Medicaid: Extending The Enhanced Federal Match Makes Sense (Guest Opinion)

Jun 30, 2011

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June 30 was the day when Medicaid's enhanced federal matching rates -- part of the 2009 stimulus package -- expires, leaving states struggling to sustain health care's safety net.

A recent New York Times editorial called attention to the risks of allowing a single-minded focus on deficit reduction -- a goal critical to the nation’s economic future -- to obscure spending needs that are equally critical in the too-slowly-recovering economic present.

Medicaid is a prime example of this danger.

This is a program where long-term savings and short-term spending come together to make fiscal and humanitarian sense. Clearly, Medicaid spending will have to grow more slowly in the future. But, for now, federal support for it is key not only to states' ability to meet the health and long-term care needs of tens of millions of Americans, but also to help prevent state economies from further deterioration.

Here's a solution: Congress can simply extend these expiring supplements to federal Medicaid payments -- and require states to pay the money back later, when the economy's recovered.

And here's why the approach makes sense.

States face a twofold problem when economic recession hits: the demand for Medicaid services goes up, as people lose job-based health insurance; and states' ability to match federal funds to support those services goes down because their revenues decline. To mitigate those human and economic hits, the stimulus package established an enhanced federal match rate for state Medicaid spending -- increasing the minimum federal contribution from 50 percent to 56.2 percent and targeting additional support to states based on increases in unemployment. In 2010, that "enhanced match," initially committed through December 2010, was extended, on a declining basis, through June 2011. In the first quarter of 2011, actual matching rates ranged from just less than 62 percent of total costs in wealthier, less-hard-hit states, to just less than 85 percent in states facing greater burdens.

What did states do with that money? Over a period when millions of Americans lost work-based health insurance, Medicaid was able to pick up the slack. Enrollment increased for both adults and children, particularly the latter.  

Extra federal support not only protected people in need of services, it also provided a much-needed boost to flagging state economies. Although hard-pressed states reduced the revenues they committed to Medicaid, the enhanced matching rate substantially increased the bang for each buck they did invest, and total spending increased. According to the Council on State Governments, enhanced matching increased the total spending from every dollar a state invested by 40 percent -- from $1.61 to $2.68. The amount varied by state, with more support for the poorer, harder-hit.

The enhanced match had an indirect or multiplier effect -- as the dollars spent on services supported incomes that supported purchases that expanded economic activity.

In short, the enhanced match worked. But at the end of June, it came to an end. Meanwhile, with unemployment still at record levels, demand for Medicaid remains high. Although the Affordable Care Act prohibits states from restricting Medicaid eligibility, states are resisting this "maintenance of effort" requirement, and will clearly have less federal support to sustain it. Without the federal cushion the enhanced match created, the prospect of major Medicaid cuts looms large. Not only will many people lose coverage, the economies they live in will struggle even more to recover.

This should not happen. Extending the enhanced match can support weak state economies and support vulnerable populations -- and can buy the time we need to reform Medicaid to become more efficient. And, as the economy improves, the time will then come when states can repay the federal government for the help they get now, say with somewhat smaller federal matching funds in the future. That's fiscally responsible. But right now, at time of continuing economic and human vulnerability -- it's fiscally and morally responsible to continue federal support to sustain Medicaid, for the people and the economy that depend on it.

Judy Feder is an Urban Institute fellow and professor, and former dean of the Georgetown Public Policy Institute. John Holahan is the director of the Urban Institute's Health Policy Center.