National Alliance on Mental Illness
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May 29, 2003

State Medicaid Programs Receive Needed Financial Relief


President Bush has signed a $350 billion tax reduction and economic stimulus bill (HR 2) that includes $20 billion in federal aid for the states. This includes $10 billion in additional federal matching funds for Medicaid for FY 2003 and FY 2004 (Medicaid is the largest and most important source of funding for public sector mental illness treatment and support programs).

The $20 billion in state fiscal relief in the final tax bill includes two parts:

  1. $10 billion in increased federal Medicaid matching funds (also known as FMAP) for the states. A "hold harmless" provision would prevent states with falling Medicaid matching rates from losing additional federal funds in the 2nd half of FY 2003 and all of FY 2004. Each state will receive a 2.95 percentage point increase for the remainder of FY 2003 and all of FY 2004 (Puerto Rico and the territories will receive a 5.9% increase in their federal Medicaid cap). Most importantly, states accepting additional federal matching funds would not be allowed eligibility in the Medicaid programs below levels in effect as of September 2, 2003. Finally, the increased FMAP rate would not apply to Disproportionate Share Hospital (DSH) payments or payments that already receive an enhanced federal match. States that require local governments to contribute to the state’s share of Medicaid will not be allowed to require higher payments in 2003 and 2004.
  2. $10 billion in revenue sharing from the federal government through the end of FY 2003 and all of FY 2004 ($5 billion in 2003 and $5 billion in 2004). These funds would be split with 60% going to the states and 40% to localities. States and localities would have substantial discretion in how to spend these funds, so long as they are used for "essential" government services or the cost of financing an unfunded federal mandate (e.g., education, homeland security and Medicaid). Funds will be allocated by population, with every state guaranteed at least $50 million.

The overwhelming bipartisan majority in both the House and Senate that supported state fiscal relief in general, and additional Medicaid funds in particular, demonstrates the strong the growing impact that the budget crisis faced by many states is having. While the Bush Administration was slow to support fiscal relief for the states, the President agreed to include it in the final passage after the Senate voted 95-3 last week in favor of such assistance. In addition, last minute objections to the Medicaid FMAP increase from House Energy & Commerce Committee Chairman W.J. "Billy" Tauzin (R-LA) had to be overcome. Chairman Tauzin opposed infusion of additional funds to Medicaid without first enacting systemic reforms to the joint state-federal program. These objections were overcome by terminating the increased federal matching funds at the end FY 2004.

NAMI is especially grateful to members of Congress who pushed hard for including additional federal funds for Medicaid in the tax and economic growth package: Senators Susan Collins (R-ME), Ben Nelson (D-NE), Jay Rockefeller (D-WV), Gordon Smith (R-OR), Olympia Snowe (R-ME) and Representatives Peter King (R-NY) and Ray LaHood (R-IL).

Nationally, state revenue shortfalls are estimated at $85 billion this year. Extreme shortfalls in state revenues and a slow economy have driven states to make unprecedented cuts to education, health care and public safety in order to meet constitutional requirements for balanced budgets.

Funding for mental illness treatment and supportive services (those financed by Medicaid and state revenues alone) have been especially hard hit this year. Few states expect their budget picture to improve in 2004. This additional $20 billion in federal aid to the states is viewed as critically important in avoiding additional cuts in 2003 and 2004. NAMI advocates are urged to use this package of federal fiscal relief for the states as a tool in opposing additional cuts at the state level for Medicaid and other state funded mental illness treatment and support services.