The Impact of the Affordable Care Act on Medicaid Financing Between National and State Governments

April 2015

The passage of the Patient Protection and Affordable Care Act (ACA) will have a significant impact on how Medicaid is financed between national and state governments. Medicaid is a national program aimed at providing insurance coverage for low-income individuals and administered by state governments. The financing of Medicaid is an open-ended categorical matching grant program based on a formula called the Federal Medical Assistance Percentage (FMAP) where the national government will provide at least 50% of funds for each state’s Medicaid program. Demographic changes and the list of optional services each state selects to include in their program are critical spending determinants. The ACA expands Medicaid to individuals below 138% of the poverty line with the national government funding the expansion in full from 2014-2016 until funding is reduced to 90% by 2020. 29 states and the District of Columbia have expanded Medicaid coverage. Despite Medicaid expansion providing more low-income individuals with health insurance, the intergovernmental transfers and Certified Public Expenditures (CPEs) utilized within each state attempt to reduce the individual state’s funding responsibilities and increase national funding obligations. The ACA’s increase in national funding appropriations of Medicaid expansion endorses states’ actions to continue to decrease their funding rates. Hence, the ACA could generate unsustainable national Medicaid funding responsibilities and produce an inefficient and ineffective program. A provision limiting state utilization of intergovernmental transfers and CPEs and strict application of national funds on Medicaid alone is recommended.