Redistribution of Federal Funding Across States Due to Spending on Medicaid and CHIP

Researchers examine spending on Medicaid and the Children’s Health Insurance Program (CHIP), comparing the distribution of federal spending with states’ contributions to the federal treasury.

The Issue

Recent discussions about how to manage state budget crises related to the coronavirus outbreak and accompanying recession have revived long-standing debates about the distribution of federal dollars across states.

Key Findings

The authors find that redistribution of Medicaid and CHIP funds largely transfers funding from higher-income states to lower-income states. This redistribution mostly occurs because of the higher Medicaid/CHIP federal matching rates low-income states receive, as well as the smaller tax contributions such states make to the federal treasury.

• Lower-income states that expanded Medicaid under the Affordable Care Act (ACA) are generally the biggest beneficiaries in the distribution of federal funds to states.
• While lower-income states that did not expand Medicaid still largely benefit from receiving federal funds under current law, the research shows almost all non-expansion states would become even larger net recipients of federal funds if they were to expand Medicaid eligibility requirements. For example, if North Carolina and Georgia were to expand Medicaid eligibility in accordance with the ACA, the states would receive an additional $5.5 billion and $3.9 billion, respectively, in federal funds annually through Medicaid.
  

Conclusion

States that have not expanded Medicaid eligibility under the ACA make net contributions to the other states that have expanded, and many of these nonexpansion states have low per capita incomes. If the remaining states were to expand Medicaid eligibility, they would receive more in federal dollars than they contribute in taxes, as is the case with the traditional programs.

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