Puerto Rico, other territories facing Medicaid 'fiscal cliff' with expiring ACA and disaster funds

Hurricane damage in Puerto Rico
Medicaid has been bolstered in Puerto Rico and the U.S. Virgin Islands due to temporary federal funding after the hurricanes last year. But those funds are scheduled to expire in September 2019. (Andrea Booher/FEMA)

The U.S. territories' Medicaid programs are about to regress to a state of chronic underfunding unless policymakers take action, according to a new study.

These programs have historically faced unequal treatment compared to Medicaid in the states, but the Affordable Care Act provided additional funds to make up for some of those differences, the Kaiser Family Foundation said in a recent issue brief. However, the ACA didn't permanently fix the formula that gave territories fewer Medicaid funds. It just provided buffer funding to allow those programs to thrive and expand—funds that are scheduled to expire in September.

"All of the territories needed the ACA funds to run their Medicaid programs, basically," said Cornelia Hall, policy analyst at KFF and one of the authors of the brief, in an interview with FierceHealthcare. "After all of these years of having the ACA fund, it would be a very abrupt change."

Unlike in the states, federal funding for Medicaid in the territories is capped. It is also subject to a fixed federal matching rate, unlike in the states where the matching rate depends on per capita income.

The upshot is that traditional Medicaid funding (blue in the chart below) is so low in most of the territories that temporary ACA funding (orange) actually exceeds it.


"As you can see in our figure, the cap doesn't meet all of the federal funding needs for all the territories," Hall said. "It just tracks with a lot of ways the territories are treated differently than the states."

For Puerto Rico and the U.S. Virgin Islands, the timing couldn't be worse. Their Medicaid programs are currently depending on temporary federal disaster recovery funding from the hurricanes last year, and those funds are also scheduled to expire in September.

All this sets up a "fiscal cliff" near the end of the year for Medicaid in the territories. If those programs aren't able to secure additional funding, they may have to limit coverage or reduce provider reimbursements—issues that are already acute in the territories.

Puerto Rico's health system, for instance, has been starved of resources due to systemically unequal reimbursement rates. As a result, lots of health professionals are leaving the island every year, since they can make more money in the mainland U.S., according to the study.

RELATED: Medicare Advantage enrollment soared in Puerto Rico. Now it's starving the island's healthcare system

But these problems could get even worse if the funding situation isn't fixed. Healthcare administrators in the territories are warning that the uninsured population could double if funding collapses, according to Hall. And if the Medicaid programs try to keep people covered by reducing provider reimbursement instead, that will put even more pressure on outmigration.

"Territorial officials and providers recognize that because providers can move so easily to the [continental] U.S., and you know in Puerto Rico, a lot of them are bilingual, so there's a lot of demand for bilingual providers in the continental U.S., and the salaries are very different," Hall said.

To permanently fix the situation, Congress could increase the federal matching rate for the territories' Medicaid programs or increase—or even eliminate—the federal spending caps, Kaiser wrote in its brief.

"Higher spending caps, or an elimination of the spending caps entirely could help catalyze changes and advances in these and other areas as the territories strategize to meet the healthcare needs of their Medicaid populations," the foundation said in the brief. "On the other hand, expiration of temporary Medicaid funds without new resources to address the resulting fiscal cliff could have negative consequences for Medicaid coverage and services."