Public Payers News

Do State Medicaid Programs Receive As Much As They Give to Feds?

Since federal funding distribution is so contentious, the Urban Institute analyzed whether state contributions to the federal treasury match the Medicaid funding they receive.

Medicaid, Medicaid expansion, CHIP, Medicaid spending

Source: Getty Images / Xtelligent Healthcare Media

By Kelsey Waddill

- States with lower incomes per capita often receive funding from higher income states through Medicaid and CHIP federal funding. But some low-income states without Medicaid expansion end up contributing more than they receive, an Urban Institute study asserted.

“Recent discussions about how to manage state budget crises related to the coronavirus outbreak and accompanying recession have revived long-standing debates about the distribution of federal dollars across states,” the report began.

“Specifically, discussion has centered on how much each state receives from the federal government compared with the amount each state contributes in federal tax revenues.”

The researchers first outlined the funding contribution and distribution cycle and then explored how state contributions to the federal treasury compare to the funding they receive from the federal government.

Current factors in funding distribution

Whether or not the amount that a state puts into the federal treasury balances with how much it receives from the federal government for its Medicaid program depends on a couple of different factors.

READ MORE: Medicaid Spending, Enrollment Exceed Projections Due To COVID-19

First, Medicaid and the Children’s Health Insurance Program (CHIP) are designed so that excess funds from higher income states can be used in states with fewer resources.

For example, the federal medical assistance percentage (FMAP) depends upon the state’s per capita income. CMS boosted the federal share to 6.2 percent at the beginning of the coronavirus crisis to help state Medicaid programs handle the sudden influx of demands.

Thus, states with lower incomes will receive greater federal support.

Federal spending also depends on how much the state is putting into its Medicaid programs.

“If a state has a low federal matching rate but broad eligibility and a rich benefit package, it could receive considerable federal dollars,” the report explained. “In contrast, a state with a high federal matching rate but limited eligibility and benefits could receive fewer federal dollars.”

READ MORE: Block Grants Are Not The Solution to High Medicaid Spending

And finally, state contributions to the federal treasury vary in quantity. Thus, whether states balance their own contributions with federal dollars going back into their Medicaid programs will also vary based on how much the state is giving to the federal government.

Taxes factor strongly into how states raise their contributions to the federal treasury and how much they raise.

“Because federal taxes tend to be progressive, states with lower incomes tend to pay a smaller share of federal revenues per capita than states with higher incomes,” the report stated.

Federal Medicaid contributions versus state treasury contributions

The report sought to uncover how much the federal government contributed to state Medicaid and CHIP programs as opposed to how much states gave to the federal treasury.

Medicaid and CHIP are two of the main ways that the federal government distributes funding to states, the report confirmed, often using funds from higher income states and contributing them toward lower income states.

READ MORE: CMS Enacts 6.2% FMAP Boost For Coronavirus Medicaid Spending

The researchers discovered that states with higher per capita Medicaid and CHIP spending also had higher incomes per capita and lower federal spending on their programs.

Additionally, lower income state programs spend much less on Medicaid and CHIP programs than higher income states do, even though they are receiving more federal funding.

In fact, 21 states and Washington, DC give more to the federal government than they receive and 29 states receive more from the federal government than they give to the treasury.

California, Florida, Illinois, Minnesota, New Jersey, Virginia, and Washington give the most in contributions, totaling $3 billion or more per state. Alabama, Arizona, Kentucky, Louisiana, Mississippi, North Carolina, and South Carolina receive $3 billion more than they offer to the federal treasury.

“Among the states with the highest Medicaid/CHIP spending, several are large net contributors despite also making significant federal tax contributions,” the report found.

Medicaid expansion spending is very different than non-expansion Medicaid spending.

Some states—plus Washington, DC—that expanded their Medicaid programs are still net contributors. California, which is known for its major Medicaid expansion which includes an individual mandate, is one of the largest net recipients of Medicaid expansion funding along with New York.

If states universally expanded their Medicaid programs, most of the states that have not yet expanded would be net federal funding recipients. Others would see their contributions diminish.

“There is considerable redistribution from some low-income states to other states in the financing of the ACA’s Medicaid expansion, because of the former having refused to expand Medicaid eligibility,” the report found.

For example, Texas is leaving $5.4 billion in federal funding on the table by not expanding its Medicaid program, a Texas A&M University study recently uncovered.