Summary: GAO discussed the formula used to share the cost of Medicaid between the federal and state governments. GAO noted that: (1) the current distribution formula to determine the federal share of Medicaid costs used per-capita income; (2) per-capita income did not reflect all of the income that states were potentially able to tax; (3) per-capita income understated the revenue-raising capacity of states with comparatively high percentages of business income; (4) the Department of the Treasury estimated states' total taxable resources (TTR) to measure income produced within the state and income state residents received, including that received from out-of-state resources; (5) per-capita income did not accurately measure poverty incidence, which resulted in some states receiving greater financing for the poor than other states; (6) replacing per-capita income with more accurate measures of states' financing capacities and poverty rates would offset the fiscal disadvantage that low-tax-base, high-poverty-rate states faced under the existing formula; and (7) lowering the guaranteed 50-percent federal share would also help to equalize the Medicaid burden facing state taxpayers.
