A project of the Galen Institute

Medicaid

Medicaid is a joint federal-state program which provides government-run insurance for low-income individuals and families. The program is jointly-operated by the federal government and the states, with the federal government providing matching funds for every state dollar spent on Medicaid services and administration. On average, the federal government pays for about 57 percent of total Medicaid costs.

State Medicaid programs are chronically underfunded and pay very low reimbursement rates for services. Consequently, the network of physicians and hospitals willing to see large numbers of Medicaid patients is very constrained. Only about 60 percent of the nation’s doctors will see Medicaid patients due to the program’s below cost reimbursement rates.

ObamaCare’s advocates tout the expanded coverage for the uninsured under the new law. But half of the newly insured – or about 16 million people -- are simply enrolled in Medicaid by making all households with incomes below 133% of the Federal Poverty Line automatically eligible for coverage. But adding millions more to an already stretched program does nothing to guarantee access to care, given the widespread access and quality problem which already plague the program.

Federal Medical Assistance Percentages

The federal government provides matching funds for every dollar spent by a state on Medicaid. The federal matching rate – or Federal Medical Assistance Percentages (FMAP) -- varies by state income and generally falls between 50% and 76% of Medicaid costs. ObamaCare increases FMAP payments to the states, but not by enough to cover their growing costs. It will fully cover costs for the newly eligible from 2014-2016, 95% in 2017, 94% in 2018, 93% in 2019 and only 90% in successive years. Moreover, states will face huge new costs for the millions of currently eligible Medicaid beneficiaries who have found insurance elsewhere or failed to sign up. The process of expanding coverage to even more people will bring many millions into Medicaid at regular matching rates, thus forcing the states to expend significant resources at a time when state budgets are already at the breaking point.

Maintenance of Effort

State governments are currently under enormous pressure to balance their budgets, and Medicaid is typically a source of cost-cutting. Under ObamaCare’s new rules, states are prohibited from restraining eligibility for Medicaid. This federal mandate on the states will be very costly, and force many states to impose deep and perhaps more damaging cuts elsewhere in their budgets.

DSH Payments

Medicaid Disproportionate Share Hospital (DSH) payments will be reduced by $14 billion over the next decade. Medicaid DSH payments are intended to support hospitals that provide care to a disproportionately large population of low-income people who are either uninsured or enrolled in Medicaid. ObamaCare cuts DSH payments to help pay for the entitlement expansions in the legislation.

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