Avoiding the Cliff: Financing Medicaid in the Territories

July 29, 2021 | 34:25 minutes

Medicaid plays a critical role in providing access to health services for low-income U.S. citizens in the five U.S. territories. However, Medicaid financing in the territories has been underfunded compared to states. While Congress has provided a patchwork of short-term, enhanced funding solutions through recent appropriation bills, they are set to expire at the end of September, which could trigger a “Medicaid cliff” and result in drastic cuts to territorial Medicaid programs.

Today’s guests discuss the urgent need for a permanent Medicaid solution, drawing attention to the need for equitable health financing for the U.S territories. This funding is necessary to support comprehensive public health and healthcare within these jurisdictions that include expanded prevention, testing, and treatment programs and capabilities.

Show Notes


  • Karl Ensign, MPP, Vice President, Territorial Support, Association of State and Territorial Health Officials
  • Justa Encarnacion, RN, BSN, MBA, Commissioner of Health, U.S. Virgin Islands Department of Health
  • Jorge Galva, JD, MHA, Executive Director, Puerto Rico Health Insurance Administration



This is Public Health Review. I'm Robert Johnson.

On this episode: the race in Congress to fund Medicaid in the U.S. territories before a healthcare program shut down in September; an examination of the threat from a looming Medicaid cliff.

So, Congress in the past has provided, you know, stop-gap funding, which has created some additional challenges, but also allowed them to develop services and move forward. But that funding is set to expire. It's time limited. So, if that were to happen, they would fall off what we call the Medicaid cliff.

I asked for full treatment as a state so that we can actually be able to provide the necessary medical treatment that we need for the members of our community.

It's American citizens involved, and that discriminatory healthcare funding has no place in the 21st century and has no place in equal treatment for all American citizens.

Welcome to Public Health Review, a podcast brought to you by the Association of State and Territorial Health Officials. With each episode, we explore what health departments are doing to tackle the most pressing public health issues facing our states and territories.

Today, we examine a September deadline to fund Medicaid programs in the territories, islands in the Atlantic and Pacific oceans part of the United States but operating federal healthcare programs with less funding than is given to jurisdictions on the mainland.

For the last two years, Medicaid dollars for Puerto Rico, the U.S. Virgin Islands, the Northern Mariana Islands, American Samoa, and Guam have been flowing at a higher rate than in the past—but never in the 56-year history of the program have the American citizens on these islands received equal Medicaid funding. Congress is now working the case, and so are we.

Talking today with three people who know all about the shortfalls in Medicaid funding for the territories.

Justa Encarnacion is a registered nurse serving as health commissioner and chief public health officer for the U.S. Virgin Islands Department of Health. Jorge Galva is an attorney who’s serving as executive director of the Puerto Rico Health Insurance Administration. Both provide a first-person perspective on the impact of reduced Medicaid funding.

But first, we get a national policy view from Karl Ensign, vice president for territorial support at ASTHO.

The first question: how has the funding disparity survived this long?

It's an interesting one, and one that I think is really inhibiting service delivery and program development out there.

So, there are five territories within our eight island jurisdictions, and it's important to realize that citizens who reside within those territories are U.S. citizens, just like you and me. So, they are treated similarly, yet sometimes inequitably. And one of those ways that there is inequity is with respect to Medicaid reimbursement.

So, there are really two parts to that. There's the federal match, which is artificially set at 55%—many people estimate it should be more like 83%—so they have a higher match they have to provide to draw down federal dollars, and then their allocations are artificially capped as well. And that just creates real problems out there. I could get more into why Medicaid is so important, but that creates real problems.

So, Congress in the past has provided, you know, stop-gap funding, which has created some additional challenges, but also allowed them to develop services and move forward.

But that funding is set to expire. It's time limited. So, if that were to happen, they would fall off what we call the Medicaid cliff. Large parts of their programs would effectively be defunded without congressional action.

And that extra money that the territories have been operating with the last two years has allowed them to do more, essentially now creating what you could argue is an even bigger cliff, right? Because they've added people to their roles, they've expanded programs; and if all that goes away, not only are they bouncing back to where they were before, but a lot of people who've been getting care that didn't have it before will be back in that situation again. So, it’s worse, isn’t it?

Exactly. No, that's exactly right.

And you know, I think it's important to realize that this is penny-wise and pound-foolish for several reasons; but one of which is that because these are U.S. citizens, they can travel—and will travel—to other jurisdictions to receive uncompensated care at a higher level of care at that point.

You know, people are best treated within their communities within their jurisdictions, and that's where we want to build healthy, vibrant, comprehensive systems of care. But they will travel to other jurisdictions and receive treatment, but it will be more expensive and borne by the hosting jurisdiction.

How is public health in the territories specifically impacted by this approach?

Can you give us a few examples?

Yeah. I mean, two things.

It inhibits the ability to do long-term strategic planning, unless they take a chance that the funding will be there. So, there's this—you know, I don't want to say fight, but there's this tension between our public health officials and the governor about moving forward if funding is time limited and might expire. So, that's one challenge.

The second challenge is that, historically, although Congress has provided more funding and that's great, and we're appreciative of that, they have not increased the match. So, our territories are resource-poor in comparison to states, so they're not always able to pull down those excess federal dollars that are provided to them because they would have to come up with 45 cents on the dollar.

And that can be, again, a fairly steep proposition, especially if you're looking at something that may evaporate in two to three years. So, it's really those two challenges that put them at a severe disadvantage in comparison to our state health officials.

We'll see what happens in Congress.

It would probably be unwise to try to get into the weeds about this latest proposal because it's new and there's some work to be done, but generally the reaction is positive, right?

We're excited that there are people on both sides of the aisle taking up this question now, seemingly with time to get it done before September.

That's correct. No, we're very appreciative that the House is looking at this and making a sincere effort to correct it.

Now, it doesn't achieve full equity. Again, this would be another stop gap measure, and Puerto Rico is actually treated differently than the other territories. We don't quite know why. They have put in place many quality control measures with respect to their funding so that they can report on where that funding is going. They've done many good things and, frankly, they've been really hard hit by public health emergency after public health emergency.

So, there are a number of challenges with it. It's not a long-term equitable solution. Key committees on the House side have reached agreement, which we're very appreciative that they're paying attention to this. The Senate's a bit of an unknown.

And again, this would be another what we call a stop gap measure, but a very promising one. And we're very excited about the prospect of this passing.

What happens if it doesn't get done by September?

Well, if it doesn't then, automatically the Medicaid cliff goes into effect and that would simply be devastating in terms of the planning and service delivery that our members have carried out in our jurisdictions in the Pacific and the Atlantic. Many people would lose care.

It's just a real unknown. We can kind of project what would happen, but it would be simply devastating.

This system was set up 56 years ago—1965 was the year.

Why do you think we're still having this debate about how to fund Medicaid in the territories?

Yeah, well, I think it comes from several places.

One, you know, I think these are small, isolated populations far from the mainland that, quite frankly, don't have the political clout that our states do—you know, they don't have voting representatives in Congress—so I think they're easily overlooked, would be one answer.

Secondly, I think there's a misunderstanding. I think often people think they're separate countries or something like that. They don't realize these are U.S. citizens that happen to reside in what we call a territory as opposed to a state or the District of Columbia. So, there's that element as well.

Thirdly, it costs money. And in this environment, anything that costs money is looked at and scrutinized, and there's not always the willingness to pony up the additional dollars to make that happen.

Fourth—on the flip side, which is kind of interesting—we sometimes run into the fact that this is such a small amount of money, it doesn't capture people's attention. In the big scheme of things in the Medicaid dollars. You know, this is really an infinitesimal fraction of the total Medicaid dollars going out, so it doesn't always rise to the top with respect to those people that are aligned with advocacy on this front.

But I will add, this is a tier one legislative priority for ASTHO that we achieve Medicaid equity with all our members, and we have joined with the National Governors’ Association and the National Association of Medicaid Directors to educate and advocate on behalf of our members in the Pacific and the Atlantic to make this happen.

Finally, I've not asked you the COVID question, which is one we've been raising a lot over the last year and a half. It certainly has put public health front and center across the country and in the territories. Do you think that the pandemic has had any influence at all on this debate now? Do you think it's going to help get this problem solved eventually, ultimately?

I would hope so. I would hope so.

There've been several interesting developments with respect to COVID in the Pacific and the Atlantic—I'm glad you raised that.

One, kind of an interesting footnote: in this country, some of the only places that are COVID-free are in the Pacific; they effectively shut their borders, and controlled their borders, and kept COVID at bay. Now that isn't true for all our territories—many of them struggled because they are kind of at the crossroads of the world out there—but many are COVID-free. And the reason they did that is because they realized their infrastructure was so challenged that if COVID were to take hold, it would be devastating and very hard to fight.

So, I think there's that element kind of lurking in the background. The population health outcomes of these citizens is not good, the co-morbidities put them in especially high risk of mortality—especially we saw that on the mainland with Pacific Islanders residing here, that their health outcomes with respect to COVID were not good. So, that raises sort of the public health emergency prep.

Secondly, early on in COVID, you've probably heard about the USS Roosevelt in Guam. I think we began to see these kinds of barriers between, you know, defense and military public health and healthcare and the civilian side come down. The DOD reached out to Gov Guam and Gov Guam provided assistance and help. And so, I think we're beginning to see that we kind of need to work together on this and not create sort of separate systems of healthcare for military personnel.

And thirdly, just in general, I think COVID has really identified that we do need comprehensive systems of care that are preventing public health threats and treating public health emergencies in real time.

We can't rely on, you know, other states to pick that up in terms of lab testing in terms of services, treatment, etc. Because, again, if you have a problem in the territories, you have a problem in the states. These folks are U.S. citizens, they are able to receive care elsewhere. And so, it's best if we develop healthy, vibrant, comprehensive systems care close to home within their communities.

Justa Encarnacion is a native of the U.S. Virgin Islands. Today, she directs public health programs there. She's grateful that Washington is working on a plan to help the territories avoid the Medicaid cliff, but she knows that, even with the proposals being discussed right now, there will be more work needed to achieve full funding parity with the states.

It's still decreases the type of care that we can give, because there is definitely a match to that. However, the match is significantly different than what we had pre-COVID or pre-storm exposure. And so, we were at a 55-45 match. This actually brings us to an 83-17 match, which is also very helpful. It’s going to allow us to go ahead and provide a lot of the services that we have now implemented.

But with that match, we still have to make some decisions. What is it that we actually can afford to keep? How do we make those decisions? What do we have to cut? And do we have to cut anything?

We know that we will be having some supplemental funding coming from COVID for some time now, and we may be able to shift funding to support our medical care because of course, medical care is one of Governor Bryan's highest priority measures. So, we know that we can balance that from that perspective. However, it impacts us on a long-term basis if that continues.

So, what you know about the deal that's being talked about now on the Hill is that there's more money for the territories, but it's still not a 100% contribution from Washington.

You have to match a little bit of that—not as much as you had to match before COVID.


How do you feel about that? Is that better? Are we inching our way toward progress here or does more need to be done?

Well, I think that even if we go to—let's say, if we ask for equity like the other states have, I know that there's going to be a progression that needs to be made and that it’s not going to come 100% at the immediate time.

There is going to have to be a progression as to where we are in reference to phases. And so, we asked for us to be able to have equity from a state perspective, even if it means looking at it from a phased approach—maybe two, three, four years phased approach—to allow us to get there so that we can actually afford to offer.

It's not about the healthcare providers 100%. It’s actually about the community members and the people that we actually offer the services to. Community members have the need. They do not always know exactly what type of services can be provided to them.

For example, right now they have access to more care than they've had in some time, and so now they're becoming more comfortable with what we have.

So, it's not just an impact of the finances being cut, but it's also going to be an emotional impact to the individuals who are now becoming accustomed to having more access to care. So, there is always that behavioral health aspect of what's going on as well.

The early discussions have this reduced amount of contribution from the territories. We don't know how this will end up when all is said and done it. The numbers could be different. We just don't know that—it's too early to tell.

But what I'm hearing you say is that either way—because you've been able to fully provide these Medicaid services over the last two years—some services are going to still see a reduction if the early news of a settlement holds, if that's the plan coming out from Congress and the White House, that you'll still have to make some tough decisions.

Of course.

Actually, I had a discussion with Gary Smith—he is the director of the Medicaid program in the Department of Human Services—and one of the things he said is that, when determining what programs get cut, the first thing that they look at—and we look at as a territory—is the single adult.

And the single adult actually will be affected, the first one on the block when we say, “What's a service that we can actually cut from that designation.” It doesn't necessarily mean that the single adult isn't going to be impacted from a physiological as well as a behavioral health standpoint—they will be—but that is the one that might be first impacted. And it's sad to say, but we have to make some decisions.

And so, there is where the decision factor begins.

And that's just because the Virgin Islands, or maybe some of the other territories for that matter, don't always have the budget to make up the match, correct?

Correct. And I have to say that there is a balance and Governor Bryan is really working hard along with our director of OMB, Jenifer O'Neal, to see how we can actually utilize the federal funds that are being allotted to us because you know that a reduction in spending—a reduction not in expenditure, but in reference to how much money you're actually bringing in—that actually is something that we can actually play with a little bit in terms of federal guidelines and the use of funds.

So, for a very short period of time, we will be able to compensate for the lack of funding. However, how long can we do that? Based on the fact that COVID, —and we're happy to say this is not going to be here forever, we don't want it by any means to be here forever—but the federal funds that come with it might allow us to balance that for a very short period of time.

Why do you think this has been such a difficult problem to solve this funding issue for the territories?

I think one of the reasons is a true lack of understanding of the needs of the people of the territories—that is Puerto Rico, that is the other islands as well, the Pacific islands as well as the island in the Atlantic.

Now, we've always been challenged with equity: the Virgin Islands being a territory; being separated from the contiguous United States; those in the mainland not really understanding who we are, what we are; how difficult it is to not just be able to transport our patients from here elsewhere, but also be able to understand what we need to do to bring services, to bring equipment and supplies to the territory—that is also an additional cost to do so.

So, I think to the most part is a lack of understanding and a lack of, I would say, wanting to look at us in the same—even though we're smaller, there are states in the mainland that, too, are smaller—and looking at us as an equal portion of what the other states are actually being able to be provided with. We need to see more equity. We need to see the parity that others within the contiguous United States actually are seeing.

They compare us sometimes to Puerto Rico also. As much as Puerto Rico is our sister island and as much as we embrace those from Puerto Rico, I think that we have to acknowledge that the percentage of the population in Puerto Rico sometimes inhibits the funding source that's linked to the other territories as well.

So, given this latest development and the opportunity to talk on this podcast—we suspect some policy makers either on the Hill or at the White House might be listening—what would you want to say to them right now about this challenge? About the importance of good healthcare in the U.S. territories? About the need to once and for all solve this problem?

Well, let me first start by thanking the Energy and Commerce Committee chairman, Frank Palone, and ranking member Cathy McMorris Rodgers for supporting the bipartisan agreement to provide long-term Medicaid funding to the U.S. territories and Puerto Rico.

I think that it's important that it's been recognized and it's now actually something that's been discussed more so on the congressional level. Our former delegate to Congress, Donna Christian-Christensen, and now our current delegate to Congress, Stacey Plaskett, have actually been providing information to their Congress partners as to why it's so critical for us to be in parity.

So, on that note, I asked for parity. I asked for full treatment as a state so that we can actually be able to provide the necessary medical treatment that we need for the members of our community; to look at us as though we are as equally important as the other states; to be able to provide what we need.

Healthcare isn't something that we should be challenged with because of lack of funding from the national government. It should be something that we are given—and that we're managing quite well within the territory at this point in time—so that we can balance that and create a healthier Virgin Islands.

Jorge Galva lives in the details of Medicaid funding, directing delivery of these programs across Puerto Rico. He knows precisely what would happen to healthcare programs if the territories went over the Medicaid cliff.

The last two years, approximately, you've had a temporary boost in funding—more money than you would normally get from what we understand.

Can you talk a little bit about how the last two years have been compared to all of the time before that, as it relates to delivering Medicaid services to people in PR?

Back when the Medicaid was put together in 1965, Puerto Rico, unlike the states, was capped in terms of the federal contribution to the Medicaid funding to run the program. And this cap—which is included at a section 1108 G of the Social Security Act—this cap has been modified over time since 1965 to this day. However, it has remained very low when compared to the real need for the funding of the program.

So, Puerto Rico has gone through a series of different evolutions where we have received increased funding from other sources, but that cap is still in the books. And, of course, that is the source of our constant efforts to get increased funding from the federal government or get rid of the cap.

And asking about the last two years of what Congress did, back in December of 2019, was approve a couple of years of supplementary funding for Medicaid in Puerto Rico. They added approximately $2.6 billion for federal fiscal 2020, and $2.7 billion for the next year for fiscal 2021. This is compared with the cap that is still in the books for Puerto Rico of approximately $400 million. So, you can see the difference between the cap and the supplementary funding that we received.

The effects of the supplementary funding in Puerto Rico were very well felt and have helped us to progress tremendously in several areas of concern, and those are divided into different aspects.

One of them is providing increased funding for increased reimbursement for our providers, both medical providers and hospitals providers.

And on the other side, increasing benefits for our beneficiaries, which took the shape of an increase in the Puerto Rico poverty level to 85% of the federal poverty level, allowing almost 200,000 additional people to come into the program on the strength of increasing the poverty level, which was artificially low.

And in addition to that, we were able to fund—and are still funding—a program for the eradication of hep C, which is a huge public health problem of Puerto Rico. We received funding to provide an oral therapy that actually cures the infection in those afflicted by hep C, and this program is still running and we have already provided care for hundreds of people.

So, when speaking of the advantages that Puerto Rico received from this additional funding, we have a strengthened health sector with additional reimbursement for hospitals and for providers. And on the beneficiary side, we have an increased number of beneficiaries who became eligible with increased poverty levels and, in addition to that, the funding of the hep C program.

So, all of these improvements you've been able to make over the last two years, given the incredible amount of additional money you've received, make this Medicaid cliff issue even more serious because you're talking about a lot of people being affected if your funding levels go back to the way they were.

That is true. And we already measured the potential effects of going over the cliff.

If that were to happen, instead of having the amount of money that we have now—which with our state pairing and self-funding that we get from diverse programs, we have approximately $8.7 billion available to fund the program—if we went over the cliff, federal funding would be reduced from $2.8 billion. It would be reduced to approximately $600 million—which includes the capped amount in the Social Security Act and some additional amounts of money that come through CHIP and other programs, and those would add up to approximately $600 million.

The territorial government would be forced to put some more money on the table to try to mitigate the gap. But even with that extra money—and according to the baseline budget approved by the oversight board and ultimately approved by the governor just a few weeks ago—we will be able to fund approximately $2.4 billion out of the extra money assigned to the program and the federal funding.

What does that mean? It will leave us a gap of approximately $1.3 billion between the actual expenditures of the program and the amount of money we would receive if we went over the cliff.

What will the effect be? First of all, all the additional programs would have to go out the door: so, the supplementary reimbursement for our hospital and physician providers will be cut; the Hep C program would be eliminated; and, most importantly, the almost 200,000 people that were added to the roles of the Medicaid program would have to go.

But it doesn't stop there because that will not be enough money, enough cuts, to balance the books. In addition to that—disenrolling these almost 200,000 people—we will have to disenroll, an additional 300,000 to 400,000 people from the program for a total of between half a million and 600 thousand people disenrolled as a consequence of going over the fiscal cliff.

So, as you can see, the negative effects on the program in Puerto Rico would be tremendous, and the ripple effects through our healthcare system would also be very significant—to the point that some hospitals would have to significantly reduce their operations or close altogether. And we would have a renewed impetus to the brain drain that we have been suffering on the medical side since 2005, where we have seen a flight of physicians leaving Puerto Rico because of the poor reimbursement they received here, especially in regards to Medicaid reimbursement.

This doesn't sound like a Medicaid cliff—this sounds more like a Medicaid crisis.

Yeah. That would be a good way to put it. And I think that it deserves a little bit more elaboration.

One of the problems that Puerto Rico has been suffering historically is that Medicaid has been chronically underfunded since 1965. We have never received the amount of federal funds from the federal government that we would receive if we had anything reassembling parity to the states. That has produced a weakened healthcare system that is reflective of the fact that we insure approximately 47% of our population under the Medicaid program, which are medically indigent people.

But if you contrast that with the amount of dollars that funds the entire health insurance system for Puerto Rico, we only receive 22% of the entire money devoted to ensuring healthcare in Puerto Rico. So, you can see that contrast. We insure 47% of the population as medically indigent population, but only received 22% of the entire pie of funds devoted to healthcare for our entire population on the island.

Yes, it is a crisis, an ongoing crisis, because that weakness has carried over from decade to decade since the inception of the program and Puerto Rico has been chronically unable to close the reimbursement gap that would have provided us not only a stronger healthcare system, financially speaking, but would also allow us to fund some programs that Puerto Rico is unable to fund at this point.

And, just to add this to the mixture, we will still be unable to fund that in the near future even though we are receiving a reauthorization of funds on the strength of a bipartisan agreement that was reached only recently last week.

Let's talk about that for a moment.

You know, things relating to any work Congress does can change from moment to moment but, generally speaking, how are you feeling about this latest news that Republicans and Democrats in the House energy and commerce committee are getting together and want to try to address this?

Well, my feeling is that it is a wonderful development for Puerto Rico given the fact that, even though there was a very heavy effort that was put together by the governor, the resident commissioner, and the secretary of health in terms of trying to achieve the parity that was also supported by President Biden and by the Democratic leadership in the House and Senate, we were unable to get that.

But we were able to get enough money to prevent the cliff, which is very important for, say, a five-year span for this additional funding, which is great, provides stability and provides a foreseeability in terms of the operation of the system.

And in addition to that, we can prevent the more deleterious effects of our weak health system by providing support to hospitals and physicians, and also providing the possibility of enrollment to more medically indigent population that will be able to enter the program because of the increase in the Puerto Rico poverty level.

So, we're feeling really good about the agreement. It's not what we wanted—we wanted parity—but the agreement provides these positive things.

It's been 56 years since this program was created. And, as you mentioned earlier, Puerto Rico has been funded differently. All the territories have received a different level of funding—much less funding—over those 56 years.

Why do you think we're still talking about this 56 years later? Why hasn't parity been achieved to this point?

Well, I think that there might be several explanations, but the one that I think is closest to the truth—and that's just me, from my knowledge of the workings in Congress and the presidency—I think there's this perception that territories, being non-tax paying parts of the American system, can actually be discriminated against in terms of the funding they receive.

As you well know, Puerto Rico does not pay income taxes on the income received by individuals in Puerto Rico. We pay everything else—excise taxes on Medicare and other forms of taxation—but income tax is not a thing in Puerto Rico.

So, I think there's been this disconnect between the healthcare needs of American citizens living in Puerto Rico and the fact that there is a difference in the tax treatment for the American citizens living over here, leading to a discriminatory treatment for the territory in terms of the funding that we receive.

I think that this kind of approach maybe resonated decades ago. But nowadays, I think that equal treatment to all American citizens, despite and regardless of the fact that there might be a different tax treatment, is the way to go. And I think that that message has to be taken.

We have to make use of these five years of extra funding to make sure that the message resonates and gains traction on the Hill, make sure that they understand that this is a healthcare need. It's American citizens involved, and that discriminatory healthcare funding has no place in the 21st century and has no place in equal treatment for all American citizens.

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For Public Health Review, I’m Robert Johnson. Be well.