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Friday, September 16, 2011

Medicaid: The Federal Medical Assistance Percentage (FMAP)

Evelyne P. Baumrucker
Analyst in Health Care Financing

Alison Mitchell
Analyst in Health Care Financing

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term care. Medicaid is jointly funded by the federal government and the states. Historically, eligibility for Medicaid was generally limited to low-income children, pregnant women, parents of dependent children, the elderly, and people with disabilities; however, recent changes will soon require coverage for certain other low-income individuals, such as childless adults. The federal government’s share of a state’s expenditures for most Medicaid services is called the federal medical assistance percentage (FMAP). The remainder is referred to as the nonfederal share, or state share.

Generally determined annually, the FMAP 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). For FY2011, regular FMAPs—that is, excluding the impact of a temporary increase—range from 50.00% to 74.73%.

A vast majority of states have experienced and continue to experience fiscal stress as a result of the recession that lasted from December 2007 to June 2009. In response, the federal government provided fiscal relief to states through the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5). While the federal government assistance was significant, the federal funding did not fully offset the decreases in state tax revenues and caseload-related growth in state expenditures. As a result, even with the increased federal assistance, most states continue to face budget issues.

The ARRA assistance to states included a temporary FMAP increase that was later extended by P.L. 111-226. In total, the temporary FMAP increase ran for 11 quarters, from the first quarter of FY2009 through the third quarter of FY2011 (i.e., October 2008 through June 2011), subject to certain requirements. The Congressional Budget Office (CBO) estimates that the original ARRA provision increased federal Medicaid payments to states by about $84 billion and that the sixmonth extension in P.L. 111-226 provided an additional $16 billion.

The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148, as amended by P.L. 111- 152) also contains a number of provisions affecting FMAPs. Most notably, it provides FMAPs of up to 100% for certain newly eligible individuals. It also provides—subject to various requirements—increased FMAPs for certain disaster-affected states and other changes to the Medicaid program.

The FY2012 House budget resolution proposes changing the financing structure of the Medicaid program. Specifically, the proposal would restructure the Medicaid program from an individual entitlement to a block grant, starting in FY2013. According to CBO’s long-term analysis of the proposal, when compared to long-term estimates of current law, federal spending for Medicaid would be 35% lower in FY2022 and 49% lower in FY2030.

This report describes the FMAP calculation used to reimburse states for most Medicaid expenditures, and it lists statutory exceptions to that rule. In addition, it discusses other Medicaid financing-related issues, including state fiscal conditions, the temporary FMAP increase, FMAP changes in PPACA, the Medicaid proposal included in the House budget resolution, and the Budget Control Act of 2011.

Date of Report:
September 9, 2011
Number of Pages:
Order Number: R
Price: $29.95

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