With a majority in both houses of Congress and a president in the White House, Republicans are talking about putting an end to an abusive Medicaid practice. The Congressional Budget Office estimated such a move would save $600 billion over a decade. The following is from the Wall Street Journal:
An obscure set of state taxes on hospitals and other health providers is in the crosshairs of congressional budget cutters because the levies can lead to higher federal spending on Medicaid.
Known as provider taxes because states impose them on hospitals, nursing homes and other facilities that provide healthcare, the taxes boost a state’s budget for funding Medicaid. That in turn attracts more matching federal dollars to fund the program—money that is ultimately directed back to the hospitals and clinics.
The way this works is that states impose a tax on hospitals, nursing homes and other types of health care facilities. The taxes can be a function of revenue and / or patient population. At the same time states create programs to compensate hospitals for under-funded Medicaid care, charity care or uncompensated care. State officials then report to the Centers for Medicare and Medicaid Services (CMS) that the state has spent millions (possibly billions) of state money on Medicaid and requests matching funds. The following is an example from the Wall Street Journal:
In 2022, Arizona collected $437 million in Medicaid provider tax revenue from nearly 80 hospitals, and used $363 million to increase payments to hospitals. Under the federal matching rules, Arizona was entitled to $1 billion in matching funds from the federal government for the taxes collected.
The fraud is that states are not contributing their fair share of Medicaid spending. Rather, they are creating an elaborate conspiracy with hospitals, who are told, “if you give the state millions of dollars in taxes, we will quietly give it back and then claim matching funds that will also flow to providers.” The result is the federal government ends up paying far more than the agreed upon matching rate and the state pays little of its own money. This is a huge incentive to expand Medicaid eligibility and a huge disincentive to rein-in wasteful spending.
Periodically Congress talks about putting an end to this game but usually buckles under pressure and quietly allows the practice to continue in all but the most egregious examples. Republicans generally want to end the practice, while Democrats are more prone to accept it as unavoidable to Medicaid expansion. However, there is plenty of support for provider taxes on both sides of the aisle. Hospitals tend to get back more money than they pay in taxes, boosting Medicaid spending. The Paragon Institute describes provider taxes as money laundering.
Medicaid is a federal-state partnership, with states administering programs and the federal government chipping in federal matching funds when certain conditions are met. Medicaid matching, known as the Federal Medical Assistance Percentage (FMAP) varies from 50% in Connecticut, Colorado, and California to nearly 77% in Mississippi. The matching rate varies by state, but also with different matching rates for different eligible populations. For instance, Obamacare expansion is funded at 90%, meaning states can depend on having to only pay 1/10th of the cost. That is one reason Medicaid tends to be very wasteful. When states’ share of the cost is only 10%, state officials care only about 1/10th as much about efficiency, waste, fraud, and abuse. It is a recipe for cost overruns.
Medicaid covers just shy of 80 million people. Nearly every state uses provider taxes to boost state Medicaid spending, while reducing its share of the cost. Indeed, as one hospital executive told the WSJ so eloquently:
“If you end provider taxes, you’re going to shift that burden to the state, either harming Medicaid patients and healthcare-provider reimbursement, or leading to higher state and local taxes,” Cross said.
Yep, that is the point. States are supposed to share the pain of Medicaid spending. Only then will states seek to rein-in wasteful spending, right-size their programs and hold up their end of the federal/state partnership.
Read more at WSJ: The $600 Billion Medicaid Maneuver on the Chopping Block
This is incredible Devon, pure stealing from the feds!