Medicaid Formula:

Fairness Could Be Improved

T-HRD-91-5: Published: Dec 7, 1990. Publicly Released: Dec 7, 1990.

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

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: The staff believe no action will be taken in the coming year.

    Matter: Congress should consider revising the Medicaid distribution formula to use better indicators of states' financing capabilities and poverty rates and reduce the minimum federal share.

 

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