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News Release

HHS RELEASES SPECIAL MEDICAID FUNDING,
BUT WARNS THAT MEDICAID REFORM IS STILL NEEDED

HHS Secretary Tommy G. Thompson today announced provisions for providing billions of new federal dollars to state Medicaid programs hit by fiscal crises in the states. The one-time increase, enacted just 16 days ago, will help states avoid further cuts in Medicaid benefits prompted by budget constraints.

At the same time, Secretary Thompson said fundamental improvements are still needed in Medicaid, and he renewed his call for reform of the program.

"We have acted quickly to help states in making these special funds available to protect Medicaid benefits," Secretary Thompson said. "But we must realize that this is a short-term approach associated with current economic conditions in the states -- it does not make the reforms that are needed to protect the future health care of those in need. This is a bridge over a billion-dollar problem, but it still doesn't prepare us for the trillion-dollar challenges that lie ahead."

Congress approved the temporary infusion of funds as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, signed into law by President Bush May 28. Under the new law, states will get an increase in the amount of Medicaid matching funds they get from the federal government for five calendar quarters, beginning April 1, 2003 (the current quarter) and ending June 30, 2004.

The increase in the federal share, for all eligible expenditures, will be 2.95 percentage points over the normal federal share amount. In passing this legislation, Congress estimated it to be worth about $10 billion to states. The exact amount for each state is not known in advance since federal matching funding is based on the amount a state spends on its Medicaid program during that time. In addition, the increased federal funding is available only if a state has Medicaid eligibility that is no more restrictive than is in effect on Sept. 2, 2003.

Total federal spending for Medicaid over the next ten years is estimated at $2.6 trillion. Combined federal and state spending on Medicaid in this period is estimated at $4.6 trillion. In order to use this funding most effectively, the Bush Administration has proposed changes in the 38-year-old program that would give states more freedom to define benefits for the populations and services that they elect to add to Medicaid. Coverage for those recipients and services required under current federal law would not be affected by the reform proposal. But states would have more authority in defining benefits for their so-called "optional" recipients and services, with a predetermined federal share.

Under the administration plan, states choosing to participate would have the flexibility to develop innovative programs and potentially expand coverage to new groups. States could make changes to their "optional" benefits without first coming to the federal government for permission. They would be required to maintain at least existing levels of total coverage.

"Increasing federal aid to states right now means short term relief," said Tom Scully, administrator of HHS' Centers for Medicare & Medicaid Services (CMS). "But no one believes this is only a short-term problem. We have an aging population that will need new and better-suited long term care options, including more home- and community-based care, and we face other health challenges that are begging for improved and innovative solutions. We need to give states more authority and incentive to serve those in need in the most effective ways possible."

In addition to the President's proposal, Secretary Thompson has been working with the National Governors Association since February toward developing plans for Medicaid reform.

A letter describing the method CMS will use to determine the exact increase in each state's federal share, beginning with the current quarter, was released to states today and is available on the Web at http://cms.hhs.gov/states/letters.

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Note: All HHS press releases, fact sheets and other press materials are available at http://www.hhs.gov/news.

Last Revised: June 13, 2003