Stimulus Watch: The Importance Of FMAP Increase

Today, during a House Commerce and Energy Subcommittee on Health hearing, CAPAF Senior Fellow Gene Sperling, Gov. Janet Napalitano (D-AZ), Rep. Frank Pallone (D-NJ), and Rep. Gene Green (D-TX) unanimously called for increasing the percentage the federal government reimburses states for Medicaid expenditures. These Federal Medical Assistance Percentages (FMAP) are based on a sliding scale and states with lower personal incomes have higher FMAPs.

As the Wonk Room has argued, helping states finance their Medicaid programs makes sense in the context of a souring economy and massive job losses. At least 27 states are facing budget gaps and most are simultaneously experiencing an increase in Medicaid enrollment. In fact, research indicates that a 1 percent increase in unemployment results in 1 million more people enrolling in Medicaid and SCHIP and another 1.1 million more people becoming uninsured. In Arizona alone, as Napalitano pointed out, Medicaid enrollment grew by 13,000 more applicants in October:

States can’t borrow money and they must balance their budgets. So how do they deal with increasing demand during a period of decreasing revenue? As Gene Sperling pointed out, “FMAP allows states to expand Medicaid enrollment without requiring other contractionary policies and has one of the highest multiplier effects of any form of economic stimulus”:

A 2004 study by Families USA found that a 2.95 percent increase in the FMAP rate would bring a return of $3.85 million in business activity for every $1 million in Medicaid investment, a multiplier of 385 percent.

An increase of $35–50 billion dollars allows states to: 1) keep up with growing enrollments 2) injects more money into the health care system 3) ensures that states aren’t forced to increase taxes or make cuts elsewhere.


In fact, in 2003, during another period when Medicaid enrollment and spending growth peaked, Congress provided a 2.95 percent FMAP increase, helping states meet Medicaid and overall state budget shortfalls and warding off potentially larger Medicaid program cuts. States used the extra cash to preserve Medicaid:

The Center for Budget and Policy Priorities (CBPP) finds that “17 states have cut or are considering cuts to low income child and family health care programs and at least 15 states are cutting care for the elderly and those with disabilities.” Without federal assistance — specifically increasing FMAP within the second stimulus — those numbers will only grow in the coming months.


Rep. John Dingell (D-MI) just released a statement calling for greater investment in the National Institutes of Health (NIH) and increasing federal funding for Medicaid:

Healthcare spending, in the form of increased funding for Medicaid to the States, must be a critical component of any stimulus package. First, as workers lose their jobs, so too goes their health insurance. States need additional resources to support the increased demand for services as their revenues are declining. States also need additional resources to prevent cutbacks in Medicaid coverage and benefits that would otherwise be required to help balance their budgets in a time of declining revenues.

Second, additional healthcare spending acts as an economic booster. Increasing the Federal funding of Medicaid is a powerful countercyclical tool; it is direct, immediate, and does not require any additional administrative costs or actions to implement.