United States Government Accountability Office

GAO Report to Congressional Requesters

U.S. INSULAR AREAS

Multiple Factors 

Affect Federal Health 

Care Funding 

October 2005 

 

GAO-06-75 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2005

U.S. INSULAR AREAS

Multiple Factors Affect Federal Health

Highlights of GAO-06-75, a report to Care Funding congressional requesters

Five insular areas of the United

States—American Samoa, the 

Commonwealth of the Northern 

Mariana Islands (CNMI), Guam, 

Puerto Rico, and the U.S. Virgin

Islands—benefit from federal 

health care financing and grant 

programs that help fund health

care services to their over 4 million 

residents. However, notable

differences exist in how the

programs are funded or operate in 

the insular areas, such as statutory 

limits on federal Medicaid funding

to the insular areas that do not

apply in the states. To help

understand these differences, GAO 

was asked to identify (1) the key 

sources of federal health care

funding in the insular areas, 

(2) differences between insular 

areas and the states in the methods 

used to allocate these funds, and 

(3) differences in spending levels 

per individual between insular 

areas and the states. 

In commenting on a draft of this 

report, American Samoa, CNMI, 

and Puerto Rico suggested the 

need for additional information on 

certain issues, such as implications

of statutory limits on federal 

Medicaid spending and a more

comprehensive analysis of local

circumstances that affect the 

availability and costs of health care

services. 

Multiple federal programs fund health care services in the insular areas. 

Federal health care financing programs—Medicare, Medicaid, and the State 

Children’s Health Insurance Program (SCHIP)—represented nearly 

90 percent of the $2.2 billion in health care funding to these areas in fiscal

year 2003, with Medicare alone representing over three-quarters of total

funding. The Departments of Health and Human Services (HHS) and the 

Interior (DOI) also provide grants to the insular areas. Significant variation 

exists among the insular areas in terms of the distribution of funds by these 

sources, largely due to the number of Medicare beneficiaries in each area. 

Key Federal Health Care Funding Sources to Five Insular Areas, by Percentage, Fiscal

Year 2003 

The methods used to allocate these federal funds to insular areas often differ 

from methods used in the states. For example, Medicare pays hospitals in

most insular areas based on their costs rather than the prospective payment 

system used for most hospitals in the states. Similarly, federal funding for 

Medicaid and SCHIP is subject to statutory limits that do not apply to states, 

including minimum federal contributions and a cap on federal Medicaid

payments. In addition, certain HHS grants use different rules to determine

insular areas’ funding. 

Differences in allocation methods as well as other factors contribute to

lower spending levels per individual in the insular areas compared to the 

states. For example, Medicare spending per beneficiary in the insular areas 

was less than half the amount it was in the states, due in part to differences

in payment policies and to beneficiaries’ lower utilization of services. In

addition, the statutory limits on federal Medicaid funding in these areas 

contributed to lower federal Medicaid per capita payments in the five insular 

areas compared to the national average. However, in light of limits on 

federal funding, the insular areas are not held accountable for covering all

Medicaid benefit requirements, such as nursing facility services that 

represent nearly one-third of Medicaid expenditures in the states. Insular 

areas benefit from certain HHS grant allocation formulas that result in higher

per capita payments to them than the states, on average. 

www.gao.gov/cgi-bin/getrpt?GAO-06-75.

To view the full product, including the scope 

and methodology, click on the link above.

For more information, contact Kathryn G. 

Allen at (202) 512-7118 or allenk@gao.gov.
Contents 

Letter 1

Results in Brief 2 

Background 4

Multiple Federal Agencies Fund Health Care Services in Insular 

Areas 12

Notable Differences Exist in Methods Used to Allocate Federal 

Health Care Funds in the Insular Areas Compared to the States 17 

Multiple Factors Explain Differences in Individual Spending Levels

in Insular Areas Compared to the States 23 

Agency Comments and Our Evaluation 37 

Appendix I Scope and Methodology 41 

Appendix II Changes in Insular Area Health Care Funding 

Proportions over Time 45 

Appendix III Characteristics of Insular Areas’ Medicaid Programs 52 

Appendix IV Comments from the Department of the Interior 54 

Appendix V Comments from American Samoa 55 

Appendix VI Comments from the Commonwealth of the Northern

Mariana Islands 57 

Appendix VII Comments from the Commonwealth of Puerto Rico 60 

Appendix VIII GAO Contact and Staff Acknowledgments 64 

Page i GAO-06-75 Health Care Funding in U.S. Insular Areas
Tables 

Table 1: Medicare-Certified Healthcare Providers and Hospital 

Beds in Insular Areas and States, January 2005 9 

Table 2: Formula Components for CDC’s Public Health 

Preparedness and Response for Bioterrorism Grant 22 

Table 3: Mandatory Medicaid Services Covered by Insular Areas 

and States, Fiscal Year 2005 33 

Table 4: Federal Health Care Spending for Five Insular Areas, 

Fiscal Years 1999 through 2003 46 

Table 5: Federal Health Care Spending for American Samoa, Fiscal

Years 1999 through 2003 47 

Table 6: Federal Health Care Spending for CNMI, Fiscal Years 1999

through 2003 48 

Table 7: Federal Health Care Spending for Guam, Fiscal Years 1999 

through 2003 49 

Table 8: Federal Health Care Spending for Puerto Rico, Fiscal 

Years 1999 through 2003 50 

Table 9: Federal Health Care Spending for the Virgin Islands, Fiscal 

Years 1999 through 2003 51 

Table 10: Comparison of Federal Medicaid Categorical and Income

Eligibility Standards to Insular Area Standards, Fiscal Year

2004 52 

Table 11: Summary of Certain Optional Medicaid Services Covered 

by Insular Areas and States, Fiscal Year 2005 53 

Figures 

Figure 1: Insular Areas and United States Demographics and Health 

Indicators 7

Figure 2: Key Federal Health Care Funding Sources for Five Insular 

Areas, Fiscal Year 2003 13 

Figure 3: Key Federal Health Care Funding Sources by Insular 

Area, Fiscal Year 2003 15 

Figure 4: Medicare Spending Per Beneficiary in Five Insular Areas 

Compared to the States, Fiscal Year 2003 24 

Figure 5: Number of Medicare Part B Major Medical Procedures 

Per 1,000 Beneficiaries in Selected States and Insular 

Areas, Calendar Year 2003 27 

Figure 6: Federal Medicaid Per Capita Funding in Selected States 

and Insular Areas, Fiscal Year 2003 30 

Page ii GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 7: Per Capita Funding to Insular Areas and Selected States

for CDC’s Bioterrorism Grant, Fiscal Year 2003 36 

Figure 8: Ratio of Federal Funding Sources for Five Insular Areas, 

Fiscal Years 1999 through 2003 46 

Figure 9: Ratio of Federal Health Care Funding Sources for 

American Samoa, Fiscal Years 1999 through 2003 47 

Figure 10: Ratio of Federal Health Care Funding Sources for CNMI, 

Fiscal Years 1999 through 2003 48 

Figure 11: Ratio of Federal Health Care Funding Sources for Guam, 

Fiscal Years 1999 through 2003 49 

Figure 12: Ratio of Federal Health Care Funding Sources for Puerto

Rico, Fiscal Years 1999 through 2003 50 

Figure 13: Ratio of Federal Health Care Funding Sources for the 

Virgin Islands, Fiscal Years 1999 through 2003 51 

Abbreviations 

AS American Samoa 

CDC Centers for Disease Control and Prevention 

CMS Centers for Medicare & Medicaid Services 

Page iii GAO-06-75 Health Care Funding in U.S. Insular Areas
CNMI Commonwealth of the Northern Mariana Islands

DOI Department of the Interior 

DSH disproportionate share hospital 

EPSDT Early and Periodic Screening, Diagnostic, and Treatment 

ESRD end stage renal disease 

FMAP federal medical assistance percentage 

FPL federal poverty level

FQHC federally qualified health center 

GU Guam

HHS Department of Health and Human Services

HIV human immunodeficiency virus 

HIPAA Health Insurance Portability and Accountability Act of 1996 

HPSA health professional shortage area 

HRSA Health Resources and Services Administration 

MMA Medicare Prescription Drug, Improvement, and 

 Modernization Act of 2003 

MUA medically underserved areas 

NF nursing facility

NIH National Institutes of Health 

OIA Office of Insular Affairs 

PPS prospective payment system 

PR Puerto Rico 

PSA physician scarcity areas

RHC rural health clinic 

SAMHSA Substance Abuse and Mental Health Services 

 Administration 

SCHIP State Children’s Health Insurance Program 

SSI Supplemental Security Income 

TAGGS Tracking Accountability in Government Grants System 

TEFRA Tax Equity and Fiscal Responsibility Act of 1982 

VI Virgin Islands 

This is a work of the U.S. government and is not subject to copyright protection in the

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iv GAO-06-75 Health Care Funding in U.S. Insular Areas
United States Government Accountability Office

Washington, DC 20548 

 

October 14, 2005 

Congressional Requesters

The five largest insular areas of the United States—American Samoa, the 

Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto 

Rico, and the U.S. Virgin Islands—and their more than 4 million residents 

have a unique relationship with the federal government.1

 With the 

exception of American Samoa, those born in the insular areas are U.S.

citizens; however, insular area residents are not afforded all of the rights 

of citizens residing in the 50 states.2, 3

 Although numerous federal health

care financing and social programs—including Medicare, the federal

health care program for the elderly and disabled, and Medicaid, the joint 

federal-state program that finances health care for certain low-income 

individuals—have been extended to insular area residents to varying 

degrees, notable differences exist in how these programs are funded or

operate in the insular areas compared to the states. For example, the 

insular areas are subject to statutory limits on federal Medicaid funding 

that do not apply to the states. To help understand these differences, you

asked us to identify (1) the key sources of federal health care funding in 

the insular areas, (2) the extent to which the methods used to allocate 

these sources of health funds differ from the methods used in the states, 

and (3) how spending levels per individual from these key sources differ 

between insular areas and the states. 

To identify key sources of health care funding to the insular areas, we

reviewed the Census Bureau’s Consolidated Federal Funds Report and 

interviewed officials at the Departments of Health and Human Services 

(HHS) and the Interior (DOI) as well as officials from each of the five 

insular areas. For the key sources identified, we obtained comprehensive 

 1

These five insular areas are the subject of this report. Nine smaller insular areas of the 

United States, which are not included in the scope of this report, are Navassa Island in the 

Caribbean Sea, and Baker Island, Howland Island, Kingman Reef, Jarvis Island, Johnston

Atoll, Midway Atoll, Palmyra Atoll, and Wake Island in the Pacific Ocean. 

2

Throughout this report, the term states refers to the 50 states and the District of Columbia. 

3

Those born in American Samoa are considered to be American nationals of the United

States. An American national is either a citizen or someone who “owes permanent

allegiance to the United States.” 8 U.S.C. § 1101(a)(21), (22) (2000). While American

nationals are not entitled to all the benefits for which only citizens qualify, they are not

aliens and therefore cannot be expelled or deported. 

Page 1 GAO-06-75 Health Care Funding in U.S. Insular Areas
health expenditure data for federal fiscal years 1999 through 2003 from the

respective agencies. To assess the reliability of HHS and DOI data, we

discussed data quality control procedures and reviewed relevant

documentation with officials. We determined the data were sufficiently 

reliable for the purposes of this report.

To determine the extent to which methods used to allocate funds to the 

insular areas differ from those used in the states, we reviewed federal laws

and guidance on this funding and interviewed agency and insular area

officials. To determine the extent to which spending levels per individual

from these key sources differ between insular areas and the states, we

examined trends in program expenditures between states and insular 

areas. To assess the reliability of the program expenditure data, we

reviewed relevant documentation, interviewed agency officials about the 

data, and conducted electronic data testing. We determined that the 

program expenditure data were sufficiently reliable for the purposes of

this report. We conducted our work from October 2004 through September

2005 in accordance with generally accepted government auditing 

standards. (For additional information on our methodology, see app. I.) 

Multiple federal programs, such as federal health care financing programs

and various HHS and DOI grant programs, fund health care services in the 

insular areas. In fiscal year 2003, funding from these sources to the five

insular areas totaled $2.2 billion. Medicare was the single largest source of

health care funding, representing over three-quarters of total funding. 

When funding from the other federal health care financing programs—

Medicaid and the State Children’s Health Insurance Program (SCHIP)—is 

added to the Medicare total, the federal health care financing programs 

represented nearly 9 of every 10 federal dollars spent in the five insular 

areas. However, because Puerto Rico represents over 90 percent of the 

total insular area population, the aggregate spending numbers mask the 

often significant variation that exists in the sources of funding among the 

insular areas. Specifically, while the proportion of federal spending by

source in Puerto Rico largely mirrored the aggregate numbers, health care 

grant funding represented a much larger proportion of health care funding

in the other four insular areas, largely due to their comparatively smaller 

Medicare populations. For example, grant funding represented about 

56 percent of total funding in American Samoa in fiscal year 2003 but only 

11 percent of total funding in Puerto Rico. In addition, the extent to which 

the insular areas relied on grant funding often fluctuated significantly from

year to year. For example, from fiscal years 1999 through 2001, DOI 

Results in Brief

Page 2 GAO-06-75 Health Care Funding in U.S. Insular Areas
funding to CNMI grew from 2 to 26 percent of total health care funding 

and fell back to 2 percent in 2003. 

Notable differences exist in methods used to allocate federal health care 

funds in the insular areas compared to the states, and these differences are

often statutory in nature. For example, while most hospitals in the states

and Puerto Rico are paid under Medicare’s inpatient prospective payment

system (PPS),4

 hospitals in the other insular areas are not included in the 

PPS statutory provision and are instead paid based on their costs. 

Similarly, under the new Medicare prescription drug benefit, to be 

implemented in January 2006, certain low-income beneficiaries in the 

insular areas will not receive direct subsidies to help pay for their 

premiums, deductibles, and copayments that are available to certain 

beneficiaries in the states. Instead, CMS will provide each insular area 

with an allotment, which they will then use to administer the program to

low-income beneficiaries based on a locally developed plan. In addition, 

federal funding for the Medicaid and SCHIP programs in the insular areas 

is subject to statutory limits that do not apply to states. For example, the 

statutory formula used to calculate the federal share of a state’s Medicaid 

expenditures, which results in a higher federal share of Medicaid 

expenditures in poorer states, does not apply to the insular areas. In

contrast, the federal contribution to the insular areas is set by statute at

the minimum rate available to states, although nearly all of the insular 

areas have a lower median household income than the poorest state. In

addition, unlike the states, where there are no caps on the federal share of

Medicaid funding as long as the state contributes its share of program

expenditures, federal Medicaid funding in the insular areas is subject to an 

annual statutory cap. Although similar methods are used to allocate some

HHS grants to states and insular areas, other grants use separate rules to 

determine funding amounts in the insular areas. 

Multiple factors, including differences in funding allocation methods, 

compliance with program requirements, and beneficiaries’ use of program

services, all contribute to differences in program spending per individual

in insular areas compared to the states. For example, Medicare spending 

per beneficiary in the insular areas is less than half the amount it is in the 

states, due in part to differences in methods used to pay for certain 

 4

Since 1984, Medicare payments to most hospitals have been based on PPS instead of on 

their allowable incurred costs, which was the previous practice. Under PPS, each hospital

receives a standard rate for each discharge related to a specific diagnosis, which is

adjusted based on local costs and the delivery setting. 

Page 3 GAO-06-75 Health Care Funding in U.S. Insular Areas
services and beneficiaries’ utilization of services. In addition, the statutory 

limits on federal Medicaid funding in the insular areas—particularly the

minimum federal matching contribution and funding cap—contribute to

federal Medicaid spending per capita levels in the insular areas that are 

significantly lower than in the states. However, insular areas are not 

required to meet all Medicaid eligibility requirements, and in light of limits 

on federal funding, CMS does not hold these areas accountable for 

covering all Medicaid benefit requirements, which may help explain lower

per capita spending. For example, none of the insular areas provides full

coverage for nursing facility services, which represented nearly one-third 

of Medicaid expenditures in the states in fiscal year 2003. In contrast, HHS 

grant funding per capita is higher in the insular areas than in the states due 

in part to allocation formulas that result in higher payments to them as

well as to states with smaller populations. 

We received written comments on a draft of this report from DOI, 

American Samoa, CNMI, and Puerto Rico, and technical comments from

HHS and Puerto Rico. DOI acknowledged that improving health care in the 

insular areas is a priority for both the agency and the insular areas and 

commented that the report identifies areas of disparity that may be 

reviewed for improvement. The three insular areas expressed concern that

the report did not sufficiently address certain issues, such as implications

of statutory limits on federal Medicaid spending and a more

comprehensive analysis of local circumstances that affect the availability 

and costs of health care services. Where appropriate, we revised the report 

to include information about local circumstances that may affect the

provision or cost of health care services. However, a more comprehensive 

analysis of insular areas’ local contribution to total health care funding or

their health care infrastructures was beyond the scope of this report.

Five insular areas—American Samoa, Guam, CNMI in the Pacific Ocean, 

and the Commonwealth of Puerto Rico and the Virgin Islands in the 

Caribbean Sea—represent the largest insular areas of the United States. 

More than 4 million U.S. citizens and nationals live in these insular areas 

under the sovereignty of the United States. These areas vary in terms of

how they came under the sovereignty of the United States and also in

terms of their demographics, such as median age and education levels. 

However, all of these insular areas participate in three major federal health

care financing programs—Medicare, Medicaid, and SCHIP—and are 

eligible for a variety of federal health grant programs. 

Background 

Page 4 GAO-06-75 Health Care Funding in U.S. Insular Areas
These five areas have come under the sovereignty of the United States in 

various ways. Puerto Rico and Guam were ceded to the United States by 

treaty at the end of the Spanish-American War in 1898, and the Virgin

Islands were purchased from Denmark in 1917. Following the renunciation 

by Great Britain and Germany of their claims to what is now American 

Samoa and the cession of these islands by the Samoan chiefs to the United 

States, the Congress ratified the instruments ceding the islands to the 

United States in 1929. The United States was responsible for administering

the Northern Mariana Islands after World War II under a United Nations 

trusteeship agreement. In 1976, a covenant between the United States and 

the Northern Marianas established the islands as a commonwealth under 

the sovereignty of the United States. 

Relationship to United 

States 

Each of these areas has its own government and maintains a unique

diplomatic relationship with the United States. General federal

administrative responsibility for all insular areas but Puerto Rico is vested

in the Department of the Interior. All departments, agencies, and officials 

of the executive branch treat Puerto Rico administratively “as if it were a 

state;” any matters concerning the fundamentals of the U.S.-Puerto Rican 

relationship are referred to the Office of the President.5

People born in Puerto Rico, Guam, CNMI, or the Virgin Islands are 

American citizens; those born in American Samoa are American nationals. 

The residents of all five of these larger insular areas enjoy many of the 

rights enjoyed by U.S. citizens in the 50 states.6 But some rights that, under 

the Constitution, are reserved for citizens residing in the states, have not 

been extended to residents of the insular areas. For example, residents of 

the insular areas cannot vote in national elections, nor do they have voting 

representation in the final approval of legislation by the full Congress. 

 5

Memorandum of the President, Nov. 30, 1992, 57 Fed. Reg. 57,093 (1992). For a more

thorough discussion of the applicability of the provisions of the Constitution to the five

insular areas, see GAO, U.S. Insular Areas: Application of the U.S. Constitution,

GAO/OGC-98-5 (Washington, D.C.: Nov. 7, 1997). 

6

The Territorial Clause of the Constitution authorizes the Congress to “make all needful

Rules and Regulations respecting the Territory or other Property” of the United States. U.S.

Const. art. IV, § 3, cl. 2. Relying on the Territorial Clause, the Congress has enacted

legislation making some provisions of the Constitution explicitly applicable in the insular

areas. In addition to this congressional action, courts from time to time have ruled on the

application of constitutional provisions to one or more of the insular areas. 

Page 5 GAO-06-75 Health Care Funding in U.S. Insular Areas
The insular areas—particularly those in the Pacific—are geographically 

isolated from the United States. For example, Hawaii, which is the closest

state to the Pacific insular areas, lies 3,300 to 3,700 miles away, or up to 

13 hours by air.7 In addition, when compared to the U.S. states and each 

other, the insular areas have unique demographic characteristics. For 

example, with the exception of Puerto Rico, the populations in the insular

areas are small relative to the states, and with the exception of Guam, they

are significantly poorer. For example, four of the insular areas have 

median incomes that range from about $14,000 to about $25,000, 

considerably lower than the two poorest states, Mississippi and West

Virginia.

8

 In addition, the populations in the Pacific island areas—

American Samoa, CNMI, and Guam—are younger than those of the states 

and Puerto Rico and the Virgin Islands. For example, nearly half of the 

population of American Samoa is under the age of 19 compared to about 

27 percent in the United States. Similarly, while over 12 percent of the U.S.

population is over 65, this age cohort represents only 1.5 to 5.3 percent of 

the population in the three Pacific insular areas. In terms of available 

health indicators, the differences are not as clear. While the insular areas 

have a higher mortality rate than the U.S. for certain diseases, such as 

diabetes, their mortality rates for cancer are lower. (See fig. 1.) 

Characteristics of the 

Insular Areas 

 7

By comparison, the nearest state to Hawaii is California at 2,400 miles away. The distance

from Anchorage, Alaska, to Seattle, Washington, is approximately 1,400 miles. Puerto Rico 

and the Virgin Islands are located in the Caribbean and are both about 1,000 miles from

Florida. 

8

The 1999 median household income for Mississippi and West Virginia was $31,330 and 

$29,696 respectively. 

Page 6 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 1: Insular Areas and United States Demographics and Health Indicators 

Sources: 2000 Census and Centers for Disease Control and Prevention (CDC) 2002 Mortality and Natality reports.

GU

CNMI

AS

PR

VI

AS CNMI GU PR VI US

Population 57,291 69,221 154,805 3,808,610 108,612 281,421,906

Median age 21.3 28.7 27.4 32.1 33.4 35.3

Percentage under 19 years of age 47.9 28.2 38.5 32.0 34.2 27.1 

Percentage over 65 years of age 3.3 1.5 5.3 11.2 8.4 12.4 

Median household income $18,219 $22,898 $39,317 $14,412 $24,704 $41,994

Percentage high school grad or more (over age 25) 66.1 69.2 76.3 60 60.6 80.4

Percentage bachelor’s degree or more (over age 25) 7.4 15.5 20 18.3 16.8 24.4

Death per 100,000 (age adjusted) 1,467.9 1,057.4 736.6 790.8 734.3 845.3

Infant mortality per 1,000 live births 13.5 * 7.3 9.4 7 6.9

Cancer death per 100,000 (age adjusted) 187.9 * 136.1 130.9 147.1 193.5

Diabetes death per 100,000 (age adjusted) 159.7 * * 69.5 33.1 25.4

Heart disease death per 100,000 (age adjusted) 307.1 226.8 253.6 170.2 238.6 240.8

*CDC determined that the data did not meet reliability standards because less than 20 cases were 

reported.

Some insular areas do not have certain types of health care providers, and

even when providers operate in these areas, their numbers per capita are

lower, on average, than in the states. For example, most of the insular 

areas do not have Medicare-certified outpatient rehabilitation facilities, 

community mental health centers, or ambulatory surgical centers. In

Page 7 GAO-06-75 Health Care Funding in U.S. Insular Areas
addition, none of the Pacific insular areas has a Medicare-certified, freestanding skilled nursing facility or a Medicare-certified hospice facility.9

Provider shortages in insular areas are often particularly acute for certain 

specialists.

10 For example, although Guam has a cardiac catheterization 

lab, it is not used because there is no cardiac surgeon. Also, although its 

rate of diabetes death is high, American Samoa has no resident

nephrologists. Instead, the nephrologist that serves the area is based at St. 

Francis Medical Center in Hawaii. When providers are present, the average

number per capita is usually lower than in the states, although the 

differences between the states and Puerto Rico are less pronounced than 

the differences among the states and the other four insular areas. For 

example, the insular areas have significantly fewer skilled nursing facilities

than do the states. One notable exception is that there are more end-stage 

renal facilities per capita in American Samoa, Guam, and the Virgin Islands 

when compared to the states, perhaps due to a higher prevalence of 

diabetes in these areas. (See table 1.) 

 9

Federally Qualified Health Centers (FQHC) are entities that receive federal grants as

community health centers under section 330 of the Public Health Service Act and typically 

provide a variety of services, including physicians’ services and services provided by

physician assistants and nurse practitioners. (Codified at 42 U.S.C. § 254b (2000)).

10To varying degrees, each of the insular areas qualifies for one or more federal

designations that are used to indicate areas with a shortage of providers—Health

Professional Shortage Areas (HPSA), physician scarcity areas (PSA), and Medically

Underserved Areas (MUA)—which may help them qualify for certain grants or for

increased Medicare payments. A HPSA is computed based on factors including primary 

care physician ratio, poverty rates, and infant mortality rate, and is used as a qualifying 

criterion for certain federal grants and a 10 percent increase in payment rates for Medicare

providers. A PSA is computed based on the ratio of primary care physicians to Medicare 

beneficiaries and is used to qualify Medicare providers for a 5 percent increase in

payments. Providers in areas that are designated as both HPSA and PSA qualify for both

payment increases. A MUA is computed based on factors including the ratio of primary 

care providers to the population, the percentage of the population over 65, and the poverty 

level, and is used as a qualifying criterion for certain federal grants. 

Page 8 GAO-06-75 Health Care Funding in U.S. Insular Areas
Table 1: Medicare-Certified Healthcare Providers and Hospital Beds in Insular Areas 

and States, January 2005 

Providers (per 100,000) 

Puerto 

Rico

Average 

(four other

insular areas) States

Ambulatory surgical center 0.6 0.3 1.5

Comprehensive outpatient rehabilitation facility 0.03 0 0.2

Community mental health center 0.2 0 0.2

End stage renal disease facility 1.0 2.1 1.6

Federally qualified health center 0.2 0.8 1.0

Home health agency 1.2 1.3 2.7

Hospice 0.9 0.3 0.9

Skilled nursing facility 0.2 0.5 5.3

Hospital beds 321 265 416

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data. 

Note: Because Puerto Rico’s population represents over 90 percent of the total population of the

insular areas, we separately analyzed provider data from Puerto Rico and the other four insular areas

to ensure that the higher prevalence of providers in Puerto Rico did not mask the more pronounced

shortages of certain providers in the other insular areas. Provider figures for Guam, Puerto Rico, and 

the United States include some Department of Veterans Affairs and Department of Defense facilities.

Federal Health Care

Financing and Grant 

Programs 

Each insular area participates in three major federal health care financing 

programs—Medicare, Medicaid, and SCHIP. In addition, each area 

receives health-related grant funds from a variety of HHS agencies and 

four of the five areas receive health-related grant funds from DOI. 

Medicare covers a variety of health care services and items for more than 

41 million beneficiaries—individuals who are 65 or older, have end-stage 

renal disease (ESRD), or are disabled—including about 600,000 in the 

insular areas. Medicare includes separate components or “parts” that

cover different types of services. Individuals who are eligible for Medicare 

automatically receive Hospital Insurance, known as Part A, which helps 

pay for inpatient hospital care, skilled nursing facility services following a 

hospital stay, certain home health services, and hospice care. Beneficiaries 

pay no premiums for Part A but are liable for required deductibles, 

coinsurance, and copayments. Medicare Part A is funded through the 

Medicare trust fund, which is financed by state and insular area employer 

and employee contributions. Medicare Part B Supplemental Medical 

Insurance helps pay for physician, outpatient hospital care, laboratory, 

and other services. Beneficiaries who opt for Part B coverage must pay a

Page 9 GAO-06-75 Health Care Funding in U.S. Insular Areas
premium—about $78 per month in 2005—and are responsible for 

deductibles, coinsurance, and copayments.

11

Medicare’s new prescription drug program, Part D, was authorized in

December 2003, and the interim phase of the program began in June 2004.

Under the interim phase, all beneficiaries in the states and the insular 

areas who choose to enroll pay a fee to receive a discount drug card, with 

an expected discount of 10 to 15 percent on covered drugs.12 In addition, 

certain low-income beneficiaries in the states are also entitled to 

assistance to subsidize drug costs in 2004 and 2005, and the amount of 

assistance available to each individual is generally $600 per year. Under 

the permanent program, to be implemented in January 2006, beneficiaries 

in the states and the insular areas can choose to enroll in an optional

prescription drug coverage program subject to an estimated average 

monthly premium of about $32. Like the interim program, certain lowincome participants in the states will also receive subsidies to lower their 

monthly premiums, deductibles, and copayments. To help offset the costs 

of providing coverage to individuals eligible for both Medicare and 

Medicaid, states must pay the federal government an amount that is 

roughly equal to the amount they would have paid to provide outpatient 

prescription drug coverage to elderly and disabled individuals previously 

eligible for prescription drug benefits under their Medicaid programs. 

Part D is otherwise financed through beneficiary premiums and general

revenues. 

Medicaid operates as a joint federal-state program to finance health care

coverage for certain categories of low-income individuals, including 

children, pregnant women, and individuals who are elderly or disabled.

Although state and insular area participation in Medicaid is voluntary, all

states and insular areas currently participate in the program. To obtain

federal matching funds, states and insular areas generally must comply

with certain minimum federal requirements related to services and 

eligibility, including income and resource requirements. Within these 

 11Traditionally, Medicare has paid for covered services on a fee-for-service basis. Medicare

Advantage, known as Part C, encompasses private managed care plans that provide 

Medicare-covered benefits to enrollees. Beneficiaries who opt for Medicare Advantage 

plans must pay the Part B premium.

12This fee is waived for certain low-income beneficiaries in the states. For more details on

the savings provided by the discount drug card, see GAO, Prescription Drug Discount 

Cards: Savings Depend on Pharmacy and Type of Card Used, GAO-03-912 (Washington, 

D.C.: Sept. 3, 2003). 

Page 10 GAO-06-75 Health Care Funding in U.S. Insular Areas
broad federal guidelines and under federally approved plans, states and 

insular areas have great discretion in setting eligibility standards and

provider payment rates; determining the amount, scope, and duration of

covered benefits; and developing their own administrative structures. For 

example, while federal law requires Medicaid programs to offer coverage 

to children age 5 and under if their family incomes are at or below 

133 percent of the federal poverty level and to children ages 6 to 18 if their 

family incomes are at or below the federal poverty level, a state may 

decide to increase the thresholds in order to offer coverage to more 

people. As a result, Medicaid essentially operates as 56 separate programs: 

1 in each of the 50 states, the District of Columbia, and each of the 

5 largest insular areas. The federal share of states’ Medicaid programs, the 

Federal Medical Assistance Percentage (FMAP), is determined based on 

state per capita income in relation to the national per capita income, with 

poorer states receiving higher federal matching rates than wealthier states. 

In 2005, the FMAP ranged from 50 percent in wealthier states, such as New

York and Connecticut, to about 77 percent in Mississippi. 

In 1997, the Congress enacted SCHIP to provide health care coverage to 

uninsured, low-income children living in families whose incomes exceed 

the eligibility limits for Medicaid.

13 States and insular areas have three 

options in designing SCHIP: expand their Medicaid programs, develop 

separate child health programs that function independently of the 

Medicaid programs, or do a combination of both. States that implement

SCHIP by expanding Medicaid must use their Medicaid enrollment and 

benefit structure. Although SCHIP is generally targeted to families with 

incomes at or below 200 percent of the federal poverty level, each state or

insular area may set its own income eligibility limits within certain

guidelines. The FMAP for SCHIP ranges from 65 percent for the wealthiest

states to about 84 percent for the poorest states. 

Various HHS agencies also distribute health care grants to the insular 

areas. These grant funds—awarded by agencies such as the Centers for 

Disease Control and Prevention (CDC), the Health Resources and Services

Administration (HRSA), and the Substance Abuse and Mental Health

Services Administration (SAMHSA)—may be used to support health care 

services and outreach programs and are generally awarded to public 

 13The Balanced Budget Act of 1997 established SCHIP as Title XXI of the Social Security

Act. Pub. L. No. 105-33, § 4901, 111 Stat. 251, 552-574. SCHIP is set out at 42 U.S.C. § 1397aa

et seq. (2000). 

Page 11 GAO-06-75 Health Care Funding in U.S. Insular Areas
health agencies. Similarly, DOI’s Office of Insular Affairs (DOI-OIA) funds 

health infrastructure and provides technical assistance to all insular areas 

but Puerto Rico. DOI also provides the Pacific insular areas with funds to

offset the cost of providing services to residents of the freely associated

states.14

Each of the five insular areas receives funding for health care services

from multiple federal sources. Federal health care financing programs—

Medicare, Medicaid, and SCHIP—comprised 88 percent of aggregate 

federal health care funding in the insular areas in fiscal year 2003, with

Medicare representing the single largest funding source (76 percent). The 

areas also received a significant amount of health care grant funding from

certain HHS agencies and DOI. However, significant variation exists 

among the insular areas in terms of the distribution of funds by source, 

largely due to the number of Medicare beneficiaries residing in each area. 

For example, the Pacific insular areas have relatively young populations, 

and therefore receive less Medicare funding compared to other sources. 

From fiscal years 1999 through 2003, total federal health care funding in 

the insular areas increased by 37 percent, although funding increases

varied considerably among the insular areas. 

Federal health care financing programs—primarily Medicare—comprised 

the vast majority of the $2.2 billion in total federal health care spending in 

the five insular areas in fiscal year 2003.15 Medicare funds alone, which are 

generally paid directly to health care providers for services to 

beneficiaries rather than directly to the insular area government,

represented 76 percent—about $1.68 billion—of the aggregate funding to 

the insular areas. (See fig. 2.) The Medicaid program represented 

10 percent of the total funding in the insular areas, about $226 million, and 

funding for the SCHIP program totaled about $33 million, 2 percent of total

health care funding in these areas. Unlike Medicare, Medicaid and SCHIP

funds are provided directly to the insular area governments. 

Multiple Federal 

Agencies Fund Health 

Care Services in 

Insular Areas 

Medicare Represents the 

Majority of Federal Health 

Care Spending in Insular 

Areas 

 14Through agreements with the U.S. government, residents of the freely associated states—

the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic

of Palau—may enter the United States to live and work without limitations on their length

of stay. Visitors from these areas are eligible for public services, such as health care and 

education. 

15The estimate for total federal health spending in the insular areas is limited to spending

from key sources, as identified in appendix II. 

Page 12 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 2: Key Federal Health Care Funding Sources for Five Insular Areas, Fiscal 

Year 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

DOI grants

HHS grants

SCHIP

Medicaid

Medicare

76%

10%

2%

11%

1%

In addition to the federal health care financing programs, three HHS

agencies—CDC, HRSA, and SAMHSA—provided health-related grants to 

public and private entities in the insular areas. These grants represented

approximately 11 percent, more than $250 million, of total federal health 

care funding in the insular areas.16 In 2003, these agencies awarded grants

from 87 different programs to the insular areas, with individual awards 

ranging from over $9,000 to nearly $39 million. The funds may be used to

support health care services and outreach programs. For example, HRSA 

provided grant funding to the insular areas for programs related to health 

care resources and services, including community health centers, human 

 16Other HHS agencies, such as the Agency for Healthcare Research and Quality (AHRQ), 

CMS, and the National Institutes of Health (NIH), also awarded grants to the insular areas

during this time. However, we did not include grants from these agencies for a number of

reasons. For example, grants from AHRQ and NIH were targeted exclusively to research. 

Grants from CMS, apart from Medicaid and SCHIP funding, represented less than 1 percent 

of HHS grant funding to the insular areas from fiscal years 1999 through 2003. 

Page 13 GAO-06-75 Health Care Funding in U.S. Insular Areas
immunodeficiency virus (HIV) care and treatment, maternal and child

health care, and bioterrorism preparedness. 

DOI also provided a number of health-related grants to the four insular 

areas that were eligible for these funds.17 In fiscal year 2003, DOI grants to 

the insular areas totaled about $13.6 million, 1 percent of federal health 

care funding in the insular areas. The grants had multiple purposes, 

including offsetting the costs of providing care to individuals from the 

freely associated states and supporting health-care-related activities, such 

as facility construction and information technology. 

From 1999 through 2003, total federal health care funding in the insular 

areas increased 37 percent—from over $1.6 billion to over $2.2 billion. 

During this time, funding from all sources but SCHIP increased. For 

example, total Medicare funding increased by 41 percent, Medicaid by 

21 percent, HHS grants by 73 percent, and DOI by 11 percent. Although 

funds from HHS had the largest percentage increase over this time, the 

biggest increase in dollars was seen in Medicare, with an increase of over 

$485 million.

Health Care Grants 

Represent Smaller Share of 

Federal Funding in Puerto 

Rico Compared to Other

Insular Areas 

Since Puerto Rico represents about 91 percent of total insular area 

population, the aggregate spending numbers obscure the often significant

variation that exists in the sources of funding among the insular areas. For 

example, similar to aggregate numbers, Medicare spending represented 

78 percent of spending in Puerto Rico in fiscal year 2003, whereas the 

Medicare share in the other areas was smaller, ranging from 29 percent in 

American Samoa to 63 percent in the Virgin Islands. (See fig. 3.) This 

variation is influenced by differences in the share of Medicare 

beneficiaries residing in each area relative to its overall population. For 

example, Medicare as a share of total spending was largest in both Puerto 

Rico and the Virgin Islands, whose populations of individuals 65 or older 

are comparatively larger than that of the Pacific insular areas and are more

closely aligned with the U.S. average. Differences in the other federal

health financing programs also varied, but to a lesser extent, with 

Medicaid and SCHIP funding combined representing between 12 and 

21 percent of health care funding in each of the areas. 

 17DOI does not have jurisdiction over Puerto Rico; therefore, the island is not eligible for

DOI grants. 

Page 14 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 3: Key Federal Health Care Funding Sources by Insular Area, Fiscal Year 2003

American Samoa CNMI Guam Puerto Rico Virgin Islands

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

29%

14%

19%

37%

1%

52%

3%

18%

26%

2%

2%

56%

13%

22%

7%

10%

78%

11%

1%

11% 63%

25%

1%

Note: Figures may not total to 100 percent due to rounding.

In terms of health care grants from both HHS and DOI, significant

variation existed in the share of health care funding they represented 

among the insular areas. For example, in fiscal year 2003, these grants 

represented 11 percent of total health care funding in Puerto Rico; 

however, they represented 25 to 56 percent of total funding in the other 

insular areas. Variation among the insular areas in terms of DOI health 

grants as a share of total federal funding was more pronounced than that

of HHS grants during this time. While HHS grants represented roughly the 

same share of total health care funding in each insular area except Puerto

Rico, DOI grants represented 2 percent of total health care funding in

CNMI, 7 percent in Guam, and 37 percent in American Samoa. The Virgin

Islands, although eligible for these funds, received none in fiscal year 2003. 

The availability of grant funds, and therefore the share they represented of

health care funding, has fluctuated considerably in recent years. For 

example, DOI grants to CNMI, which represented 2 percent of total health 

care funds in 1999, increased to 26 percent of total funding in 2001 and fell

Page 15 GAO-06-75 Health Care Funding in U.S. Insular Areas
back to 2 percent in 2003.

18 Similarly, HHS grants to the Virgin Islands 

represented 13 percent of total federal health funding in 1999, but grew to 

nearly one-third of total spending in 2002. (See app. II for a detailed 

description of trends in federal funding sources over time for each insular 

area.) Such year-to-year variability can make it difficult to establish longrange budgets and to develop, manage, and staff programs funded by grant 

awards. In addition, according to insular area officials, capturing and 

retaining HHS grant funds can be labor intensive. For example, for most of 

the grants we reviewed, agencies require insular areas and states to

complete comprehensive applications with detailed budgets and program

plans. Agencies may also require periodic data reporting or local cost

sharing. 

When considered individually, each of the five insular areas experienced 

an overall increase in total federal health care funding from 1999 through 

2003. Increases, however, varied considerably among the areas, ranging 

from 36 percent in Puerto Rico to 81 percent in CNMI.19 The variation was 

largely due to differences in the annual increases specific to Medicare and 

HHS grant awards. For example, Medicare funding increased in all areas, 

but most dramatically in CNMI, largely due to changes in the way its

hospital reported costs to CMS. Similarly, total HHS grant funding

increased in each area, although increases were more pronounced in 

certain areas, such as American Samoa and Guam, due in part to the 

introduction of new grants related to bioterrorism. 

 18DOI grants are generally large awards of short duration—1 to 5 years—and targeted to

address specific needs, thus creating significant year-to-year fluctuation. For example, the 

large increase in CNMI in 2001 was due to an influx of funding earmarked for specific

construction projects.

19By comparison, federal health care funding in the states increased by 39.5 percent from

fiscal years 1999 through 2003. 

Page 16 GAO-06-75 Health Care Funding in U.S. Insular Areas
The methods used to allocate federal health care funds in the insular areas 

differ, in some cases, from those used in the states. Although Medicare 

payment policy does not differ for certain providers, such as physicians, 

notable differences exist in the policies used to pay hospitals and for the 

new Part D prescription drug benefit. Similarly, differences exist in how

the Medicaid and SCHIP programs are funded in the insular areas. Unlike 

in the states, the federal share of Medicaid and SCHIP expenditures in the 

insular areas—the FMAP—is limited by statute, and federal Medicaid 

funding is capped. In addition, allocation methods used for certain HHS 

grants establish separate rules for the insular areas. 

The Medicare program operates similarly in the insular areas and the 

states in terms of eligibility for the program and beneficiaries’ entitlement 

to benefits. For example, like their counterparts in the states, insular area 

residents who are eligible for Medicare are automatically enrolled in Part 

A and do not pay premiums for this coverage. Likewise, the policies used 

to determine payment for physicians under Part B are essentially the same.

However, significant differences exist between the insular areas and the 

states regarding the methods used to determine payments to hospitals and 

the funding of the Medicare Part D benefit. 

Notable Differences 

Exist in Methods 

Used to Allocate

Federal Health Care 

Funds in the Insular 

Areas Compared to 

the States 

Medicare Funds Are 

Allocated Differently for

Parts A and D 

Unlike the states and Puerto Rico, where hospitals are paid under 

Medicare’s PPS, hospitals in the other insular areas are paid based on their 

costs.20 There are differences in the cost-based payment methods used in

these areas. The hospitals in Guam and the Virgin Islands are paid using

the methodology established under the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA) for classes of hospitals not included in

the PPS. Payments to these hospitals are the lesser of their average cost 

per discharge or a specific target amount.

21 Hospitals in American Samoa 

and CNMI are also paid based on their costs; however, they are not subject 

 20When Medicare’s inpatient PPS was implemented in 1984, it did not include hospitals in

the insular areas. Hospitals in Puerto Rico lobbied to be included in the PPS and were

transitioned into the system in 1987. 

21TEFRA established this payment methodology for classes of hospitals not included in

PPS. The target amount is the PPS-exempt provider’s Medicare-allowable costs per patient 

stay in a designated base year, inflated to the current year by an annual update factor. Pub. 

L. No. 97-248, § 101(a)(1), 96 Stat. 324, 331-333. 

Page 17 GAO-06-75 Health Care Funding in U.S. Insular Areas
to target amounts or a national cap.22 We did not evaluate how payments

under these cost-based methods compare to PPS payments to hospitals in

the states. 

Although hospitals in Puerto Rico are paid under the PPS system, the 

formula that CMS uses to reimburse hospitals in Puerto Rico is distinct

from that used for hospitals in the states. Each of the Puerto Rico PPS 

payment rates is a “blended rate,” which is comprised of 75 percent of a 

national rate used for hospitals in the states and 25 percent of a local rate, 

which is lower than the national rate. The rates are further adjusted for 

each hospital using national and local cost factors. These adjustments 

account for the lower costs of providing hospital services in Puerto Rico

compared to the states and for differing costs among hospitals within 

Puerto Rico. 

Differences also exist between the insular areas and the states regarding 

the methods used to fund Medicare’s new Part D prescription drug benefit

for low-income beneficiaries. For example, during the interim phase of the 

Part D program, certain low-income beneficiaries in the states who 

participate in the program are entitled to assistance to subsidize drug 

costs in 2004 and 2005, and the amount of assistance available to each 

individual is generally $600 per year. In contrast, low-income Medicare 

beneficiaries in the insular areas do not receive this direct subsidy. 

Instead, CMS provided each insular area with an allotment, which the 

insular areas typically used to subsidize prescription drug coverage to 

certain low-income Medicare beneficiaries.

23 Similarly, although the 

permanent Part D program, scheduled to begin in January 2006, allows for 

identical coverage for most beneficiaries in the insular areas and states, 

however, low-income beneficiaries in the insular areas will not receive 

direct benefits to help subsidize their premiums, deductibles, and 

copayments available to Medicare and Medicaid dual eligible beneficiaries 

in the states. Instead, CMS will again provide each of the insular areas an 

 22Hospitals in American Samoa and CNMI are not subject to the TEFRA payment

methodology because they do not have the capacity to complete the full cost report 

required by this methodology.

23The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)

provided the insular areas with $35 million, which was to be allocated among them based 

on their Medicare enrollment as of July 1, 2003, to assist Part D eligible individuals (as

outlined in 1935(e)) with the purchase of prescription drugs. Pub. L. No. 108-173, §101, 117

Stat. 2066, 2146 (amending 42 U.S.C. § 1395w-141(j)). CMS provides these funds to the 

insular areas in the form of an enhanced allotment to their Medicaid program funds. 

Page 18 GAO-06-75 Health Care Funding in U.S. Insular Areas
allotment, which they will use to administer the program to low-income 

beneficiaries based on a locally-developed plan. The extent to which the

benefits in the insular areas will mirror the federal program is not clear as 

none of the insular areas has finalized its plan for the administration of

this program. 

Medicaid and SCHIP 

Federal Funding to the 

Insular Areas Is Limited by 

Statute 

Like the states, each of the insular areas receives federal funding from the 

Medicaid and SCHIP programs. However, how federal funds for these 

programs are allocated to the insular areas differs, often significantly, from

the states, and these differences are statutory in nature. For example, 

recognizing that states vary in their capacity to pay for Medicaid expenses, 

the statutory formula used to calculate the federal share of each state’s 

expenditures—the FMAP—is based on a state’s per capita income in

relation to the national average per capita income. The FMAP ranges from

50 to no more than 83 percent of Medicaid expenditures, with poorer

states receiving a higher federal matching rate than wealthier states.24 In

contrast, the FMAP for the insular areas does not recognize their capacity 

to pay for Medicaid expenses; instead, the FMAP is set at the lowest rate—

50 percent—although all of the insular areas, except Guam, had a lower 

median household income than the poorest U.S. state. 

In addition, federal Medicaid funding in states is not limited, provided the 

states contribute their share of program expenditures for services 

provided. In contrast, federal Medicaid funding in each insular area is 

subject to a statutory cap, which is increased annually by the percentage 

increase in the medical care component of the Consumer Price Index for

all urban consumers, which averaged about 4 percent per year from 1999

through 2003.25 All five of the insular areas typically exhaust the Medicaid 

cap prior to the end of the fiscal year, and once the cap is exhausted, the 

 24Alaska and the District of Columbia have matching percentages that are higher than what

would be calculated under the FMAP formula. Alaska’s higher matching rate, which is

about 58 percent, was authorized by the Medicare, Medicaid, and SCHIP Benefits

Improvement and Protection Act of 2000. Pub. L. No. 106-554, App. F, § 706, 114 Stat. 2763, 

2763A-577. The District of Columbia’s higher matching rate, which is currently 70 percent,

was authorized by the Balanced Budget Act of 1997. Pub. L. No. 105-33, § 4725 and tit. XI,

111 Stat. 251, 518 and 712. 

2542 U.S.C. § 1308(a), (f) (2000). As a result, payments in insular areas increased about 21

percent during fiscal years 1999 through 2003, while the increase in the states, bound only 

by state contributions to the Medicaid program, was about 49 percent. 

Page 19 GAO-06-75 Health Care Funding in U.S. Insular Areas
insular areas assume the full costs of Medicaid.26 Due to insufficient local 

funds, once the Medicaid cap is met, some insular areas may suspend 

services or cease payments to providers until the next fiscal year.27

Federal statute and the Medicaid cap also affect the ability of insular areas

to access certain sources of Medicaid funding. For example, insular areas 

are not included in the federal legislation that established the Medicaid

disproportionate share hospital (DSH) program, which provides 

supplementary payments to hospitals that serve a large number of

Medicaid and low-income uninsured patients.

28 DSH is a key source of 

Medicaid funding for “safety net” hospitals in the states and totaled about

5 percent of all federal Medicaid funding to the states in fiscal year 2003. In 

addition, although states and the insular areas are eligible for other 

sources of Medicaid federal matching funds, CMS officials said the federal

cap prevents the insular areas from accessing these funds. For example, 

none of the insular areas accessed available funding for the development 

of immunization registries or for the update of data systems to comply

with provisions of the Health Insurance Portability and Accountability Act

of 1996 (HIPAA) because funds spent on these programs would count 

against the cap and thereby divert funds from the direct provision of care. 

For this same reason, none of the insular areas participates in the optional

Breast and Cervical Cancer Prevention and Treatment program, which 

allows for expanded eligibility and an enhanced Medicaid match rate for 

treatment provided to women diagnosed with these cancers. All 50 states 

and the District of Columbia have opted to cover women under this

program.

Whereas fundamental differences exist between insular areas and the 

states in terms of the allocation of federal Medicaid funds, the differences 

 26For example, a CNMI official told us that a single patient requiring expensive off-island 

care, such as a baby with congenital heart disease or a child with leukemia, can consume a 

large portion of the available federal Medicaid contribution. 

27For example, CMS officials told us that each year, the Virgin Islands Medicaid program

becomes further in arrears with providers and must use current cap allotments to cover

past due payments to providers. 

28See 42 U. S. C. § 1396r-4 (2000). Similarly, the Social Security Act provides for a shorter

extension of transitional medical assistance eligibility for Medicaid beneficiaries who lose

eligibility due to increased resources or hours of work in the insular areas, as opposed to

the states. In these circumstances, beneficiaries in the insular areas are provided up to a 4 

month extension of eligibility (42 U.S.C. § 1396a(e)(1)(A)) while beneficiaries in the states

are provided up to a 12 month extension of eligibility (42 U.S.C. § 1396r-6(a), (b)). 

Page 20 GAO-06-75 Health Care Funding in U.S. Insular Areas
that exist in the funding of their SCHIP programs are less pronounced. For 

example, unlike Medicaid, where federal funding to the states is openended, annual SCHIP allotments to both the states and the insular areas 

are set in statute and function like a cap. The statute specified a total 

annual allotment for the states and insular areas for fiscal years 1998 

through 2007, with the insular areas receiving 0.25 percent of the annual 

nationwide SCHIP allotment, which is divided among them based on

statutorily set proportions.29 The remainder of the allotment is allocated to

states based on the population of low-income uninsured children. The 

Congress awarded additional funds to insular areas for fiscal years 1999 

through 2007 which, when combined with the original allotment, increased 

their portion of total SCHIP funding.30

Although SCHIP funding is limited for both states and insular areas, the 

FMAP for SCHIP, similar to Medicaid, does not consider the capacity of

insular areas to pay for services. The statute provides for an “enhanced” 

FMAP, which is equal to each state and insular area’s Medicaid matching 

rate plus 30 percent of the difference between the Medicaid match and 100 

percent, not to exceed a federal share of 85 percent. Thus, like states that

receive the minimum 50 percent Medicaid match, the insular areas receive

the minimum 65 percent match available under SCHIP. 

Certain HHS Grants Are 

Allocated Differently 

Each HHS grant has a distinct funding allocation method, and although 

certain grants use identical allocation methods for the states and the 

insular areas, others treat some or all of the insular areas differently. For

example, the method used to calculate HRSA’s Consolidated Health

Center grants, which are competitive awards made to individual qualifying 

health centers based upon proposed budgets and their capacity to

compete for funds, is the same in the states as in the insular areas. In 

 29The disbursement proportions for the SCHIP allotment for insular areas are as follows:

Puerto Rico-91.6 percent; Guam-3.5 percent; the Virgin Islands-2.6 percent; American 

Samoa-1.2 percent; and CNMI-1.1 percent.

30As a result, the insular areas received about 1 percent of the total SCHIP allotment. The 

Congress did not provide similar, supplemental SCHIP funds to states. In addition, for

fiscal years 1998 through 2002, all the insular areas also received redistribution funds, 

which are available SCHIP funds not expended by states within the prior 3-year period. 

Insular areas are eligible for 1.05 percent of the total redistribution funds, which are

allocated among them according to the percentages of the initial allotment. The amount of 

SCHIP funds available for redistribution has declined over time. For example, while these

funds increased the insular areas’ share of the total SCHIP allotment by 0.7 percent in 1999, 

they added only about 0.2 percent of the total SCHIP allotment in 2002. 

Page 21 GAO-06-75 Health Care Funding in U.S. Insular Areas
contrast, different allocation rates are used to determine funding levels for 

some insular areas under HRSA’s Ryan White Title II HIV Care Formula 

grants to States and CDC’s Public Health Preparedness and Response for 

Bioterrorism grant. The allocation formulas for these grants have two 

components—a base component, which is a set dollar amount, and a 

variable component, which is based on population or other factors. For 

example, funding levels for the Ryan White Title II grant are based largely 

on the prevalence of AIDS in individual states as well as in Puerto Rico 

and the Virgin Islands. In contrast, funding of this grant for the Pacific 

insular areas does not consider the prevalence of AIDS; instead, these 

insular areas receive a lower, standard base rate.31 Similarly, when

compared to the states, the base and variable components for the CDC’s 

Public Health Preparedness and Response to Bioterrorism grant is smaller 

for each of the insular areas except Puerto Rico. (See table 2.) 

Table 2: Formula Components for CDC’s Public Health Preparedness and Response

for Bioterrorism Grant 

Grant program and recipients

Base 

component 

Variable 

component 

(dollars per 

person)

Public Health Preparedness and Response for 

Bioterrorism 

All states and Puerto Rico $3.915 million $2.03

Washington, D.C. 10 million 2.03

Chicago, Los Angeles County, and New York City 5 million 2.03

American Samoa, CNMI, Guam, the Virgin 

Islands, and the freely associated states 391,500 0.79

Source: CDC. 

CDC’s Immunization and Vaccines for Children grant provides another

example of where the method used to allocate funds differs in the insular 

areas compared to the states. In this case, grant amounts to the states are 

based on certain rules that consider characteristics of the population as 

well as funding history. In contrast, these rules are not used to determine 

 31The Pacific Insular areas receive a base amount of $50,000 while Puerto Rico and the 

Virgin Islands are treated like states in the determination of grant funding. States with more

than 90 living AIDS cases receive a base amount of $500,000; those with 90 or fewer AIDS 

cases receive a base rate of $200,000. 

Page 22 GAO-06-75 Health Care Funding in U.S. Insular Areas
the grant amounts for insular areas. Instead, the award amounts to insular 

areas are determined at the discretion of the agency’s project officer.32

Although most of the key sources of health care funding available in the 

insular areas are also available in the states, individual spending levels are 

often lower in the insular areas. For example, Medicare spending per 

beneficiary is significantly lower in the insular areas, due in part to

differences in methods used to pay for certain services and in

beneficiaries’ utilization of services. In addition, statutory limits on 

Medicaid funding in the insular areas contribute to lower per capita 

spending. In light of these statutory limits, CMS does not hold insular areas 

accountable for providing all the mandatory Medicaid services, including 

nursing home care, which makes up nearly a third of Medicaid

expenditures in the states. In contrast, HHS grant funding per capita is

higher in the insular areas than in the states, due, in part, to allocation

formulas that result in higher payments to them as well as to states with

smaller populations. 

As in the insular areas, Medicare comprised the majority—over 60

percent—of federal health care funding in the states in fiscal year 2003 

and, with limited exceptions, the program operates largely the same in the 

insular areas as in the states. However, Medicare spending per beneficiary 

in the insular areas in fiscal year 2003 was less than half of Medicare 

spending in the states—about $2,800 on average in the insular areas 

compared to $6,800 in the states.33 (See fig. 4.) 

Multiple Factors 

Explain Differences in

Individual Spending 

Levels in Insular 

Areas Compared to 

the States 

Lower Medicare Spending 

Per Beneficiary Explained 

by Payment Policy 

Differences and Lower 

Utilization 

 32HHS officials stated that the Vaccines for Children grant is allocated differently to the

insular areas because their public health infrastructures are so much different than the

states. Therefore, the agency tailors funding to these areas to ensure that the program

fulfills its statutory requirement of providing vaccines to eligible children. 

33A small portion of the gap is attributable to cost of living differences in the insular areas

compared to the states. However, even when adjusting Medicare payment rates to account

for differences in the cost of providing health care in different locations, the gap in per

beneficiary spending in the states versus the insular areas remained significant.

Page 23 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 4: Medicare Spending Per Beneficiary in Five Insular Areas Compared to the

States, Fiscal Year 2003 

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Five insular areas

Virgin Islands

Puerto Rico

Guam

CNMI

American Samoa

United States

Source: GAO analysis of Medicare expenditure and enrollment data.

Dollars

United States and D.C.

Select states

Five insular areas

$6,788

$2,798

$2,550

$5,248

$2,899

$2,784

$3,178

Differences in payment policy help explain some of the disparity in

Medicare per beneficiary spending in the insular areas compared to the 

states. For example, the PPS methodology used to determine payments to

hospitals in Puerto Rico, which includes a lower local component, 

contributes to lower payments. Similarly, the method used to determine 

supplemental PPS payments for Medicare’s DSH program results in lower 

payments to hospitals in Puerto Rico compared to the states.

34 To qualify 

for Medicare DSH payments, at least 15 percent of a hospital’s patient days 

must be attributable to certain patients receiving either Supplemental 

Security Income (SSI) or Medicaid benefits (which combined serve as a 

 34The Medicare DSH program provides supplementary payments to hospitals that serve a 

large number of low-income and uninsured patients. DSH payments are only available to

hospitals that are paid based on the PPS; therefore, hospitals in the other insular areas are 

not eligible for these payments. 

Page 24 GAO-06-75 Health Care Funding in U.S. Insular Areas
measure of the number of low-income patients treated by any single 

hospital). Further, the actual DSH payment is based on the number of

patient days attributable to these low-income patients. Because residents 

of Puerto Rico are statutorily ineligible for SSI payments regardless of

whether or not they meet the income thresholds required for SSI 

eligibility, only SSI patients visiting from the states are included in the 

counts for DSH. We were informed that, as a result, it is more difficult for 

hospitals in Puerto Rico to meet the 15 percent threshold, and those 

hospitals meeting the threshold receive limited DSH payments because the 

low-income counts do not include some poor patients. 

Whether cost-based methods used to pay hospitals in the other insular

areas similarly contribute to lower per beneficiary payments relative to the 

states is less clear. However, some of the variation in spending per 

beneficiary among the insular areas is likely due to the fact that statutory 

limits on Medicare payments apply to hospitals in some, but not all, insular 

areas. For example, hospital payments in CNMI are based on what the 

hospital claims as its actual costs. These costs are not limited, are not 

audited, and have increased dramatically in recent years. In contrast, 

under TEFRA, payments to hospitals in the Virgin Islands are limited, and 

according to officials with the Medicare fiscal intermediary serving the 

Virgin Islands, these payments may not be covering costs.35 The different 

methods used to pay these hospitals likely explain, in part, why Medicare 

payments per beneficiary in CNMI are significantly higher than in the

Virgin Islands. 

Another factor that helps explain lower Medicare per beneficiary spending 

in the insular areas is the extent to which Medicare beneficiaries in the 

insular areas use certain covered services. For example, an analysis of

Medicare utilization rates for major medical procedures36 shows that, on 

average, beneficiaries in the insular areas received far fewer of these 

 35Under TEFRA, the payments to hospitals in the Virgin Islands are the Medicare-allowable 

costs per patient stay in a designated base year, inflated to the current year by an annual

update factor. A fiscal intermediary is a private company that has a contract with the 

Medicare program to pay Part A and some Part B bills. Cooperativa de Seguros de Vida de

Puerto Rico, the fiscal intermediary serving the Virgin Islands, believes that the base-year

cost estimates for facilities in the Virgin Islands may be understated, leading to costs that

exceed Medicare payments. 

36For this analysis, major medical procedures are services classified as such by the 

Berenson-Eggers Type of Service codes, which were developed by CMS primarily for

analyzing growth in Medicare expenditures for services, including major cardiovascular

procedures such as angioplasty, pacemaker insertion, and bypass surgery. 

Page 25 GAO-06-75 Health Care Funding in U.S. Insular Areas
services than beneficiaries in the states—rates in the insular areas ranged 

from 144 to 203 per thousand beneficiaries compared to 297 per thousand 

in the states. Rates were similarly low in Hawaii (172 per thousand), but 

not in other remote or poor states studied. (See fig. 5). 

Page 26 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 5: Number of Medicare Part B Major Medical Procedures Per 1,000 

Beneficiaries in Selected States and Insular Areas, Calendar Year 2003 

0 50 100 150 200 250 300 350 400 450

Virgin Islands

Puerto Rico

Guam

CNMI

American Samoa

Wyoming

West Virginia

Mississippi

Hawaii

Alaska

United States

Source: GAO analysis of allowed services in Medicare physician claims.

Number of procedures

All states

Select states

Insular areas

297

364

172

388

318

423

162

144

203

182

182

Notes: Utilization rates in CNMI may be understated due to hospital billing practices. According to

CNMI officials, physicians in CNMI do not separately bill Medicare for services they provide in the 

hospital. Instead, the hospital captures these costs in its hospital cost report. 

States included in the analysis were selected based on their geographic remoteness or their lower 

income levels relative to the U.S. average.

Page 27 GAO-06-75 Health Care Funding in U.S. Insular Areas
Several factors likely contribute to lower Medicare utilization, and 

therefore per beneficiary spending, in the insular areas. For example, 

limited access to certain specialty services, a lack of Medicare-certified 

physicians, and local cultural differences may contribute to lower 

Medicare utilization rates. A CMS official serving the Pacific insular areas

reported that certain specialty services, such as chemotherapy, are not 

available in these areas, and it is often too expensive for beneficiaries to

travel to receive such services off island. Lower utilization rates of 

physician services in American Samoa could also be attributable, in part, 

to a lack of Medicare-certified providers. According to a CMS official, 

many medical professionals in American Samoa who provide services to

residents are not certified to receive payments under Medicare.37 Cultural

differences may also contribute to lower utilization of Medicare services in 

the insular areas. For example, a CMS official said that some American 

Samoans are less likely to seek care in Medicare-certified facilities. 

Similarly, reliance on nursing facilities may be less prevalent in certain 

insular areas, as families assume primary care responsibility for 

individuals who might commonly receive care in these facilities in the 

states. 

Another factor contributing to lower per beneficiary spending is that the 

percentage of Medicare beneficiaries enrolled in Part B is significantly 

lower in most of the insular areas than in the states. On average, in 2003 

about 77 percent of Medicare beneficiaries in the insular areas opted for 

Part B, compared to 95 percent in the states.

38 Insular area officials 

provided a number of reasons to explain the enrollment differences. For 

example, Medicare beneficiaries in the states and all insular areas but 

Puerto Rico are automatically enrolled in Part B, typically around their 

65th birthday.39 However, some insular area officials told us that their 

residents opt out of Part B coverage because they cannot afford its 

 37Medicare does not pay for services provided by noncertified providers and such services

would not be captured in the Medicare data we analyzed. 

38The percentage of Medicare beneficiaries enrolled in Part B in July 2003 ranged from 68 to

79 percent in all insular areas but the Virgin Islands, where enrollment was 91 percent.

39Approximately 3 months prior to their 65th birthdays, eligible individuals receive Part A 

enrollment information and an enrollment card for Part B. To opt out of Part B coverage,

individuals must return the Part B card to the CMS contractor handling claims for services

in their area. 

Page 28 GAO-06-75 Health Care Funding in U.S. Insular Areas
monthly premium, which was about $78 in 2005.40, 41 Also, beneficiaries in

Puerto Rico must go to a local Social Security office to enroll in Part B,42

and according to CMS officials, this policy leads to lower enrollment. 

Similarly, American Samoa officials said that some of their Medicare 

beneficiaries may lack the incentive to purchase Part B coverage as they 

have access to free health coverage through the local hospital.43

Medicaid and SCHIP 

Individual Spending Levels 

in Insular Areas are Lower; 

Minimum Program 

Requirements Are Not 

Strictly Enforced 

Federal Medicaid spending per capita was also lower in the insular areas 

compared to the states. In fiscal year 2003, federal Medicaid per capita 

spending in the states averaged $565 compared to between $33 and $65 for 

the insular areas. Poorer states with higher federal matching rates 

received as much as $813 in federal Medicaid per capita spending—more 

than 12 times the amount received by any insular area.44 (See fig. 6.) 

 40Individuals who do not enroll in Part B when they are first eligible may sign up for

coverage during specified open enrollment periods. However, in most cases, the Part B

premium increases 10 percent for each 12-month period that an individual could have had 

Part B but did not select it. 

41State Medicaid agencies provide cost-sharing assistance to certain low-income Medicare 

beneficiaries. However, because of the statutory cap on federal Medicaid funding, most of

the insular areas do not participate in these assistance programs, although some insular

areas pay for the Part B premiums for select Medicare beneficiaries.

42The 1972 amendments to the Social Security Act, which created automatic enrollment

procedures for Part B, specifically exempted residents of Puerto Rico. 42 U.S.C. § 

1395p(f),(g).

43Local law requires American Samoa to provide health care free of cost to all residents,

which is funded by both federal and local sources. According to an American Samoa 

official, this law precludes the government owned and operated hospital from charging 

patients adequate physician fees and also deters the development of private health care 

services as private facilities can not compete with the subsidized care provided by the 

government. 

44Even when adjusting for differences in costs of living, the gap in per capita spending 

remains. Using Medicare geographic indices to account for differences in the cost of

providing health care in different locations, per capita spending in the states was eight

times that in the insular areas.

Page 29 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 6: Federal Medicaid Per Capita Funding in Selected States and Insular Areas, 

Fiscal Year 2003 

0 100 200 300 400 500 600 700 800 900

Virgin Islands

Puerto Rico

Guam

CNMI

American Samoa

Wyoming

West Virginia

Mississippi

Hawaii

Alaska

United States

Source: GAO analysis of Medicaid expenditure data.

Dollars

All states

Select states

Insular areas

$565

$634

$417

$805

$813

$468

$65

$33

$41

$54

$60

Note: States included in the analysis were selected based on their geographic remoteness or their 

lower income levels relative to the U.S. average.

Page 30 GAO-06-75 Health Care Funding in U.S. Insular Areas
The statutory limits on federal Medicaid funding in the insular areas—

particularly the minimum federal matching contribution and payment

cap—clearly contribute to lower federal per capita spending. However, 

insular areas are not required to meet all Medicaid eligibility requirements, 

and in light of the statutory limits on federal funding, CMS does not hold

these areas accountable for covering all Medicaid benefit requirements.

45

For example, Puerto Rico and the Virgin Islands have implemented 

eligibility criteria that are more restrictive than the federal standards, 

which have resulted in lower Medicaid enrollment than would otherwise 

be the case.46 In contrast, American Samoa, whose median household 

income is less than half that of the United States, neither uses specific 

categories to determine eligibility nor links eligibility to income levels that

reflect local conditions. Instead, it considers every resident with an 

income at or below the federal poverty level—the majority of the 

population—as eligible for Medicaid. The different eligibility 

determination methods affect Medicaid enrollment in each insular area. 

While nationwide about 14 percent of the population is enrolled in

Medicaid, Medicaid enrollment in the insular areas ranges from 12 percent 

in CNMI to 65 percent in American Samoa. (See app. III for a summary of

the characteristics of insular areas’ Medicaid programs.) 

Another notable difference between states and the insular areas is the 

range of services covered by their respective Medicaid programs, and 

disparities in federal per capita spending should be considered in the 

context of these differences. For example, once states choose to

participate in Medicaid, they are required to cover certain mandatory 

services, such as inpatient and outpatient hospital care; physician services; 

nursing facility care; and early and periodic screening, diagnostic, and 

treatment (EPSDT) services for children. With limited exceptions, all of 

 45Section 1902(j) of the Social Security Act allows the Secretary of HHS to waive or modify

Medicaid requirements with respect to American Samoa and CNMI, except for the

Medicaid cap, the statutorily set FMAP, and payment for Medicaid services described in

section 1905(a), which includes all of Medicaid’s mandatory services. 

46Puerto Rico and the Virgin Islands determine Medicaid eligibility based on locally 

established poverty levels, which, at less than the federal poverty level, are more restrictive 

in terms of enrollment. According to officials in these areas, restricting eligibility allows

them to target Medicaid services to fewer, albeit needier, individuals.

Page 31 GAO-06-75 Health Care Funding in U.S. Insular Areas
the states cover each of the mandatory services.

47 In contrast, none of the 

insular areas cover all mandatory services. For example, none of the 

insular areas provides full coverage for nursing facility services, which 

represented 32 percent of Medicaid expenditures in the states in fiscal

year 2003.48 CMS is aware that the insular areas do not provide all 

mandatory Medicaid services. However, according to a CMS official, the 

agency does not have any guidance as to how it should ensure compliance

with the federal Medicaid standards regarding mandatory services,

especially in light of limits on federal funding in the insular areas. Over 

time, CMS has allowed the insular areas to determine which Medicaid

services they provide to maximize their use of federal health care funds.

49

(See table 3.) 

 47Rural health clinics (RHC) are clinics located in areas designated by the Bureau of Census

as rural and by the Secretary of HHS as medically underserved or having an insufficient

number of physicians. In order to be certified as a RHC, requirements under 42 C.F.R. § 

491et seq. must be met. As of June 2004, Connecticut, Delaware, D.C., Maryland,

Massachusetts, New Jersey, and Rhode Island did not have RHCs that met these criteria. 

See GAO, Health Centers and Rural Clinics: State and Federal Implementation Issues for 

Medicaid’s New Payment System, GAO-05-452 (Washington, D.C.: June 17, 2005). 

48According to an American Samoa official, no free-standing nursing facilities exist in 

American Samoa because its only major hospital, which is government owned and 

operated, provides long-term care as part of its inpatient services. The availability of these

services within the hospital has deterred private interests from developing nursing facilities

because they can not compete with government-provided care. 

49Officials from Puerto Rico pointed out that although CMS has not enforced the provision 

of mandatory Medicaid services, other federal entities, including the U.S. Department of 

Justice and HRSA, have successfully taken or encouraged enforcement actions against

Puerto Rico regarding certain Medicaid-eligible expenses. 

Page 32 GAO-06-75 Health Care Funding in U.S. Insular Areas
Table 3: Mandatory Medicaid Services Covered by Insular Areas and States, Fiscal Year 2005 

Service AS CNMI GU PR VIa

Number

of states

Inpatient hospital services ● ● ● ● ● 51

Outpatient hospital services ● ● ● ● ● 51

Physician’s services ● ● ● ● ● 51

Laboratory and x-ray services ● ● ● ● ●b 51

Early and periodic screening, diagnostic, and treatment (EPSDT) services for 

individuals under 21 

● ● ● ● ● 51

Family planning services and supplies ● ● ● ● ● 51

Transportation services ● ● ○ ◐c◐d51

Certified nurse practitioner services ● ○e● ○ ◐f50g

Home health services ◐h● ○ ○ ● 51

Federally-qualified health center (FQHC) services ○ ○ ○ ● ● 51

Nursing facility (NF) services for individuals 21 or over ○ ○e◐i○ ◐j51

Nurse midwife services ● ○e ○ ○ ○ 50k

Rural health clinic (RHC) services ○ ○ ○ ○ ○ 48l

Sources: Insular area officials and The Kaiser Commission. 

Key: ● = service covered; ◐ = service covered with limitations; ○ = service not covered

Notes: Number of states includes Washington, D.C. 

The Kaiser Commission on Medicaid and the Uninsured. Medicaid Benefits: Online Database (The

Henry J. Kaiser Family Foundation). http://www.kff.org/medicaid/benefits/index.jsp (downloaded Aug.

22, 2005).

a

All services in the Virgin Islands must be provided in health department facilities (including FQHCs

and referral facilities located off-island) that are pre-approved by the Medicaid program.

b

Laboratory and x-ray services require prior approval.

c

Ambulance services are covered when appropriate. Off-island transportation is not covered.

d

No transportation services are covered on-island; transportation off-island must be pre-approved.

e

Service not provided because of a lack of qualified local providers. However, these services are 

covered off-island when the patient is referred off-island to receive them.

f

Certified nurse practitioner services are not covered as a separate entity, but are covered if they are

provided in a Medicaid-certified facility or program.

g

California does not cover nurse practitioner services.

h

Long-term or transitional care provided on a case-by-case basis in hospital wards.

i

Nursing facility care is available to Medicaid enrollees in a non-Medicaid certified facility. This

coverage is a supplement to the Medicaid program and is paid for by Guam’s Medically Indigent

Program.

j

The Virgin Islands has one nursing facility with 80 beds, 20 of which are Medicaid certified. No other

nursing facility services are available.

k

Illinois does not cover nurse midwife services.

Page 33 GAO-06-75 Health Care Funding in U.S. Insular Areas
l

Connecticut, D.C., and New Jersey do not cover rural health clinic services.

Mandatory services may not be provided in an insular area because 

qualified providers or facilities do not exist.

50 For example, none of the 

Pacific insular areas have a Medicaid-certified, free-standing skilled 

nursing facility. In other cases, insular areas may not cover certain 

services although qualified providers are available. For example, Medicaidqualified providers are available in Puerto Rico for nursing facility, home 

health, nurse midwife, and certified nurse practitioner services; however, 

because of the limitations of the Medicaid cap, the Medicaid program does

not include them in its benefit package, according to a Puerto Rico

Medicaid official. Similarly, an official associated with the Virgin Islands’

Medicaid program said that although qualified providers are available, 

nurse midwife and nurse practitioner services are not covered due to their 

costs. However, the Medicaid programs of some insular areas incur 

additional costs that states may not. For example, several insular areas 

pay the costs associated with transporting enrollees off-island to receive 

services not available locally. The costs associated with transportation are 

typically high, particularly for the Pacific insular areas, and count against

the Medicaid cap.51 In addition, each insular area has chosen to add 

benefits, such as coverage for outpatient prescription drugs, which are 

optional under the statute. (See app. III for a summary of these optional

benefits.)

52

Federal SCHIP individual spending levels were also lower in the insular 

areas compared to the states. In fiscal year 2003, federal SCHIP spending 

per child under age 19 averaged $24 in the insular areas (ranging from $14 

in American Samoa to about $25 in Puerto Rico) compared to an average 

 50According to a CNMI official, the federal cap on Medicaid funding has contributed to its

difficulties in recruiting and retaining qualified physicians and other health care providers.

51For purposes of this report, we consider transportation to be a mandatory Medicaid 

service. Although coverage for transportation is not explicitly required under the federal

Medicaid statute, several regulations indicate that states must provide transportation

services as part of their Medicaid programs. 42 C.F.R. § 431.53 requires state Medicaid 

programs to ensure necessary transportation for beneficiaries to and from providers. 42

C.F.R. § 440.170 (a) defines transportation to include expenses for transportation and other

related travel expenses determined to be necessary by the agency to secure treatment for a

beneficiary. 42 C.F.R. § 441.62 requires the EPSDT program to offer assistance with

transportation to program beneficiaries.

52Although state Medicaid programs must generally allow recipients freedom of choice

among health care providers participating in Medicaid, the insular areas are exempt from

this requirement.

Page 34 GAO-06-75 Health Care Funding in U.S. Insular Areas
of $41 in the states. When compared to the states, the insular areas are 

poorer and have a higher proportion of children under 19 years of age. 

Therefore, the statutory SCHIP allotment, which distributes funds to the

insular areas based on their proportion of total insular population versus 

number of uninsured children, contributes to this disparity. However, as is

the case with the Medicaid program, the operation of the SCHIP program

in most of the insular areas is fundamentally different than the states. For 

example, while nearly 6 million children were served through SCHIP state

programs in fiscal year 2003,53 most of the insular areas do not have a 

unique SCHIP program that extends health insurance coverage to 

additional children. Instead, the insular areas primarily use SCHIP funds to

continue to pay for services provided to children enrolled in the Medicaid

program once the Medicaid cap is met. One exception is Puerto Rico, 

which uses SCHIP funding to extend Medicaid coverage to children with 

family incomes between 100 and 200 percent of its local poverty level.54 

HHS Per Capita Grant 

Spending Is Higher in 

Insular Areas 

In fiscal year 2003, total HHS per capita spending on health-related grants

from three agencies—CDC, HRSA, and SAMHSA—was higher in the 

insular areas compared to the states. On average, these three agencies 

awarded about $60 per capita in the insular areas compared to about $48 

per capita in the states. Differences in per capita spending are due in part

to the methods used to allocate grant funds. For example, the base rate

formula used to calculate the CDC bioterrorism grant results in higher

payments to all insular areas except Puerto Rico and to states with smaller 

populations. In the four smaller insular areas, awards per capita for this

grant range from $5.20 in Guam to $11.37 in American Samoa, and in states

with small populations, such as Alaska and Wyoming, awards were $10.62 

and $12.06 respectively compared to $3.61 in the states on average. (See 

fig 7.) 

 53An SCHIP Medicaid expansion must use Medicaid’s enrollment structures, benefit 

packages, and provider networks, whereas SCHIP programs separate from Medicaid have 

greater flexibility in design and may introduce limited cost sharing or offer different benefit

packages. 

54When SCHIP funding first became available, Guam used some of these funds to pay for

services provided to a group of children who previously received services through Guam’s

Medically Indigent Program. Remaining SCHIP funds are used to pay for services provided 

to children enrolled in Medicaid once the cap has been met. 

Page 35 GAO-06-75 Health Care Funding in U.S. Insular Areas
Figure 7: Per Capita Funding to Insular Areas and Selected States for CDC’s 

Bioterrorism Grant, Fiscal Year 2003 

0 2 4 6 8 10 12 14

Virgin Islands

Puerto Rico

Guam

CNMI

American Samoa

Wyoming

West Virginia

Mississippi

Hawaii

Alaska

United States

Source: Data from CDC.

Dollars

$3.61

$10.62

$6.76

$4.37

$5.35

$12.06

$11.37

$9.54

$5.20

$3.93

$7.04

All states

Select states

Insular areas

Page 36 GAO-06-75 Health Care Funding in U.S. Insular Areas
We provided a draft of this report for comment to HHS, DOI, and key 

health officials in each of the five insular areas. We received written 

comments from DOI, American Samoa, CNMI, and Puerto Rico, which are 

included in appendixes IV, V, VI and VII, respectively. Although HHS 

provided no general comments, it did provide technical comments, as did 

Puerto Rico, which we incorporated as appropriate. 

Agency Comments 

and Our Evaluation 

DOI noted that improving health care in the insular areas is a priority for 

both the agency and the insular areas and commented that the report will

help identify areas of disparity which may be reviewed for improvement. 

The insular areas expressed concern that the report did not sufficiently

address certain issues, such as implications of statutory limits on federal

Medicaid spending and a more comprehensive analysis of local 

circumstances that affect the availability and costs of health care services. 

The insular areas also provided a number of specific comments and 

suggestions. 

Specifically, CNMI and Puerto Rico commented that the statutory limits on 

federal Medicaid spending—the Medicaid cap and minimum FMAP—result

in insufficient federal Medicaid payments to the insular areas and explain 

the significant differences in federal Medicaid payments between them

and the states. For example, CNMI noted that one patient with an 

expensive medical condition, such as a baby with congenital heart disease 

or a child with leukemia, can consume a large portion of the available 

federal Medicaid contribution in a given year. CNMI also commented that

the federal funding limits prevent its Medicaid program from providing all 

Medicaid mandatory services and suggested that the report implied that 

this was a “satisfactory state of affairs” because the federal government 

does not penalize insular areas for not providing these services. We did not

intend to imply that this is a satisfactory condition; rather, our purpose 

was to describe mandatory Medicaid services that are not provided by 

insular areas and to explain that, in light of the limits on federal funding,

CMS does not hold these areas accountable for providing these services. 

We revised the report to clarify this point. 

The three insular areas commented that the report did not adequately 

explore other implications of the statutory federal funding limits, including

the impact on the local contribution to total health care costs and the local

health care infrastructure. For example, Puerto Rico commented that as a 

result of the limits on federal Medicaid payments, it and other insular 

areas shoulder a larger share of financial responsibility for the Medicaid

program than the states, and that the federal contribution to the program

is far less than the minimum FMAP suggests. Similarly, CNMI commented 

Page 37 GAO-06-75 Health Care Funding in U.S. Insular Areas
that the report failed to discuss the effect of limited federal funding on

health outcomes, physician recruitment and retention, and other 

necessary government services. American Samoa commented that the 

report minimized or omitted local circumstances that affect the costs of

health care services and are major factors in the analysis of federal 

funding. For example, a local statute requires the American Samoan 

government to provide medical services to qualified citizens at no cost, 

and its only hospital, which the government owns and operates, is the sole

provider of primary, secondary, and tertiary care. In combination, these 

factors have deterred the development of privately-owned health care 

facilities and providers, which can not compete with government-level 

charges, and this has limited the availability of services. Where 

appropriate, we revised the report to include information about these local

circumstances and their effect on American Samoa’s ability to provide 

health care services. A more comprehensive analysis of insular areas’ local 

contribution to total health care funding or their health care 

infrastructures, however, was beyond the scope of this report.

The insular areas also provided a number of specific comments or 

suggestions. For example, CNMI commented that the report implied that 

the availability of certain grant funds, including those provided to offset

the cost of providing services to residents of the freely associated states,

ameliorated the adverse effects of disparities in federal funding for the 

Medicare and Medicaid programs and added that grant funds are not

enough to replace inadequate Medicaid funding. It was not our intent to

imply that these grants are a substitute for other sources of federal health 

care funding. Rather, the report identifies major sources of federal health 

care funding in insular areas, of which grants are a significant portion. 

Puerto Rico also suggested that the report include a more thorough and 

substantive review of several issues it considers to be programmatic

barriers to a balanced partnership between insular areas and the federal 

government, including the Medicaid cap, SCHIP allotment methods, and

the level of the Medicare Part D low-income subsidy for insular areas. 

Such an analysis was beyond the scope of this report. 

Finally, CNMI commented the report should include recommendations to

address what it characterizes as “the outright discrimination in federal

health care funding” for the insular areas and suggested that specific

recommendations could include eliminating the Medicaid cap, calculating 

the FMAP based on actual poverty rates, and providing additional

Medicare Part D pharmacy benefits. We acknowledge CNMI’s views on the 

adequacy of current levels of federal health care funding. However, we did 

not include recommendations in this report because it is the Congress’s 

Page 38 GAO-06-75 Health Care Funding in U.S. Insular Areas
prerogative to set the overall design of the Medicaid program. Puerto Rico 

commented that this report describes many of the challenges and the 

imbalance affecting the federal and insular area health care partnership, 

such as the Medicaid cap, and provides the foundation for the Congress to

address these issues. 

As arranged with your offices, unless you publicly announce the contents

of this report earlier, we plan no further distribution of it until 30 days

after its issuance date. At that time, we will send copies of this report to

the Secretary of Health and Human Services, the Secretary of the Interior, 

and insular area governments. In addition, the report is available at no 

charge on GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me

at (202) 512-7118 or allenk@gao.gov. Contact points for our Offices of

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix VIII. 

Kathryn G. Allen 

Director, Health Care

Page 39 GAO-06-75 Health Care Funding in U.S. Insular Areas
List of Requesters 

The Honorable Dan Burton 

Chairman 

Subcommittee on the Western Hemisphere

Committee on International Relations

House of Representatives 

The Honorable Neil Abercrombie 

The Honorable Madeleine Z. Bordallo

The Honorable Ed Case

The Honorable Donna Christensen 

The Honorable Eni F.H. Faleomavaega 

The Honorable Raúl Grijalva 

The Honorable Michael M. Honda 

The Honorable Robert Menendez 

House of Representatives 

Page 40 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To compare characteristics of the five largest insular areas—American 

Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), 

Guam, Puerto Rico, and the Virgin Islands—we used demographic data

from the Census Bureau and disease mortality data from the Centers for 

Disease Control and Prevention (CDC). Except for Puerto Rico, interim 

and supplemental censuses to the decennial census are not performed for 

the insular areas. Therefore, 2000 census data for all insular areas and 

states were used for consistency. Reliable data for the incidence of disease 

are not collected for all insular areas. CDC’s 2002 natality and mortality 

report provided health indicator data except where the number of cases 

was too few to provide reliable estimates. 

To identify key federal sources of health care funding to the insular areas 

we reviewed the Census Bureau’s Consolidated Federal Funds Report and

conducted interviews with representatives from insular areas, six agencies 

of the Department of Health and Human Services (HHS),1

 the Department

of the Interior’s Office of Insular Affairs (DOI-OIA), and the White House 

Office of Intergovernmental Affairs. We defined health care funding as 

federal funds provided to support directly delivered health care, health

data collection, disease prevention, and other health-related activities. On 

the basis of the discussions, we focused our work on the following key 

sources of funding: Medicare, Medicaid, and SCHIP, in addition to grants

from three HHS agencies—CDC, the Health Resources and Services 

Administration (HRSA), and the Substance Abuse and Mental Health

Services Administration (SAMHSA)—and DOI.

2

We collected federal health expenditure data for the states and the insular 

areas. We selected five states for comparison to insular areas—Alaska, 

Hawaii, Mississippi, West Virginia, and Wyoming. States were selected on 

the basis of one or more criteria: geographic remoteness, low Medicare 

spending, and high federal Medicaid matching rate. 

 1

These agencies were the Agency for Healthcare Research and Quality, CDC, the Centers

for Medicare & Medicaid Services (CMS), Health Resources and Services Administration 

(HRSA), National Institutes of Health, and the Substance Abuse and Mental Health Services

Administration (SAMHSA). 

2

Grants to the insular areas from other HHS agencies, such as the Agency for Healthcare

Research and Quality (AHRQ) and the National Institutes of Health (NIH), were excluded 

from our analyses because they were targeted exclusively to research. Grants from CMS, 

apart from Medicaid and SCHIP funding, were also excluded as they represented less than 

1 percent of HHS grant funding to the insular areas from fiscal years 1999 through 2003. 

Page 41 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix I: Scope and Methodology 

We analyzed data provided by each agency and by the insular areas to

identify the composition of federal health care funding to insular areas and 

growth in the awards from fiscal year 1999 through 2003. We compared 

insular area data with funding to the states as a whole, and to select

individual states. We also analyzed expenditures per capita or by 

beneficiaries of respective programs, where available and consistent.

3

To calculate Medicare expenditures for beneficiaries residing in the 

insular areas, we used Medicare’s 1999-2003 claims data.4

 We 

supplemented the results with figures for inpatient and Part C 

expenditures calculated by the Centers for Medicare & Medicaid Services

(CMS).5

 Expenditures for the U.S. for fiscal year 2003 were obtained from

CMS.6

 Beneficiary figures for the insular areas and the U.S. were 

calculated using CMS’s Denominator File, which contains enrollment data

for Medicare beneficiaries.7

 We used the Denominator File and CMS’s 

National Claims History File for Physician and Supplier Claims Data to

calculate Medicare Part B utilization by beneficiaries in the insular areas 

and select states.8

Medicare 

We obtained insular area and state Medicaid expenditure data from CMS.9

Medicaid enrollee figures were obtained directly from CMS and the insular 

areas, but were not consistently available from all insular areas in all 

years. 

Medicaid 

SCHIP funding, including the initial allotments, supplementary allocations, 

and redistribution funds for the insular areas and states for fiscal years 

SCHIP 

 3

Any per capita analysis is based on population from the 2000 Census. 

4

Expenditure data for the insular areas was computed using the Standard Analytic Files for

institutional claims and the National Claims History File for Physician and Supplier Claims

Data, extracted January 2005. Beneficiary computations used the CMS Denominator File,

extracted May 2005. 

5

We received Part C expenditures for the insular areas from CMS for January 2005 and 

inpatient expenditures for the insular areas as of June 2005. 

6

National Health Expenditure data was calculated for the fiscal year and based on the 2005

Trustees’ Report. 

7

Beneficiary computations used the CMS Denominator file, extracted May 2005. 

8

Extracted January 2005. 

9

State-reported Medicaid Form 64 data, available on the CMS Web site, were used for state 

expenditures.

Page 42 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix I: Scope and Methodology 

1999 through 2003 were obtained from the Federal Register.

10 SCHIP 

enrollee figures were not consistently available for insular areas. 

We obtained data from HHS’s Tracking Accountability in Government

Grants System for fiscal years 1999 through 2003.11 For the grants provided 

by three HHS agencies, we evaluated the annual total and per capita award 

to each insular area, as well as nationally and for the selected states. 

HHS grants 

We totaled the award amounts for each grant in fiscal years 2002, 2003, 

and 2004 and identified eight individual grants whose 3-year aggregate 

comprised at least 5 percent of all HHS grant funding to any insular area 

and were awarded to at least three areas. We obtained the select grant 

award amounts from the agencies and computed the per capita award 

amounts for each of the insular areas, nationally, and for the selected 

states.12

For the select HHS grants, we obtained information about the application 

processes, allocation methods, and administrative requirements for insular 

areas and the states from the agencies. To identify differences in funding 

allocation methods, we reviewed relevant federal laws, regulations, and 

guidance. We augmented that work with interviews of officials at funding 

agencies to identify variations between programs for states and insular 

areas. 

DOI-OIA provided us with the funding totals for health-related grants 

provided to insular areas. Grants included funds earmarked for health care 

infrastructure, technical assistance, and to offset the cost of providing 

services to residents of the freely associated states. 

Department of the Interior 

Grants 

Data Reliability For the key sources identified, we obtained comprehensive health

expenditure data for federal fiscal years 1999 through 2003 from the 

respective agencies. To assess the reliability of the program expenditure 

data, we reviewed relevant documentation, interviewed knowledgeable 

agency officials about the data, and conducted electronic data testing. To 

 10Insular area data came from Federal Register announcements of insular area SCHIP 

allocations and redistribution amounts. 

11Data for the insular areas received December 2004, data for the states received January 

2005. 

12Any per capita analysis is based on population from the 2000 Census. 

Page 43 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix I: Scope and Methodology 

assess the reliability of HHS and DOI-OIA data, we talked with officials

about data quality control procedures and reviewed relevant

documentation. We determined the data were sufficiently reliable for the 

purposes of this report.

We conducted our work from October 2004 through September 2005 in

accordance with generally accepted government auditing standards. 

Page 44 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Appendix II: Changes in Insular Area Health Care Funding Proportions over Time

Care Funding Proportions over Time 

When considered in the aggregate, health care funding in the five largest 

insular areas varied little in terms of the proportion of funding attributable

to various sources for fiscal years 1999 through 2003. For each of the 

years, Medicare represented about three-quarters of total funding, 

followed by Medicaid and HHS grants, which each represented about onetenth of the total. Funding from SCHIP and DOI grants together 

represented 5 percent or less of total funding. However, Puerto Rico’s

comparatively large population masks much of the variation in funding

sources that exists in the other insular areas. These areas, particularly 

those in the Pacific, are considerably more reliant upon grant funding, 

which can fluctuate from year to year. (See fig. 8 through 13 and tables 4 

through 9.)

1

 1

Fiscal year 2003 does not include SCHIP redistribution funds, which are available SCHIP 

funds not expended by states within the prior 3-year period.

Page 45 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Care Funding Proportions over Time

Figure 8: Ratio of Federal Funding Sources for Five Insular Areas, Fiscal Years 1999 through 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

1999 2000 2001 2002 2003

76%

2%

10%

11%

1%

75%

2%

10%

12%

1%

75%

3%

11%

10%

1%

74%

4%

11%

10%

1%

74%

4%

12%

9%

1%

Table 4: Federal Health Care Spending for Five Insular Areas, Fiscal Years 1999 through 2003 

1999 2000 2001 2002 2003

Medicare $1,192,327,998 $1,266,268,455 $1,399,127,443 $1,548,352,782 $1,677,804,491

Medicaid 187,080,000 193,630,000 201,160,000 210,430,000 226,181,000

SCHIP 72,283,085 68,055,124 63,252,222 39,822,486 33,075,000

HHS grants 144,420,702 166,695,857 189,640,591 257,142,673 250,283,171

DOI grants 12,230,000 13,584,790 17,002,352 12,085,000 13,565,894

Total $1,608,341,785 $1,708,234,226 $1,870,182,608 $2,067,832,941 $2,200,909,556

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Page 46 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Care Funding Proportions over Time

Figure 9: Ratio of Federal Health Care Funding Sources for American Samoa, Fiscal Years 1999 through 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

1999 2000 2001 2002 2003

29%

1%

19%

14%

37%

28%

2%

21%

13%

36%

26%

3%

12%

15%

44%

24%

4%

11%

16%

46%

24%

4%

7%

16%

49%

Note: Figures may not total to 100 percent due to rounding.

Table 5: Federal Health Care Spending for American Samoa, Fiscal Years 1999 through 2003 

1999 2000 2001 2002 2003

Medicare $4,629,925 $4,827,064 $5,602,888 $7,382,854 $7,666,176

Medicaid 3,090,000 3,200,000 3,320,000 3,470,000 3,727,000

SCHIP 867,397 816,661 759,027 477,870 396,900

HHS grants 1,299,877 2,178,295 2,677,466 5,554,821 5,123,934

DOI grants 9,657,000 9,389,790 9,565,502 9,392,000 9,891,947

Total $19,544,199 $20,411,810 $21,924,883 $26,277,545 $26,805,957

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Page 47 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Care Funding Proportions over Time

Figure 10: Ratio of Federal Health Care Funding Sources for CNMI, Fiscal Years 1999 through 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

1999 2000 2001 2002 2003

2%

44%

26%

11%

16%

57%

22%

9%

12%

9%

48%

13% 4%

26%

64% 19%

4% 13%

2%

52%

18%

3%

26%

Note: Figures may not total to 100 percent due to rounding.

Table 6: Federal Health Care Spending for CNMI, Fiscal Years 1999 through 2003 

1999 2000 2001 2002 2003

Medicare $3,109,803 $4,947,156 $7,498,466 $7,050,130 $6,586,360

Medicaid 1,860,000 1,930,000 2,010,000 2,100,000 2,255,000

SCHIP 795,113 748,606 695,775 438,047 363,825

HHS grants 1,102,221 1,090,134 1,385,892 1,489,705 3,305,777

DOI grants 153,000 10,000 4,152,100 - 230,000

Total $7,020,137 $8,725,896 $15,742,233 $11,077,882 $12,740,962

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Page 48 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Care Funding Proportions over Time

Figure 11: Ratio of Federal Health Care Funding Sources for Guam, Fiscal Years 1999 through 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

1999 2000 2001 2002 2003

10%

54%

18%

9%

9%

22%

56%

13% 2%

7%

22%

55%

14% 3%

6%

19%

51%

15%

6%

8%

17%

49%

16%

7%

12%

Note: Figures may not total to 100 percent due to rounding.

Table 7: Federal Health Care Spending for Guam, Fiscal Years 1999 through 2003 

1999 2000 2001 2002 2003

Medicare $15,265,639 $16,994,396 $18,636,429 $22,728,513 $26,832,745

Medicaid 5,230,000 5,410,000 5,620,000 5,880,000 6,321,000

SCHIP 2,529,909 2,381,930 2,213,827 1,393,787 1,157,625

HHS grants 2,859,071 5,795,473 7,020,535 9,108,189 10,495,714

DOI grants 2,420,000 4,185,000 2,855,000 2,633,000 3,443,947

Total $28,304,619 $34,766,799 $36,345,791 $41,743,489 $48,251,031

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Page 49 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Care Funding Proportions over Time

Figure 12: Ratio of Federal Health Care Funding Sources for Puerto Rico, Fiscal Years 1999 through 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

1999 2000 2001 2002 2003

9%

75%

11%

4%

9%

76%

11%

4%

10%

76%

11%

3%

11%

77%

10%

2%

11%

78%

10%

1%

Note: Figures may not total to 100 percent due to rounding.

Table 8: Federal Health Care Spending for Puerto Rico, Fiscal Years 1999 through 2003 

1999 2000 2001 2002 2003

Medicare $1,141,552,210 $1,209,959,203 $1,337,114,946 $1,476,738,502 $1,599,351,575

Medicaid 171,500,000 177,500,000 184,400,000 192,900,000 207,341,000

SCHIP 66,211,306 62,338,494 57,939,035 36,477,397 30,296,700

HHS grants 133,820,563 149,657,652 168,783,855 221,260,544 216,598,403

DOI grants - - - - -

Total $1,513,084,079 $1,599,455,349 $1,748,237,836 $1,921,376,443 $2,053,587,678

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Page 50 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix II: Changes in Insular Area Health

Care Funding Proportions over Time

Figure 13: Ratio of Federal Health Care Funding Sources for the Virgin Islands, Fiscal Years 1999 through 2003 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Medicare

Medicaid

SCHIP

HHS grants

DOI grants

1999 2000 2001 2002 2003

5%

69%

13%

13%

4%

66% 12%

18%

3%

63%

1%

12%

20%

10%

56%

2%

32%

1%

11% 63%

25%

Note: Figures may not total to 100 percent due to rounding.

Table 9: Federal Health Care Spending for the Virgin Islands, Fiscal Years 1999 through 2003 

1999 2000 2001 2002 2003

Medicare $27,770,421 $29,540,636 $30,274,714 $34,452,783 $37,367,635

Medicaid 5,400,000 5,590,000 5,810,000 6,080,000 6,537,000

SCHIP 1,879,360 1,769,433 1,644,558 1,035,385 859,950

HHS grants 5,338,970 7,974,303 9,772,843 19,729,414 14,759,343

DOI grants - - 429,750 60,000 -

Total $40,388,751 $44,874,372 $47,931,865 $61,357,582 $59,523,928

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, grants from three HHS agencies, and DOI.

Page 51 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix III: Characteristics of Insular

Appendix III: Characteristics of Insular Areas’ Medicaid Programs

Areas’ Medicaid Programs 

To obtain Medicaid federal matching funds, state and insular area 

programs are to meet broad criteria related to eligibility, including 

categorical, income, and resource requirements. However, the insular 

areas vary in the extent to which their eligibility standards comply with

the federal standards. For example, Guam, Puerto Rico, and the Virgin 

Islands use the same broad federal categories established in statute;

however, the levels two of these areas use to determine income eligibility 

are based on locally established poverty levels rather than the federal 

poverty level (FPL). Table 10 compares the federal categorical and income 

eligibility standards to those in the insular areas. 

Table 10: Comparison of Federal Medicaid Categorical and Income Eligibility Standards to Insular Area Standards, Fiscal Year 

2004 

Federal eligibility 

standards Categories

Income level in relation to 

FPL 

Number of enrollees

(percentage of total 

population)

States Five federal categoriesa Varies by category, ranges 

between 100% to 185% of FPL 

for low income children to 133%

to 185% of FPL for pregnant 

women 

41.9 million (14%)

American Samoa No specific categories At or below FPL 37,504 (65%)

CNMI Individuals whose total income does 

not exceed 150% of the SSI federal 

benefit amount and allowable

resource limit 

The federal benefit rate is

$10,152 per year for an 

individual and allowable 

resource limit of $2,000 per 

year for an individual 

9,758 (12%)

Guam Five federal categoriesaBelow FPL 25,529 (15%)

Puerto Rico Five federal categoriesaAt or below local poverty level,

which was $4,800 per year for 

an individual 

938,266 (24%)

Virgin Islands Five federal categoriesaAt or below local poverty level,

which was about $5,500 per 

year for an individual 

16,125 (15%)

Source: GAO analysis of data from CMS, Kaiser Family Health Foundation, and insular area officials. 

Note: In 2004, 100 percent of FPL for an individual was $9,310 per year, 133 percent of the FPL was 

$12,382 per year, and 185 percent of the FPL was $17,224 per year.

a

The five federal categories are children, pregnant women, adults in families with children, elderly,

and individuals with disabilities.

In addition to eligibility requirements, Medicaid mandates coverage for 

certain services. However, as shown in table 3, none of the insular areas 

provides coverage for all the mandatory services. Nonetheless, each 

insular area, like the states, has chosen to add optional benefits under the 

Page 52 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix III: Characteristics of Insular

Areas’ Medicaid Programs

statute, with most providing coverage for outpatient prescription drugs,

clinic services, dental and eye care, and physical therapy. (See table 11.) 

Table 11: Summary of Certain Optional Medicaid Services Covered by Insular Areas and States, Fiscal Year 2005

Service AS CNMI GU PR VI

Number

of states

Outpatient prescription drugs ● ●a● ● ●b51

Dental services ● ◐c● ● ● 45

Clinic services ○ ● ● ● ● 47

Prosthetic devices, eyeglasses ● ●d● ○ ◐e48 and 41

Physical therapy and related services ● ● ○ ● ○ 34

Inpatient psychiatric hospital services for individuals under age 21 ● ○ ○ ○ ○ 48

Personal care services ○ ● ○ ○ ○ 31

Diagnostic, screening, preventive, and rehabilitative services ○ ○ ○ ● ○ 35

Intermediate care facility for individuals with mental retardation (ICF/MR) services ○ ○ ○ ○ ○ 51

Targeted case management services (home and community health) ○ ○ ○ ○ ○ 50

Hospice care ○ ○ ○ ○ ○ 48

Inpatient hospital and nursing facility services for individuals 65 or over in an institution 

for mental diseases (IMD) 

○ ○ ○ ○ ○ 44

Private duty nursing services ○ ○ ○ ○ ○ 23

Sources: Insular area officials and The Kaiser Commission. 

Key: ● = service covered; ◐ = service covered with limitations; ○ = service not covered

Notes: Number of states includes Washington, D.C.

The Kaiser Commission on Medicaid and the Uninsured. Medicaid Benefits: Online Database (The

Henry J. Kaiser Family Foundation). http://www.kff.org/medicaid/benefits/index.jsp (downloaded Aug.

22, 2005).

a

Drug coverage is limited to a 30-day supply unless a larger quantity is required for off-island travel.

Any quantity larger than the 30-day supply must be pre-approved.

b

Prior approval required for prescriptions that cost more than $200.

c

Most dental services are covered, including fillings and extractions, and dentures are covered subject

to prior approval. Orthodontics, prosthetics, and root canals are specifically not covered, and oral

surgery is limited to emergencies.

d

Prior authorization is required for prosthetic devices and eyeglasses.

e

Eye clinic care provided to children only.

Page 53 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix IV: Comments from the Department of the Interior 

Page 54 GAO-06-75

Appendix IV: Comments from the 

Department of the Interior 

Now GAO-06-75. 

Health Care Funding in U.S. Insular Areas
Appendix V: Comments from American Samoa Appendix V: Comments from American 

Samoa 

Page 55 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix V: Comments from American Samoa 

Page 56 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VI: Comments from the

Commonwealth of the Northern Mariana Appendix VI: Comments from the Islands

Commonwealth of the Northern Mariana 

Islands 

Now GAO-06-75. 

Page 57 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VI: Comments from the

Commonwealth of the Northern Mariana 

Islands

Page 58 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VI: Comments from the

Commonwealth of the Northern Mariana 

Islands

Page 59 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VII: Comments from the Appendix VII: Comments from the Commonwealth of Puerto Rico

Commonwealth of Puerto Rico 

Now GAO-06-75. 

Page 60 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VII: Comments from the

Commonwealth of Puerto Rico

Page 61 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VII: Comments from the

Commonwealth of Puerto Rico

Page 62 GAO-06-75 Health Care Funding in U.S. Insular Areas
Appendix VII: Comments from the

Commonwealth of Puerto Rico

Page 63 GAO-06-75 Health Care Funding in U.S. Insular Areas
A

Ac

ppendix VIII: GAO Contact and Staff 

knowledgments

Page 64 GAO-06-75

Appendix VIII: GAO Contact and Staff 

Acknowledgments 

Kathryn G. Allen (202) 512-7118 or allenk@gao.gov

In addition to the contact named above, Susan T. Anthony, Assistant

Director, Gerardine Brennan, Richard Lipinski, Michaela M. Monaghan, 

Mary Reich, and Margaret J. Weber made key contributions to this report.

Health Care Funding in U.S. Insular Areas

GAO Contact 

Acknowledgments 

(290428)
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or

more copies mailed to a single address are discounted 25 percent. Orders

should be sent to: 

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER