Who Really Pays for Medicaid: Intended and Unintended Consequences of the Matching Grant

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The goal of the Medicaid intergovernmental matching grant is to stimulate state spending while achieving some level of beneficiary and taxpayer equity. This study uses the Current Population Survey data on 174,031 families to estimate federal and state Medicaid tax burdens per family, net of tax exporting. Of the total U.S. $305 billion spent on Medicaid in 2004, U.S. $29.9 billion is redistributed through the grant’s Federal Medical Assistance Percentage, as residents of low-income states export federal tax burdens to higher-income states. Another U.S. $4.5 billion in state taxes is exported via business flows and tourism with the bulk, U.S. $3.2 billion, being exported internationally. Some states pay as little as U.S. $.55 in “own” tax revenues while residents in states importing the burden pay up to U.S. $1.86, for every U.S. $1 spent on Medicaid. Since virtually all states have regressive tax structures, it is federal Medicaid funding that helps maintain vertical equity overall.

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