[Sorry for the late post – we are back on track!]
One major policy and economic lever of Medicaid is the FMAP, or Federal Medical Assistance Percentage. Unlike Medicare, which is an entirely federal program, Medicaid is a joint state-federal endeavor. This means that the state contributes money for the program, and the federal government matches it at a certain level. The federal matching rate is known as the FMAP. It is based on the state’s per capita income, so low-income states get a higher FMAP than high-income states. The FMAP is calculated every year, and can go up or down based on the economic trends in a given state. The minimum match is 50%, which means the feds match the eligible state Medicaid spending dollar-for-dollar. The current range of FMAPs is 50% to 74.17%. States with FMAPs in the 70s are bringing in almost $3 federal dollars for every state dollar they spend on Medicaid.
The original Medicaid law sets a maximum of 83%, however, there are exceptions to the baseline FMAP calculation. The feds sometimes use the FMAP as an incentive to get states to implement their Medicaid priorities. The most famous example of this is the Medicaid expansion in the Affordable Care Act. In this case, the FMAP is 100% for expansion costs between 2014-2016 (ex. the feds pay all of it), then it starts phasing down to 90%, which it reaches by 2020.
Another way the FMAP can be used is as an economic stimulus. When states are struggling, the federal government can boost the FMAP as a way to get states additional dollars. This helps in two ways: one, it puts direct relief on state budgets since more of the Medicaid budget is carried by the feds. Second, and we’ll talk more about this later, Medicaid dollars are very active in the economy – when Medicaid money comes in, it gets spent right away on goods and services. The American Recovery and Reinvestment Act of 2009 (the stimulus bill) gave a temporary boost to Medicaid FMAPs as a way to help stabilize the economy during a bad recession. The FMAP was also temporarily bumped in response to the 2001 recession, too.