The Medicaid program uses a federal matching formula that cheats the poorest states of billions annually in federal health-care dollars, the General Accounting Office told Congress yesterday.

The program, a joint federal-state effort to provide medical care to low-income people, still leaves millions of poor and near-poor Americans without health care and imposes "fiscal pain" on state governments, said other witnesses at a hearing before a House Government Operations subcommittee chaired by Rep. Ted Weiss (D-N.Y.).

Janet L. Shikles of GAO said the poor could receive more and better health care from Medicaid if the formula the government uses to reimburse states in the $80 billion program were changed to ensure that needier states get a larger share of the federal money.

The formula the federal government uses to reimburse states for a portion of their outlays "does not target most federal funds to states with the greatest needs, that is, those with weak tax bases and high concentrations of poor people," she said.

When the program was created, per-capita income was chosen as the best measure of whether a state had a large number of poor people who needed Medicaid and whether the state government had the capacity to pay for it. She said the per-capita measure is an inadequate measure of either.

The per-capita formula directs the government to reimburse at a higher rate a state whose per-capita income is relatively low compared with the national average. Conversely, a state whose income is relatively high is reimbursed at a lower rate. The national average reimbursement is 57 percent but it ranges from 50 percent to 80 percent for individual states.

The federal government reimburses the state with the lowest per-capita income -- Mississippi, where the GAO said it averaged $10,000 a year from 1986 to 1988 -- for about 80 percent of its Medicaid outlays. Maryland, where per-capita income averaged $16,862 over the three-year period, is reimbursed for 50 percent of its outlays and Virginia, with per-capita income of $15,367, receives 51 percent.

"Perhaps the most significant weakness of per-capita income as an indicator of a state's ability to finance program benefits is that it does not reflect all the income states are able to tax," such as corporation business profits retained for investment and dividends earned in one state by a company but paid to stockholders who live elsewhere, Shikles said.

She said the Treasury estimates total taxable resources (TTR) produced within a state are a truer measure of a state's ability to pay. For example, she said, in Wyoming taxable resources are 28 percent higher per person than its per-capita income; in Alaska, 36 percent; in Texas, 7 percent; and in Louisiana, 12.7 percent.

Shikles said the formula is also flawed because per-capita income is not always a good measure of the incidence of poverty in a state. For example, Utah and Arkansas have almost identical per-capita incomes -- both slightly above $11,050 a year. But in Utah 20.4 percent of the population had incomes less than 150 percent of the poverty line, while in Arkansas 32 percent were poor.

She proposed a formula based on total taxable resources and the number of people in poverty. She also suggested reducing the minimum federal reimbursement to 40 percent. In 1989 that formula would have shifted $3.2 billion to the more-needy states.

Under her proposed formula, Connecticut, Iowa, Massachusetts and New Jersey would have received 35 percent less and Alaska would have received 40 percent less. Arkansas and Georgia would have received 35 percent more, while Florida's reimbursement would have jumped 51 percent.

The proposed formula would have resulted in a cut of $127 million (24 percent) for Maryland while Virginia would have gained $30 million (6.6 percent). The GAO did not include the District in its calculations.

Medicare-Medicaid Administrator Gail R. Wilensky said any Medicaid formula change would spur a fight between "winner" and "loser" states, so it would be best not to change the formula until broad changes in the health care system now being studied are decided.

Sara Rosenbaum of the Children's Defense Fund said Medicaid provides good care to millions of low-income children, but fails to cover millions more. The Urban Institute estimates that about half the poor under age 65 are covered by Medicaid, because states set eligibility requirements. Poorer states often set tougher requirements for potential beneficiaries.

Rosenbaum said the federal government, which in the past few years has been forcing states to cover various groups of poor children, should expand mandatory coverage under Medicaid.

But Arkansas Gov. Bill Clinton (D), speaking for the National Governors' Association, objected. "Expanding Medicaid mandates has stretched states beyond their fiscal and administrative limits" and has added costs of about $4.6 billion over the next two years, and more later. Wilensky said it would be best to give states time to digest the expansions mandated by Congress instead of voting more expansions.