How Unfair Is Medicaid Funding?
By John C. Goodman • Thursday December 27, 2012 9:24 AM PDT • 2 Comments
On the average, the federal government pays about two-thirds of the costs of Medicaid, and it makes funds available to the states on a matching basis. In theory, the federal funding formula is designed to redistribute money from wealthier states to poorer states by giving poorer states a higher match for every dollar they spend. However, there is no cap on the amount the federal government matches. The more a state spends, the more it receives. In practice, states with above-average per capita incomes tend to adopt more liberal eligibility requirements and cover more people. They also tend to spend more per recipient.
For example, the average total expenditure per Medicaid enrollee in 2007 was $5,163. However, New York, a high-income state, spent twice as much as low-income Alabama ($8,450 versus $3,945).[1]
As a result, the distribution of federal dollars under the program is more consistent with a policy of taking from the poor and giving to the rich:[2]
- In 2009, Texas had 9.9 percent of the nation’s total poverty population, but received only 6.7 percent of federal Medicaid funds.
- New York, on the other hand, had about 6.6 percent of the national poverty population, but received 12.1 percent of federal Medicaid dollars.
A much fairer way to distribute funds would be to give each state a percent of federal Medicaid spending, based on its percent of the nation’s poverty population. We will save the topic of Medicaid reform for future posts. Until then, the curious reader may wish to consult my Independent Institute book, Priceless: Curing the Healthcare Crisis.
- Pamela Villarreal and Michael Barba, “Update on Federal Medicaid Funding,” National Center for Policy Analysis, Brief Analysis No. 744, May 10, 2011.
- Villarreal and Barba, “Update on Federal Medicaid Funding.”
[Cross-posted at Psychology Today]
Tags: Healthcare, Medicaid, Politics 
This is one of the more disingenuous posts that has ever been written about Medicaid which is saying a lot.
First of all, Medicaid funding is inherently redistributional as the federal matching percentage is based on the ratio between a state’s per capita income compared to the average national per capita income. As a result, Misssissippi, the poorest state in the country, has an FY 2012 matching rate of 74.18%, the highest in the country. You can make an argument about capping the higher income states about 50% and how that subsidizes them, but that is a separate issue.
In addition, the reason that New York has so much higher Medicaid expenditures is because they are willing to spend state dollars on providing care to the neediest populations. The amount you get out is equal to how much you are willing to tax yourself to provide services. The great state of Alabama offers no Medicaid coverage to childless adults and goes up to approximately $4,000 if you are a working parent, which means that if you have close to a full time job in the state, you cannot get Medicaid coverage.
Worst of all is that John Goodman has been around Medicaid and health policy for a long time and fully understands these issues. He just chooses not to bring them up in order to present the distorted picture that he posted.
Tom | Dec 28, 2012 | Reply
Tom,
I am the author of the piece that Dr. Goodman referenced on the Medicaid funding formula. You are correct in your points. However, the original intention of Medicaid was to provide health care for the poor. The size and scope of Medicaid has changed significantly so that individuals beyond poor families with children are covered. Based on your post, it appears that you favor the expanded role of Medicaid. As a result, however, this skews the funding formula. It has less of a redistributional effect than originally intended. In fact, the Government Accountability Office addressed this several years ago.
While it is certainly true that New York receives more because they spend more, it is a matter of policy differences as to whether they should. In fact, NCPA published a study 6 years ago on New York’s Medicaid system and why they spend so much money. Also in this study is an original analysis of the funding formula in which I take into account health care costs and personal income per capita by state. More money does not necessarily equate to better access and care. Fraud and abuse comes into play. By capping the federal match, states would at least have some incentive to innovate and make their programs more efficient.
Pam Villarreal | Jan 1, 2013 | Reply