Capping Medicaid

Medicaid is jointly funded by the federal government and state governments. The federal contribution is determined by the Federal Medical Assistance Percentage (FMAP). Under the FMAP, states with more people living in poverty get a higher percentage of Medicaid costs paid by the federal government. The average federal contribution to Medicaid is 57 percent. Contributions range from 50 percent to 75 percent but can go as high as 82 percent.

Under the Senate’s bill, federal funding for Medicaid would no longer be based on a percentage of actual Medicaid costs; instead, funding would be determined by either a per capita cap or a block grant.

A per capita cap would give states a fixed amount of money for each person enrolled in Medicaid. It would have no relationship to the actual medical expenses of caring for people with Medicaid.

Under a block grant, the federal government would provide a fixed amount of money to the states that would have nothing to do with the number of people enrolled in Medicaid. A block grant also would ignore the actual medical expenses of people with Medicaid. Under the Senate’s bill, states could only accept a block grant for Medicaid funding programs affecting pregnant women and parents. The blind, disabled, and elderly would all be covered by the per capita cap system.

Until 2025, the Senate bill would tie Medicaid growth to the Consumer Price Medical Index (CPMI). Beginning in 2025, the Medicaid growth rate would be tied to the Consumer Price Index (CPI).

The Congressional Budget Office (CBO) projects Medicaid spending to grow at an annual rate of 4.4 percent over the next decade. The growth rates for the CPMI and CPI over the next decade are 3.7 percent and 2.4 percent respectively.

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