Against a backdrop of rural and safety net hospital closures all over the nation, Congress is actively considering measures which will likely accelerate these closures, leaving communities without their hospitals and state taxpayers on the hook. In advocating for these changes, some of my fellow conservatives claim states are engaged in what they call “legalized money laundering,” using provider taxes to maximize federal dollars instead of administering needed care. This type of hyperbole, using partial truths, is a mischaracterization and belies the underlying reason why states use these funding mechanisms, and underscores why caution must be taken before any sweeping changes are made.
Let’s step back. As a former state health care secretary who successfully led the most sweeping conservative Medicaid reforms in Florida and Louisiana—including reducing the size and cost of government, combating fraud and abuse, and pioneering hospital pricing transparency—I know firsthand the complexities of state Medicaid policy. The phrase “money laundering” is cleverly used by some, and its very definition suggests illegal activity and deceit. But what states are doing is neither illegal nor hidden. These mechanisms operate within the clear parameters of federal law. If there’s a problem, it’s a policy structure the federal government has created and approved for legitimate policy reasons.
As with many well-intentioned programs, are there some who have abused it? Perhaps so. And I would join my friends in pushing back on such abuses.
But why do states use these financing tools? Because many of them must. Medicaid, a state-federal partnership program relying on State generated taxpayer dollars, has increasingly become a backstop for Medicare’s systemic and material formula flaws which shift money from rural and poor communities to more wealthy ones. And, importantly, billions of taxpayer dollars are being shifted to insurance companies due to what appears to be a systemic denial of payment for services provided to the elderly by insurance companies that are rewarded for denying payment for care. Billions of dollars of claims sit unpaid while insurers report record profits.
By design, Medicare’s wage index systematically advantages hospitals in higher-income, urban areas at the expense of rural providers. This structural imbalance is well-documented and even acknowledged by the Centers for Medicare & Medicaid Services (CMS) and bipartisan members of Congress. Rural hospitals often receive significantly less than the cost of care to treat Medicare patients. That’s not sustainable. In fact, over 150 rural hospitals have closed in the past decade, and more than 700 others are considered at risk. These communities are not just losing institutions—they’re losing the only point of access for emergency care, maternity services, and specialty visits.
To make matters worse, the rise of Medicare Advantage (MA) plans has led to massive shifts of taxpayer dollars away from the care of patients and to insurers. CMS recently announced a dramatic 5.1% raise for MA plans in 2026 – an increase of more than $25 billion of new taxpayer dollars. This huge shift of taxpayer dollars to insurance companies was widely celebrated by Wall Street investors. Rural hospitals, however, will see a net increase of just 2.4%, far below the increasing costs of care due to massive inflation in drug costs and higher wages due to the worst nursing shortages in recorded history.
Compounding this, it is widely reported that MA insurers routinely deny claims or downcode services they had previously authorized, leading rural hospitals to receive as little as 80% of what they would under traditional Medicare – a massive cut that Congress has never publicly intended. This results in billions of dollars being retained by insurance companies instead of reaching the physicians, nurses, and facilities that deliver care.
This amounts to tens of billions of dollars siphoned out of the care delivery system annually – with not a penny contributing to health care access. That’s the real leakage in federal healthcare funding—not the state mechanisms meant to patch the holes created by it. I would argue most Americans believe they are being taxed to actually pay for the care of the elderly, and not for their tax dollars to be retained by insurers for denying the care promised to our seniors. If Congress responds to this by continuing to shift billions of
dollars to insurers in Medicare while cutting rural providers that rely on Medicaid, I don’t think it will be received well among the 85% of America’s geography that voted Republican.
Given that rural hospitals rely disproportionally on Medicare payments as compared to urban hospitals, and faced with these shortfalls and the responsibility of ensuring their citizens in rural and non-urban communities can access care, state governors and legislatures in most states use legal mechanisms to draw down federal dollars in Medicaid to make up for the federal dollars being siphoned off by insurance companies or
being underpaid to their rural hospitals. The goal of responsible legislatures and governors isn’t to game the system—it’s to protect hospital and physician access, particularly in regions the federal government has underfunded for decades. These financing approaches are publicly debated, approved by legislatures and executive branch leaders, transparently administered, and subject to federal approval.
Critics suggest these are backdoor schemes to inflate state budgets. But the truth is that states are often plugging the gap left by flawed federal Medicare policy which harms rural America.
To put it bluntly, critics of these legitimate funding mechanisms are indirectly advocating that state taxpayers pay these taxes twice. Tax #1 are the Medicare dollars being shifted to insurers to reward the denial of care. Tax #2 is when governors attempt to backfill these lost federal dollars in order to sustain access for the elderly and poor, the critics want all taxpayers to pay for it rather than the hospitals that benefit from this program. Most conservatives would oppose state taxpayers being taxed twice for the same thing.
Many of the states criticized for their Medicaid financing strategies are led by conservative governors and legislatures that understand the stakes. Rather than vilify their efforts, we should acknowledge their creativity and commitment to solving a federal funding problem they didn’t create. It used to be that federalist conservatives believed states were the laboratories for real reforms. I still believe that to be the case, and strongly suggest letting
responsible and creative governors lead the way.
I urge Congress to focus on abuses in these funding programs. But, policies that shift taxpayer dollars to insurers as an incentive for denying care, or that shifts taxpayer dollars to the wealthiest communities, while access to care in rural America is eliminated, is no policy any member of Congress should want to run on.
In the real world that governors and state legislatures must deal with, there are families who rely on hospitals being open, providers being paid fairly, and care being accessible— especially in parts of the country too often overlooked.
Alan Levine is a former health secretary for Florida and Louisiana, and current Vice Chairman of the Florida Board of Governors – the governing body of Florida’s 12 state universities. He is Chairman and CEO of Ballad Health, a health delivery system serving Appalachia.
