Briefing Book for Missouri Medicaid

Transcription

1 Briefing Book for Missouri Medicaid Section 6: Financing 6.1 Medicaid Financing Brief 6.2 The Basics: Medicaid Financing 6.3 Federal CHIP Financing 6.4 Why Does Medicaid Spending Vary Across States: A Chart Book of Factors Driving state Spending Excerpt 6.5 Moving Beyond the Tug of War: Improving Medicaid Fiscal Integrity Summary Brief 6.6 Medicaid Financing Issues: Provider Taxes

2 Medicaid Financing Medicaid, a federal-state partnership, provides public health insurance coverage to low-income people, generally below the federal poverty level (FPL). The Children s Health Insurance Program (CHIP) is a public health insurance program specifically for low-income children with family income above the Medicaid eligibility limits. The Centers for Medicare and Medicaid Services (CMS), a division of the U.S. Department of Health and Human Services (HHS), monitors these programs in each state and establishes requirements for service delivery, quality, funding, and eligibility standards. Within these federal guidelines, each state administers its own Medicaid and CHIP program. This overview focuses on how Medicaid is funded. Federal Financing Medicaid is funded by federal and state governments. In 2012, Medicaid accounted for 7 percent of all federal spending. CMS annually calculates how much matching funds each state will receive. This matching rate is called the Federal Medical Assistance Percentage (FMAP) and its formula takes into account the average per capita income for each state relative to the national average. This formula has not been changed since Medicaid was enacted in The FMAP formula for the federal share of Medicaid can be expressed as: Federal Share = 1 [0.45 x (State per capita income 2 / U.S. per capita income 2 )] States with per capita income above the national level receive less federal funding for Medicaid. Conversely, states with per capita income below the national level receive more federal funding for Medicaid. By law, a state s FMAP cannot be less than 50 percent, where the federal government pays $1 for each $1 contributed by the state. Additionally, a state s FMAP cannot be more than 83 percent. On average, the FMAP formula has resulted in the federal government paying about 57 percent of Medicaid costs, with states paying the remaining 43 percent. There is an enhanced FMAP for CHIP, which is set at a minimum of 65 percent. By law, this enhanced FMAP cannot be more than 85 percent. The enhanced FMAP is generally 15 percentage points higher than the Medicaid FMAP. Through the Patient Protection and Affordable Care Act (ACA), each state s enhanced FMAP is scheduled to increase 23 percent beginning October This enhanced FMAP cannot exceed 100 percent and is set to end in September On average, the federal government pays about 70 percent of CHIP costs. CHIP funding is capped through federal allotments that can roll over from year to year. There were fourteen states receiving the minimum FMAP and enhanced FMAP rate in fiscal years (FY) 2012 and Mississippi received the highest FMAP (73.43%) and enhanced FMAP (81.40%) for FY The average FMAP for FY 2012 was percent and Page 1 of 5 Last Updated: 7/29/2013

3 percent for FY Missouri s FMAP is percent and the enhanced FMAP is percent for FY Federal Matching Rates for Medicaid and CHIP Missouri and Neighboring States State Medicaid FMAP FY 2012 CHIP Enhanced FMAP FY 2012 Medicaid FMAP FY 2013 CHIP Enhanced FMAP FY 2013 Missouri 63.45% 74.30% 61.37% 72.96% Arkansas 70.71% 79.50% 70.17% 79.12% Illinois 50.00% 65.00% 50.00% 65.00% Iowa 60.71% 72.50% 59.59% 71.71% Kansas 56.91% 69.84% 56.51% 69.56% Kentucky 71.18% 79.83% 70.55% 79.39% Nebraska 56.64% 69.65% 55.76% 69.03% Oklahoma 63.88% 74.72% 64.00% 74.80% Tennessee 66.36% 76.45% 66.13% 76.29% Note: FMAP is set for the federal fiscal year, which may be different from a state s fiscal year. There is also a federal match for administrative costs. The administrative FMAP is generally 50 percent and does not vary by state. Additionally, there are some exceptions to the standard Medicaid FMAP for certain populations and services across all states. See the table below. Special Medicaid FMAPs Service/Population FMAP Breast and cervical cancer treatment CHIP enhanced FMAP Clinical preventive services for adults (effective January 1, 2013) FMAP + 1 percentage point Family planning services 90% Health home services for beneficiaries with chronic conditions 90* Home and community-based services and supports for people with FMAP + 6 percentage disabilities points Money Follows the Person (MFP) rebalancing demonstration MFP-enhanced FMAP** State Balancing Incentive Payments Program FMAP + 5 or 2 percentage points*** Services provided through Indian Health Service and tribal 100% facilities * These services can be funded with the enhanced match for 8 quarters ** Program authorized through 2016 *** Funding authorized through 2015 Source: Kaiser Family Foundation, Medicaid Financing: An Overview of the Federal Medicaid Matching Rate (FMAP), Table 2. A key issue is that FMAP adjustments do not respond to changes in economic cycles in a timely manner. This adversely affects states during economic slowdowns. Because FMAP is based on a 3-year average, federal funding does not automatically increase when states feel the greatest Page 2 of 5 Last Updated: 7/29/2013

4 fiscal pressure due to the combinations of increased Medicaid eligibility and lower state revenues. It may be several years before their FMAP increases to reflect changes in per capita income. State Financing States spend an average of 16 percent of their own funds on Medicaid, and it is the second largest program in states budgets after elementary and secondary education (35%). States can pay for their share of Medicaid through legislative appropriations, intergovernmental transfers, and certified public expenditures, including permissible taxes and provider donations. Missouri s Medicaid and CHIP programs, called MO HealthNet, make up a significant portion of the state s budget. In FY 2012, the MO HealthNet program budget was nearly $7 billion, with $1.2 billion (17.8%) from state general revenue; $3.6 billion (51.9%) from federal funds; and $2.11 billion (30.2%) from other sources. These other sources of MO HealthNet funding include: Uncompensated Care Fund: $92,364,915 Pharmacy Rebates: $104,381,357 Provider Taxes: $1,599,261,794 Tobacco Funds: $90,538,131 Third Party Liability: $21,678,128 Premiums: $10,230,392 Life Sciences Trust Fund: $43,000,000 Nursing Facility Quality of Care Fund: $90,794 MO Rx Plan: $10,730,525 Intergovernmental Transfer Funds: $137,080,463 Provider taxes are a major source of MO HealthNet funding (approximately 23%). These are taxes or assessments on health providers that can be used to pay a portion of the state s share of Medicaid costs. Almost all states have at least one provider tax. Missouri generates revenue for MO HealthNet through provider taxes on hospital, nursing facilities, pharmacy, and ambulance services. MO HealthNet expenditures were just over $7 billion for FY Almost half of this spending was in three categories: hospital services ($1.2 4 billion), pharmacy services ($1.1 billion), and managed care ($1 billion). The cost to the state for each Medicaid enrollee varies by population due to the different FMAP rates in use and the health status of enrollees. The following chart breaks down combined federal and state FY 2012 expenditures by population. Page 3 of 5 Last Updated: 7/29/2013

5 Annual MO HealthNet Expenditures by Population and Individual per Month Costs, FY 2012 Population # of Enrollees Annual Expenditures Average Monthly Cost per Enrollee (millions) Older Adults (age 65 & up) 77,460 $1,218.6 $1,311 Persons with Disabilities 167,367 $3,395.0 $1,692 Children 540,826 $1,762.1 $247 Adults (non-disabled & under 65) 108,325 $626.1 $506 Other Federal Funding The Children s Health Insurance Program Reauthorization Act (CHIPRA) of 2009 created incentives for increasing CHIP enrollment and adopting specific policies. CHIPRA bonus payments were available for fiscal years 2009 through To qualify for bonus payments, a state had to implement five of the eight recommended program features. Missouri has adopted some of these policies in part; however, the state did not receive a CHIPRA performance bonus FY 2009 through FY The federal health reform law requires all states update their Medicaid enrollment systems in order to meet new standards for web-based, paperless, real-time eligibility determinations and enrollment in Medicaid enrollment systems will need to be able to coordinate with health insurance exchanges to establish a no wrong door approach to enrolling in health coverage. These upgrades must be made regardless of whether a state is opting to expand Medicaid. The ACA provides a time-limited 90 percent federal match for updating Medicaid information technology (IT) systems. Missouri has submitted and received approval of its Advance Planning Document to replace its Family Assistance Management Information System (FAMIS), the program used to process MO HealthNet applications. The Missouri General Assembly appropriated $68.9 million for the IT upgrade in the current fiscal year. The majority of these funds come from the federal government, with $7.2 million in state general revenue. After a competitive bidding process, which ended in June 2013, Missouri signed a contract with EngagePoint to develop and set up a new web-based enrollment system. In 2010, Missouri received a $1 million planning grant to examine how the state could establish and operate a health insurance exchange for Missourians. Following this planning process, the state submitted a plan and received a $20.8 million federal Level One Establishment grant in This funding has not been spent, as Missouri has not passed legislation to create a health insurance exchange. Page 4 of 5 Last Updated: 7/29/2013

6 Maintenance of Effort Under the ACA, states cannot adopt Medicaid eligibility standards or procedures that are more restrictive than when the law was enacted in This means states must maintain their eligibility levels for adults until health insurance exchanges are fully operational (January 1, 2014). Furthermore, states must maintain eligibility levels for children covered by CHIP through September 30, 2019, the duration of the CHIP reauthorization in the ACA. If a state does not comply with the maintenance of effort requirements, its federal Medicaid funding may be at risk. Additional Resources Centers for Medicaid and Medicare Services, Center for Medicaid and State Operations, Letter on CHIPRA Performance Bonus Payments, Congressional Research Service, Medicaid: The Federal Medical Assistance Percentage (FMAP), Medicaid.gov, Financing & Reimbursement - Missouri Office of Administration, Division of Budget and Planning, Medicaid Restructuring Budget Background, Kaiser Family Foundation, Medicaid Financing: An Overview of the Federal Medicaid Matching Rate (FMAP), Kaiser Family Foundation, Getting into Gear for 2014: Findings from a 50-State Survey of Eligibility, Enrollment, Renewal, and Cost-Sharing Policies in Medicaid and CHIP, Kaiser Family Foundation, State Exchange Profiles: Missouri, Page 5 of 5 Last Updated: 7/29/2013

7 FEBRUARY 13, 2013 THE BASICS Medicaid Financing The Medicaid program, which provides health coverage to individuals with low incomes who are children, parents, aged, or or have disabilities, is jointly funded by the federal and state governments. Each state administers its Medicaid program within broad federal guidelines. In 2010, Medicaid provided coverage to an estimated 53.9 million people. 1 Combined state and federal spending was $404.1 billion, of which the federal government paid about 68 percent and states paid about 32 percent. 2 Because of a temporary increase in the federal matching rate in 2009 and 2010, the federal government s share of total Medicaid spending was larger than in past years. In 2011, federal and state expenditures for the 56.1 million people covered by Medicaid were estimated to be $432 billion, with the federal government paying 63 percent. 3 On average, state and federal Medicaid spending accounted for 23.7 percent of total state budgets (including general state funds, other state funds, and federal funds) in Medicaid is a sizeable portion of total state spending. It is the single largest budget item (next to elementary and secondary education) for most states. 5 DETERMINING THE STATE AND FEDERAL SHARE OF MEDICAID SPENDING The federal and state governments jointly fund the Medicaid program. Because Medicaid is an entitlement program, there is no limit on the amount the federal government pays as long as the state pays its share. The federal portion of Medicaid spending in each state is called the Federal Medical Assistance Percentage, commonly referred to as the FMAP.

8 FEBRUARY 13, 2013 NATIONAL HEALTH POLICY FORUM National Health Policy Forum 2131 K Street, NW Suite 500 Washington, DC T 202/ F 202/ E nhpf@gwu.edu The formula to calculate the FMAP was established in statute when Medicaid was authorized in The FMAP formula determines the federal and state share of Medicaid spending in each state by comparing each state s per capita personal income to the national average per capita income. 6 The formula is designed so that the federal government pays a higher proportion of Medicaid costs in states with lower per capita income relative to the national average, such as Mississippi, and a lower proportion in states with higher per capita income relative to the national average, such as Washington. The formula for the federal share is: FMAP = x (State Per Capita Income 2 /U.S. Per Capita Income 2 ) The formula for the state share is: State Share = 0.45 x (State Per Capita Income 2 /U.S. Per Capita Income 2 ) The 0.45 in the FMAP formula ensures that states with average per capita income receive a federal share of 55 percent. The statute establishes a minimum FMAP of 50 percent for states, stipulating that no state shall bear more than 50 percent of total costs, regardless of the result of applying the formula. The statute also contains an upper limit of 83 percent on the FMAP. For territories, federal law also sets the federal government s share at 50 percent for the cost of Medicaid items and services up to specific spending caps. The FMAP is set at 70 percent for the District of Columbia. The FMAP applies to state expenditures for most medical services. However, the federal share for certain services (for example, family planning services and supplies), certain populations (for example, uninsured women with breast or cervical cancer and Native Americans), or for Medicaid administrative costs is not determined using the FMAP formula and is instead specified separately under federal law. The Secretary of the Department of Health and Human Services (HHS) publishes the FMAP for each state and territory in the Federal Register in November for the fiscal year beginning the following October. The FMAP is in effect for a one-year period. Based on the statutory formula, regular FMAPs for fiscal year 2013 range from the floor amount of 50 percent (in 14 states) to a high of percent. 7 2

9 THE BASICS Medicaid Financing Affordable Care Act Impact on Medicaid Financing The Patient Protection and Affordable Care Act (ACA, P.L as amended) expanded Medicaid eligibility effective January 2014 to adults under age 65 with incomes up to 133 percent of the federal poverty level (FPL). The ACA required states to expand eligibility to this group to continue to receive any federal funding for their Medicaid programs. But in June 2012, the United States Supreme Court issued a decision in National Federation of Independent Business v. Sebelius that held that the federal government cannot make all federal Medicaid funding for a state s Medicaid program contingent on a state implementing the ACA Medicaid expansion in As a result of this decision, states may opt not to expand the program to newly eligible adults without losing their federal Medicaid funding for other eligible populations. In states that do expand eligibility to adults under age 65 with incomes up to 133 percent of the FPL, the federal government is to pay 100 percent of the costs in 2014 through 2016, 95 percent of the costs in 2017, 94 percent of the costs in 2018, 93 percent of the costs in 2019, and 90 percent of the costs in 2020 and thereafter for those newly eligible for Medicaid as a result of the ACA. In a document released in December 2012, the Centers for Medicare & Medicaid Services (CMS) announced that states cannot expand to less than 133 percent of FPL and receive 100 percent federal payment for this group. CMS stated that the law does not provide for a phased-in or partial expansion, and that the higher federal matching rate will not be available to states that partially expand coverage (such as up to 100 percent of FPL) in 2014 to HOW HAVE STATES MAXIMIZED FEDERAL MATCHING FUNDS? The shared financing of Medicaid has been a source of tension between the states and the federal government for many years. States have an incentive to maximize the federal matching funds and have used various financing mechanisms to do so. Some states use of these mechanisms to increase federal payment has led to increased federal scrutiny and legislative and regulatory actions to limit certain financing arrangements. Mechanisms for maximizing federal matching funds and policies to control their use are explained briefly in the following sections. 3

10 FEBRUARY 13, 2013 NATIONAL HEALTH POLICY FORUM Disproportionate Share Hospital (DSH) Payments DSH payments are required supplemental payments to hospitals that are intended to offset the costs of caring for low-income and uninsured patients. Federal criteria allow states wide discretion in determining which hospitals receive DSH payments and how payments are allocated to qualifying hospitals within the state. States must define their criteria for determining DSH hospitals and their payment allocation formulas in their state plans and submit them to CMS for approval. States definitions of hospitals eligible to receive DSH must include all hospitals meeting one of the criteria set forth in federal law: (i) a Medicaid inpatient utilization rate that is more than one standard deviation above the mean for all hospitals in the state or (ii) a low-income patient utilization rate in excess of 25 percent. As long as they include hospitals meeting the federal criteria, states may also make other hospitals eligible to receive DSH as long as they have a Medicaid utilization rate of at least 1 percent. Medicaid DSH payments to any hospital cannot be more than that hospital s total cost of providing inpatient and outpatient services to Medicaid and uninsured patients. For fiscal year 2012, the federal DSH allotment for all states and the District of Columbia is estimated to be $11.34 billion, but the allotments to each state vary. 10 Rapid increases in DSH spending in the late 1980s and early 1990s caused concerns about financial accountability for DSH payments. In response, the Congress established a limit on the amount each state may claim from the federal government for DSH payments. These state allotment limits were based, in part, on historical DSH payments. As a result, policies to control DSH spending preserved some of the differences in DSH allotments across states that some regard as inequitable because the level of DSH funding a state receives is not entirely based on the care provided to low-income and uninsured patients. Today, a state s DSH allotment for a given year is the higher of (i) its fiscal year (FY) 2004 DSH allotment or (ii) the previous year s allotment adjusted for inflation. 11 Each state s allotment also cannot be more than the higher of the prior year s allotment or 12 percent of the state s total Medicaid spending (federal and state, excluding administration). The ACA contains provisions to reduce federal DSH allotments to states as the expected number of uninsured individuals decreases 4

11 THE BASICS Medicaid Financing due to the anticipated expansion of Medicaid eligibility and access to private insurance through exchanges beginning in The ACA directs the Secretary of HHS to reduce aggregate Medicaid DSH allotments by $500 million in 2014, $600 million in 2015, $1.8 billion in 2017, $5 billion in 2018, $5.6 billion in 2019, and $4 billion in In addition, the Middle Class Tax Relief and Job Creation Act of 2012 extended the 2020 reduction to Under current law, states DSH allotment will return to pre-aca amounts (with annual inflation adjustments for 2014 to 2022) in The ACA requires the Secretary to allocate these aggregate reductions across the states using broad guidelines. Larger percentage DSH reductions are to be imposed on states that have the lowest share of uninsured individuals or states that do not target their DSH payments to hospitals with large numbers of Medicaid patients and high levels of uncompensated care. Smaller percentage DSH reductions are to be imposed on states with total Medicaid DSH payments of less than 3 percent of total Medicaid spending for FY 2000 (also called low DSH states). HHS has said that it will propose the methodology for implementing mandated DSH reductions in early Concerns about the equity of federal and state DSH policy, the accuracy of the states calculations used to allocate DSH, and CMS s oversight of state DSH programs have been longstanding and persist today. 14 Since 2010, CMS has required states to submit annual audits and reports on DSH payments. Government Accountability Office (GAO) analysis of these audits found that states will need to makes changes to their DSH payments to comply with federal law. 15 GAO also concluded that information from audits will provide useful information to guide the Secretary s required reduction in DSH payments starting in Upper Payment Limits (UPLs) Medicaid Upper Payment Limits (UPLs) are the ceiling on Medicaid payment amounts for which states can receive federal matching funds. UPLs are set at a reasonable estimate of what Medicare would pay a category of providers in the aggregate for comparable services, such as nursing facility services, or inpatient or outpatient hospital services. Because states Medicaid payment rates are typically less than Medicare rates, states may make payments 5

12 FEBRUARY 13, 2013 NATIONAL HEALTH POLICY FORUM to some hospitals or other providers to supplement standard Medicaid payments and DSH payments, receive federal matching funds, and still be under the aggregate UPL for a given category of services. In a 2012 report, the GAO reviewed its longstanding problems with oversight of UPL payments, which it sees as in need of improved accountability and transparency. Specifically, the GAO cites the need for more thorough CMS review of states payment arrangements to ensure that payments were for Medicaid purposes ; the need for better guidance to states about calculating UPLs and payment amounts; and the need for improved transparency for non-dsh payments, which are often large and made to small numbers of providers, through facility-specific reporting of these payments. 16 Intergovernmental Transfers(IGTs) IGTs are transfers of public funds between government entities, such as from counties to states or between state agencies. For example, many states require their counties to transfer certain local tax revenues to help fund the state s Medicaid program. Federal law allows states to collect up to 60 percent of its Medicaid share from local governments for purposes of receiving Medicaid matching funds. Although IGTs are permissible, states use of them has come under federal scrutiny when they have been used in conjunction with supplemental payments to increase the federal share of Medicaid spending. As the GAO has reported, an example of this is when states (i) make large payments in excess of the Medicaid rate to certain providers operated by local governments, (ii) claim federal match on the payments, and (iii) require the local government-operated provider to return all or much of the payment back to the state via an IGT, effectively increasing the federal payment for services. 17 Provider Taxes States may use taxes (sometime called fees or assessments) on health care providers to generate funds needed to finance the state share of their Medicaid costs. States provider tax structures must comply with federal requirements. 18 After several years of aggressive use of provider taxes by some states, 19 Congress passed a law in 1991 to limit the overt recycling of money collected from 6

13 THE BASICS Medicaid Financing providers that was then used to obtain federal match and paid back to those same providers. The law required that provider taxes be imposed uniformly on all providers in a class (for example, inpatient hospitals, nursing facilities, and managed care organizations) and generally prohibits states from guaranteeing that a portion of the tax amount (referred to as hold harmless ) will be returned after the federal matching funds are received. States can comply with the hold harmless provision by limiting the taxes to a federally defined safe harbor amount of less than 6 percent of a provider s net patient revenues. 20 Provider taxes cannot exceed 25 percent of a state s share of Medicaid spending. For fiscal year 2013, 49 states and the District of Columbia had at least one Medicaid provider tax, up from 41 states in The only state without a provider tax is Alaska. 22 ENDNOTES 1. Enrollment can be measured in two ways that differ because an individual s Medicaid eligibility status can change during the course of the year. The average number of enrollees over the year, or person year equivalents, was 53.9 million in 2010, as estimated by the CMS Office of the Actuary. An estimated 67.7 million people were enrolled in Medicaid for at least one month in Christopher J. Truffer et al., 2011 Actuarial Report on the Financial Outlook for Medicaid, U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services, Office of the Actuary, March 16, 2012, p. iii, available at ActuarialStudies/downloads/MedicaidReport2011.pdf. 2, Truffer et al., 2011 Actuarial Report on the Financial Outlook for Medicaid. 3. Truffer et al., 2011 Actuarial Report on the Financial Outlook for Medicaid. 4. National Association of State Budget Officers (NASBO), State Expenditure Report: Examining Fiscal State Spending, December 2012, p. 11, available at 5. NASBO, State Expenditure Report, pp The incomes used in the formula are rolling three-year average per capita incomes for each state and the United States, produced by the Department of Commerce s Bureau of Economic Analysis. The FMAPs are based on income data from three to six years earlier because of the time lag for data collection and calculation. 7. Federal Register, vol. 76, no. 230, November 30, 2011, pp , available at 8. Alison Mitchell, Medicaid Financing and Expenditures, Congressional Research Service, July 30, 2012, p

14 FEBRUARY 13, 2013 NATIONAL HEALTH POLICY FORUM 9. Centers for Medicare & Medicaid Services (CMS), Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid, December 10, 2012, p. 12, available at Federal Register, vol. 77, no. 142, July 24, 2012, pp , available at The only state that received its FY 2004 DSH allotment in FY 2012 is Louisiana. See Alison Mitchell, Medicaid Disproportionate Share Hospital Payments, Congressional Research Service, December 18, 2012, p Mitchell, Medicaid Disproportionate Share Hospital Payments. 13. CMS, Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid, p U.S. Government Accountability Office (GAO), Medicaid: Ongoing Fed. eral Oversight of Payments to Offset Uncompensated Hospital Care Costs Is Warranted, GAO-10-69, November 2009, available at GAO, Medicaid: More Transparency of and Accountability for Supple. mental Payments Are Needed, GAO-13-48, November 26, 2012, available at GAO, Medicaid: More Transparency of and Accountability for Supplemental Payments Are Needed, pp GAO, Medicaid: Intergovernmental Transfer Have Facilitated State Financing Schemes, GAO T, statement of Kathryn G. Allen before the Subcommittee on Health, Committee on Energy and Commerce, House of Representatives, March 18, 2004, available at Federal legal requirements for provider taxes can be found in section 1903(w)(3)-(7) of the Social Security Act, available at ssact/title19/1903.htm. 19. For the history of states uses of provider taxes see Alison Mitchell, Medicaid Provider Taxes, Congressional Research Service, March 15, From January 1, 2008, through September 30, 2011, the threshold was 5.5 percent. The threshold reverted back to 6 percent on October 1, National Conference of State Legislators, Health Care Provider and Industry Taxes/Fees, updated January 2013, available at NCSL, Health Care Provider and Industry Taxes/Fees. Prepared by Kathryn Linehan. Please direct questions to klinehan@gwu.edu. 8

15 Medicaid and CHIP Program Basics September 2011 Federal CHIP Financing The State Children s Health Insurance Program (CHIP) pays for the health insurance coverage of targeted low-income children whose family income is above the state s Medicaid eligibility levels in 1997, when CHIP was created. 1 States operate their CHIP programs as a CHIP-funded expansion of Medicaid, a CHIP program separate from Medicaid, or a combination of both approaches. In FY 2010, CHIP financed the health coverage of 7.7 million children and nearly 350,000 adults. 2 Federal CHIP funding provided to states differs from federal Medicaid funding in several ways: Federal CHIP allotments to states, which are based on a formula using the state s previous CHIP spending, are capped; states can exhaust their federal CHIP funding, unlike typical federal Medicaid funding. Under current law, there are no appropriations for new federal CHIP allotments after FY 2015; federal Medicaid funding is provided automatically. The federal matching rate that is, the percentage of spending paid for by the federal government is higher for states CHIP spending than under Medicaid; although the amounts vary by state, the federal government pays for 70 percent of CHIP spending, on average, compared to 57 percent historically under Medicaid. Other policy changes, including the implementation of Patient Protection and Affordable Care Act (P.L , as amended), are scheduled to take effect under current law and could affect federal CHIP financing. This MACBasic describes CHIP s current financing structure and examines its future under current law. For a broad overview of the CHIP program, its history, and descriptions of individuals eligibility for CHIP, see Chapter 3 of MACPAC s March 2011 Report to the Congress on Medicaid and CHIP. MACPAC Medicaid and CHIP Payment and Access Commission MACPAC 1800 M Street, NW, Suite 350N Washington DC (202)

16 2 MACBasics: Federal CHIP Financing Figure 1. Federal CHIP Appropriations, FY Notes: The figure shows amounts explicitly appropriated in statute. Redistributed amounts are not shown as separate appropriations because they come from allotments (shown in the figure) that were appropriated but unspent. Federal CHIP spending is from all sources (allotments, redistributed funds, shortfall funding, bonus payments). For FY , the line in the figure shows spending nationally exceeding the annual allotment appropriations but no shortfall funding; shortfall appropriations were not needed during this time because states also drew from their unspent prior-year balances and redistribution funds. For FY , shortfall funding represents the amounts appropriated in separate bills to eliminate projected shortfalls in those years; for FY 2009, shortfall funding is the initial appropriated amount for the CHIP contingency fund created by CHIPRA. BBA 97=Balanced Budget Act of 1997 (P.L ); CHIPRA=Children s Health Insurance Program Reauthorization Act of 2009 (P.L ); PPACA=Patient Protection and Affordable Care Act (P.L ). Source: Appropriated amounts are from MACPAC analyses of 2104 and 2105 of the Social Security Act and 108 of CHIPRA, as amended by 10203(d)(2)(F) of PPACA. Actual federal CHIP spending (FY ) is from Centers for Medicare & Medicaid Services (CMS) expenditure reports; projected federal CHIP spending (FY ) is from Congressional Budget Office (CBO), Spending and Enrollment Detail for CBO s March 2011 Baseline: Children s Health Insurance Program (CHIP), March 18, 2011, Current Federal CHIP Financing The enhanced federal medical assistance percentage (E-FMAP) is the federal matching rate for states CHIP benefit spending as well as their CHIP administrative spending. The E-FMAP currently ranges from its statutory minimum of 65 percent in several states to 82 percent in Mississippi. States are responsible for the remaining non-federal share. The CHIP E-FMAP requires states to pay a 30 percent smaller share of spending than under Medicaid s regular FMAP, which currently ranges from 50 percent in several states to 75 percent in Mississippi. Figure 1 shows the history of federal CHIP appropriations, broken into three funding categories: federal CHIP allotments, shortfall funds and the CHIP bonus fund.

17 MACBasics: Federal CHIP Financing 3 1. Federal CHIP allotments. The CHIP allotments are states primary source of federal CHIP funding. The national appropriation amounts for allotments and the way in which those amounts were allotted to states have varied, depending on their legislative source: The Balanced Budget Act of 1997 (BBA 97, P.L ), which created CHIP and provided 10 years of federal CHIP appropriations; 3 The Children s Health Insurance Program Reauthorization Act of 2009 (CHIPRA, P.L ), which provided five additional years (FY ) of federal CHIP appropriations and overhauled CHIP s allotment formula; and The Patient Protection and Affordable Care Act (PPACA, P.L ), which provided an additional two years (FY ) of federal CHIP appropriations for allotments, using CHIPRA s allotment formula. 2. Shortfall funding. Toward the end of CHIP s first decade, some states began to exhaust all their available federal CHIP funds. Redistributions of other states unspent allotments reduced or eliminated some of these shortfalls. For FY , Congress separately appropriated funds to eliminate remaining shortfalls. Beginning in FY 2009, CHIPRA appropriated money for a new CHIP contingency fund dedicated to automatically provide funding to qualifying states with federal CHIP shortfalls, in addition to available redistribution funds. 3. CHIP bonus fund. CHIPRA also appropriated funds for another new source of federal CHIP payments: CHIP bonus payments to states that implement certain outreach efforts and that have significant increases in child Medicaid enrollment. The following section describes the current-law structure of these three categories of federal CHIP appropriations. Because all three funding categories have been appropriated significantly more funds than are projected to be spent, this section concludes with a discussion of the treatment of budget authority and outlays. Federal CHIP Allotments Federal appropriations for allotments The national CHIP appropriation amounts, shown in Figure 1, set the overall ceiling on annual federal CHIP allotments to the states, the District of Columbia, and the territories. 4 Since FY 2009, state-level amounts have been allotted according to the allotment formulas described below as long as the annual appropriation is large enough, which it has been. 5 For FY 2011, the national appropriation for federal CHIP allotments was $ billion. Of the $ billion appropriated for FY 2011 federal CHIP allotments, $8.479 billion was actually allotted to states and territories based on the formulas. 6 The difference in the two amounts the unobligated amount of approximately $5 billion was made available to the bonus fund. Figure 2 illustrates how, for FY 2011, the various appropriations in CHIP are allotted, transferred to other funds, rolled over from one year to another, and/or redistributed. Allotment formula For even-numbered years (FY 2010, FY 2012, and FY 2014), allotments are calculated as last year s allotment and any shortfall payments (e.g., contingency funds), increased by a state-specific growth factor. 7 For these years, a state can also have its allotment increased to reflect a CHIP eligibility or benefits expansion. For odd-numbered years (FY 2011, FY 2013, and FY 2015), the allotments are rebased, based on last year s federal CHIP spending in each state or territory, including from contingency funds, plus its growth factor. Redistribution of unspent allotments States have two years to spend their allotments. Since FY 2009, allotments not spent within two years may be redistributed to states that, even after taking into account any contingency fund payments, are projected to experience shortfalls. Since FY 2009, no state has

18 4 MACBasics: Federal CHIP Financing Figure 2. Snapshot of FY 2011 Federal CHIP Financing Available FY 2011 Federal CHIP Funding Rollover from FY 2010: $6.6 billion Projected FY 2011 Federal CHIP Spending $5.8 billion Unspent Balances at End of FY 2011 Unspent $0.9 billion available for redistribution in FY 2012 Allotments FY 2011: $8.5 billion a Unspent $5.6 billion available as rollover in FY 2012 $2.9 billion Bonus Funds Rollover from FY 2010: $2.7 billion b Unused FY 2011 allotment appropriation: $5.0 billion a $0.2 billion to 15 states Combined unspent $7.5 billion in bonus funds, plus $1.2 in redistribution funds not used for shortfalls, available for bonus funds in FY 2012 Shortfall funding Contingency fund rollover from FY 2010: $2.1 billion Redistribution funds: $1.2 billion c $0.03 billion (Iowa) Unspent $2.1 billion in contingency funds available as rollover in FY 2012 a. For FY 2011, $13.5 billion was appropriated for allotments. Of that total, $8.5 billion was allotted to states; the remaining $5.0 billion was transferred to the bonus fund. b. From unspent balances of initial bonus fund appropriation, allotment appropriations not allotted, and redistribution funds not used for shortfalls, reduced by $3.5 billion per 1859 of P.L c. In FY 2011, unspent balances from two years of federal CHIP allotments became available for redistribution the FY 2008 allotment, which was available to states for three years, and the FY 2009 allotment, available for two years. Source: MACPAC analysis of Medicaid and CHIP Budget and Expenditure System as of August 4,

19 MACBasics: Federal CHIP Financing 5 received such redistribution funds. If not redistributed for shortfalls, unspent allotments are made available for bonus payments. Shortfall Funding (Contingency and Redistribution Funds) CHIPRA provided larger total CHIP appropriations, compared to prior years (Figure 1), and overhauled the allotment formula to better align with states actual use of federal CHIP funds. In the event shortfalls still might occur, CHIPRA also created a child enrollment contingency fund, which was appropriated $2.112 billion in FY After receiving contingency funds, which are calculated based on a complex formula described below, a state may then have any remaining shortfalls addressed by the redistribution of other states unspent CHIP allotments. Considering the current CHIP appropriations, allotment formula, contingency funding, and redistributions, any shortfalls of federal CHIP funds that states actually experience in the near term are expected to be small and rare. Chapter 3 of the March 2011 MACPAC Report to the Congress described several ways in which the new contingency fund addresses shortfalls differently than prior to CHIPRA: Unlike prior shortfall appropriations, the amount of federal contingency funds provided to a state is not the amount of its shortfall. As described below, the contingency fund formula does not factor in the size of the state s shortfall. The contingency fund formula is designed to make payments based on a state s growth in CHIP enrollment and per capita spending since FY 2008, so the contingency fund payment may be significantly smaller or larger than the amount necessary to eliminate a state s shortfall. Unlike previous shortfall appropriations, contingency funds require no state matching funds. Instead, federal contingency funds are designed to offset CHIP spending by the state for which it had no federal CHIP matching funds. While the redistribution of states unspent allotments had historically been used to reduce or eliminate any need for separate federal shortfall funding, contingency funding is provided before taking into account any amounts available through redistribution. This modification was likely intended to first target funding to shortfall states with higher enrollment growth and/or lower per capita spending growth. In addition, not all shortfall states will necessarily qualify for contingency funds. As described below, receipt of contingency funds is tied to having certain levels of CHIP enrollment growth. No state received contingency funds in FY 2009 or FY In FY 2011, Iowa became the first state to receive contingency funds. Iowa s projected FY 2011 federal CHIP spending ($82.3 million) was projected to exceed its available funding ($78.5 million) by approximately $3.8 million. Because the state was projected to face a shortfall ($3.8 million), the Centers for Medicare and Medicaid Services (CMS) put Iowa s projected FY 2011 enrollment and per capita spending numbers through the statutory contingency fund formula, which multiplies: CHIP child enrollment growth (that is, the number of children enrolled in CHIP in FY 2011 above a target amount), 8 by the federal share of the state s per capita CHIP expenditures in FY 2011 for those children. 9 Based on the formula, Iowa qualified for and received a federal contingency fund payment of $28.9 million, which may be adjusted when the actual FY 2011 enrollment and expenditure numbers become available. Using states own projections of FY 2012 CHIP spending, a preliminary analysis by MACPAC found that a handful of other states may also qualify for contingency fund payments in FY Whether the contingency fund payments in FY 2012 would be larger or smaller than these states projected shortfalls was not assessed.

20 6 MACBasics: Federal CHIP Financing Another $1.2 billion was available for shortfall funding in FY 2011 from the redistribution of states unspent FY 2008 and FY 2009 allotments. Because Iowa was the only shortfall state in FY 2011, and its shortfall was eliminated by contingency fund payments, no amounts were redistributed in FY The unspent $1.2 billion in redistribution funds will be transferred to the CHIP bonus fund for FY CHIP Bonus Fund For FY 2009, $3.225 billion was appropriated for CHIP bonus payments. Although these payments are from CHIP appropriations, they are only available to states that (1) increase Medicaid (not CHIP) child enrollment by significant amounts and (2) implement five out of eight specific outreach and retention efforts. 10 In addition to the initial FY 2009 appropriation, bonus fund balances are also increased by unspent national allotment and redistribution amounts. Combined, unspent national allotment and redistribution amounts have been substantial, while actual payments from the bonus fund have been comparatively small. In FY 2009, 10 states received less than $0.1 billion in bonus payments; in FY 2010, 15 states received $0.2 billion in bonus payments. 11 In the law to fund the federal government through FY 2011, a provision was included to reduce the balance of the CHIP bonus fund by $3.5 billion ( 1859 of P.L ). After accounting for this reduction, the balance of unspent bonus funds available at the end of FY 2011 is projected to be $7.5 billion. 12 Under current law, FY 2013 is the final year for bonus payments. FY 2013 bonus payments are projected to total $0.1 billion, with a bonus fund balance of approximately $24.3 billion at year s end. Although bonus payments cannot occur after FY 2013, unobligated allotments would continue to be transferred to the fund such that the balance of bonus funds at the end of FY 2015 is projected to approach $50 billion. 13 Treatment of Budget Authority and Outlays Several billion dollars of balances exist in unused bonus funds and contingency funds. For federal budget and accounting purposes, these balances are considered unused budget authority. The U.S. Department of Health and Human Services (HHS) is authorized to spend these amounts in accordance with the federal CHIP statute, but those balances have not actually been spent, or outlaid. As described above, the actual spending, or outlays, from these funds has been very small in comparison to the available amounts. For most legislative purposes, costs and savings are calculated on the basis of projected changes in outlays, not budget authority. 14 As a result, eliminating the bonus and/or contingency funds would not produce significant savings given their relatively small amount of projected outlays, notwithstanding their balances of unused budget authority. Future of CHIP Financing Federal CHIP Financing Beginning in 2014 Under current law, millions of adults age 19 to 64 will be newly eligible in 2014 for Medicaid and for coverage through state health insurance exchanges; states CHIP eligibility levels for children are not required to increase, but cannot be lowered from current levels until October 1, One of the Medicaid changes effective in 2014 extends mandatory Medicaid eligibility levels for children ages 6 to 18 to 133 percent of the federal poverty level (FPL), from 100 percent FPL. States affected by this change are those currently covering these children in separate CHIP programs. 15 Beginning in 2014, these children will be enrolled in Medicaid but will continue to be financed by CHIP at the CHIP matching rate (E-FMAP), as long as CHIP funding is available.

21 MACBasics: Federal CHIP Financing 7 No New CHIP Allotments Beginning FY 2016 Although no new federal funds for allotments are slated for FY 2016 or thereafter, CHIP s authorization does not technically expire. Thus, in FY 2016, states can continue to use unspent federal CHIP funds, as long as they are available. 16 Also beginning in FY 2016, E-FMAPs under current law will increase by 23 percentage points (but cannot exceed 100 percent). Thus, beginning in FY 2016, E-FMAPs will range from 88 percent to 100 percent, rather than the current 65 percent to 83 percent. This E-FMAP increase will cause states to use remaining federal CHIP balances more quickly, which may also need to be a consideration if the Congress provides CHIP allotments for FY 2016 and thereafter. 17 If no new appropriations are provided for CHIP allotments beginning in FY 2016, states will begin to exhaust their federal CHIP funds. The coverage options for children formerly funded by CHIP may vary based on whether they were enrolled in a Medicaid-expansion or separate CHIP program, because of the maintenance of effort (MOE) provision for children in the Patient Protection and Affordable Care Act (PPACA, P.L , as amended). The PPACA MOE requires that states maintain their Medicaid and CHIP eligibility levels for children until October 1, If a state s federal CHIP funds are exhausted, however, CHIP children are to be screened for Medicaid or exchange eligibility and enrolled in the appropriate program. Moving from separate CHIP programs Beginning in FY 2016, children in separate CHIP programs can be enrolled in subsidized exchange coverage that has been certified by the Secretary of HHS. To be certified, the subsidized exchange coverage must offer benefits and cost sharing comparable to the state s CHIP coverage. However, one analysis found that almost all of the CHIP benefit packages analyzed had more comprehensive coverage 18 than even the most generous coverage permitted in subsidized exchange plans. 19 Nevertheless, assuming certified exchange plans will exist for former CHIP children, such plans would be available to children who would otherwise have been enrolled in a separate CHIP program. States could also expand their Medicaid eligibility levels to cover these children in Medicaid at the regular Medicaid matching rate. It is worth noting that for children enrolled in subsidized exchange coverage, the state would pay for no portion of their coverage, while the state would be responsible for its usual share of Medicaid spending for children enrolled in Medicaid. This could deter states from expanding their Medicaid eligibility levels. Moving from Medicaid-expansion CHIP programs Under current law, children enrolled in Medicaidexpansion CHIP programs are actually enrolled in Medicaid but funded by CHIP, as long as CHIP funding is available. When CHIP funding is exhausted, these children continue to be enrolled in Medicaid but funded by Medicaid at the regular Medicaid matching rate. For children, the PPACA MOE provides no exceptions for states to restrict their Medicaid eligibility levels from those in effect at the law s enactment. Thus, if a state s federal CHIP funds are exhausted, the PPACA MOE and other provisions could be interpreted to require that Medicaid-expansion children remain eligible for Medicaid, albeit financed at the regular FMAP from Medicaid funds rather than the E-FMAP from CHIP funds. On the other hand, PPACA also said its MOE does not prevent states from enrolling CHIP children in certified exchange plans beginning in FY MACPAC will continue to track and provide analyses on the issues described in this MACBasic that affect CHIP financing.

22 8 MACBasics: Federal CHIP Financing 1 See Table 9 of MACStats the March 2011 Report to the Congress on Medicaid and CHIP, available at gov/reports, page 92. MACStats for states Medicaid eligibility levels that are treated as in effect as of March 31, 1997, as well as the income eligibility levels for CHIP-funded children s coverage in each state as of March Table 3 of MACStats in the March 2011 Report to the Congress on Medicaid and CHIP, page 80. Prior to FY 2009, some states received approval to use their unspent federal CHIP funds to cover adults through 1115 waivers. With the exception of targeted low-income pregnant women, adult coverage is being phased out of CHIP ( of the Social Security Act). 3 BBA 97 provided appropriations for new CHIP allotments through FY The CHIP appropriation for FY 2008 was enacted in the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L ) as a stopgap measure until longer-term legislation could be enacted. 4 The Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands. 5 If the total national appropriation is not large enough to provide states and territories with their full allotments, all allotments would be reduced proportionally. 6 Table 4 of Centers for Medicare and Medicaid Services (CMS), Children s Health Insurance Program (CHIP); Allotment Methodology and States Fiscal Years 2009 Through 2015 CHIP Allotments, 76 Federal Register 9244, February 17, This allotment increase factor is the product of (1) the percentage increase in projected per capita National Health Expenditures and (2) the Census Bureau s projection of child population growth (if any) plus one percentage point ( 2104(m)(5) of the Social Security Act). In calculating the FY 2010 allotments, this factor ranged from 4.69 percent to 7.14 percent across the states and territories (76 Federal Register 9241). 8 The target number is the FY 2008 average monthly unduplicated child enrollment in CHIP, as adjusted by the state s annual growth in child population plus 1 percentage point ( 2104(n)(3)(B) of the Act). 9 For purposes of the contingency fund payments, projected per capita expenditures are the per capita expenditures for children enrolled in FY 2008, increased by annual growth factors, multiplied by the enhanced FMAP ( 2104(n)(3)(c) of the Act). 10 See MACPAC March 2011 Report to the Congress on Medicaid and CHIP, Chapter 3, pages for a complete description of these eight initiatives. 11 Department of Health and Human Services, Connecting Kids to Coverage: Continuing the Progress 2010 CHIPRA Annual Report, Appendix 3, 2011, professionals/reports/chipra/2010_annual.pdf. 12 MACPAC analysis of Medicaid and CHIP Budget and Expenditure System as of August 4, Balances in CBO, Spending and Enrollment Detail for CBO s March 2011 Baseline: Children s Health Insurance Program (CHIP), March 18, 2011, budget/factsheets/2011b/chip.pdf, reduced by $3.5 billion per 1859 of P.L For example, see 3(4)(A) of the Statutory Pay-As-You-Go Act of 2010 (P.L ). 15 As of March 2011, 17 states covered 6-to-18-year-olds in separate CHIP programs: Alabama, Arizona, Colorado, Delaware, Florida, Georgia, Kansas, Mississippi, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Utah, West Virginia, and Wyoming (Table 9 of MACStats in the March 2011 Report to the Congress on Medicaid and CHIP, page 92). 16 Federal CHIP funds available in FY 2016 would be (1) a state s own unspent balances (if any) from its FY 2015 allotment, and (2) previously unspent FY 2014 allotments redistributed to shortfall states. Contingency funds are not available after FY 2015 ( 2104(n)(3)(A) of the Act). 17 Another consideration for the Congress if CHIP funding is extended is the amount of federal CHIP appropriations for allotments that CBO assumes continues in its baseline $5.7 billion annually, beginning in FY 2016 (CBO, Spending and Enrollment Detail for CBO s March 2011 Baseline: Children s Health Insurance Program (CHIP), March 18, 2011, pdf). 18 Watson Wyatt Worldwide, Implications of health care reform for children currently enrolled in CHIP, 2009, firstfocus.net/sites/default/files/r watson.pdf (c)(1)(B) of the Patient Protection and Affordable Care Act (PPACA, P.L , as amended) (d)(3)(A)(ii) of the Act.

23 OVERVIEW OF MEDICAID SPENDING VARIATION There is considerable variation across states in the amount spent on Medicaid. In federal fiscal year (FFY) 2009, total Medicaid spending ranged from a low of $528 million spent in Wyoming to a high of $46.7 billion spent in New York. However, taking into account state population, Medicaid spending per state resident varied from a low of $471 per resident in Nevada to a high of $2,595 per resident in the District of Columbia. Medicaid spending per Medicaid enrollee ranged from a low of $3,527 per enrollee in California to a high of $9,577 per enrollee in Connecticut. (Figure 1, Summary Table) States also vary in the average cost per enrollee across eligibility groups. Nationally, spending per enrollee for children and non-disabled adults is substantially lower ($2,305 and $2,900 respectively) compared to spending per enrollee for the elderly and disabled (approximately $13,140 and $15,840 respectively). This relationship is generally consistent across states, however, spending for children ranges from under $1,800 per child enrolled in California and Florida to over $4,000 in Massachusetts and Alaska. However, spending for enrollees with disabilities ranges from under $10,000 per enrollee in Alabama, Georgia, Mississippi and Tennessee to over $30,000 per enrollee in Connecticut. Medicaid is financed by state and federal dollars. The federal share varies based on a formula in federal law that relies on states average per capita income compared to the national average; states with lower incomes have a higher federal medical assistance percentage (FMAP). For FFY 2013, the FMAP varies across states from a floor of 50 percent (a multiplier effect of $1 in federal funding per $1 of state spending on Medicaid), to a high of 73.4 percent ($2.76 in federal funding per $1 in state spending.) 3 (Figure 2, Summary Table) Understanding the financing structure helps to put Medicaid in the context of the larger state budget as Medicaid is both a source of expenditures and revenue. FIGURE 1 Medicaid Spending Per Enrollee, FFY 2009 FIGURE 2 Statutory Federal Medical Assistance Percentages (FMAP), FFY 2013 CA AK OR WA NV ID AZ UT MT WY NM HI CO ND SD NE KS TX OK MN IA MO AR LA WI IL MS IN MI TN AL KY OH WV GA SC PA VT VA NC FL NY ME NH RIMA CT NJ DE MD NOTE: Spending includes both state and federal payments to Medicaid. These figures represent the average (mean) level of payments across all Medicaid enrollees. Spending per enrollee does not include disproportionate share hospital payments (DSH). Some enrollees are only eligible for a limited set of benefits. A small fraction of elderly and disabled enrollees in every state qualify only for assistance with their Medicare premiums and coinsurance. SOURCE: Kaiser Commission on Medicaid and the Uninsured and Urban Institute estimates based on data from FY 2009 MSIS and CMS-64 reports, DC Under $5000 (14 states) $ $6000 (15 states) $ $7000 (10 states) Over $7000 (12 states including DC) CA AK OR WA NV ID AZ UT MT WY NM HI CO ND SD NE KS TX OK MN IA MO AR LA WI IL MS IN MI TN AL KY OH WV GA SC PA VT VA NC FL NY 50 percent (14 states) percent (14 states) percent (12 states) percent (11 states including DC) ME NH MA RI CT NJ DE MD NOTE: Rates are rounded to nearest percent. These rates will be in effect Oct. 1, 2012 Sept. 30, SOURCE: FY2013: Federal Register, November 30, 2011 (Vol 76, No. 230), pp , at DC 4

24 State Medicaid Spending, FFY 2009 ($Millions) 1 Summary Table: How Does Medicaid Spending Vary Across States? State Residents, Medicaid Spending per capita Medicaid Enrollment, FFY Medicaid Payments Per Enrollee, FFY Medicaid Payments by Enrollment Group, FFY Children Adults Elderly Disabled FMAP, FFY 2013 Multiplier3 Alabama $3,897 4,708,708 $ ,793 $4,081 $2,398 $2,035 $8,265 $7, % $2.18 Alaska $1, ,473 $1, ,290 $8,782 $4,666 $5,916 $21,286 $25, % $1.00 Arizona $8,341 6,595,778 $1,265 1,721,265 $4,846 $2,441 $4,350 $9,438 $16, % $1.91 Arkansas $3,242 2,889,450 $1, ,819 $4,639 $2,036 $1,237 $12,564 $10, % $2.35 California $38,892 36,961,664 $1,052 11,027,600 $3,527 $1,567 $1,073 $10,528 $16, % $1.00 Colorado $3,375 5,024,748 $ ,334 $5,458 $2,021 $3,215 $16,332 $17, % $1.00 Connecticut $5,619 3,518,288 $1, ,713 $9,577 $3,158 $3,854 $24,761 $32, % $1.00 DC $1, ,657 $2, ,184 $9,143 $2,531 $3,946 $22,094 $23, % $2.33 Delaware $1, ,122 $1, ,243 $5,944 $2,645 $4,578 $14,330 $17, % $1.26 Florida $14,258 18,537,969 $769 3,420,858 $4,168 $1,627 $2,569 $7,917 $10, % $1.39 Georgia $7,237 9,829,211 $736 1,818,714 $3,979 $1,811 $4,424 $8,183 $8, % $1.90 Hawaii $1,271 1,295,178 $ ,246 $5,140 $1,953 $3,508 $12,961 $16, % $1.08 Idaho $1,289 1,545,801 $ ,849 $5,658 $1,938 $4,486 $12,802 $16, % $2.45 Illinois $12,744 12,910,409 $987 2,698,787 $4,722 $2,271 $3,157 $10,105 $15, % $1.00 Indiana $5,768 6,423,113 $898 1,145,569 $5,035 $1,896 $3,206 $14,552 $15, % $2.05 Iowa $2,843 3,007,856 $ ,746 $5,438 $1,993 $2,109 $14,207 $18, % $1.47 Kansas $2,366 2,818,747 $ ,522 $6,352 $2,218 $3,724 $14,761 $15, % $1.30 Kentucky $5,213 4,314,113 $1, ,981 $5,890 $2,952 $4,649 $9,759 $10, % $2.40 Louisiana $5,628 4,492,076 $1,253 1,148,863 $4,899 $2,047 $3,122 $8,548 $12, % $1.58 Maine $2,468 1,318,301 $1, ,004 $6,895 $3,879 $2,126 $9,242 $17, % $1.67 Maryland $6,340 5,699,478 $1, ,385 $7,352 $2,883 $3,981 $18,106 $21, % $1.00 Massachusetts $12,275 6,593,587 $1,862 1,619,480 $7,579 $4,098 $2,965 $18,288 $19, % $1.00 Michigan $10,022 9,969,727 $1,005 2,018,597 $4,965 $1,926 $3,625 $15,139 $12, % $1.98 Minnesota $7,214 5,266,214 $1, ,145 $8,206 $3,254 $3,624 $17,119 $26, % $1.00 Mississippi $3,689 2,951,996 $1, ,333 $4,890 $2,225 $3,352 $9,775 $9, % $2.76 Missouri $6,928 5,987,580 $1,157 1,065,266 $6,504 $3,278 $3,513 $13,971 $14, % $1.59 Montana $ ,989 $ ,958 $7,348 $2,910 $4,382 $22,824 $15, % $1.94 Nebraska $1,538 1,796,619 $ ,474 $6,069 $2,687 $2,728 $15,344 $17, % $1.26 Nevada $1,245 2,643,085 $ ,435 $4,286 $2,149 $2,359 $8,117 $13, % $1.48 New Hampshire $1,111 1,324,575 $ ,262 $6,978 $2,918 $3,185 $19,616 $16, % $1.00 New Jersey $8,352 8,707,739 $959 1,010,077 $8,268 $2,399 $4,817 $17,705 $21, % $1.00 New Mexico $3,204 2,009,671 $1, ,532 $5,862 $3,936 $5,215 $5,247 $17, % $2.23 New York $46,665 19,541,453 $2,388 5,208,135 $8,960 $2,505 $4,277 $22,494 $29, % $1.00 North Carolina $11,058 9,380,884 $1,179 1,813,298 $6,098 $2,796 $4,059 $10,664 $16, % $1.90 North Dakota $ ,844 $886 75,328 $7,608 $2,153 $3,351 $20,763 $22, % $1.10 Ohio $13,335 11,542,645 $1,155 2,180,552 $6,116 $1,838 $3,315 $18,900 $16, % $1.75 Oklahoma $3,878 3,687,050 $1, ,885 $4,848 $2,414 $2,913 $10,464 $13, % $1.78 Oregon $3,540 3,825,657 $ ,470 $6,272 $2,185 $4,482 $16,646 $15, % $1.66 Pennsylvania $16,270 12,604,767 $1,291 2,199,371 $7,397 $2,748 $3,692 $21,268 $12, % $1.19 Rhode Island $1,755 1,053,209 $1, ,829 $8,566 $3,584 $4,569 $15,211 $19, % $1.05 South Carolina $4,625 4,561,242 $1, ,583 $5,181 $2,312 $3,254 $10,936 $13, % $2.38 South Dakota $ ,383 $ ,063 $5,536 $2,492 $4,011 $11,874 $16, % $1.28 Tennessee $7,124 6,296,254 $1,131 1,502,364 $4,742 $2,376 $4,115 $7,484 $9, % $1.95 Texas $21,919 24,782,302 $884 4,488,188 $4,884 $2,753 $3,063 $8,808 $13, % $1.46 Utah $1,615 2,784,572 $ ,903 $5,475 $2,821 $3,199 $12,088 $19, % $2.29 Vermont $ ,760 $1, ,045 $5,331 $2,835 $2,564 $11,018 $16, % $1.27 Virginia $5,550 7,882,590 $ ,527 $5,870 $2,639 $3,801 $10,522 $14, % $1.00 Washington $6,194 6,664,195 $929 1,159,333 $5,343 $2,059 $3,846 $14,519 $14, % $1.00 West Virginia $2,441 1,819,777 $1, ,858 $5,855 $2,371 $3,397 $12,820 $10, % $2.58 Wisconsin $6,675 5,654,774 $1,180 1,028,272 $6,491 $2,089 $3,625 $12,766 $19, % $1.48 Wyoming $ ,270 $969 82,365 $6,405 $2,527 $4,164 $19,518 $21, % $1.00 United States $346, ,006,550 $1,129 62,692,693 $5,527 $2,305 $2,900 $13,149 $15, % $1.00 SOURCES: Medicaid Spending and Enrollment figures - Kaiser Commission on Medicaid and the Uninsured and Urban Institute estimates based on data from FY 2009 MSIS and CMS- 64 reports, MSIS was used for Pennsylvania, Utah, and Wisconsin, because 2009 data was unavailable. State Population - Table 1. Annual Estimates of the Resident Population for the United States, Regions, States, and Puerto Rico: April 1, 2000 to July 1, 2009 (NST-EST ), U.S. Census Bureau, Population Division, Released December Medicaid Spending Per Capita - calculations were completed by the authors (Medicaid spending for FFY 2009 divided by State residents). FMAPs are for Federal Fiscal Year 2013, which ends September 30,

25 OVERVIEW OF STATE BUDGETS 1. Where Does the Money Come From? In order to fund programs such as Medicaid and K-12 education, states must raise revenues. States draw most of their general revenue from three sources (i) taxes, (ii) intergovernmental revenue (mainly federal transfers to states), and (iii) charges and miscellaneous revenues. Intergovernmental revenues, the largest portion of which comes through the Medicaid program, represent a significant source of revenue for states. 4 However, the largest share of state revenue comes from taxes levied by states (45%). (Figure 3) These shares have remained fairly constant over the past thirty years, although the most recent data show an uptick in federal transfers in response to the recession. (Figure 4) The two largest sources of tax revenue for states in SFY 2010 were collections from individual income taxes and general sales taxes. Traditionally, sales taxes have been a more stable source of revenues for states, followed by individual income taxes and corporate income taxes. However, the recent recession has led to more volatility in the collection of sales taxes as consumer spending and retail sales declined sharply. 5 Beyond these national trends, states exhibit considerable variation as a result of differences in the composition and condition of a state s economy as well as underlying tax structure (Appendix 1). FIGURE 3 Sources of State General Revenue, SFY 2010 Total State General Revenue = $1.56 Trillion Intergovernmental revenue (37%) Charges and miscelleneous revenues (18%) Individual income tax (15%) General Sales taxes (14%) Selective Sales taxes (8%) Corporate income tax (2%) Other taxes (5%) NOTE: State General Revenue does not include revenues from utilities, liquor stores, or insurance trusts. SOURCE: 2010 Annual Survey of State Government Finances. U.S. Census Bureau, Taxes 45% $702 B FIGURE 4 Share of State General Revenues by Revenue Source, SFY % 75% 50% 25% Intergovernmental Transfers Individual Income Taxes Other Taxes General and Selective Sales Taxes Corporate Income Taxes Charges and Misc Revenues 0% NOTE: State General Revenue does not include revenues from utilities, liquor stores, or insurance trusts. Compared to Figure 1, General Sales Tax and Selective Sales Tax have been combined on this figure. SOURCE: Annual Survey of State Government Finances, U.S. Census Bureau, Individual Income Tax. Taxes on individual income accounted for the largest share of total state tax revenue (34 percent) across all states in SFY However, the percentage of total revenues individual income taxes represented in each state varies widely from a high of 68 percent of state tax revenue in Oregon and 55 percent in New York to a low of 11 percent of state tax revenues in North Dakota. New Hampshire and Tennessee reported smaller percentages of state tax revenue collected through individual income taxes (4 percent and 2 percent respectively) as these states only collect individual income taxes on interest and dividend income. 6 Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) did not levy an individual income tax in SFY (Appendix Table 1) General Sales Tax. Taxes on general sales accounted for the next largest share of tax revenue (32 percent) collected across all states in SFY However, the share of revenue coming from sales taxes varied across states, from a low of 12 percent of state tax revenue in Vermont to a high of 60 percent of state tax revenue in Washington. (Appendix Table 1) Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) did not levy a general sales tax, though each of these states do levy selective sales taxes on select good, such as alcohol and tobacco. 6

26 2. Where Does the Money Go? After accounting for available revenue, states must prioritize spending across programs. States generally are required to balance their budgets, though these requirements do vary. Nationally, the largest state expenditures are K-12 education and Medicaid. Total spending (both state and federal dollars) on K-12 education has matched or exceeded total spending on Medicaid in most years. 7 In SFY 2010, total spending on Medicaid (22 percent) exceeded total spending on K-12 education (21 percent) and is projected to do so in SFY (Figure 5) However, this figure includes federal funds; federal Medicaid funds represent the single largest source of federal transfers to states. State general fund spending provides a better look at what states own funds spending on different programs. The general fund is the largest single fund (averaging 45 percent of total spending) and the one over which lawmakers exercise the most discretion. 9 In SFY 2010, K-12 education was the largest category of general fund spending followed by Medicaid; these shares of general fund spending have remained fairly constant over the past decade. 10 (Figures 5, 6) However, spending by fund source varies across states (Appendix Table 2). FIGURE 5 Total versus General Fund Spending, SFY 2010 FIGURE 6 Share of State General Fund for Medicaid and Education Remained Fairly Stable, SFY 1995 SFY 2011 Elementary and Secondary Education Medicaid Higher Education Medicaid 22% All Other 47% K-12 Education 21% Higher Education 10% Medicaid 16% All Other 37% K-12 Education 35% Higher Education 12% 33.4% 34.4% 34.5% 35.2% 35.7% 35.7% 35.2% 35.1% 35.8% 35.8% 35.4% 34.4% 34.1% 35.0% 35.2% 35.3% 35.0% 14.4% 14.7% 14.6% 14.8% 14.4% 14.4% 15.2% 15.8% 17.2% 16.9% 17.1% 17.4% 16.6% 17.4% 16.0% 16.3% 15.8% 12.9% 12.9% 13.0% 13.1% 12.4% 12.8% 12.7% 12.4% 12.5% 11.7% 11.6% 11.3% 11.0% 11.7% 11.5% 11.6% 11.5% Total State Spending = $1.62 T General Fund Spending = $619.1 B Estimated SOURCE: Actual FY 2010 data reported in: State Expenditure Report. NASBO, December SOURCE: NASBO Data from 2010 State Expenditure Report. Total Spending. Medicaid was the largest expenditure in SFY 2010 in half of states while K-12 education was the largest expenditure in most of the remaining states. 11 The share of total spending that went toward Medicaid ranged from 7.3 percent in Wyoming to 34 percent in Missouri while total spending on K-12 education ranged from 10.6 percent in West Virginia to 33 percent in Vermont. (Appendix 2) General Fund. Looking at the breakdown of general fund spending in each state, K-12 education represented the largest state general fund expenditure in nearly all states, followed by higher education and Medicaid. 12 Medicaid spending ranged from a high of 27.9 percent of general funds in New Hampshire to a low of 3.25 percent of general funds in Mississippi. 13 K-12 education spending ranged from a high of 55.4 percent of general funds in Indiana to a low of 0 percent of general funds in New Hampshire. 14 (Appendix 2) It is important to note, states vary in which functions are state or local responsibilities; education in New Hampshire, for example, is a local rather than state responsibility. Federal Funds. Virtually every state shows Medicaid as the largest source of federal funds for states (42.3 percent of all federal funds across all states), ranging from 64 percent of federal funds received by New York to 21 percent of federal funds received by Oklahoma. 15 The next largest source of federal funds is K-12 education, which represented 12.8 percent of federal funds expended at the state level. (Appendix 2) 7

27 FACTORS THAT CONTRIBUTE TO VARIATION IN MEDICAID SPENDING ACROSS STATES 1. What Revenues are Available to States to Pay for Public Services? States vary in the amount of resources available within the state and in how they tap into those resources to pay for public services and programs. The recent recession also has affected state resources; however, the magnitude of the effect of the recession and current fiscal health varies across states. Table 1a presents measures of state tax bases and collections while table 1b presents measures of state fiscal health and the impact of the recent recession. Tax Base. A states tax base provides a measure of resources that may be available to a state. Two measures of tax base include personal income and total taxable resources. These measures are the base from which more representative measures of a states tax capacity can be calculated. 16 Personal Income. 17 Personal income measures the total personal income of a state's residents. This measure is currently used to determine the FMAP for Medicaid and other programs. Personal income per capita is commonly used as it is available consistently across states and updated annually. However, this measure does not include all potential taxable income sources in a state, such as 1) profits retained for investment purposes by corporations or other business entities and 2) business or commuter income earned in the state by out of state residents, which can be influential in areas with large commuter populations, i.e. New York and New Jersey. 18 Personal income per capita in 2010 was $39,635 nationally, ranging from less than $31,000 in Mississippi to nearly $70,000 in Delaware. (Table 1a) Total taxable resources (TTR). TTR is a FIGURE 7 measure of tax base that was developed in direct response to concerns over the Total Taxable Resources Per Capita, 2010 WA inadequacy of personal income as a VT ME MT ND NH MN measure of a state s resources to provide OR WI NY MA ID SD MI RI WY public services. TTR is more comprehensive PA CT IA NJ NE OH DE NV IL IN than personal income or gross state MD UT WV CO VA KS MO DC CA KY product, another commonly used measure NC TN OK AR SC AZ NM of state tax capacity. TTR estimates are MS AL GA LA currently used to allocate funds for the TX FL Community Mental Health Services and AK HI Under $40,000 (6 states) Substance Abuse Prevention and Treatment block grants. 19 $40,000 - $45,000 (10 states) $45,000 - $50,000 (8 states) TTR per capita $50,000 - $55,000 (15 states) $55,000+ (11 states and DC) ranges from just over $36,000 in Mississippi NOTE: Total Taxable Resources (TTR) for the District of Columbia was calculated to be over $98,000. However, because the District of Columbia does not have the same legal right as the states to tax certain resources, the same methodology to derive TTR estimates for the District of Columbia is flawed. to more than $77,000 in Delaware and Connecticut. 20 SOURCE: 2012 Total Taxable Resources Estimates US Treasury, Sept. 28, (Figure 7, Table 1a) Tax Collections. Even if two states have the same tax base, they may have different revenue from those tax bases due to differences in how they draw on their bases. Tax collections are one measure of how a state taps into its available resources. In 2010, tax collections ranged from $1,522 per resident in Georgia to over $4,500 per resident in Delaware, District of Columbia and Alaska. Tax collections as a percent of personal income are examined in this brief as a proxy for a more representative measure of tax effort, how much a state collects in taxes relative to its tax capacity. Tax collections as a share of personal income ranges from a low of about four percent in New Hampshire, Colorado, South Dakota, and Texas to more than eight percent in Wyoming, Hawaii, North Dakota, Vermont, the District of Columbia and Alaska. (Table 1a) 8

28 State Personal Income Per Capita Personal Income Per Capita Index 1 Table 1a: State Tax Base and Collections Tax Bases Per Capita Total Taxable Resources Per Capita Total Taxable Resources Per Capita Index 1 Tax Collections Per Capita Tax Collections Tax Collection as % Personal Income Tax Collections Per Capita Index 1,2 Alabama $33, $39, $1, % 0.90 Alaska $43, $68, $6, % 2.52 Arizona $33, $42, $1, % 0.81 Arkansas $32, $39, $2, % 1.34 California $42, $53, $2, % 1.16 Colorado $41, $54, $1, % 0.71 Connecticut $55, $73, $3, % 1.11 DC $39, $98, $5, % 2.06 Delaware $68, $77, $4, % 1.35 Florida $38, $46, $1, % 0.77 Georgia $34, $44, $1, % 0.77 Hawaii $42, $51, $3, % 1.50 Idaho $31, $39, $1, % 1.04 Illinois $41, $54, $2, % 0.90 Indiana $34, $45, $2, % 1.10 Iowa $37, $50, $2, % 1.03 Kansas $39, $50, $2, % 1.02 Kentucky $32, $40, $2, % 1.19 Louisiana $37, $53, $1, % 0.92 Maine $36, $42, $2, % 1.26 Maryland $48, $61, $2, % 0.94 Massachusetts $49, $63, $3, % 1.05 Michigan $34, $40, $2, % 1.14 Minnesota $41, $54, $3, % 1.33 Mississippi $30, $36, $2, % 1.20 Missouri $36, $45, $1, % 0.77 Montana $34, $41, $2, % 1.09 Nebraska $39, $53, $2, % 0.93 Nevada $37, $51, $2, % 1.03 New Hampshire $42, $56, $1, % 0.65 New Jersey $49, $64, $2, % 1.01 New Mexico $33, $40, $2, % 1.13 New York $46, $63, $3, % 1.19 North Carolina $34, $46, $2, % 1.13 North Dakota $40, $56, $3, % 1.61 Ohio $35, $43, $2, % 0.99 Oklahoma $35, $43, $1, % 0.94 Oregon $36, $52, $1, % 0.92 Pennsylvania $40, $48, $2, % 1.03 Rhode Island $41, $53, $2, % 1.02 South Carolina $32, $38, $1, % 0.85 South Dakota $38, $52, $1, % 0.71 Tennessee $34, $43, $1, % 0.83 Texas $38, $51, $1, % 0.73 Utah $31, $45, $1, % 0.99 Vermont $39, $45, $4, % 1.76 Virginia $44, $58, $2, % 0.81 Washington $42, $54, $2, % 0.99 West Virginia $32, $37, $2, % 1.38 Wisconsin $37, $47, $2, % 1.16 Wyoming $48, $70, $3, % 1.47 United States $39, $51, $2, % 1.00 SOURCES: Total Taxable Resources Total Taxable Resources Estimates, US Treasury, Sept. 30, Personal Income Per Capita - regional data on GDP and Personal Income for 2010 (Table SA1-3 Personal Income Summary), Bureau of Economic Analysis, downloaded May 15, Taxes as a Percent of Income - calculated using data Census Bureau's Survey of State Government Finances for 2010 and personal income data from the Bureau of Economic Analysis (2010). 9

29 State Fiscal Health. Unlike the federal government, states are generally required to balance their budgets. However, the requirements to balance budgets differ across states, with many states requiring that budgets be balanced only at the beginning of the fiscal year. These requirements also generally apply to general funds only. 21 When measuring state fiscal health, researchers examine state total yearend balances. Total year-end balances take into account both ending balances and states budget stabilization funds (i.e. rainy day funds). 22 Looking at SFY 2010, six states (California, Washington, Oregon, Pennsylvania, Kansas, and Arizona) reported negative year-end balances. At the same time, year-end balances ranged from breaking even in Maine and Arkansas to surpluses of over 40 percent of expenditures in North Dakota and Alaska. (Table 1b) The Impact of the Recession on State Revenues. The Great Recession, which technically lasted from December 2007 to June 2009, was the worst economic downturn the country has experienced since the Great Depression of the 1930s. As they continue to recover, states have faced collective shortfalls of more than $540 billion since the start of the recession through SFY 2012, with an additional $55 billion estimated for SFY In Texas, Oregon, and Nevada the estimated budget shortfall for SFY 2013 represented at least 20 percent of the total budget, 36.2 percent in Nevada. The recession caused the largest collapse in state tax revenues on record. Despite recent growth in quarterly tax collections, at the end of SFY 2011, 33 states still reported tax revenues below peak; 11 states (Alaska, Arizona, Louisiana, Florida, Georgia, South Carolina, New Jersey, Wyoming, Idaho, and Utah) reported collections at least 10 percent below peak. (Table 1b) During recessions states also face increased demands for public programs such as Medicaid. There has been some debate about the relative magnitude of factors driving state budget shortfalls during the recession. Analysis shows that the decline in state revenues was a greater factor than increases in Medicaid spending on state budget shortfalls between SFY 2008 and During this time period, state revenues (excluding intergovernmental transfers) declined by $80 billion. While total Medicaid spending increased during this period, the amount states spent of their own funds on the program actually declined by $22 billion during this period. (Figure 8, Table 1b) This decline in state Medicaid spending was largely due to a temporary increase in the federal share of funds for Medicaid provided through the American Reinvestment and Recovery Act. 24 This federal support during the height of the economic downturn, proved to be a critical source of revenue for states that resulted in the first declines in state spending on Medicaid in the program s history. 25 FIGURE 8 Change in State Revenues and State Spending on Medicaid, SFY SFY 2010 Change in State Revenues -$80 Billion Change in State Spending on Medicaid -$22 Billion -$442.6 B NOTES: Measures the change in state own source revenues (taxes, miscellaneous revenues, and charges) between SFY 2008 and SFY 2010 compared the change in state spending on Medicaid between SFY 2008 and SFY Medicaid spending does not include administrative costs, accounting adjustments, or the U.S. Territories. SOURCES: 2008, 2009, and 2010 Annual Survey of State Government Finances. U.S. Census Bureau, KCMU and Urban Institute estimates based on data from HCFA/CMS (Form 64),

30 State 2010 Year-End Balances as % Expenditures Table 1b: State Fiscal Health and the Impact of the Recession State Budgets Change in Tax Revenue 1 Δ SFY ($Millions) FY 2013 Shortfall ($Millions) Shortfall as % of Prior Year Budget Annual Δ SFY SFY 2011 Collections as % of Peak Peak Tax Collection Year State Medicaid Spending 2 State Revenues 3 Alabama 0.01% $ % 2.8% 95.2% SFY $ $ Alaska 135.3% % 63.4% SFY 2008 $ $5, Arizona -0.1% % 75.3% SFY $ $3, Arkansas 0% % 102.7% SFY $ $15.55 California -6.1% $15, % 11.3% 99.4% SFY $2, $11, Colorado 2% $ % 10.4% 98.4% SFY $ $1, Connecticut 2.8% $3, % 9.2% 96.3% SFY $ $1, DC N/A $ % N/A N/A N/A N/A N/A Delaware 17.5% % 103.0% SFY $ $21.73 Florida 8.7% $1, % 3.4% 83.9% SFY $ $5, Georgia 7.1% $ % 8.3% 87.7% SFY $ $3, Hawaii 0.8% $ % 0.4% 94.4% SFY $ $ Idaho 1.2% % 89.3% SFY $ $ Illinois 1.8% $1, % 15.3% 97.9% SFY $ $4, Indiana 6.5% % 98.6% SFY $ $1, Iowa 13.4% % 103.6% SFY $ $13.11 Kansas -0.5% % 95.4% SFY $ $ Kentucky 0.9% $ % 7.0% 101.6% SFY $ $ Louisiana 6.2% $1, % 1.2% 80.6% SFY $ $1, Maine 0% $ % 5.3% 97.1% SFY $ $ Maryland 7.1% $1, % 5.1% 101.6% SFY $ $ Massachusetts 3% $1, % 9.9% 100.1% SFY $ $2, Michigan 2.5% % 95.0% SFY $1, $2, Minnesota 3% $1, % 10.1% 103.4% SFY $ $ Mississippi 6.1% DK DK 7.1% 99.5% SFY $ $ Missouri 5.9% $ % 4.2% 92.6% SFY $ $1, Montana 18.1% % 93.7% SFY $ $67.54 Nebraska 23.1% $ % 9.0% 98.2% SFY $ $ Nevada 9.8% $1, % 8.5% 100.4% SFY $ $ New Hampshire 5.3% $ % 3.8% 103.1% SFY $ $15.69 New Jersey 2.8% $ % 4.8% 88.8% SFY $ $4, New Mexico 10.7% % 90.1% SFY $ $1, New York 4.4% $2, % 6.5% 104.1% SFY $3, $2, North Carolina 2.1% $2, % 4.1% 98.2% SFY $ $1, North Dakota 40.3% % 144.5% SFY 2010 $8.10 $ Ohio 2% $3, % 6.8% 96.6% SFY $1, $2, Oklahoma 8.1% % 93.2% SFY $ $ Oregon -2.7% $1, % 8.5% 104.8% SFY $ $ Pennsylvania -1.1% $ % 7.2% 100.7% SFY $1, $2, Rhode Island 4.6% % 99.0% SFY $ $ South Carolina 4.8% % 88.5% SFY $ $ South Dakota 9.5% % 102.8% SFY $28.60 $10.61 Tennessee 7.3% % 94.1% SFY $ $2, Texas 23.4% $9, % 9.6% 94.8% SFY $ $6, Utah 4.1% % 89.6% SFY $ $ Vermont 5.3% $51 3.9% 7.0% 104.9% SFY $ $10.80 Virginia 2.9% $ % 6.1% 93.3% SFY $ $1, Washington -3.1% $3, % 8.1% 96.9% SFY $ $1, West Virginia 30.1% % 105.3% SFY $ $ Wisconsin 0.6% $1, % 6.8% 102.9% SFY $ $ Wyoming 22.7% % 89.1% SFY $ $ United States 0.052% $55, % 7.9% 97.1% SFY $22, $80, SOURCES: Budget Shortfall Data - McNichol, E., et al. "States Continue to Feel Recession's Impact." CBPP, June Year-End Balances - Fiscal Survey of States. NASBO, Fall Tax Revenue data - Census Bureau's State Tax Revenue, SFY Medicaid Spending Changes - Urban Institute estimates based on data from CMS (Form 64) (as of 12/21/11). Changes in State Revenues and 2010 Annual Survey of State Government Finances. U.S. Census Bureau,

31 BACKGROUND August 2006 Summary Brief Moving Beyond the Tug of War: Improving Medicaid Fiscal Integrity For at least the last twenty-five years, state governments and federal regulators have been involved in a high-stakes struggle about how Medicaid programs are financed. From the states perspective, financing guidelines have become even murkier in recent years. In order to serve certain federal policy goals, the federal government has allowed and even encouraged state fiscal practices that it later rules impermissible. The Centers for Medicare & Medicaid Services (CMS) has made decisions for individual states that seemed inconsistent. From the federal perspective, states are engaged in a constant game of catch-me-if-you-can in an effort to maximize receipt of federal matching funds. Once states implement these efforts, their Congressional delegations often oppose efforts to undo them, no matter how egregious the practices may appear. This cycle of action and response has been repeated many times in the last 20 years, each time poisoning the critical intergovernmental relationship necessary for successful delivery of health services to our poorest citizens. The goal of the NASHP fiscal integrity project was to explore the issues, find common ground, and generate ideas for further analysis related to improving Medicaid fiscal integrity. NASHP convened a diverse Medicaid Fiscal Integrity Work Group on November 1, 2005, in Washington, DC. Views expressed in this report are NASHP s, rather than a consensus of the group. This brief is a summary of Moving Beyond the Tug of War: Improving Medicaid Fiscal Integrity, by Sonya Schwartz, Shelly Gehshan, Alan Weil, and Alice Lam, published by the National Academy for State Health Policy, August The full report is available at: Medicaid_Fiscal_Integrity.pdf. Development of the report was supported by The Robert Wood Johnson Foundation. The views presented here are those of the authors and not necessarily those of the Robert Wood Johnson Foundation, its directors, officers, or staff. ISSUE BRIEF / 1