State Tax Trend No. 9: State Abuse of Medicaid Matching Funds

From NCPA

When states set aside money to be spent on Medicaid, they receive matching funds from the federal government. These matching funds are made available according to a formula known as the Federal Medical Assistance Percentages (FMAP), based on the state's level of poverty and unemployment, says Joseph Henchman, an attorney and policy analyst at the Tax Foundation.

·       In fiscal year 2012, Mississippi had the highest FMAP (74.18 percent), meaning that the federal government contributes 74.18 cents for every $1 in total Medicaid spending in a state.

·       Put another way, for every $1.00 the state of Mississippi spends on Medicaid, the federal government kicks in $2.87.

·       Fourteen states tie for the lowest FMAP (50 percent), which means that for every $1.00 they spend on Medicaid, the federal government kicks in another $1.00.  (Hawaii was at $1.02, placing 15th before legislation enacted this session, see below.)

Regardless of a state's FMAP, however, the opportunity for budgetary exploitation exists. The open-ended nature of the Medicaid payment system, wherein federal matching funds are unlimited as long as states are willing to ante up, is the enabler of this opportunistic behavior.

·       States raise additional taxes through hospital and physician taxes, the revenue from which is spent on state Medicaid purposes.

·       By federal law, this spending compels the government to supply FMAP-determined matching funds.

·       Once the state procures the federal funding, it compensates the originally taxed health care providers by increasing Medicaid payments.

·       Indeed, health care providers that benefit from increased Medicaid reimbursements often support these taxes if the returns exceed the tax payments.

The scale of this scheme is incredible, especially when it is noted that the Government Accountability Office pointed out the opportunity for this exploitation back in 2004.

·       These hospital taxes or doctors' taxes exist in 46 states and the District of Columbia.

·       During the recent economic downturn, 20 states increased health provider taxes to take advantage of federal matching funds.

·       This system led to a sharp jump in federal Medicaid expenditures, from $201 billion in 2008 to $250 billion in 2009.

Furthermore, it bears mention that those states that were most likely to abuse Medicaid matching funds are those states that have been most irresponsible with managing their state budget.

Source: Joseph Henchman, "Trend #9: State Abuse of Medicaid Matching Funds," Tax Foundation, June 5, 2012.

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DHS Money Grab Threatens Hawaii Hospitals, Nursing Homes

SA: Private hospitals and large nursing homes are willing to pay new fees to draw millions in federal money to help cover health care for the poor, but the agreement is at risk of dissolving in a dispute over how much of the money should go to the state.

A provider fee on private hospitals would generate $42 million to attract additional federal money for QUEST, the state's version of the federal Medicaid program, and result in $77 million in payments back to hospitals to help cover the cost of providing care to the poor and uninsured. A provider fee on large nursing homes would raise $11.5 million and result in a return of about $21 million.

The fragile consensus among hospitals and nursing homes that provider fees are worthwhile — meaning they would get both the fees and additional money back in the exchange — is built on an expectation that the state would take 5 percent of the fees. But the state Department of Human Services wants to retain about 12 percent and use some of the money to … (insert excuse here) ….

Hawaii is one of the few states without provider fees to help cover Medicaid costs. Forty-seven states and the District of Columbia use the fees to leverage additional federal Medicaid money. The share of money that states retain from the fees varies widely.

Under draft legislation before lawmakers in conference committee, all but a few private hospitals and large nursing homes would get a return on the provider fees. The fees would be no more than 3 percent of net patient service revenue.

The incentive to voluntarily pay the fees is the potential to improve Medicaid reimbursement payments that many see as unsustainable. Greene said hospitals are reimbursed 70 cents for every $1 in Medicaid patient care. The provider fees would generate higher reimbursement payments that could push that ratio to 83 cents on the dollar….

…several industry sources say privately that there is a lack of trust….

The conference drafts of the hospital provider fee (House Bill 2275) and the nursing home fee (Senate Bill 2466) reflect the industry's position….

(Once this gets started, the State will grab for more and more money every year.)

January 15, 2012: After Failing to Save HMC, Legislature Finally Getting Around to Tapping Federal Funds to Raise Medicare/Medicaid Reimbursement

read … Money Grab