WASHINGTON, July 24, 2024 /PRNewswire/ — Paragon Health Institute, a leader in health care research and market-based policy recommendations, has released a proposal for Medicaid finance reform. At the heart of the proposal is correcting the flawed federal medical assistance percentage (FMAP) for determining federal Medicaid funding, which rewards more money to richer states with more wasteful Medicaid programs. This methodology has created an environment where the wrong states receive more assistance. Worse still, because of the Affordable Care Act’s creation of a higher FMAP for the able-bodied, working-age Medicaid expansion enrollees, traditional beneficiaries of Medicaid have resources diverted away from them.
Medicaid is a government program created to pay health care expenses for low-income pregnant women, children, seniors and the disabled. It was later expanded under the Affordable Care Act to cover millions more able-bodied, working-age adults. The FMAP is the percentage of Medicaid costs paid by the federal government. For traditional Medicaid enrollees, a state’s FMAP is largely determined by its per capita income with a 50 percent floor in the wealthiest states. States with lower per capita income receive a higher FMAP. However, for states that added Medicaid enrollees through the Affordable Care Act’s expansion, there is a much higher FMAP for this expansion population. Their FMAP was initially 100 percent from 2014 to 2016, declining to 90 percent in 2020—a level at which it is scheduled to remain indefinitely. In contrast, the average FMAP across every state in the nation is around 60 percent.
Starting in 2026, Paragon proposes phasing down the 90 percent FMAP for expansion enrollees until it would reach parity in 2034 with each state’s FMAP for traditional enrollees. States would be permitted to keep Medicaid expansion and reduce eligibility to only households below the poverty level, while households earning above the poverty level would be eligible for tax credits for ACA exchange plans. This policy would better protect services for traditional enrollees, better align state incentives to get value from expenditures and eliminate their incentive to enroll as many people under the expansion as possible, and significantly increase enrollment in the exchanges relative to Medicaid. Drew Gonshorowski, Senior Research Fellow at Paragon Health Institute, stated, “Our research demonstrates health care resources are being diverted away from traditional Medicaid enrollees to expansion enrollees, with Medicaid enrollees having more difficulty accessing medical appointments after expansion. Paragon’s recommendations would end the discrimination against the truly needy.”
Paragon also offers a second proposal that would add an important reform to the phasedown of the ACA expansion FMAP. The second proposal reduces the FMAP floor that benefits wealthy states from 50 percent to 40 percent. The only jurisdiction affected by the 40 percent floor would be the District of Columbia, the U.S. jurisdiction with the highest per capita income. States with the highest per capita incomes, such as California, Connecticut, Massachusetts, and New York, would have FMAPs between 45 and 50 percent, based on their state per capita income. This policy would create greater equity in the federal support across the country—reducing the gap in federal funding per person in poverty—although wealthy states would still receive more federal funding per person in poverty after our proposal takes full effect. The phasedown of the standard FMAP would also start in 2026 and be complete in 2034.
Alongside the benefits previously stated, Paragon’s proposal would reduce federal deficits by more than $500 billion over the next decade while increasing private health insurance coverage by more than 5 million people.
Launched in late 2021 by Brian Blase, Paragon Health Institute provides health policy research as well as market-based policy proposals for improved outcomes in the public and private sectors. Journalists and health care analysts can review Paragon’s latest studies and commentary at paragoninstitute.org.
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SOURCE Paragon Health Institute
