GAO Criticizes Medicaid Spending Rules

California, Florida and New York, home to 30 percent of the nation's poor, are among the biggest losers in the formula that sends federal money to health care programs for people who live in poverty, congressional investigators say.

The federal matching rate for Medicaid (search), the joint state-federal health care program for the poor, was designed to reduce differences in the ability of states to fund Medicaid services. The formula disproportionately rewards Alaska, Utah and other smaller states, however, while shortchanging California, Florida and New York, according to a new report by the General Accounting Office (search).

Sen. Dianne Feinstein, D-Calif., sought the study to bolster arguments that the formula, which has been in place since Medicaid's inception in 1965, should be changed to reflect more accurately the states' populations of poor people. The report was to be released Monday.

"These findings confirm what many of us had long-suspected, that the FMAP formula is in immediate need of substantial reform," Feinstein said, using the acronym for the federal matching rate. "It is clear that as a result of this funding gap, California, which has 6.5 million people who depend on Medicaid, is shortchanged by hundreds of millions of dollars."

She said will offer legislation to fix the formula when Congress returns in September from its summer recess.

The report by the congressional investigative office analyzed information from 2000, when Medicaid served 43 million people and cost $196 billion, $111 billion of which came from the federal government.

Comparing California and Wisconsin, the report found that the two states devote roughly the same share of state money to their Medicaid programs. Shortcomings in the federal matching rate, however, allow Wisconsin to spend twice as much per person on Medicaid "because Wisconsin has fewer people in poverty and lower costs to provide health care services" to them, the GAO said.

The report found similar results when comparing Florida and Iowa, two states that contribute the same amount of state money per Medicaid recipient. After receiving federal dollars according to the formula, Iowa spent $6,729 a person, while Florida spent $3,160 a person.

The report identified two problems in the way federal dollars are allocated. It said the formula uses an inaccurate gauge of states' poorer residents and the cost of serving them. The matching rate also guarantees that states will receive at least $1 for every $1 they contribute to Medicaid, "giving some states matching rates significantly higher than they would otherwise receive without the floor," the GAO said.