Growth in Per Capita Income Is Expected to Cause $52 Million Increase in Wisconsin’s Share of Medicaid Spending

Tuesday, October 8, 2013 at 4:56 PM by

Wisconsin Share and Fluctuations in Cost-sharing Would be Reduced if State Took Enhanced Medicaid Funding   

Wisconsin Health News reported this morning that our state will probably have to spend $52 million more from state General Purpose Revenue (GPR) because of a drop in the federal share of Medicaid spending (known as the Federal Medical Assistance Percentage, or FMAP).  A Legislative Fiscal Bureau (LFB) memo issued yesterday estimated the increase in the Wisconsin share, based on a reestimate of the FMAP in FY 2015 by an organization called Federal Funds Information for States (FFIS).  The reduced federal share results from per capita income growth in our state. 

It will be interesting to see if state officials use the reduction in federal funds to argue that it’s perilous to take Medicaid dollars, so it was wise not to accept the enhanced federal funding under the Affordable Care Act (ACA).  However, I would argue just the opposite.  Because the ACA locks into place the federal match rate for newly eligible adults, Wisconsin took on more risk by expanding Medicaid to 82,000 more childless adults in a way that boosts the state’s cost if or when our FMAP declines.       

The federal share for each state is officially calculated by the U.S. Dept. of Health and Human Services (HHS) and later published in the Federal Register.  When FFIS does its own computations, they normally check them with HHS, but that isn’t possible this year because of the government shutdown.  According to the unofficial FFIS calculations, Wisconsin’s FMAP will be 58.27% in federal fiscal year 2015, which is well below the previous estimate of 59.19% rate that was assumed during development of the budget bill.  Assuming that’s the case, the LFB estimates that the state share of Medicaid-related spending will increase by $52 million in the second year of the current biennium.

This news is one more reason why state policymakers should reexamine the decision to turn down the enhanced federal funding for Medicaid expansions.  During the budget process, the LFB estimated that by accepting those dollars and covering all adults up to 138% of the poverty level (rather than 100%), the state would save $119 million in 2013-15 – even though we would cover about 85,000 more parents and childless adults in BadgerCare than under the Governor’s plan.  The reduction in the FMAP makes the decision not to take the 100% federal funding an even more expensive one. 

Of course, the argument is sometimes made that Congress could reduce the federal share for newly eligible adults.  That’s true, just as it’s true that Congress could cut all of the sorts of federal aid that states receive, but it’s clear that the President would veto any such Medicaid reduction between now and the end of 2016.  More importantly, our state could use Arizona’s strategy to insulate itself from the risk of a decrease in the enhanced match rate – by making the expansion (or the portion of it for adults over the poverty level) contingent upon continuation of the higher federal share.   

Whereas the ACA match rates are locked into statute, regular FMAPs are determined by a formula that takes into account the per capita income in each state, and how that compares with other states.  All states get a minimum of a 50% federal share, but poorer states get proportionately higher FMAPs.  Apparently personal income in Wisconsin (during the period 2010 to 2012) grew by a lower percentage than in other states, but that was also true of our population growth.  According to the story in Wisconsin Health News, the net effect of both variables was somewhat faster growth in per capita income in Wisconsin, compared to the national average (3.6% here, vs. 3.4% nationally).

We’ll continue to follow this story as additional information becomes available. 

Jon Peacock   

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