U.S. to Reduce States’ Medicaid Matching Funds

The federal government on Tuesday changed its Medicaid regulations to reduce the matching funds given to states by billions of dollars.

The rule change would cost states more than $3 billion next year and possibly as much as $12 billion by the end of fiscal 1993, according to estimates from the inspector general of the Department of Health and Human Services.

The regulation would prevent states from getting extra Medicaid funds under a practice by which states collect special taxes or “voluntary donations” from Medicaid providers, such as hospitals and nursing homes, and then qualify for a cash match from Washington.

Thirty-four states are using this practice to collect about $3 billion more in Medicaid matching funds this year, according to the Department of Health and Human Services. The regulation states that the practice has resulted “in effectively increasing the federal share of Medicaid costs without an increase in either state expenditures or services.”

States, however, say that cutting off the funds poses a great risk to their Medicaid programs.

Under the Medicaid program, the federal government matches state outlays at a rate between 50% and 83%.

The immediate impact on California’s program, known as Medi-Cal, was unclear.

Under the California plan, counties, hospital districts and units of the University of California system transfer funds from their budgets to the state health care fund. The state then sends the money back down to the county and university hospitals, as well as to some private hospitals that take large numbers of Medi-Cal patients.

The added state spending triggers an increase in federal funds. The result was expected to boost by $800 million the amount that the federal government provides the state in the new fiscal year, state officials said.