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entitled 'Medicaid Formula: Differences in Funding Ability among States 
Often Are Widened' which was released on August 11, 2003.

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Report to the Honorable Dianne Feinstein, U.S. Senate:

United States General Accounting Office:

GAO:

July 2003:

Medicaid Formula:

Differences in Funding Ability among States Often Are Widened:

GAO-03-620:

GAO Highlights:

Highlights of GAO-03-620, a report to the Honorable Dianne Feinstein, 
United States Senate 

Why GAO Did This Study:

A primary goal in establishing Medicaid’s statutory formula, whereby 
states with lower per capita incomes (PCI) receive higher rates of 
federal reimbursement for program costs, was to narrow differences 
among states in their ability to fund Medicaid services. States’ 
ability to fund services depends on their financial resources in 
relation to their number of and costs to serve people in poverty. GAO 
and others have testified before Congress that the current formula 
does not address wide differences among states in their ability to 
fund their Medicaid programs and that the formula’s reliance on PCI is 
the primary cause. GAO was asked to determine the extent to which the 
formula narrows these differences and to identify factors that impede 
further narrowing of differences. 

To evaluate the extent to which the formula narrows differences in 
states’ funding ability, GAO used an alternative to PCI that more 
directly measures states’ resources, number of people in poverty, and 
cost of providing services to this population. Using this measure, GAO 
determined the effect of the current formula by comparing states’ 
funding ability before and after receiving their federal matching aid. 
If differences in funding ability were eliminated, the formula would 
have reduced differences by 100 percent.

What GAO Found:

The Medicaid formula narrows the average difference in states’ funding 
ability by 20 percent but often widens the gap between individual 
states and the national average. Although the receipt of federal 
matching aid moves 30 states closer to the national average, making 
the average difference in funding ability smaller, it also moves 21 
states farther away from the average, widening the average difference. 
These 21 states include 3 that are among the states with the largest 
populations in poverty—California, Florida, and New York. After 
federal matching aid is added, states’ funding ability ranges from 26 
percent below the national average for two states to 179 percent above 
for another. Because of the formula’s current structure, in many 
instances, two states devoting similar proportions of their own 
resources to Medicaid can spend very different amounts per person in 
poverty. For example, in fiscal year 2000, California and Wisconsin 
each devoted about $8 for every $1,000 of their own state resources 
toward Medicaid. However, under the current formula, Wisconsin 
receives a relatively high federal matching rate despite its 
relatively high ability to fund program services, whereas California 
receives a low federal matching rate despite its relatively low 
ability to fund program services. With the addition of federal 
matching aid, Wisconsin is enabled to spend more than twice what 
California is able to spend per person in poverty ($7,532 versus 
$3,731).  

Two factors constrain the formula from further decreasing differences 
in states’ funding ability. First, PCI is not a comprehensive 
indicator of a state’s total available resources and is a poor measure 
of the size of and cost to serve a state’s people in poverty. Second, 
the statutory provision that guarantees no state will receive less 
than a 50 percent matching rate benefits many states that already have 
above-average resources to fund health care for their populations in 
poverty. For example, 2 of the 11 states that benefit the most from 
the 50 percent “floor” receive matching rates that are 35 and 20 
percentage points higher, respectively, than the rates they would 
receive based solely on their PCI.

GAO received comments on a draft of this report from two external 
reviewers who have Medicaid formula expertise. They generally agreed 
with the analysis and provided technical comments, which were 
incorporated as appropriate.

www.gao.gov/cgi-bin/getrpt?GAO-03-620.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Kathryn G. Allen at 
(202) 512-7118.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Medicaid Formula Narrows Differences in Some States' Funding Ability 
and Widens Differences in Others:

Use of PCI and 50 Percent Floor Inhibits Formula's Ability to Further 
Narrow Differences in States' Funding Ability:

Comments from External Reviewers:

Appendix I: Legislative History and Description of the Matching 
Formula:

Legislative History of the Medicaid Formula:

Current Medicaid Matching Formula:

Appendix II: Methodology:

Measuring States' Funding Ability:

Measuring State Resources:

Measuring People in Poverty and the Costs to Provide Them Program 
Services:

Calculating States' Ability to Fund Medicaid Services without and with 
Value of Federal Matching Aid Added:

Comparing Proportion of States' Resources Devoted to Medicaid with 
Their Total Spending per Person in Poverty:

Tables:

Table 1: States Benefiting from Minimum Matching Rate Provisions, 
Fiscal Year 2002, and Their Matching Rates without the Minimums:

Table 2: Medicaid Matching Rates for Fiscal Years 2002-2004:

Table 3: States' Ability to Fund Program Services without and with the 
Value of Fiscal Year 2000 Federal Matching Aid Added:

Table 4: Comparison of PCI with TTR, 3-Year Averages, 1996-98:

Table 5: Distribution of Population in Poverty, by Age Group, 5-Year 
Averages, 1995-99:

Table 6: Weights for Age Groups to Reflect Cost Differences and 
Medicaid Program Participation:

Table 7: Comparison of Official and Cost-Adjusted Poverty Rates, 5-Year 
Averages, 1995-99:

Table 8: Wage, Rent, and Health Care Cost Indexes, by State:

Table 9: States' Funding Ability without and with the Value of Fiscal 
Year 2000 Federal Matching Aid Added:

Table 10: Proportion of State Resources Devoted to Medicaid per $1,000 
of TTR Compared with Total Medicaid Spending per Person in Poverty, 
Cost Adjusted, Fiscal Year 2000:

Figures:

Figure 1: States' Funding Ability Compared with the National Average, 
without and with the Value of Federal Matching Aid Added:

Figure 2: Proportion of State Resources Devoted to Medicaid, Compared 
with Total (State plus Federal) Medicaid Spending, Fiscal Year 2000:

Figure 3: Proportion of State Resources Devoted to Medicaid Compared 
with Program Spending per Person in Poverty, as a Percentage of the 
National Average, Selected States, Fiscal Year 2000:

Figure 4: States' per Capita TTR and PCI, 1996-98:

Figure 5: Comparison of States' PCIs with Their People in Poverty, Cost 
Adjusted:

Abbreviations:

BEA: Bureau of Economic Analysis:  

BLS: Bureau of Labor Statistics:  

CMS: Centers for Medicare & Medicaid Services:  

CPS: Current Population Survey:  

DSH: disproportionate share hospital:  

EPSDT: Early and Periodic Screening, Diagnostic, and Treatment:  

FMAP: Federal Medical Assistance Percentage:  

FPL: federal poverty level:  

GSP: Gross State Product:  

HUD: Department of Housing and Urban Development:  

PCI: per capita income: 

PPS: Prospective Payment System:  

SIC: Standard Industrial Classification:  

SPI: state personal income:  

SSA: Social Security Administration:  

TTR: Total Taxable Resources:

United States General Accounting Office:

Washington, DC 20548:

July 10, 2003:

The Honorable Dianne Feinstein 
United States Senate:

Dear Senator Feinstein:

Created in 1965, Medicaid is the largest federal program assisting 
states in financing medical and health-related services for certain 
categories of the country's low-income population. In fiscal year 
2000,[Footnote 1] Medicaid served about 43 million beneficiaries and 
had expenditures totaling about $196 billion, $111 billion of which was 
financed by the federal government and the rest financed by the 
states.[Footnote 2] The federal share of total Medicaid program costs 
is determined using a statutory formula that calculates the portion of 
each state's Medicaid expenditures that the federal government will 
pay, known as the Federal Medical Assistance Percentage (FMAP), 
referred to in this report as the federal matching rate.[Footnote 3] 
The formula calculates the federal matching rate for each state on the 
basis of its per capita income (PCI) in relation to national PCI. 
States with a low PCI receive a higher federal matching rate, and 
states with a high PCI receive a lower rate. The Medicaid statute also 
provides for a 50 percent minimum federal matching rate ("50 percent 
floor") that reflects a federal commitment to fund at least half the 
cost of each state's program.[Footnote 4]

One of the goals of the formula has been to narrow differences among 
states in their ability to fund Medicaid services, which is determined 
by a state's financial resources in relation to its low-income 
population. By providing higher matching rates to states with low PCI, 
it was expected that these states would be in a better position to 
provide health care services to low-income populations. (App. I 
contains a legislative history of the formula.):

In 1995, we and other witnesses testified before the Senate Committee 
on Finance that the current Medicaid formula did not adequately address 
wide differences among states in their ability to fund program services 
and that the formula's reliance on PCI is the primary cause. Witnesses 
generally testified that PCI is an unreliable indicator of states' 
ability to fund Medicaid programs.[Footnote 5]

Because the formula has not been changed since the program's inception 
and concerns persist regarding its performance with respect to 
narrowing differences in states' ability to fund program services, you 
asked us to address the following questions: (1) To what extent does 
the Medicaid formula reduce differences in states' ability to fund 
program services? (2) What factors prevent the formula from further 
narrowing differences in states' funding ability?

To evaluate the extent to which the formula narrows differences in 
states' ability to fund program services, we defined a state's ability 
to fund its Medicaid programs as the financial resources potentially 
subject to state taxation relative to its number of low-income 
residents, adjusted for the cost of providing health care to 
them.[Footnote 6] For state resources, we used Total Taxable Resources 
(TTR), a measure of all income potentially subject to taxation that is 
either produced within a state or received by state residents from out-
of-state sources. TTR is reported annually by the Department of the 
Treasury.[Footnote 7] To determine the number of low-income people in 
each state ("people in poverty"), we obtained the Bureau of the 
Census's counts of people with incomes at or below the federal poverty 
level (FPL).[Footnote 8] We adjusted the counts of people in poverty to 
reflect (1) the higher cost of serving the elderly, who utilize health 
care services at higher rates than other age groups, and (2) geographic 
differences in the cost of medical personnel, facilities, and supplies 
used to deliver health care services. To adjust for age differences in 
people in poverty, we used data on Medicaid spending by age group from 
the Department of Health and Human Services' (HHS) Centers for Medicare 
& Medicaid Services (CMS).[Footnote 9] We used 5-year averages of 
people in poverty for each age group for 1995 through 1999 to increase 
the reliability of the state-level population counts because they are 
subject to statistical error, especially in smaller states. To measure 
geographic differences in the cost of medical personnel, facilities, 
and supplies, we used data from the Department of Labor's Bureau of 
Labor Statistics (BLS) and from the Department of Housing and Urban 
Development (HUD).

We compared states' funding ability from their own resources with their 
funding ability after their resources have been augmented to include 
the value of the federal Medicaid matching aid they receive. Throughout 
this report, we refer to augmenting a state's taxable resources this 
way as state funding ability with the "value" of federal matching aid 
included. If differences in funding ability were completely eliminated 
by adding the value of federal matching aid, the formula would have 
reduced differences in states' funding ability by 100 percent. We did 
our work between June 2001 and June 2003 in accordance with generally 
accepted government auditing standards. (App. II provides a more 
detailed discussion of our methodology.):

Results in Brief:

The current Medicaid formula narrows the average differences in states' 
funding ability by 20 percent, but it often widens the gap between 
individual states and the national average. Although the formula moves 
30 states closer to the national average funding ability after they 
receive their federal matching aid, making the average differences in 
funding ability smaller, it moves 21 states farther away, including 3 
states that have 30 percent of the nation's population in poverty--
California, Florida, and New York. After the value of federal matching 
aid is added, states' funding ability ranges from 26 percent below the 
national average for two states to 179 percent above the national 
average for another. Because of the formula's current structure, in 
many instances two states devoting roughly the same proportion of their 
resources to Medicaid are able to spend very different amounts per 
person in poverty. For example, in fiscal year 2000, Wisconsin and 
California devoted the same proportion of their states' own resources 
to fund their Medicaid programs (about $8 per $1,000 of TTR). Yet, 
after receiving federal matching aid, Wisconsin's funding ability was 
almost 50 percent above the national average and California's was 26 
percent below the national average. Because the current Medicaid 
matching formula does not reflect the fact that Wisconsin has fewer 
people in poverty and lower costs to provide health care services to 
its population in poverty than California, Wisconsin's federal matching 
aid enables it to spend more than twice what California could spend per 
person in poverty--$7,532 compared with $3,731.

Two factors prevent the Medicaid formula from further narrowing 
differences in states' funding abilities. First, the formula uses PCI 
to calculate the federal matching rate, but it is a poor proxy measure 
for the components of funding ability--states' resources and the size 
of and costs to serve their populations potentially eligible for 
Medicaid services. Second, the 50 percent minimum federal matching rate 
disproportionately benefits states that already have above-average 
resources to fund health care for their populations in poverty. The 50 
percent "floor" thus prevents further narrowing of funding abilities by 
giving some states federal matching rates significantly higher than 
they would otherwise receive without the floor.

We received comments on a draft of this report from two external 
reviewers with Medicaid formula expertise. They generally agreed with 
our analysis and provided technical comments, which we incorporated as 
appropriate.

Background:

Medicaid eligibility is determined by several factors, including an 
individual's or a family's income in relation to the FPL, age, and 
eligibility for certain other federal program benefits. For example, 
federal law requires state programs to cover pregnant women and 
children under age 6 if their family income is at or below 133 percent 
of the FPL, children under age 19 in families with incomes at or below 
the FPL, and individuals who receive Supplemental Security Income 
because they have disabling conditions.[Footnote 10] For most covered 
populations, state Medicaid programs are required to offer certain 
benefits, such as physician services, inpatient and outpatient hospital 
services, and nursing facility and home health services. State Medicaid 
programs must provide Early and Periodic Screening, Diagnostic, and 
Treatment (EPSDT) services for most children,[Footnote 11] intended as 
comprehensive, periodic evaluations of children's health and 
developmental history, that include vision, hearing, and dental 
screening.

States' Medicaid programs can differ dramatically because states may 
expand their programs beyond the minimum requirements to cover, for 
example, individuals whose incomes exceed federally mandated 
eligibility thresholds and optional services, such as prosthetic 
devices and prescription drugs. For example, a state may extend 
Medicaid eligibility to certain population groups, such as pregnant 
women who have family incomes above 133 percent of the FPL, or make 
optional services such as prescription drugs available to its entire 
covered population.

Since the Medicaid program began, total program costs have been 
apportioned between states and the federal government using a formula 
that provides more generous federal matching aid to states with lower 
PCI.[Footnote 12] The use of PCI in federal grant formulas dates to 
1946, when it was chosen as a proxy for a state's ability to fund 
public services. Consistent with the purpose described in the formula's 
legislative history, PCI is used as a proxy for both state resources 
and the low-income population. As a state's PCI increases, relative to 
the national average, the formula provides for a decreasing federal 
matching rate, meaning the federal government shares a smaller portion 
of a state's costs. By statute, the federal matching rate may range 
from 50 percent to 83 percent.[Footnote 13] The formula's multiplier, 
currently 0.45, represents the state's share of its total Medicaid 
costs for a state with PCI equal to the national average, and the 
federal government thus pays a 55 percent share of total costs.

Medicaid Formula Narrows Differences in Some States' Funding Ability 
and Widens Differences in Others:

The Medicaid formula reduces by 20 percent the differences among states 
in their ability to fund program services, compared with the national 
average funding ability. While the formula narrows differences for 30 
states, making the average difference in funding ability smaller, it 
moves 21 states farther away from the national average, making the 
average difference wider. These 21 states include 3 that are among 
those with the largest populations in poverty--California, Florida, and 
New York. Because of the formula's current structure, in many 
instances, two states devoting the same proportion of their own 
resources toward funding Medicaid services are unable, after receiving 
federal matching aid, to spend the same amounts per person in poverty, 
adjusted for cost differences related to age and geographic location.

Formula Reduces Overall Differences in States' Funding Ability by 20 
Percent:

Because state resources, numbers of people in poverty, and the cost of 
serving this population vary widely across the states, there also are 
wide differences in states' ability to fund health care services. 
Considering these indicators of state funding ability, Alaska has the 
highest funding ability--exceeding the national average by 119 percent-
-and Mississippi has the lowest funding ability--46 percent below the 
national average, as measured using states' TTR and the number of 
people in poverty, adjusting the poverty count for age and geographic 
cost differences (see fig. 1). Nationwide, the average difference 
between a state's funding ability and that of the average state is 22.7 
percent.[Footnote 14] Nineteen states have funding ability 25 percent 
or more above the national average, and 10 states have funding ability 
25 percent or more below the national average.

After the value of federal matching aid is added to states' own 
resources, the average difference in states' funding ability drops from 
22.7 percent to 18.1 percent. This represents a 20 percent reduction of 
aggregate differences in states' funding ability.[Footnote 15] After 
the receipt of federal matching aid, differences in states' funding 
abilities ranged from 26 percent below the national average for 
California and New York to 179 percent above for Alaska.

Figure 1: States' Funding Ability Compared with the National Average, 
without and with the Value of Federal Matching Aid Added:

[See PDF for image]

Note: GAO analysis of data from HHS, HUD, and the Departments of 
Commerce, Labor, and the Treasury.

[End of figure]

Funding Ability of 21 States Moves Farther from Average State's Funding 
Ability after Federal Match Is Added:

The aggregate 20 percent reduction of differences in states' funding 
ability under the formula masks the effect of the formula on individual 
states. For example, as shown in figure 1, consistent with the 
formula's goals, the one-quarter of states with the lowest funding 
ability before the match move closer to the average state's funding 
ability after the value of the federal match is added.[Footnote 16] In 
total, 30 states move closer to the national average after adding the 
federal match. However, as the right panel of figure 1 shows, adding 
the value of federal matching aid often has inconsistent effects. For 
example, including the value of federal matching aid moves Alaska's and 
Utah's funding ability farther above, rather than closer to, the 
national average funding ability. This happens because PCI does not 
adequately reflect that these two states have fewer people in poverty 
than the national average. In addition, Utah has lower-than-average 
costs to provide health care services. The current formula actually 
moves 21 states farther above or below the average:

* Four of the 21 states--California, Florida, Hawaii, and New York--
have below-average funding ability before federal matching aid is added 
and move farther below the average after federal matching aid is added. 
These 4 states have approximately 31 percent of the nation's people in 
poverty. For example, California's funding ability drops from 15 
percent below the average to 26 percent below the average and New 
York's funding ability drops from 12 percent below the average to 26 
percent below the average. These two states thus rank last in terms of 
state funding ability after the value of federal matching aid is added.

* Thirteen states that have above-average funding ability before adding 
the value of federal matching aid move farther above the average after 
it is added.[Footnote 17] For example, Utah's funding ability is 73 
percent above the national average before the federal match is added 
but increases to 155 percent above the national average after the 
match.

* Of the 4 remaining states, 3--Idaho, Maine, and North Dakota--have 
below-average funding ability before the match is added and above-
average funding ability after the match is added. For the fourth state-
-Rhode Island--the reverse is true: Rhode Island has above-average 
funding ability before the match and below-average funding ability 
after the match is added.

Many States Devoting the Same Proportion of Their Own Resources to 
Medicaid Cannot Spend Comparable Amounts per Person:

States commit widely varying proportions of their own financial 
resources to fund Medicaid benefits. For example, in fiscal year 2000, 
New York devoted $18.16 per $1,000 of its TTR toward its Medicaid 
program,[Footnote 18] roughly 5 times the proportion of resources that 
Utah devoted ($3.74 per $1,000) (see left panel of fig. 2). States' 
Medicaid cost-adjusted spending per person in poverty varies as well. 
For example, Alaska's combined federal and state spending was over 
$10,000 per person in poverty, while Nevada's spending was 
approximately $2,500 per person in poverty (see right panel of fig. 2).

Figure 2: Proportion of State Resources Devoted to Medicaid, Compared 
with Total (State plus Federal) Medicaid Spending, Fiscal Year 2000:

[See PDF for image]

Note: GAO analysis of data from HHS, HUD, and the Departments of 
Commerce, Labor, and the Treasury.

[A] Medicaid spending per person is total spending (state and federal) 
per person in poverty after adjusting for cost differences related to 
age and geographic location.

[End of figure]

Because the federal matching formula does not fully eliminate 
differences in states' funding ability, states devoting similar 
proportions of their own resources to Medicaid cannot spend the same 
amounts per person in poverty, cost adjusted, with federal matching aid 
factored in. In addition, because the formula further increases the 
already high funding ability of some states and decreases the low 
funding ability of others, these spending differences can be quite 
large. For example, in fiscal year 2000, both California and Wisconsin 
devoted roughly the same proportion of their own resources to fund 
program benefits--about $8 per $1,000 of taxable resources--which was 
close to the national average ($8.37) proportion of resources states 
devoted to Medicaid that year. However, the current formula moved 
California's below-average funding ability farther below the national 
average and increased Wisconsin's above-average funding ability farther 
above. This occurred because Wisconsin receives a high federal match 
despite its relatively high funding ability, whereas California 
receives a low federal match despite its relatively low funding 
ability. Once federal matching aid was factored in, with their nearly 
identical funding effort, Wisconsin is enabled to spend more than twice 
what California could spend per person in poverty--$7,532 compared with 
$3,731. Similarly, Florida and Iowa each devoted $6.48 per $1,000 in 
state resources toward their Medicaid programs. After adding the 
federal match, Iowa could spend $6,729 per person in poverty, cost 
adjusted, while Florida could spend just $3,160 per person. (See fig. 
3.):

Figure 3: Proportion of State Resources Devoted to Medicaid Compared 
with Program Spending per Person in Poverty, as a Percentage of the 
National Average, Selected States, Fiscal Year 2000:

[See PDF for image]

Notes: Spending per person in poverty includes cost adjustments for 
differences in age and geographic location. GAO analysis of data from 
HHS, HUD, and the Departments of Commerce, Labor, and the Treasury.

[End of figure]

Use of PCI and 50 Percent Floor Inhibits Formula's Ability to Further 
Narrow Differences in States' Funding Ability:

Two factors prevent the Medicaid formula from further reducing 
differences in states' funding ability. First, PCI--the single measure 
used to establish federal matching rates--is not a comprehensive 
measure of state resources and is a poor proxy for the size of and cost 
to serve a state's population in poverty. Second, special statutory 
provisions, including the minimum 50 percent federal matching rate, 
give several states with already high funding ability a higher federal 
matching rate than they would receive without these provisions.

PCI Is Not a Comprehensive Measure of States' Resources and Is a Poor 
Proxy for the Size of and Cost to Provide Services to Their People in 
Poverty:

PCI is an inadequate measure of states' funding ability because it is 
an incomplete measure of states' resources, it is a poor proxy for the 
size of a state's population in poverty, and it does not take into 
account differences in the cost of providing health care services to 
people in poverty. As an indicator of state resources, PCI measures 
income received by state residents, such as wages, rents, and interest 
income, but it does not include other sources of income potentially 
subject to state taxation, such as corporate income produced within the 
state but not received by state residents. For example, PCI especially 
understates the taxable resources in energy-exporting states, such as 
Alaska and Wyoming, and in states that house numerous corporate 
headquarters, such as Delaware.

By comparison, because TTR comprises the income included in PCI as well 
as income from other sources, such as corporate income and capital 
gains, states' TTR exceeds PCI by about 32 percent nationwide.[Footnote 
19] As shown in figure 4, which compares states' TTR with PCI, states 
whose resources are particularly poorly represented by PCI include the 
District of Columbia, Delaware, Alaska, and Wyoming.

Figure 4: States' per Capita TTR and PCI, 1996-98:

[See PDF for image]

Notes: TTR comprises the income included in PCI as well as income from 
other sources, such as corporate income and capital gains. GAO analysis 
of data from the Departments of Commerce and the Treasury.

[End of figure]

Using PCI to measure the size of a state's low-income population 
assumes that the lower a state's PCI, the greater its population in 
poverty. However, two states with similar PCIs may differ widely in 
their percentages of people in poverty. In addition, PCI is not a good 
proxy for the differences in the cost of providing health care services 
that are related to the ages of the population served and the 
geographic area in which services are provided. Persons who are elderly 
typically use health care services at higher rates than adults and 
children and therefore cost more to serve. Two states with low PCIs may 
have very different proportions of elderly persons potentially eligible 
for Medicaid. In addition, costs to provide health care services vary 
widely depending on geographic location because wages and other costs 
of office space vary regionally. For example, the District of Columbia 
and Connecticut have similar PCIs, but the share of the District's 
population in poverty is more than twice Connecticut's. Health care 
costs also are 10 percent higher in the District than in Connecticut. 
(Fig. 5 compares state rankings by PCI and by people in poverty, 
adjusted for cost differences related to age and geographic location.):

Figure 5: Comparison of States' PCIs with Their People in Poverty, Cost 
Adjusted:

[See PDF for image]

Note: GAO analysis of data from HHS, HUD, and the Departments of 
Commerce, Labor, and the Treasury.

[A] People in poverty refers to people with incomes at or below the 
FPL, adjusted for cost differences related to age and geographic 
location.

[End of figure]

Minimum Federal Match Generally Helps States That Already Have High 
Funding Ability:

Because of the 50 percent floor, 11 states received higher federal 
matching rates in fiscal year 2002 than they would have if their rates 
had been based only on their PCI. Two others--Alaska and the District 
of Columbia--received special federal matching rates set in statutes 
that gave them higher matching rates than they would have received 
solely on the basis of PCI.[Footnote 20] (See table 1.):

Table 1: States Benefiting from Minimum Matching Rate Provisions, 
Fiscal Year 2002, and Their Matching Rates without the Minimums:

State: Alaska; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 219; Numbers in percent: 
Minimum federal matching rate: 57.38; Numbers in percent: Federal 
matching rate without minimum match: 53.01; Numbers in percent: 
Percentage point difference: -4.37.

State: New Hampshire; Numbers in percent: Funding ability without 
federal match (as a percentage of national average): 179; Numbers in 
percent: Minimum federal matching rate: 50.00; Numbers in percent: 
Federal matching rate without minimum match: 47.36; Numbers in percent: 
Percentage point difference: -2.64.

State: Connecticut; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 176; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 14.99; Numbers in percent: 
Percentage point difference: -35.01.

State: Colorado; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 165; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 46.22; Numbers in percent: 
Percentage point difference: -3.78.

State: Delaware; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 162; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 48.13; Numbers in percent: 
Percentage point difference: -1.87.

State: New Jersey; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 160; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 29.60; Numbers in percent: 
Percentage point difference: -20.40.

State: Maryland; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 143; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 42.32; Numbers in percent: 
Percentage point difference: -7.68.

State: Minnesota; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 143; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 48.03; Numbers in percent: 
Percentage point difference: -1.97.

State: Illinois; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 131; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 46.09; Numbers in percent: 
Percentage point difference: -3.91.

State: Massachusetts; Numbers in percent: Funding ability without 
federal match (as a percentage of national average): 131; Numbers in 
percent: Minimum federal matching rate: 50.00; Numbers in percent: 
Federal matching rate without minimum match: 32.27; Numbers in percent: 
Percentage point difference: -17.73.

State: Nevada; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 126; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 46.62; Numbers in percent: 
Percentage point difference: -3.38.

State: New York; Numbers in percent: Funding ability without federal 
match (as a percentage of national average): 88; Numbers in percent: 
Minimum federal matching rate: 50.00; Numbers in percent: Federal 
matching rate without minimum match: 37.14; Numbers in percent: 
Percentage point difference: -12.86.

State: District of Columbia; Numbers in percent: Funding ability 
without federal match (as a percentage of national average): 71; 
Numbers in percent: Minimum federal matching rate: 70.00; Numbers in 
percent: Federal matching rate without minimum match: 12.99; Numbers in 
percent: Percentage point difference: -57.01.

Source: HHS.

Notes: States are listed in decreasing order of funding ability. GAO 
analysis of data from HHS.

[End of table]

Eleven of these 13 states (all except the District of Columbia and New 
York) had above-average funding ability in fiscal year 2002. Their 
receipt of a higher federal matching rate than they would have received 
without statutory minimums increases the overall differences in funding 
ability among the states. Connecticut and New Jersey benefit the most 
from the statutory minimums, receiving--as a result of the 50 percent 
floor--matching rates that are 35 and 20 percentage points higher, 
respectively, than the rates they would have received based solely on 
their PCI. Receiving a higher matching rate than what the formula 
provides on the basis of PCI enables these states to spend more on 
program benefits per person in poverty than states with less funding 
ability that devote a higher percentage of their resources to funding 
program benefits.

The statutory minimums benefit the District of Columbia and New York by 
providing them a higher matching rate than they would otherwise have. 
Because these two states have below-average funding ability, the 
minimum matching provisions have the effect of moving them closer to 
the funding ability of the average state and thus help to reduce 
overall differences in funding ability among the states. For example, 
New York's funding ability without the value of federal matching aid 
added is 12 percent below the average funding ability; with the value 
of federal matching aid added, its funding ability is farther from the 
average funding ability--26 percent below the average. Without the 
floor, New York's matching rate would be 37 percent, rather than 50 
percent. Therefore, the 50 percent minimum brings New York's funding 
ability closer to the average funding ability than it would be with the 
matching rate it would receive without the minimum.

Comments from External Reviewers:

We received comments on our draft report from two external reviewers 
who have Medicaid formula expertise. The reviewers generally agreed 
with our analysis and provided technical comments, which we 
incorporated as appropriate.

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time, we will send copies of this report 
to appropriate congressional committees and will make copies available 
to others on request. In addition, the report will be available at no 
charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please call 
me at (202) 512-7118 or Jerry Fastrup at (202) 512-7211. Major 
contributors to this report include Richard Horte, Robert Dinkelmeyer, 
Michael Williams, Elizabeth T. Morrison, and Michael Rose.

Sincerely yours,

Kathryn G. Allen 
Director, Health Care--Medicaid and Private Health Insurance Issues:

Signed by Kathryn G. Allen: 

[End of section]

Appendix I: Legislative History and Description of the Matching 
Formula:

This appendix summarizes the legislative history that led to the use of 
per capita income (PCI) in the Medicaid matching formula and describes 
how matching rates are calculated.

Legislative History of the Medicaid Formula:

The current formula is an outgrowth of variable rate matching formulas 
first discussed by Congress in the late 1940s. Senate reports 
accompanying the Social Security Act Amendments of 1946 first 
articulated, in the case of public assistance, the rationale for a 
variable rate matching formula based on state PCI:

Federal grants-in-aid for public assistance are intended to help in 
aiding the aged and blind persons and dependent children in all parts 
of the country and to some extent to equalize the financial burden 
throughout the Nation. . . . The present 50 percent basis of Federal 
participation does not recognize differences in the ability of States 
to finance public assistance, nor does it recognize the greater 
incidence of poverty in States with low economic resources. To assist 
their needy people, the low income States must make greater tax effort 
than States with larger resources where relatively fewer persons are in 
need.[Footnote 21]

The Social Security Amendments of 1958 established a PCI-based variable 
rate matching formula, with certain maximums, for public assistance and 
reimbursement of medical providers. Under this formula, federal 
matching rates ranged from a minimum of 50 percent for high-income 
states to a maximum of 65 percent for low-income states.[Footnote 22] 
The Social Security Amendments of 1960 increased the maximum matching 
rate from 65 percent to 80 percent.[Footnote 23]

Current Medicaid Matching Formula:

When Medicaid was created in 1965, it (1) was structured as an open-
ended entitlement for eligible low-income individuals without limits on 
the maximum dollar amount subject to reimbursement, as in predecessor 
programs;[Footnote 24] (2) increased the federal government's total 
nationwide share financed from 50 to 55 percent; and (3) raised the 
maximum federal matching rate from 80 to 83 percent.[Footnote 25] The 
statutory matching formula, known as the Federal Medical Assistance 
Percentage (FMAP), used for calculating matching rates is:

[See PDF for image]

[End of formula]

The current matching formula is calibrated with a 0.45 "multiplier." 
The value of the multiplier determines the percentage of a state's 
Medicaid spending for which the state is responsible. For example, 
using the 0.45 multiplier, a state with a PCI equal to the U.S. average 
would receive a federal matching rate of 55 percent (1 - 0.45 = 0.55). 
A smaller multiplier of 0.40 would raise the federal matching rate for 
all states and would raise the matching rate for a state with the 
national average PCI from 55 percent to 60 percent, whereas a higher 
multiplier of 50 percent would reduce the federal matching rate for a 
state with average PCI from 55 percent to 50 percent.

Relative PCI is intended to represent states' funding ability, which is 
a combination of states' resources and states' people in 
poverty.[Footnote 26] Consistent with this intent, squaring PCI has the 
effect of making PCI appear in the formula twice, thus reflecting both 
state resources and people in poverty. Squaring PCI magnifies the 
difference between the state's and the national average PCI. For 
example, if a state's PCI is 90 percent of the national average, the 
squared value of its relative PCI would be 81 percent (0.9 x 0.9 = 
0.81), resulting in a federal matching rate of 64 percent (that is, 
1.00 - 0.45 x 0.81 = 0.64), rather than the 60 percent rate the state 
would receive if relative income was not squared (that is, 1.00 - 0.45 
x 0.9 = 0.60). If PCI were a good proxy for people in poverty, squaring 
would be appropriate since squaring would reflect the effect on states' 
funding ability of both resources and people in poverty. However, to 
the extent that PCI does not accurately reflect state resources and 
people in poverty, squaring magnifies this inaccuracy.

The Department of Health and Human Services (HHS) is responsible for 
calculating matching rates under the formula. HHS is required to 
calculate matching rates 1 year before the fiscal year in which they 
are effective, using a 3-year average of the most recently available 
PCI data reported by the Department of Commerce. Thus, fiscal year 2003 
matching rates were calculated at the beginning of fiscal year 2002 
using a 3-year average of PCI for 1998 through 2000. Publicly 
announcing matching rates a year in advance of their use allows states 
time to make program changes in response to changes in the rate at 
which the federal government will reimburse eligible program costs. 
However, the combination of a 1-year lag between the computation of 
state matching rates and their implementation, coupled with the fact 
that a 3-year average of PCI is used, also means that the distribution 
of states' matching rates reflects economic conditions that existed 
several years earlier. Federal matching rates for fiscal years 2002 
through 2004 are shown in table 2.

Table 2: Medicaid Matching Rates for Fiscal Years 2002-2004:

State: Alabama; Fiscal year: 2002: 70.45; Fiscal year: 2003: 70.60; 
Fiscal year: 2004: 70.75.

State: Alaska; Fiscal year: 2002: 57.38; Fiscal year: 2003: 58.27; 
Fiscal year: 2004: 58.39.

State: Arizona; Fiscal year: 2002: 64.98; Fiscal year: 2003: 67.25; 
Fiscal year: 2004: 67.26.

State: Arkansas; Fiscal year: 2002: 72.64; Fiscal year: 2003: 74.28; 
Fiscal year: 2004: 74.67.

State: California; Fiscal year: 2002: 51.40; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: Colorado; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: Connecticut; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: Delaware; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: District of Columbia; Fiscal year: 2002: 70.00; Fiscal year: 
2003: 70.00; Fiscal year: 2004: 70.00.

State: Florida; Fiscal year: 2002: 56.43; Fiscal year: 2003: 58.83; 
Fiscal year: 2004: 58.93.

State: Georgia; Fiscal year: 2002: 59.00; Fiscal year: 2003: 59.60; 
Fiscal year: 2004: 59.58.

State: Hawaii; Fiscal year: 2002: 56.34; Fiscal year: 2003: 58.77; 
Fiscal year: 2004: 58.90.

State: Idaho; Fiscal year: 2002: 71.02; Fiscal year: 2003: 70.96; 
Fiscal year: 2004: 70.46.

State: Illinois; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: Indiana; Fiscal year: 2002: 62.04; Fiscal year: 2003: 61.97; 
Fiscal year: 2004: 62.32.

State: Iowa; Fiscal year: 2002: 62.86; Fiscal year: 2003: 63.50; Fiscal 
year: 2004: 63.93.

State: Kansas; Fiscal year: 2002: 60.20; Fiscal year: 2003: 60.15; 
Fiscal year: 2004: 60.82.

State: Kentucky; Fiscal year: 2002: 69.94; Fiscal year: 2003: 69.89; 
Fiscal year: 2004: 70.09.

State: Louisiana; Fiscal year: 2002: 70.30; Fiscal year: 2003: 71.28; 
Fiscal year: 2004: 71.63.

State: Maine; Fiscal year: 2002: 66.58; Fiscal year: 2003: 66.22; 
Fiscal year: 2004: 66.01.

State: Maryland; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: Massachusetts; Fiscal year: 2002: 50.00; Fiscal year: 2003: 
50.00; Fiscal year: 2004: 50.00.

State: Michigan; Fiscal year: 2002: 56.36; Fiscal year: 2003: 55.42; 
Fiscal year: 2004: 55.89.

State: Minnesota; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: Mississippi; Fiscal year: 2002: 76.09; Fiscal year: 2003: 76.62; 
Fiscal year: 2004: 77.08.

State: Missouri; Fiscal year: 2002: 61.06; Fiscal year: 2003: 61.23; 
Fiscal year: 2004: 61.47.

State: Montana; Fiscal year: 2002: 72.83; Fiscal year: 2003: 72.96; 
Fiscal year: 2004: 72.85.

State: Nebraska; Fiscal year: 2002: 59.55; Fiscal year: 2003: 59.52; 
Fiscal year: 2004: 59.89.

State: Nevada; Fiscal year: 2002: 50.00; Fiscal year: 2003: 52.39; 
Fiscal year: 2004: 54.93.

State: New Hampshire; Fiscal year: 2002: 50.00; Fiscal year: 2003: 
50.00; Fiscal year: 2004: 50.00.

State: New Jersey; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: New Mexico; Fiscal year: 2002: 73.04; Fiscal year: 2003: 74.56; 
Fiscal year: 2004: 74.85.

State: New York; Fiscal year: 2002: 50.00; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: North Carolina; Fiscal year: 2002: 61.46; Fiscal year: 2003: 
62.56; Fiscal year: 2004: 62.85.

State: North Dakota; Fiscal year: 2002: 69.87; Fiscal year: 2003: 
68.36; Fiscal year: 2004: 68.31.

State: Ohio; Fiscal year: 2002: 58.78; Fiscal year: 2003: 58.83; Fiscal 
year: 2004: 59.23.

State: Oklahoma; Fiscal year: 2002: 70.43; Fiscal year: 2003: 70.56; 
Fiscal year: 2004: 70.24.

State: Oregon; Fiscal year: 2002: 59.20; Fiscal year: 2003: 60.16; 
Fiscal year: 2004: 60.81.

State: Pennsylvania; Fiscal year: 2002: 54.65; Fiscal year: 2003: 
54.69; Fiscal year: 2004: 54.76.

State: Rhode Island; Fiscal year: 2002: 52.45; Fiscal year: 2003: 
55.40; Fiscal year: 2004: 56.03.

State: South Carolina; Fiscal year: 2002: 69.34; Fiscal year: 2003: 
69.81; Fiscal year: 2004: 69.86.

State: South Dakota; Fiscal year: 2002: 65.93; Fiscal year: 2003: 
65.29; Fiscal year: 2004: 65.67.

State: Tennessee; Fiscal year: 2002: 63.64; Fiscal year: 2003: 64.59; 
Fiscal year: 2004: 64.40.

State: Texas; Fiscal year: 2002: 60.17; Fiscal year: 2003: 59.99; 
Fiscal year: 2004: 60.22.

State: Utah; Fiscal year: 2002: 70.00; Fiscal year: 2003: 71.24; Fiscal 
year: 2004: 71.72.

State: Vermont; Fiscal year: 2002: 63.06; Fiscal year: 2003: 62.41; 
Fiscal year: 2004: 61.34.

State: Virginia; Fiscal year: 2002: 51.45; Fiscal year: 2003: 50.53; 
Fiscal year: 2004: 50.00.

State: Washington; Fiscal year: 2002: 50.37; Fiscal year: 2003: 50.00; 
Fiscal year: 2004: 50.00.

State: West Virginia; Fiscal year: 2002: 75.27; Fiscal year: 2003: 
75.04; Fiscal year: 2004: 75.19.

State: Wisconsin; Fiscal year: 2002: 58.57; Fiscal year: 2003: 58.43; 
Fiscal year: 2004: 58.41.

State: Wyoming; Fiscal year: 2002: 61.97; Fiscal year: 2003: 61.32; 
Fiscal year: 2004: 59.77.

Source: HHS.

Note: GAO compiled data from HHS.

[End of table]

[End of section]

Appendix II: Methodology:

This appendix describes our methodology for measuring the extent to 
which the current Medicaid matching formula reduces differences in 
states' funding abilities and the data, and their sources, we used to 
measure the elements of states' funding ability. While we considered 
alternative indicators of state resources, people in poverty, and the 
cost of health care, and we chose those indicators we believed were 
most appropriate, we did not perform an exhaustive comparative analysis 
of other potential indicators, nor did we attempt to develop new 
indicators.

Measuring States' Funding Ability:

Funding Ability from State Resources:

We defined a state's ability to fund Medicaid services as the economic 
resources a state is potentially able to tax to fund its Medicaid 
program relative to the number of persons with incomes below the 
federal poverty level (FPL), adjusted for the cost of providing health 
care to them. Specifically, we took into account differences in the 
utilization of health care services by children, adults, and the 
elderly, and we developed an index for the differences in the cost of 
health care personnel and the cost of medical facilities and supplies 
used to provide the services.

We calculated state funding ability according to the following formula:

where:

[See PDF for image]

[End of formula]

Y = State resources potentially subject to state taxation:

P = People with incomes below the FPL, adjusted for differences in 
service utilization by children, adults, and the elderly:

c = Index of the cost of factors in the provision of health care 
services (e.g., health care personnel, medical facilities, and 
supplies).

We explain later in this appendix how we adjusted the counts of people 
in poverty for differences in service utilization and in the cost of 
personnel, facilities, and supplies.

State Funding Ability with the Value of Federal Matching Aid Added:

Federal matching aid, in effect, adds to a state's ability to fund 
program costs from its own resources. For example, when federal 
matching aid pays for half the cost of a state's program, it 
effectively doubles that state's ability to fund program services. The 
higher the federal matching rate, the more federal matching aid 
contributes to a state's ability to fund Medicaid services. In general, 
a state's funding ability after the value of its federal matching aid 
is added can be determined using the following formula:

[See PDF for image]

[End of formula]

where:

FMAP = State's federal matching rate:

Y = State resources potentially subject to state taxation:

P = People with incomes below the FPL, adjusted for differences in 
service utilization by children, adults, and the elderly:

c = Index of the cost of factors in the provision of health care 
services (e.g., health care personnel, medical facilities, and 
supplies).

The first term after the equals sign represents the multiple by which a 
state's matching rate increases the state's funding ability. For 
example, if a state receives a federal match of 75 percent, its funding 
ability is increased by a factor of 4 [(1/(1 - 0.75) = 4].

Calculating the Reduction of Differences in States' Funding Ability:

To measure the effect of the current formula in reducing differences in 
states' funding ability, we compared differences between each state's 
funding ability before and after the value of federal matching aid is 
added and calculated the percentage reduction in these differences. In 
performing these calculations, we measured each state's funding ability 
relative to the average funding ability of all states. The resulting 
indexes of states' funding abilities provide a means of comparing 
relative differences in states' ability to fund their Medicaid 
programs. We used the weighted absolute mean deviation as a 
quantitative measure of differences in states' funding ability. This 
statistic is a measure of average differences in states' funding 
ability. It is calculated by taking the absolute value of each state's 
index of relative funding ability and computing the arithmetic average 
of these differences, using the following formula:

[See PDF for image]

[End of formula]

where:

Xs = A state's funding ability index:

XAVG = Weighted average of all states' funding ability indexes:

ws = A state's weighting factor (people in poverty).

In calculating the mean absolute deviation, we took into account 
differences in the potential size of state programs by using the number 
of people living in poverty in each state.

We chose the mean absolute deviation rather than the more commonly used 
weighted standard deviation because the latter, by squaring differences 
between each state's funding ability and the national average funding 
ability, gives much greater weight to states at the extreme ends of the 
distribution of states' funding abilities, resulting in a measure that 
is more sensitive to extreme values and thus less likely to reflect the 
norm.

We calculated the mean absolute deviation in states' funding ability 
both without and with the value of federal matching aid added. 
Calculating the percentage change in the two mean absolute deviations 
measures the extent to which the current formula reduces differences in 
states' funding ability. For example, if the current formula completely 
eliminated differences in states' funding ability, total funding 
ability of all states would equal the average of all states, and the 
mean absolute deviation would be zero, representing a 100 percent 
reduction in differences in states' funding ability (the maximum 
possible). Alternatively, if the formula had no effect in reducing 
differences in states' funding ability, the mean absolute deviation in 
states' funding ability with the value of federal matching aid taken 
into account would be the same as the mean absolute deviation in 
states' funding ability from their own resources. In this case, there 
would be no change in the mean absolute deviation, meaning that the 
matching formula had no effect in reducing relative differences in 
states' funding ability.

Table 3 shows each state's index of Medicaid funding ability without 
and with the value of its federal matching aid.

Table 3: States' Ability to Fund Program Services without and with the 
Value of Fiscal Year 2000 Federal Matching Aid Added:

State: Alabama; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 65; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 89.

State: Alaska; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 219; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 279.

State: Arizona; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 73; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 98.

State: Arkansas; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 61; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 94.

State: California; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 85; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 74.

State: Colorado; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 165; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 138.

State: Connecticut; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 176; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 147.

State: Delaware; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 162; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 136.

State: District of Columbia; State Medicaid funding ability: 
(percentage of national average): (1): Without federal matching aid[A]: 
71; State Medicaid funding ability: (2): With FY 2000 federal matching 
aid: 102.

State: Florida; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 81; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 78.

State: Georgia; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 96; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 101.

State: Hawaii; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 98; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 84.

State: Idaho; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 94; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 131.

State: Illinois; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 131; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 110.

State: Indiana; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 148; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 162.

State: Iowa; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 147; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 166.

State: Kansas; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 126; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 132.

State: Kentucky; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 79; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 112.

State: Louisiana; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 72; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 101.

State: Maine; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 95; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 117.

State: Maryland; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 143; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 120.

State: Massachusetts; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 131; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 110.

State: Michigan; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 111; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 103.

State: Minnesota; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 143; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 123.

State: Mississippi; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 54; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 97.

State: Missouri; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 123; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 130.

State: Montana; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 73; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 119.

State: Nebraska; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 122; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 131.

State: Nevada; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 126; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 106.

State: New Hampshire; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 179; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 150.

State: New Jersey; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 160; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 134.

State: New Mexico; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 55; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 88.

State: New York; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 88; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 74.

State: North Carolina; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 94; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 105.

State: North Dakota; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 92; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 132.

State: Ohio; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 111; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 112.

State: Oklahoma; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 76; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 112.

State: Oregon; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 111; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 117.

State: Pennsylvania; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 108; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 98.

State: Rhode Island; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 101; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 92.

State: South Carolina; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 73; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 102.

State: South Dakota; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 105; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 152.

State: Tennessee; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 80; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 91.

State: Texas; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 86; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 93.

State: Utah; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 173; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 255.

State: Vermont; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 121; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 134.

State: Virginia; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 125; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 108.

State: Washington; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 141; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 123.

State: West Virginia; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 56; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 92.

State: Wisconsin; State Medicaid funding ability: (percentage of 
national average): (1): Without federal matching aid[A]: 150; State 
Medicaid funding ability: (2): With FY 2000 federal matching aid: 153.

State: Wyoming; State Medicaid funding ability: (percentage of national 
average): (1): Without federal matching aid[A]: 147; State Medicaid 
funding ability: (2): With FY 2000 federal matching aid: 174.

Sources: HHS and the Departments of Commerce, Labor, and the Treasury.

Note: GAO calculations are based on data from HHS and the Departments 
of Commerce, Labor, and the Treasury.

[A] Funding ability without federal matching aid was calculated using 
an average of state taxable resources for 1996 through 1998.

[End of table]

The mean absolute deviation of states' funding ability before taking 
into account the value of federal matching aid (column 1 of table 3) 
yielded an average difference in states' relative funding ability of 
22.7 percent. The mean absolute deviation in states' funding ability 
after taking into account the value of federal matching aid (column 2 
of table 3) yielded an average difference of 18.1 percent. This 
difference represents a 20 percent overall reduction in differences in 
states' funding ability as a result of adding federal matching aid.

Measuring State Resources:

As the indicator of state resources in the formula, PCI includes income 
received by state residents ("personal income"), such as wages, rents, 
and interest income, but excludes other important taxable income. For 
example, PCI excludes corporate income not received as income by state 
residents, such as undistributed corporate profits and dividends 
received by people who reside out-of-state. An ideal resources measure 
would count all income that states are able to tax. Even certain types 
of income that states exempt from taxation or tax at preferential rates 
should be counted as potentially taxable income because these enhance 
taxpayers' ability to pay all taxes levied in the state.

We used Total Taxable Resources (TTR), as reported by the Department of 
the Treasury, to measure state resources because it comprises the 
income included in PCI as well as income from other sources, such as 
corporate income and capital gains, and thus it is a more comprehensive 
indicator of income than PCI alone.[Footnote 27] TTR includes personal 
income received by state residents as well as income produced within a 
state but received by individuals who reside out-of-state (which is 
considered a portion of the Gross State Product (GSP)). As indicated in 
table 4, nationwide, the TTR measure of income is 32 percent larger 
than PCI.

Table 4: Comparison of PCI with TTR, 3-Year Averages, 1996-98:

State: Alabama; PCI: $21,194; TTR per capita: $26,884; Percentage 
difference: 27.

State: Alaska; PCI: 27,001; TTR per capita: 42,755; Percentage 
difference: 58.

State: Arizona; PCI: 22,842; TTR per capita: 29,947; Percentage 
difference: 31.

State: Arkansas; PCI: 20,310; TTR per capita: 26,324; Percentage 
difference: 30.

State: California; PCI: 26,867; TTR per capita: 35,057; Percentage 
difference: 30.

State: Colorado; PCI: 28,014; TTR per capita: 36,340; Percentage 
difference: 30.

State: Connecticut; PCI: 35,507; TTR per capita: 48,047; Percentage 
difference: 35.

State: Delaware; PCI: 27,872; TTR per capita: 47,020; Percentage 
difference: 69.

State: District of Columbia; PCI: 36,067; TTR per capita: 51,503; 
Percentage difference: 43.

State: Florida; PCI: 25,756; TTR per capita: 32,267; Percentage 
difference: 25.

State: Georgia; PCI: 24,756; TTR per capita: 33,364; Percentage 
difference: 35.

State: Hawaii; PCI: 26,209; TTR per capita: 35,220; Percentage 
difference: 34.

State: Idaho; PCI: 21,035; TTR per capita: 27,399; Percentage 
difference: 30.

State: Illinois; PCI: 28,442; TTR per capita: 37,421; Percentage 
difference: 32.

State: Indiana; PCI: 23,902; TTR per capita: 31,493; Percentage 
difference: 32.

State: Iowa; PCI: 23,785; TTR per capita: 32,282; Percentage 
difference: 36.

State: Kansas; PCI: 24,388; TTR per capita: 32,456; Percentage 
difference: 33.

State: Kentucky; PCI: 21,241; TTR per capita: 28,774; Percentage 
difference: 35.

State: Louisiana; PCI: 21,272; TTR per capita: 31,520; Percentage 
difference: 48.

State: Maine; PCI: 22,376; TTR per capita: 28,205; Percentage 
difference: 26.

State: Maryland; PCI: 29,305; TTR per capita: 38,019; Percentage 
difference: 30.

State: Massachusetts; PCI: 31,448; TTR per capita: 41,141; Percentage 
difference: 31.

State: Michigan; PCI: 25,608; TTR per capita: 31,558; Percentage 
difference: 23.

State: Minnesota; PCI: 27,773; TTR per capita: 35,996; Percentage 
difference: 30.

State: Mississippi; PCI: 18,981; TTR per capita: 24,480; Percentage 
difference: 29.

State: Missouri; PCI: 24,251; TTR per capita: 32,314; Percentage 
difference: 33.

State: Montana; PCI: 20,291; TTR per capita: 25,436; Percentage 
difference: 25.

State: Nebraska; PCI: 24,832; TTR per capita: 33,481; Percentage 
difference: 35.

State: Nevada; PCI: 28,383; TTR per capita: 38,887; Percentage 
difference: 37.

State: New Hampshire; PCI: 27,776; TTR per capita: 39,760; Percentage 
difference: 43.

State: New Jersey; PCI: 32,492; TTR per capita: 44,438; Percentage 
difference: 37.

State: New Mexico; PCI: 20,296; TTR per capita: 29,533; Percentage 
difference: 46.

State: New York; PCI: 30,661; TTR per capita: 41,470; Percentage 
difference: 35.

State: North Carolina; PCI: 24,194; TTR per capita: 32,076; Percentage 
difference: 33.

State: North Dakota; PCI: 21,577; TTR per capita: 29,298; Percentage 
difference: 36.

State: Ohio; PCI: 24,897; TTR per capita: 32,450; Percentage 
difference: 30.

State: Oklahoma; PCI: 21,152; TTR per capita: 26,412; Percentage 
difference: 25.

State: Oregon; PCI: 24,817; TTR per capita: 34,477; Percentage 
difference: 39.

State: Pennsylvania; PCI: 26,096; TTR per capita: 33,239; Percentage 
difference: 27.

State: Rhode Island; PCI: 26,589; TTR per capita: 35,002; Percentage 
difference: 32.

State: South Carolina; PCI: 21,444; TTR per capita: 27,809; Percentage 
difference: 30.

State: South Dakota; PCI: 22,603; TTR per capita: 31,700; Percentage 
difference: 40.

State: Tennessee; PCI: 23,450; TTR per capita: 30,323; Percentage 
difference: 29.

State: Texas; PCI: 24,201; TTR per capita: 32,931; Percentage 
difference: 36.

State: Utah; PCI: 21,135; TTR per capita: 29,010; Percentage 
difference: 37.

State: Vermont; PCI: 23,487; TTR per capita: 30,344; Percentage 
difference: 29.

State: Virginia; PCI: 26,869; TTR per capita: 36,788; Percentage 
difference: 37.

State: Washington; PCI: 26,912; TTR per capita: 35,271; Percentage 
difference: 31.

State: West Virginia; PCI: 19,400; TTR per capita: 25,379; Percentage 
difference: 31.

State: Wisconsin; PCI: 24,863; TTR per capita: 32,456; Percentage 
difference: 31.

State: Wyoming; PCI: 23,615; TTR per capita: 41,920; Percentage 
difference: 78.

State: United States; PCI: $25,949; TTR per capita: $34,299; Percentage 
difference: 32.

Source: Departments of Commerce and the Treasury.

Notes: Data reflect 3-year averages of TTR and PCI. GAO analysis of 
data from the Departments of Commerce and the Treasury.

[End of table]

While TTR is a more comprehensive measure of state resources than PCI, 
recent definitional changes to GSP and state personal income (SPI) data 
made by the Bureau of Economic Analysis (BEA) may have implications for 
the methodology used by the Department of the Treasury to calculate 
TTR. For example, BEA has changed its treatment of the value of 
services provided by government-owned fixed assets that are now 
included in GSP and benefit payments of government employee pension 
plans, which are now excluded from SPI. Since the Treasury initially 
developed the TTR methodology, it has not reported why definitional 
changes made by BEA should or should not be reflected in TTR. In the 
case of the changes to government pension plans, the Treasury has 
reported it is currently studying whether they necessitate any 
modifications to the TTR methodology.

Measuring People in Poverty and the Costs to Provide Them Program 
Services:

To measure people in poverty, we adjusted the Bureau of the Census's 
estimates of people in households with incomes at or below the FPL for 
(1) differences in the cost of providing health care services to 
children, adults, and the elderly (to account for the higher health 
care costs for the elderly) and (2) geographic differences in the cost 
of providing health care services (such as wages and salaries of health 
care professionals and the rental cost of medical facilities).[Footnote 
28]

Measuring the Number of People in Poverty:

We obtained estimated counts of people living in poverty from the 
Bureau of the Census's Current Population Survey (CPS). Because the CPS 
sample sizes for individual states are especially small when 
disaggregated by age cohorts, they are subject to greater statistical 
error than a sample representing all age groups. To improve the 
accuracy of these estimates, we averaged poverty counts over the 5-year 
period 1995 through 1999. We used the FPL as a basis for making cross-
state comparisons of the number of people in poverty. (See table 5.):

Table 5: Distribution of Population in Poverty, by Age Group, 5-Year 
Averages, 1995-99:

State: Alabama; Official poverty count: 684,401; Children[A]: 44; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 11.

State: Alaska; Official poverty count: 52,434; Children[A]: 47; 
Percentage who are: Adults[B]: 50; Percentage who are: Elderly[C]: 3.

State: Arizona; Official poverty count: 773,651; Children[A]: 49; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 7.

State: Arkansas; Official poverty count: 418,593; Children[A]: 43; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 14.

State: California; Official poverty count: 5,213,675; Children[A]: 48; 
Percentage who are: Adults[B]: 46; Percentage who are: Elderly[C]: 6.

State: Colorado; Official poverty count: 356,379; Children[A]: 42; 
Percentage who are: Adults[B]: 52; Percentage who are: Elderly[C]: 6.

State: Connecticut; Official poverty count: 307,435; Children[A]: 46; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 10.

State: Delaware; Official poverty count: 73,643; Children[A]: 47; 
Percentage who are: Adults[B]: 43; Percentage who are: Elderly[C]: 11.

State: District of Columbia; Official poverty count: 111,071; 
Children[A]: 43; Percentage who are: Adults[B]: 46; Percentage who are: 
Elderly[C]: 12.

State: Florida; Official poverty count: 2,040,854; Children[A]: 41; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 12.

State: Georgia; Official poverty count: 1,024,452; Children[A]: 47; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 9.

State: Hawaii; Official poverty count: 138,433; Children[A]: 42; 
Percentage who are: Adults[B]: 49; Percentage who are: Elderly[C]: 9.

State: Idaho; Official poverty count: 166,135; Children[A]: 49; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 7.

State: Illinois; Official poverty count: 1,335,576; Children[A]: 49; 
Percentage who are: Adults[B]: 42; Percentage who are: Elderly[C]: 9.

State: Indiana; Official poverty count: 485,926; Children[A]: 39; 
Percentage who are: Adults[B]: 50; Percentage who are: Elderly[C]: 10.

State: Iowa; Official poverty count: 273,851; Children[A]: 44; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 9.

State: Kansas; Official poverty count: 275,646; Children[A]: 45; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 12.

State: Kentucky; Official poverty count: 568,739; Children[A]: 41; 
Percentage who are: Adults[B]: 48; Percentage who are: Elderly[C]: 10.

State: Louisiana; Official poverty count: 811,417; Children[A]: 47; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 10.

State: Maine; Official poverty count: 132,323; Children[A]: 39; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 14.

State: Maryland; Official poverty count: 437,917; Children[A]: 42; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 14.

State: Massachusetts; Official poverty count: 653,754; Children[A]: 43; 
Percentage who are: Adults[B]: 46; Percentage who are: Elderly[C]: 11.

State: Michigan; Official poverty count: 1,064,367; Children[A]: 47; 
Percentage who are: Adults[B]: 43; Percentage who are: Elderly[C]: 10.

State: Minnesota; Official poverty count: 437,201; Children[A]: 46; 
Percentage who are: Adults[B]: 43; Percentage who are: Elderly[C]: 11.

State: Mississippi; Official poverty count: 518,149; Children[A]: 45; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 11.

State: Missouri; Official poverty count: 554,936; Children[A]: 42; 
Percentage who are: Adults[B]: 46; Percentage who are: Elderly[C]: 11.

State: Montana; Official poverty count: 143,838; Children[A]: 46; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 7.

State: Nebraska; Official poverty count: 176,270; Children[A]: 42; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 13.

State: Nevada; Official poverty count: 181,524; Children[A]: 46; 
Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 9.

State: New Hampshire; Official poverty count: 91,519; Children[A]: 42; 
Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 12.

State: New Jersey; Official poverty count: 680,727; Children[A]: 39; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 13.

State: New Mexico; Official poverty count: 411,507; Children[A]: 51; 
Percentage who are: Adults[B]: 42; Percentage who are: Elderly[C]: 8.

State: New York; Official poverty count: 2,945,784; Children[A]: 45; 
Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 10.

State: North Carolina; Official poverty count: 931,440; Children[A]: 
42; Percentage who are: Adults[B]: 46; Percentage who are: Elderly[C]: 
12.

State: North Dakota; Official poverty count: 81,831; Children[A]: 44; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 12.

State: Ohio; Official poverty count: 1,308,010; Children[A]: 46; 
Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 9.

State: Oklahoma; Official poverty count: 486,474; Children[A]: 42; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 11.

State: Oregon; Official poverty count: 410,697; Children[A]: 45; 
Percentage who are: Adults[B]: 49; Percentage who are: Elderly[C]: 7.

State: Pennsylvania; Official poverty count: 1,322,801; Children[A]: 
42; Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 
12.

State: Rhode Island; Official poverty count: 107,019; Children[A]: 40; 
Percentage who are: Adults[B]: 43; Percentage who are: Elderly[C]: 17.

State: South Carolina; Official poverty count: 539,744; Children[A]: 
46; Percentage who are: Adults[B]: 42; Percentage who are: Elderly[C]: 
12.

State: South Dakota; Official poverty count: 86,713; Children[A]: 45; 
Percentage who are: Adults[B]: 42; Percentage who are: Elderly[C]: 13.

State: Tennessee; Official poverty count: 784,910; Children[A]: 43; 
Percentage who are: Adults[B]: 47; Percentage who are: Elderly[C]: 10.

State: Texas; Official poverty count: 3,149,475; Children[A]: 48; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 9.

State: Utah; Official poverty count: 163,467; Children[A]: 51; 
Percentage who are: Adults[B]: 44; Percentage who are: Elderly[C]: 5.

State: Vermont; Official poverty count: 61,026; Children[A]: 42; 
Percentage who are: Adults[B]: 49; Percentage who are: Elderly[C]: 9.

State: Virginia; Official poverty count: 686,279; Children[A]: 39; 
Percentage who are: Adults[B]: 48; Percentage who are: Elderly[C]: 13.

State: Washington; Official poverty count: 584,612; Children[A]: 43; 
Percentage who are: Adults[B]: 50; Percentage who are: Elderly[C]: 7.

State: West Virginia; Official poverty count: 299,257; Children[A]: 36; 
Percentage who are: Adults[B]: 50; Percentage who are: Elderly[C]: 14.

State: Wisconsin; Official poverty count: 448,444; Children[A]: 46; 
Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 10.

State: Wyoming; Official poverty count: 57,957; Children[A]: 45; 
Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 9.

State: United States; Official poverty count: 35,052,282; Children[A]: 
45; Percentage who are: Adults[B]: 45; Percentage who are: Elderly[C]: 
10.

Source: Department of Commerce.

Note: Percentages may not add to 100 across age groups because of 
rounding.

[A] Population under age 21 with income at or below the FPL.

[B] Population aged 21 to 64 with income at or below the FPL.

[C] Population aged 65 and over with income at or below the FPL.

[End of table]

Adjusting Poverty Counts for Differences in Costs to Serve Children, 
Adults, and the Elderly:

Official poverty counts are not a good proxy for the low-income 
population because they do not take into account the higher cost of 
serving elderly individuals. For example, elderly individuals 
represented 27 percent of Medicaid beneficiaries in fiscal year 2000, 
the latest year for which data are available. However, because they are 
more intensive users of the health care system and utilize more 
expensive long-term care services, elderly persons accounted for 66 
percent of all Medicaid spending that year.

To account for differences in costs to serve each group, we weighted 
the numbers of children, adults, and the elderly. We calculated 
Medicaid spending per beneficiary for each age group nationwide, then 
compared spending per beneficiary for each age group with average 
spending per beneficiary for all age groups. We used a 5-year average 
of Medicaid spending per beneficiary derived from data reported by the 
Centers for Medicare & Medicaid Services (CMS) for fiscal years 1995 
through 1999. The results suggest that, nationwide, elderly 
beneficiaries utilize health care services at about two-and-one-half 
times the rate of the average Medicaid beneficiary, and children 
utilize services at less than half the rate of the average beneficiary. 
(See the cost weight index column in table 6.):

Table 6: Weights for Age Groups to Reflect Cost Differences and 
Medicaid Program Participation:

Age group: Elderly (aged 65 or older); Average annual spending per 
beneficiary: $9,005; Cost weight (index)[A]: 2.5; Average participation 
rate (index)[B]: 1.4; Adjusted cost weight[C]: 3.5.

Age group: Adults (aged 21-64); Average annual spending per 
beneficiary: $4,729; Cost weight (index)[A]: 1.3; Average participation 
rate (index)[B]: 0.7; Adjusted cost weight[C]: 1.0.

Age group: Children (under age 21); Average annual spending per 
beneficiary: $1,483; Cost weight (index)[A]: 0.4; Average participation 
rate (index)[B]: 1.2; Adjusted cost weight[C]: 0.5.

Age group: All groups; Average annual spending per beneficiary: $3,532; 
Cost weight (index)[A]: 1.0; Average participation rate (index)[B]: 
1.0; Adjusted cost weight[C]: 1.0.

Sources: Department of Commerce and HHS.

Note: GAO analysis of data from the Department of Commerce for 1995 
through 1999 and data from HHS for 1994 through 1998.

[A] Index is spending per recipient for each age group divided by 
average spending per recipient for all age groups.

[B] Index is the percentage of people in each age group receiving 
Medicaid benefits, expressed as a ratio to the average of all groups.

[C] Calculated by multiplying the cost weight index by the 
participation rate index.

[End of table]

To adjust for differences in program participation across age groups, 
we compared the number of Medicaid beneficiaries by age group with the 
number of people in poverty. We compared these counts with the national 
average participation rates for all Medicaid beneficiaries. We 
calculated the adjusted cost weight by multiplying the cost weight 
index by the average participation rate index. We calculated a weighted 
count of people in poverty for each state by applying the adjusted cost 
weights in the last column of table 6 to poverty counts by age group, 
according to the following formula:

In table 7, the columns representing official poverty rates report the 
percentage of people in poverty based on the official government 
poverty statistics reported by the Bureau of the Census. The age-
weighted columns are the percentages of people in poverty after 
weighting children, adults, and the elderly. Comparing the percentages 
in the official poverty rate columns with the percentages after age-
weighting illustrates the effect of differences in utilization rates by 
age cohort. For example, Florida's official poverty rate is revised 
upward from 14.0 percent to 15.3 percent when weighted for age 
differences. Similarly, the District of Columbia's poverty rate 
increases from about 21.1 percent to about 22.7 percent after 
weighting.[Footnote 29]

Table 7: Comparison of Official and Cost-Adjusted Poverty Rates, 5-Year 
Averages, 1995-99:

State: Alabama; Official poverty rate: Percentage of people in poverty: 
15.9; Official poverty rate: Percentage of U.S. poverty rate: 122; 
Age-weighted poverty rate: Percentage in poverty: 16.9; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 128;  
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 16.0; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 121.

State: Alaska; Official poverty rate: Percentage of people in poverty: 
8.2; Official poverty rate: Percentage of U.S. poverty rate: 63; 
Age-weighted poverty rate: Percentage in poverty: 6.9; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 52; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 7.2; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 54.

State: Arizona; Official poverty rate: Percentage of people in poverty: 
16.5; Official poverty rate: Percentage of U.S. poverty rate: 126; 
Age-weighted poverty rate: Percentage in poverty: 15.2; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 115; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 15.7; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 119.

State: Arkansas; Official poverty rate: Percentage of people in 
poverty: 16.3; Official poverty rate: Percentage of U.S. poverty rate: 
125; Age-weighted poverty rate: Percentage in poverty: 18.3; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 138; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 16.4; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 124.

State: California; Official poverty rate: Percentage of people in 
poverty: 15.9; Official poverty rate: Percentage of U.S. poverty rate: 
122; Age-weighted poverty rate: Percentage in poverty: 14.2; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 108; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 15.7; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 118.

State: Colorado; Official poverty rate: Percentage of people in 
poverty: 9.0; Official poverty rate: Percentage of U.S. poverty rate: 
69; Age-weighted poverty rate: Percentage in poverty: 8.4; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 63; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 8.5; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 64.

State: Connecticut; Official poverty rate: Percentage of people in 
poverty: 9.3; Official poverty rate: Percentage of U.S. poverty rate: 
71; Age-weighted poverty rate: Percentage in poverty: 9.4; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 71; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 10.4; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 78.

State: Delaware; Official poverty rate: Percentage of people in 
poverty: 9.9; Official poverty rate: Percentage of U.S. poverty rate: 
75; Age-weighted poverty rate: Percentage in poverty: 10.2; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 77; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 11.1; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 84.

State: District of Columbia; Official poverty rate: Percentage of 
people in poverty: 21.1; Official poverty rate: Percentage of U.S. 
poverty rate: 162; Age-weighted poverty rate: Percentage in 
poverty: 22.7; Age-weighted poverty rate: Percentage of U.S. poverty 
rate: 172; Age and health care use cost-adjusted poverty rate: 
Percentage in poverty: 27.7; Age and health care use cost-adjusted 
poverty rate: Percentage of U.S. poverty rate: 209.

State: Florida; Official poverty rate: Percentage of people in poverty: 
14.0; Official poverty rate: Percentage of U.S. poverty rate: 108; 
Age-weighted poverty rate: Percentage in poverty: 15.3; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 116; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 15.6; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 118.

State: Georgia; Official poverty rate: Percentage of people in poverty: 
13.6; Official poverty rate: Percentage of U.S. poverty rate: 104; 
Age-weighted poverty rate: Percentage in poverty: 13.6; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 103; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 13.4; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 102.

State: Hawaii; Official poverty rate: Percentage of people in poverty: 
11.6; Official poverty rate: Percentage of U.S. poverty rate: 89; 
Age-weighted poverty rate: Percentage in poverty: 11.9; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 90; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 13.7; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 104.

State: Idaho; Official poverty rate: Percentage of people in poverty: 
13.6; Official poverty rate: Percentage of U.S. poverty rate: 104; 
Age-weighted poverty rate: Percentage in poverty: 12.6; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 95; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 11.3; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 85.

State: Illinois; Official poverty rate: Percentage of people in 
poverty: 11.1; Official poverty rate: Percentage of U.S. poverty rate: 
85; Age-weighted poverty rate: Percentage in poverty: 11.0; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 83; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 11.0; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 83.

State: Indiana; Official poverty rate: Percentage of people in poverty: 
8.4; Official poverty rate: Percentage of U.S. poverty rate: 64; 
Age-weighted poverty rate: Percentage in poverty: 8.9; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 68; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 8.3; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 63.

State: Iowa; Official poverty rate: Percentage of people in poverty: 
9.6; Official poverty rate: Percentage of U.S. poverty rate: 74; 
Age-weighted poverty rate: Percentage in poverty: 9.7; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 73; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 8.5; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 64.

State: Kansas; Official poverty rate: Percentage of people in poverty: 
10.7; Official poverty rate: Percentage of U.S. poverty rate: 82; 
Age-weighted poverty rate: Percentage in poverty: 11.4; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 86; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 10.1; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 76.

State: Kentucky; Official poverty rate: Percentage of people in 
poverty: 14.7; Official poverty rate: Percentage of U.S. poverty rate: 
112; Age-weighted poverty rate: Percentage in poverty: 15.4; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 117; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 14.2; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 107.

State: Louisiana; Official poverty rate: Percentage of people in 
poverty: 19.0; Official poverty rate: Percentage of U.S. poverty rate: 
145; Age-weighted poverty rate: Percentage in poverty: 19.2; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 145; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 17.1; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 130.

State: Maine; Official poverty rate: Percentage of people in poverty: 
10.7; Official poverty rate: Percentage of U.S. poverty rate: 82; 
Age-weighted poverty rate: Percentage in poverty: 12.5; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 94; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 11.6; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 87.

State: Maryland; Official poverty rate: Percentage of people in 
poverty: 8.6; Official poverty rate: Percentage of U.S. poverty rate: 
66; Age-weighted poverty rate: Percentage in poverty: 9.9; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 75; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 10.3; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 78.

State: Massachusetts; Official poverty rate: Percentage of people in 
poverty: 10.7; Official poverty rate: Percentage of U.S. poverty rate: 
82; Age-weighted poverty rate: Percentage in poverty: 11.3; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 86; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 12.1; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 92.

State: Michigan; Official poverty rate: Percentage of people in 
poverty: 10.8; Official poverty rate: Percentage of U.S. poverty rate: 
83; Age-weighted poverty rate: Percentage in poverty: 10.9; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 83; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 10.9; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 82.

State: Minnesota; Official poverty rate: Percentage of people in 
poverty: 9.2; Official poverty rate: Percentage of U.S. poverty rate: 
71; Age-weighted poverty rate: Percentage in poverty: 9.8; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 74; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 9.7; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 73.

State: Mississippi; Official poverty rate: Percentage of people in 
poverty: 18.9; Official poverty rate: Percentage of U.S. poverty rate: 
145; Age-weighted poverty rate: Percentage in poverty: 19.6; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 149; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 17.5; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 132.

State: Missouri; Official poverty rate: Percentage of people in 
poverty: 10.4; Official poverty rate: Percentage of U.S. poverty rate: 
80; Age-weighted poverty rate: Percentage in poverty: 11.2; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 85; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 10.3; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 78.

State: Montana; Official poverty rate: Percentage of people in poverty: 
16.0; Official poverty rate: Percentage of U.S. poverty rate: 123; 
Age-weighted poverty rate: Percentage in poverty: 15.0; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 114; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 13.1; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 99.

State: Nebraska; Official poverty rate: Percentage of people in 
poverty: 10.6; Official poverty rate: Percentage of U.S. poverty rate: 
81; Age-weighted poverty rate: Percentage in poverty: 11.8; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 90; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 10.4; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 79.

State: Nevada; Official poverty rate: Percentage of people in poverty: 
10.5; Official poverty rate: Percentage of U.S. poverty rate: 80; 
Age-weighted poverty rate: Percentage in poverty: 10.4; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 79; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 11.9; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 90.

State: New Hampshire; Official poverty rate: Percentage of people in 
poverty: 7.7; Official poverty rate: Percentage of U.S. poverty rate: 
59; Age-weighted poverty rate: Percentage in poverty: 8.5; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 64; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 8.5; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 64.

State: New Jersey; Official poverty rate: Percentage of people in 
poverty: 8.5; Official poverty rate: Percentage of U.S. poverty rate: 
65; Age-weighted poverty rate: Percentage in poverty: 9.6; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 73; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 10.8; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 82.

State: New Mexico; Official poverty rate: Percentage of people in 
poverty: 22.6; Official poverty rate: Percentage of U.S. poverty rate: 
173; Age-weighted poverty rate: Percentage in poverty: 21.2; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 161; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 19.8; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 150.

State: New York; Official poverty rate: Percentage of people in 
poverty: 16.1; Official poverty rate: Percentage of U.S. poverty rate: 
123; Age-weighted poverty rate: Percentage in poverty: 16.5; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 125; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 17.9; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 136.

State: North Carolina; Official poverty rate: Percentage of people in 
poverty: 12.8; Official poverty rate: Percentage of U.S. poverty rate: 
98; Age-weighted poverty rate: Percentage in poverty: 13.9; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 105; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 13.6; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 103.

State: North Dakota; Official poverty rate: Percentage of people in 
poverty: 13.0; Official poverty rate: Percentage of U.S. poverty rate: 
99; Age-weighted poverty rate: Percentage in poverty: 14.1; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 106; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 12.4; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 94.

State: Ohio; Official poverty rate: Percentage of people in poverty: 
11.6; Official poverty rate: Percentage of U.S. poverty rate: 89; 
Age-weighted poverty rate: Percentage in poverty: 11.7; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 88; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 11.2; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 85.

State: Oklahoma; Official poverty rate: Percentage of people in 
poverty: 14.8; Official poverty rate: Percentage of U.S. poverty rate: 
114; Age-weighted poverty rate: Percentage in poverty: 15.7; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 119; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 13.5; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 102.

State: Oregon; Official poverty rate: Percentage of people in poverty: 
12.5; Official poverty rate: Percentage of U.S. poverty rate: 95; 
Age-weighted poverty rate: Percentage in poverty: 11.8; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 89; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 11.9; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 90.

State: Pennsylvania; Official poverty rate: Percentage of people in 
poverty: 11.1; Official poverty rate: Percentage of U.S. poverty rate: 
85; Age-weighted poverty rate: Percentage in poverty: 12.0; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 91; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 11.9; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 90.

State: Rhode Island; Official poverty rate: Percentage of people in 
poverty: 11.2; Official poverty rate: Percentage of U.S. poverty rate: 
86; Age-weighted poverty rate: Percentage in poverty: 13.6; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 103; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 13.6; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 103.

State: South Carolina; Official poverty rate: Percentage of people in 
poverty: 14.3; Official poverty rate: Percentage of U.S. poverty rate: 
109; Age-weighted poverty rate: Percentage in poverty: 15.1; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 114; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 14.9; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 113.

State: South Dakota; Official poverty rate: Percentage of people in 
poverty: 12.3; Official poverty rate: Percentage of U.S. poverty rate: 
94; Age-weighted poverty rate: Percentage in poverty: 13.5; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 102; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 12.0; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 90.

State: Tennessee; Official poverty rate: Percentage of people in 
poverty: 14.2; Official poverty rate: Percentage of U.S. poverty rate: 
109; Age-weighted poverty rate: Percentage in poverty: 14.5; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 110; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 14.2; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 107.

State: Texas; Official poverty rate: Percentage of people in poverty: 
16.1; Official poverty rate: Percentage of U.S. poverty rate: 124; 
Age-weighted poverty rate: Percentage in poverty: 15.8; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 119; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 14.8; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 112.

State: Utah; Official poverty rate: Percentage of people in poverty: 
7.9; Official poverty rate: Percentage of U.S. poverty rate: 61; 
Age-weighted poverty rate: Percentage in poverty: 7.0; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 53; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 6.5; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 49.

State: Vermont; Official poverty rate: Percentage of people in poverty: 
10.3; Official poverty rate: Percentage of U.S. poverty rate: 79; 
Age-weighted poverty rate: Percentage in poverty: 10.6; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 80; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 9.6; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 73.

State: Virginia; Official poverty rate: Percentage of people in 
poverty: 10.4; Official poverty rate: Percentage of U.S. poverty rate: 
79; Age-weighted poverty rate: Percentage in poverty: 11.8; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 89; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 11.6; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 88.

State: Washington; Official poverty rate: Percentage of people in 
poverty: 10.4; Official poverty rate: Percentage of U.S. poverty rate: 
79; Age-weighted poverty rate: Percentage in poverty: 10.0; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 75; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 9.7; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 73.

State: West Virginia; Official poverty rate: Percentage of people in 
poverty: 17.0; Official poverty rate: Percentage of U.S. poverty rate: 
131; Age-weighted poverty rate: Percentage in poverty: 20.1; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 152; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 18.0; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 136.

State: Wisconsin; Official poverty rate: Percentage of people in 
poverty: 8.6; Official poverty rate: Percentage of U.S. poverty rate: 
66; Age-weighted poverty rate: Percentage in poverty: 8.7; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 66; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 8.3; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 62.

State: Wyoming; Official poverty rate: Percentage of people in poverty: 
12.0; Official poverty rate: Percentage of U.S. poverty rate: 92; 
Age-weighted poverty rate: Percentage in poverty: 12.1; Age-
weighted poverty rate: Percentage of U.S. poverty rate: 91; 
Age and health care use cost-adjusted poverty rate: Percentage in 
poverty: 10.8; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 82.

State: United States; Official poverty rate: Percentage of people in 
poverty: 13.1; Official poverty rate: Percentage of U.S. poverty rate: 
100; Age-weighted poverty rate: Percentage in poverty: 13.2; 
Age-weighted poverty rate: Percentage of U.S. poverty rate: 100; 
Age and health care use cost-adjusted poverty rate: Percentage 
in poverty: 13.2; Age and health care use cost-adjusted poverty rate: 
Percentage of U.S. poverty rate: 100.

Sources: HHS, and the Departments of Commerce, Housing and Urban 
Development (HUD), and Labor.

Note: GAO analysis of data from HHS, HUD, and the Departments of 
Commerce and Labor.

[End of table]

Adjusting Poverty Counts for Differences in the Cost of Providing 
Health Care Services:

The cost of providing health care services is affected by three 
factors: (1) the cost of the personnel who provide the services (wages, 
for example), (2) the rental cost of facilities in which the services 
are provided, and (3) the cost of medical equipment and supplies.

We used the average wage per worker in the health industry (Standard 
Industrial Classification (SIC) code 8000), produced by the Bureau of 
Labor Statistics (BLS), to measure the cost of personnel for 1996 
through 1998. The BLS cost data cover personnel in a wide variety of 
settings, including offices, clinics, hospitals, and medical and dental 
laboratories, as well as health care providers who work for home health 
agencies.

To measure the cost of facilities through which services are delivered, 
we used apartment rents as reported by the Department of Housing and 
Urban Development (HUD) because data on commercial office space rental 
rates in the health sector of the economy were not available. Apartment 
rental rates were an appropriate alternative because the same factors 
that affect the cost of office space (for example, population density 
and income) affect housing rental rates, and apartment rental rates are 
likely to more closely mimic office space costs than would owner-
occupied housing units. In addition, data are available for apartment 
rentals by the size of the unit, which allowed us to take size 
differences into account.

Data on the geographic differences in the cost of medical equipment and 
supplies were not readily available. Because medical equipment and 
supplies generally are purchased in national markets, we assumed that 
the costs of these items do not vary across states.

We calculated an index of health industry wage rates and apartment 
rents (our proxy for the rental cost of medical facilities). For 
medical supplies, we used a cost index of 1.0 for all states to reflect 
the assumption that these costs do not vary across states. We then 
combined the three factors into an overall index of the cost of health 
care services by state, weighting each factor on the basis of its 
respective proportion of the total cost of health care services. 
Personnel costs represent the greatest share of health care costs, as 
much as 75 percent of total costs, according to one study.[Footnote 30] 
We constructed our cost index conservatively by reducing the personnel 
cost weight to 60 percent. We applied a cost weight of 30 percent for 
medical equipment and supplies and other miscellaneous costs that are 
assumed to be the same across states. The remaining 10 percent is the 
cost weight for rent. Using these cost weights is likely to understate 
cross-state cost differences.

Nineteen states had health care costs estimated to be at least 10 
percent above or below the national average. The states with costs 10 
percent or more above the national average were California, 
Connecticut, the District of Columbia, Hawaii, Nevada, and New Jersey. 
States with lower costs tended to be southern or midwestern states. 
(See table 8.):

Table 8: Wage, Rent, and Health Care Cost Indexes, by State:

State: Alabama; Percentage of national average: Wage index (3-year 
averages, 1996-98): 96; Percentage of national average: Rent index (FY 
2000): 70; Percentage of national average: Health care cost index: 95.

State: Alaska; Percentage of national average: Wage index (3-year 
averages, 1996-98): 104; Percentage of national average: Rent index (FY 
2000): 124; Percentage of national average: Health care cost index: 
105.

State: Arizona; Percentage of national average: Wage index (3-year 
averages, 1996-98): 106; Percentage of national average: Rent index (FY 
2000): 98; Percentage of national average: Health care cost index: 103.

State: Arkansas; Percentage of national average: Wage index (3-year 
averages, 1996-98): 88; Percentage of national average: Rent index (FY 
2000): 67; Percentage of national average: Health care cost index: 89.

State: California; Percentage of national average: Wage index (3-year 
averages, 1996-98): 112; Percentage of national average: Rent index (FY 
2000): 127; Percentage of national average: Health care cost index: 
110.

State: Colorado; Percentage of national average: Wage index (3-year 
averages, 1996-98): 101; Percentage of national average: Rent index (FY 
2000): 107; Percentage of national average: Health care cost index: 
101.

State: Connecticut; Percentage of national average: Wage index (3-year 
averages, 1996-98): 113; Percentage of national average: Rent index (FY 
2000): 125; Percentage of national average: Health care cost index: 
110.

State: Delaware; Percentage of national average: Wage index (3-year 
averages, 1996-98): 114; Percentage of national average: Rent index (FY 
2000): 104; Percentage of national average: Health care cost index: 
109.

State: District of Columbia; Percentage of national average: Wage index 
(3-year averages, 1996-98): 131; Percentage of national average: Rent 
index (FY 2000): 133; Percentage of national average: Health care cost 
index: 122.

State: Florida; Percentage of national average: Wage index (3-year 
averages, 1996-98): 103; Percentage of national average: Rent index (FY 
2000): 100; Percentage of national average: Health care cost index: 
102.

State: Georgia; Percentage of national average: Wage index (3-year 
averages, 1996-98): 100; Percentage of national average: Rent index (FY 
2000): 91; Percentage of national average: Health care cost index: 99.

State: Hawaii; Percentage of national average: Wage index (3-year 
averages, 1996-98): 119; Percentage of national average: Rent index (FY 
2000): 139; Percentage of national average: Health care cost index: 
115.

State: Idaho; Percentage of national average: Wage index (3-year 
averages, 1996-98): 87; Percentage of national average: Rent index (FY 
2000): 75; Percentage of national average: Health care cost index: 90.

State: Illinois; Percentage of national average: Wage index (3-year 
averages, 1996-98): 100; Percentage of national average: Rent index (FY 
2000): 104; Percentage of national average: Health care cost index: 
100.

State: Indiana; Percentage of national average: Wage index (3-year 
averages, 1996-98): 92; Percentage of national average: Rent index (FY 
2000): 82; Percentage of national average: Health care cost index: 93.

State: Iowa; Percentage of national average: Wage index (3-year 
averages, 1996-98): 83; Percentage of national average: Rent index (FY 
2000): 74; Percentage of national average: Health care cost index: 87.

State: Kansas; Percentage of national average: Wage index (3-year 
averages, 1996-98): 85; Percentage of national average: Rent index (FY 
2000): 77; Percentage of national average: Health care cost index: 89.

State: Kentucky; Percentage of national average: Wage index (3-year 
averages, 1996-98): 92; Percentage of national average: Rent index (FY 
2000): 69; Percentage of national average: Health care cost index: 92.

State: Louisiana; Percentage of national average: Wage index (3-year 
averages, 1996-98): 87; Percentage of national average: Rent index (FY 
2000): 72; Percentage of national average: Health care cost index: 89.

State: Maine; Percentage of national average: Wage index (3-year 
averages, 1996-98): 90; Percentage of national average: Rent index (FY 
2000): 88; Percentage of national average: Health care cost index: 93.

State: Maryland; Percentage of national average: Wage index (3-year 
averages, 1996-98): 105; Percentage of national average: Rent index (FY 
2000): 113; Percentage of national average: Health care cost index: 
104.

State: Massachusetts; Percentage of national average: Wage index (3-
year averages, 1996-98): 106; Percentage of national average: Rent 
index (FY 2000): 131; Percentage of national average: Health care cost 
index: 107.

State: Michigan; Percentage of national average: Wage index (3-year 
averages, 1996-98): 101; Percentage of national average: Rent index (FY 
2000): 93; Percentage of national average: Health care cost index: 100.

State: Minnesota; Percentage of national average: Wage index (3-year 
averages, 1996-98): 99; Percentage of national average: Rent index (FY 
2000): 93; Percentage of national average: Health care cost index: 99.

State: Mississippi; Percentage of national average: Wage index (3-year 
averages, 1996-98): 87; Percentage of national average: Rent index (FY 
2000): 66; Percentage of national average: Health care cost index: 89.

State: Missouri; Percentage of national average: Wage index (3-year 
averages, 1996-98): 91; Percentage of national average: Rent index (FY 
2000): 74; Percentage of national average: Health care cost index: 92.

State: Montana; Percentage of national average: Wage index (3-year 
averages, 1996-98): 82; Percentage of national average: Rent index (FY 
2000): 77; Percentage of national average: Health care cost index: 87.

State: Nebraska; Percentage of national average: Wage index (3-year 
averages, 1996-98): 84; Percentage of national average: Rent index (FY 
2000): 77; Percentage of national average: Health care cost index: 88.

State: Nevada; Percentage of national average: Wage index (3-year 
averages, 1996-98): 122; Percentage of national average: Rent index (FY 
2000): 110; Percentage of national average: Health care cost index: 
114.

State: New Hampshire; Percentage of national average: Wage index (3-
year averages, 1996-98): 99; Percentage of national average: Rent index 
(FY 2000): 112; Percentage of national average: Health care cost index: 
100.

State: New Jersey; Percentage of national average: Wage index (3-year 
averages, 1996-98): 114; Percentage of national average: Rent index (FY 
2000): 134; Percentage of national average: Health care cost index: 
112.

State: New Mexico; Percentage of national average: Wage index (3-year 
averages, 1996-98): 92; Percentage of national average: Rent index (FY 
2000): 81; Percentage of national average: Health care cost index: 93.

State: New York; Percentage of national average: Wage index (3-year 
averages, 1996-98): 109; Percentage of national average: Rent index (FY 
2000): 132; Percentage of national average: Health care cost index: 
109.

State: North Carolina; Percentage of national average: Wage index (3-
year averages, 1996-98): 99; Percentage of national average: Rent index 
(FY 2000): 84; Percentage of national average: Health care cost index: 
98.

State: North Dakota; Percentage of national average: Wage index (3-year 
averages, 1996-98): 85; Percentage of national average: Rent index (FY 
2000): 71; Percentage of national average: Health care cost index: 88.

State: Ohio; Percentage of national average: Wage index (3-year 
averages, 1996-98): 96; Percentage of national average: Rent index (FY 
2000): 85; Percentage of national average: Health care cost index: 96.

State: Oklahoma; Percentage of national average: Wage index (3-year 
averages, 1996-98): 83; Percentage of national average: Rent index (FY 
2000): 69; Percentage of national average: Health care cost index: 86.

State: Oregon; Percentage of national average: Wage index (3-year 
averages, 1996-98): 101; Percentage of national average: Rent index (FY 
2000): 99; Percentage of national average: Health care cost index: 101.

State: Pennsylvania; Percentage of national average: Wage index (3-year 
averages, 1996-98): 99; Percentage of national average: Rent index (FY 
2000): 94; Percentage of national average: Health care cost index: 99.

State: Rhode Island; Percentage of national average: Wage index (3-year 
averages, 1996-98): 99; Percentage of national average: Rent index (FY 
2000): 108; Percentage of national average: Health care cost index: 
100.

State: South Carolina; Percentage of national average: Wage index (3-
year averages, 1996-98): 101; Percentage of national average: Rent 
index (FY 2000): 79; Percentage of national average: Health care cost 
index: 99.

State: South Dakota; Percentage of national average: Wage index (3-year 
averages, 1996-98): 85; Percentage of national average: Rent index (FY 
2000): 77; Percentage of national average: Health care cost index: 89.

State: Tennessee; Percentage of national average: Wage index (3-year 
averages, 1996-98): 100; Percentage of national average: Rent index (FY 
2000): 76; Percentage of national average: Health care cost index: 98.

State: Texas; Percentage of national average: Wage index (3-year 
averages, 1996-98): 92; Percentage of national average: Rent index (FY 
2000): 90; Percentage of national average: Health care cost index: 94.

State: Utah; Percentage of national average: Wage index (3-year 
averages, 1996-98): 90; Percentage of national average: Rent index (FY 
2000): 95; Percentage of national average: Health care cost index: 93.

State: Vermont; Percentage of national average: Wage index (3-year 
averages, 1996-98): 85; Percentage of national average: Rent index (FY 
2000): 97; Percentage of national average: Health care cost index: 91.

State: Virginia; Percentage of national average: Wage index (3-year 
averages, 1996-98): 98; Percentage of national average: Rent index (FY 
2000): 98; Percentage of national average: Health care cost index: 99.

State: Washington; Percentage of national average: Wage index (3-year 
averages, 1996-98): 94; Percentage of national average: Rent index (FY 
2000): 106; Percentage of national average: Health care cost index: 97.

State: West Virginia; Percentage of national average: Wage index (3-
year averages, 1996-98): 88; Percentage of national average: Rent index 
(FY 2000): 66; Percentage of national average: Health care cost index: 
90.

State: Wisconsin; Percentage of national average: Wage index (3-year 
averages, 1996-98): 95; Percentage of national average: Rent index (FY 
2000): 85; Percentage of national average: Health care cost index: 95.

State: Wyoming; Percentage of national average: Wage index (3-year 
averages, 1996-98): 87; Percentage of national average: Rent index (FY 
2000): 76; Percentage of national average: Health care cost index: 90.

State: United States; Percentage of national average: Wage index (3-
year averages, 1996-98): 100; Percentage of national average: Rent 
index (FY 2000): 100; Percentage of national average: Health care cost 
index: 100.

Sources: HHS, HUD, and the Department of Labor.

Notes: States in bold have health care costs estimated to be 10 percent 
or more above or below the national average. GAO analysis of data from 
HHS, HUD, and the Department of Labor.

[End of table]

Calculating States' Ability to Fund Medicaid Services without and with 
Value of Federal Matching Aid Added:

We compared states' ability to fund Medicaid services without and with 
the value of federal matching aid added. Column 1 of table 9 shows 
states' funding ability: states' TTR per person in poverty adjusted for 
differences in the cost of providing them health care services. Column 
2 shows states' effective fiscal year 2000 federal matching rates used 
in the analysis[Footnote 31] and column 3 shows the resulting 
"multipliers" (i.e., 1/(1 - FMAP)) that reflect the effect of federal 
matching on states' funding ability. Funding ability with federal aid 
is shown in column 4.

Table 9: States' Funding Ability without and with the Value of Fiscal 
Year 2000 Federal Matching Aid Added:

State: Alabama; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: $169,683; (2): Effective FY 2000 FMAP 
(percentage): 69.64; (3): FMAP multiplier: 3.29; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): $558,840.

State: Alaska; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 570,409; (2): Effective FY 2000 FMAP 
(percentage): 67.26; (3): FMAP multiplier: 3.05; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 1,742,447.

State: Arizona; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 189,505; (2): Effective FY 2000 FMAP 
(percentage): 69.19; (3): FMAP multiplier: 3.25; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 615,081.

State: Arkansas; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 158,718; (2): Effective FY 2000 FMAP 
(percentage): 73.11; (3): FMAP multiplier: 3.72; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 590,165.

State: California; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 222,437; (2): Effective FY 2000 FMAP 
(percentage): 52.06; (3): FMAP multiplier: 2.09; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 463,963.

State: Colorado; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 429,969; (2): Effective FY 2000 FMAP 
(percentage): 50.08; (3): FMAP multiplier: 2.00; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 861,380.

State: Connecticut; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 459,835; (2): Effective FY 2000 FMAP 
(percentage): 50.02; (3): FMAP multiplier: 2.00; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 920,046.

State: Delaware; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 422,823; (2): Effective FY 2000 FMAP 
(percentage): 50.20; (3): FMAP multiplier: 2.01; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 848,991.

State: District of Columbia; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: 184,951; (2): Effective FY 2000 
FMAP (percentage): 70.93; (3): FMAP multiplier: 3.44; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): 636,309.

State: Florida; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 211,705; (2): Effective FY 2000 FMAP 
(percentage): 56.60; (3): FMAP multiplier: 2.30; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 487,803.

State: Georgia; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 251,548; (2): Effective FY 2000 FMAP 
(percentage): 60.01; (3): FMAP multiplier: 2.50; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 628,961.

State: Hawaii; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 256,566; (2): Effective FY 2000 FMAP 
(percentage): 51.03; (3): FMAP multiplier: 2.04; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 523,891.

State: Idaho; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 244,092; (2): Effective FY 2000 FMAP 
(percentage): 70.29; (3): FMAP multiplier: 3.37; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 821,587.

State: Illinois; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 341,369; (2): Effective FY 2000 FMAP 
(percentage): 50.15; (3): FMAP multiplier: 2.01; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 684,770.

State: Indiana; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 386,661; (2): Effective FY 2000 FMAP 
(percentage): 61.84; (3): FMAP multiplier: 2.62; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 1,013,136.

State: Iowa; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 382,676; (2): Effective FY 2000 FMAP 
(percentage): 63.14; (3): FMAP multiplier: 2.71; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 1,038,320.

State: Kansas; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 328,243; (2): Effective FY 2000 FMAP 
(percentage): 60.09; (3): FMAP multiplier: 2.51; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 822,538.

State: Kentucky; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 205,683; (2): Effective FY 2000 FMAP 
(percentage): 70.62; (3): FMAP multiplier: 3.40; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 700,085.

State: Louisiana; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 187,290; (2): Effective FY 2000 FMAP 
(percentage): 70.37; (3): FMAP multiplier: 3.38; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 632,139.

State: Maine; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 246,614; (2): Effective FY 2000 FMAP 
(percentage): 66.31; (3): FMAP multiplier: 2.97; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 732,052.

State: Maryland; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 374,141; (2): Effective FY 2000 FMAP 
(percentage): 50.18; (3): FMAP multiplier: 2.01; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 750,931.

State: Massachusetts; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: 342,550; (2): Effective FY 2000 
FMAP (percentage): 50.13; (3): FMAP multiplier: 2.01; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): 686,922.

State: Michigan; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 289,686; (2): Effective FY 2000 FMAP 
(percentage): 55.17; (3): FMAP multiplier: 2.23; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 646,136.

State: Minnesota; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 372,580; (2): Effective FY 2000 FMAP 
(percentage): 51.69; (3): FMAP multiplier: 2.07; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 771,185.

State: Mississippi; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 140,227; (2): Effective FY 2000 FMAP 
(percentage): 76.89; (3): FMAP multiplier: 4.33; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 606,653.

State: Missouri; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 320,009; (2): Effective FY 2000 FMAP 
(percentage): 60.58; (3): FMAP multiplier: 2.54; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 811,740.

State: Montana; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 190,431; (2): Effective FY 2000 FMAP 
(percentage): 74.49; (3): FMAP multiplier: 3.92; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 746,413.

State: Nebraska; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 319,214; (2): Effective FY 2000 FMAP 
(percentage): 61.00; (3): FMAP multiplier: 2.56; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 818,427.

State: Nevada; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 327,582; (2): Effective FY 2000 FMAP 
(percentage): 50.45; (3): FMAP multiplier: 2.02; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 661,158.

State: New Hampshire; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: 467,893; (2): Effective FY 2000 
FMAP (percentage): 50.08; (3): FMAP multiplier: 2.00; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): 937,274.

State: New Jersey; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 417,976; (2): Effective FY 2000 FMAP 
(percentage): 50.07; (3): FMAP multiplier: 2.00; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 837,128.

State: New Mexico; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 142,227; (2): Effective FY 2000 FMAP 
(percentage): 74.19; (3): FMAP multiplier: 3.87; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 551,081.

State: New York; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 229,337; (2): Effective FY 2000 FMAP 
(percentage): 50.11; (3): FMAP multiplier: 2.00; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 459,721.

State: North Carolina; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: 244,355; (2): Effective FY 2000 
FMAP (percentage): 62.61; (3): FMAP multiplier: 2.67; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): 653,542.

State: North Dakota; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 238,866; (2): Effective FY 2000 FMAP 
(percentage): 70.97; (3): FMAP multiplier: 3.45; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 822,897.

State: Ohio; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 289,509; (2): Effective FY 2000 FMAP 
(percentage): 58.72; (3): FMAP multiplier: 2.42; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 701,375.

State: Oklahoma; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 198,643; (2): Effective FY 2000 FMAP 
(percentage): 71.63; (3): FMAP multiplier: 3.53; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 700,263.

State: Oregon; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 288,765; (2): Effective FY 2000 FMAP 
(percentage): 60.42; (3): FMAP multiplier: 2.53; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 729,556.

State: Pennsylvania; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 281,796; (2): Effective FY 2000 FMAP 
(percentage): 53.84; (3): FMAP multiplier: 2.17; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 610,540.

State: Rhode Island; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 264,602; (2): Effective FY 2000 FMAP 
(percentage): 53.77; (3): FMAP multiplier: 2.16; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 572,326.

State: South Carolina; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: 189,300; (2): Effective FY 2000 
FMAP (percentage): 70.18; (3): FMAP multiplier: 3.35; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): 634,851.

State: South Dakota; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 274,528; (2): Effective FY 2000 FMAP 
(percentage): 71.07; (3): FMAP multiplier: 3.46; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 948,856.

State: Tennessee; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 209,859; (2): Effective FY 2000 FMAP 
(percentage): 63.19; (3): FMAP multiplier: 2.72; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 570,142.

State: Texas; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 224,158; (2): Effective FY 2000 FMAP 
(percentage): 61.54; (3): FMAP multiplier: 2.60; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 582,883.

State: Utah; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 452,178; (2): Effective FY 2000 FMAP 
(percentage): 71.65; (3): FMAP multiplier: 3.53; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 1,595,085.

State: Vermont; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 315,610; (2): Effective FY 2000 FMAP 
(percentage): 62.39; (3): FMAP multiplier: 2.66; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 839,259.

State: Virginia; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 325,551; (2): Effective FY 2000 FMAP 
(percentage): 51.90; (3): FMAP multiplier: 2.08; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 676,811.

State: Washington; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 367,374; (2): Effective FY 2000 FMAP 
(percentage): 52.08; (3): FMAP multiplier: 2.09; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 766,584.

State: West Virginia; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: 145,611; (2): Effective FY 2000 
FMAP (percentage): 74.80; (3): FMAP multiplier: 3.97; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): 577,734.

State: Wisconsin; (1): Funding ability from state resources (dollars 
per person in poverty)[A]: 392,390; (2): Effective FY 2000 FMAP 
(percentage): 58.88; (3): FMAP multiplier: 2.43; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 954,178.

State: Wyoming; (1): Funding ability from state resources (dollars per 
person in poverty)[A]: 383,724; (2): Effective FY 2000 FMAP 
(percentage): 64.63; (3): FMAP multiplier: 2.83; (4): Funding ability 
with federal matching aid: (col. 1 x col. 3): 1,084,827.

State: United States; (1): Funding ability from state resources 
(dollars per person in poverty)[A]: $260,851; (2): Effective FY 2000 
FMAP (percentage): 56.83; (3): FMAP multiplier: 2.32; (4): Funding 
ability with federal matching aid: (col. 1 x col. 3): $624,935.

Sources: HHS and the Department of the Treasury.

Notes: Calculations were done with unrounded numbers, not the rounded 
numbers shown in the table. GAO analysis of data from HHS and the 
Department of the Treasury.

[A] Funding ability without federal matching aid was calculated using 
an average of TTR for 1996 through 1998.

[End of table]

Comparing Proportion of States' Resources Devoted to Medicaid with 
Their Total Spending per Person in Poverty:

The data used to show the relationship between a state's effort to fund 
Medicaid benefits from its own financial resources and its total 
Medicaid spending per person in poverty, shown in figure 2, are 
displayed in table 10.

Table 10: Proportion of State Resources Devoted to Medicaid per $1,000 
of TTR Compared with Total Medicaid Spending per Person in Poverty, 
Cost Adjusted, Fiscal Year 2000:

State: Alabama; State financial resources per $1,000 of TTR: $6.08; 
Total Medicaid spending per person in poverty: $3,397.

State: Alaska; State financial resources per $1,000 of TTR: 5.84; Total 
Medicaid spending per person in poverty: 10,178.

State: Arizona; State financial resources per $1,000 of TTR: 4.64; 
Total Medicaid spending per person in poverty: 2,851.

State: Arkansas; State financial resources per $1,000 of TTR: 6.35; 
Total Medicaid spending per person in poverty: 3,747.

State: California; State financial resources per $1,000 of TTR: 8.04; 
Total Medicaid spending per person in poverty: 3,731.

State: Colorado; State financial resources per $1,000 of TTR: 6.26; 
Total Medicaid spending per person in poverty: 5,391.

State: Connecticut; State financial resources per $1,000 of TTR: 8.99; 
Total Medicaid spending per person in poverty: 8,274.

State: Delaware; State financial resources per $1,000 of TTR: 7.35; 
Total Medicaid spending per person in poverty: 6,242.

State: District of Columbia; State financial resources per $1,000 of 
TTR: 8.51; Total Medicaid spending per person in poverty: 5,417.

State: Florida; State financial resources per $1,000 of TTR: 6.48; 
Total Medicaid spending per person in poverty: 3,160.

State: Georgia; State financial resources per $1,000 of TTR: 6.15; 
Total Medicaid spending per person in poverty: 3,869.

State: Hawaii; State financial resources per $1,000 of TTR: 7.51; Total 
Medicaid spending per person in poverty: 3,935.

State: Idaho; State financial resources per $1,000 of TTR: 5.07; Total 
Medicaid spending per person in poverty: 4,166.

State: Illinois; State financial resources per $1,000 of TTR: 7.79; 
Total Medicaid spending per person in poverty: 5,332.

State: Indiana; State financial resources per $1,000 of TTR: 6.07; 
Total Medicaid spending per person in poverty: 6,153.

State: Iowa; State financial resources per $1,000 of TTR: 6.48; Total 
Medicaid spending per person in poverty: 6,729.

State: Kansas; State financial resources per $1,000 of TTR: 6.23; Total 
Medicaid spending per person in poverty: 5,127.

State: Kentucky; State financial resources per $1,000 of TTR: 7.40; 
Total Medicaid spending per person in poverty: 5,179.

State: Louisiana; State financial resources per $1,000 of TTR: 5.59; 
Total Medicaid spending per person in poverty: 3,533.

State: Maine; State financial resources per $1,000 of TTR: 10.93; Total 
Medicaid spending per person in poverty: 7,999.

State: Maryland; State financial resources per $1,000 of TTR: 7.38; 
Total Medicaid spending per person in poverty: 5,544.

State: Massachusetts; State financial resources per $1,000 of TTR: 
11.43; Total Medicaid spending per person in poverty: 7,849.

State: Michigan; State financial resources per $1,000 of TTR: 9.12; 
Total Medicaid spending per person in poverty: 5,895.

State: Minnesota; State financial resources per $1,000 of TTR: 9.20; 
Total Medicaid spending per person in poverty: 7,094.

State: Mississippi; State financial resources per $1,000 of TTR: 6.19; 
Total Medicaid spending per person in poverty: 3,757.

State: Missouri; State financial resources per $1,000 of TTR: 7.82; 
Total Medicaid spending per person in poverty: 6,345.

State: Montana; State financial resources per $1,000 of TTR: 5.13; 
Total Medicaid spending per person in poverty: 3,826.

State: Nebraska; State financial resources per $1,000 of TTR: 7.26; 
Total Medicaid spending per person in poverty: 5,941.

State: Nevada; State financial resources per $1,000 of TTR: 3.83; Total 
Medicaid spending per person in poverty: 2,533.

State: New Hampshire; State financial resources per $1,000 of TTR: 
7.32; Total Medicaid spending per person in poverty: 6,864.

State: New Jersey; State financial resources per $1,000 of TTR: 7.00; 
Total Medicaid spending per person in poverty: 5,857.

State: New Mexico; State financial resources per $1,000 of TTR: 6.12; 
Total Medicaid spending per person in poverty: 3,370.

State: New York; State financial resources per $1,000 of TTR: 18.16; 
Total Medicaid spending per person in poverty: 8,347.

State: North Carolina; State financial resources per $1,000 of TTR: 
7.77; Total Medicaid spending per person in poverty: 5,075.

State: North Dakota; State financial resources per $1,000 of TTR: 6.64; 
Total Medicaid spending per person in poverty: 5,467.

State: Ohio; State financial resources per $1,000 of TTR: 7.77; Total 
Medicaid spending per person in poverty: 5,449.

State: Oklahoma; State financial resources per $1,000 of TTR: 5.12; 
Total Medicaid spending per person in poverty: 3,586.

State: Oregon; State financial resources per $1,000 of TTR: 7.26; Total 
Medicaid spending per person in poverty: 5,299.

State: Pennsylvania; State financial resources per $1,000 of TTR: 
11.29; Total Medicaid spending per person in poverty: 6,891.

State: Rhode Island; State financial resources per $1,000 of TTR: 
14.27; Total Medicaid spending per person in poverty: 8,170.

State: South Carolina; State financial resources per $1,000 of TTR: 
6.40; Total Medicaid spending per person in poverty: 4,061.

State: South Dakota; State financial resources per $1,000 of TTR: 4.92; 
Total Medicaid spending per person in poverty: 4,671.

State: Tennessee; State financial resources per $1,000 of TTR: 11.04; 
Total Medicaid spending per person in poverty: 6,296.

State: Texas; State financial resources per $1,000 of TTR: 5.58; Total 
Medicaid spending per person in poverty: 3,252.

State: Utah; State financial resources per $1,000 of TTR: 3.74; Total 
Medicaid spending per person in poverty: 5,964.

State: Vermont; State financial resources per $1,000 of TTR: 10.32; 
Total Medicaid spending per person in poverty: 8,661.

State: Virginia; State financial resources per $1,000 of TTR: 5.10; 
Total Medicaid spending per person in poverty: 3,455.

State: Washington; State financial resources per $1,000 of TTR: 8.71; 
Total Medicaid spending per person in poverty: 6,679.

State: West Virginia; State financial resources per $1,000 of TTR: 
7.22; Total Medicaid spending per person in poverty: 4,170.

State: Wisconsin; State financial resources per $1,000 of TTR: 7.89; 
Total Medicaid spending per person in poverty: 7,532.

State: Wyoming; State financial resources per $1,000 of TTR: 3.85; 
Total Medicaid spending per person in poverty: 4,171.

State: United States; State financial resources per $1,000 of TTR: 
$8.37; Total Medicaid spending per person in poverty: $5,056.

Sources: HHS and the Departments of Commerce, Housing and Urban 
Development, and the Treasury.

Note: GAO analysis of data from HHS and the Departments of Commerce, 
Housing and Urban Development, and the Treasury.

[End of table]

FOOTNOTES

[1] Fiscal year 2000 is the latest year for which Medicaid data on 
spending and the number of beneficiaries served were available. 

[2] Medicaid programs operate in the 50 states, the District of 
Columbia, and five U.S. territories. In this report, "states" refers to 
the 50 states and the District of Columbia.

[3] Three other programs--the State Children's Health Insurance 
Program, Adoption Assistance, and Foster Care--also use the Medicaid 
matching formula to establish federal matching rates. These three 
programs accounted for an additional $7.49 billion in federal funding 
in fiscal year 2000. 

[4] 42 U.S.C. § 1396d(b)(1) (2000).

[5] U.S. General Accounting Office, Medicaid: Matching Formula's 
Performance and Potential Modifications, GAO/T-HEHS-95-226 
(Washington, D.C.: July 27, 1995); Jerry Cromwell, testimony before the 
Senate Committee on Finance, Improvements in the Federal Medicaid 
Matching Formula; and Robert P. Strauss, testimony before the Senate 
Committee on Finance, Revising the Medicaid Reimbursement Formula in an 
Era of Fiscal Austerity, 104th Congress, 1st sess., July 27, 1995. 

[6] We measured states' funding ability on the basis of potentially 
taxable resources and potentially eligible participants in Medicaid so 
that our measure of funding ability, before federal matching aid is 
taken into account, does not reflect the influence of states' 
individual policy choices. The matching formula also affects states' 
decisions about the amount and type of Medicaid services they provide 
and therefore affects the availability of health care to low-income 
individuals as well. However, we did not evaluate the formula's 
performance in terms of equalizing access to care because of the high 
degree of uncertainty in predicting how individual states' spending 
decisions are affected by changes in matching rates. 

[7] We used 3-year averages of TTR (for 1996 through 1998) to parallel 
the use of 3-year averages of PCI in the current formula (see app. I 
for a more detailed description of the current formula).

[8] The federal government bases Medicaid eligibility on a variety of 
categorical and income-related factors, and states may expand their 
programs beyond the minimum requirements. As a result of the 
flexibility given states in administering their Medicaid programs, 
except for children and pregnant women, there is no federal minimum 
income level below which individuals must be covered under Medicaid 
that can be used as a basis for measuring potentially eligible low-
income individuals. 

[9] We used CMS data on average per capita Medicaid spending for 
elderly (aged 65 and over) and other beneficiaries to determine how 
much to weight the numbers of people in poverty who are elderly to 
reflect the higher cost to provide them services. 

[10] In the majority of states, individuals who receive SSI are 
automatically eligible for Medicaid. Eleven states have more 
restrictive Medicaid eligibility standards through section 1902(f) of 
the Social Security Act. These 11 states are often referred to as 
"209(b) states" because the origin of this authority was section 209(b) 
of the Social Security Amendments of 1972. Pub. L. No. 92-603, 86 Stat. 
1329, 1381 (codified as amended at 42 U.S.C. § 1396a(f) (2000)). 

[11] EPSDT services are optional for the medically needy population, a 
category of individuals who generally have too much income to qualify 
for Medicaid but have "spent down" their income by incurring medical 
care expenses. See 42 U.S.C. § 1396(a)(10)(C) (2000).

[12] Matching rates are calculated using the following formula:



[13] In fiscal year 2003, Mississippi had the highest federal matching 
rate of any state--76.6 percent.

[14] The average difference in states' funding ability is calculated by 
comparing each state's funding ability with the average funding ability 
of all states and calculating the average difference (both positive and 
negative), weighting each state by its number of people in poverty. 

[15] In an absolute sense, the federal matching rate enhances the 
funding ability of all states. By comparing each state's funding 
ability with the average funding ability for all states, our measure of 
funding ability is a relative, rather than an absolute, measure of 
differences in funding ability. As a consequence, while states with low 
funding ability receiving a relatively low federal match are helped in 
an absolute sense, in a relative sense they move farther below a new, 
higher national average funding ability, resulting in relatively larger 
differences in states' funding ability. 

[16] In decreasing order of funding ability before adding the value of 
the federal match, these states are Tennessee, Kentucky, Oklahoma, 
Montana, Arizona, South Carolina, Louisiana, District of Columbia, 
Alabama, Arkansas, West Virginia, New Mexico, and Mississippi.

[17] The states, listed from highest to lowest funding ability, are 
Alaska, Utah, Wisconsin, Indiana, Wyoming, Iowa, Kansas, Missouri, 
Nebraska, Vermont, Ohio, Oregon, and South Dakota.

[18] The TTR amount used in these calculations is a 3-year average, 
1996-98.

[19] For a discussion of TTR, see Department of the Treasury, Office of 
Economic Policy, Treasury Methodology for Estimating Total Taxable 
Resources, TTR (Washington, D.C.: Oct. 1, 1998; revised November 2002). 
http://www.treas.gov/offices/economic-policy/resources/
index.html?IMAGE.X=28\&IMAGE.Y=9 (See "Summary of Current Methodology 
for Estimating TTR") (downloaded June 4, 2003).

[20] Alaska's current higher matching rate was authorized by the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 to address inadequacies in the national calculation and 
establish more equitable matching rates for the state. Pub. L. No. 106-
554, App. F, § 706, 114 Stat. 2763, 2763A-577. The District of 
Columbia's higher matching rate was authorized by the Balanced Budget 
Act of 1997 at the time comprehensive policy changes realigning the 
financial relationship between the District and federal government also 
were enacted. Pub. L. No. 105-33, § 4725 and tit. XI, 111 Stat. 251, 
518 and 712.

[21] S. Rep. No. 79-1862, at 15 (1946), reprinted in 1946 U.S.C.C.A.N. 
1510, 1525. In conference, a variable rate was adopted, but not one 
based on state PCI. S. Conf. Rep. No. 79-2724, at 8 (1946), reprinted 
in 1946 U.S.C.A.N.N. 1552, 1555.

[22] Pub. L. No. 85-840, § 505, 72 Stat. 1013, 1050. Before this, 
payments to medical providers were reimbursed up to a certain maximum 
dollar amount at a uniform rate of 50 percent for all states. S. Rep. 
No. 85-2388, at 39 (1958), reprinted in 1958 U.S.C.C.A.N. 4212, 4259.

[23] Pub. L. No. 86-778, sec. 601(f), § 6(c), 74 Stat. 924, 991.

[24] Social Security Amendments of 1965, Pub. L. No. 89-97, sec. 121, § 
1905(b), 79 Stat. 286, 344.

[25] See U.S. General Accounting Office, Changing Medicaid Formula Can 
Improve Distribution of Funds to States, GAO/GGD-83-27 (Washington, 
D.C.: Mar. 9, 1983) for a more complete description of the legislative 
history of the Medicaid formula.

[26] A state's relative PCI is its PCI when expressed as a percentage 
of the U.S. average PCI.

[27] Another possible measure of a state's resources is the 
Representative Tax System developed by the Advisory Commission on 
Intergovernmental Relations. We did not use this measure in our 
analysis because data on this measure are not available on an annual 
basis. 

[28] We have excluded disproportionate share hospital (DSH) payments 
from this analysis. These hospitals receive additional Medicaid 
reimbursement because they serve a disproportionate number of Medicaid 
and other low-income patients. We have excluded these payments from our 
analysis because the federal government uses a different distribution 
formula from the regular Medicaid program. 

[29] The age and health care use cost-adjusted poverty rates in table 7 
will be discussed in the next section, in which we describe the cost 
adjustments made for differences in medical care costs.

[30] Gregory Pope, Adjusting the Alcohol, Drug Abuse, and Mental Health 
Services Block Grant for Allocations for Poverty Population and Cost of 
Service (Needham, Mass.: Health Economics Research, Inc., Mar. 30, 
1990).

[31] To calculate effective matching rates we divided each state's 
federal matching aid by its total Medicaid spending, net of DSH and 
certain other costs.

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