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  • Washington Highlights

    Energy and Commerce Health Subcommittee Discusses Medicaid Financing

    Jason Kleinman, Senior Legislative Analyst, Govt. Relations

    The House Energy and Commerce Health Subcommittee held a Feb. 10 hearing to examine the federal medical assistance percentage (FMAP), Medicaid’s financing formula.

    In his opening statement, Subcommittee Chair Joe Pitts (R-Pa.) noted the hearing “presents members with an important opportunity to understand the FMAP rate” and “grapple with the challenges created by the current FMAP formula, including the ways that the current patchwork of federal matching arrangements impacts the integrity of the federal and state cost-sharing relationship.”

    Congressional Research Service Health Care Financing Analyst Alison Mitchell provided an overview of FMAP rates, which are “calculated annually by the Department of Health and Human Services and vary according to each state’s per capita income.” She explained, “The formula provides higher rates to states with lower incomes and lower rates to states with higher incomes.” Mitchell added that the per capita income amounts used in the FMAP formula include the data from the average of the three most recent calendar years, which means that “FMAP rates for a given fiscal year are several years old by the time the FMAP rates take effect.”

    Medicaid and CHIP Payment and Access Commission (MACPAC) Executive Director Anne Schwartz highlighted several concerns about the FMAP, including that it provides open-ended amounts of federal funds to states, does not incentivize states to be efficient, and does not encourage states to pursue innovations nor reward them for achieving improvements in quality or access. She added, “The Commission has noted that the differential between the federal match for services and administration exerts downward pressure on states’ willingness to invest in activities measuring utilization and quality, collecting and analyzing data, and ensuring program integrity.”

    In her testimony, Government Accountability Office (GAO) Health Care Director Carolyn Yocom reviewed GAO’s past reports that show that per capita income is a poor proxy for both the size of a state’s population in need of Medicaid services and the ability of a state to fund Medicaid. She also noted that efforts to provide states with temporary increases in the FMAP during economic downturns were not as timely or responsive as they could have been. As such, GAO recommends, “Congress consider enacting an FMAP formula that is targeted for variable state Medicaid needs and provides automatic, timely, and temporary increased FMAP assistance in response to national economic downturns.”

    Office of Inspector General (OIG) Director of Medicaid Audits John Hagg reported that OIG audits have identified that some states claim federal reimbursement for expenditures that do not qualify for enhanced FMAP matching rates, including family planning services, services provided in Indian Health Service facilities, and state adjustments to prior federal reimbursements. OIG has also found that some states use financing mechanisms to shift Medicaid costs to the federal government to distort the matching rates, including provider taxes, intergovernmental transfers and upper payment limits, and inflated payment rates.