NCPA - National Center for Policy Analysis


February 12, 2010

The biggest problem with the Medicaid expansion in the Senate health bill is not the "Cornhusker Kickback," but that it leverages an already flawed formula to determine federal payments to state Medicaid programs, says John R. Graham, Director of Health Care Studies at the Pacific Research Institute. 

The Senate bill would: 

  • Motivate states to invest more resources in recruiting higher-income residents into Medicaid, rather than traditionally eligible beneficiaries, including the blind and disabled; and increase the risk of fraud, waste, and corruption.
  • Gives bigger Federal Medical Assistance Percentage (FMAP) increases to richer states.
  • Each thousand-dollar increase in money income per household is associated with a one-percent increase in the FMAP under the Senate bill, and this statistically significant [association] explains over one-third of the variance in the change in FMAP. 

It also gives richer states a bigger Medicaid bailout than lower income ones, says Graham.  New Hampshire, Maryland and Connecticut get the biggest handouts, while Mississippi, West Virginia and Arkansas are short-changed: 

  • New Hampshire's money income is $68,175 per household, which is $16,942 greater than the national average of $51,233.
  • Its FMAP would increase from 50 percent to 82.3 percent, an increase of 65 percent.
  • This is 18 percent greater than it would have been if higher per household incomes did not explain the Senate's "generosity."  

On the other hand: 

  • Mississippi's FMAP increases by only 20 percent, from the current 74.73 percent to 95 percent.
  • This increase is 15 percent less than it would have been if the state's low income did not explain its poor outcome in the Senate's FMAP allocation. 

Governor Schwarzenegger, who spends much time demanding more from the federal trough, should rejoice at the new formula, which increases California's FMAP by 7 percent more than if the state's per household income were merely the national average.  But no state actually wins this race to the bottom of U.S. taxpayers' pockets.   The more serious problem is not with the leaky state pool but the larger federal vessel.  Instead of leveraging the FMAP, Medicaid reform should jettison it entirely, in favor of easily understood block grants, says Graham. 

Source: John R. Graham, "The Rich Get Richer: The Senate's Medicaid Proposal Gives a Bigger Bailout to Wealthier States," Pacific Research Institute, Vol. 8, No. 1, January 2010. 


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