In the last few years, the federal match for state dollars spent on Medicaid in Oklahoma has increased by a dramatic rate. But officials don’t expect that to last, and are preparing for future cuts in federal funding.

The Federal Medical Assistance Percentage (FMAP) formula determines the amount of federal dollars provided to match state spending on Medicaid. It’s based on a formula that relies on a rolling three-year average of economic activity, with state income a significant factor.

At a recent meeting of the bicameral Healthcare Working Group, lawmakers were informed that in the 2018 state budget year, the federal match given Oklahoma for its Medicaid spending was $1.43 for every $1 in state funding. In the 2019 budget year, which ended June 30, the FMAP was $1.66 in federal money per state dollar. Starting Oct. 1, the federal FMAP formula will provide Oklahoma with $1.94 in federal funding for every $1 in state Medicaid spending.

The jump from $1.43 to $1.94 translates into a 35-percent increase in federal funding for Oklahoma’s Medicaid program.

“It is a hefty jump,” Audra Cross, legislative liaison for the Oklahoma Health Care Authority, told lawmakers—“largest in the nation.” 

And another increase appears on the horizon.

“We do estimate that it will go up, again, even after this 2020 increase that we’re going to see to $1.94 starting in October,” Cross said.

The challenge for state lawmakers is that the FMAP formula’s use of a rolling three-year average of economic data means federal funding often increases when it is least needed and decreases during times of financial shortfall in Oklahoma.

Because the state’s oil-dependent economy is subject to cycles where an economic bust quickly follows an economic boom, the use of a three-year average means federal payments are often based on boom-year data during financial shortfalls. As a result, federal matching funds for Medicaid were cut repeatedly during Oklahoma’s recent oil-bust recession that created state shortfalls of as much as $1 billion.

“When calculating FMAP, really the key variable is the personal income data,” Cross said, “and due to that there is an inherent lag. So it’s not always the most responsive to the state’s economy.”

Sen. Gary Stanislawski, R-Tulsa, noted lawmakers voted this year to set aside some of the increase in federal matching funds “so that when the economy does poorly, because there’s a lag, then we don’t have to cut providers as much.”

When Gov. Kevin Stitt and legislative leaders unveiled a budget agreement in May, a summary sheet noted the agreement included a “$105 million reallocation to increase provider rates for physicians, hospitals, and nursing homes.” That money was provided due to this year’s increased federal match for Medicaid spending.

But the summary document also noted that $29 million would be set aside in “a new preservation fund to preserve Medicaid provider rates when the federal government’s three-year rolling average results in a rate decline.”

Lawmakers subsequently passed House Bill 2767, which created the Rate Preservation Fund within the Oklahoma Health Care Authority and House Bill 2765, which appropriated $29.4 million to the fund.

“We are in the process of restoring some of the provider rate cuts that we have seen in years past,” Cross said. “And the stabilization fund was created so that when FMAP does decrease—because as I said, we are eventually going to see a lag; we are going to see a decrease—that we will not be forced to cut provider rates again. That is the hope and the intent with the stabilization fund.”

But Rep. Marcus McEntire, R-Duncan, said even the Rate Preservation Fund will not eliminate financial uncertainty regarding Medicaid’s finances.

“It has a little gamble element to it, because the money that we have set back, the federal match on that is going to fluctuate,” McEntire said. “It’s going to fluctuate. So whatever the FMAP is that year, that’s going to determine how much that pot of money is actually worth.”