Forget the ‘Cornhusker Kickback’: Senate Medicaid Deal a Recipe for Fraud

The Federal Medical Assistance Percentage (FMAP) is the federal financing formula that encourages each state to spend its own taxpayers’ money irresponsibly in order to maximize its take from other states. For example, California’s FMAP was traditionally the 50 percent minimum: For every dollar California spent, the U.S. Treasury would kick in one dollar. However, the FMAP is supposed to give more federal dollars to states with more poor people. So, Mississippi has had the highest FMAP, 75.67 percent: For every dollar Mississippi spent on Medicare, the U.S. Treasury would kick in $3.11.

The Senate bill proposes a much higher FMAP, averaging 90 percent nationwide, in 2019. However, the higher FMAP would only apply to the relatively higher-income, able-bodied, newly eligible beneficiaries.People eligible under the current law will still draw the previous FMAP.States with FMAPs of 50 percent would see them increased to 82.3 percent for the newly eligible beneficiaries.Imagine yourself a county public-health bureaucrat who would attract one federal dollar for every dollar spent on a blind or disabled Medicaid beneficiary, or $4.65 for every dollar spent on an able-bodied young man.Obviously, you would invest your energy in recruiting the able-bodied youth.

Furthermore, the expanded FMAP gives more federal fiscal leverage to rich states: Each thousand-dollar increase in money income per capita is associated with a 1 percent increase in the FMAP under the Senate bill, and this statistically significant regression explains over one-third of the variance in the change in FMAP.

For example, New Hampshire’s money income is $68,175 per capita, which is $16,942 greater than the national average of $51,233.Its FMAP would increase from 50 percent to 82.3 percent, an increase of 65 percent.This is 18 percent greater than it would have been if higher per capita incomes did not explain the Senate’s “generosity.”On the other hand, Mississippi’s FMAP increases by only 20 percent: From the current 74.73 percent to 95 percent.This increase is 15 percent less than it would have been if the state’s low income did not explain its poor outcome in the Senate’s FMAP allocation.

Instead of leveraging the FMAP, Medicaid reform should jettison it entirely, in favor of easily understood block grants.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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