How States Use Medicaid to Bilk Taxpayers in Other States

Today, the Government Accountability Office (GAO) testified before Congress on the many ways that states use the Medicaid program to defraud (my word) taxpayers in other states.  The following is an excerpt from GAO’s prepared testimony:

GAO has reported for more than a decade on varied financing arrangements that inappropriately increase federal Medicaid matching payments. In reports issued from 1994 through 2005, GAO found that some states had received federal matching funds by paying certain government providers, such as county-operated nursing homes, amounts that greatly exceeded established Medicaid rates. States would then bill CMS for the federal share of the payment. However, these large payments were often temporary, since some states required the providers to return most or all of the amount. States used the federal matching funds obtained in making these payments as they wished…[Such] financing arrangements effectively increase the federal Medicaid share above what is established by law…

Supplemental payments involving government providers have resulted in billions of excess federal dollars for states, yet accountability for these payments—assurances that they are retained by providers of Medicaid services to Medicaid beneficiaries—has been lacking. CMS has taken important steps in recent years to improve its financial management of Medicaid, yet more can be done.

Yes, more should be done.  Congress should reform Medicaid and the State Children’s Health Insurance Program the same way it reformed welfare: eliminate the federal entitlement to benefits, and replace those programs’ matching grants with lump-sum block grants.  That would eliminate many perverse incentives created by those programs, including the incentive to cheat taxpayers in other states.

Those reforms would also be a nice stepping stone toward giving the states full responsibility for maintaining those programs, and getting the federal government out of the business of providing medical care to the poor entirely.