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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