Medicaid matching formula, federal subsidies, and Medicaid payments

The federal government uses the Medicaid matching formula to distribute federal funds to states to finance various social welfare programs involving billions of dollars. How does the formula affect the distribution of federal money? How would that distribution change if a revised formula were used? This article presents the results of a regression analysis on Medicaid payments in the states and the federal subsidies for states to finance Medicaid. The findings indicate that under the current Medicaid matching formula, fewer federal subsidy dollars per poor person go to states with lower per capita incomes and to states with a higher percentage of African Americans than to states with the opposite characteristics. Even under the revised formula, states with lower per capita incomes would receive the same amount of federal matching dollars per poor person as would states with higher per capita incomes. The implications for policy are discussed.