Fitch Ratings estimates that the federal medical assistance percentage enhancement added $34 billion in federal aid to state Medicaid programs in 2020, and that a similar level of funding is projected for 2021.
The extension through the end of 2021 of billions of dollars in federal enhanced emergency funding for Medicaid will be welcomed by cash-strapped states, Fitch Ratings says.
In an issues brief released on Monday, Fitch estimated that the federal medical assistance percentage (FMAP) enhancement for Medicaid added $34 billion in direct federal aid to states in 2020, and that a similar level of funding is projected for 2021.
"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 says.
Federal law sets the FMAP floor of 50% for states with the highest per-capita income, with a ceiling of 83%. In April 2020, the Families First Coronavirus Response Act (FFCRA) added 6.2 percentage points to every state's FMAP percentage.
Overall state revenues remain below pre-pandemic levels, but Fitch notes that the FMAP and better-than-expected sales tax revenues have helped states eke by since a public health emergency was declared last spring.
Fitch notes that the additional FMAP funding only affects states' spending on previously eligible Medicaid beneficiaries, and does not apply to Medicaid expansion spending under the Affordable Care Act, which the federal government matches at 90% for all states.
Medicaid enrollment for legacy categories is between 3x and 4x larger than expansion enrollment.
The Department of Health and Human Services last month told the nation's governors that the Biden administration anticipated the public health emergency would remain in place through 2021 and that HHS would provide states with at least 60 days' notice of termination.
The Trump administration routinely waited until the last minute before extending the 90-day PHE, and Fitch said states responded to the uncertainty and assumed little or no FMAP funding in their 2021 budgets.
The National Association of State Budget Officers reported in September that many states had anticipated a slowdown in revenue growth and made the appropriate adjustments.
"Even before the COVID-19 outbreak, states were planning on slower spending and revenue growth than what they had seen in several recent years," NASBO said.
"Based on information included in governors’ budget proposals, the median general fund spending growth rate was 3.1%, while the median general fund revenue growth rate was 2.9%, both below historical averages."
The Centers for Medicare & Medicaid Services, and the Kaiser Family Foundation have estimated that the 6.2 percentage point increase in FMAP in 2020 added about $32 billion in enhanced funding for Medicaid.
“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 Ratings
John Commins is the news editor for HealthLeaders.
KEY TAKEAWAYS
Federal law sets the FMAP floor of 50% for states with the highest per-capita income, with a ceiling of 83%. In April 2020, the Families First Coronavirus Response Act added 6.2 percentage points to every state's FMAP percentage.
State revenues remain below pre-pandemic levels, but Fitch notes that the FMAP and better-than-expected sales tax revenues have buoyed states since a public health emergency was declared last spring.
HHS told the nation's governors that the Biden administration anticipated the public health emergency would remain in place through 2021 and that HHS would give states 60 days' notice of termination.
The additional FMAP funding only affects states' spending on previously eligible Medicaid beneficiaries. It does not apply to Medicaid's ACA expansion, which the feds match at 90%.