

A Funding Mess in the Medicaid Program

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No player can win at the street game of three-card monte because the card the mark is looking for isn’t there at all. The card sharp running the game palmed it and laid down another one from his sleeve. Or maybe he switched a black card for the red card as he put the cards on the table. The dealer can’t lose.

In the version of three-card monte that 49 states play with the federal government’s Medicaid program, the states also can’t lose, because they’ve rigged it to put only winning cards in the game.

Here’s how it works. A state legislature passes a bill taxing health-care providers. Hospitals, nursing homes, and other providers pay the tax (or assessment or fee). Then the state uses the revenue to increase its spending on Medicaid services. When the federal government notes the increased spending, it increases its payment to providers. Because the federal share of Medicaid spending is always more than 50%, the new federal money allows providers to pay the state tax with money left over.

This isn’t fraud, because everybody in state and federal government knows what’s going on. The suckers on the street are federal taxpayers, who are paying more and more for medical care for more and more Americans.

Medicaid is the federal-state welfare program that was created in 1965 to pay for doctors, hospital care, and nursing-home care for poor people. (It’s sometimes confused with Medicare, for people age 65 and older.)

From a small beginning, Congress has expanded it many times. It has become one of the federal government’s largest budget items, even though the states pay a substantial part of the cost.

If the feds paid the whole bill, which was $544.5 billion last year, it would be the largest federal spending program other than defense. It’s bigger than both Social Security and Medicare, and it’s growing faster than either one of them.

Medicaid is also inefficient: Even though it pays less for a given procedure than the average for private health insurance, the providers make it up on volume. Medicaid spending per beneficiary is 40% greater than spending per beneficiary of private insurance.

After several major expansions of eligibility, the Medicaid program now has more than 70 million beneficiaries, which is more than 20% of the U.S. population.

About a quarter of all states’ spending goes to their Medicaid programs, although every state’s program is different, and most states cover more people and services than the federal mandatory minimums. Free money from the feds looks like the most likely reason that states are so generous.

The most recent Medicaid expansion is part of the Affordable Care Act, commonly known as Obamacare. To target low-income families that could not afford private insurance, the ACA raised the income limit on qualifying for Medicaid and gave full federal funding for new beneficiaries through this year, and 90% funding that is promised to go on forever.

Medicaid enrollment is up 25% since Obamacare was enacted, even though 19 states have turned down the offer. Governors and legislators—mostly Republicans—have said they fear that federal funding for the expansion will dry up, leaving them with an unaffordable program and no political chance of dialing it back.

The largest example, Texas, had 4.6 million people covered by Medicaid as of last July. If the Texas government accepted expansion of Medicaid, another 1.2 million people would be eligible, at an added federal expense estimated at $10 billion a year.

With so much current focus on the states’ Medicaid burdens, the three-card monte game looms in importance.

Surprisingly, some congressmen and federal bureaucrats are moving toward protecting taxpayers. In Congress, the House Energy and Commerce Committee recently voted in favor of a Medicaid reform bill that includes limiting the ability of states to impose Medicaid provider taxes that suck up federal money.

That’s a step in the right direction, although the measure carries other controversies that will probably block passage.

Additional problems in the Medicaid program, such as $20 billion a year of improper payments, should also receive attention and reform. But mistakes and outright fraud are harder to detect than the Medicaid provider tax scam. It’s deliberately written into the laws and regulations, and it also costs about $20 billion a year.

As President Barack Obama said about a different problem, “It’s time to stop doing stupid stuff.”

(See Editorial: Merrick Garland Deserves Senate Confirmation Vote)
