Medicaid was created to benefit the disabled, pregnant women, children, and low-income seniors.
The costs of care for beneficiaries are split between states and the federal government. The federal share of the spending is based on a formula called the Federal Medical Assistance Percentage (FMAP). The average FMAP for this traditional Medicare population is about 57%.
Obamacare expanded Medicaid eligibility to able-bodied, working age adults. To encourage states to expand Medicaid, the FMAP for the expansion population was set at 90%.
So, for every $1 of state spending on pregnant women and disabled children, the federal government contributes about $1.33. Meanwhile, it pays $9 for every $1 of state spending on work-capable adults under Obamacare.
The disparity in the FMAP between the traditional vulnerable population Medicaid was intended to serve and the expansion population made eligible by Obamacare has extremely perverse incentives. States and providers are encouraged to push services for able-bodied adults, who bring in higher federal reimbursements, rather than the people who need help the most. Almost 700,000 people with disabilities are on Medicaid waitlists for home and community care.
The elevated federal reimbursement for work-capable adults on welfare is indefensible. Lawmakers should fix this problem by phasing the 90%-10% split back down to the normal rates.
