Medicaid Funding Invites Abuse

The federal government provides states with “matching” Medicaid funds, although different states have different matching percentages.  These matching percentages are calculated based on several variables, such as a state’s per capita income, but the federal government covers at least 50 percent of each state’s Medicaid costs.  Because the federal Medicaid funding each state receives is based on how much that state spends on Medicaid, all states have an incentive to classify expenditures as Medicaid spending so they can receive the federal match.

Recently a House of Representative committee sounded an alert on possible abuse of the Medicaid system by the state of New York.  The committee suggested that the federal government should investigate New York for classifying expenditures such as housekeeping as Medicaid spending.  Such “creative” classification by New York may be a factor in why it spends more on Medicaid than the two most populous states in the country (California and Texas) combined.

This possible abuse of the Medicaid system is especially relevant in light of the Affordable Care Act.  The law encourages states to liberalize their eligibility criteria for Medicaid by covering 100 percent of the cost of new Medicaid enrollees resulting from the liberalized eligibility criteria.  Although this percentage will decline to 90 percent by 2020, that is still effectively a 9:1 match for Medicaid spending on the new enrollees.