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Medicaid Financing: How Does it Work and What are the Implications?

Issue Brief
  1. Beginning in 2014, the higher FMAP for newly-eligible Medicaid beneficiaries is available for non-elderly, non-disabled adults with incomes up to 138% FPL who would not be eligible for Medicaid under the rules that a state had in place on December 1, 2009.

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    A few states had already expanded coverage to parents and childless adults  up to 100% FPL or to higher income levels across the state at the time the ACA was passed. Costs related to these populations qualify for the “expansion” or “transition” FMAP instead. In recognition of these states already provided coverage at these higher Medicaid eligibility levels, these states can receive a phased-in increase in their federal matching rate for adults without dependent children under age 65 beginning on January 1, 2014 so that by 2019 it will equal the enhanced matching rate available for newly-eligible adults. In addition, expansion states that do not have any newly-eligible Medicaid beneficiaries because they already covered people up to 138% FPL or higher (e.g. Massachusetts) also receive a temporary (January 1, 2014 through December 31, 2015) 2.2 percentage point increase in their federal matching rate for all populations.

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    For more information on how claiming works for the Medicaid expansion, please see the following brief:
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    Robin Rudowitz, Understanding How States Access the ACA Enhanced Medicaid Match Rates. (Washington, DC: Kaiser Family Foundation,) September 2014. http://kff.org/medicaid/issue-brief/understanding-how-states-access-the-aca-enhanced-medicaid-match-rates/.

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  2. H.R. 2 – Medicare Access and CHIP Reauthorization Act of 2015. Signed into law April 17, 2015. https://www.congress.gov/bill/114th-congress/house-bill/2/text?q=%7B%22search%22%3A%5B%22SGR+repeal%22%5D%7D.

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  3. State Health Facts, Federal Medical Assistance Percentage (FMAP) for Medicaid and Multiplier, (Washington, DC: Kaiser Family Foundation,) downloaded March 2015. http://kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/.

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  4. Section 299E(a) of the Social Security Amendments of 1972. P.L. 92-603.

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  5. Beginning in 2014, the higher FMAP for newly-eligible Medicaid beneficiaries is available for non-elderly, non-disabled adults with incomes up to 138% FPL who would not be eligible for Medicaid under the rules that a state had in place on December 1, 2009.
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    A few states had already expanded coverage to parents and childless adults  up to 100% FPL or to higher income levels across the state at the time the ACA was passed. Costs related to these populations qualify for the “expansion” or “transition” FMAP instead. In recognition of these states already provided coverage at these higher Medicaid eligibility levels, these states can receive a phased-in increase in their federal matching rate for adults without dependent children under age 65 beginning on January 1, 2014 so that by 2019 it will equal the enhanced matching rate available for newly-eligible adults. In addition, expansion states that do not have any newly-eligible Medicaid beneficiaries because they already covered people up to 138% FPL or higher (e.g. Massachusetts) also receive a temporary (January 1, 2014 through December 31, 2015) 2.2 percentage point increase in their federal matching rate for all populations.
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    For more information on how claiming works for the Medicaid expansion, please see the following brief:
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    Robin Rudowitz, Understanding How States Access the ACA Enhanced Medicaid Match Rates. (Washington, DC: Kaiser Family Foundation,) September 2014. http://kff.org/medicaid/issue-brief/understanding-how-states-access-the-aca-enhanced-medicaid-match-rates/.

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  6. Urban Institute estimates based on data from CMS (Form 64) (as of 9/16/13).

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  7. 8 Section 1903(a)(2) –(7) of the Social Security Act.

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  8. Centers for Medicare & Medicaid Services (CMS). Notice of Proposed Rulemaking: Medicaid Program; Mechanized Claims Processing and Information Retrieval Systems (90/10.) (Washington, DC: Federal Register,) April 16, 2015. https://www.federalregister.gov/articles/2015/04/16/2015-08754/medicaid-program-mechanized-claims-processing-and-information-retrieval-systems-9010#h-9.

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  9. To qualify as a DSH hospital a hospital must meet two minimum qualifying criteria. The first criterion is that the hospital has at least two obstetricians who have staff privileges at the hospital and who have agreed to provide obstetric services to Medicaid patients (except when the hospital predominantly serves children under 18 years or the hospital does not offer obstetric services to the general public). The second criterion is that the hospital has a Medicaid inpatient utilization rate (MIUR) of at least 1 percent. A hospital is deemed as a DSH if the hospital’s MIUR is at least one standard deviation above the mean MIUR in the state, or if the hospital’s low-income utilization rate exceeds 25 percent.

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  10. Kaiser Family Foundation, State Health Facts. Distribution of Medicaid Spending by Service, FY 2013. http://kff.org/medicaid/state-indicator/distribution-of-medicaid-spending-by-service/.

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  11. H.R. 2 – Medicare Access and CHIP Reauthorization Act of 2015. Passed by the House and Received in the Senate March 26, 2015. https://www.congress.gov/bill/114th-congress/house-bill/2/text?q=%7B%22search%22%3A%5B%22SGR+repeal%22%5D%7D.

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  12. Medicaid Financing; States’ Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection. (Washington, DC: US Government Accountability Office,) July 2014. http://www.gao.gov/products/GAO-14-627.

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  13. Smith, Vernon et al. Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Budget Survey. (Washington, DC: Kaiser Family Foundation,) October 2014. http://kff.org/medicaid/report/medicaid-in-an-era-of-health-delivery-system-reform-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2014-and-2015/.

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  14. The data reported here reflect information gathered from states for state fiscal year 2012; three states – Alaska, Delaware and Hawaii reported not using funds from provider taxes and fees or local governments to fund the non-federal share of Medicaid. Delaware and Hawaii adopted provider taxes the following year.
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    Medicaid Financing; States’ Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection. (Washington, DC: US Government Accountability Office,) July 2014. http://www.gao.gov/products/GAO-14-627.

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  15. Rudowitz, Robin et al. Implementing the ACA: Medicaid Spending & Enrollment Growth for FY 2014 and FY 2015. (Washington, DC: Kaiser Family Foundation,) October 2014. http://kff.org/medicaid/issue-brief/implementing-the-aca-medicaid-spending-enrollment-growth-for-fy-2014-and-fy-2015/.

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  16. The Effects of the Medicaid Expansion on State Budgets: An Early Look in Select States. (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) March 2015. http://kff.org/medicaid/issue-brief/the-effects-of-the-medicaid-expansion-on-state-budgets-an-early-look-in-select-states/.

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  17. On one occasion in the early 1980s, legislation was passed to temporarily reduce federal Medicaid matching payments to states over a 3- year period, but this legislation did not alter the FMAP formula. Section 2161(a) of the Omnibus Budget Reconciliation Act of 1981, P. L. 97-35, temporarily reduced federal Medicaid matching payments to states over a 3-year period but it did so without altering the FMAP formula. Instead, it reduced the amount of federal Medicaid matching funds a state would otherwise receive after applying its regular FMAP to its spending on services. The amount of the reduction was determined by a percentage: 3 percent in FY 1982, 4 percent in FY 1983, and 4.5 percent in FY 1984. This percentage was adjusted downward in the case of states with high unemployment, states that adopted specified policies to control hospital costs, states that had high fraud and abuse recoveries, and states that met low spending growth targets.

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  18. National and State-By-State Impact of the 2012 House Republican Budget Plan for Medicaid. (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) October 2012. http://kff.org/health-reform/report/national-and-state-by-state-impact-of/.

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  19. Implications of a Federal Block Grant Program for Medicaid. (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) April 2011. http://kff.org/health-reform/issue-brief/implications-of-a-federal-block-grant-program/.

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  20. To be eligible for ARRA funds, states could not restrict eligibility or tighten enrollment procedures in Medicaid or CHIP.

    Vic Miller et al. Impact of the Medicaid Fiscal Relief Provisions in the American Recovery and Reinvestment Act (ARRA). (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) October 2011. http://kff.org/medicaid/issue-brief/impact-of-the-medicaid-fiscal-relief-provisions/.

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  21. Rudowitz, Robin et al. Implementing the ACA: Medicaid Spending & Enrollment Growth for FY 2014 and FY 2015. (Washington, DC: Kaiser Family Foundation,) October 2014. http://kff.org/medicaid/issue-brief/implementing-the-aca-medicaid-spending-enrollment-growth-for-fy-2014-and-fy-2015/.

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  22. The Role of Medicaid in State Economies: A Look at the Research. (Kaiser Commission on Medicaid and the Uninsured, January 2009), http://kff.org/medicaid/issue-brief/the-role-of-medicaid-in-state-economies/.

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  23. Sherry Glied and Stephanie Ma, How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion. (New York City, NY: The Commonwealth Fund,) December 2013. http://www.commonwealthfund.org/Publications/Issue-Briefs/2013/Dec/Federal-Funds-Medicaid-Expansion.aspx.

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  24. The Role of Medicaid in State Economies: A Look at the Research. (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) November 2013. http://kff.org/medicaid/issue-brief/the-role-of-medicaid-in-state-economies-and-the-aca/.

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  25. Report on Medicaid Expansion in 2014. (Kentucky: Deloitte commissioned by the Commonwealth of Kentucky,) February 2015. http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf.

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Appendix
  1. See Endnote 8.

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  2. Enhanced Federal Medical Assistance Percentages (eFMAPs) are for the Children's Health Insurance Program (CHIP) under Title XXI of the Social Security Act. Section 2105(b) of the Act specifies the formula for calculating Enhanced Federal Medical Assistance Percentages. For FFY 2015, the eFMAPs range from a floor of 65 percent to 81.51%. These rates do not take into account the increase included under Section 2101(a) of the Affordable Care Act amended which would increase eFMAPs by 23 percentage points (not to exceed 100 percent;) this increase is scheduled to begin in FFY 2016.

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    State Health Facts, Enhanced Federal Medical Assistance Percentage (FMAP) for CHIP, (Washington, DC: Kaiser Family Foundation,) downloaded March 2015. http://kff.org/other/state-indicator/enhanced-federal-matching-rate-chip/.

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  3. Section 402(e) of the Indian Health Care Improvement Act of 1976, P.L. 94-437.

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