The state sponsored Medicaid system is the country’s main public health program for low-income individuals and was created on July 30, 1965 through Title XIX of the Social Security Act. It was created to provide health care services to “low-income children deprived of parental support, their caretaker relatives, the elderly, the blind, and individuals with disabilities. Seniors were the population group most likely to be living in poverty; about one-half had health insurance coverage”. (Health Care Financing Review, Winter 2005).

Medicaid is an entitlement program that is funded jointly by the federal and state governments and is a means-tested social welfare program rather than a social insurance program. The federal government matches each state’s Medicaid spending at an established rate that varies by state. This rate is called the Federal Medical Assistance Percentage (FMAP) and is calculated by a pre-determined formula that accounts for variations in state incomes. Each state is responsible for running its own Medicaid program however; all states participating in the Medicaid program must adhere to federal guidelines and regulations in order to receive matching funds. Medicaid funding accounts for a large piece of a state’s budget as it is the second largest line item in the budget with 16 percent of state funds being allocated to Medicaid on average according to the Kaiser Family Foundation (April 2004).

As health care needs change, and the economy, poltical and legislative regulations change so do the various systems. The system must change to keep up with the changing needs of those who are affected by it as witnessed with all of the various changes that have occurred to the Medicaid system within the last 30+ years. Because Medicaid funding accounts for a significant portion of a states budget, if the economy is experiencing a downturn this will have a significant impact on the states economy as both state and federal Medicaid spending have a multiplier effect. Meaning that, as Medicaid spending is injected into a states economy additional funding is injected by the federal government through its matching arrangment.

While the Medicaid dollars injected into the economy are used to make payments on behalf of enrollees, the funding directly impacts health care service providers and it supports the jobs, salaries, and purchases associated with health care delivery. (Kasier Foundation, 2008). If Medicaid funding decreases or cut backs are made this will significantly impact the economy of the state. In times of economic downturns States usually adopt a wide array of Medicaid cost containment strategies but as Medicaid spending decreases so does the amount of funding that state receives from the government.

 Kaiser Commission on Medicaid. (2008). Few options for States to control Medicaid spending in a declining economy. Retrieved on July 7, 2008 from The Henry J. Kaiser Family Foundation website www.kff.org.

Kaiser Commission on Medicaid. (2004). The role of Medicaid in State economies: A look at the research. Retrieved on July 7, 2008 from The Henry J. Kaiser Family Foundation website www.kff.org/KCMU.