Our analysis of initial estimates of Recovery Act spending provided by the Congressional Budget Office (CBO) suggested that about $49 billion would be outlayed to states and localities by the federal government in fiscal year 2009, which runs through September 30. However, our analysis of the latest information available on actual federal outlays reported on www.recovery.gov indicates that in the 4 months since enactment, the federal Treasury has paid out approximately $29 billion to states and localities, which is about 60 percent of payments estimated for fiscal year 2009. Although this pattern may not continue for the remaining 3-1/2 months, at present spending is slightly ahead of estimates. More than 90 percent of the $29 billion in federal outlays has been provided through the increased Federal Medical Assistance Percentage (FMAP) grant awards and the State Fiscal Stabilization Fund administered by the Department of Education. Figure 1 shows the original estimate of federal outlays to states and localities under the Recovery Act compared with actual federal outlays as reported by federal agencies on www.recovery.gov. The 16 states and the District of Columbia covered by our review account for about two-thirds of the Recovery Act funding available to states and localities. According to the Office of Management and Budget (OMB), an estimated $149 billion in Recovery Act funding will be obligated to states and localities in fiscal year 2009. Our work for this bimonthly report focused on nine federal programs, selected primarily because they have begun disbursing funds to states and include programs with significant amounts of Recovery Act funds, programs receiving significant increases in funding, and new programs. Recovery Act funding of some of these programs is intended for further disbursement to localities. Together, these nine programs are estimated to account for approximately 87 percent of federal Recovery Act outlays to state and localities in fiscal year 2009. Figure 2 shows the distribution by program of anticipated federal Recovery Act spending in fiscal year 2009 to states and localities. Medicaid is a joint federal-state program that finances health care for certain categories of low-income individuals, including children, families, persons with disabilities, and persons who are elderly. The federal government matches state spending for Medicaid services according to a formula based on each state’s per capita income in relation to the national average per capita income. The rate at which states are reimbursed for Medicaid service expenditures is known as the FMAP, which may range from 50 percent to no more than 83 percent. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, CMS made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly basis, provides for (1) the maintenance of states’ prior year FMAPs, (2) a general across-the-board increase of 6.2 percentage points in states’ FMAPs, and (3) a further increase to the FMAPs for those states that have a qualifying increase in unemployment rates. The increased FMAP available under the Recovery Act is for state expenditures for Medicaid services. However, the receipt of this increased FMAP may reduce the funds that states would otherwise have to use for their Medicaid programs, and states have reported using these available funds for a variety of purposes. For the third quarter of fiscal year 2009, the increases in FMAP for the 16 states and the District of Columbia compared with the original fiscal year 2009 levels are estimated to range from 6.2 percentage points in Iowa to 12.24 percentage points in Florida, with the FMAP increase averaging almost 10 percentage points. When compared with the first two quarters of fiscal year 2009, the FMAP in the third quarter of fiscal year 2009 is estimated to have increased in 12 of the 16 states and the District. From October 2007 to May 2009, overall Medicaid enrollment in the 16 states and the District increased by 7 percent. In addition, each of the states and the District experienced an enrollment increase during this period, with the highest number of programs experiencing an increase of 5 percent to 10 percent. However, the percentage increase in enrollment varied widely ranging from just under 3 percent in California to nearly 20 percent in Colorado. (Figure 3.) Overall enrollment growth was the most rapid in early 2009—generally from January through April 2009—an enrollment trend that was mirrored in several states and the District; however, variation existed. For example, while Colorado and Mississippi experienced a nearly 5 percent increase in Medicaid enrollment during this time, Medicaid enrollment in Illinois remained relatively stable, growing at less than 1 percent. Most of the increase in overall enrollment was attributable to populations that are sensitive to economic downturns—primarily children and families Nonetheless, enrollment growth in other population groups, such as disabled individuals, also contributed to enrollment growth. With regard to the states’ receipt of the increased FMAP, all 16 states and the District had drawn down increased FMAP grant awards totaling just over $15.0 billion for the period of October 1, 2008 through June 29, 2009 which amounted to 86 percent of funds available. (See table 2.) In addition, except for the initial weeks that increased FMAP funds were available, the weekly rate at which the sample states and the District have drawn down these funds has remained relatively constant. While the increased FMAP available under the Recovery Act is for state expenditures for Medicaid services, the receipt of these funds may reduce the state share for their Medicaid programs. As such, states reported that they are using or are planning to use the funds that have become freed up as a result of increased FMAP for a variety of purposes. Most commonly, states reported that they are using or planning to use freed-up funds to cover their increased Medicaid caseload, to maintain current benefits and eligibility levels, and to help finance their respective state budgets. Several states noted that given the poor economic climate in their respective states, these funds were critical in their efforts to maintain Medicaid coverage at current levels. For example, officials from Georgia, Michigan, and Pennsylvania reported that the increased FMAP funds have allowed their respective states to maintain their Medicaid programs, which could have been subject to cuts in eligibility or services without the increased funds. Additionally, Medicaid officials in five states and the District indicated that they used the funds made available as a result of the increased FMAP to maintain program expansions or local health care reform initiatives, which in some states would have otherwise been vulnerable to program cuts. Lastly, all but Texas and the District reported they are using or planning to use the freed-up funds to help finance their state budgets. Five states—Arizona, California, Colorado, North Carolina, and Ohio—-reported using or planning to use these funds solely for this purpose. For states to qualify for the increased FMAP available under the Recovery Act, they must meet a number of requirements, including the following: States generally may not apply eligibility standards, methodologies, or procedures that are more restrictive than those in effect under their state Medicaid programs on July 1, 2008. States must comply with prompt payment requirements. States cannot deposit or credit amounts attributable (either directly or indirectly) to certain elements of the increased FMAP into any reserve or rainy-day fund of the state. States with political subdivisions—such as cities and counties—that contribute to the nonfederal share of Medicaid spending cannot require the subdivisions to pay a greater percentage of the nonfederal share than would have been required on September 30, 2008. Medicaid officials from many states and the District raised concerns about their ability to meet these requirements and, thus, maintain eligibility for the increased FMAP. While officials from several states spoke positively about CMS’s guidance related to FMAP requirements, at least nine states and the District reported they wanted CMS to provide additional guidance regarding (1) how they report daily compliance with prompt pay requirements, (2) how they report monthly on increased FMAP spending, and (3) whether certain programmatic changes would affect their eligibility for funds. For example, Medicaid officials from several states told us they were hesitant to implement minor programmatic changes, such as changes to prior authorization requirements, pregnancy verifications, or ongoing rate changes, out of concern that doing so would jeopardize their eligibility for increased FMAP. In addition, at least three states raised concerns that glitches related to new or updated information systems used to generate provider payments could affect their eligibility for these funds. Specifically, Massachusetts Medicaid officials said they are implementing a new provider payment system that will generate payments to some providers on a monthly versus daily basis and would like guidance from CMS on the availability of waivers for the prompt payment requirement. A CMS official told us that the agency is in the process of finalizing its guidance to states on reporting compliance with the prompt payment requirement of the Recovery Act, but did not know when this guidance would be publicly available. However, the official noted that, in the near term, the agency intends to issue a new Fact Sheet, which will include questions and answers on a variety of issues related to the increased FMAP. Due to the variability of state operations, funding processes, and political structures, CMS has worked with states on a case-by-case basis to discuss and resolve issues that arise. Specifically, communications between CMS and several states indicate efforts to clarify issues related to the contributions to the state share of Medicaid spending by political subdivisions or to rainy-day funds. For example, in a May 20, 2009, letter, CMS clarified that California would not fail to meet the provision of the Recovery Act related to contributions by political subdivisions if a county voluntarily used its funds to make up for a decrease in the amount the state appropriated for the Medicaid payment of wages of personal care service providers.