Raise Medicaid Matching Rates to Prevent Deep Recession

February 4, 2008

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Medicaid is the largest source of federal funds to states. Maintaining state spending is one key to preventing a deep recession. The federal matching rate in Medicaid can be adjusted quickly: an increase can occur immediately, and can be turned off when the need subsides.

Historically, states have scaled back on Medicaid programs during budget crises. But doing so has broader negative economic “multiplier” effects. A recent Kaiser Commission study found that increasing federal Medicaid funding protects health care jobs and local economies.

Indeed, in 2003, a strongly bipartisan majority in Congress enacted—and President Bush signed—an economic stimulus package that increased the federal Medicaid matching rate by 2.95 percentage points for 15 months. States receiving this fiscal relief were required to maintain their Medicaid eligibility levels while the fiscal relief was in effect. The states used those funds to avert or limit proposed Medicaid cuts, avoid provider payment cuts, reverse previously implemented Medicaid cuts, and stabilize state budgets overall during the economic downturn. The policy worked.

For more information on how temporary support for state health programs can promote stimulus, see:

• Healthy Stimulus: Temporary Support for State Health Programs Should Be Part of the Economic Stimulus Program

For information on other economic stimulus policy ideas, see:

• A Practical and Progressive Economic Stimulus and Recovery Plan, from the Action Fund