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Medicaid is a means-tested individual
entitlement program created in the mid-1960s. Unlike the federal
Medicare program, Medicaid is jointly financed by federal and
state governments. The Federal Medical Assistance Percentage
(FMAP) defines the share of total Medicaid expenditures the
federal government pays. The FMAP varies from state to state and
is determined annually by a complex statutory formula that I
hope you don’t want me to even try to explain. The FMAP formula
was designed to account for income variation across the states.
There is also a time lag on state data, which is why some years
after Florida’s income rose due to the flurry of hurricanes we
had in 2004 and 2005, Florida actually saw the federal match be
reduced a few percentage points.
For fiscal year (FY) 2009, the FMAP was scheduled to range from
50 percent in California and several other states to 75.84
percent in Mississippi. The federal government was scheduled to
finance an average of 57 percent of all Medicaid costs annually
with states financing an average of 43 percent. For years, I
used to explain Medicaid distributions as roughly a 60-40
federal-state sharing program. There is no cap on the amount the
federal government pays; hence, the more a state spends the more
it receives from the federal government.
The catch is that the states have to raise the money first
before becoming eligible for the federal match. Florida, as we
have previously discussed, has put up very little general
revenue to draw down the federal portion. For many years Florida
has drawn down federal dollars through a tax on every hospital’s
net revenue (1.5 percent on inpatient and 1 percent on
outpatient) as well as tax dollars generated for Medicaid
purposes raised in about 10 of Florida’s 67 counties. Last year,
of the total state-related dollars used to leverage federal
dollars, only about 13 percent actually came from Florida
general tax revenue. The rest came from hospital taxes, Public
Medical Assistance Trust Fund (PMATF) and local taxes.
State-federal sharing is intended to serve as an incentive for
states to commit resources to their Medicaid programs … the
higher the FMAP, the stronger the incentive. An FMAP, for
example, of 50 percent, means that for every dollar a state
spends on Medicaid, the federal government contributes one
dollar. With an FMAP of 75 percent, the federal contribution is
three dollars per state dollar. However, when a state cuts its
Medicaid spending, it also forgoes its federal share. So a state
with an FMAP of 75 percent, for example, will lose three federal
dollars for every state dollar it cuts, for a total reduction in
Medicaid spending of four dollars. This is why every year we try
to point out to state legislators that cutting Florida’s
Medicaid commitment dramatically decreases Federal
reimbursement.
This year Florida was scheduled for 54.98 percent FMAP. Based on
a new stimulus formula that I also hope you don’t ask me to
explain called the Enhanced Federal Medical Assistance
Percentage, states would get a higher percent based on the
economic challenges facing each state. The range is now from a
high of 82.97 percent for Mississippi and a low of 65 percent
for a number of states like California. Florida’s new enhanced
rate would go up to 68.49 percent from 54.98 percent.
One challenge for Florida is that while the Florida match
requirement has declined from 45 to 31.5 percent the total
number of Medicaid enrollees has increased tremendously in the
past year. As you saw in the News-Press a few weeks ago, Lee
County’s Medicaid enrolled population increased by 25 percent in
the past year, which more than double the rate of increase in
the state. However, coming up with the new lower percent even
with the growth of Medicaid enrollees is clearly doable and
gives the state a stimulus windfall. Unfortunately, Governor
Crist's recently announced budget basically uses the bump of
about 12 percent bigger share through the FMAP to help bail out
the general revenue deficit in multiple non health care areas of
the budget. I call this the “education lottery shuffle.”
The FMAP increase saves Florida about $1.2 billion in GR
(remember where the bulk of GR really comes from in the first
place) this year and about $1.7 billion next year for a total of
$3 billion. The federal stimulus package also has a significant
clause that many governors did not want to have included. The
“hold harmless clause” requires programs funded last year must
continue to be funded in order to be eligible for stimulus
support. So the proposed budget does fund the Medically Needy
Program and the program for Medically Aged and Disabled. The
governor had no choice but to include both programs as well as
fully fund existing Medicaid caseloads due to the hold harmless
clause.
Medicaid Rates
In the most recent special Florida legislative session, Medicaid
rates were reduced by 4 percent. Governor Crist’s budget
annualizes that 4 percent cut. While no further cuts in Medicaid
rates are recommended, the reality is that hospital Medicaid
rates have been cut by 13.4 percent in the past 20 months
through two special sessions and one regular session. Given the
current economic meltdown, holding steady on Medicaid rates even
though they have declined in the past two years would be seen as
a victory. If the governor’s proposed budget passes, Medicaid
reimbursement would not erode any more through at least July
2010. The obvious challenge is what happens in two years when
the stimulus money goes away and we suddenly have (in today’s
dollars) a $3 billion hole left in Medicaid.
Medicaid is the biggest generator of stimulus money for the
state of Florida. Unfortunately hospitals are only getting
enough to avoid reductions greater than the over 13 percent
reduction we have already experienced. When we go to Tallahassee
next month to meet with legislators, we need to explain that the
stimulus dollars were intended to enhance (stimulate) not just
avoid even greater losses.
Tobacco User-Fee
As we have previously discussed, the concept of a tobacco
user-fee was considered as the only feasible way to generate
significant new state dollars. Florida is the fourth lowest in
the nation in terms of a user-fee for cigarettes or other forms
of tobacco. A $1 per pack increase would place Florida at the
average of all states and would raise about $1 billion. While
getting the tobacco user-fee approved in an anti-tax legislature
was a long shot, there was some momentum brewing and such
funding would have been an ongoing source well beyond the
stimulus package. This was seen at a minimum as a way to protect
the long term viability of the Medically Needy and Medically
Aged and Disabled programs.
The tobacco user-fee also has a direct correlation to health
costs. Annual Florida health costs directly caused by smoking
are estimated at $6.2 billion and productivity losses are even
greater. According to the American Cancer Society, each Florida
household ends up with an annual tax burden of $585 due to
smoking related expenses.
The stimulus package took away some momentum from the tobacco
user-fee. Additionally, national funding for the expansion of
the children’s program referred to as SCHIP is an increase in
the tobacco user-fee of 61 cents per pack.
Pursuing a long term funding source through a tobacco user-fee
and then using the stimulus package as a short term enhancement
appears very unlikely. The Florida Senate leadership has
appeared willing to consider some real tax reform, in addition
to tobacco user-fees.
Nevertheless, it seems that most legislators and the governor
would prefer to use the stimulus package to patch up short term
challenges while avoiding any serious tax reform discussions for
at least the next two years.
Interestingly, Governor Crist’s proposed budget has about $500
million in fee increases. He uses about $287 million expected
from the gambling compact with the Seminole Indian Tribes to go
into a trust fund earmarked for education.
Bottom line
In the short run the federal economic Stimulus Package may help
avoid deeper budget reductions to hospitals, but Florida has
major challenges--just as with the nation--for the longer haul
when the stimulus goes away.
Peace,
Jim Nathan, LMHS President
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