Medicaid Financing Structure. The federal government jointly funds the Medicaid program with states by matching qualifying state Medicaid expenditures. The federal match rate (known as the Federal Medical Assistance percentage, or FMAP) is calculated annually for each state using a statutory formula based on a state’s average personal income relative to the national average which results in higher FMAP rates for poorer states. The FMAP formula relies on three years of lagged personal income data, so data for federal fiscal years (FFYs) 2017 to 2019 was used to calculate FFY 2021 FMAP rates, which range from a floor of 50% (applicable to 13 states) to a high of 78% (for Mississippi). Because of the federal matching structure, Medicaid is both a state budget expenditure item and a source of federal revenue for states. In FY 2018 (the latest year of actual data), Medicaid accounted for 29.2% of total state spending, but 16.7% of state funds (general fund plus other state funds), a far second to spending on K-12 education (25.1% of state funds). Medicaid is the largest single source of federal funds for states, accounting for over half (57.9%) of all federal funds received by states (Figure 3).

Figure 3: Medicaid spending as a share of total, state, and federal funds, actual data FY 2018

Figure 3: Medicaid spending as a share of total, state, and federal funds, actual data FY 2018

Medicaid and the Economy. Medicaid is a countercyclical program. During economic downturns, more people qualify and enroll in Medicaid, increasing program spending at the same time that state tax revenues may be stagnating or falling. Prior to the current pandemic, to mitigate these budget pressures, Congress had twice passed temporary FMAP increases to help support states during economic downturns, most recently in 2009 as part of the American Recovery and Reinvestment Act (ARRA). The ARRA-enhanced FMAP rates provided states over $100 billion in additional federal funds over 11 quarters, ending in June 2011.1

Medicaid and the ACA. Effective January 1, 2014, the ACA expanded Medicaid eligibility to millions of non-elderly adults with income at or below 138% of the federal poverty level (FPL) –$17,609 per year for an individual in 2020.2 The law also provided 100% federal funding for expansion adults through 2016, phasing down to 90% in 2020 and future years. The June 2012 Supreme Court ruling on the ACA effectively made the Medicaid expansion optional for states; as of October 2020, 39 states (including DC) had adopted the expansion, including Missouri and Oklahoma, which have adopted the expansion through ballot measures and plan to implement in state fiscal year 2022.


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