Reformulating the Federal Match as a Key to the Sustainability of Medicaid

A call to change the method of calculating federal contributions to state Medicaid programs that more accurately takes into account individual—and changing—state economic circumstances.

Medicaid, the program that makes affordable health care available to some 51 million people nationwide, is jointly financed by federal and state governments. The federal government provides states with Medicaid funding based on a formula known as the Federal Medical Assistance Percentage (FMAP). The FMAP is calculated based on a three-year running average of each state’s per-capita income.

Inherently, this metric lags behind actual changes in a state’s economic circumstances that can occur when there is a rise in unemployment or in the number of people seeking Medicaid coverage. These authors suggest a structural change to the FMAP that quickly increases federal contributions when unemployment rises in at least 26 states. The increase would taper back slowly as situations improve.

The authors also believe the FMAP should not be based on per-capita income, which may underestimate a state’s property, sales, corporate or energy production taxes. Rather, they think it should be tied to a state’s total taxable resources, which would account for variations between wealthier and less wealthy states. The total taxable income of the highest state (Delaware) is more than twice that of the lowest (Mississippi). And while wealthier states would balk at contributing more to their state’s Medicaid funding, “the time has come to modify the FMAP to reflect more consistently and accurately the burdens that states face in financing their programs” they write.