The State of Medicaid Spending Is Strong

by Veronique de Rugy

Medicaid is a growing program in our federal budget. According to the Congressional Budget Office, as of January, Medicaid was projected to spend $381 billion in 2016. That’s up more than $100 billion since 2010. In January, CBO also projected that Medicaid spending would reach at least $642 billion in 2026. However, if President Obama got his way, that spending would grow even more. According to his FY 2017 budget released last week, the president would like to see $46 billion in increased federal Medicaid spending. According to the publication Medicaid Minute, this includes:

  • $2.6B to extend the enhanced 100 percent federal matching rate for new Medicaid expansion states
  • $29.6B in increased federal funding for Medicaid in Puerto Rico and the other territories through a lifting of the federal cap on Medicaid funding, raising the federal Medicaid share to 60 percent, and other proposals
  • $34.9B to provide continuous eligibility for adults under Medicaid regardless of changes in their income, assets, or other life circumstances
  • $9.5B to reestablish the ACA primary-care payment bump that expired in 2014.& (Note: MACPAC has reported that the earlier increase in payment did not result in increased access to care for beneficiaries.)

It seems like a good idea then to talk about the accounting gimmicks used by the states to artificially boost their federal Medicaid reimbursements, in particular: provider taxes. ProvidBrzysker taxes, my colleague Brian Blase explains in a new study, are “assessments states levy on healthcare providers, often accompanied by the explicit or implicit guarantee of increased Medicaid payments to those same providers, financed from the federal matching funds.” These are the main gimmicks used by the states to get more cash from the federal government for Medicaid.

As Blase explains, it is well understood that these provider taxes are a scam to get money from the federal government that states and health-care providers shouldn’t collect. Here is how Vice President Joe Biden put it back in 2011 during the negotiations with Republicans over how to trim future deficits:

It’s a scam, Biden agreed. The states were gaming the system, taxing doctors and hospitals so they could get federal reimbursements and then returning the money to the providers. Let’s call it like it is, and let’s just do this. . . . It could save $40 billion. “If we can’t do this —” the vice president said, “come on!”

The quote is from Bob Woodward’s book The Price of Politics. But as Blase explains in this column, Biden lost and special interests won:

Although the vice president was absolutely right, the parties were unable to come to agreement. And provider taxes have grown significantly since. Provider taxes demonstrate the worst aspect of our nation’s health-care entitlement programs (Medicare, Medicaid, and the Affordable Care Act) — complicated rules and subsidies that profit special interest groups and empower government bureaucracies with too little benefit for patients most in need and taxpayers.

He has more quotes showing what a scam this gimmick is.

Oregon state representative Mitch Greenlick calls provider taxes a “dream tax” for states. According to Greenlick, “[w]e collect the tax from the hospitals, we put it up as a match for federal money, and then we give it back to the hospitals.”

Nice. Here is how it works:

As an illustration, assume a state assesses a hospital tax equal to $100 million and then returns the funds back to the hospitals through higher Medicaid payments. A state with a 60 percent reimbursement rate — the average rate — receives $60 million from the federal government to cover what is essentially an artificial Medicaid expenditure. The state can then spend that extra $60 million on hospitals, other Medicaid providers, or other government programs.

The study is here and the op-ed about it is here.

Considering that it is unclear that Medicaid increases health outcomes, it is hard not to be outraged by how much we are spending on this program and will continue to going forward.

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