MEDICAID

Prototype Formula 

Would Provide 

Automatic, Targeted 

Assistance to States 

during Economic 

Downturns 

Report to Congressional Committees

November 2011 

GAO-12-38 

United States Government Accountability Office

GAO 
 United States Government Accountability Office 

Highlights of GAO-12-38, a report to 

congressional committees 

November 2011 

MEDICAID 

Prototype Formula Would Provide Automatic, 

Targeted Assistance to States during Economic 

Downturns 

Why GAO Did This Study 

In response to the recession of 2007, 

Congress passed the American 

Recovery and Reinvestment Act of 

2009 (Recovery Act). Recovery Act 

funds provided states with fiscal relief 

and helped to maintain state Medicaid 

programs through a temporary 

increase to the federal share of 

Medicaid funding–the Federal Medical 

Assistance Percentage (FMAP)–from 

October 2008 through December 2010. 

In March 2011, GAO reported that 

states’ ability to fund Medicaid was 

hampered due to increased Medicaid 

enrollment and declines in states’ 

revenues that typically occur during a 

national downturn. The Recovery Act 

mandated that GAO provide 

recommendations for modifying the 

increased FMAP formula to make it 

more responsive to state Medicaid 

program needs during future economic 

downturns. In this report, GAO 

presents a prototype formula for a 

temporary increased FMAP and 

evaluates its effects on the allocation 

of assistance to states. To evaluate the 

three components of the prototype 

formula—starting assistance, targeting 

assistance, and ending assistance—

GAO uses the 2007 recession. 

What GAO Recommends 

To ensure that federal funding 

efficiently and effectively responds to 

the countercyclical nature of the 

Medicaid program, Congress could 

consider enacting an increased FMAP 

formula that targets variable state 

Medicaid needs and provides 

automatic, timely, and temporary 

assistance in response to national 

economic downturns. 

What GAO Found 

GAO’s prototype formula offers a timely and targeted option for providing states 

temporary Medicaid assistance during a national economic downturn. Once a 

threshold number of states—26 in GAO’s prototype formula—show a sustained 

decrease in their employment-to-population (EPOP) ratio, temporary increases to 

states’ FMAPs would be triggered automatically. The EPOP ratio compares the 

number of employed persons in a state to the working age population aged 16 

and older. (See figure.) This assistance would end when fewer than the threshold 

number of states shows a decline in their EPOP ratio. 

Figure: GAO Prototype Formula for Temporary Increased FMAP Assistance to States 

Because the prototype formula relies on labor market data as an automatic 

trigger rather than legislative action, assistance would have begun earlier and 

extended longer than the assistance provided by the Recovery Act. The 

prototype formula would have triggered assistance to begin in January 2008 and 

end in September 2011, compared with the Recovery Act which provided an 

increased FMAP from October 2008 through June 2011. Once the increased 

FMAP is triggered, targeted state assistance would be calculated based on two 

components: (1) increases in unemployment, as a proxy for changes in Medicaid 

enrollment; and (2) reductions in total wages and salaries, as a proxy for 

changes in states’ revenues. 

GAO’s prototype formula provides a baseline of funding for state Medicaid needs 

during an economic downturn by offering automatic, timely, and targeted 

assistance to states. Such assistance would facilitate state budget planning, 

provide states with greater fiscal stability, and better align federal assistance with 

the magnitude of the economic downturn’s effects on individual states. 

In commenting on a draft of this report, the Department of Health and Human 

Services (HHS) agreed with the analysis and goals of the report and emphasized 

the importance of aligning changes to the FMAP formula with individual state 

circumstances. HHS noted the complexity of the prototype formula and offered 

several considerations to guide policy choices regarding appropriate thresholds 

for timing and targeting of increased FMAP funds. 

View GAO-12-38 or key components. 

For more information, contact Carolyn L. 

Yocom at (202) 512-7114 or 

yocomc@gao.gov; or Thomas J. McCool at 

(202) 512-2642 or mccoolt@gao.gov. 
Page i GAO-12-38 Temporary Medicaid Funding Formula 

Letter 1 

Background 4

Prototype FMAP Formula Offers Automatic, Timely, and Targeted 

Assistance 7

Conclusions 21

Matter for Congressional Consideration 21

Agency Comments and Our Evaluation 22

Appendix I Scope and Methodology 26 

Appendix II Some Design Elements in the Prototype Formula and 

Alternatives 32 

Appendix III The Recovery Act’s Across-the-board and Hold-harmless 

Provisions Were Not Targeted for States’ Medicaid Needs 36 

Appendix IV Temporary Increased FMAP Data by State, GAO Prototype 

Formula 41 

Appendix V Comments from the Department of Health and Human 

Services 47 

Appendix VI GAO Contacts and Staff Acknowledgments 51

Tables 

Table 1: Estimated Prototype Formula Assistance Periods and 

Federal Costs during Recent National Recessions 9

Table 2: Choices of Formula Design Elements Contained in GAO 

Prototype Formula and Alternatives 33

Table 3: Choices of Formula Design Elements Not Contained in 

GAO Prototype Formula that could be Applied 35

Contents 
Page ii GAO-12-38 Temporary Medicaid Funding Formula 

Table 4: Hold-harmless FMAP Increases and Economic Variables, 

by State in Descending Order of FMAP Increase 38

Table 5: Temporary Increased Federal Medical Assistance 

Percentage (FMAP) by Component and State, GAO 

Prototype Formula, 2009, Fourth Quarter 41

Table 6: Temporary Increased Federal Medical Assistance 

Percentage (FMAP) by Quarter and State, GAO Prototype 

Formula, 2008 to 2009 43

Table 7: Temporary Increased Federal Medical Assistance 

Percentage (FMAP) by Quarter and State, GAO Prototype 

Formula, 2009 to 2011 45

Figures 

Figure 1: GAO Prototype Formula for Temporary Increased FMAP 

Assistance to States 8

Figure 2: Number of States with Declining Employment-topopulation Ratios (EPOP) by Year, 1978-2011 10

Figure 3: Number of States with Declining Employment-topopulation Ratios (EPOP) by Month, 2007-2011 12

Figure 4: Increase in Unemployment Rate and Increased Federal 

Medical Assistance Percentages by State, GAO formula 

(2009, 4th quarter) 14

Figure 5: Decrease in Total State Wages and Salaries and Increased 

Federal Medical Assistance Percentages by State, GAO 

Formula (2009, 4th quarter) 16

Figure 6: Total Weighted National Average FMAP Increase by 

Component, GAO Formula Assistance Period, by Quarter, 

2008-2011 18

Figure 7: Number of States with Unemployment-based and Wagebased FMAP Increases, GAO Formula Assistance Period, 

by Quarter, 2008-2011 19

Figure 8: Look-back period for Calculation of Unemploymentbased and Wage-based Federal Medical Assistance 

Percentage Increases 28
Page iii GAO-12-38 Temporary Medicaid Funding Formula 

Abbreviations 

BEA Bureau of Economic Analysis 

EPOP Employment-to-population 

FMAP Federal Medical Assistance Percentage 

HHS Department of Health and Human Services 

NBER National Bureau of Economic Research 

PCI Per capita income 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
Page 1 GAO-12-38 Temporary Medicaid Funding Formula 

United States Government Accountability Office

Washington, DC 20548 

November 10, 2011 

Congressional Committees 

During economic downturns, states’ employment and tax revenues 

typically fall as enrollment in the Medicaid program, a federal-state health 

financing program for low-income populations, tends to increase. The 

most recent national recession, as defined by the National Bureau of 

Economic Research (NBER), lasted from December 2007 through June 

2009.1

 However, as of July 2011, 20 states and the District of Columbia 

continued to experience unemployment rates above 9 percent, and more 

than 13.9 million people were considered unemployed. State budget 

challenges—due to increased unemployment and lowered tax 

revenues—can persist well beyond the end of a recession. 

To provide states with fiscal relief and to help maintain state Medicaid 

programs so beneficiaries are assured continuity of services during this 

most recent recession, the American Recovery and Reinvestment Act of 

2009 (Recovery Act) provided states with $89 billion through an increased 

federal share of Medicaid funding from October 2008 through December 

2010.2

 The federal funding states receive for Medicaid is determined by a 

statutory formula, the Federal Medical Assistance Percentage (FMAP). 

While the Medicaid FMAP formula was the mechanism used for delivering 

federal aid under the Recovery Act, the level of funding was intended to 

assist states with fiscal needs beyond Medicaid.3

 The Recovery Act also 

 

1

For this report, we use the term recession to refer to national recessions as defined by 

NBER. NBER identifies recessions on the basis of several indicators, including 

employment, sales in the manufacturing and trade sectors, and industrial production. A 

recession begins just after the economy reaches a peak of activity and ends as the 

economy reaches its lowest point. 

2

Pub. L. No. 111-5, Div. B. Tit. V, § 5001, 123 Stat. 115, 496 (2009). Increased FMAP 

funds were made available to states with the passage of the Recovery Act in February 

2009; however, states could retroactively claim reimbursement for Medicaid expenditures 

that occurred as of October 1, 2008. 

3

While the increased FMAP funds available under the Recovery Act were for Medicaid 

services only, the receipt of these funds may reduce the funds that states would otherwise 

have to use for their Medicaid programs, and states have reported using these freed-up 

funds for a variety of purposes including support for general state budget needs. See 

GAO, Recovery Act: Increased Medicaid Funds Aided Enrollment Growth, and Most 

States Reported Taking Steps to Sustain Their Programs, GAO-11-58 (Washington, D.C.: 

Oct. 8, 2010). 

 
 

Page 2 GAO-12-38 Temporary Medicaid Funding Formula 

mandated that we conduct an analysis of past national economic 

downturns, including the effects of any increased FMAP during these 

periods, and provide recommendations for modifying the increased FMAP 

formula to make it more responsive to state Medicaid program needs 

during future downturns.4

 The mandate specifically called for 

recommendations to improve the starting and ending of temporary 

assistance, and to account for variations in state economic conditions. 

In a March 2011 report, we reviewed how past economic downturns 

affected states’ ability to fund Medicaid, examined the responsiveness of 

past increased FMAP assistance to state Medicaid needs, and identified 

options for adjusting the increased FMAP formula for use during future 

economic downturns.5

 We found that past economic downturns 

hampered states’ ability to fund increased Medicaid enrollment and 

maintain existing services, and that the Recovery Act assistance began 

during the national recession while nearly all states were experiencing 

Medicaid enrollment increases.6

 However, we also found that the 

increased FMAP funds provided through the Recovery Act did not 

distinguish among states with varying degrees of reduced revenue in the 

allocation of assistance. We outlined a prototype formula and key design 

decisions for modifying the FMAP that could improve its responsiveness 

to state Medicaid needs during an economic downturn. The formula was 

designed to provide assistance to states during periods of national 

economic downturns, not for downturns limited to an individual state or 

group of states. 

 

4

In a 2006 report, we provided options for Congress to consider when assisting states in 

their efforts to meet increased Medicaid expenditures resulting from national recessions. 

Among these options was a formula for providing a temporary increased FMAP to states 

during a national recession, a version of which Congress subsequently incorporated as 

part of the Recovery Act. See GAO, Medicaid: Strategies to Help States Address 

Increased Expenditures during Economic Downturns, GAO-07-97 (Washington, D.C.: 

Oct. 18, 2006). 

5

GAO, Medicaid: Improving Responsiveness of Federal Assistance to States during 

Economic Downturns, GAO-11-395 (Washington, D.C.: Mar. 31, 2011).

6

In our March 2011 report, we reported that during and following the most recent national 

economic downturn, states implemented various Medicaid program cuts and other 

adjustments in order to balance their budgets. For example, 28 states reduced or froze 

provider payment rates; 22 states reported implementing or considering restrictions on 

optional benefits, such as eliminating dental and vision services; 38 states implemented 

cost-containment initiatives in the area of prescription drugs; and 18 states implemented 

utilization controls on long-term care services. See GAO-11-395. 
 

Page 3 GAO-12-38 Temporary Medicaid Funding Formula 

In this report, we present additional detail on the prototype formula and 

simulations of its effects on the allocation of assistance to states. Our 

overall objective is to evaluate how our prototype formula would have 

responded during the most recent economic downturns. Our evaluation of 

the formula includes both the timing and targeting of funds for state 

Medicaid needs during a national economic downturn.7

 In keeping with 

the general framework provided in our past reports, we use the period of 

the most recent national economic downturn—from December 2007 

through June 2009—to evaluate the three components of our prototype 

formula, including the start of assistance, the methods used to target 

funds based on states’ Medicaid program needs, and the end of 

assistance. A detailed discussion of our scope and methodology is 

presented in appendix I. 

In the development of our prototype formula we made a number of 

choices about specific elements of the formula design for the timing and 

targeting of funds. For example, in contrast to the Recovery Act, which 

provided funds for broad state fiscal relief in addition to supporting state 

Medicaid programs, our formula was calibrated to provide a baseline of 

funding only for state Medicaid needs during a downturn. However, this 

formula could be scaled up to address broader state needs or scaled 

down to meet only a portion of state Medicaid needs. A discussion of 

these and other alternative choices and considerations is presented in 

appendix II. 

We conducted this performance audit from April 2011 to October 2011 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

 

7

Timing refers to whether funds were provided when states most needed them. Targeting 

refers to whether the distribution of funds reflected different state needs for funding the 

cost of new Medicaid enrollees attributable to the recession and maintaining their existing 

Medicaid programs as states’ revenues declined. 
 

Page 4 GAO-12-38 Temporary Medicaid Funding Formula 

Although every economic downturn reflects varied economic 

circumstances at the national level and among states, evaluations of prior 

federal fiscal assistance strategies have identified considerations to guide 

policymakers as they consider the design of future legislative responses 

to national economic downturns.8

 These include timing assistance so that 

aid begins to flow as the economy is contracting and targeting assistance 

based on the magnitude of the economic downturn’s effects on individual 

states. To be effective at stabilizing state funding of Medicaid programs, 

assistance should be provided, or at least authorized, close to the 

beginning of a downturn.9

 Additionally, to be efficient, funds should be 

targeted to states commensurate with their level of need due to the 

downturn. States that experience greater stress in their Medicaid 

programs—due to increased enrollment or decreased revenues—should 

receive a larger share of aid than states less severely affected. In 

addition, economists at the Federal Reserve Bank of Chicago have 

described the ideal countercyclical assistance program as one having an 

automatically activated,10 prearranged triggering mechanism that could 

remove some of the political considerations from the program’s design 

and eliminate delays inherent in the legislative process.11

Past economic downturns hampered states’ ability to fund their Medicaid 

programs, as Medicaid enrollment increased and tax revenues declined. 

Medicaid enrollment increases during and after national economic 

downturns, when the number of people with incomes low enough to 

 

8

GAO, State and Local Governments: Knowledge of Past Recessions Can Inform Future 

Federal Fiscal Assistance, GAO-11-401 (Washington, D.C.: Mar. 31, 2011). 

9

As we noted in our March 2011 report (GAO-11-395), starting assistance closer to the 

onset of an economic downturn could help states avoid program cuts. If states can 

anticipate assistance, the funds do not need to be received or “in the pipeline” in order to 

produce the desired effect on state fiscal behavior. 

10Countercyclical aid, such as the Recovery Act’s increased FMAP, is intended to assist 

states experiencing revenue declines and expenditure increases that are associated with 

economic downturns. 

11R. Mattoon, V. Haleco-Meyer, and T. Foster, “Improving the impact of federal aid to the 

states,” Economic Perspectives, vol. 34, no. 3 (2010). 

Background 
 

Page 5 GAO-12-38 Temporary Medicaid Funding Formula 

qualify for coverage rises as state economies weaken.12 States also 

experience declines in tax revenues as a result of declines in wages, 

salaries, and consumer spending. Most, if not all states are affected by 

national recessions, although the timing and duration of state economic 

downturns can vary. States have different industry mixes and resources, 

which can affect when they enter an economic downturn and when they 

recover. Therefore, some states may enter an economic downturn in the 

early stages of a national recession, while other states enter long after the 

recession has set in. The timing and depth of state economic downturns 

affects their ability to maintain their Medicaid programs. 

Under the regular FMAP, the federal government pays a larger portion of 

Medicaid expenditures in states with low per capita income (PCI) relative 

to the national average, and a smaller portion for states with higher 

PCIs.13 To provide states with fiscal relief and to help states meet 

additional Medicaid needs during the 2001 and 2007 economic 

downturns, Congress passed legislation temporarily increasing the FMAP 

for states. The FMAP is a readily available mechanism for providing 

temporary assistance to states because assistance can be distributed 

quickly, with states obtaining funds through Medicaid’s existing payment 

system. The Recovery Act was the second time Congress temporarily 

increased the FMAP to provide fiscal relief to states during a national 

economic downturn. Following the 2001 recession, the Jobs and Growth 

Tax Relief Reconciliation Act of 2003 (Reconciliation Act) provided states 

$10 billion in assistance through an increased FMAP from April 2003 

 

12States have some flexibility in the design of their Medicaid programs within broad federal 

parameters. For example, under federal law, states generally must enroll certain 

mandatory categories of individuals, which include pregnant women and children up to 

6 years of age with family income at or below 133 percent of the federal poverty level 

(FPL), and children ages 6 to 19 with a family income at 100 percent or less of the FPL. 

States may choose to cover additional categories of individuals, such as pregnant women 

and infants between 133 and 185 percent of the FPL. 

13In this report, we use the term regular FMAP to refer to the base FMAP, as defined 

under federal law, that is used to determine the percentage of federal assistance for most 

state Medicaid expenditures. We use the term increased FMAP to refer to temporary 

FMAP increases above the regular FMAP, as authorized under federal law, that provided 

states with additional Medicaid funding during national recessions. The regular FMAP is 

determined annually by a statutory formula designed to account for income variation 

across the states. See 42 U.S.C. § 1396d(b). For federal fiscal year 2011, the regular 

FMAP for states ranged from 50.00 percent to 74.73 percent. By statute, the minimum 

regular FMAP for a state is 50 percent and the maximum is 83 percent. The District of 

Columbia is not subject to this formula and instead has its FMAP set at 70 percent. 
 

Page 6 GAO-12-38 Temporary Medicaid Funding Formula 

through June 2004. In August 2010, Congress extended the increased 

FMAP provided by the Recovery Act by providing states with an 

additional $16.1 billion in assistance from January through June 2011.14

In March 2011, we reported that overall the Recovery Act funds were 

better timed for state Medicaid funding needs than were funds provided 

following the 2001 recession;15 assistance began during the recession 

while nearly all states were experiencing Medicaid enrollment increases 

and revenue decreases.16 Nonetheless, 19 states implemented or 

proposed eligibility restrictions in response to the economic downturn 

prior to the passage of the Recovery Act some 15 months after the 

beginning of the national recession as identified by NBER.17 In order to be 

eligible for Recovery Act funds, these states had to reverse the 

restrictions on eligibility to come into compliance with the Recovery Act’s 

maintenance of eligibility requirements.18

The Recovery Act formula incorporated three components for calculating 

the increased FMAP: a hold-harmless provision that maintained each 

state’s regular FMAP to at least its highest rate since fiscal year 2008; an 

across-the-board increase of 6.2 percentage points; and an additional 

increase in each state’s FMAP based on a qualifying increase in the 

state’s rate of unemployment.19 In our March 2011 report we also 

reported that the unemployment-based component of the Recovery Act 

 

14Pub. L. No. 111-226, Tit. II, Subtit. A, § 201, 124 Stat. 2389, 2393 (2010). In this report, 

we refer to this legislation as the Education, Jobs, and Medicaid Assistance Act. 

15Reconciliation Act assistance was provided approximately six quarters after the 

recession ended and was not targeted based on state Medicaid needs. 

16GAO-11-395. 

17V.K. Smith et. al., “The Crunch Continues: Medicaid Spending, Coverage and Policy in 

the Midst of a Recession. Results from a 50-state Medicaid Budget Survey for State Fiscal 

Years 2009 and 2010,” Kaiser Commission on Medicaid and the Uninsured, September 

2009. 

18To be eligible for the increased FMAP under the Recovery Act, states could not restrict 

their Medicaid eligibility standards, methodologies, or procedures more than those in place 

on July 1, 2008. 

19The Education, Jobs, and Medicaid Assistance Act did not change the hold-harmless 

and unemployment provisions, but the across-the-board increase was reduced. Under the 

Recovery Act, each state’s regular FMAP was increased 6.2 percentage points. Under the 

Education, Jobs, and Medicaid Assistance Act, the increase was 3.2 percentage points for 

the first quarter of 2011 and 1.2 percentage points for the second quarter of 2011. 
 

Page 7 GAO-12-38 Temporary Medicaid Funding Formula 

formula targeted assistance to states with greater Medicaid enrollment 

growth as indicated by increases in their unemployment rate. However, 

the across-the-board increase and the hold-harmless components did not 

distinguish among states that experienced varying degrees of increased 

unemployment. (See app. III for more information about the Recovery 

Act’s across-the-board and hold-harmless provisions.) Furthermore, none 

of the Recovery Act provisions distinguished among states with varying 

degrees of reduced revenue in the allocation of assistance. 

The prototype formula we outlined in our March 2011 report provides a 

more targeted approach than the increased FMAP formula used in the 

Recovery Act. It also improves the responsiveness of assistance 

provided, in part by having an automatic trigger to begin and end 

assistance. In particular, we discussed mechanisms that (1) improve the 

timing for starting assistance, (2) better target for state needs, and 

(3) taper off the end of assistance. More responsive federal assistance 

can aid states in addressing increased Medicaid enrollment resulting from 

a national economic downturn, as well as addressing reductions in states’ 

revenues. Improving targeting is essential to meet the goals of providing 

assistance to states in an efficient and effective manner. 

In response to the mandate, our prototype formula offers an automatic, 

timely, and targeted option for providing states temporary assistance 

during national economic downturns. Once a threshold number of states 

show a sustained decrease in their employment-to-population (EPOP) 

ratio,20 temporary increases to states’ FMAPs would be triggered 

automatically and targeted to each state’s Medicaid program. Our 

prototype formula uses two targeting components: (1) unemployment, 

and (2) wages and salaries. The amount of Medicaid assistance states 

receive would be commensurate with their increases in unemployment 

and decreases in wages and salaries. The prototype formula would end 

the temporary assistance once fewer than the threshold number of states 

shows a decline in their EPOP ratio over 2 consecutive months. 

 

20The employment-to-population ratio is the ratio of the number of jobs in a state to the 

working age population aged 16 and older. Our prototype formula identifies the start of a 

national recession and triggers assistance when 26 states show a decrease in their 

3-month average EPOP ratio, compared to the same 3-month period in the previous year, 

over 2 consecutive months. 

Prototype FMAP 

Formula Offers 

Automatic, Timely, 

and Targeted 

Assistance 
 

Page 8 GAO-12-38 Temporary Medicaid Funding Formula 

Our prototype formula uses the monthly EPOP ratio and a threshold 

number of states to identify the start of a national economic downturn, 

and to automatically trigger the start of the increased FMAP assistance. 

(See fig. 1.) The automatic trigger would use readily available economic 

data to begin assistance rather than rely on legislative action at the time 

of a future national economic downturn. Once the increased FMAP is 

triggered, targeted state assistance would be calculated based on 

(1) increases in state unemployment, as a proxy for increased Medicaid 

enrollment; and (2) reductions in total wages and salaries, as a proxy for 

decreased revenues for maintaining state Medicaid programs. The 

increased FMAP would end when the EPOP ratio indicated that less than 

the threshold number of states was in an economic downturn. 

Figure 1: GAO Prototype Formula for Temporary Increased FMAP Assistance to 

States 

Note: The employment-to-population (EPOP) ratio is the ratio of the number of jobs in a state to the 

working age population aged 16 and older. The Federal Medical Assistance Percentage (FMAP) is 

used to determine the percentage of federal assistance for most state Medicaid expenditures. 

Under our prototype formula, states would have received increased 

Medicaid funding in response to each of the past three national 

recessions. For example, in response to the most recent national 

recession, states would have received up to 15 quarters of assistance 

that would have begun in January 2008 and extended through September 

Prototype Formula 

Automatically Triggers 

Targeted Assistance to 

States 
 

Page 9 GAO-12-38 Temporary Medicaid Funding Formula 

2011.21 The total federal cost of this assistance for state Medicaid needs 

would have been approximately $36 billion. Table 1 provides information 

on when states would have received assistance in response to the past 

three national recessions under our prototype formula and the total cost 

of this assistance for state Medicaid needs. 

Table 1: Estimated Prototype Formula Assistance Periods and Federal Costs during 

Recent National Recessions 

National recessiona Prototype 

assistance period 

Total quarters of 

increased FMAP

Total federal 

cost of 

assistance 

(in billions)

July 1990 – Mar. 1991 Apr. 1991 – Sep. 1992 6 $9

Mar. 2001 – Nov. 2001 July 2001 – Sep. 2004 13 17

Dec. 2007 – June 2009 Jan. 2008 – Sep. 2011 15 36

Source: GAO. 

Note: The prototype formula was designed to provide support for state Medicaid needs only. Thus, 

the estimated cost of assistance under our formula is not directly comparable to the cost of 

assistance under the Recovery Act or the Reconciliation Act because the increased FMAPs provided 

through the acts were not limited to providing fiscal support to Medicaid. 

a

National recession period as defined by the National Bureau of Economic Research. 

Based on our simulations, the EPOP ratio is a reliable, timely indicator of 

the start of national economic downturns. At the start of each of the last 

five national recessions, as defined by NBER, we found a sharp increase 

in the number of states with declining EPOP ratios. A timely automatic 

trigger for temporary FMAP assistance would be based on a threshold 

number of states that show a decrease in their monthly EPOP ratio. We 

found the beginning of each of these recessions approximately coincided 

with 26 states having declining EPOP ratios. (See fig. 2.) 

 

21Calculations are based on calendar year quarters. For example, the first quarter of 2008 

is the 3-month period from January through March of 2008. 

Prototype Formula 

Provides Timely Notice of 

the Start of an Economic 

Downturn 
 

Page 10 GAO-12-38 Temporary Medicaid Funding Formula 

Figure 2: Number of States with Declining Employment-to-population Ratios (EPOP) by Year, 1978-2011 

Note: The National Bureau of Economic Research (NBER) identifies recessions on the basis of 

several indicators, including employment, sales in the manufacturing and trade sectors, and industrial 

production. A recession begins just after the economy reaches a peak of activity and ends as the 

economy reaches its lowest point. 

Therefore, our prototype formula identifies the start of a national 

economic downturn when 26 states show a decrease in their 3-month 

average EPOP ratio, compared to the same 3-month period in the 

previous year, over 2 consecutive months.22 For the most recent national 

recession, our prototype would have identified the beginning of the 

downturn in October 2007 (i.e., the fourth quarter of 2007) and triggered 

temporary assistance to states beginning in January 2008 (the first 

 

22For example, in our calculation the EPOP ratio for October 2007 is an average of 

3 consecutive months, August to October, of the EPOP ratio. This ratio is calculated for 

each state. The difference in the October 2007 EPOP ratio and the corresponding ratio in 

the prior year, October 2006, is calculated and the number of states showing a decline in 

their EPOP ratio is counted. If the number of states having declining EPOP ratios exceeds 

25 for 2 consecutive months, then the program would commence. 
 

Page 11 GAO-12-38 Temporary Medicaid Funding Formula 

quarter of 2008).23 (See fig. 3.) The increased FMAP payments to states 

would begin in the first calendar quarter following the quarter in which the 

EPOP measure indicated the start of an economic downturn. The period 

of temporary assistance would end after the 26-state threshold is no 

longer met. In the case of our prototype, the end would have been 

triggered in April 2011 and would make the third quarter of 2011 the last 

quarter of the assistance period. The last quarter of payment would be 

the first calendar quarter following the quarter in which the EPOP 

threshold was no longer met for 2 consecutive months. The threshold 

trigger may need to be adjusted periodically, however, because the 

EPOP ratio is projected to slowly drift downward over the next 30 years 

due to the aging of the population.24

 

23This compares with the NBER’s December 2008 announcement that the recession 

began in December 2007. Congress subsequently passed the Recovery Act in February 

2009 and provided assistance retroactive to October 2008. In September 2010, NBER 

announced the end of the recession as of June 2009. 

24The employed share of the population under conditions of full employment will probably 

decrease as the retired share increases. This change is expected to be slow and gradual. 

Even so, failure to account for any such drift could cause the trigger to activate the 

program too quickly. We think it advisable for the EPOP trigger mechanism proposed here 

to be periodically adjusted to remove the impact of long-run, national demographic trends. 
 

Page 12 GAO-12-38 Temporary Medicaid Funding Formula 

Figure 3: Number of States with Declining Employment-to-population Ratios (EPOP) by Month, 2007-2011 

a

The Education, Jobs and Medicaid Assistance Act (2010) extended the Recovery Act increased 

FMAP providing two additional quarters of assistance from January through June 2011. 

If our EPOP measure had been used to determine the beginning and end 

of assistance during the most recent national recession, temporary 

increased FMAP assistance would have been provided for a total of 

15 quarters, from the first quarter of 2008 (January-March) through the 

third quarter of 2011 (July-September). This compares to an 11-quarter 

assistance period under the Recovery Act (9 quarters) and extension 

(2 quarters), from the fourth quarter of 2008 (October-December) through 

the second quarter of 2011 (April-June). Because our prototype formula 

relies on readily available labor market data to automatically trigger the 

beginning and end of the increased FMAP, assistance would have begun 

earlier and extended longer than that provided by the Recovery Act 

during the most recent national recession. As with the Recovery Act, 

relying on NBER to obtain sufficient data to identify the beginning of a 

national recession and then providing fiscal assistance through the 

legislative process results in a time lag before aid is available; the 

Recovery Act was passed in February 2009, nearly 5 quarters after the 

national recession began in December 2007. 
 

Page 13 GAO-12-38 Temporary Medicaid Funding Formula 

States’ efforts to fund Medicaid during an economic downturn face two 

main challenges: financing increased enrollment and replacing lost 

revenue. To assist states in addressing both challenges, our prototype 

formula includes two components for targeting funding: one for a state’s 

increase in unemployment as a proxy for increased Medicaid enrollment, 

and a second for a state’s decrease in total wages and salaries as a 

proxy for the loss of revenue. The total assistance for a state would be 

the sum of the employment- and wage-based components. 

Our prototype formula provides states with a reduction in their financial 

contribution for Medicaid proportional to their increase in unemployment 

during the national economic downturn. This component is based on data 

showing a 1 percentage point increase in a state’s unemployment rate 

produces approximately a 1 percent increase in state Medicaid spending 

due to increased enrollment.25 The unemployment rate change used to 

calculate assistance for a given quarter is the unemployment rate for that 

quarter compared to the lowest unemployment rate in the prior 8 calendar 

quarters. As shown in the formula below, the unemployment-based FMAP 

increase (FMAP increaseU) for a given quarter is the product of the state 

share of Medicaid (100-FMAP) and the change in the unemployment rate 

(UR). 

 FMAP increaseU = (100-FMAP) * ΔUR 

For example, under our prototype formula, a 10 percentage point 

increase in the unemployment rate would result in a 10 percent decrease 

in the state share of Medicaid. If a state had a 60 percent FMAP, and a 

40 percent state share, the state share would fall by 4 percentage points 

(40 percent multiplied by 10 percent) to 36 percent, and commensurately 

its FMAP would rise to 64 percent. 

Figure 4 illustrates the targeting of FMAP increases the formula would 

have provided to states based on their increases in unemployment during 

 

25J. Holahan and A. Garrett, “Rising Unemployment, Medicaid and the Uninsured,” Kaiser 

Commission on Medicaid and the Uninsured (Washington, D.C.: January 2009). Holahan 

and Garrett report that a 1 percentage point increase in the unemployment rate is 

associated with about a $1.5 billion increase in the state share of Medicaid spending 

which is about 1.0 percent increase in state spending on Medicaid. 

Prototype Formula Targets 

Assistance Based on 

Increased Enrollment and 

Losses in Revenue 

Unemployment-based 

assistance 
 

Page 14 GAO-12-38 Temporary Medicaid Funding Formula 

the fourth quarter of 2009 (October-December). It indicates a strong 

proportional relationship between the FMAP increases and increases in 

unemployment. During the fourth quarter of 2009, FMAP increases due to 

changes in unemployment ranged from a low of 0.52 percentage points in 

North Dakota, which had a 1.4 point increase in the unemployment rate, 

to a high of 5.03 percentage points in Nevada, which experienced a 

10.1 percentage point rise in unemployment. (See table 5 in app. IV for 

the state-by-state data on which this simulation is based, and the stateby-state results of the simulation.) 

Figure 4: Increase in Unemployment Rate and Increased Federal Medical 

Assistance Percentages by State, GAO formula (2009, 4th quarter) 

Note: Data include 50 states and the District of Columbia. 

Our prototype formula provides states with a separate reduction in their 

financial contribution for Medicaid that is proportional to their decrease in 

wages and salaries during the economic downturn. This component is 

based on data showing that a 1 percent decrease in total state wages and 

salaries corresponds to approximately a 1 percent decrease in state tax 

Wage- and salary-based 

assistance 
 

Page 15 GAO-12-38 Temporary Medicaid Funding Formula 

revenues.26 The total state wage and salary level used to calculate 

assistance for a given quarter is the total wage and salary level for that 

quarter compared to the highest wage and salary level in the prior eight 

quarters, expressed as a percent change. As shown in the formula below, 

the wage-based FMAP increase (FMAP increaseW) for a given quarter is 

the product of the state share of Medicaid (100-FMAP) and the percent 

change in total state wages and salaries (%∆W). 

 FMAP increaseW = (100-FMAP) * %ΔW

For example, under our prototype formula, a 20 percent decline in state 

wages and salaries would result in a 20 percent decrease in the state 

share of Medicaid. If a state had a 60 percent FMAP, and therefore a 

40 percent state share, the state share would fall by 8 percentage points 

(40 percent multiplied by 20 percent) to 32 percent, and its FMAP would 

rise to 68 percent. 

Figure 5 illustrates the FMAP increases our prototype formula would have 

provided to states based on their decreases in wages and salaries during 

the fourth quarter of 2009 (October-December). It indicates a strong 

proportional relationship between the FMAP increases and decreases in 

wages and salaries, as the formula was designed to do. During the fourth 

quarter of 2009, FMAP increases due to declines in state wages and 

salaries would have ranged from a high of 8.64 percentage points in 

Nevada, which experienced a 17.3 percent decline in wages and salaries, 

to a low of 0.0 in three states—Alaska, the District of Columbia, and North 

Dakota— which experienced no decline in wages and salaries during the 

period. (See table 5 in app. IV for the state-by-state data on which this 

simulation is based, and the state-by-state results of the simulation.) 

 

26GAO, State and Local Governments: Knowledge of Past Recessions Can Inform Future 

Federal Fiscal Assistance, GAO-11-401 (Washington, D.C.: Mar. 31, 2011), pp. 48-49. 
 

Page 16 GAO-12-38 Temporary Medicaid Funding Formula 

Figure 5: Decrease in Total State Wages and Salaries and Increased Federal 

Medical Assistance Percentages by State, GAO Formula (2009, 4th quarter) 

Note: Data include 50 states and the District of Columbia. 

The total FMAP increase a state would receive for a given quarter would 

be the sum of the FMAP increases for the unemployment-based and 

wage-based components. 

 FMAP increaseTotal = FMAP increaseU + FMAP increaseW

For example, during the fourth quarter of 2009, Nevada would have 

received the largest total FMAP increase of 13.68 percentage points, 

combining its 5.03 percentage point unemployment increase and 

8.64 percentage point wage-based increase; its FMAP would have 

increased from 50.16 to 63.84. North Dakota would have received the 

smallest total increase of 0.52 percentage points, combining its 

0.52 percentage point increase for unemployment and 0.00 percentage 

point increase for wage declines; its FMAP would have increased from 

63.01 to 63.53. 

Total increased FMAP 

assistance 
 

Page 17 GAO-12-38 Temporary Medicaid Funding Formula 

As shown in figure 6, the national average increased FMAP for both the 

unemployment-based and wage-based components combined is less 

than 1 percentage point during the first quarter of the assistance period. It 

rises to 5.6 percentage points in the third quarter of 2009 (JulySeptember) and begins to fall beginning in the fourth quarter of 2009 

(October-December). State Medicaid needs resulting from declining 

revenues exceed state Medicaid needs due to increased Medicaid 

enrollment through most quarters of the economic downturn. 

Consequently, the wage-based FMAP increase exceeds the 

unemployment-based increase through most quarters of the assistance 

period. Tables 6 and 7 in appendix IV present the results of a simulation 

of the total temporary increased FMAP provided by our prototype formula 

by quarter, by state, in response to the most recent national economic 

downturn. 
 

Page 18 GAO-12-38 Temporary Medicaid Funding Formula 

Figure 6: Total Weighted National Average FMAP Increase by Component, GAO Formula Assistance Period, by Quarter, 2008-

2011 

a

Data for these quarters are not yet available. 

Note: Data in figure represent a weighted national average increased Federal Medical Assistance 

Percentage (FMAP) for all states where the weights are states’ shares of Medicaid expenditures. A 

weighted average accounts for the wide differences in state size, and the wide differences in the 

amount of Medicaid expenditures among states, by giving greater weight to the FMAPs of those 

states with a larger share of the nation’s Medicaid expenditures. 

For a given quarter, a state could receive an unemployment-based 

increase, a wage-based increase, both, or neither, depending on its need. 

Therefore, not every state would receive an unemployment-based or a 

wage-based increase in every quarter. As shown in figure 7, for the first 

quarter of 2008, 40 states would have received assistance based on an 

increase in unemployment, and 14 states would have received assistance 

based on a decline in wages.27 However, the majority of states would 

 

27A total of 41states and the District of Columbia would have received some assistance in 

the first quarter of 2008, either a wage-based increase only (2 states), an unemploymentbased increase only (27 states and the District of Columbia), or both (12 states). Nine 

states would have received no increase. 
 

Page 19 GAO-12-38 Temporary Medicaid Funding Formula 

have received increases for both components during most quarters of the 

assistance period. 

Figure 7: Number of States with Unemployment-based and Wage-based FMAP Increases, GAO Formula Assistance Period, by 

Quarter, 2008-2011 

a

Data for these quarters are not yet available. 
 

Page 20 GAO-12-38 Temporary Medicaid Funding Formula 

Under our prototype formula, temporary FMAP assistance to states would 

be triggered off when fewer than 26 states show a decline in their monthly 

EPOP ratio over 2 consecutive months. Once the program is triggered off, 

there are a number of ways in which the decrease in FMAP could be 

introduced to ease states’ transition back to the regular FMAP.28

Under our prototype formula, states would have a more gradual transition 

back to their regular FMAP once temporary assistance ended than under 

the Recovery Act or the Reconciliation Act. First, our prototype formula 

does not include an across-the-board or hold-harmless provision, as 

provided by the Recovery Act and the Reconciliation Act. Therefore, 

states would not be faced with an abrupt loss of a large amount of 

assistance under our prototype formula. Second, because of the way that 

our formula generates the unemployment-based and wage-based 

increases, the increased FMAP generally declines toward the end of the 

assistance period.29 As a result, for most states, the drop in FMAP once 

temporary assistance ended would be modest compared to the Recovery 

Act. For example, under our prototype, if the first quarter of 2011 would 

have been the last quarter of assistance during the most recent economic 

downturn, the average drop in FMAP would have been 0.54 percentage 

points, ranging from 0.00 in seven states to 4.16 in Nevada.30 Only seven 

states would have faced a drop in FMAP of greater than 1 percentage 

point. In contrast, under the Recovery Act and extension, the average 

drop in FMAP after the end of assistance in the second quarter of 2011 

was 6.2 percentage points, ranging from 10.8 in Hawaii to 4.4 in 

 

28For example, when the Recovery Act’s increased FMAP assistance ended, many states 

faced a large drop in their FMAPs when returning to their regular FMAPs. Congress 

passed a two-quarter extension to the Recovery Act, which eased states’ transition back 

to the regular FMAP. States continued to receive the hold-harmless component and 

unemployment-based increases for two additional quarters, but the across-the-board 

increase was reduced from 6.2 to 3.2 percentage points in the first extension quarter and 

to 1.2 in the final quarter. 

29For example, the “base quarter” used to calculate the increase in unemployment would 

be redetermined each quarter by a retrospective assessment of the last eight quarters. 

Except for some states entering the downturn late, this redetermination might result in a 

newly designated base quarter with higher unemployment that would lessen the increase 

in unemployment rate used to calculate assistance in a quarter. In contrast, the Recovery 

Act allowed states to use any quarter after January 1, 2006, as the base quarter used to 

calculate the increase in unemployment. 

30Although our formula would extend assistance through the third quarter of 2011, data 

were not available to calculate the actual change in FMAP at the end of the assistance 

period. We relied on data from the first quarter of 2011 for this illustration. 

Temporary FMAP 

Assistance Would End 

Gradually under Prototype 

Formula 
 

Page 21 GAO-12-38 Temporary Medicaid Funding Formula 

Kentucky; thus, all states experienced a drop in FMAP of over 

4 percentage points. 

Since its inception, efforts to finance the Medicaid program have been at 

odds with the cyclical nature of its design and operation, particularly 

during economic downturns. At such times, states typically experience 

increased Medicaid enrollment while at the same time their own revenues 

are declining. During the two most recent recessions, Congress acted to 

provide states with a temporary increase in federal funds through an 

increased FMAP. However, these efforts to provide states with increased 

FMAP assistance during national recessions were not as responsive to 

state Medicaid needs as they could have been. Legislative action at the 

time of a recession has not been as timely as an automatic response to 

changing economic conditions. Such a mechanism would reduce the time 

between the start of the economic downturn and the beginning of 

assistance by, in part, eliminating the lag between recognition of the 

economic downturn and congressional action to authorize assistance. By 

providing this predictability to states, an automatic trigger would facilitate 

budget planning and provide states with greater fiscal stability. Similarly, 

targeting assistance based on each state’s level of need ensures that 

federal assistance is aligned with the magnitude of the economic 

downturn’s effects on individual states. 

The prototype formula we present offers an option for providing 

automatic, timely, and targeted assistance to states during a national 

economic downturn. As called for in the mandate, our prototype formula 

improves the starting and ending of assistance, accounts for variations in 

state economic conditions, and responds to state Medicaid needs by 

providing a baseline for full funding of state Medicaid needs during a 

downturn. However, the level of funding and other design elements—

such as the choice of thresholds for starting, ending, and targeting 

assistance—are variables that policymakers could adjust depending on 

circumstances such as competing budget demands, macroeconomic 

conditions, and other state fiscal needs beyond Medicaid. 

To ensure that federal funding efficiently and effectively responds to the 

countercyclical nature of the Medicaid program, Congress could consider 

enacting an FMAP formula that is targeted for variable state Medicaid 

needs and provides automatic, timely, and temporary increased FMAP 

assistance in response to national economic downturns. 

Conclusions 

Matter for 

Congressional 

Consideration 
 

Page 22 GAO-12-38 Temporary Medicaid Funding Formula 

We provided a draft of this report for review to the Department of Health 

and Human Services (HHS). HHS on behalf of the Centers for Medicare 

& Medicaid Services (CMS) and the Office of the Assistant Secretary for 

Planning and Evaluation (ASPE) provided written comments on the draft, 

which are reprinted in appendix V. 

CMS officials stated that they agreed with the analysis and goals of the 

report, and they emphasized the importance of aligning changes to the 

FMAP formula as closely as possible to individual state circumstances in 

order to avoid unintended consequences for beneficiaries and to provide 

budget planning stability for states. However, they stated that the 

complexity of the prototype formula we present may be difficult for states 

and the federal government to implement, and the quarter-to-quarter 

variability of the increased FMAP could present challenges for state and 

federal budget planning. We note that the level of complexity and 

variability in our prototype is comparable to the increased FMAP provided 

under the Recovery Act. While there are inherent trade-offs between 

precision and complexity in any model, a certain level of complexity is 

necessary to achieve the goal of better targeting assistance in order to 

align the level of funding with individual state circumstances. 

CMS officials also stated that they do not recommend using the formula 

to provide general fund relief to states through the Medicaid program. Our 

prototype formula is designed for state Medicaid needs only. However, 

since Congress has used the increased FMAP for general fund relief in 

the past, most recently under the Recovery Act, we present several 

modifications that would permit increased funding to states for general 

fund relief. 

In their comments, ASPE officials noted that the prototype formula is 

designed for a national recession that impacts many states, but it does 

not deal with more regional economic declines or slower recoveries that 

are geographically concentrated. We agree that our prototype formula 

was not designed for economic downturns limited to an individual state or 

group of states, and we note this limitation in the report. As the mandate 

specifically called for recommendations to address the needs of states 

during periods of national economic downturn, such an analysis is beyond 

the scope of this report. 

Agency Comments 

and Our Evaluation 
 

Page 23 GAO-12-38 Temporary Medicaid Funding Formula 

ASPE officials also commented that having an automatic trigger for the 

temporary increased FMAP was a good idea. Further, ASPE agreed that 

our use of the employment-to-population ratio (EPOP) is a better 

measure for beginning assistance than the unemployment rate because 

the EPOP ratio reflects both unemployed and discouraged workers. 

ASPE officials also suggested that the EPOP ratio may be a better 

measure than unemployment for assessing state need and targeting 

assistance. We relied in part on unemployment for targeting, however, 

because there is an established relationship between changes in the 

unemployment rate and Medicaid enrollment. 

ASPE officials also noted that the relationship between unemployment 

and Medicaid enrollment may change in the future following full 

implementation of the Patient Protection and Affordable Care Act of 2010 

(PPACA). We agree that the implementation of this act will have 

implications for the relationship between unemployment and Medicaid 

enrollment, particularly since an estimated 18 million additional individuals 

could qualify for Medicaid under PPACA. Such an analysis, however, was 

beyond the scope of our report, but formula elements could be adjusted 

to take these changes and effects into account. 

In their comments, ASPE officials also offered several considerations to 

guide policy choices regarding appropriate thresholds for timing and 

targeting of funds. We would note that in the development of our 

prototype formula and our illustrative simulations, we made a number of 

choices about specific elements of the formula design, including 

thresholds for timing and targeting. Alternatives to those design choices—

such as those we present in appendix II of our report––involve balancing 

the advantages of one choice against another. 

We are sending copies of this report to the Secretary of HHS, the 

Administrator of the Centers for Medicare & Medicaid Services, and other 

interested parties. In addition, the report will be available at no charge on 

the GAO Web site at http://www.gao.gov. 
 

Page 24 GAO-12-38 Temporary Medicaid Funding Formula 

If you or your staffs have questions about this report, please contact 

Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov or Thomas J. 

McCool at (202) 512-2642 or mccoolt@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. Major contributors to this report are listed in 

appendix VI. 

Carolyn L. Yocom 

Director, Health Care 

Thomas J. McCool 

Director, Center for Economics 
Page 25 GAO-12-38 Temporary Medicaid Funding Formula 

List of Committees 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Thad Cochran 

Vice Chairman 

Committee on Appropriations 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Orrin G. Hatch 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Joseph I. Lieberman 

Chairman 

The Honorable Susan M. Collins 

Ranking Member 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable Harold Rogers 

Chairman 

The Honorable Norman D. Dicks 

Ranking Member 

Committee on Appropriations 

House of Representatives 

The Honorable Fred Upton 

Chairman 

The Honorable Henry A. Waxman 

Ranking Member 

Committee on Energy and Commerce 

House of Representatives 

The Honorable Darrell Issa 

Chairman 

The Honorable Elijah E. Cummings 

Ranking Member 

Committee on Oversight and Government Reform 

House of Representatives 
Appendix I: Scope and Methodology 

Page 26 GAO-12-38 Temporary Medicaid Funding Formula 

To evaluate the performance of the prototype formula, we examined the 

timing and targeting of the formula, and we simulated its application over 

the period of the most recent national economic downturn. We also 

considered the effects of using alternative design choices, and these are 

discussed in appendix II. 

Our prototype formula relies on changes in the employment-to-population 

(EPOP) ratio to identify the start of a national economic downturn, and to 

provide a trigger for a targeted temporary increase in states’ Federal 

Medical Assistance Percentage (FMAP). We define the EPOP ratio as the 

ratio of the number of jobs to the working-age population aged 16 and 

older. Employment data are represented by the number of jobs by state, 

and come from the Bureau of Labor Statistics’ Current Employment 

Statistics.1

To simulate the use of the EPOP ratio to identify the start of a national 

economic downturn and trigger temporary FMAP assistance, we 

calculated a 3-month moving average of the EPOP ratio starting in March 

1977 through May 2011 for each state and the District of Columbia.2

 This 

time period covered the last five national recessions as defined by the 

National Bureau of Economic Research (NBER). To calculate the decline 

in EPOP, we subtracted the EPOP 3-month moving average for a given 

month from the average for the same month in the preceding year. For 

example, for each state, the EPOP ratio’s 3-month moving average for 

May 2011 was subtracted from the average for May 2010. We identified a 

threshold number of states with declining EPOP ratios that was consistent 

with the start of each of the last five NBER recessions. Our prototype 

formula is designed to provide assistance during periods of national 

economic downturn; it is not designed for economic downturns limited to 

an individual state or region. 

 

1

Specifically, data on the number of jobs by state come from State and Metro Area 

Employment, Hours, & Earnings from the Bureau of Labor Statistics. Data for the workingage population by state come from the Local Area Unemployment Statistics from the 

Bureau of Labor Statistics. These data are available with a 2-month lag. For example, 

state employment and population data for July are available by the end of August. 

2

For any month, the 3-month moving average is calculated as the average of that month 

and the values in the 2 preceding months. A moving average (sometimes called a “rolling 

average”) is a calculation used to smooth fluctuations in data. 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 27 GAO-12-38 Temporary Medicaid Funding Formula 

To simulate the targeting of temporary increased FMAP assistance to 

states, we calculated increased FMAPs under our prototype formula 

during the most recent national economic downturn. (The period of 

targeted increases in FMAPs is defined by the EPOP “trigger.”) As 

outlined in our March 2011 report, we used increases in states’ 

unemployment rates and declines in states’ wages and salaries as 

indicators of states’ increased funding needs for Medicaid. The increased 

needs result from (1) increased Medicaid enrollments as people are 

affected by the economic downturn and become eligible for Medicaid; and 

(2) states’ revenue losses, which affect their ability to fund their share of 

Medicaid. To avoid taking into account states’ choices regarding Medicaid 

policies and procedures, we used increases in state unemployment rates 

as a proxy to indicate Medicaid enrollment growth attributable to the 

economic downturn—our unemployment component. Similarly, to avoid 

taking into account state policy choices (e.g., statutory tax rates), we used 

decreases in wages and salaries as a proxy to indicate revenue losses 

attributable to effects of the economic downturn—our wage and salary 

component. 

Our calculation of targeted assistance to every state is done on a 

quarterly basis, and the total increase in FMAP is the sum of amounts 

calculated separately under the unemployment component, and the wage 

and salary component. The overall method involves first selecting for 

each state a “base quarter” from which increases in unemployment and 

decreases in wages and salaries are calculated. While individual states 

may experience many factors or trends that contribute to increases or 

decreases in their unemployment rate or wages and salaries, such as 

changes over time in the mix of industries in a state, we determined that 

accounting for such factors for each state would make the prototype 

formula too complex. Thus, the formula is based on the assumption that 

all increases in unemployment or decreases in wages during the period of 

assistance are attributed to the effects of the economic downturn. 

For the unemployment component, when the program is triggered on, a 

base quarter is identified for each state by looking back over 8 quarters 

from the current quarter and selecting the quarter with the lowest 

unemployment rate.3

 For the first 8 quarters of the program, the amount 

 

3

The state unemployment rates by quarter are calculated by dividing a 3-month average 

of the seasonally adjusted number of persons unemployed by a comparable 3-month 

average number in the labor force. Data are from the BLS’ Local Area Unemployment 

Statistics. 
Appendix I: Scope and Methodology 

Page 28 GAO-12-38 Temporary Medicaid Funding Formula 

of assistance for each quarter is calculated based on the difference 

between the unemployment rate in this low base quarter and the rate in 

the current quarter. After the first 8 quarters of assistance, the state’s 

increase in unemployment is calculated using the unemployment rate in 

the current quarter minus the lowest unemployment rate in the previous 8 

quarters. As shown in figure 8, the start of the look-back period remains 

fixed for the first 8 quarters of assistance; thereafter, the look-back period 

is limited to the prior 8 quarters. For example, in the fourth quarter of 

2009, the look-back period extends for 15 quarters; however, beginning in 

the first quarter of 2010, the look-back period is limited to the prior 8 

quarters. 

Figure 8: Look-back period for Calculation of Unemployment-based and Wagebased Federal Medical Assistance Percentage Increases 

Under the unemployment component of the prototype, the increase in 

unemployment provides states with a reduction in their financial 

contribution for Medicaid that is proportional to their increase in 

unemployment over the base quarter. A 1.0 percentage point increase in 

a state’s unemployment rate corresponds to an increase in Medicaid 
Appendix I: Scope and Methodology 

Page 29 GAO-12-38 Temporary Medicaid Funding Formula 

enrollment, which produces a 1 percent increase in state Medicaid 

spending.4

 As shown in the formula below, the unemployment-based 

FMAP increase (FMAP increaseU) for a given quarter is the product of the 

state share of Medicaid (100-FMAP) and the change in the 

unemployment rate (UR). 

 FMAP increaseU = (100-FMAP) * ΔUR 

For example, under our prototype formula, a 10 percentage point 

increase in the unemployment rate would result in a 10 percent decrease 

in the state share of Medicaid. If a state had a 60 percent FMAP, and a 

40 percent state share, the state share would fall by 4 percentage points 

(40 percent multiplied by 10 percent) to 36 percent, and commensurately 

its FMAP would rise to 64 percent. 

For the prototype formula’s wages and salaries component, the base 

quarter is again found for each state by looking back over eight quarters 

when the temporary assistance begins. The base quarter selected is the 

quarter with the peak value in wages and salaries. For the first eight 

quarters of the program, the amount of assistance for each quarter is 

calculated based on the difference between the total state wages and 

salaries in the peak quarter and the total state wages and salaries in the 

current quarter. After the first eight quarters of assistance, the state’s 

decrease in wages and salaries is calculated using the peak total wages 

and salaries in the previous eight quarters minus the wages and salaries 

in the current quarter. As with the unemployment component, the start of 

the look-back period remains fixed for the first eight quarters of 

assistance; thereafter, the look-back period is limited to the prior eight 

quarters. 

Our prototype formula provides states with a separate reduction in their 

financial contribution for Medicaid that is proportional to their decrease in 

wages and salaries during the economic downturn. This component is 

 

4

J. Holahan and A. Garrett, “Rising Unemployment, Medicaid and the Uninsured,” Kaiser 

Commission on Medicaid and the Uninsured (Washington, D.C.: January 2009). Holahan 

and Garrett report that a 1 percentage point increase in the unemployment rate is 

associated with about a $1.5 billion increase in the state share of Medicaid spending, 

which is about 1.0 percent increase in state spending on Medicaid. 
Appendix I: Scope and Methodology 

Page 30 GAO-12-38 Temporary Medicaid Funding Formula 

based on evidence showing a 1 percent decrease in total state wages 

and salaries corresponds to a 1 percent decrease in state tax revenues.5

For the purposes of our formula we assume a reduction in state tax 

revenues corresponds to an equal percent reduction in the funds 

available for funding the state share of Medicaid. The total state wage 

and salary amount used to calculate assistance for a given quarter is the 

total wage and salary amount for that quarter compared to the highest 

wage and salary level in the prior eight quarters, expressed as a percent 

change.6

 As shown in the formula below, the wage-based FMAP increase 

(FMAP increaseW) for a given quarter is the product of the state share of 

Medicaid (100-FMAP) and the percent change in total state wages and 

salaries (%ΔW). 

 FMAP increaseW = (100-FMAP) * %ΔW

For example, under our formula, a 20 percent decline in state wages and 

salaries would result in a 20 percent decrease in the state share of 

Medicaid. If a state had a 60 percent FMAP, and therefore a 40 percent 

state share, the state share would fall by 8 percentage points (40 percent 

multiplied by 20 percent) to 32 percent, and its FMAP would rise to 

68 percent. 

To simulate the use of the prototype formula to end temporary FMAP 

assistance, we examined the EPOP ratio to determine when program 

assistance would stop. If the number of states having declining ratios falls 

below a threshold level (26) for 2 consecutive months, the FMAP 

assistance would end in the following quarter. While the EPOP test 

employed to initiate temporary FMAP assistance is also used to end it, 

the ending of assistance is not comparable to the NBER dates of the end 

of a recession. In the five past national recessions we examined, the 

 

5

GAO, State and Local Governments: Knowledge of Past Recessions Can Inform Future 

Federal Fiscal Assistance, GAO-11-401 (Washington, D.C.: Mar. 31, 2011), pp. 48-49. 

6

The data for state wages and salaries by quarter are expressed in real dollars by dividing 

Bureau of Economic Analysis (BEA) quarterly wage and salary disbursements by the BEA 

implicit price deflator for gross domestic product. The wages and salaries are a 

component of BEA State Quarterly Personal Income and the deflator is from the National 

Income and Product Accounts. 
Appendix I: Scope and Methodology 

Page 31 GAO-12-38 Temporary Medicaid Funding Formula 

EPOP test would end assistance after the NBER-designated economic 

recovery began. This is appropriate because, as indicated in our March 

2011 report, state Medicaid needs persist into the early stages of 

recovery. 

In the case of the automatic trigger to start and stop the temporary 

assistance to states, increased FMAP payments to states would begin in 

the first calendar quarter following the quarter in which the EPOP 

measure indicated the start of a economic downturn, and the last quarter 

of payment would be the first calendar quarter following the quarter in 

which the EPOP threshold was no longer met. In the case of the targeted 

assistance to states, for the purposes of our simulation we did not build in 

any delay between the availability of data and the calculation of increased 

FMAPs. For example, although unemployment and wage and salary data 

both become available with a delay of up to several months, we used 

state unemployment and wage data for the first quarter of 2008 to 

calculate the increased FMAP for the same quarter in our simulation. 

Given the lag time associated with the availability of unemployment and 

wage data, it may be advisable to calculate preliminary FMAPs based on 

the most recent quarterly data available, and then to calculate final 

FMAPs for that quarter when final data for the quarter are published. 
Appendix II: Some Design Elements in the 

Prototype Formula and Alternatives 

Page 32 GAO-12-38 Temporary Medicaid Funding Formula 

In the development of our prototype formula for increased Federal 

Medical Assistance Percentages (FMAP) during national economic 

downturns, we made a number of choices about specific elements of the 

formula design. Alternatives to those design choices involve balancing the 

advantages of one choice against those of another. For example, a 

design alternative that would lessen the quarter-to-quarter variation in 

FMAPs would also lessen the formula’s responsiveness to quarterly 

changes in economic conditions. Thus, there is a trade-off between 

establishing an increased FMAP that has relatively greater stability and 

predictability and FMAPs that are reflective of states’ current economic 

conditions. 

Table 2 presents a selection of formula design features contained in our 

prototype formula and presents some alternatives. With each alternative, 

there is a discussion of key considerations involved in making that choice. 

Appendix II: Some Design Elements in the 

Prototype Formula and Alternatives 
Appendix II: Some Design Elements in the 

Prototype Formula and Alternatives 

Page 33 GAO-12-38 Temporary Medicaid Funding Formula 

Table 2: Choices of Formula Design Elements Contained in GAO Prototype Formula and Alternatives 

Formula design 

element Choice contained in prototype formula 

Alternative choices and some considerations involved in 

the choice 

Choice of thresholds 

for starting 

assistance 

Under our prototype formula, the assistance 

period begins when 26 states have declining 

employment-to-population ratios (EPOPs) 

over 2 consecutive months. 

To provide greater assurance that a national recession has 

begun, the threshold number of states could be set higher than 

26 states (e.g., 40 states), or the number of consecutive months 

with a declining EPOP could be increased (e.g., to 4 months). 

However, the higher threshold could delay the triggering of 

assistance. Retroactive assistance for a quarter or two could 

make up for the amount of funding that was delayed due to the 

higher threshold, but could not make up for the delay in 

receiving the assistance 

Choice of thresholds 

for targeting 

When the assistance period begins, our 

prototype formula relies on an eight-quarter 

look back to identify a state’s minimum 

unemployment rate, and maximum wage 

and salary quarter. 

The look-back period for calculating changes in unemployment 

and changes in wages and salaries could be shortened. A 

shorter look-back period (e.g., four quarters) would miss the low 

point of unemployment of states that enter an economic 

downturn relatively early, and thus would provide them with less 

assistance and reduce the overall cost of the program. The 

reverse is true of a longer look-back period; it provides more aid 

to states entering an economic downturn early, and it would 

increase the overall cost of the program. 

Method of calculating 

quarterly increased 

FMAP 

Unemployment-based and wage-based 

FMAP increases are recalculated and 

adjusted quarterly during the assistance 

period. 

Quarterly wage and unemployment data can be somewhat 

volatile for some states. Our simulation results showed some 

instances of states having quarter-to-quarter changes in their 

FMAPs of more than 1.0 percentage point. While quarterly data 

provide a more timely response to changing economic 

conditions, they are also more prone to fluctuations. If 

fluctuations in quarterly FMAPs are seen as undesirable for 

purposes of state program planning and administration, a rule 

could be used to moderate those changes. For example, the 

formula could have a rule constraining the size of quarterly 

changes in FMAPs to not more than a 1 percentage point 

increase or decrease. Alternatively, the fluctuations could be 

reduced by basing the calculations on smoothed data. For 

example, the quarterly unemployment rates used could be 6- or 

12-month rolling averages of those data. Such a rolling average 

provides quarterly data that are the average of the 6 or 12 most 

recent months, and are much more stable than data that are a 

3-month average. 

Level of state need For targeting, our prototype formula 

provides full funding for state Medicaid 

needs (due to increased enrollment and 

decreased revenues). 

Rather than base funding on estimates of Medicaid expenditure 

needs alone, the formulas could be scaled up or down. 

Congress could scale up assistance to help address broader 

state budgetary needs due to declining revenues and to forestall 

state retrenchment during a period of downturn. Alternatively, 

Congress could reduce the cost of the program by scaling down 

assistance by providing only a percentage of funding for state 

Medicaid needs. Proportional scaling of the assistance would 

still maintain targeting that is proportional to states’ needs for 

Medicaid funding. 
Appendix II: Some Design Elements in the 

Prototype Formula and Alternatives 

Page 34 GAO-12-38 Temporary Medicaid Funding Formula 

Formula design 

element Choice contained in prototype formula 

Alternative choices and some considerations involved in 

the choice 

Choice of thresholds 

for ending assistance 

Under our prototype formula, the temporary 

assistance ends when fewer than 26 states 

show declining EPOPs over 2 consecutive 

months. 

A threshold of more than 26 states with a declining EPOP could 

be used to end assistance earlier. There are fewer quarters 

during a downturn when a very high number of states show 

declining EPOPs. Thus, raising the threshold number of states 

would mean that there are fewer quarters of the program of 

additional FMAP to states. Conversely, a lower threshold 

number of states would have the program run for more quarters. 

Also, a program that is longer in duration would provide 

somewhat more assistance to states that enter an economic 

downturn later than most other states. Further, by changing the 

duration of the temporary assistance, the overall budgetary cost 

of the program would be changed, along with changing when 

states would need to rely on their own resources. 

A second parameter that could be adjusted is the rule of 2 

consecutive months. Increasing the number of consecutive 

months would provide somewhat greater assurance that state 

economies were consistently improving month by month. 

Because economic recovery may not show consistent 

improvement in every month, a premature shutdown of the 

program is a risk. Congress could make the decision to override 

the automatic shutdown on the basis of considerations not 

factored into the EPOP trigger, such as the depth and duration 

of economic downturn, the pace of recovery, federal and state 

government budgetary situations, and other considerations 

Method of ending 

temporary assistance 

For ending assistance with a phased 

reduction of increases, our prototype 

calculates the targeted assistance using a 

floating look-back period. After the first eight 

quarters of assistance, the look-back period 

is constrained to not exceed eight quarters. 

While the eight-quarter floating look-back period provides some 

lessening of assistance in the later quarters, some states are still 

likely to face sizeable drops (“cliffs”) in their FMAP when the 

program ends. To ensure that no state experiences a sharp 

decline in their temporary increased FMAP at the end of the 

assistance period, a phase-out rule could constrain the quarterly 

drop in FMAP. For example, a rule could provide that a state’s 

quarter-to-quarter decrease in FMAP would be capped at 

0.5 percentage points. Such a rule would provide a stepped 

phase out of assistance for all states and a longer phase out for 

those states facing a larger drop in their FMAP when the 

program ends. 

Source: GAO. 
Appendix II: Some Design Elements in the 

Prototype Formula and Alternatives 

Page 35 GAO-12-38 Temporary Medicaid Funding Formula 

Table 3 describes two additional adjustments that were not included in 

our prototype formula, but could be applied. 

Table 3: Choices of Formula Design Elements Not Contained in GAO Prototype Formula that could be Applied 

Additional adjustment Description 

Method of financing The general characteristics of the assistance program could also be adjusted to approximate budget 

neutrality. While our current prototype formula automatically triggers on and off based on economic 

downturns, it does not make adjustments for stronger economic times. However, just as states 

experience increased enrollment and decreased revenues during a downturn, they can experience the 

opposite effect during stronger economic times—decreased Medicaid enrollment and increased 

revenues. Thus, the FMAP could be adjusted for targeted increases during economic downturns, and 

targeted decreases during a stronger economy. 

Enhanced targeting The amount of increased assistance based on increased Medicaid enrollment could be adjusted to 

take into account the unemployment rate instead of being based solely on the change in the 

unemployment rate. Currently, our prototype formula increases states’ FMAPs based on the change in 

their unemployment rate. Under this enhanced targeting option, states with higher unemployment rates 

would receive more assistance than states with lower unemployment rates even if the change in the 

unemployment rate were the same. For example, a state with a 2 percent unemployment rate that 

increased to 4 percent would receive less assistance than a state whose unemployment increased 

from 6 to 8 percent. Another alternative would be to establish an unemployment rate floor for 

assistance. The unemployment rate would have to be above a specified level for the state to receive 

any additional assistance. This approach reflects a different policy goal than that provided under our 

prototype formula in that it provides assistance to states that may have consistently high 

unemployment. 

Source: GAO. 
Appendix III: The Recovery Act’s Across-theboard and Hold-harmless Provisions Were Not 

Targeted for States’ Medicaid Needs 

Page 36 GAO-12-38 Temporary Medicaid Funding Formula 

The across-the-board and hold-harmless provisions of the American 

Recovery and Reinvestment Act of 2009 (Recovery Act) did not provide a 

needs-based method for targeting Medicaid assistance to states during 

an economic downturn. Because these provisions did not distinguish 

among states that experienced varying degrees of increased 

unemployment or decreased wages and salaries during an economic 

downturn, they are not included in our prototype formula. 

The largest share of total assistance to states under the Recovery Act 

was the 6.2 percentage point across-the-board FMAP increase that each 

state received. However, because states are not equally affected by 

national economic downturns an equal FMAP increase does not address 

variable state Medicaid funding needs. Furthermore, as we discussed in 

our March report, equal percentage point changes in FMAPs do not result 

in equal percent reductions in state contributions for Medicaid. States with 

higher regular FMAPs received a disproportionately large reduction in 

their state contribution for Medicaid under the across-the-board provision. 

For example, during the fourth quarter of assistance under the Recovery 

Act, Nevada—a low FMAP state—had a 7.1 percentage point increase in 

unemployment and a 27.9 percent decline in the state share of Medicaid, 

while Arkansas—a high FMAP state—experienced a 2.1 percentage point 

increase in unemployment, but a similar 28.1 percent decline in state 

share.1

 

1

For more detail on the across-the-board provision in the Recovery Act see GAO, 

Medicaid: Improving Responsiveness of Federal Assistance to States during Economic 

Downturns, GAO-11-395 (Washington, D.C.: Mar. 31, 2011), p. 25. 

Appendix III: The Recovery Act’s Across-theboard and Hold-harmless Provisions Were 

Not Targeted for States’ Medicaid Needs 

The Recovery Act’s Acrossthe-board Provision Did 

Not Reflect the Variation 

among States in the Effect 

of the Economic Downturn 
Appendix III: The Recovery Act’s Across-theboard and Hold-harmless Provisions Were Not 

Targeted for States’ Medicaid Needs 

Page 37 GAO-12-38 Temporary Medicaid Funding Formula 

Under the hold-harmless provision of the Recovery Act, each state’s 

regular FMAP rate was held to the state’s highest rate since fiscal year 

2008, regardless of changes in the state’s per capita income (PCI).2

 As a 

result, the largest FMAP increases due to the hold-harmless provision 

went to the states with the greatest improvements in their underlying 

economic condition, as measured by PCI, relative to the national average. 

Furthermore, states with both higher unemployment and rising 

unemployment tended to receive the least benefit from the hold-harmless 

provision. As shown in table 4, many states that benefited from the 

Recovery Act hold-harmless provision often had relative increases in their 

PCI compared to the national average, while some states that had little or 

no increase in PCI received little, if any, benefit from the hold-harmless 

provision. 

 

2

The regular FMAP is calculated using the following formula: FMAPstate=1-

((PCIstate)

2

/(PCIU.S.)2*0.45). Under the regular FMAP formula, a state’s FMAP is adjusted 

annually based on changes to its per capita personal income. If a state’s economic 

condition as measured by per capita personal income in preceding years showed 

improvement relative to the national average, its FMAP will be reduced. For federal fiscal 

year 2011, the regular FMAP for states ranged from 50.00 percent to 74.73 percent. By 

statute, the minimum regular FMAP for a state is 50 percent and the maximum is 

83 percent. The District of Columbia is not subject to this formula and instead by law has 

its FMAP set at 70 percent. 

The Recovery Act’s Holdharmless Provision Was 

Not Targeted for Variable 

State Needs 
Appendix III: The Recovery Act’s Across-theboard and Hold-harmless Provisions Were Not 

Targeted for States’ Medicaid Needs 

Page 38 GAO-12-38 Temporary Medicaid Funding Formula 

Table 4: Hold-harmless FMAP Increases and Economic Variables, by State in Descending Order of FMAP Increase 

State 

FMAP increase due to 

hold-harmless 

provision (2011, Qtr 1) 

Percentage change in 

3-year average per capita 

income (PCI) from 

2003-05 to 2006-08, 

relative to U.S. average

Unemployment rate 

(3-month average 

ending Sept. 2010) 

Increase in 

unemployment rate 

(3-month average 

ending Sept. 2010 

compared to lowest 

3-month average

since Jan. 2006) 

Median of all states 0.12 0.0% 8.7 4.5

Louisiana 8.86 7.7% 7.5 3.8

Hawaii 4.71 4.0% 6.4 4.1

North Dakota 3.40 3.2% 3.7 0.8

Alaska 2.48 2.1% 7.7 1.8

Oklahoma 2.16 4.0% 6.9 3.7

Nebraska 2.12 -2.1% 4.7 1.9

Montana 1.72 1.8% 7.4 4.2

New Mexico 1.57 1.6% 8.2 4.8

Arkansas 1.57 0.9% 7.5 2.7

Mississippi 1.56 0.2% 10.2 4.1

Washington 1.52 1.1% 9.0 4.6

South Dakota 1.47 -1.5% 4.4 1.7

Florida 1.38 0.3% 11.7 8.4

Kansas 1.33 1.1% 6.5 2.6

Missouri 1.22 -2.3% 9.3 4.6

Maine 1.19 -2.4% 7.9 3.4

Nevada 1.03 -0.9% 14.4 10.2

Idaho 1.02 0.0% 8.9 6.2

West Virginia 1.01 1.3% 8.8 4.9

Iowa 0.88 -0.9% 6.8 3.2

Vermont 0.74 0.2% 5.9 2.3

Utah 0.55 0.2% 7.4 4.9

North Carolina 0.42 -1.8% 9.7 5.2

Arizona 0.35 -0.5% 9.7 6.0

South Carolina 0.28 -1.2% 10.9 5.4

Illinois 0.12 -0.7% 10.1 5.7

Wisconsin 0.05 -2.5% 7.8 3.5

Texas 0.00 1.4% 8.2 3.9

Pennsylvania 0.00 -0.4% 9.1 4.9

Alabama 0.00 -0.1% 9.2 5.9
Appendix III: The Recovery Act’s Across-theboard and Hold-harmless Provisions Were Not 

Targeted for States’ Medicaid Needs 

Page 39 GAO-12-38 Temporary Medicaid Funding Formula 

State 

FMAP increase due to 

hold-harmless 

provision (2011, Qtr 1) 

Percentage change in 

3-year average per capita 

income (PCI) from 

2003-05 to 2006-08, 

relative to U.S. average

Unemployment rate 

(3-month average 

ending Sept. 2010) 

Increase in 

unemployment rate 

(3-month average 

ending Sept. 2010 

compared to lowest 

3-month average

since Jan. 2006) 

Rhode Island 0.00 -0.9% 11.7 6.8

Kentucky 0.00 -1.9% 10.0 4.5

Oregon 0.00 -2.4% 10.6 5.6

Tennessee 0.00 -2.4% 9.6 5.0

Delaware 0.00 -2.8% 8.4 5.0

Georgia 0.00 -3.6% 9.9 5.5

Ohio 0.00 -3.7% 10.2 4.9

Indiana 0.00 -4.2% 10.2 5.7

Michigan 0.00 -6.8% 13.1 6.4

States excluded from the hold–harmless because of unchanged FMAPSa

Wyoming 0.00 10.6% 6.8 4.1

District of Columbia 0.00 6.7% 9.9 4.5

New York 0.00 5.5% 8.3 4.0

Connecticut 0.00 2.8% 9.1 4.8

New Jersey 0.00 1.9% 9.6 5.5

Massachusetts 0.00 1.9% 8.7 4.3

Virginia 0.00 0.6% 6.9 4.1

California 0.00 0.6% 12.4 7.6

Maryland 0.00 0.2% 7.3 3.8

Colorado 0.00 -0.9% 8.1 4.5

New Hampshire 0.00 -1.2% 5.7 2.3

Minnesota 0.00 -2.1% 7.0 3.1

Source: Department of Health and Human Services, Bureau of Economic Analysis, and Bureau of Labor Statistics. 

a

Eleven states and the District of Columbia did not qualify for the hold-harmless provision. These are 

states whose Federal Medical Assistance Percentage (FMAP) is at the 50 percent floor each year for 

fiscal year 2008 through fiscal year 2011, and the District of Columbia whose FMAP is fixed at 

70 percent. By statute, the minimum regular FMAP for a state is 50 percent. (The District of Columbia 

is not subject to this formula and instead by law has its FMAP set at 70 percent.) 

During the first quarter of 2011, 9 of the 10 states that received the 

largest FMAP increases due to the hold-harmless provision had rising 

PCIs relative to the national average. For example, Hawaii, which had a 

4.0 percent increase in its PCI, received a FMAP increase of 

4.71 percentage points. Conversely, 11 of the 12 states that received no 

benefit from the hold-harmless provision in the first quarter of 2011 had 
Appendix III: The Recovery Act’s Across-theboard and Hold-harmless Provisions Were Not 

Targeted for States’ Medicaid Needs 

Page 40 GAO-12-38 Temporary Medicaid Funding Formula 

declining per capita incomes relative to the national average. In addition, 

states with the greatest recession-related needs, such as high and rising 

unemployment rates tended to receive the least benefit from the holdharmless provision. For example, Michigan received no benefit from the 

hold-harmless provision despite a much worse economic condition 

relative to other states: a 13.1 percent unemployment rate and a 

6.4 percent increase in its unemployment. 
Appendix IV: Temporary Increased FMAP Data 

by State, GAO Prototype Formula 

Page 41 GAO-12-38 Temporary Medicaid Funding Formula 

Table 5: Temporary Increased Federal Medical Assistance Percentage (FMAP) by Component and State, GAO Prototype 

Formula, 2009, Fourth Quarter 

Simulated increases in FMAP 

 Based on changes in 

States 

Change in 

unemployment 

(2009, Qtr 4) 

% Change in wages 

(2009, Qtr 4) FY 2010 FMAP

Unemployment 

rate Wages Total change

Alabama 7.1 -6.0 68.01 2.27 1.90 4.18

Alaska 2.2 0.0 51.43 1.07 0.00 1.07

Arizona 6.8 -10.1 65.75 2.33 3.47 5.80

Arkansas 2.9 -6.4 72.78 0.79 1.76 2.54

California 7.4 -8.4 50.00 3.70 4.21 7.91

Colorado 5.1 -6.0 50.00 2.55 2.98 5.53

Connecticut 4.5 -7.3 50.00 2.25 3.65 5.90

Delaware 5.2 -8.5 50.21 2.59 4.22 6.81

District of Columbia 4.9 0.0 70.00 1.47 0.00 1.47

Florida 7.8 -9.6 54.98 3.51 4.32 7.83

Georgia 6.0 -8.2 65.10 2.09 2.86 4.95

Hawaii 4.7 -5.3 54.24 2.15 2.43 4.58

Idaho 6.0 -8.9 69.40 1.84 2.73 4.56

Illinois 6.6 -8.3 50.17 3.29 4.13 7.42

Indiana 6.1 -7.7 65.93 2.08 2.61 4.69

Iowa 2.4 -4.1 63.51 0.88 1.49 2.37

Kansas 3.3 -4.8 60.38 1.31 1.91 3.22

Kentucky 5.4 -4.0 70.96 1.57 1.15 2.72

Louisiana 3.4 -4.0 67.61 1.10 1.30 2.40

Maine 3.8 -4.4 64.99 1.33 1.55 2.88

Maryland 4.1 -2.5 50.00 2.05 1.24 3.29

Massachusetts 4.4 -6.4 50.00 2.20 3.22 5.42

Michigan 7.2 -13.0 63.19 2.65 4.78 7.43

Minnesota 4.0 -7.6 50.00 2.00 3.78 5.78

Mississippi 4.7 -5.6 75.67 1.14 1.37 2.52

Missouri 5.0 -8.2 64.51 1.77 2.91 4.69

Montana 3.8 -4.0 67.42 1.24 1.31 2.55

Nebraska 2.2 -2.9 60.56 0.87 1.15 2.02

Nevada 10.1 -17.3 50.16 5.03 8.64 13.68

New Hampshire 3.3 -7.2 50.00 1.65 3.62 5.27

New Jersey 5.5 -7.2 50.00 2.75 3.60 6.35

Appendix IV: Temporary Increased FMAP 

Data by State, GAO Prototype Formula 
Appendix IV: Temporary Increased FMAP Data 

by State, GAO Prototype Formula 

Page 42 GAO-12-38 Temporary Medicaid Funding Formula 

Simulated increases in FMAP 

 Based on changes in 

States 

Change in 

unemployment 

(2009, Qtr 4) 

% Change in wages 

(2009, Qtr 4) FY 2010 FMAP

Unemployment 

rate Wages Total change

New Mexico 4.5 -3.6 71.35 1.29 1.04 2.33

New York 4.6 -9.0 50.00 2.30 4.50 6.80

North Carolina 6.6 -6.6 65.13 2.30 2.30 4.60

North Dakota 1.4 0.0 63.01 0.52 0.00 0.52

Ohio 5.2 -8.5 63.42 1.90 3.12 5.02

Oklahoma 4.0 -5.4 64.43 1.42 1.91 3.34

Oregon 6.0 -8.6 62.74 2.24 3.19 5.43

Pennsylvania 4.4 -3.2 54.81 1.99 1.43 3.42

Rhode Island 6.8 -6.4 52.63 3.22 3.02 6.24

South Carolina 6.3 -6.1 70.32 1.87 1.81 3.68

South Dakota 2.4 -2.5 62.72 0.89 0.91 1.81

Tennessee 5.9 -7.8 65.57 2.03 2.67 4.70

Texas 3.8 -4.8 58.73 1.57 1.99 3.55

Utah 5.3 -5.9 71.68 1.50 1.67 3.18

Vermont 3.1 -2.9 58.73 1.28 1.18 2.46

Virginia 4.2 -2.5 50.00 2.10 1.23 3.33

Washington 5.4 -4.8 50.12 2.69 2.38 5.07

West Virginia 4.7 -2.8 74.04 1.22 0.73 1.95

Wisconsin 4.7 -6.5 60.21 1.87 2.58 4.45

Wyoming 5.1 -8.5 50.00 2.55 4.25 6.80

Source: GAO. 
Appendix IV: Temporary Increased FMAP Data 

by State, GAO Prototype Formula 

Page 43 GAO-12-38 Temporary Medicaid Funding Formula 

Table 6: Temporary Increased Federal Medical Assistance Percentage (FMAP) by 

Quarter and State, GAO Prototype Formula, 2008 to 2009 

Simulated increases 

in FMAPs 

Simulated increases 

in FMAPs 

State 

Postal 

code 

FMAP 

FY 2008

2008 

Qtr 1

2008 

Qtr 2

2008 

Qtr 3

FMAP 

FY 2009 

2008 

Qtr 4 

2009 

Qtr 1

2009 

Qtr 2

2009 

Qtr 3

AL 67.62 0.23 0.66 1.22 67.98 1.94 3.57 3.74 4.07

AK 52.48 0.10 0.14 0.24 50.53 0.35 0.77 0.84 1.04

AZ 66.20 0.27 1.23 2.26 65.77 3.10 4.73 5.20 5.81

AR 72.94 1.10 1.05 1.43 72.81 1.66 1.85 2.50 2.54

CA 50.00 0.90 1.52 2.65 50.00 4.20 6.31 7.11 7.96

CO 50.00 0.35 0.78 1.40 50.00 2.65 4.42 5.53 5.62

CT 50.00 0.30 1.19 1.95 50.00 2.89 5.97 5.45 6.03

DE 50.00 0.81 1.82 2.88 50.00 3.53 5.64 6.31 6.39

DC 70.00 0.09 0.76 1.17 70.00 0.90 1.71 1.27 1.56

FL 56.83 1.22 2.26 3.51 55.40 4.72 6.69 6.99 7.71

GA 63.10 0.33 1.13 1.93 64.49 2.56 4.15 4.37 4.95

HI 56.50 0.35 1.09 2.20 55.11 2.73 4.03 3.95 4.55

ID 69.87 0.64 1.13 1.99 69.77 2.60 3.56 4.12 4.33

IL 50.00 0.60 1.65 2.49 50.32 3.40 5.78 6.80 7.38

IN 62.69 0.11 0.88 1.73 64.26 2.33 4.85 5.36 5.47

IA 61.73 0.11 0.48 0.75 62.62 0.90 1.92 2.16 2.43

KS 59.43 0.00 0.13 0.70 60.08 1.07 2.93 3.14 3.47

KY 69.78 0.03 0.27 0.98 70.13 1.35 2.83 3.02 2.98

LA 72.47 0.03 0.06 0.30 71.31 0.46 1.36 1.78 1.93

ME 63.31 0.07 0.76 1.29 64.41 1.78 3.39 3.14 3.02

MD 50.00 0.05 0.60 1.58 50.00 2.02 3.42 3.11 3.23

MA 50.00 0.05 0.81 2.16 50.00 2.62 5.17 5.31 5.46

MI 58.10 1.05 1.96 3.35 60.27 3.95 7.37 7.86 8.41

MN 50.00 0.45 1.94 1.93 50.00 3.04 5.55 6.07 6.42

MS 76.29 0.00 0.24 0.82 75.84 1.05 1.86 2.01 2.33

MO 62.42 0.23 0.34 1.39 63.19 0.92 3.88 4.41 4.73

MT 68.53 0.22 0.69 1.13 68.04 1.28 2.35 2.30 2.27

NE 58.02 0.32 0.08 0.41 59.54 1.13 1.57 2.12 2.34

NV 52.64 1.27 3.31 4.85 50.00 7.33 10.23 11.36 12.90

NH 50.00 0.38 1.32 2.40 50.00 2.84 4.91 5.18 5.04

NJ 50.00 0.25 1.49 2.55 50.00 3.06 5.80 6.02 6.17
Appendix IV: Temporary Increased FMAP Data 

by State, GAO Prototype Formula 

Page 44 GAO-12-38 Temporary Medicaid Funding Formula 

Simulated increases 

in FMAPs 

Simulated increases 

in FMAPs 

State 

Postal 

code 

FMAP 

FY 2008

2008 

Qtr 1

2008 

Qtr 2

2008 

Qtr 3

FMAP 

FY 2009 

2008 

Qtr 4 

2009 

Qtr 1

2009 

Qtr 2

2009 

Qtr 3

NM 71.04 0.06 0.32 0.77 70.88 0.93 1.82 2.07 2.26

NY 50.00 0.20 1.84 2.38 50.00 3.54 8.54 6.73 7.17

NC 64.05 0.14 0.67 1.50 64.60 2.33 4.50 4.57 4.66

ND 63.75 0.00 0.07 0.18 63.15 0.26 1.21 1.05 0.55

OH 60.79 0.44 1.08 1.87 62.14 2.49 4.29 4.97 5.25

OK 67.10 0.00 0.03 0.41 65.90 0.52 1.99 2.78 2.87

OR 60.86 0.17 0.78 1.87 62.45 2.95 4.97 5.45 5.69

PA 54.08 0.23 0.48 1.33 54.52 1.67 3.42 3.58 3.95

RI 52.51 1.03 2.63 4.16 52.59 3.80 6.30 6.23 6.54

SC 69.79 0.00 0.48 1.21 70.07 1.98 3.39 3.80 3.95

SD 60.03 0.00 0.73 0.94 62.55 0.99 1.99 2.03 1.79

TN 63.71 0.36 1.24 1.87 64.28 2.71 4.53 4.99 5.33

TX 60.53 0.04 0.24 0.79 59.44 0.96 2.73 3.20 3.49

UT 71.63 0.23 0.43 0.86 70.71 1.54 2.51 2.87 3.23

VT 59.03 0.20 0.87 1.24 59.45 1.21 3.56 3.21 2.91

VA 50.00 0.20 0.74 1.30 50.00 1.80 3.38 3.36 3.54

WA 51.52 0.20 0.88 1.17 50.94 2.23 4.21 4.56 4.97

WV 74.25 0.00 0.03 0.08 73.73 0.26 1.09 1.61 1.98

WI 57.62 0.00 0.34 0.97 59.38 1.50 3.90 4.32 4.59

WY 50.00 0.00 0.48 0.49 50.00 0.60 2.80 5.01 6.06

Source: GAO. 
Appendix IV: Temporary Increased FMAP Data 

by State, GAO Prototype Formula 

Page 45 GAO-12-38 Temporary Medicaid Funding Formula 

Table 7: Temporary Increased Federal Medical Assistance Percentage (FMAP) by 

Quarter and State, GAO Prototype Formula, 2009 to 2011 

 Simulated increases in 

FMAPs 

Simulated increases in 

FMAPs 

State 

Postal 

code 

FMAP 

FY 2010

2009 

Qtr 4

2010 

Qtr 1

2010 

Qtr 2

2010 

Qtr 3

FMAP 

FY 2011 

2010 

Qtr 4 

2011 

Qtr 1

2011 

Qtr 2a 2011 

Qtr 3a

AL 68.01 4.18 3.96 3.01 2.09 68.54 1.61 0.45 N/A N/A

AK 51.43 1.07 1.18 0.83 0.68 50.00 0.60 0.20 N/A N/A

AZ 65.75 5.80 5.81 4.66 3.67 65.85 2.73 0.91 N/A N/A

AR 72.78 2.54 1.75 1.21 0.67 71.37 0.93 0.59 N/A N/A

CA 50.00 7.91 6.76 5.99 4.85 50.00 2.33 1.14 N/A N/A

CO 50.00 5.53 5.43 4.98 3.94 50.00 2.04 0.90 N/A N/A

CT 50.00 5.90 6.38 4.48 3.60 50.00 2.76 0.80 N/A N/A

DE 50.21 6.81 6.50 4.94 3.08 53.15 1.77 0.56 N/A N/A

DC 70.00 1.47 1.35 1.14 0.98 70.00 0.60 0.27 N/A N/A

FL 54.98 7.83 7.09 5.65 4.42 55.45 3.43 1.27 N/A N/A

GA 65.10 4.95 4.49 3.53 2.81 65.33 1.92 0.49 N/A N/A

HI 54.24 4.58 4.46 3.52 2.03 51.79 1.36 0.21 N/A N/A

ID 69.40 4.56 4.15 3.65 2.75 68.85 2.09 1.29 N/A N/A

IL 50.17 7.42 7.40 5.32 3.88 50.20 2.67 0.15 N/A N/A

IN 65.93 4.69 4.59 3.37 2.39 66.52 1.58 0.00 N/A N/A

IA 63.51 2.37 2.29 1.58 1.30 62.63 1.07 0.34 N/A N/A

KS 60.38 3.22 3.50 3.09 2.20 59.05 1.88 0.25 N/A N/A

KY 70.96 2.72 2.76 2.06 1.16 71.49 0.93 0.14 N/A N/A

LA 67.61 2.40 2.52 2.16 1.63 63.61 1.82 0.96 N/A N/A

ME 64.99 2.88 3.07 2.13 1.34 63.80 1.26 0.36 N/A N/A

MD 50.00 3.29 3.45 2.44 1.35 50.00 0.95 0.30 N/A N/A

MA 50.00 5.42 5.61 3.89 1.83 50.00 1.38 0.52 N/A N/A

MI 63.19 7.43 6.90 5.33 3.47 65.79 2.30 0.00 N/A N/A

MN 50.00 5.78 4.91 3.30 2.51 50.00 0.83 0.30 N/A N/A

MS 75.67 2.52 2.71 2.02 1.42 74.73 1.42 0.55 N/A N/A

MO 64.51 4.69 4.58 4.28 3.94 63.29 3.73 0.70 N/A N/A

MT 67.42 2.55 2.23 1.56 1.41 66.81 1.06 0.56 N/A N/A

NE 60.56 2.02 2.26 1.61 1.34 58.44 0.63 0.00 N/A N/A

NV 50.16 13.68 13.73 11.37 9.84 51.61 7.81 4.16 N/A N/A

NH 50.00 5.27 5.31 3.02 2.16 50.00 1.82 0.29 N/A N/A

NJ 50.00 6.35 6.17 4.84 3.72 50.00 3.53 1.04 N/A N/A
Appendix IV: Temporary Increased FMAP Data 

by State, GAO Prototype Formula 

Page 46 GAO-12-38 Temporary Medicaid Funding Formula 

 Simulated increases in 

FMAPs 

Simulated increases in 

FMAPs 

State 

Postal 

code 

FMAP 

FY 2010

2009 

Qtr 4

2010 

Qtr 1

2010 

Qtr 2

2010 

Qtr 3

FMAP 

FY 2011 

2010 

Qtr 4 

2011 

Qtr 1

2011 

Qtr 2a 2011 

Qtr 3a

NM 71.35 2.33 2.57 2.14 1.76 69.78 1.53 0.95 N/A N/A

NY 50.00 6.80 6.68 3.67 3.77 50.00 2.80 1.12 N/A N/A

NC 65.13 4.60 4.36 3.37 2.40 64.71 1.36 0.00 N/A N/A

ND 63.01 0.52 0.48 0.33 0.22 60.35 0.16 0.00 N/A N/A

OH 63.42 5.02 4.66 3.68 2.59 63.69 1.66 0.04 N/A N/A

OK 64.43 3.34 3.28 2.65 1.92 64.94 1.47 0.32 N/A N/A

OR 62.74 5.43 5.28 4.37 3.18 62.85 1.84 0.00 N/A N/A

PA 54.81 3.42 3.63 2.93 1.54 55.64 1.20 0.35 N/A N/A

RI 52.63 6.24 5.96 3.48 2.06 52.97 1.71 0.81 N/A N/A

SC 70.32 3.68 3.83 2.82 2.04 70.04 1.35 0.03 N/A N/A

SD 62.72 1.81 2.12 0.84 0.52 61.25 0.39 0.26 N/A N/A

TN 65.57 4.70 4.12 2.76 2.05 65.85 1.04 0.03 N/A N/A

TX 58.73 3.55 3.31 2.72 1.94 60.56 1.40 0.59 N/A N/A

UT 71.68 3.18 2.96 2.80 2.04 71.13 0.98 0.40 N/A N/A

VT 58.73 2.46 3.35 1.30 1.12 58.71 0.85 0.00 N/A N/A

VA 50.00 3.33 3.12 2.13 1.35 50.00 0.85 0.15 N/A N/A

WA 50.12 5.07 5.08 4.04 3.14 50.00 1.83 0.45 N/A N/A

WV 74.04 1.95 2.03 1.73 1.30 73.24 1.42 0.93 N/A N/A

WI 60.21 4.45 4.70 3.62 2.57 60.16 1.68 0.00 N/A N/A

WY 50.00 6.80 6.16 5.52 4.32 50.00 4.00 1.25 N/A N/A

Source: GAO. 

a

Data for these quarters are not yet available. 
Appendix V: Comments from the Department 

of Health and Human Services 

Page 47 GAO-12-38 Temporary Medicaid Funding Formula 

Appendix V: Comments from the Department 

of Health and Human Services 
Appendix V: Comments from the Department 

of Health and Human Services 

Page 48 GAO-12-38 Temporary Medicaid Funding Formula 
Appendix V: Comments from the Department 

of Health and Human Services 

Page 49 GAO-12-38 Temporary Medicaid Funding Formula 
Appendix V: Comments from the Department 

of Health and Human Services 

Page 50 GAO-12-38 Temporary Medicaid Funding Formula 
Appendix VI: GAO Contacts and Staff 

Acknowledgments 

Page 51 GAO-12-38 Temporary Medicaid Funding Formula 

Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov

Thomas J. McCool, (202) 512-2642 or mccoolt@gao.gov

In addition to the contacts named above, major contributors included 

Robert Copeland, Assistant Director; Eric R. Anderson; Robert 

Dinkelmeyer; Greg Dybalski; Drew Long; and Max Sawicky. 

Appendix VI: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 

(290939)
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