Home Budget & Tax News Medicaid Has Become a Cash Cow for Wealthy States

Medicaid Has Become a Cash Cow for Wealthy States

The federal government’s Medicaid reimbursement formula gives a huge funding advantage to wealthy states that lean Democrat, a new analysis finds.

“Federal law sets a state’s Medicaid matching rate based on that state’s [per capita] wealth compared to the national average,” Chris Jacobs, founder and CEO of Juniper Research Group, told Health Care News. “But that same funding formula guarantees every state a 50 percent match, meaning that a wealthy state like Connecticut—which would have a matching rate of 11.69 percent in Fiscal Year 2020 absent the guaranteed 50 percent floor—gets a far greater match.”

Section 1905(b) of the Social Security Act establishes Federal Medical Assistance Percentages, the matching rate each state receives from the federal government to support its Medicaid program. The match has a ceiling of 83 percent and a floor of 50 percent.

Advantage: Blue States

As of 2018, the average per capita income in the United States was $51,000, according to the U.S. Bureau of Economic Analysis. Income is significantly higher in several East Coast states: $83,242 in Maryland (the wealthiest state, behind the District of Columbia), $81,740 in New Jersey, $79,835 in Massachusetts, and $76,348 in Connecticut.

At those very high income levels, the federal government should match only about 10 percent of Medicaid spending, says Jacobs.

“This disproportionately high match rate encourages wealthy blue states to overspend on their Medicaid programs, raising federal costs for taxpayers in red and blue states alike,” said Jacobs.

“It also explains why New York had a budget deficit well before coronavirus hit: the state has had a bloated Medicaid program for years because of the higher federal match,” said Jacobs. “New York would have a match rate of 34.49 percent absent the 50 percent floor [which] encourages overspending.”

The annual per capita income in the two poorest states—Mississippi and West Virginia—is below $45,000. Poor states rarely hit the 83 percent ceiling, Jacobs notes in an analysis published on May 8 in The Federalist.

Cuomo: ‘Unsustainable’

The state budget troubles caused by Medicaid spending have become so large that even free-spending blue state governors are finding the price is too high, says Jacobs.

“[New York] Gov. Andrew Cuomo in January called the state’s fiscal situation ‘unsustainable’ after the state announced a $6 billion budget deficit, most of which came from Medicaid,” writes Jacobs in his Federalist analysis. “To his credit, Cuomo proposed changes to crack down on Medicaid fraud and enact other program reforms. He also criticized Congress when it passed legislation to block New York and other states from changing their Medicaid programs during the pandemic. But he has not acknowledged the underlying flaws in federal law that, by encouraging profligate state spending, created the problem in the first place.”

Congress should remove this funding disparity, says Jacobs.

“Congress should begin a process of phasing out the 50 percent minimum floor on the federal Medicaid match and stop the process of poorer red states bailing out wealthier blue ones,” said Jacobs.

Ashley Herzog (aebristow85@gmail.com) writes from Avon Lake, Ohio.

Ashley Herzog
Ashley Herzog writes from Avon Lake, Ohio.

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