The Government Accountability Office (GAO) says it has found a more fair way to set federal matching rates for state spending on social programs such as Medicaid and the Children’s Health Insurance Program (CHIP). Match rates that take into account differences among states in health costs, demand for services, and tax bases would ensure taxpayers in different states bear the same burden for social programs, the GAO says.

FMAP Changes Since 2009:

Federal Medical Assistance Percentages (FMAP) mark the level of federal matching funds states receive for benefit costs of a variety of programs for low-income people, including Medicaid, CHIP, and Temporary Assistance for Needy Families (TANF). FMAP rates vary widely by state, from 50 percent to just above 70 percent, based on formulas set in statute by Congress.

The American Recovery and Reinvestment Act (ARRA) increased matching rates by 10 percentage points or more in most states, using an enhanced FMAP (eFMAP). Congress passed an eFMAP extension in 2010. The measure was intended to help states at a time when state tax revenues were falling but enrollment in social services was increasing.

The biggest new development in federal match rates will be when the Affordable Care Act (ACA) Medicaid expansion takes effect in 2014. States can choose to expand Medicaid to people with incomes up to 138 percent of the federal poverty level. Only about half of states so far plan to do so. Click here for a list of states opting in to the Medicaid expansion, from Sellers Dorsey.

In those states, the federal government will initially pay for 100 percent of costs for new Medicaid enrollees who became newly eligible for the program because of the ACA. Over several years the match rate for those Medicaid enrollees drops to 90 percent. States will receive their original, lower matching rates for new Medicaid enrollees who were already eligible for Medicaid before health reform.

GAO Recommendation to Improve Federal Match Formulas:

The GAO for years has studied whether the current FMAP rate formula is appropriate. The current formula uses one metric to set rates: state per-capita income relative to the national per-capita income. States with low per-capita income receive higher matching rates. But that measure does not account for different health costs and different levels of Medicaid usage by state.

In a new report, the GAO identifies three sources of data that could address the current FMAP formula’s shortcomings. They include:

Combining those three types of data would create a FMAP rate calculation that is more “equitable from the perspective of taxpayers,” and would “ensure that taxpayers in poorer states are not more heavily burdened than those in wealthier ones,” the GAO report says.

Read the full report here, and a one-page summary here.

Further Reading on FMAP Reform:

The GAO’s research on FMAP rates goes back at least 20 years.  Here are links to some of the office’s previous reports on the subject, with the year of publication:

Older Americans Act: Options to Better Target Need and Improve Equity, 2012.

Medicaid: Data Sets Provide Inconsistent Picture of Expenditures, 2012.

Medicaid: Prototype Formula Would Provide Automatic, Targeted Assistance to States during Economic Downturns, 2011.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of State Spending, 1999

Medicaid: Matching Formula’s Performance and Potential Modifications, 1995

Changing Medicaid Formula Can Improve Distribution of Funds to States, 1983