Medicaid

When the Medicaid program was established in 1965, a matching formula was developed to narrow differences likely to arise among Medicaid programs in wealthier and poorer states. By giving poorer state a higher federal match, it was believed that disparities would be reduced across states in (1) population groups and services covered in each state program and (2) the tax burden imposed by the financing of Medicaid relative to the size of the state's financial resources. GAO testified that the matching formula, with its reliance on per capita income as a measure of state wealth, has not significantly reduced wide differences in states' Medicaid programs or the tax burdens to support them. Large disparities persist in coverage of population groups and types of services as well as in the burdens that state taxpayers bear in financing state programs. Modifying the formula could enhance the ability of federal payments to narrow program disparities.