Medicaid’s Federal Medical Assistance Percentage (FMAP)
Released: 2018-04-25T00:00:00

Introduction

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is jointly funded by the federal government and the states. Participation in Medicaid is voluntary for states, though all states, the District of Columbia, and the territories choose to participate. Each state designs and administers its own version of Medicaid under broad federal rules. While states that choose to participate in Medicaid must comply with all federal mandated requirements, state variability is the rule rather than the exception in terms of eligibility levels, covered services, and how those services are reimbursed and delivered. The federal government pays a share of each state's Medicaid expenditures.

This report describes the federal medical assistance percentage (FMAP) calculation used to reimburse states for most Medicaid expenditures, and it lists the statutory exceptions to the regular FMAP rate.

The Federal Medical Assistance Percentage

The federal government's share of most Medicaid service costs is determined by the FMAP rate, which varies by state and is determined by a formula set in statute. The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services.

The FMAP rate is also used in determining the phased-down state contribution ("clawback") for Medicare Part D, the federal share of certain child support enforcement collections, Temporary Assistance for Needy Families (TANF) contingency funds, a portion of the Child Care and Development Fund (CCDF), and foster care and adoption assistance under Title IV-E of the Social Security Act.

An enhanced FMAP (E-FMAP) rate is provided for both services and administration under the State Children's Health Insurance Program (CHIP), subject to the availability of funds from a state's federal allotment for CHIP. The E-FMAP rate is calculated by reducing the state share under the regular FMAP rate by 30%.

How FMAP Rates Are Calculated

The FMAP formula compares each state's per capita income relative to U.S. per capita income. The formula provides higher reimbursement to states with lower incomes (with a statutory maximum of 83%) and lower reimbursement to states with higher incomes (with a statutory minimum of 50%). The formula for a given state is:

FMAP state = 1 - ((Per capita income state ) 2 /(Per capita income U.S. ) 2 * 0.45)

The use of the 0.45 factor in the formula is designed to ensure that a state with per capita income equal to the U.S. average receives an FMAP rate of 55% (i.e., state share of 45%). In addition, the formula's squaring of income provides higher FMAP rates to states with below-average incomes (and vice versa, subject to the 50% minimum).

The Department of Health & Human Services (HHS) usually publishes FMAP rates for an upcoming fiscal year in the Federal Register during the preceding November. This time lag between announcement and implementation provides an opportunity for states to adjust to FMAP rate changes.

Data Used to Calculate State FMAP Rates

The per capita income amounts used to calculate FMAP rates for a given fiscal year are several years old by the time the FMAP rates take effect because, as specified in Section 1905(b) of the Social Security Act, the per capita income amounts used in the FMAP formula are equal to the average of the three most recent calendar years of data available from the Department of Commerce. In its FY2019 FMAP calculations, HHS used state per capita personal income data for 2014, 2015, and 2016 that became available from the Department of Commerce's Bureau of Economic Analysis (BEA) in September 2017. The use of a three-year average helps to moderate fluctuations in a state's FMAP rate over time.

BEA revises its most recent estimates of state per capita personal income on an annual basis to incorporate revised and newly available source data on population and income. It also undertakes a comprehensive data revision—reflecting methodological and other changes—every few years that may result in upward and downward revisions to each of the component parts of personal income. These components include the following:

earnings (wages and salaries, employer contributions for employee pension and insurance funds, and proprietors' income); dividends, interest, and rent; and personal current transfer receipts (e.g., government social benefits such as Social Security, Medicare, Medicaid, state unemployment insurance).

As a result of these annual and comprehensive revisions, it is often the case that the value of a state's per capita personal income for a given year will change over time. For example, the 2014 state per capita personal income data published by BEA in September 2013 (used in the calculation of FY2017 FMAP rates) differed from the 2014 state per capita personal income data published in September 2017 (used in the calculation of FY2019 FMAP rates).

It should be noted that the definition of personal income used by BEA is not the same as the definition used for personal income tax purposes. Among other differences, BEA's personal income excludes capital gains (or losses) and includes transfer receipts (e.g., government social benefits), while income for tax purposes includes capital gains (or losses) and excludes most of these transfers.

Factors That Affect FMAP Rates

Several factors affect states' FMAP rates. The first is the nature of the state economy and, to the extent possible, a state's ability to respond to economic changes (i.e., downturns or upturns). The impact on a particular state of a national economic downturn or upturn will be related to the structure of the state economy and its business sectors. For example, a national decline in automobile sales, while having an impact on all state economies, will have a larger impact in states that manufacture automobiles as production is reduced and workers are laid off.

Second, the FMAP formula relies on per capita personal income in relation to the U.S. average per capita personal income . The national economy is basically the sum of all state economies. As a result, the national response to an economic change is the sum of the state responses to economic change. If more states (or larger states) experience an economic decline, the national economy reflects this decline to some extent. However, the national decline will be lower than some states' declines because the total decline has been offset by states with small decreases or even increases (i.e., states with growing economies). The U.S. per capita personal income, because of this balancing of positive and negative, has only a small percentage change each year. Since the FMAP formula compares state changes in per capita personal income (which can have large changes each year) to the U.S. per capita personal income, this comparison can result in significant state FMAP rate changes.

In addition to annual revisions of per capita personal income data, comprehensive revisions undertaken every four to five years may also influence regular FMAP rates (e.g., because of changes in the definition of personal income). The impact on FMAP rates will depend on whether the changes are broad (affecting all states) or more selective (affecting only certain states or industries).

FY2019 Regular FMAP Rates

Regular FMAP rates for FY2019 (the federal fiscal year that begins on October 1, 2018) were calculated and published November 21, 2017, in the Federal Register . In the Appendix A to this report, Table A-1 shows regular FMAP rates for each of the 50 states and the District of Columbia for FY2014 through FY2019.

Figure 1 shows the state distribution of regular FMAP rates for FY2019. Fourteen states are to have the statutory minimum FMAP rate of 50.00%, and Mississippi is to have the highest FMAP rate of 76.39%.

As shown in Figure 2 , from FY2018 to FY2019, the regular FMAP rates for 36 states is to change, whereas the regular FMAP rates for the remaining 15 states (including the District of Columbia) is to remain the same.

For most of the states experiencing an FMAP rate change from FY2018 to FY2019, the change is to be less than one percentage point. The regular FMAP rate for 14 states is to increase by as much as one percentage point, and the FMAP rate for 12 states is to decrease by as much as one percentage point.

For states that are to experience an FMAP rate change greater than one percentage point from FY2018 to FY2019, nine states are to experience an FMAP rate increase of greater than one percentage point. Oklahoma is to have the largest FMAP rate increase of 3.81 percentage points, with the FMAP rate increasing from 58.57% to 62.38% Oregon is the only state that is to experience an FMAP rate decrease of greater than one percentage point, with the FMAP rate decreasing 1.06 percentage points from 63.62% to 62.56%.

The District of Columbia's FY2019 FMAP rate was not calculated according to the regular FMAP formula because the FMAP rate for the District of Columbia has been set in statute at 70% since 1998 for the purposes of Title XIX and XXI of the Social Security Act. However, for other purposes, the percentage for the District of Columbia is 50%, unless otherwise specified by law.

FMAP Exceptions

Although FMAP rates are generally determined by the formula described above, exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services.

Table 1 lists current exceptions to the FMAP in Medicaid statute and regulations. Past FMAP exceptions are listed in Table B-1 .

Some of these exceptions were included in the Social Security Amendments of 1965 (P.L. 89-97), which is the law that enacted the Medicaid program. Other exceptions have been added over the years. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) added a number of exceptions to the FMAP for "newly eligible" individuals, "expansion states," disaster-affected states, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, and home- and community-based attendant services and supports.

Conclusion

The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures. In FY2019, 13 states are to have the statutory minimum FMAP rate of 50%, and Mississippi is to have the highest FMAP rate of 76.39%. From FY2018 to FY2019, the regular FMAP rates for 36 states is to change, while the regular FMAP rates for the remaining 15 states (including the District of Columbia) is to remain the same.

Exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. The ACA added a number of exceptions to the FMAP for "newly eligible" individuals, "expansion states," disaster-affected states, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, and home and community-based attendant services and supports.

The federal share of Medicaid expenditures used to be about 57% in a typical year, which meant the state share was about 43%. However, with the exceptions to the FMAP added by the ACA (mainly the "newly eligible" matching rate), the federal share of Medicaid expenditures has increased. In FY2014, the federal share of Medicaid expenditures was 61% on average, and it is estimated to have increased to 63% for FY2015 and FY2016. The average federal share is expected to decrease to 61% by FY2020 as the "newly eligible" matching rate phases down to 90%.

Appendix A. FMAP Rates for Medicaid, by State

Table A-1 shows regular FY2014-FY2019 FMAP rates calculated according to the formula described in the text of the report (see " How FMAP Rates Are Calculated "). In FY2019, FMAP rates range from 50% (14 states) to 76% (Mississippi). From FY2018 to FY2019, regular FMAP rates are to decrease for 13 states, increase for 23 states, and remain the same for 15 states (including the District of Columbia). Most of the states (14 states) for which the FMAP rates do not change have the statutory minimum FMAP rate of 50%, and the FMAP rate for the District of Columbia is statutorily set at 70%.

Appendix B. Past FMAP Rate Exceptions

Although FMAP rates are generally determined by the statutory formula described above, Table 1 lists current exceptions that have been added to the Medicaid statute and regulations over the years, and Table B-1 lists past FMAP exceptions.