In May of 2003, Congress passed bi-partisan legislation that provided temporary fiscal relief to the states. This package provided states with $10 billion through a temporary increase in Medicaid matching funds (also known as Federal Medical Assistance Percentage or FMAP) and $10 billion in additional funds for a total of $20 billion through June of 2004. These funds prevented deeper cuts than were expected in Medicaid and other programs. For example, they were used in Ohio to prevent a planned reduction in eligibility that would have left approximately 60,000 parents without coverage, and in South Carolina, to prevent cuts in eligibility for SCHIP, the elderly and disabled, and to optional services.

Medicaid is a joint federal/state program. The federal government pays a certain percentage of the cost of Medicaid and the states pay the rest. The matching rate is most often 50 percent, but in some poor states the percent the federal government pays can be as high as 70 percent. The proposal increases the federal matching rate for a particular length of time providing some relief to the states.

Since states continue to experience revenue shortfalls, some form of this program should be continued. The job market is still weak resulting in higher enrollment in Medicaid. The new Medicare drug benefit, according to the Congressional Budget Office, will actually increase costs to states over the next three years, and other federal policies such as tax changes and unfunded mandates are causing the states to lose revenues. Without relief, Medicaid cuts will slow the economic recovery and damage the health care system. Every state dollar spent on Medicaid generates over three dollars in new business activity along with jobs, wages, and new state tax revenue.