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The Impending Debate Over Territorial Medicaid Programs

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Washington, D.C. — Next week the House Energy and Commerce Health Subcommittee is set to hold a hearing on territorial Medicaid programs. This policy area is one you’re likely to hear more about as the year progresses because the territories—American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto Rico, and the U.S. Virgin Islands (USVI)—are all facing substantial reductions in federal Medicaid dollars after September 30, 2021. Exactly how to move forward with these programs will be a matter of tense debate, but Congress should not ignore the real distinctions and problems with these programs and simply give them automatic, unlimited funding.

Territorial Medicaid programs differ from those of states and the District of Columbia (DC) in a number of ways. Most significantly, while Medicaid functions as an open-ended partnership between the federal government and states and DC, federal spending on territorial Medicaid programs is capped at a fixed dollar amount. Medicaid is still an entitlement in the territories, however, meaning the territories cannot simply cut off benefits, so each must pay for program costs above the cap with local dollars. Democrats are likely to argue for lifting the caps entirely as a matter of equity and fairness. But the situation is not quite that simple.

On the one hand, the caps have not actually constrained resources. Congress has regularly provided additional dollars to cover the territories’ overages, so the cap has historically had minimal impact on either federal or territorial spending. More recently, as part of the 2020 fiscal year (FY) spending package, Congress dramatically increased the cap itself on a temporary basis and then did so again as part of the Families First Coronavirus Response Act. Under current law, in the absence of those enhancements, FY 2021 federal spending on territorial Medicaid programs would have been capped at $441.5 million—with most of that, $383.7 million, allocated to Puerto Rico. Under current law, however, the cap has been increased to roughly $3.2 billion for FY 2021. None of the territories bumped against the enhanced caps in FY 2020, nor are they expected to in FY 2021. In short, enhancing the caps has worked well enough as a temporary measure to relieve pressure on the territories’ programs. Lifting the cap entirely and permanently is not necessary if Congress simply extends the enhanced cap past the end of the fiscal year.

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The American Action Forum (AAF), led by former Director of the Congressional Budget Office Douglas Holtz-Eakin, describes itself as proudly leading the center-right on economic, domestic, and fiscal policy issues. It combines timely analysis and modern communications strategies to promote innovative, free-market solutions to build a stronger, more prosperous future.