Lauren Silver HW2: FMAP Policy Brief

Washington States Medicaid Program: Policy Recommendations for Lobbying for a Change to a 60% Federal
Medical ssistance Percentage !FMP" Floor
#$er$ie% of the Medicaid Program and Medicaid Financing& Medicaid is the largest source of health coverage for low-
income Americans, covering approximately 38 million children and their parents, pregnant women, the elderly, and those
with disabilities.
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Medicaid is financed through a system in which the federal government provides states with matching
payments for all Medicaid eligible expenditures for eligible beneficiaries.

!he formula that determines a state"s matching

payment is called the #ederal Medical Assistance $ercentage %#MA$&, which is based on the ratio of a state"s per capita
income to the '.(. per capita income in order to account for variations in the fiscal capacity of the states. As a result of this
matching payment system, the federal government and the states share the cost of Medicaid, with the federal government
in ))8 paying anywhere from *) %1 states, including +ashington& to ,* %Mississippi& percent of total costs. 'nli-e a
bloc- grant, Medicaid is an entitlement program, which means that federal funding is provided on an as-needed basis.

.n
average, Medicaid accounts for 1/ percent of state general fund expenditures and is the largest source of federal funds for
states. !able 1, below, summari0es basic statistics of +ashington state"s Medicaid program during #1 ))8.
Table 1. Washington State Medicaid Program Characteristics, FY 2008
Matching Federal
Rate
Total Medicaid
nrollees
Total Medicaid
!"enses #"ro!$
200% &ith '.()
gro&th rate*
Total
!"endit+res "er
nrollee
50% (w/50% floor) !2"5!#00 $%!0&'!%%5!'"% $#!'##
Washington State sho'ld lobby for a change to a 60% FMP floor once (ro$isions in the merican Rein$estment
and Reco$ery ct !RR" of )00* end in +ecember, )0-0& As a desired outcome of the Medicaid program, e2uity
generally is referred to in the context of reducing variation across states in terms of the 1& extent of coverage of the poor3 &
variation in Medicaid expenditures per enrollee3 and 3& average tax burden imposed on taxpayers.
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!his same framewor-,
however, can be applied to examine Medicaid program e2uity within an individual state, and how changes in the Medicaid
funding formula may impact e2uity across these three dimensions. At the state level, e2uity in coverage refers to the extent
that those who are eligible for Medicaid coverage actually are enrolled in the program3 spending e2uity generally is
measured by expenditures per enrollee %nominal dollars per enrollee are presented in this brief&3 and taxpayer e2uity refers
to the notion that taxpayers with e2uivalent ability to pay should pay the same amount %hori0ontal e2uity& and4or taxpayers
should pay according to their ability to pay %vertical e2uity&. As can be seen in !able , the extent that e2uity is achieved
with respect to coverage, spending, and taxpayer burden in +ashington will vary according to the state"s federal matching
rate for the Medicaid program5i.e., whether the matching rate remains at the usual level of *)6, falls to 786 with the
implementation of a 3)6 floor, or increases to /)6 with the implementation of a /)6 floor %based on #1 ))8 Medicaid
expenditures&.
Co$erage and s(ending e.'ity& As the floor for the federal matching rate moves from *) percent to 3) percent,
+ashington"s matching rate would fall from *) percent to 78 percent, resulting in a 9* loss of total expenditures per
enrollee. Moreover, federal funding for Medicaid would decrease from 93,)78,83,883 to 9,88,83,8*5a loss of
Lauren Silver HW2: FMAP Policy Brief
9//,*38,8/8 in federal funding. :n contrast, with a /) percent floor, total expenditures per enrollee would increase by 97,7,
to 9*,18 and federal funding for Medicaid would increase to 93,/*8,*88,7,5a gain in federal funding of 9/)8,,//,*,8.
!hus, with a /) percent floor, +ashington state would face fewer cost containment pressures that might lead to reductions in
coverage5both in terms of access to care and comprehensiveness of coverage %such as reducing benefits to ;benchmar-<
coverage offering limited benefit coverage compared to existing Medicaid benefits and4or increasing cost sharing via a state
plan amendment as permitted by the =eficit >eduction Act of ))*&.
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?onse2uently, the availability of Medicaid coverage
would remain more e2uitable among the state"s low-income residents in need of health coverage.
Table 2. Washington State Medicaid S"ending, FY 2008, b$ Federal Matching Rate Floor
Matching Federal
Rate , '0) Floor
Matching Federal
Rate , (0) Floor
Matching Federal
Rate , -0) Floor
S(a(e FMAP 50% #&% %0%
)o(al Me*icai* e+,en-e- (F. 200") $%!0&'!%%5!'"' $%!0/!2%!"" $%!'0'!#/2!/%%
Fe*erally0fun*e* Me*icai* e+,en-e- $/!0#"!"/2!"&/ $2!&"2!2&/!&25 $/!%5"!5&&!#'2
S(a(e0fun*e* Me*icai* e+,en-e- $/!0#"!"/2!"&/ $/!0#"!"/2!"&/ $/!0#"!"/2!"&/
)o(al e+,en*i(ure- ,er enrollee $#!'## $#!%&2 $5!2"
Fe*erally0fun*e* e+,en*i(ure- ,er enrollee $2!/'2 $2!2&& $/!/0
S(a(e0fun*e* e+,en*i(ure- ,er enrollee $2!/'2 $2!/&/ $2!0""
1ifference 2e(ween S(a(e an* Fe*eral -3are of
(o(al Me*icai* e+,en*i(ure-
4A 0 $%%!5/"!&%"
lo-- in
fe*eral fun*in5
6 $%0&!'%%!5'&
5ain in
fe*eral fun*in5
/.'ity in ta0(ayer b'rden& ?urrently, there is no individual or corporate income tax in +ashington. >ather, a state
sales tax comprises the plurality of the state"s tax revenue5accounting for @ust over 7) percent of all tax revenues in the state
from ))/ to )), %followed by property taxes&.
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(ales taxes are inherently regressive in that they consume a higher
proportion of low-income individuals" disposable income than that of higher-income individuals. !hus, a /) percent floor to
the federal matching rate would ensure a higher level of e2uity in taxpayer burden by reducing the urgency to raise sales
taxes to ma-e up for a shortfall in Medicaid funding due to reduced federal contributions that might otherwise occur with a
3) percent floor. An increase in the sales tax would result in a further reduction of vertical e2uity across taxpayers within the
state.
.verall, the state should lobby for a change to the /) percent floor because federal revenues received through
Medicaid, whether enhanced through special programs or not, have been used in some form or another to enhance e2uity,
such as finance expansions, to compensate hospitals for charity care, or to provide tax relief at the state level.
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Washington State sho'ld not lobby for a (ermanent change in the FMP form'la similar to the (ro$isions of the
R1i&e&, changing the form'la to reflect economic conditions& !he A>>A provides additional Medicaid funding to
states in the form of an increase in their #MA$, in part based on each state"s unemployment rate as a measure for economic
conditions. As a result, +ashington"s federal matching rate increases to /.87 percent from .ctober 1, ))8 until
=ecember 31, )1). Although this seems li-e it might be a method for determining the #MA$ that is preferable to
implementing a /) percent floor, a floor guarantees a certain level of federal contributions and therefore reduces
uncertainty in Medicaid funding. ?onse2uently, the state would be in a position of having to twea- its Medicaid program
less fre2uently due to changes in the federal matching rate that would occur should an A>>A-li-e method be used in lieu
of a /) percent floor.
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Aolahan B, +ell A, +iener BM. +hich way for federalism and health policyC Health Affairs. ))3 Bul-=ec3(uppl +eb
DxclusivesE+3-31,-33.

Faiser ?ommission on Medicaid and the 'ninsured. $olicy GriefE Medicaid and Gloc- Hrant #inancing ?ompared.
Banuary, ))7.
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Adams DF. D2uity in the Medicaid programE changes in the latter 188)s. Health Care Financing Review. 188*
(pring31/%3&E**-,3.
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Faiser ?ommission on Medicaid and the 'ninsured. =eficit >eduction ActE :mplications for Medicaid.
IhttpE44www.-ff.org4medicaid4upload4,7/*.pdfJ Accessed April 3, )1).
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+ashington (tate .ffice of #inancial Management. +ashington !rendsE (tate and local government revenue sources.
IhttpE44www.ofm.wa.gov4trends4tables4fig*)3.aspJ Accessed April 3, )1).
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