Territories Health Equity Act: Caps Off Medicaid Funding and Boosts Hospital Payments Starting 2026

The Territories Health Equity Act of 2025 is essentially a massive upgrade for healthcare funding in U.S. territories like Puerto Rico, Guam, and the U.S. Virgin Islands. The core of this bill is eliminating the historical funding disparity that treated territories differently from states when it came to federal health programs. Starting in 2026, the bill removes the fixed annual cap on federal Medicaid funding for all territories, meaning their funding will now be based on actual need and enrollment, just like in the 50 states. This single change provides much-needed financial stability and predictability for territorial health systems.

The Medicaid Cap: Fixing a Broken System

For years, territories have operated under a fixed federal Medicaid budget—a hard cap—that states don't face. This meant that if a hurricane hit, or a recession caused enrollment to spike, the federal money ran out, leaving the local government to foot the rest of the bill. This act scraps that cap (Title I). For Puerto Rico specifically, it also eliminates the arbitrary 55% federal matching rate ceiling, allowing it to qualify for a potentially higher rate based on its economic reality. Think of it this way: if you’re running a small business, this bill changes your federal funding from a fixed, limited grant to a matching program that scales with your actual operating costs. This is huge for maintaining services when times get tough.

New Lifelines for Local Hospitals

Beyond the funding caps, the bill throws a lifeline to hospitals that serve a high number of uninsured or low-income patients. Starting in 2026, territories will qualify for a dedicated $300 million annual fund, distributed based on their low-income population, to help cover the costs of these patients (Title I). This is similar to the Disproportionate Share Hospital (DSH) payments states receive. On the Medicare side (Title II), the bill adjusts how hospitals in territories are paid, specifically modifying the DSH formula and allowing some hospitals to use older, more favorable cost data to calculate their base payments. For the local hospital administrator, this means more stable revenue to pay staff, upgrade equipment, and keep the doors open for everyone, regardless of their insurance status.

Making Medicare Easier for Seniors

For seniors in Puerto Rico, the bill addresses a frustrating administrative hurdle. Currently, some individuals face financial penalties for late enrollment in Medicare Part B because they weren't automatically enrolled when they became eligible. The bill waives this penalty for certain individuals who were living in Puerto Rico when they became eligible (Title II). Furthermore, it automatically enrolls low-income territorial residents who are already on Medicaid into the Medicare Part D "Extra Help" program, which significantly lowers prescription drug costs. This is a massive win for low-income seniors—no more navigating complex paperwork just to afford necessary medications. However, it’s worth noting that a separate, enhanced federal funding program for territorial Medicaid is phased out after 2025 as the new Part D subsidy takes effect, so the transition needs to be smooth to avoid any short-term coverage gaps.

Closing the Insurance Coverage Gap

Perhaps the most innovative part of the bill is Title III, which addresses the lack of Affordable Care Act (ACA) marketplaces in some territories. In areas where residents can’t buy health insurance through a local exchange, the bill establishes a new program to provide coverage comparable to what Members of Congress receive, complete with premium tax credits and cost-sharing reductions. This is a crucial step for the uninsured in these areas, effectively creating a subsidized coverage option where none existed before. To ensure transparency, the bill also mandates the publication of detailed Medicaid and CHIP data for territories online, finally giving the public and researchers the same level of insight into territorial programs that they have for state programs.