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Medicaid: 105th Congress

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Publication Date: February 1998

Publisher(s): Library of Congress. Congressional Research Service

Series: 98-132

Topic: Health (Health care financing)


Medicaid is a joint federal-state matching, open-ended entitlement program that pays for medical assistance for low-income persons who are aged, blind, disabled, members of families with dependent children, and certain other pregnant women and children. Through the use of special income standards, states may provide Medicaid to certain non-poor persons who are in nursing facilities or other institutions, or who would require institutional care if they were not receiving alternative services at home or in the community. Within federal guidelines, each state designs and administers its own program. Total program outlays in FY1997 were $167.6 billion. Federal outlays were $95.6 billion; state outlays were approximately $72.1 billion. The federal government shares in a state’s Medicaid costs by means of a statutory formula based on the state’s per capita income. Adjusted annually, federal matching rates currently range from 50% to 79% of a state’s expenditures for Medicaid items and services. Overall, the federal government pays for about 57% of all Medicaid costs.

Two major factors have prompted Congress to consider fundamental restructuring of the Medicaid program in recent years. First, Medicaid has been one of the fastest growing items in federal and state budgets. Second, many state Governors said their federal-state Medicaid partnership was being eroded by increases in federal requirements regarding eligibility, benefits, and reimbursement to providers. The 104th Congress considered but did not enact proposals for Medicaid reform. The proposals considered by the 104th Congress would have transformed the program into a capped block grant to states and reduced program funding to the states by approximately $72 billion over 6 years.

The 105th Congress made important changes to the Medicaid program though H.R. 2015, the Balanced Budget Act of 1997 (BBA 97, P.L. 105-33). BBA 97 is less far-reaching in its reform of the Medicaid program than proposals considered in the 104th Congress, leaving the program’s existing structure largely intact. The Act achieves net Medicaid savings of about $13 billion between FY1998 and FY2002, largely from reductions in supplemental payments to hospitals that serve a disproportionate share of Medicaid and low-income patients. The new law significantly increases the flexibility that states have to manage their Medicaid programs. In particular, it gives states the option of requiring most beneficiaries to enroll in managed care plans without seeking a federal waiver and replaces federal financial requirements imposed by the Boren amendments with a public notice process for setting payment rates for institutional services. Spending items in the Act include Medicaid coverage for additional children, and increased assistance for low income people to pay Medicare Part B premiums.

As part of his FY1999 budget, President Clinton proposes giving states additional funds to find and cover uninsured children by expanding Medicaid outreach funds and making it easier to grant immediate coverage to children who have not yet enrolled. The budget also proposes to streamline the Medicaid application process by simplifying eligibility; to allow states to provide Medicaid coverage to legal immigrant children; and to reduce the federal share of state administrative costs.