Kaiser Commission on Medicaid and the Uninsured: Medicaid Financing – The Basics

This issue brief from the Kaiser Commission on Medicaid and the Uninsured describes how the Medicaid program is funded by both the federal government and state governments under complex funding formulas. The federal share of Medicaid, is based on the Federal Medical Assistance Percentage (FMAP), which varies by state, from 50% in California to 74.6% for Mississippi. The FMAP is based on the average per capita income for each state relative to the national average, with the states with lower average per capita income getting a higher FMAP. The actual federal share of Medicaid is calculated using both the FMAP and a multiplier that varies each fiscal year. In Fiscal Year 2015, the total federal share of Medicaid expenses nationally was about 60%.

The Affordable Care Act (ACA) included special FMAP rules for the expansion of Medicaid to individuals with incomes below 138 percent of the Federal Poverty Level, with a 100% FMAP for Fiscal Years 2014 through 2016, and then a phased down match to 95% this Fiscal Year 2017, and then to 90% by Fiscal Year 2020. 32 states and the District of Columbia have implemented this expansion of Medicaid.

Medicaid currently is an entitlement program, with no limit on how much in federal matching funds each state can obtain; as the need for Medicaid goes up, especially in times of economic downturn, the program is designed to grow to meet those needs.

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