Key Questions About the New Increase in Federal Medicaid Matching Funds for COVID-19

Recent federal legislation, the Families First Coronavirus Response Act,¹ amended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act,² authorizes a 6.2 percentage point increase in federal Medicaid matching funds to help states respond to the COVID-19 pandemic. The additional funds are available to states from January 1, 2020 through the quarter in which the public health emergency period ends, provided that states meet certain conditions. The HHS Secretary declared COVID-19 a nationwide public health emergency on January 31, 2020, retroactive to January 27, 2020. The public health emergency ends when the Secretary declares that the emergency no longer exists or after 90 days, whichever happens first, although the Secretary can renew the public health emergency declaration for subsequent periods.³ This issue brief answers key questions about the new federal funds, drawing on two sets of frequently asked questions about the Families First Coronavirus Response Act and CARES Act issued by the Centers for Medicare and Medicaid Services (CMS). A separate issue brief answers key questions about another provision of the new law, which provides 100% federal funding for states to cover coronavirus testing for uninsured people.

Why is increasing federal Medicaid funding significant at this time?

Increasing the amount of federal matching funds available to states during significant economic downturns is an effective means of providing fiscal relief. An increase in states’ federal medical assistance percentage (FMAP) leverages Medicaid’s existing financing structure, which allows federal funds to be provided to states more quickly and efficiently than establishing a new program or allocating money from a new funding stream. Increased federal matching funds support states in responding to the increased need for services, such as testing and treatment during the COVID-19 public health emergency, as well as increased enrollment as more people lose income and qualify for Medicaid during the economic downturn.

When can states access the increased federal funding?

CMS already has made the enhanced federal funding available to states, and the funding increase will continue through the quarter in which the public health emergency ends. States could draw down the increased federal matching funds beginning in late March for claims paid in the first quarter of 2020, and in early April for the second quarter of 2020.⁴ Expenditures are considered to be incurred for purposes of drawing down the enhanced matching funds on the date that the state pays a provider, not on the date of service.⁵ The amount of increased funds available to states is based on states’ estimated budget requests, with claims to be reconciled with allowable expenditures when states file their quarterly expenditure reports.⁶ U.S. territories also are eligible to receive the increased federal matching funds.

What spending is subject to the increase?

The enhanced federal matching funds generally apply to Medicaid spending that is otherwise reimbursed at the state’s regular FMAP. The FMAP is based on state per capita income and ranges from 50% to 78% in FY 2021. The enhanced federal matching funds do not apply to administrative expenses or to most Medicaid spending that is already subject to an increased match, including ACA expansion adults (90%), family planning services (90%), services received through an Indian Health Services facility (100%), Medicare cost-sharing assistance for Qualified Individuals (100%), and health home services (90% during first eight quarters). CMS recently clarified that the 6.2% enhanced matching funds do apply to Community First Choice (CFC) attendant services and supports, in addition to the regular 6% CFC enhanced match.⁷ The new enhanced funds also apply to Medicaid disproportionate share hospital expenditures.

The enhanced federal matching funds do not apply to CHIP spending but will result in an indirect increase to the state’s CHIP enhanced FMAP (EFMAP). The CHIP EFMAP is based on a state’s regular FMAP, which is now higher. Specifically, the EFMAP is the state’s regular FMAP increased by the number of percentage points equal to 30 percent of the number of percentage points by which the FMAP is less than 100%, but not to exceed an EFMAP of 85%. In addition, the EFMAP had already been temporarily increased by 11.5 percentage points through September 30, 2020 by previous legislation, not to exceed an EFMAP of 100%.⁸ For example, a state with a 50% FMAP usually would receive an EFMAP of 76.5% in 2020, but with the 6.2 percentage point increase, the state’s regular FMAP would be 56.2% and the EFMAP would be 80.84%.⁹

What are the conditions for states to receive the increased funding, and how do states comply?

States must meet five conditions to receive the enhanced federal matching funds during the COVID-19 public health emergency. First, states must apply Medicaid eligibility standards, methodologies, and procedures that are no more restrictive than those in effect on January 1, 2020. States also must not increase Medicaid premiums above those in effect on January 1, 2020, except that a state could receive the enhanced funds from March 18 through April 17, 2020 if a premium in effect during this period is higher than those in effect on January 1, 2020. This provided a 30-day grace period for states to restore premiums to the amount required on January 1^st. In addition, states must reimburse individuals for any higher premiums charged after January 1^st to receive the enhanced FMAP.¹⁰ States also must cover coronavirus testing and COVID-19 treatment, including vaccines, specialized equipment, and therapies, without cost-sharing while they receive the increased funds. States also cannot increase political subdivisions’ contributions to the non-federal share of Medicaid costs beyond what was required on March 1, 2020.

Finally, states must provide continuous eligibility through the end of the month in which the public health emergency ends for those enrolled as of March 18, 2020 or at any time thereafter during the public health emergency period, unless the person ceases to be a state resident (including those deceased¹¹) or requests a voluntary coverage termination. Medicaid eligibility during this time must continue “regardless of any changes in circumstances or redeterminations at scheduled renewals that would otherwise result in termination.”¹² For example, individuals who age out of an eligibility group,¹³ who have changes in income, who lose eligibility for benefits that may affect their Medicaid eligibility such as Supplemental Security Income,¹⁴ whose whereabouts become unknown, or who fail to pay premiums must maintain Medicaid eligibility during the public health emergency period.¹⁵ Additionally, after the public health emergency period ends, states cannot collect any premiums that were due but unpaid during the continuous eligibility period.¹⁶ In response to any changes in circumstances during the public health emergency period, states can increase the level of assistance provided, such as moving an individual to another eligibility group that provides additional benefits, but states cannot move an individual to a group that is eligible for fewer benefits.¹⁷ The continuous eligibility requirement does not apply to individuals determined only presumptively eligible for Medicaid.¹⁸

CMS has stated that states “should make a good faith effort” to reinstate coverage for individuals for whom the state had sent a termination notice prior to March 18, 2020, and automatically reinstate coverage “where feasible.”¹⁹ “At a minimum, states are expected to inform individuals whose coverage was terminated after March 18, 2020 of their continued eligibility and encourage them to contact the state to reenroll.”²⁰

By drawing down the enhanced federal funds, states are “passively attesting” to CMS that they will assure compliance with the five conditions.²¹ If CMS later determines that the state does not satisfy all of the conditions, the state must return the enhanced funds.²² CMS “believe[s] that all states can take steps to be compliant and earn the enhanced funding.”²³

What remaining challenges might states face?

While the FMAP increase is an effective tool, states may still face shortfalls resulting from increased costs from the public health and economic crises associated with COVID-19. The National Association of Medicaid Directors and the National Governor’s Association have called for an additional FMAP increase of 5.8 percentage points, which when combined with the current increase would total 12 percentage points. The conditions attached to states’ receipt of the FMAP increase, such as continuous eligibility, are designed to keep people connected to coverage and provide access to care during the public health emergency period.