Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, April 14, 1993 TAG: 9304140182
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: By The Washington Post
DATELINE: LENGTH: Medium
STATES' GIMMICKS `LOOTING' MEDICAID
The North Carolina State Capitol in Raleigh has reverberated this spring with a debate not heard often in the 1990s: how to spend a windfall.The sudden bounty didn't come from a surplus of state revenues. It came from federal coffers - $105 million in hand and another $410 million expected over the next two years - all derived from a loophole in Medicaid law.
To qualify for the federal funds, the state government only has to move money among several state accounts. It doesn't have to put any new money of its own into the state's Medicaid program. And Medicaid law allows the state to use the federal money for pretty much any purpose it pleases.
One option under consideration by Gov. Jim Hunt, a Democrat, is the construction of new state buildings.
"It's comparable to a looting situation we've created and it's got to be corrected," U.S. Rep. Alex McMillan, R-N.C., told the House Energy and Commerce Committee's health and environment panel in March.
The "intergovernmental transfers" used by North Carolina to boost its federal Medicaid take are the most aggressive of a new batch of accounting gimmicks employed by financially strapped states. They have become critical financing devices in California, Texas and Michigan. And Medicaid experts expect that they will spread rapidly to other states.
Just 17 months ago, in November 1991, Congress passed major Medicaid legislation that phased out other accounting gimmicks. Now it seems that the legislation underestimated the inventiveness of the states.
The federal government puts up between one and four dollars for every dollar a state spends on Medicaid, depending on a state's wealth. To maximize the grants from Washington, dozens of states strapped for revenues and unwilling to raise taxes have resorted to accounting techniques that make their contributions to Medicaid seem larger than they actually are.
That could affect President Clinton's effort to control the deficit. Costs of Medicaid, which provides health care to 32 million poor, elderly or disabled Americans, has been growing by more than 20 percent a year since 1990.
Governors and legislatures are maneuvering to keep federal funds flowing as they draft upcoming budgets. For example: New Hampshire, which used a now-closed loophole in 1991 and last year to capture $407.3 million in federal Medicaid payments beyond its normal grant, may still qualify for a $230 million windfall in the next two years.
Under a plan approved by the New Hampshire House on April 1, the state would make Medicaid "payments" to the state's private hospitals, then recover most of that in the form of "room and meals" taxes that would qualify for federal Medicaid matching funds. The federal funds would be used to help cover a state deficit.
But the technique that most worries deficit hawks in Washington involves transferring funds from one state agency to another to capture federal matching payments.
This is the method used in North Carolina. The loophole was left in the 1991 federal Medicaid law after intense lobbying by Texas and other states, which saw it as a way to ease their Medicaid financing problems.
Under a plan approved Feb. 15 by the U.S. Department of Health and Human Services's Health Care Financing Administration, four state-run mental hospitals transfer about $100 million a year to the state Medicaid program. That counts as a state contribution to the Medicaid program, and qualifies North Carolina for $200 million a year in federal matching funds.
The loophole is so blatant that even some North Carolina politicians, mindful of the nation's worsening budget deficit, have raised questions about it.
But Democratic House Speaker Dan Blue said, "If we don't get it [the $200 million], some other state will."