SUMMARY

H.R. 3414
STATE BUDGET RELIEF ACT OF 2001

State Medicaid programs serve as an important safety net for Americans by providing health and long term care coverage. Currently the Medicaid program provides coverage to more than 40 million Americans. Twenty million, or one in four U.S. children, are covered by this program, as well as 8.6 million adults, 4.1 million elderly, and 7 million blind and disabled individuals.

Reduced state revenues are placing severe strains on many state budgets and could limit Medicaid at a time when additional coverage and spending is most needed. State budgets are being hard hit by the recent economic downturn -- according to the National Association of State Budget Officers, by August 2001 more than half the states were either in recession or near recession. State income tax growth is at the second worst level since 1995, and sales tax growth is at its slowest since 1991. And, in June of this year, two-thirds of states estimated their 2002 Medicaid spending will exceed budget amounts.

During times of high unemployment and a rising number of uninsured, state Medicaid rolls will increase as well. Estimates by the Urban Institute show that an increase in the unemployment rate from 4.5% to 5.5% would increase Medicaid enrollment by 1.5 million people or 3.6%, leading to an increase in state spending of $1.2 billion.

Yet, with the current fiscal situation states are facing, the prospect of increased Medicaid enrollment is leading states to consider cutting back on eligibility levels. If state funds are not available, a state may be forced by economic circumstances to cut the program at a time when the need for it may be greatest. If states respond to difficult fiscal situations by cutting Medicaid in the months ahead, it not only will make it more difficult for newly unemployed workers to secure coverage, but it also could deepen the effects of the economic downturn. In states with higher than average federal matching rates, the economic consequences of cutting Medicaid can be quite severe – each $1 cut in state funds causes a total of more than $3 to $4 to be withdrawn from the state’s economy. Even though the majority of Medicaid’s funding comes from Federal payments, the availability of Federal funds is meaningless when the state cannot afford its share. That is why it is critical that we shore up Federal participation in the Medicaid program by providing states with an immediate increase in funding to preserve coverage at such a critical time.

The State Budget Relief Act of 2001 provides immediate assistance to states to help finance increases in enrollment due to rising unemployment and prevent reductions in health insurance coverage due to state budget crises. The legislation has three main provisions:

(1) A number of states are scheduled to see a reduction in their Federal medicaid assistance percentage (FMAP) for the coming year (FY 2002). This bill holds those states harmless at their FY 2001 FMAP.

(2) Any state that maintains eligibility at its current levels will receive a two percentage point increase in its matching rate, retroactive to the beginning of the fiscal year. This additional Federal assistance will help states meet program needs without having to turn away the uninsured during these difficult financial times.

(3) States that have high unemployment (defined as having a state unemployment rate higher than the national average for three consecutive months) will be eligible for an additional 2.5 percentage point increase in their FMAP provided that they maintain current eligibility levels.

The goal of this bill is to prevent erosion of health insurance coverage and to maintain a strong health insurance safety net for vulnerable populations during the economic downturn. The best way to do that is to ensure states that wish to preserve coverage have the resources to do so. The State Budget Relief Act of 2001 would accomplish this goal quickly and effectively.