GAO: Changes to Medicaid formula could improve state funding

Changing the current formula used to allocate Medicaid funding to states would improve the way the government provides Medicaid funds during economic downturns, according to a new report from the U.S. Government Accountability Office.

The Centers for Medicare & Medicaid Services currently uses Federal Medical Assistance Percentage Formula to determine the amount of state Medicaid expenditures that the federal government will match. The FMAP is based on per-capita income, which is a “poor proxy” for the size of a state's population that need Medicaid services and the ability of the state to fund Medicaid, GAO said in its February 10 report.

The FMAP formula is especially weak during economic downturns, the report noted, as it fails to represent current state economic conditions. GAO created a prototype formula as part of the report that would authorize additional assistance at the start of a downturn, and better target state's levels of need during a downturn.

The GAO report urges Congress to consider enacting an improved FMAP formula that better aligns with state Medicaid needs, and “provides automatic, timely and temporary assistance” in response to downturns.