States increasingly rely on providers, local governments to finance Medicaid: 7 things to know

In financing the nonfederal share of Medicaid program costs, states increasingly rely on funds from healthcare providers and local governments, according to a report from the Government Accountability Office. Here are seven things to know about Medicaid funding from the report.

1. Medicaid is a jointly financed federal-state program. The federal government matches each state's Medicaid spending for services based on a state's federal medical assistance percentage. The average federal share of Medicaid service spending is 57 percent. States finance the nonfederal share through state general funds and other sources, such as taxes on providers and local government funds. State taxes levied on providers are generally imposed on private healthcare providers. These taxes include licensing fees, assessments or other mandatory payments related to a healthcare services, the provision of or authority to provide the service, or the payment of the service, according to the GAO.

2. Overall, Medicaid costs totaled $432 billion in 2012. The nonfederal share of that amount was about $180 billion, and states surveyed by the GAO financed 26 percent (more than $46 billion) of that amount with funds from healthcare providers and local governments in state fiscal year 2012.

3. Of the more than $46 billion, states received $18.8 billion from providers, including $72 million from provider donations. Local governments accounted for $27.9 billion. The remaining $133.1 billion came from state funds and other sources, such as tobacco settlement funds and state trust funds.

4. Nationwide, states' reliance on healthcare providers and local governments to finance the nonfederal portion of Medicaid payments increased by more than 21 percent from state fiscal year 2008 through 2012. This increase was largely driven by rising revenues from healthcare provider taxes, according to the GAO. From 2008 t0 2012, the amount of funds from healthcare provider taxes increased from $9.7 billion in 2008 to $18.7 billion in 2012.

5. In several states examined by the GAO, this increased reliance on providers and local governments resulted in cost shifts to the federal government. For instance, in fiscal year 2012 in Illinois, a $220 million payment increase for nursing facilities funded by a nursing facility tax led to an estimated $110 million increase in federal matching funds.

6. The GAO has concluded CMS hasn't assessed the accuracy and completeness of data it collects from states on their financing of the nonfederal portion of Medicaid payments. In March 2014, agency officials said they couldn't attest to the accuracy of data reported on the use of provider taxes and donations but that states were likely underreporting. The GAO has advised CMS to develop a data collection strategy that ensures accurate and complete data on all sources of funds.

7. Rising Medicaid payments financed with funds from providers that receive the payments have spurred concerns among policymakers. As in Illinois, these financing arrangements can result in cost-shifting to the federal government with limited provider and beneficiary benefits, according to the GAO. In recent years, the National Commission on Fiscal Responsibility and Reform, the Congressional Budget Office and other entities have issued cost-saving proposals that would restrict states' ability to tax providers to finance the nonfederal share of Medicaid payments. The report states, "The proposals estimated federal savings in the tens of billions of dollars. The basis for the savings is that as a result of reducing the threshold, states would have less tax revenue to finance the nonfederal share, and if states were unable to replace this reduction with funds from other sources of the nonfederal share, then states would reduce Medicaid payments."


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