Democrats are raising alarm bells with claims that DOGE cuts to Medicaid could impact up to 80 million Americans who depend on the program for healthcare coverage. But if Democrats really want to preserve Medicaid, they’ll need to show a good-faith effort to work with Republicans to reduce the waste, mistakes, and fraud that cost taxpayers tens of billions of dollars each year and have put the system in the ICU in the first place.
One of the best places to start is by closing the intergovernmental transfer (IGT) loophole that states have exploited at the expense of American taxpayers and Medicaid enrollees.
In essence, states have used IGTs to cook the books as their Medicaid programs hemorrhage taxpayer dollars. Here’s how it works.
First, a state compels a government-owned healthcare provider like county hospitals and ambulance services to temporarily transfer funds into the state’s Medicaid program. The state then returns those funds to fulfill its 50 percent reimbursement obligation to the provider. The federal government also contributes its 50 percent share of the reimbursement – which comes from American taxpayers all over the country.
This shell game has become lucrative not only for the states, which effectively avoid having to actually pay their share, but also for these public providers as the allowable reimbursement rates have risen to over three times the cost of providing the service.
For example, unscrupulous providers use creative accounting to push the envelope on allocating operational costs like payroll, debt service, and depreciation expenses under high Medicaid utilization services. In plain English, they move costs that are tangentially related or are under the organization’s larger service provisions onto the backs of taxpayers. State Medicaid programs then report the new cost to the Centers for Medicare & Medicaid Services to get approval for higher reimbursement rates.
IGTs have been allowed since Medicaid’s inception, with all of their inherent strengths and weaknesses. What’s really accelerated their abuse has been the Affordable Care Act’s provisions expanding Medicaid, which added 25 million people in 41 states to the program’s rolls – and increased federal matching from 50 percent to 90 percent for the expansion enrollees.
And this is where Democrats and Republicans can be on the same fiscally responsible page: Republicans want to stop abuse for taxpayers’ sake, while Democrats have a vested interest in protecting the expansion they have championed for 15 years.
The poster child for the abuse of IGTs is California, which in 2023 received CMS approval to raise the Medicaid covered reimbursement for publicly owned ambulance services by $800, tripling the previous rate. Private ambulance companies, meanwhile, have been forced to keep costs low because they haven’t received increased Medicaid base rate reimbursement since the 1990s.
Take a guess which ambulance providers California counties work with – the low-cost private companies or the expensive public ones through which they can skim profit to fill their own budget holes? And, no, Medicaid patients are not receiving three times better care even as taxpayers pay triple the cost.
Realigning Medicaid matching policies and closing the IGT loophole will pressure states like California to adopt better budgeting practices. Those practices will likely involve allowing real competition between government and private healthcare providers. As the best providers win, so will taxpayers’ wallets and patients’ health.
It’s too late to claw back money from states as corrupt as California without years of court battles and millions in expenses. The most expedient route to save money and improve care is to end the IGT loophole.
Mike Feuz is an economic consultant by day and a research associate for the think tank Free the People by night.
Here’s a thought: Stop using Medicaid as the default to covering illegal aliens and those that don’t want or can’t afford to pay the onerous prices of Obamacare and roll back federal matching rate to 50 percent. The Medicaid system was never designed to handle that. Admit Obamacare is a complete and dismal failure that can only be maintained by allowing tens of millions to opt into Medicaid with no real guidelines. The system before Obamacare wasn’t perfect, but it was substantially better than what most of us knew Obamacare would turn out to be. The problem now is that Obamacare intentionally blew up the old system completely.
There is a reason Medicare and Medicaid are going broke. There is an incredible amount of gaming of the system from the care providers all the way down to the patients receiving services. Both legal and illegal patients are using the system, but only the legal patients have contributed anything to the system over the years. Thus, the current financial model is unsustainable. So of course, the system can’t sustain itself. Democrats are good at proposing solutions that “feel good”, meaning “free” this or “free” that but that can’t hold up over time without insane amounts of fresh money constantly being injected into the system. Look at how Newsom in California has completely drained his state’s own Medi Cal by allowing millions upon millions of illegals to use the state’s system. Now Newsom wants the federal government to bail out his state.
Therefore, don’t be surprised when the Democrats dust off their old plans to nationalize healthcare, i.e. single payer, in the coming months or years on the campaign trail as the magic “fix” to keep Medicaid and / or Medicare afloat. An open-ended spigot of taxpayer cash constantly flowing into an ever-expanding Medicaid system as the Democrats seek to add more and people, who have never paid into the system, become “entitled” to its services.
You need to put Illinois under the microscope as well, likely more corrupt than Cali with Priztger in charge. Dude removed the toilets from his extra homes to reduce taxes as the were now “unlivable” then had them replaced after the tax assessment. His family also is connected to about 65 NGOs which is why he’s crying about USAID cutting off all of his slush money. The idiots in IL. actually elected this crook!
Banning IGTs and tax schemes could save the federal government anywhere from $24 to $61 billion each year. But states would have to either cut back Medicaid services or find new revenue to make up the difference. Speaker of the House Mike Johnson says there’s $50 billion in Medicaid fraud each year. Maybe we should increase funding for more Medicare Fraud Control Units (MFCUs). They recovered $3.46 for every $1 spent in 2024.
I sincerely hope that MOST American taxpayers know that illegals are being covered under Medicaid-all of them!! WIC additionally covers women and infants plus families get up to $1200 a month in SNAP benefits. Then the states request reimbursement from the federal government!! CA spent 9 BILLION DOLLARS on illegal alien health care last year! Newsome had the gall to ask for a check. Oregon spent 460 MILLION in 2023 just on illegals. They got reimbursed!! Trump’s EO to NOT give illegals ANY FEDERAL BENEFITS is being thwarted at the state level!! And I’ll betcha is almost every state, red or blue! This is part of why they are blocking DOGE from accessing SS data.
our gov. diversitions at its best