NCPA - National Center for Policy Analysis

Update on Federal Medicaid Funding

May 10, 2011

The federal Medicaid funding formula is called the Federal Medicaid Assistance Percentage (FMAP).  In theory, it is designed to narrow the disparities in the ability of states to fund Medicaid by giving poorer states a higher match for every dollar they spend.  However, there is no cap on the amount the federal government matches.  Therefore, the more a state spends, the more it receives.  In practice, states with above-average per capita incomes are likely to have more expanded Medicaid programs and spend more per recipient, say Pamela Villarreal, a senior fellow, and Michael Barba, a graduate student fellow, at the National Center for Policy Analysis.

For example:

  • The average total expenditure per Medicaid enrollee in 2007 was $5,163.
  • New York, a higher income state, spent $8,450 per Medicaid enrollee in 2007.
  • By contrast, Alabama, a lower income state, spent $3,945.

Higher-income states may have a lower per-dollar federal matching rate, but they receive more federal funds because they tend to spend more on Medicaid:

  • On one end of the spectrum, high-spending New York state receives 87 percent more federal funding than it would based on its poverty population.
  • On the low end, Nevada receives only half the distribution of federal funds it would if the distribution were based on need.

This formula will take on more significance beginning in 2014, when the Affordable Care Act will expand the mandatory Medicaid population to include all individuals, married or single, under the age of 65 with incomes at or below 133 percent of poverty.  Although the federal government will provide funds for states to cover this newly eligible population, it will increase the fiscal burden on many states, particularly those that do not already cover expanded optional populations.

States should have the flexibility to use their federal funds as they choose, and federal funds should be capped at a certain dollar amount, say Villarreal and Barba.

Source: Pamela Villarreal and Michael Barba, "Update on Federal Medicaid Funding," National Center for Policy Analysis, May 10, 2011.

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