As Congress considers cuts to the Medicaid program, U.S. territories are reminded of their different treatment and vulnerabilities.
A report from the Congressional Research Service, “Legislative History of Medicaid Financing for the Territories,” recaps the history of congressional action on Medicaid for the U.S. territories, including Puerto Rico.
Medicaid is different in the territories
The report begins with a succinct statement of the ways in which Medicaid funding differs in the territories from the states: “Federal Medicaid funding to the states and DC is open-ended, but the Medicaid programs in the territories are subject to annual federal capped funding. The FMAP rate for the territories is not determined using the FMAP formula used for the states and DC; instead, the FMAP rate for the territories is fixed.”
This means that states receive funding based on need: they are reimbursed for a portion of whatever they need to spend in order to meet the needs of their citizens. Puerto Rico and the other territories, however, have a federal cap. When they reach the amount set aside for the year, they do not receive any more funds from the federal government, regardless of the level of need in the territory. At that point, the territorial governments may stop providing healthcare services, stop paying providers, or go into debt. Puerto Rico has had to use a combination of these strategies.
The reimbursement also varies. The FMAP rate is the percentage of the state’s costs which are reimbursed with federal funds. This is determined with a formula based on the state’s per capita income. It can be as high as 83%. Puerto Rico’s per capital income is lower than that of any state, but its reimbursement rate was set at 55%. In the aftermath of Hurricane Maria and the pandemic, it was increased to 76%, but that higher rate falls back to 55% in 2027. The other territories, which once shared the 50% rate, have been permanently increased to 83%.
When were these changes made?
Medicaid was established in the Social Security Amendments bill of 1965, and territories were treated like the states under the program initially. In the Social Security Amendments bill of 1967, with some statements suggesting that cost-cutting was the reason, the territories’ Medicaid funding changed to the current system: a limited amount of federal funding and lower reimbursement rates. Annual funding for Puerto Rico has increased steadily since 1968, but it is still not comparable to the funding provided for states. For example, in 2023, Puerto Rico received $3,275,000,000 in Medicaid funding. Arkansas, with a similar population size but a lower poverty rate, received over $7,300,000,000 — more than twice as much. And while Arkansas’s federal funding came to about $7.3 billion, the state’s total expenditure was $8.6 billion. Most of the cost of Medicaid in Arkansas is borne by the federal government.
In addition, since the federal funds for Medicaid in Puerto Rico are often provided only at the last minute to stave off a Medicaid cliff, it is impossible for healthcare facilities or the territorial government to plan efficiently for their budgets. They cannot negotiate rates, hire medical professionals, or even develop appropriate care plans for patients, because they never know when they will run out of money and be unable to meet their obligations.
The caps on funding have been changed many times in various budget bills over the years. Puerto Rico’s allowance has been increased each time. Additionally, emergency funding additions have been passed repeatedly. None of the various bills adjusting Medicaid funding for Puerto Rico have provided parity with the states.
Additional requirements
The most recent amendments to Social Security in 2023 required Puerto Rico to implement an asset verification program by January 1, 2026. This is an electronic method for making sure that recipients of Medicaid do not own more assets than allowed. States have been required to have these systems since 2008.
The ruling said that if Puerto Rico did not meet the deadline for the asset verification program, their reimbursement rate would be reduced by progressively larger percentages each year until they complied. The territory issued a Request for Proposal for such a system in 2024 but has not implemented it as of this writing. Puerto Rico, along with the other territories, is also required to provide reports to Congress detailing how the extra funds they have received in recent years (though, as noted above, they continue to be far less than those of the states) have improved health care access for their residents.
Puerto Rico, like all 50 US states and the District of Columbia, has a Medicaid Fraud Control Unit (MFCU) to investigate and prosecute Medicaid provider fraud and patient abuse or neglect. However, since funding is so limited, it does not have the kind of staffing that comparable programs in the states have. In 2024, the Office of the Inspector General in the Department of Health and Human Services reported concerns with compliance in Puerto Rico’s Medicaid program, recommending additional hiring and training for staff without providing additional funds. This may indicate a vicious circle in which persistent inadequate funding makes it difficult for Puerto Rico to document compliance, while a lack of documentation of compliance makes it difficult for Puerto Rico to maintain funding.
