Medicaid Formula:

Effects of Proposed Formula on Federal Shares of State Spending

HEHS-99-29R: Published: Feb 19, 1999. Publicly Released: Feb 19, 1999.

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Pursuant to a congressional request, GAO provided information on how the federal share of states' Medicaid spending would be affected if an alternate formula, known as the Equitable Federal Medical Assistance Percentage formula, replaced the existing Federal Medical Assistance Percentage formula, focusing on: (1) calculating the matching percentages; (2) how federal funding for each state would be altered by the formula; and (3) the assumptions described in the bill proposing the switch to the alternate formula.

GAO noted that: (1) using the formula and assumptions specified in the bill, federal matching percentages for fiscal year (FY) 1999 would change in most states; (2) several states would experience substantial changes; (3) for example, New York and California would have the largest matching percentage increases; (4) the federal share in New York would increase from 50 to 69 percent of its Medicaid spending, and in California from 52 to 71 percent; (5) in contrast, the greatest decreases would occur in Montana and Utah; (6) the federal share in those states would decline from 72 to 50 percent; and (7) had these revised federal matching percentages been applied to FY 1997 spending, New York would have received about $17.1 billion in federal assistance instead of the $12.4 billion it actually received, an increase of $4.8 billion, or 39 percent, California would have received an additional $3.3 billion, 38 percent more than it actually received, Montana would have received $190 million instead of $271 million, a reduction of $80 million, or 30 percent, and federal assistance to Utah would have been reduced to $134 million, 30 percent less than it actually received.

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