States Raise Concerns About Bush Administration Plan To Close Loophole in Medicaid Upper Payment Limit

A plan proposed by President Bush in his fiscal year 2005 budget to close a loophole in the Medicaid upper payment limit would result in a $1.5 billion reduction in federal Medicaid matching funds for states and could lead to reductions in services for beneficiaries, the Billings Gazette reports (Farrell, Billings Gazette, 2/18). Under the loophole, states pay city- or county-owned health care facilities more than the actual cost of health services for Medicaid beneficiaries, receive extra matching funds from the federal government and require the facilities to return the extra funds. The states in some cases pay the facilities a small fee for their participation and use the extra federal funds for both health- and nonhealth-related programs (California Healthline, 5/15/02). Bush did not include details about the plan to close the loophole in his budget, but the National Conference of State Legislatures expects the Bush administration to release details later this year (Billings Gazette, 2/18).

Some state officials maintain the plan to close the loophole would force them to reduce services for Medicaid beneficiaries. The reduction in extra federal Medicaid matching funds would result in "avoidable deaths and disability" and increased health care costs, Iowa Medicaid Director Eugene Gessow said, adding, "It would be catastrophic if that happened" (AP/Omaha World-Herald, 2/19). Montana Medicaid Director John Chappuis said that the plan "certainly could have a negative effect" for Medicaid beneficiaries, adding, "If they take away our ability to do this, it's going to mean the county or private payers are going to have to make up the loss." Sen. Conrad Burns (R-Mont.) said that although many states use the loophole to help Medicaid beneficiaries, lawmakers must "make sure these Medicaid funds are managed in a fiscally responsible manner." Other lawmakers said that states could use the loophole to defraud the federal government and that some states have used the extra federal Medicaid matching funds for nonhealth-related programs. Rep. Denny Rehberg (R-Mont.) said, "Michigan built a football stadium with Medicaid dollars" (Billings Gazette, 2/18).