Increasing Federal Medicaid Matching Rates to Provide Fiscal Relief to States During the COVID-19 Pandemic

As jobless rates are predicted to rise in the wake of COVID-19, research highlights the need for more federal funding for Medicaid and CHIP coverage.

The Issue

The COVID-19 pandemic will, for the foreseeable future, pose challenges for population health and the economy. A significant drop in employment nationally as a result of the COVID-19 pandemic will cause state tax revenues to fall at the same time that more people will need health insurance coverage from Medicaid and the Children’s Health Insurance Program (CHIP). The authors estimate how various approaches to increasing federal matching rates would increase federal Medicaid and CHIP payments, overall and to each state.

Key Findings

This analysis shows that funds fall far short of what will be needed, even despite more than $150 billion in aid for the programs included in the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

• The extent of expected economic decline is unknown, but evidence suggests that an unemployment rate averaging 12 percent over the 2020 calendar year equates with a $385 billion shortfall in state budgets.
• Increasing federal matching rates would move considerable funding to states, reducing state pressure to raise taxes or cut other spending—actions that would worsen the current recession.
  

Conclusion

Researchers say that tying financial support for health programs to unemployment rates could provide hard-hit states with greater budgetary certainty and increase insurance coverage for vulnerable residents. Such increases have provided fiscal relief to states in prior economic downturns. The ease of getting funds to states in this manner sharply contrasts with the problems distributing checks to families, applying for enhanced unemployment benefits, and allocating loans for small businesses.

About the Urban Institute

The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector. Visit the Urban Institute’s Health Policy Center for more information specific to its staff and its recent research.