Enhanced Medicaid match extension would help state budget and low-income families

One of the most important provisions of the stimulus bill passed by Congress last February was the assistance provided to beleaguered state budgets in the form of enhanced federal matching rates for Medicaid. Now, as Oklahoma and other states remained mired in a deep fiscal crisis, the prospects seem good for an extension of the enhanced federal Medicaid match for an additional six months. This is one of the few promising signs on the fiscal horizons, and good news for the hundreds of thousands of Oklahoma families that receive health insurance coverage through Medicaid.

The stimulus bill increased the federal matching rate, known as FMAP for a period of nine quarters, or 27 months.  The enhanced FMAP took effect retroactive to October 1, 2008 and was set to expire at the end of this calendar year, December 31, 2010. Under the extension proposals before Congress, the enhanced FMAP rates would remain in effect until the end of June, 2011. According to our best information, Oklahoma would continue to receive an FMAP of 76.73 percent over the course of the extension, which is nearly 12 percentage points higher than the base FMAP rate (64.94) that Oklahoma is scheduled to receive in the absence of Congressional action.

Given the size of the Medicaid program, the enhanced FMAP has had an enormous impact on the state budget. Oklahoma’s initial FY ’10 budget included just under $400 million in enhanced FMAP, which was used to offset declining state revenues and support the budgets of the Oklahoma Health Care Authority and other state agencies that provide state match for Medicaid services.  Along with fiscal relief allocated through the State Fiscal Stabilization Fund, these federal dollars allowed Oklahoma to avoid implementing deep cuts to Medicaid and other programs going into FY ’10, while leaving the Rainy Day Fund untapped for later in the downturn. Last month, leadership agreed to draw deeper into the enhanced FMAP pool to the tune of $144.7 million to shore up the FY ’10 budget in the wake of declining state revenue collections.

As this update from Dawn Horner of Georgetown’s Center for Children and Families indicates, the enhanced FMAP extension has been approved by both the House and the Senate in different jobs bills, which would need to be reconciled before a final package could be sent to the President for his  signature (These bills are different than the jobs bill extending employment tax breaks that the President has already signed).  Since the FMAP provisions have been packaged with extensions of unemployment and COBRA benefits that are Congressional priorities, approval seems likely but not certain.

It’s important to bear in mind that enhanced federal Medicaid funding comes with certain strings attached. As under the initial stimulus bill, states would be prohibited from restricting Medicaid eligibility below levels in effect on July 1, 2008 (see our fuller discussion of how states must safeguard Medicaid eligibility). In addition, under the Senate version of the extension, Governors would have to formally request the funds and certify that they will be used.

According to (unpublished) calculations from Federal Funds Information for States, the 6-month enhanced FMAP extension would provide Oklahoma an additional $285 million based on projected FY ’11 state spending levels. With the state facing an $800 million shortfall, the temptation to use this full amount to ease the FY ’11 budget gap will be great. At the same time, using the full amount in FY ’11 risks steepening the perilous funding cliff the Medicaid program faces in FY ’12 once the enhanced federal match runs out, creating the threat of drastic cuts to Medicaid benefits and eligibility.

While the outcome of the enhanced FMAP provision is of obvious importance for the state budget, it’s important to keep in mind that what is ultimately at stake is the maintenance of health care coverage for Medicaid recipients. Georgetown’s Center for Children and Families expresses this clearly:

In the current recession, [Medicaid] has become more important than ever, offering coverage to an addition 2 million children. In the absence of an extension of Medicaid fiscal relief, there is a significant risk that the recent gains made for children’s coverage will be lost and that many families will have to forego one of the few bright spots in these uncertain times – a source of stable, reliable coverage for their children.

Extending the enhanced Medicaid match will ease, though not solve, the state’s fiscal woes and at least defer the date when Medicaid coverage for low-income children and families comes under threat. Let’s hope Congress gets this done.