Obama Administration Grants Relief to States on Payments to Medicare for Part D Costs

Feb. 18, 2010--HHS Secretary Kathleen Sebelius today announced $4.3 billion in financial relief to states by reducing the amount they will have to pay the federal government to offset the cost of Medicare coverage for prescription drugs for state residents eligible for both Medicare and Medicaid.

"We believe today's action will help states as they struggle to maintain Medicaid and other budget priorities in these difficult economic times," said Secretary Sebelius.  "This relief will help states continue to provide critical health care services to the nearly 60 million beneficiaries who depend upon it."

This temporary financial boost to states is made possible by the American Recovery and Reinvestment Act of 2009 (ARRA).  That law granted a significant, yet temporary, increase in the amount states receive from the federal government to help pay for their Medicaid programs.    The increase was to the federal share of Medicaid costs, referred to as federal medical assistance percentage payments (FMAP). 

In a call with state governors today, Secretary Sebelius reported that HHS will apply the ARRA increased FMAP to so-called clawback payments.  The clawback payment is the amount states pay to the federal government as required by the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA).  It is intended to offset some of the added expense to Medicare Part D of assuming drug costs for residents dually eligible for both programs.  Prior to MMA, state Medicaid programs covered prescription drug costs for these beneficiaries.  Because Medicaid is a state/federal matching program, the higher FMAP under ARRA results in a temporary reduction of the states' share of spending and therefore in their clawback obligation.

This temporary adjustment in the clawback payments will be applied for the period October 1, 2008 through December 31, 2010.  In his 2011 budget, President Obama calls for the FMAP increase established in ARRA to be extended through June 30, 2011. 

"In asking Congress to extend the increased FMAP in his 2011 budget proposal, the President recognizes both the critical role Medicaid plays in the health of our most vulnerable citizens and difficulties states are experiencing given the economic downturn," Secretary Sebelius said.

States make clawback payments monthly and CMS is currently reprogramming its billing system to calculate the new, reduced payments owed by states.  The savings, which are retroactive to October 2008, will be deducted from what they otherwise would have owed going forward.

The table below shows each state's estimated savings.  Column B shows the state's obligation under the pre-ARRA formula with column C showing the newly calculated payment, column D the total estimated savings to the state.