Update on Federal Medicaid Funding
High-income states spend more on Medicaid than low-income states and they get more federal dollars. For example:
- The average total expenditure per Medicaid enrollee in 2007 was $5,163.
- New York, a higher income state, spent $8,450 per Medicaid enrollee in 2007.
- By contrast, Alabama, a lower income state, spent $3,945.
Higher-income states may have a lower per-dollar federal matching rate, but they receive more federal funds because they tend to spend more on Medicaid:
- On one end of the spectrum, high-spending New York state receives 87 percent more federal funding than it would be based on its poverty population.
- On the low end, Nevada receives only half the distribution of federal funds it would if the distribution were based on need.
The federal matching formula tends to reward states that are already relatively wealthy. It also discourages cost control and controlling fraud by subsidizing costs at the margin. A block grant would improve states’ incentives.
Each state operates its own Medicaid program, but because of the funding formula they have an incentive to spend more, rather than spend more wisely. Previous NCPA Medicaid studies, of New York State and programs nationwide, suggest that billions of dollars are wasted by Medicaid programs on unnecessary spending and nonhealth spending (such as taxicab rides and nonemergency ambulances).
The distribution of Medicaid funds makes no logical sense. We should give each state a block grant with the amount based on its share of the national poverty population.