Strategies to Help States Address Increased Expenditures During Economic Downturns

The Government Accountability Office (GAO) examined strategies proposed by Congress as methods to help states cope with Medicaid expenditure increases during economic downturns. The GAO evaluated three strategies: 1) Allocation of supplemental funding based on unemployment rates 1) Allocation of supplemental funding based on a two year sample of per capita income (PCI) data rather than a three year sample 3) Allowing each state to decide if it needed a loan.

The GAO determined that the unemployment rate model predicted 90% of state Medicaid expense increases. The use of a smaller sample of PCI data was found to skew predicted expenditure rates further from current economic conditions, which would result in greater fluctuations between need and funding allocations. Allowing each state to determine if it needed a loan was complicated due to variability in state willingness to accept loan terms or to pay into a national "rainy-day" fund that could be tapped by states as needed.