Federal Money As Promised (FMAP)

Photo by UW Health / CC BY-NC-ND 2.0

It’s rare that Congress finds bipartisan consensus on important issues, but that happened last month when the House approved health care legislation that includes an extension of the State Children’s Health Insurance Program (SCHIP). Last night the bill was overwhelmingly approved by the Senate and is expected to be signed into law by President Obama.

Under this law, states will receive a substantially higher federal match rate for coverage of certain low-income children through 2017. Oklahoma will see a 23 percentage point jump in its SCHIP match rate in fiscal year 2016.

The temporary boost in the federal match was included in the Affordable Care Act passed in 2010 but was not initially funded. The higher match will boost federal Medicaid spending in Oklahoma by $42 million, according to projections from our state Medicaid agency.

Yet to hear some say it, we can’t trust the federal government to maintain its promised health care funding. For example, a recent Oklahoman editorial referred to declines in federal Medicaid support as the result of “federal cost-shifting” and as evidence that “the federal government commonly fails to keep its financial promises.”

Contrary to The Oklahoman’s rhetoric, this decrease in the federal match has nothing to do with cost-shifting or broken promises. Like many public programs, Medicaid is funded through a combination of federal and state dollars. The federal share, known as FMAP (Federal Medical Assistance Percentage), is determined by a simple mathematical formula, laid out in the federal Social Security Act, that considers a state’s per capita income in relation to national per capita income.* States with higher personal income receive a lower federal match (but never less than 50 percent), while states with  lower personal income get a higher federal match (but never more than 82 percent). The formula was enacted in the early 1960s and has remained substantially unchanged ever since.

Under the law, the federal share is recalculated annually based on the most-recently available three-year data on personal income. This means that states that are enjoying stronger economic growth than the national average will see their federal match decline. This has been Oklahoma’s experience in recent years, as the energy boom has helped the state’s economy outperform the nation’s. Oklahoma’s FMAP has fallen from 67.10 in fiscal year 2007 to 62.30 in FY 2015, and is slated to fall even further, to 60.99, in FY 2016. In a $4 billion program, a one percentage point drop in federal match translates to tens of millions of dollars that must be covered by the state.

Although personal income is an imperfect measure of a state’s economic well-being and fiscal capacity, in general, thriving states should be enjoying solid revenue growth and be in less need of federal assistance. In Oklahoma, however, even prior to the recent drop in oil prices and accompanying job layoffs, the state’s budget and tax policy choices – including repeated tax cuts, ballooning tax breaks, and growing off-the-top allocations – have led to stagnant revenue collections. This has left us unable to make up for the declining federal match without other cuts. But that’s a consequence of policy choices made in Oklahoma City, not Washington D.C.

Over the entire 50-year history of the Medicaid program, Congress has never once revised the FMAP formula to reduce the federal share of Medicaid costs. When Congress has adjusted FMAP, it’s been exclusively to increase federal support for states, as it has to assist states during economic downturns (2003-4 and 2009-11) and to incentivize coverage of various services and populations. A 2013 study by the Congressional Research Service identifies over two dozen exceptions to the regular FMAP, each one involving a higher federal match.

[pullquote]Over the entire 50-year history of the Medicaid program, Congress has never once revised the FMAP formula to reduce the federal share of Medicaid costs.”[/pullquote]This all has significant bearing for the debate on whether states should opt to expand Medicaid to working-age adults under the federal poverty level, as provided for under the Affordable Care Act. The federal government provides 100 percent FMAP in all states for individuals who become newly eligible for Medicaid under the ACA from 2014-16; the federal share then phases down to 90 percent in 2020 and thereafter. Critics of the Medicaid expansion claim that the federal government can’t be trusted to honor this commitment and warn that it will engage in some kind of bait-and-switch that will leave states on the hook for a larger share of the cost.

It’s true that Congress has the authority to alter the Medicaid funding formula, and that now, as in the past, there is pressure to reduce the federal share of Medicaid spending as an instrument of deficit control. As a safeguard, in some states, including Arizona, expansion is tied to a “circuit breaker,” which automatically halts coverage on childless adults if the federal match drops below agreed-upon levels. Yet  it’s notable that over five decades, the Medicaid funding formula has held firm, and that even now, at a time of partisan gridlock and budgetary restraint, it looks as if states will receive a boost in federal support for children’s health care in accordance with  the Affordable Care Act. There may be stories to be told about Washington’s broken fiscal promises, but accusing the federal government of a failure to uphold its commitment on Medicaid is a tall-tale.  

*The formula for a given state is:

FMAPstate = 1 – ( (Per capita incomestate)2/(Per capita incomeU.S.)2 * 0.45)

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Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

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