Highlight on Puerto Rico: Just how bad will Puerto Rico’s Medicaid funding crisis be?

Puerto Rico is in danger of a serious Medicaid funding crisis beginning late 2017, according to a data point report by the Office of the Assistant Secretary for Planning and Evaluation (ASPE) under the HHS Secretary from January 12, 2017. Under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), territories like Puerto Rico receive not only an increased funding rate, but a temporary additional Medicaid funding amount for spending above their statutory caps for use between July 2, 2011 and September 30, 2019 (ACA sec. 2005), and another sum provided in lieu of funding for individuals enrolling in health insurance exchanges to be used by December 31, 2019 (ACA sec. 1323). (States only would only receive the sec. 1323 funding when the sec. 2005 funding is exhausted.) Amounting to $6.4 billion, these funds will not reach 2019 but instead will be depleted as early as the first quarter of fiscal year 2018 (or the fall of 2017). The route that Puerto Rico takes in responding to this funding crisis could take this situation from bad to worse.

Background and ACA

Both states and the federal government pitch in to jointly fund the Medicaid program. The amount that comes from the federal government is called the federal medical assistance percentage (FMAP). How much FMAP a state receives is based on its per capita income, with the average being 57 percent (50 percent for wealthier states, 75 percent for the poorest), adjusted on a three-year cycle. U.S territories, like Puerto Rico, however, receive an FMAP amount that varies greatly from that of states because their rates are capped by statute.

Puerto Rico faces immense poverty, with individuals being eligible for Medicaid with an annual income of only $6,600 (compared to $15,800 for the continental U.S.) and families with an income of $10,200 ($32,319). Over one million people are enrolled in Medicaid in Puerto Rico. Under the per capita income formula used to calculate the FMAP of states, and still considering the statutory maximum that is in place, Puerto Rico would receive 83 percent (93 percent absent the statutory maximum). Instead, Puerto Rico’s Medicaid expenditures are matched at 55 percent. This is an increase from the 50 percent that was in effect prior to passage of the ACA.

 Possible scenarios

Two scenarios are provided in the report as options for Puerto Rico to approach the exhaustion of funds. First, Puerto Rico could continue to spend the same amount of its own funds in fiscal year (FY) 2018 as in 2017, adjusting for inflation on a per-enrollee basis, which would result in a decrease in spending to 44 percent less than that required to maintain current enrollment of over one million today. Around 500,000 people would lose coverage. Although this scenario is similar to the funding that was in place prior to the ACA, considering that officials may choose to prioritize infrastructure and debt payments over Medicaid, they may decide on scenario two.

The second option is that Puerto Rico spends none of its own unmatched funds over those necessary to get the maximum federal funding, but that would result in spending being 80 percent less than that required to maintain the current enrollment, and nearly 900,000 individuals would lose Medicaid coverage.

In either case, it is assumed the Puerto Rico will reduce coverage (lowering income eligibility levels or capping enrollment) rather than reduce benefits for those covered by Medicaid.