Federal Dollars Resurrect Florida's Low Income Pool

Recent decisions in Washington have led to a complete rescue of Florida’s Low Income Pool (LIP) fund.

LIP funding is used to reimburse hospitals for the cost of providing care to Florida’s uninsured residents, sometimes known as ‘charity care.’  Florida’s safety-net hospitals and community health centers are key providers of health care for the uninsured and underinsured populations and they rely on LIP funding to make ends meet. 

Yesterday the governor announced that the Trump Administration had committed to $1.5 billion in LIP funding, solving a huge budget gap for Florida.  Needless to day, Governor Scott and the Florida Legislature are elated.   Governor Scott explained that the funds will “truly improve the quality and access to health care for our most vulnerable populations.”

The history of LIP funding for Florida is complex. The LIP originated when Florida moved Medicaid to a managed care system. All changes in a state’s Medicaid service program must be approved by the federal Centers for Medicare and Medicaid Services (CMS) via the submission and approval of a Medicaid waiver.   “Waivers are vehicles states can use to test new or existing ways to deliver and pay for health care services in Medicaid.” In 2005, CMS approved Florida’s plan to change the Medicaid payment structure from fee-for-service (FFS) to managed care.   

The Low Income Pool (LIP) program, which was part of Florida’s Medicaid waiver, sought to provide funding to offset the cost of delivering care to uninsured and underinsured Floridians during the transition to managed care.  The LIP program was funded via a 40 percent contribution from state and local governments and a 60 percent federal match program.   LIP payments were independent of individual claims or services and, from 2006 to 2010, LIP distributed $1 billion annually with an allocation formula based on simple metrics (number of people served, inpatient days, etc.)

CMS renewed Florida’s Medicaid managed care waiver in 2011.  For this renewal, CMS specified that LIP funding distribution must be tied to quality improvement measurements.  Thus, from 2011 to 2014, the $1 billion annual allocation was distributed to entities that incorporated quality improvement measures into care delivery.

In 2013, Florida again sought renewal of their Medicaid waiver, including the LIP provision; however, the Medicaid expansion provision of the Affordable Care Act (ACA) altered CMS’s criteria for approving uncompensated care funding, including LIP.   While CMS approved the managed care portion of the Medicaid waiver for 3 years, continuation of the LIP funding was only granted for one year.  Further, CMS contended that LIP funds could not be used to pay for health care for uninsured Floridians that could have been covered via Medicaid expansion and that Medicaid payments should be used to fund services.  CMS did authorize a one-time LIP funding increase from $1 billion to $2.1 billions for FY2014-15 to provide transitional support for LIP beneficiaries.  Funding was to be discontinued as of June 2015.

In response, Florida alleged that the state was being coerced into Medicaid expansion despite the Supreme Court ruling that the Federal Government could not mandate the expansion provision of the ACA. After negotiations, CMS agreed to continue coverage for FY2015-16 at a rate of $1 billion and for FY2016-17 at a rate of $680 million. However, the funding allocation for FY2016-17 “excludes the estimated impact on uncompensated care that would result from Medicaid expansion, or that has resulted from Marketplace coverage, under the Affordable Care Act.”

Therefore, Florida lawmakers grappled with how to replace hundreds of millions of dollars in LIP funding for hospitals.  For FY2016-17, the Florida House and Senate agreed to spend $400 million in state tax dollars to replace some of the lost federal LIP funds.   

Federal LIP funding was set to expire on June 20, 2017, meaning the new state budget for FY2017/18, which will start on July 1, 2017, would not include any federal money for charity care, creating a large hole in the budgets of many hospitals and other providers, and leaving lawmakers grappling with how to account for the missing funds.   

Today, everyone breathes a sigh of relief.  The $1.5 billion federal commitment will allow for the perpetuation of the LIP fund, help avoid significant budget cuts to hospitals and likely free up state money for other budget uses.  The House budget does not contain any LIP funding, but the Senate included $600 million although funding was not assured.  In total, the House budget cuts hospital funding by $622 million and the Senate reduces funding by $259 million.

Hospital funding is just one of the major differences between the two chambers’ spending plans, which are effectively $4 billion apart.  It is too early to tell how the federal LIP money will impact other areas in budget, but it should certainly help upcoming budget negotiations.

Florida TaxWatch applauds the Governor’s effort on the behalf of Florida’s uninsured population.  The LIP funding will allow this group of individuals to continue to receive needed services.