• GAO suggests new Medicaid formula, ctd.

    A few more details about the Medicaid formula proposed by GAO to shift the counter cyclical burden of increased Medicaid enrollment during economic downturns to the federal government:

    • They propose a national standard of when a recession exists (26 states have a employment decline), but the magnitude of the extra federal support is determined by the state-specific severity of the downturn
    • The change in federal assistance provided under the proposed formula would be calculated by comparing unemployment during a quarter as compared to the lowest unemployment level in the previous 8 quarters
    • For a state with a FMAP of 60% (federal government pays 60% of Medicaid costs), a 10 percentage point increase in the unemployment rate would result in a 10% decrease in the state share (from 40% to 36%), with the federal share rising to 64%. The figure below shows the national change in FMAP during 4th quarter 2009 had this policy been in place
    • There are multiple permutations that are considered in the report (for example, linking assistance to taxable wages and not employment), but all options considered seem to be based on the general idea that extra federal assistance be provided by Medicaid when a national recession takes place, with the amount of assistance pro-rated by how severe the recession is in a given state.
    • The comments to the report from the office of the Assistant Secretary of Planning and Evaluation (ASPE) of HHS note interest in exploring options to address problems in states or regions if a national recession threshold is not met

    Interesting, detailed report. The recommendations are based on the idea that Medicaid will remain a national safety net and that the role of the federal government will increase during economic downturns that are linked with Medicaid enrollment increases. Given the existence of such a safety net, the federal government is able to more easily and cheaply increase deficit spending during downturns as compared to states.

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    • Essentially calling for an automatic stimulus, which just seems like good policy. ARRA already did something like this by bumping the base FMAP by 6.2% to 65.2%, and then increasing that percentage based on a formula that included the state’s unemployment rate. Back when I was helping out in a state Medicaid office, this piece of legislation was literally the difference between slashing benefits when people needed it the most, or being able to skimp by, and gave the state tens of million of extra dollars.

      The only difficulty is really in winding down these sorts of dollars, especially as states can remain in economically precarious situations even as their neighbors emerge unscathed. Further, long-term systemic unemployment may necessitate longer-term commitments to the medically vulnerable. If the FMAP for these states becomes reduced, it may actually cause a significant amount of harm in the long-term as states are stuck with the bill for services that they can scarcely afford after a dismal economic period.

      • …err, 56.2%, not 65.2%.

      • @Alexander
        the argument in the GAO report is that it happens more quickly and is better targeted and stays up so long as the labor conditions are down and then reverts. The GAO report also notes that the Medicaid bumps in the ARRA weren’t all targeted to what they called fiscal issues. There are comments to the report about more focused increases, but the bottom line premise of the report is that we would respond when there was a national recession/economic problem, though you could define that in many ways.