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The Medicaid Matching Formula: Policy Considerations and Options for Modification

by Vic Miller, Federal Funds Information for States, Andy Schneider, Medicaid Policy, LLC, Public Policy Institute, September 2004

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The Federal Medical Assistance Percentage (FMAP) formula, which determines the federal government's financial share of each state's Medicaid services expenditures, has remained basically the same since 1965 when the program began. However, over the years, policymakers have identified several shortcomings of the formula. The essence of the formula's limitations is that it does not adequately respond to state economic capacity.

This AARP Public Policy Institute Issue Paper by Vic Miller of Federal Funds Information for States and Andy Schneider of Medicaid Policy, LLC is designed to

  • help federal and state policymakers understand how the current FMAP formula works
  • identify its shortcomings and limitations
  • discuss some of the ways in which the formula might be altered to better respond to state economic capacity and/or take into consideration numbers of persons living in poverty within a state, which it currently does not do.

In developing this paper, the authors' goals were to demonstrate that there are different approaches to modifying the FMAP and to show that their state and national impacts would not necessarily be the same. Therefore, a variety of options are presented, which can be used alone or in combination, in order to achieve desired policy goals. (63 pages)