By Martha Heberlein

As a shared federal-state program, the distribution of financing in Medicaid has long been an area of debate. Whenever changes in the program are discussed (or as in the debate over the stimulus package, increases are considered), distributional questions come up. How much should the federal government pay versus the states? How much of the pie will each state get? What formula will be used to divide up the funds?

There has been much buzz surrounding the issue in recent days, with some going so far as to call the proposed expansion of Medicaid in the health care reform bills “an unfunded mandate.”  To be sure, states have legitimate gripes with the federal government in some areas of Medicaid financing – like the lack of a coherent long-term care policy, which has resulted in Medicaid being tapped to fill in the void. But when the rumors are flying, it is always a good time to sit back and look at the facts. Here’s our reality check:

Under current law, the federal government matches state spending in Medicaid on an open-ended basis. The federal matching rate can range from 50% to 76%, depending on a state’s per capita income (states with higher per capita incomes have a lower federal matching rate).

Under the Senate Finance Committee Mark, beginning in 2014, additional Federal financial assistance would be provided to all states to defray the costs of covering “newly-eligible” beneficiaries. Basically, the Federal government would pay a greater share of the costs for adults below 133% of FPL who were not previously eligible or who were eligible through a capped waiver, but were not enrolled. The amended mark would also provide 100% federal funding for five years to “high-need states,” defined as states with low per capita Medicaid enrollment and a high unemployment rate.

So what does this mean for states? Well, for four states (Michigan, Nevada, Oregon, and Rhode Island) the increased cost of the proposed expansion would be paid in full by the federal government. For the remainder, the federal government would pick up between 77% and 95% of the additional expense in the first year (2014).

Let’s look at just one state, Texas (since it has the largest number of expected newly-eligible new enrollees) to see what it means, in reality. (Estimates used during the markup provide a state-by-state breakdown of the 11 million newly eligible adults that are projected to enroll in coverage.) In Texas, the average per capita spending on adults in Medicaid is $2,510. If, as estimated, 1.5 million newly-eligible people enroll, the cost will be roughly $3.9 billion dollars. No small change. However, with the feds picking up 95% of the tab, the state of Texas would be expected to pay $195 million. Still, no small change, but when you look at how much the state spends in Medicaid, it’s about a 3% increase in spending to cover an additional 1.5 million people.

Seems like the states are getting a pretty good deal.