State governments will receive a $4.3 billion boost in the amount of federal funds they receive to pay for their Medicaid programs, the U.S. Department of Health and Human Services announced Thursday.

Iowa will get to keep an estimated $35.3 million in federal medical assistance payments (FMAP) it would have otherwise had to return to the federal government, as part of the budget relief initiative for the states.

Funded by the American Recovery and Reinvestment Act (ARRA), the $4.3 billion initiative temporarily reduces the amount of “clawback” payments states pay the federal government to offset the cost of Medicare coverage for prescription drugs for state residents who are eligible for both Medicare and Medicaid.

States make clawback payments monthly and the Centers for Medicare and Medicaid Services are currently reprogramming their billing system to calculate the new, reduced payments owed by states. The savings, which are retroactive to October 2008, will be deducted from what states otherwise would have owed going forward.

Prior to today’s action, Iowa would have owed $162.36 million in clawback payments, but under the new formula, that amount will be reduced to $127.12 million, or about 22 percent less, through Dec. 31, retroactive to Oct. 31, 2008.

“We believe today’s action will help states as they struggle to maintain Medicaid and other budget priorities in these difficult economic times,” said HHS Secretary Kathleen Sebelius. “This relief will help states continue to provide critical health care services to the nearly 60 million beneficiaries who depend upon it.”

In his 2011 budget, President Obama calls for the FMAP increase established in ARRA to be extended through June 30, 2011.