Recent Changes in Medicaid Financing in Puerto Rico and Other U.S. Territories
The U.S territories – American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto Rico, and the U.S. Virgin Islands (USVI) – have faced an array of longstanding fiscal and health challenges that were exacerbated by somewhat recent natural disasters and the COVID-19 pandemic. Over 1.7 million people residing in the territories were enrolled in Medicaid in fiscal year (FY) 2023. Medicaid financing in the territories differs from the states due to a statutorily set Federal Medical Assistance Percentage (FMAP) and an annual ceiling in federal funding that has historically resulted in lower levels of funding and often health care coverage and access.
Over time, Congress has provided temporary supplemental federal funding and increases to the FMAP rate in response to emergencies beyond the Medicaid allotments set in statute. Most recently, the Families First Coronavirus Response Act (FFCRA) significantly increased allotments for the territories and the 2023 Consolidated Appropriations Act (CAA) included a permanent statutory increase to 83% (from 55%) for most of the territories’ Medicaid allotments and FMAP rates, except Puerto Rico. In Puerto Rico, the allotments are set in statute through FY 2027, and the FMAP was increased to 76% and set to expire after FY 2027 and return to 55% without legislative action.
While neither candidate has announced detailed policy proposals in the campaign, the outcome of the 2024 election could have implications for the American territories. In a recently released policy fact sheet, Vice President Harris highlights several initiatives to support Puerto Rico, including calling for Congress “to pursue parity and equal access to key federal programs that support health care, nutrition, and other critical needs for low-income families, seniors, and people with disabilities.” In addition, the Biden-Harris administration proposed eliminating Medicaid funding caps for the American territories and bringing FMAP rates in parity with the states in their FY 2025 budget. In contrast, former President Trump previously proposed reducing Medicaid funding for Puerto Rico and has supported proposals to cap and reduce Medicaid financing and the FMAP, which could impact the territories as well. This issue brief provides background on how Medicaid financing differs between U.S. territories and states and the implications of these differences.
How does Medicaid in the territories differ from the states?
Unlike in the 50 states and D.C., annual federal funding for Medicaid in the U.S. territories is subject to a statutory cap and fixed matching rate. Both the capped federal allotment (known as the Section 1108(g) allotment) and the territories’ FMAP are fixed in statute. Annual federal Medicaid funding is set in statute for Puerto Rico for FY 2023 through FY 2027 and increases in the allotments are tied to the medical care component of the Consumer Price Index for All Urban Consumers (CPI-U) for the rest of the territories. This funding arrangement is unlike federal Medicaid funding for states, where federal dollars are uncapped and the FMAP is adjusted annually based on a state’s relative per capita income. In addition, the territories receive Section 1935(e) funding, also known as the Enhanced Allotment Program (EAP), which can be used to provide prescription drug coverage under Medicaid for low-income Medicare beneficiaries who would otherwise be eligible for subsidies under Medicare Part D. Most territories receive funding for Medicaid data systems, and Puerto Rico receives additional funds for physician payment rates and for program integrity through FY 2027.
Medicaid programs in the territories have programmatic differences in coverage and benefits compared to the states. Unlike the states, the territories develop their own measures rather than use federal poverty levels (FPL) to determine eligibility for Medicaid for the population. CNMI and American Samoa operate Medicaid programs under waivers so they are not subject to most program requirements, including flexibility that allows them to waive coverage of any benefits that are mandatory in the states when needed.
What are recent Medicaid financing changes for the Territories?
The 2023 CAA included a permanent statutory increase in territories’ Medicaid FMAP rate, except in Puerto Rico, where the increase will expire at the end of FY 2027. Congress has previously authorized both permanent and supplemental increases in the FMAP rate for the territories broadly and in response to specific emergency events (Table 1). Following the passage of the Affordable Care Act (ACA), the FMAP rate for territories was increased from 50% to 55% in 2011, and at the beginning of FY 2020, during the COVID-19 pandemic, the FMAP was temporarily increased to 100%. For the remainder of FY 2020 through the beginning of FY 2023, Congress increased FMAP rates from 55% to 83% for American Samoa, CNMI, Guam, and USVI and from 55% to 76% for Puerto Rico (with an additional increase of 6.2% if certain maintenance of eligibility requirements were met). With the 2023 CAA, Congress made the temporary FMAP increase to 83% permanent for American Samoa, CNMI, Guam, and the USVI, while authorizing a temporary increase to Puerto Rico’s FMAP to 76% through FY 2027. The law also provides 100% federal funding for qualifying data system improvements for American Samoa, CNMI, Guam, and USVI, up to $20 million for all four of the territories.
In addition to the change in the FMAP rates, annual federal capped funding for the territories increased substantially in FY 2020. The FFCRA increased allotments for each of the territories for FY 2020 and FY 2021 and then CMS used these levels as the new base for FY 2022 and beyond, except for Puerto Rico, where capped amounts are set in statute through FY 2027. The annual capped funding for Puerto Rico will be $3.475 billion for FY 2025, $3.645 billion for FY 2026, and $3.825 billion for FY 2027. After FY 2027, the allotments for Puerto Rico will be calculated from the much lower FY 2019 base without a legislative change.
What are the implications of the Medicaid financing structure in the territories?
The capped federal Medicaid funding structure in the territories contributes to cost shifts to the territories and/or coverage restrictions. Once a territory exhausts its capped federal funds, the territory must use local funds to cover costs of coverage or may suspend or limit services. Historically, all of the territories have reported depleting the capped federal funds before the fourth quarter of the year. Medicaid programs in American Samoa and CNMI have recently suspended or limited a wide range of services for parts of the fiscal year due to funding constraints, despite the recent increases in allotments and FMAP rates.
In the absence of additional statutory changes, annual federal allotments for Medicaid in Puerto Rico will drop and the FMAP rate will drop to 55% in FY 2028. Under the 2023 CAA, Puerto Rico’s annual federal allotment will drop in FY 2028 because it will be re-calculated based on the annual FY 2019 cap adjusted to the medical component of the CPI-U without regard for the additional funding received between FY 2020 and FY 2027, and the FMAP will return to 55% in FY 2028. Both of these changes would result in significant reductions in federal Medicaid funding for Puerto Rico. Beyond adjustments for Puerto Rico, proposals like the Territories Health Equity Act would treat the territories like states for Medicaid funding and eliminate federal funding caps if enacted by Congress.
Limits on federal Medicaid funding contribute to increasing challenges for the territories in addressing health care needs of their residents given growing poverty, infrastructure, and environmental challenges. Studies have found that the territories rank worse than the states on health care quality measures and health outcomes. The territories also have higher rates of poverty and unemployment, and all the territories, with the exception of Puerto Rico, also have higher rates of uninsured people than the U.S. population overall (Appendix Figure 1). Limitations in federal data on the American territories, including gaps in federal statistics and Medicaid claims reporting, and limited local public health workforce capacity may reduce government capabilities to understand and address these challenges. The territories have also become increasingly susceptible to natural disasters and environmental hazards due to climate change as well as U.S. colonial and military activity, which can exacerbate population loss due to outmigration and further negatively impact island economies. Recent disaster events in Puerto Rico have also shown how they negatively impact health outcomes and the mental health of residents in the long-term.
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