UPDATE: Federal Stimulus Requires State Investment in Health Care

NEW NUMBERS AND GRAPH BELOW

Public access to affordable health insurance is especially important during a recession. For many people, the loss of a job means the loss of health care. For those whose jobs didn’t provide health insurance, the loss of income makes health care even less affordable. Now is not the time to cut state investments in the health and well-being of people in Washington.

The federal economic recovery package that is being debated in Congress will likely include an increase in the Federal Medicaid Assistance Percentage (FMAP). This provision will ease some of the pressure on the state budget and allow us to protect other key health programs. But if we’re not careful, budgeting decisions could result in deep cuts in essential services and the forfeiture of some federal funding.

FMAP is the share of Medicaid spending that is covered by the federal government. (Medicaid is the primary source of public health insurance for lower income families across the country. It is funded jointly by states and the federal government.) Washington State’s FMAP is about 50%. So out of the roughly $4 billion spent annually on Medicaid in Washington, the state covers about $2 billion and the federal government covers about $2 billion.

If the recovery bill passes in its current form, federal dollars for Medicaid would rise. We will be able to reduce our state spending on Medicaid without reducing total spending. This would happen through an immediate increase in the state’s FMAP to 60% or perhaps higher. That would mean that the federal government would pay for 60% (instead of 50%) of our $4 billion Medicaid program. The state would only be required to pay 40% (see graph below).

In that scenario, we could reduce our state Medicaid spending from roughly $2 billion to roughly $1.6 billion without cutting people off the program or reducing benefits. This will free up money we would otherwise spend on Medicaid to protect other important health care programs. (Medicaid is only one piece of the health care system in danger due to the deficit.)

A word of caution, however: If we cut Medicaid spending any more than the FMAP increase will cover, we’ll kill the golden goose. Suppose we cut our Medicaid spending by an additional $100 million per year over the amount covered by the recovery package. Because the federal government will only fund 60% of the total funding, the federal share would also fall—by $150 million. We would lose $1.50 in federal funding for every additional $1.00 we cut. It would be a bad move for people suffering from the recession and it would be a bad move for the state economy.

UPDATE

Based on the latest estimates from the Government Accountability Office (GAO), the federal recovery package will increase federal Medicaid spending by $2.06 billion between now and the first quarter of 2011. The state will be able to reduce Medicaid spending by $2.06 billion over the three fiscal years while keeping total spending on the program constant. The money will be divided among fiscal years as shown in the graph below, according to the GAO.