Perverse incentives. That phrase says it all. This article in the WSJ tries to explain why some conservative governors (like Jan Brewer of Arizona) are flipping over and accepting the federal government’s bribes to open up more Medicaid entitlements:
One secret of her switcheroo is Medicaid’s “matching rate” formula, in which the feds pick up 67% of Arizona’s existing spending and 100% (and later 90%) of the costs of ObamaCare’s newly eligible population. The state supposedly no longer needs to spend “billions” but merely an extra $154 million in 2014—then bank $1.6 billion from Washington, which her budget documents call “a return on investment of more than 10-to-1.”
Here’s how it works: Arizona will tax hospitals and insurers for the $154 million. Then it will return $154 million to the health industry via more Medicaid business that will cover the cost of the tax and then some. The money needs to make a round trip from providers to the state and back to providers to game that 67% federal matching rate.
So Arizona takes (say) $3 from a hospital and then turns around and pays the $3 back, using one of the hospital’s own dollars that Arizona converted to “revenue” plus two dollars courtesy of Washington for its 67% federal share of the $3 payment. Arizona can then use the hospital’s remaining $2 of the original $3 to pay for another $6 of Medicaid expansion.
Some 49 state now use this trick of so-called provider taxes to goose federal spending, up from 21 in 2003. (Alaska is the exception.) But the practice is so abusive that even Mr. Obama proposed new limits in his last two budgets.
Don’t worry if you are still confused because I am too but I am certain that we all will pay for it with our taxes. The funny thing is it now explains why Maine’s hospitals are always protesting. They love the idea of more and more Medicaid patients who use and abuse the ER and other services because they love the revenue. The problem is that Maine is broke and so they hardly ever get reimbursed back from the state government and so they cry and cry how much money they are losing. They have no interest, however, in curtailing Medicaid to the population. In fact, they come out against any attempt to make getting on Medicaid harder (it’s one of the easiest states to get it). Why would they do that if they are always getting stiffed? The answer is that they would not be able to get reimbursed ANYTHING from the new group of self-payers who were just kicked off Medicaid. Those patients would still come to the ER and legally can never be turned away. Since these patients will pay nothing, which is worse then the SOMETHING the hospitals were getting from Medicaid, the hospitals know they have to keep the ratio of 25% of the population staying on Medicaid. Or else how would one hospital in the central part of the state pay it’s CEO $2 million? How would he feed his family?