Congress may soon undermine efforts to instill integrity into
the Medicaid program by weakening important safeguards against its
abuse. These safeguards are embodied in seven rules proposed by the
Centers for Medicare and Medicaid Services (CMS). These rules would
establish clear guidance for states seeking federal matching
payments. However, the Protecting the Medicaid Safety Net Act (H.R.
5613) would extend a moratorium on these rules.
H.R. 5613 has been passed by the House of Representatives with
majority support, and the fate of these rules now awaits action in
the Senate. The rules would close the loopholes involved with
intergovernmental transfers; end Medicaid payments for graduate
medical education; limit provider taxes; and clarify reimbursement
policy for school-based administrative and transportation services,
rehabilitation services, outpatient hospital services, and targeted
Medicaid, the joint federal-state health care program for the
poor, is a largely unreformed welfare program. It is one of the
largest of the government health programs, disposing of $338
billion in taxpayer money last year. It gives the states generous
and unlimited federal matching funds for the delivery of Medicaid
services. The federal matching rate for the states ranges from 50
percent to 83 percent. Under this matching system, for every dollar
a state spends, the federal taxpayer contributes between one and
This generous and unlimited federal matching structure creates
perverse incentives to maximize federal contributions. Some
politicians in the states manipulate the Medicaid financing system
accordingly, using inappropriate or questionable techniques. Some
states use accounting gimmicks, and others bill the federal
government for services outside of Medicaid's scope. To combat
these and other questionable practices, CMS officials are therefore
proposing these rules.
The Congressional Moratorium: Bad Policy
Members of Congress who are concerned about the proper use of
taxpayer dollars must recognize the serious policy implications of
extending the moratorium on these seven Medicaid regulations. For
- It is an important test for those concerned about
entitlements. Allowing the regulations to go into effect
would save the Medicaid program $17.8 billion over five years and
$42.2 billion over 10 years by weeding out suspicious and
unacceptable federal payments to the program. Medicaid cost
federal taxpayers $190 billion in 2007 and is expected to cost $402
billion in 2017. This is a small but key measure of
Congress's willingness to tackle the enormous entitlement
- It ignores the extensive evidence on states'
manipulation of the federal matching structure. For
decades, the Government Accountability Office (GAO) and the
Inspector General at the Department of Health and Human Services
have amply documented the states' manipulation of the federal
matching program. In 1994, for example, the GAO released
Medicaid: States Use Illusory Approaches to Shift Program Costs
to Federal Government. The Bush Administration has also been
active on this issue. The need for these regulations should be
well understood by Members of Congress. Congress, as keeper of the
taxpayers' purse, has a responsibility to make sure that taxpayers'
dollars are spent wisely.
- It risks no action on addressing the abuses.
The legislation extends the moratorium for these regulations into
next year and thus hands the issue to the next Administration and
Congress. As noted, many of these regulations extend current
moratoria. Congress has had ample time to review the decades of
documentation on these abuses and propose alternatives.
What Congress Should Do
First, Congress should allow these remedial
regulations to move forward without further delay. Congress has yet
to propose any substantive alternatives to address the exploitation
of the federal Medicaid matching rate. Under these regulations, the
federal government would continue to fund legitimate Medicaid
services, and states would be held accountable for paying their
Second, Congress should consider transferring
non-health services out of Medicaid. Congress could eliminate the
ambiguity of qualified Medicaid services by limiting the federal
matching rate to essential medical services. All other non-medical
support services-such as rehabilitation, transportation,
school-based services, and graduate medical education-should be
considered discretionary spending.
Third, Congress should reform Medicaid and its
financing. As noted, the current federal matching rate system and
the open-ended entitlement structure encourage states to manipulate
the system to maximize federal contributions. Medicaid, along with
the other major entitlements, faces long-term fiscal disaster. If
Congress is serious about reforming the nature of these
entitlements, it could start by reforming the way the Medicaid
program is funded.
There is insufficient accountability and transparency to
taxpayers in the Medicaid program. Some states have exploited this
lack of transparency to their full advantage. Congress should not
delay the Medicaid regulations that are intended to address these
Owcharenko is a Senior Policy Analyst in the Center for Health
Policy Studies at The Heritage Foundation.
a list and explanation of the regulations, see Dennis Smith,
Director, Center for Medicaid and State Operations, U.S. Department
of Health and Human Services, testimony before the U.S. House
Energy and Commerce Health Subcommittee, April 3, 2008, at www.tinyurl.com/3quu9e.
"Prohibit implementation of certain Medicaid administrative
actions," Congressional Budget Office Table, April 23, 2008.
Scully, Administrator, Centers for Medicare and Medicaid Services,
U.S. Department of Health and Human Services, testimony before the
U.S. House Energy and Commerce Subcommittee on Health, October 8,
2008, at www.tinyurl.com/4ymzpa.