Senator Ron Johnson and others gave the One Big Beautiful Bill a cold reception when it arrived in the Senate, warning that the bill will balloon deficits and debt, which are already ginormous. Jamie Dimon, J.P. Morgan Chase CEO predicted a crisis – not if, but as soon as six months from now.
There’s no greater contributor to the recent rapid growth in deficits and debt than Medicaid under the Democrats, and, thus, no more appropriate GOP target financially and politically.
Medicaid’s explosive growth results both from recently expanded enrollment and from long-running problems in the Medicaid provider tax scheme that forty-nine states employ.
Related Content: Why Tax Hospitals? It’s a Medicaid Shell Game. – Wall St Journal.
The Bill controls enrollment somewhat by imposing work requirements on able-bodied single childless adults.
Yet, House Republicans punted on the Medicaid provider tax scheme, which a 2018 Senate report called a “shell game.” The House bill simply places a moratorium on new or increased provider taxes (Sec. 44132), which CBO estimates will save only $89 billion over ten years. That’s chump change, since these fast growing taxes amounted to $37 billion per year seven years ago, when data was last collected.
The actual amount of money involved is not known, because the Center for Medicare and Medicaid (CMS), collects insufficient data about these taxes. The Government Accountability Office has criticized CMS repeatedly for this negligence. Nor is much known about the use of provider tax money; naturally, the assumption is that it funds only Medicaid. Not so.
Here’s how provider taxes work. States tax hospitals and send most of the tax money right back to the hospitals. When the money is returned, it is labeled “Medicaid supplemental payment.” This label triggers a federal matching payment to the states.
The scheme is inherently expansionary and unbalancing. The more that states tax providers, the more federal money they can obtain, the faster the Medicaid program grows and the more the balance between federal and state funding shifts to Uncle Sam, despite that Medicaid is supposed to be a joint federal-state program. Many GAO reports have warned about this.
What is little known is that the money generated by the scheme is being used outside of the Medicaid program.
Take Connecticut. Connecticut adopted a hospital tax in 2012. Connecticut gradually increased the tax and decreased the amount returned to hospitals until fiscal 2017, when the state faced a $2.2 billion budget deficit, and it roughly doubled the tax to $900 million. It returned only $600 million as supplemental payments, leaving hospitals $300 million to the worse and the state $300 million better off. And the state got $450 million in federal matching funds, leaving the state ahead by a cool $750 million.
The state did not use the money to fund Medicaid, but rather to close its huge budget deficit, as Connecticut hospitals charged in a lawsuit against the state. As both the payers of the provider taxes and the intended recipients of the federal money involved, the hospitals had the facts to back up their allegation. The state settled.
CMS took no action. Quite the opposite. It approved Connecticut’s scheme, which was so far above normal limits (see below) that special approval was required.
Related Content: Medicaid financing scheme endangers federal-state partnership. – The Hill
In 2020, GAO itself surveyed the states to gather data. It estimated that the states had doubled their provider taxes from 2014 to 2018 to $37 billion annually. Seven years later, that’s a very stale number.
GAO looked also at how the money was used. And here’s where it gets interesting, at least in Connecticut. GAO asked each state how much of its 2018 provider tax money was used to fund its state share of Medicaid spending. Connecticut responded that it used $690 million to make fee-for-service payments to providers, but zero to make supplemental payments to providers. Huh?
The logical interpretation is that Connecticut was using supplemental payment money for purposes other than Medicaid, as the state’s hospitals’ charged in their lawsuit.
It is a scandal that the Medicaid program supplies states untold billions to spend for non-Medicaid purposes. The scandal is ongoing because, without data, no one can prove misuse or abuse, and no one can be held accountable or culpable.
Fourteen states, including Connecticut (which just declared a financial emergency due to over-budget Medicaid spending), have expanded health care coverage to illegal immigrants. Inevitably they are using Medicaid money, some by adopting immigration-status-blind Medicaid eligibility policies and some by claiming that only state funds are used. Much of the “state money” is likely repurposed federal Medicaid money. These programs proceed with impunity, despite that it is illegal to provide federal benefits to non-citizens.
Yet, Congress itself is ultimately responsible. Congress abets the scam, with a law that directs CMS not to take enforcement action against a state if the state keeps its provider taxes below a threshold of 6% of providers’ “net patient revenues.”
If CMS does not keep proper records, how does it monitor the 6% safe-harbor threshold? ? It appears that CMS only noticed and approved Connecticut’s overlimit tax (a rate of about 7.5%, according to former OPM head Ben Barnes) after the high profile hospital lawsuit.
The Senate should mandate that CMS collect data and exercise oversight. But, right now, the Senate knows enough to institute reforms: the 6% threshold should be reduced and made a hard cap, and a mandate adopted that federal Medicaid funds be used exclusively to fund Medicaid with strict reporting and penalties for violation.
Medicaid is out of control, having exploded from $600 billion to $870 billion from 2017 to 2023. Reform of the provider tax scam could potentially save many tens of billions every year, likely without hurting Medicaid. If the fourteen sanctuary states want to provide free health care to illegal immigrants, they should actually use state funds; and if states run deficits, they should cut spending or raise taxes.
Working Americans struggling to pay for their own health insurance should not be paying taxes to fund Medicaid coverage for single able-bodied childless adults who refuse to work. Nor, certainly, to close state budget deficits or health benefits for illegal immigrants.
States have become over-reliant on this scheme, Connecticut in particular. Governor Lamont and Democrats just increased the hospital tax from the $900 million level in place since Barnes’ time to almost $1.2 billion in an attempt to beat the effective date of the moratorium in the reconciliation bill. It is inconceivable that this gambit will succeed in today’s Washington, nor should it.
All Americans should want the federal budget brought under control, even more so than their state budget. A single state’s crisis is one thing, a national crisis would be quite another.
Red Jahncke is a nationally recognized columnist, who writes about politics and policy. His columns appear in numerous national publications, such as The Wall Street Journal, Bloomberg, USA Today, The Hill, Issues & Insights and National Review as well as many Connecticut newspapers.