Medicaid is a means-tested entitlement program that finances the
delivery of primary and acute medical services as well as long-term
services and supports. Medicaid is a federal and state partnership
that is jointly financed by both the federal government and the
states. The federal government's share for most Medicaid
expenditures is called the federal medical assistance percentage
(FMAP) rate. Generally determined annually, the FMAP formula is
designed so that the federal government pays a larger portion of
Medicaid costs in states with lower per capita incomes relative to
the national average (and vice versa for states with higher per
capita incomes). Federal Medicaid funding to states is open-ended.
The federal government provides states a good deal of flexibility
in determining the composition of the state share (also referred to
as the non-federal share) of Medicaid expenditures. As a result,
there is significant variation from state to state in the funding
sources used to finance the state share of Medicaid expenditures.
In state fiscal year 2010, states reported that on average state
general funds (i.e., revenues from personal income, sales, and
corporate income taxes) made up 76% of the state share of Medicaid
expenditures and the remaining 24% was financed by "other state
funds" (i.e., provider taxes, local government funds, and tobacco
settlement funds). In FY2011, Medicaid expenditures totaled $428
billion, with the federal government paying $271 billion, about 63%
of the total. While Medicaid expenditures (like all health
expenditures) generally grow at a rate faster than the economy, as
measured by the gross domestic product (GDP), spending per enrollee
under Medicaid tends to be lower than the per person spending for
other forms of health insurance. One of the major factors impacting
Medicaid spending is the economy. Also, state-specific factors,
such as programmatic decisions and demographics, affect Medicaid
expenditures and cause Medicaid spending to vary widely from state
to state. Starting in FY2014, Medicaid expenditures are expected to
increase significantly as a result of the reforms enacted in the
Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as
amended). The most noteworthy ACA change to Medicaid begins in
2014, or sooner at state option, when some states expand Medicaid
eligibility to adults under age 65 with income up to 133% of the
federal poverty level (FPL) (effectively 138% FPL with the Modified
Adjusted Gross Income 5% FPL income disregard). Following the June
28, 2012, Supreme Court decision in National Federation of
Independent Business v. Sebelius, it is uncertain how many states
will refuse to expand their Medicaid program to cover this new
group. The Congressional Budget Office and the Joint Committee on
Taxation updated their estimate of the ACA Medicaid expansion to
account for the Supreme Court decision, and they project the
expansion will cost $642 billion from FY2014 to FY2022, which is
$288 billion less than the estimate prior to the Supreme Court
decision. This report provides an overview of Medicaid's financing
structure, including both federal and state financing issues. The
Medicaid expenditures section of the report discusses economic
factors affecting Medicaid, state variability in spending, and
projected program spending. Other issues that are examined include
congressional proposals to turn Medicaid into a block grant
program, federal deficit reduction proposals affecting Medicaid,
and state fiscal conditions affecting Medicaid financing and
services.
General
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