The federal Medicaid program partners with states to provide health care for the neediest U.S. citizens. Puerto Rico and other U.S. territories, however, are not included in the federal Medicaid program.
Instead, the territories receive limited, lump-sum funding each year. This amount does not respond to need, and the enhanced funding amount that has been provided to Puerto Rico and the other territories over the years has been time limited. As a result, funding for Puerto Rico’s Medicaid program faces a cliff on a regular basis.
Interpreting the law
It was expected that Puerto Rico would face such a cliff as of September 30th of 2021. However, shortly before this date, the Biden administration determined that a 2019 law increasing Puerto Rico’s Medicaid funding could be extended beyond this date, through fiscal year 2022 and beyond.
Congress responded to the Biden administration’s determination by asking for the U.S. Comptroller General to review the 2019 law by Nov. 15 and issue its own legal opinion “on the most plausible plain reading of how such fiscal year 2022 allotment level should be calculated.”
The Government Accountability Office responded with a report rejecting the interpretation that provided for ongoing funding.
The GAO said that the “plain meaning” of the text was that the 2019 figures rather than the 2021 allocation was the basis.
“Courts have recognized an exception to the plain meaning rule where the application of the statutory text produces a result that is so absurd that Congress could not have intended it,” they wrote. “Those seeking to disregard a statute’s plain language on the grounds of absurdity must meet a high bar beyond merely undesirable, harsh, or odd policy consequences.”
The U.S. Department of Health and Human Services had held that Congress could not have wanted to reduce Puerto Rico’s Medicaid allocation back to the woefully underfunded state it was in during 2019. They described this as an “absurd result.”
The GAO did not agree.
This puts Puerto Rico back at the edge of a Medicaid cliff.
The history of Puerto Rico’s Medicaid cliffs
A Medicaid cliff is the point where Puerto Rico’s federal funding for Medicaid runs out. This leaves the Island scrambling to come up with the funds to provide health care for needy U.S. citizens. This has been a regular part of Puerto Rico’s experience for many years.
Why do territory Medicaid cliffs happen? Medicaid is designed to be elastic: when the needs of a State increase, whether as the result of a pandemic or natural disaster or because of unusual economic conditions, the federal funding for Medicaid increases to accommodate the needs.
In Puerto Rico, however, Medicaid funding is capped. There is a maximum amount of federal funding, consistently less than is needed and less than Puerto Rico would receive as a State. It doesn’t change when the needs change, as federal Medicaid funding is designed to do, so it runs out before the end of the year.
Extension to avoid falling off the cliff
The Biden administration has spoken up for Medicaid parity for the territories, and this step was noted in the White House budget proposal.
However, Congress is considering a different approach.
The Supporting Medicaid in the U.S. Territories Act of 2021 (H.R. 4406) would extend the funding that is scheduled to end in December until September of 2026. The funding would still be capped. This measure has already been approved by the House Energy and Commerce Committee.
However, without a long-term solution, the Island faces continuing problems:
- Doctors leave the Island for a more secure future in the States.
- The government cannot negotiate favorable future terms with medical supply vendors.
- Medical facilities cannot make long-term plans.
Federal Medical Assistance Percentages (FMAP)
There is another complication. Medicaid funding is provided as a matching grant based on how much money a State spends. The percentage provided by the State depends on the average income of the residents.
This is the formula:
State Share = 0.45× [State Per Capita Income/U.S. Per Capita Income]
So the State’s per capita income is divided by the per capita income of the United States as a whole. That figure is used to determine the percentage paid by the State and the percentage paid by the federal government.
In a wealthy State like California, federal funds provide 50% of the funding for Medicaid. For every dollar California spends on Medicaid, the federal government gives California a dollar.
In a poor State like Mississippi, federal funds account for nearly 76% (figures from 2009). The federal government gives Mississippi three dollars for every dollar Mississippi spends on Medicaid.
If Puerto Rico were a state, federal funds would provide 83% of the Medicaid funding. As a territory, Puerto Rico’s local government has to pay for most of the cost of Medicaid. While Puerto Rico’s matching percentage was raised temporarily to 76%, it is still not where it would be if Puerto Rico were a State.
All States and territories also received a 6.2% extra matching allowance during the pandemic, bringing Puerto Rico to 82.2% during the pandemic. While it is not clear how the percentage might change going forward, it is clear that it is not now where it would be if Puerto Rico were a state.
A permanent solution
Statehood would solve the problem; as a State, Puerto Rico would have the same Medicaid funding as the current 50 States. Voters chose statehood in November 2020, for the third time in the 21st century, and there is currently a statehood admissions bill in Congress.
Under Puerto Rico’s current political status as a U.S. territory, underfunding is likely to continue.
The Biden administration has proposed an end to the Medicaid funding caps, and the White House says that they will work with Congress to find a permanent solution. Passage of the Build Back Better Act would also expand Medicaid coverage in Puerto Rico. It is also possible for the Centers for Medicare and Medicaid Services to disregard the ruling of the GAO; the Governor of Puerto Rico expects this to happen, according to The Washington Post.
“We are not expressing an opinion on the policy question of federal funding for Puerto Rico’s or the other territories’ Medicaid programs,” the GAO wrote. “That is clearly a matter for Congress.