Kari Brooke

At a Glance

  • State Medicaid programs are the intended recipients of almost 60 percent of the approximately $150 billion that has been allocated to the healthcare industry through the stimulus package.
  • During a "recession adjustment period," all states will receive a 6.2 percent base increase in their Federal Medical Assistance Percentage, which is a formula for determining how much money for Medicaid a state receives through a federal matching program.
  • Hospitals would do well to monitor how their states actually intend to use these funds, as there may be implications for providers and patients if funds are diverted for nonhealthcare spending.

The American Recovery and Reinvestment Act (ARRA) of 2009, better known as "the stimulus package," promises clear benefits for health care, despite widespread disagreement about its overall effectiveness for the nation's economic recovery. Since ARRA was signed into law by President Obama on Feb. 17, 2009, a multitude of conflicting opinions have been voiced about it. Nonetheless, many in health care are excited about the support that the stimulus package funds may provide to healthcare organizations in the near future, particularly as a result of the monies earmarked for support of states' Medicaid programs.

Almost 60 percent of the approximately $150 billion allocated to the healthcare industry is being provided to state Medicaid programs. This is more than 11 percent of the entire stimulus funding package-and the impact of these funds is already being seen. But one looming question remains: To what extent will all of these funds actually end up being used for health care?


How Will Each State's Share of the Funds for Medicaid Be Calculated?

The bulk of state Medicaid funds are received through the Centers for Medicare & Medicaid Services (CMS) from a federal matching program. The amount of money that a state receives from this matching program is calculated using a formula found in the Social Security Act. This formula is officially known as the Federal Medical Assistance Percentage (FMAP), and is inversely proportional to a state's average personal income, relative to the national average.  Basically, states with lower average personal incomes have higher FMAPs. By federal law, the FMAP cannot be less than 50 percent, and for every dollar the state spends on Medicaid, the federal government matches at a rate that varies from year to year. Data used to determine the FMAP are lagged and do not necessarily represent current economic conditions.

More than half the states in the nation have experienced FMAP declines in one of the past three fiscal years. Similar to relief provided in 2003 during our last economic crisis, the 2009 stimulus bill has increased monies matched by the federal Medicaid program to help support state Medicaid programs for a period of 27 months. This period, also known as the recession adjustment period, began Oct. 1, 2008, and will end Dec. 31, 2010. All states will receive a 6.2 percent base increase in their FMAP, and states with large increases in unemployment will receive additional increases in monies from the federal Medicaid program. 

There are specific guidelines regarding Medicaid eligibility that states must maintain to receive their increased FMAP match. The rules also stipulate that states must ensure they are promptly paying physicians, hospitals, and nursing homes that provide Medicaid services, and they must not use the increased FMAP funding to deposit or credit any reserve or rainy day fund accounts of the state.  However, the stimulus package does provide a great deal of flexibility for how states spend funds freed up by the increased FMAP match.

To be eligible for the increased FMAP match, states may not have eligibility standards, methodologies, or procedures in place that are more restrictive than those that were effective July 1, 2008. States that do not meet these guidelines have an opportunity to reinstate their eligibility standards, methodologies, and procedures by July 1, 2009.


How Might States Use the Money?

Because such a large portion of the stimulus bill has been allocated to state Medicaid programs to increase Medicaid coverage, many cash-strapped states are in discussions about whether to use the state funding for Medicaid that will be freed up by these additional federal Medicaid dollars to balance their overall budgets. In other words, state funds previously set aside for Medicaid may be replaced by stimulus package dollars and used instead to help balance budget issues as the state deems appropriate, such as education or other social programs outside of the Medicaid program.

A classic federal and state government conflict likely will arise in the interpretation of the stimulus package language. Some states will interpret the limits on the use of the funds to their most advantageous use, which may vary by state. The federal government oversight of the stimulus package will try to ensure states use the money as intended by Congress and the Obama administration.   

For example, Virginia Hospital and Healthcare Association urged lawmakers in its state to set aside much of the $600 million made available by the increased federal share to cover an anticipated surge in Medicaid costs in the next few years, which will be a particular challenge once the stimulus funds dry up. However, the Virginia lawmakers instead decided to use the freed-up money to balance the current overall budget to prevent layoffs in other areas.

New York Gov. David Paterson believes states may use some of the stimulus Medicaid funding they receive for other programs. Although the stimulus package set specific limits on how states may spend monies allocated for transportation and education, Paterson says the only stipulations for use of the additional Medicaid dollars were to avoid putting the money in a rainy day fund or decrease the number of people who are eligible for Medicaid in the state. Paterson believes the monies New York receives would be better put to use by restoring social plans that were previously cut in the state's budget plan and by eliminating certain taxes and fees imposed on residents and visitors ("U.S. States Can Divert Stimulus Aid for Medicaid-N.Y.," Reuters, May 9, 2009). Other states that plan to use this money to replace state dollars and ease budget shortfalls include Arizona, California, Florida, Indiana, Kansas, Michigan, Nevada, New Hampshire, and West Virginia.

California, which has the largest deficit of all 50 states, will receive an estimated $7.9 billion in stimulus funding, approximately $2 billion of which will result from the additional FMAP match for the state. California Gov. Arnold Schwarzenegger has proposed raising the income eligibility limit for parents in California's Medicaid program, Medi-Cal; this proposal would result in a loss of coverage for approximately 430,000 parents by 2011.


Why Shouldn't the Monies Be Diverted?

These examples raise the question: Are these states adequately weighing the benefits of spending these funds on nonhealthcare-related areas against the potential future problems that may arise due to Medicaid spending shortfalls?

There are three reasons why states may want to resist using stimulus dollars earmarked for Medicaid funding to balance nonhealthcare-related areas of their budgets. First, during a White House meeting in February, President Obama informed state governors that the Medicaid funding provided through the stimulus package is "not a blank check"-and the federal government intends to monitor how the money is being spent. Obama stated that this funding is "intended to go directly toward helping struggling Americans keep their healthcare coverage" and that his administration would work with the states closely "to make sure that this money is spent the way it's supposed to [be spent]."

Second, studies have shown that spending Medicaid dollars has the potential to generate jobs at state and local levels, increase personal income levels, and increase tax revenues at the state level.

And third, because the amount of money that a state spends on Medicaid is proportional to the amount of money that will be matched by the federal program, spending more state Medicaid dollars will bring more federal dollars into the state. Therefore, by putting the increased FMAP match from the stimulus package toward the expansion of Medicaid coverage, the healthcare industry and the general population should benefit.  


What Should Providers Do?

As the demand for healthcare services rises, it is important that the stimulus dollars earmarked for Medicaid funding be appropriated wisely. State hospital associations likely will be watching closely, voicing concerns, and urging their states to put disbursements of the increased Medicaid funding to the best possible use. 

Once stimulus package funding for the increased FMAP match has been pledged to specific projects, it is important to track how the dollars were used. A recent Government Accountability Office report noted that states are concerned that they do not have the appropriate resources necessary to properly track how their federal stimulus funding is being spent. Many states have taken steps to remedy this situation.

California, for example, is one of many states that have set up task forces to track federal spending. California's task force will work with the Obama administration to ensure that the funding funneled through the state is spent efficiently and effectively; to help cities, counties, not-for-profits, and others access the available funding; and to maintain a web site that will regularly update residents on how the stimulus dollars are being spent.

As another example, in Ohio, the former general counsel for the Ohio Department of Health has been put in charge of monitoring how the state manages its federal stimulus dollars that are earmarked for education. The state also has set up a web site (www.watchdog.ohio.gov) for constituents to be able to report concerns of alleged wrongdoings involving stimulus funding. Although this example relates to educational funding, the same types of procedures could be implemented to monitor the spending of stimulus funds earmarked for health care.

States are required to report how their FMAP funds are used by Sept. 30, 2011. It is generally possible to monitor where a state's stimulus package funding is going by visiting www.staterecovery.org or via the state's own recovery web site (e.g., recovery.ohio.gov).

Do you know how your state plans to spend Medicaid monies freed up by the stimulus package funding?

Kari Brooke is a senior associate, state and local tax services, Grant Thornton LLP, Cincinnati, and a member of HFMA's Ohio Chapter (kari.brooke@gt.com).

Publication Date: Saturday, August 01, 2009

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