Reduce Federal Medicaid Matching Rates

Medicaid is a joint federal-state program that pays for health care services for low-income people in various demographic groups. Both the federal and state governments share in the costs of the program; the federal government’s share varies by state, by eligibility category, and by the type of cost (that is, medical services or administrative).

For most Medicaid services and enrollees, the share of Medicaid costs paid for by the federal government is determined according to the federal medical assistance percentage (FMAP). The FMAP is based on a formula that provides higher federal reimbursement to states with lower per capita incomes (and vice versa) relative to the national average. States receive an FMAP of no less than 50 percent and no more than 83 percent. The matching rate for medical services provided to enrollees made eligible as a result of the Affordable Care Act (ACA) is 90 percent and does not vary by state. The federal government’s share of administrative expenses varies by cost category but not by state. Several categories of administrative expenses are evenly divided between the federal and state governments, but other categories of administrative costs have higher federal matching rates.

This option consists of three alternatives. Under the first alternative, the federal government’s share for all categories of administrative spending would be 50 percent. Under the second alternative, the 50 percent floor on the FMAP for most Medicaid services and enrollees would be removed. Under the third alternative, the federal share of medical expenditures for enrollees made eligible by the ACA would be based on the same FMAP formula that applies to otherwise eligible enrollees.

The third alternative would affect more than just outlays for Medicaid. The Congressional Budget Office anticipates that, in response to the reduced matching rates for enrollees made eligible by the ACA, some states would discontinue coverage for that category of enrollees, and all states that would have adopted such coverage in the future would no longer choose to do so. As a result, there would be an increase in outlays and a decrease in revenues because some people losing Medicaid coverage would instead receive subsidies through the marketplaces established by the ACA or obtain employment-based coverage. Still others would become uninsured; therefore, CBO estimates that there would be an increase in outlays for Medicare payments to inpatient facilities that serve a higher percentage of low-income patients because such payments are determined on the basis of the uninsured rate. Those effects are incorporated in the estimates for that alternative.