Many states will have to revisit their fiscal 2011 budgets and may have to rearrange their spending plans due to gaps between what they expected and what they actually receive from a six-month extension of extra federal Medicaid funding.
The extension, approved by Congress and signed into law by President Obama last week, will add about $16 billion to the extra Medicaid funds that states are to receive from the federal government under the American Recovery and Reinvestment Act.
The Federal Medical Assistance Percentages, or FMAP, funds were enhanced by ARRA to provide assistance to cash-strapped states as increased unemployment strained their Medicaid programs.
ARRA authorized a base increase of at least 6.2% in states’ FMAP, but the increase is slated to expire by the end of the year.
The new law would extend but ratchet down the Medicaid enhancement by about 50% to 3.2% for the first quarter of 2011, then by another 50% to 1.2% for the second quarter.
Each state’s FMAP share is calculated based on its per-capita income compared to that of the entire U.S.
Congress’ timing on the measure posed a problem for states whose fiscal 2011 began July 1, as many made assumptions in their budgets about what Congress would provide in FMAP funds.
Timing was not the same for every state; some legislatures adjourned before last week but have fiscal years starting Oct. 1. About one-third of states are on a biannual cycle, meaning some legislatures approved their budgets before an FMAP extension was even on the table.
As a result of the extension provided by the new law, some states overestimated the amount they would receive, according to information released in April by the National Conference of State Legislatures and this month by the Center on Budget and Policy Priorities.
But many states did not pencil in extra Medicaid assistance from the federal government, or they underestimated how much they would receive.
According to the NCSL, 30 states reported assuming that Congress would extend FMAP through next June. The other 20 states kept their expectations low, assuming they would get either fewer or no additional FMAP funds.
“Medicaid money, from where we sit, is fungible,” meaning that if the federal government bumps up its Medicaid contribution, states can use extra money they would have spent on Medicaid to plug holes elsewhere in their budgets, said Michael Bird, federal affairs counsel for the NCSL.
For states like Alabama, which assumed it would receive $197 million from the FMAP extension but actually will receive only $133 million, legislators may need to “come back to the drawing board,” Bird said.
Other states, like Florida and Virginia, vastly underestimated how much funding they would get. Florida budgeted for $270 million from an FMAP extension and will receive almost triple that amount, $784 million.
Virginia made general fund cuts in its fiscal 2010-12 budget in case Congress failed to extend FMAP, but included a caveat to replace some of that money if FMAP came through. The state is set to receive $289 million.
The Massachusetts legislature included a contingency fund for FMAP in its budget, but Gov. Deval Patrick vetoed the fund.
Patrick is reviewing the budget and may submit a “sub-budget” with the anticipated FMAP funds — about $506 million — to the legislature, said Cyndi Roy, a spokeswoman for the governor.