Congress Should End Washington, D.C.’s Sweetheart Medicaid Matching Fund Bonus
Key Findings
- Medicaid costs are skyrocketing.
- Washington, D.C. has the highest per capita income in the nation, yet receives among the highest rate of federal reimbursement.
- D.C.’s sweetheart Medicaid funding deal has cost taxpayers billions.
- If all states received such favoritism, federal Medicaid spending would increase by $1.3 trillion over the budget window.
- Ending D.C.’s Medicaid matching fund bonus would save billions.
Overview
Medicaid is on an unsustainable path. Costs have exploded, reaching nearly $919 billion per year, up from $206 billion in 2000.¹⁻³ Federal taxpayers shoulder the lion’s share of this skyrocketing spending, as federal dollars cover nearly 80 percent of the increase over the last decade.⁴⁻⁵ Worse, there are no signs of slowing, with federal taxpayers on track to spend $8.6 trillion over the next decade.⁶ Without reform, taxpayers will be forced to bear this increasing burden.
States and the federal government jointly fund Medicaid. The federal government’s share, called the federal medical assistance percentage (FMAP), was designed to have the federal government pay a higher share in states with lower per capita incomes and a lesser share in states with higher per capita incomes.⁷ States’ FMAPs are calculated annually, ranging from 50 percent to 77 percent in the latest fiscal year.⁸
FMAPs are important as they impact a state’s budget. For example, in a state with a high FMAP of 75 percent, $100 in Medicaid expenses means that $75 will be funded by the federal government, and only $25 will be funded by the state. To put this another way, if a state with an FMAP of 75 percent spends $1, it generates three additional dollars from the federal match. For a state with a 50 percent FMAP, one dollar of state spending generates one dollar from the federal match. In general, states with lower per capita incomes have higher FMAPs.
Washington, D.C. is the wealthiest jurisdiction in the nation.⁹ D.C.’s per capita income is more than 15 percent higher than the next wealthiest jurisdiction, Massachusetts.10
Though the FMAP floor for wealthy states is typically set at 50 percent, D.C. benefits from a sweetheart deal with the federal government and receives an FMAP floor of 70 percent, costing taxpayers billions.11 Congress should end D.C.’s Medicaid sweetheart deal to restore fiscal sanity and save taxpayers billions.
Medicaid costs are skyrocketing
Medicaid’s surging costs are unsustainable. Since 2000, annual program costs have increased by nearly 350 percent.12-14
Without reform, the situation will only get worse as the program’s federal costs are expected to reach $8.6 trillion over the next decade.15 That is nearly one-third of U.S. GDP.16 Reform is critical. In particular, fixing Medicaid’s flawed financing structure for ObamaCare expansion can save taxpayers billions and reprioritize the truly needy.17 In the same way, ending sweetheart deals can create more fiscal responsibility.
Washington, D.C. has the highest per capita income in the nation, yet receives among the highest rate of federal reimbursement
FMAP, which is the federal government’s share of Medicaid reimbursement to states, is supposed to vary inversely with a state’s income. States with higher per capita incomes receive less federal funding, while states with the lowest per capita incomes receive the most federal funding.18 The federal government set an FMAP floor of 50 percent.19 Without this arbitrary floor, several jurisdictions, including D.C., would have FMAPs below 50 percent.20 The federal government also makes several exceptions for certain groups, including spending more on able-bodied adults than it does on the truly needy.²¹
While the 50 percent floor exists for most wealthy states, D.C. has an FMAP floor of 70 percent.²² D.C. has the highest per capita income in the nation and should be in the company of the wealthiest states with the lowest FMAP of 50 percent.²³ Yet D.C. has among the highest FMAP, similar to that of states with lower personal incomes.24
D.C. is the wealthiest jurisdiction in the nation. D.C.’s neighbors also have much higher per capita incomes than the national average.25 Yet D.C. boasts a much higher federal matching rate than its wealthy neighbors, Maryland and Virginia.
D.C.’s sweetheart Medicaid funding deal has cost taxpayers billions
Since fiscal year 1998, Washington, D.C. has benefitted from an FMAP floor of 70 percent, instead of the usual 50 percent reimbursement floor.26 This favoritism has come at great cost to taxpayers, who are already paying outrageous amounts for able-bodied adults on the welfare program.27
The 20-year cost of D.C.’s Medicaid funding deal totals $8.5 billion.28 Over the last decade alone, D.C.’s deal has cost taxpayers $5.2 billion.29
If all states received such favoritism, federal Medicaid spending would increase by $1.3 trillion over the budget window
The wealthiest jurisdiction in the nation should not be receiving such federal favoritism. If all other states were given this treatment, it would increase federal Medicaid spending by a whopping $1.3 trillion over the budget window.30 Medicaid is already costing taxpayers hundreds of billions as enrollment and spending surges.³¹ Eliminating D.C.’s federal matching fund bonus would create more fiscal responsibility and save taxpayer dollars.
The Bottom Line: To restore fiscal fairness and save taxpayers billions, Congress should end Washington, D.C.’s sweetheart Medicaid matching fund bonus.
There is no reason for D.C. to receive such favoritism. Instead, Congress should end D.C.’s special deal. Doing so would save federal taxpayers $9.7 billion over the 10-year budget window.³² D.C. favoritism has gone on for too long. With the ever-climbing cost of Medicaid, reforms are long overdue.³³ Special sweetheart deals should be the first to go.
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