Mandatory Spending

Function 550 - Health

Reduce Federal Medicaid Matching Rates

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
  Use the Same Matching Rate for All Categories of Administrative Services
Change in Outlays 0 0 -6 -6 -7 -7 -7 -8 -8 -8 -19 -57
  Remove the FMAP Floor
Change in Outlays 0 0 -56 -58 -61 -64 -67 -71 -74 -78 -175 -529
  Reduce the Matching Rate for Enrollees Made Eligible by the ACA
Change in Outlays 0 0 -37 -53 -58 -64 -70 -74 -78 -83 -149 -518
Change in Revenuesa 0 0 -1 -2 -2 -2 -2 -3 -3 -3 -5 -18
  Decrease (-) in the Deficit 0 0 -36 -51 -56 -62 -67 -71 -76 -80 -143 -500

Data sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
This option would take effect in October 2022.
ACA = Affordable Care Act; FMAP = federal medical assistance percentage.
a. Estimates include the effects on Social Security payroll tax receipts, which are classified as off-budget.

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.