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Policy and Design Issues for a Countercyclical Federal Medicaid Assistance Percentage

Medicaid is designed to be a countercyclical program: enrollment and spending grow when there is a downturn in the economic cycle, and vice versa. However, during recessions, states face an increasing demand for Medicaid at the same time that they have less revenue to pay for it. In two prior recessions, Congress has increased the federal medical assistance percentage (FMAP) for Medicaid spending to support states and direct federal stimulus funds into local economies; some policymakers have suggested that Congress create a statutory mechanism to automatically adjust the FMAP formula in a future recession. This presentation provides background on the FMAP formula, describes the design features of a countercyclical formula adjustment, and identifies additional policy issues for consideration.