Increased Medicaid funding to states protects health care, critical services

Betsy Hammer
May 04, 2020

It’s a tried-and-true approach during times of crisis 

The COVID-19 pandemic is requiring a range of policy responses to ensure people receive necessary health care and economic support. Increased federal Medicaid funding is a significant tool in the toolbox to make sure Minnesotans have the health care coverage that’s so needed in this pandemic, and also has the additional benefit of protecting other essential state services that Minnesotans count on.

While they have taken some preliminary steps, federal decision-makers should further boost the Medicaid dollars it sends to states, make that increase last until the economy recovers, and maintain strong requirements to protect health care coverage.

Let’s take a look at why increasing what we wonks call the “FMAP” is so important.

Over one million Minnesotans get access to the health care they need, when they need it, thanks to affordable health coverage options like Medicaid and MinnesotaCare. During the current global pandemic, access to health care is essential to take care of our Minnesota neighbors.

Ensuring that everyone has affordable access to COVID-19 testing and treatment is a critical part of addressing this public health threat. Medicaid is an important source of health care coverage for those most at risk to the worst outcomes to COVID-19, including seniors and people living with severe disabilities, and for those working at essential but lower-paying jobs.

Eligibility for affordable health options is based on people’s incomes, so more people qualify for them during periods of economic strife as folks face job losses or reduced hours. And there are greater demands on these options when there are greater health care needs, like we’re seeing right now.

States and the federal government share responsibility for funding Medicaid. The federal government matches a certain percent of state Medicaid spending through a mechanism called the Federal Medical Assistance Percentage, or FMAP.

In March, Congress passed legislation that expanded the FMAP by 6.2 percent through the end of the public health emergency. Minnesota is projected to receive an additional $750 million in FMAP as a result.

This is an important step in the right direction, but it’s not sufficient. It’s well below what was provided during the Great Recession and much less than requested by the bipartisan National Governors Association.

Congress must act to further increase the FMAP rate and extend the boosted rates for as long as unemployment is high. Otherwise, many of our neighbors are in danger of losing their health coverage if they lose their jobs. Congress also must keep in place “maintenance of effort” rules so that states can’t restrict eligibility or terminate health care coverage.

The economic disruption creates another threat to Minnesotans’ health and well-being. States across the country are facing substantial revenue shortfalls. Current estimates are that state budget shortfalls as a result of the pandemic’s economic fallout could be as much as $650 billion over three years.

That points to the second important reason Congress must act swiftly to increase the FMAP. Because of the significant role that Medicaid plays in state budgets, the federal government has boosted the Medicaid FMAP in past economic downturns to provide fiscal aid to states.

Since the state share of Medicaid funding makes up about 20 percent of Minnesota’s general fund spending, an increased FMAP can also free up state dollars for education, income supports, and other essential services that Minnesotans count on.

Unfortunately, we’ve also seen that when states don’t receive sufficient federal support in tough times, they may increase hardships and create a further drag on the economy by laying off teachers and other workers, cut economic supports that their residents need more than ever, and reduce funding for schools and universities. States also put up barriers to getting and keeping Medicaid coverage. The impact of these choices from the last recession reverberate even today.

Our current health and economic situation calls for the maximum response to help people stay safe and healthy during the COVID-19 pandemic and accompanying economic storm. FMAP is one of the crucially important tools the federal government must use to partner with states. It will help ensure that Minnesotans’ health, safety, and financial needs are met in this crisis, and to set the groundwork for a stronger economic recovery.

Add your voice to this debate. Contact your Congressional representatives in support of additional Medicaid funding.

And if you want to get into the weeds...

FMAP rates are based on the average personal income in a state. Minnesota’s base FMAP is 50 percent, within the lowest FMAP tier in the country. FMAP rates can also vary within a state based on types of spending; for example, generally, spending to cover folks included in the Affordable Care Act’s Medicaid expansion gets a higher matching rate from the federal government.

Minnesota spends about $5 billion per year on Medicaid from the state’s general fund, with the federal government paying about $8 billion and much smaller amounts coming from other sources.