this year. The federal government provides between 50% and 83% of matching Medicaid funds with the percentage tied to per capita income.
“The FMAP enhancement is a part of the massive fiscal and economic stimulus which has been instrumental in supporting the economic recovery and better than expected state tax revenue performance since the coronavirus pandemic's onset in spring 2020,” Kim said.
Previous enhancement extensions were limited to 90 days based on public health emergency (PHE) declarations. Department of Health and Human Services announced another 90-day extension on Jan. 21.
The Biden Administration's acting HHS Secretary, Norris Cochran, went further in a Jan. 22 letter to governors.
“We have determined that the PHE will likely remain in place for the entirety of 2021, and when a decision is made to terminate the declaration or let it expire, HHS will provide states with 60 days’ notice prior to termination,” he wrote. “Predictability and stability are important given the foundation and flexibilities offered to states that are tied to the designation of the PHE.”
“It’s not an official guarantee on the part of the federal government, but it’s pretty clear guidance of their expectation,” Kim said in an interview. “This is definitely a positive for states.”
State guesswork about the level of funding in calendar 2021, which for most states covers half of their current fiscal year, has varied. Some had budgeted for a percentage of the increased funding while others did not. The government’s comment will aid both current year budgets and fiscal 2022 planning, Kim said.
The $34 billion comes from a federal government breakdown of the extra $16 billion states received for the first half of 2020. The Kaiser Family Foundation estimated the second half of the year would result in an additional $18 billion of funding.
A dozen states, including Missouri, Wisconsin, New York and Pennsylvania, collected additional funding amounting to more than 2% of fiscal 2019 general governmental fund revenues. At the other end of the distribution spectrum were Alaska, Wyoming, North Dakota and Hawaii which received less than 1%.
States that receive enhanced FMAP funding must abide by several rules including restrictions on removing Medicaid enrollees that might otherwise become ineligible for the program. Some of the requirements offset positive budget implications but Fitch said it “still considers the net benefits to be meaningful for most, if not all states.”
