The Medicaid FMAP under the ACA

Disparate Treatment of Eligible Populations Warrants Scrutiny

Congress is currently pursuing Medicaid reform as part of the American Health Care Act. Most people agree that Medicaid should help the poor, particularly those whose poverty is related to their age and disability. However, the Affordable Care Act (ACA) requires the federal government to pay a much greater share of the medical bills for nondisabled, nonpregnant adults than it does for elderly individuals, people with disabilities, children, and pregnant women.

The share of state Medicaid spending paid for by the federal government—known as the Federal Medical Assistance Percentage, or FMAP—remained relatively unchanged throughout the program’s history, until Congress and the executive branch instituted changes that have effectively expanded Medicaid and changed that share.  The new FMAP formula and expansions created two significant problems:

  • The federal government rewards states much more generously for providing services to individuals who fit the new criteria than to individuals who arguably are more in need of assistance.
  • The Medicaid expansion overlooks differences among states in their capacity to fund services for this new population, benefiting states with high per capita income at the expense of low-income states.

In this paper, Galen Institute Senior Fellow Doug Badger argues that Congress should reexamine this arrangement as it considers legislation to repeal and replace the ACA.