Congress Considering Reducing DC Medicaid Match - Why You Need to Pay Attention February 5, 2025

Summary: Reducing DC's FMAP from 70% to 50% will reduce reimbursements and harm the DC Medicaid program.

The issue: As part of deliberations on how to cut government spending, House Republicans have included a proposal in their "wish list" to reduce the DC's FMAP from 70% to 50%. The 70% match is federal law, so the proposal would be to change the law to align DC with every other state's minimum 50% minimum. The change, per the document, would "save" the federal government $800m a year, or $8b over ten years.

The Concern: Removing $800m a year from federal dollars into the District's Medicaid program would require major changes, including reimbursement cuts to providers, reduced benefits, and scaled back eligibility. DC may also need to consider revenue raisers to close gaps.

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Background: The federal Medicaid match rate, also known as the Federal Medical Assistance Percentage (FMAP), determines the proportion of Medicaid costs that are covered by the federal government versus the state or district government. The FMAP can vary across states and territories based on factors such as per capita income.

DC has a different minimum match by law for specific reasons. After Congress removed the control Board and began re-establishing some home rule in the 1990s, it had to address a financially unique situation. A GAO report explains:

Under the Revitalization Act, the federal government assumed financial and administrative responsibilities for one of the District’s largest fiscal burdens, which it inherited from the federal government as part of the transition to Home Rule in 1973—its unfunded pension liability for vested teachers, police, firefighters, and judges. In 1998, the federal government assumed the accrued pension cost of $3.5 billion that existed at the close of 1997. The District remains responsible for funding benefits for services rendered after June 30, 1997, and continues the plan under substantially the same terms. In addition, the Revitalization Act was part of a larger act— the Balanced Budget Act of 1997—that increased the federal share of District Medicaid payments from 50 to 70 percent.

Prior to the Revitalization Act, the District had been receiving a federal payment since the mid-1800s due to the District’s unique relationship with the federal government. The Congress recognized that the District’s ability to raise revenues was affected by a number of legal and practical limitations on its authority—the immunity of federal property from taxation; the building height restriction, which has a limiting effect on commercial property values; the prohibition on the District from passing a law to tax the income of nonresidents; and the restriction on imposing sales taxes on military and diplomatic purchases.

Due to these revenue restrictions, federal law permits enhanced reimbursement. At this point, according to the DC Fiscal Policy Institute, Medicaid and federal grants are 25% of District revenue.