LegiStorm

Summary:

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is a federal and state partnership that is jointly financed by both the federal government and the states. The federal government's share for most Medicaid expenditures is called the federal medical assistance percentage (FMAP). Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). Federal Medicaid funding to states is open ended. The federal government provides states a good deal of flexibility in determining the composition of the state share (also referred to as the nonfederal share) of Medicaid expenditures. As a result, there is significant variation from state to state in how the state share of Medicaid expenditures is financed. In 2014, Medicaid represented 16% of national health expenditures; in that year, private health insurance and Medicare accounted for 33% and 20% of national health expenditures, respectively. Medicaid is a significant payer in the categories of health spending that include long-term services and supports and hospital expenditures. For the other services (such as durable medical equipment, physician and clinical services, prescription drugs, and dental services), Medicaid accounts for a smaller share of the national expenditures. In FY2014, Medicaid expenditures totaled $494 billion, with the federal government paying $299 billion, or about 60% of the total. Over the next few years, Medicaid expenditures are expected to increase significantly due to the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) Medicaid expansion. The federal government is paying the vast majority of the costs associated with the ACA Medicaid expansion due to the enhanced federal matching rates available to states that choose to implement the ACA Medicaid expansion. Spending on managed care and long-term services and supports comprises more than half of Medicaid expenditures on benefits. Per-enrollee Medicaid expenditures for individuals with disabilities and the elderly are significantly higher than per-enrollee expenditures for adults and children, due in part to the higher utilization of long-term services and supports among individuals with disabilities and the elderly. Medicaid expenditures are influenced by economic, demographic, and programmatic factors. Economic factors include health care prices, unemployment rates, and individuals' wages. In addition, state-specific factors, such as programmatic decisions and demographics, affect Medicaid expenditures and cause Medicaid spending to vary widely from state to state. Medicaid constitutes a significant portion of the federal budget, and federal Medicaid expenditures are expected to increase significantly over the next 10 years due to the ACA Medicaid expansion. As a result, Medicaid could be a focus of any potential deficit reduction or other legislative proposals affecting the federal budget. This report provides an overview of Medicaid's financing structure, including both federal and state financing issues. The "Medicaid Expenditures" section of the report discusses Medicaid in terms of national health expenditures, trends in Medicaid expenditures, economic factors affecting Medicaid, and state variability in spending.