Medicaid Financing and the U.S. Territories: Implications of The Build Back Better Act

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 recent natural disasters and the COVID-19 pandemic. Over time, Congress has provided additional federal funding often to address emergencies and additional financing needs beyond the Medicaid allotments set in law. Recent funding increases were set to expire at the end of FY 2021, but administrative action helped to avoid a sharp decline in federal Medicaid financing at the end of FY 2021. The Build Back Better Act (BBBA) includes a permanent statutory increase to the territories’ Medicaid allotments and match rates. This policy watch examines how Medicaid funding for the territories works, the current allotments, and how BBBA would change Medicaid funding for the territories going forward. While a version of BBBA has passed the house, its fate in the Senate remains uncertain.

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 allotment) and the territories’ federal matching rate (known as the federal medical assistance percentage, or FMAP) are fixed in statute. 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. Once a territory exhausts its capped federal funds, it no longer receives federal financial support for its Medicaid program during that fiscal year.

Over time, Congress has provided increases in federal funds for the territories broadly and in response to specific emergency events. Most recently, the Further Consolidated Appropriations Act of 2020 and the Families First Coronavirus Response Act (FFCRA) significantly increased the allotments for each of the territories for FY 2020 and FY 2021 (seven to nine times the statutory levels) and also raised the FMAP rates from the statutory level of 55% to 76% for Puerto Rico and 83% for the other territories. These statutory changes to the allotments and the match rate expired at the end of September. However, like other states, the territories are also eligible to receive a 6.2 percentage point increase to the statutory Medicaid match rate through the end of the quarter in which the public health emergency (PHE) expires if certain maintenance of eligibility requirements are met.

At the end of September 2021, CMS calculated FY 2022 allotments for the territories based on allotments for FY 2021 (except for Puerto Rico where calculations were based on allotments for FY 2020). These calculations helped to avoid a fiscal cliff in federal Medicaid funding for the territories that could have resulted in significant reductions to eligibility levels and benefits. These calculations represent increases of around 3% for all territories compared to their FY 2021 allotment except for Puerto Rico, which would see a decrease of around 2% from FY 2021 (Figure 1). In November 2021, the GAO released a non-binding legal opinion that CMS did not have the authority to adjust the base for the FY 2022 federal allotment for Puerto Rico based on the FY 2020 allotments, but President Biden recently stated that Puerto Rico will receive $2.9 billion in Medicaid funding. CMS noted the calculations related to the allotments would not affect the FMAP rates that would return to the statutory 55% (with an additional 6.2 percentage points available under the public health emergency) on October 1, 2021. However, a prior continuing resolution maintained FMAP rates of 76% for Puerto Rico and 83% for the rest of the U.S. territories through December 3, 2021. The most recent continuing resolution passed by the House would extend these FMAP rates for all territories (except Puerto Rico) through March 11, 2022. Puerto Rico’s current FMAP rate is 55%.

The Build Back Better Act (BBBA) proposed permanent increases in federal allotments and matching rates for the U.S. territories. The BBBA that passed the House and the draft released by the Senate Finance Committee both include provisions to increase the capped federal allotment and fixed matching rates for the U.S. territories (Figure 1). Compared to their FY 2021 allotments these proposed allotments represent modest increases of 5 – 8% for American Samoa, USVI, and Guam and more significant increases of 17% and 20% for CNMI and Puerto Rico, respectively. Additionally, FMAP rates would increase to 83% for all territories except Puerto Rico. Puerto Rico would receive an FMAP rate of 76% in FY 2022 and a rate of 83% in subsequent years dependent on Puerto Rico establishing a reimbursement floor for provider payments.

The passage of the BBBA would provide Puerto Rico and the territories with more certainty in their federal funding and FMAP rates. The BBBA provides a permanent increase in the federal allotments and match rates for all territories. Without the BBBA, the FY 2022 allotment for Puerto Rico will remain slightly lower relative to FY 2021. In addition, the continuing resolution that would extend the enhanced match rate for the territories (except Puerto Rico) will expire on March 11, 2022. When this happens, all territories would see lower FMAP rates resulting in the territories needing to contribute more local funds to draw down federal funds.