States, including Michigan, have gamed the CMS Medicaid cost sharing rules by taxing insurers and health care providers in the system and then using those tax proceeds as part of their matching funds. Michigan Public Act 175 of 2018, the Insurance Provider Assessment Act (IPAA), instituted a new Medicaid health care-related tax structure incorporating both fixed and variable rate taxes. This replaced HICA (2012), which in turn replaced QAAP (2003); previous cost shifting schemes which were each in turn prohibited by federal law. Nationwide, these schemes have transferred hundreds of billions of dollars from the feds to the states:
https://www.politico.com/news/2025/02/27/republicans-medicaid-plan-00206540
Republicans say states are pulling a fast one on Medicaid
GOP lawmakers are considering a plan to limit federal matching funds for the health insurance program to pay for tax cuts.
By Robert King - February 27, 2025Republicans in Congress see a way around the $880 billion budget shortfall they need to fill to extend President Donald Trump’s tax cuts set to expire at the end of the year.
States aren’t going to like it.
To qualify for federal Medicaid dollars, states must also kick in their own matching funds. GOP lawmakers want to stop states from taxing insurers and health care providers to raise that money, a maneuver that would leave states with a $612 billion hole in their budgets over the next decade.
Republican leaders, who are under pressure from some of their rank and file to protect Medicaid, say getting rid of the taxes would not be a funding cut, but elimination of a loophole. They argue that states are inflating Medicaid costs because they kick back the taxes to providers and insurers through higher payment rates — and also sometimes spend the money on items unrelated to Medicaid.
“States and providers scheme so that the provider gets an enormous flow of federal dollars with no state cost exposure,” said Brian Blase, who served in President Donald Trump’s first administration and has pitched restrictions on the state taxes at his think tank, the Paragon Health Institute.
House Energy and Commerce Chair Brett Guthrie (R-Ky.), who’s in charge of finding the $880 billion in savings by the time Republicans plan to vote on their budget bill in April, told POLITICO that he’s looking closely at the state taxes.
The levies became even more of a target after Speaker Mike Johnson said Congress would not use two other methods the GOP had considered to raise revenue: imposing caps on federal payments based on Medicaid enrollment in states or reducing the percentage of state spending the federal government matches.
Medicaid is funded jointly by states and the federal government. States can draw upon a variety of funding sources, including their general funds. States have used the provider taxes to juice their federal matching funds since the mid-1980s.
Barring states from drawing federal matching funds for the taxes would hit red and blue states. Every state except for Alaska levies provider taxes.
Republicans are already getting pushback.
Last week, New Jersey Gov. Phil Murphy, a Democrat, released a report detailing the potential blow to his state’s budget if Republicans cut funding to the states, including by restricting matching funds for provider taxes.
“It’s crucial for stakeholders, advocates, policymakers, and recipients to fully understand the potential repercussions on health care and services if these proposals are enacted into law,” said Sarah Adelman, New Jersey’s human services commissioner, in a statement to POLITICO. “We urge Congressional leaders to protect the integrity of Medicaid and uphold the commitment to those who rely on it every day.”
Advocates for Medicaid patients say Republicans are wrong to call the taxes abusive.
“This is just an attempt to cut a critical source of state share that states use by inaccurately calling it money laundering to disguise a cut to Medicaid,” said Joan Alker, executive director and co-founder of the Center for Children and Families at Georgetown University, during a media briefing on Tuesday.
And hospitals, which pay the taxes and are also speaking out forcefully against Medicaid cuts, say the taxes help boost the quality of care and access to it.
“States would have to make difficult decisions about how to fill the gaps, including raising taxes on residents, reducing eligibility for some Medicaid populations such as children, elderly, or disabled individuals, or reducing Medicaid benefits,” said the American Hospital Association in a statement.
But the reason hospitals don’t mind paying the taxes, Republicans say, is because states are manipulating the way federal matching funds are set to increase payment rates to providers — essentially directing the taxes back to them.
In 2022, 27 percent of states’ Medicaid share was funded by outside sources like provider taxes, according to an analysis from the National Association of State Budget Officers. A state can also rely on contributions from local governments to help cover its share of Medicaid funding.
The federal government pays its share of Medicaid funding based on a matching rate — covering a minimum of 50 percent of states’ Medicaid costs.
Republicans have yet to detail how they might set limits on state taxes.
There already are several restrictions on them. A state can only tax up to 6 percent of a provider’s revenue and has to levy the tax on providers who both do and do not participate in Medicaid.
The House Budget Committee earlier this year released a list of programs that could be subject to cuts in the upcoming budget bill. One of the proposals was to phase down the cap on taxes from 6 percent to 3 percent by 2028, leading to $175 billion in savings over a decade.
A 2022 report from the Congressional Research Service, a nonpartisan budget scorekeeper, found that getting rid of the taxes altogether could create savings of $612 billion over 10 years, making up the majority of the $880 billion in cuts Energy and Commerce needs to make.
For now, the panel is figuring out its next steps and what can get support from Republicans’ narrow House majority.
Rep. Buddy Carter (R-Ga.), chair of the Energy and Commerce Health Subcommittee, told POLITICO that the state taxes are in the mix.
“With Medicaid, we’re concentrating on waste, fraud and abuse,” he said. “If it’s waste, fraud and abuse, then it’s in danger of being cut.”
@10x25mm your Politico article rightly mentions the provider tax - one of the most insane aspects of our nonsensical healthcare system.
Healthcare costs too much, so we tax those who provide it?? Utterly counterproductive on every level.
Neither should we pretend that all current Medicaid recipients qualify equally on moral grounds.
I've cared for disabled children, impoverished veterans, and other incapacitated patients. It's obvious to everyone but bureaucrats that able-bodied adults should not be competing in this space.
According to a recent poll, I'm not alone in thinking this way. The Daily Signal presents a remarkable financial flowchart, omitted here due to length.
71% of Americans Favor Removing Illegals From Medicaid, Adding Work Requirements
As Congress considers a transformational budget bill that can pass the Senate with just 51 votes instead of 60 through the process of reconciliation, a recent poll finds that nearly three-quarters of Americans support reforms to Medicaid, one of the major entitlement programs that takes up a large percentage of federal spending.
“A proposal has been made to reduce the growth in Medicaid spending,” RMG Research, a polling firm, asked registered voters in a poll conducted on behalf of Napolitan News Service. “The proposal would remove illegal immigrants from Medicaid and require all who want Medicaid to work if they are able. Would you favor or oppose this proposal?”
Most respondents (71%) said they would either “strongly favor” (40%) or “somewhat favor” (31%) the proposal, while only 25% said they would “somewhat oppose” (14%) or “strongly oppose” (11%) it.
The House of Representatives passed a budget resolution Tuesday that included Medicaid reforms in order to cut $2 trillion from the federal budget over the next decade. Republicans have floated proposals to root out waste and to require work.
Respondents also broadly favor work requirements for federal assistance in general.
“Would you favor or oppose requiring all who want financial assistance from the federal government to work if they are able?” RMG Research asked.
More than three-quarters (76%) of respondents said they either “strongly favor” (40%) or “somewhat favor” (36%) such a proposal, while only 19% said they either “somewhat oppose” (13%) or “strongly oppose” (6%) it.
Most respondents (65%) also agreed that “reducing the growth of federal government spending” is good for the economy. About a third (29%) said slowing the growth of spending is “very good” for the economy, while 36% said it is “somewhat good” for the economy. A quarter (25%) of respondents said it would be “somewhat bad” (15%) or “very bad for the economy” (10%).
RMG Research surveyed 1,000 registered voters online on Tuesday and Wednesday. The margin of error for the sample is +/- 3.1 percentage points.
Where Does Trump Stand on Medicaid?
President Donald Trump repeated his pledge not to slash Medicaid, Medicare, or Social Security in remarks Wednesday.
“Can you guarantee that Medicare, Medicaid, Social Security will not be touched?” a reporter asked.
“Yeah. I mean, I have said it so many times, you shouldn’t be asking me that question, OK? This will not be ‘read my lips,’” the president responded, referencing President George H.W. Bush’s promise not to raise taxes, which the elder Bush broke.
“Now, we are going to look for fraud,” Trump added. “I’m sure you’re OK with that, like people that shouldn’t be on, people that are illegal aliens and others—criminals, in many cases.”
A Large Chunk of Federal Spending
The Department of Government Efficiency, which seeks to identify and cut federal waste, fraud, and abuse, claims to have saved taxpayers $65 billion throughout the government in the little over a month that it’s been in existence. That figure, while noteworthy, represents about one-tenth of Medicaid spending, and a mere 1% of the federal government’s annual spending.
Medicaid spending accounted for $616 billion in 2023, according to the Congressional Budget Office. This represented about 10% of all federal spending ($6.1 trillion) and 16% of mandatory federal spending ($3.8 trillion). It also represented 2.2% of the U.S.’ gross domestic product.
In order to address the annual deficit, which is the difference between how much the government takes in and how much it spends in a single year and stood at $1.7 trillion in 2023, the Trump administration will have to cut significantly more than DOGE has initially identified.
This poll suggests the public supports reforms to cut waste and abuse, even from major programs Trump has pledged to preserve, like Medicaid.
Tyler O'Neil is senior editor at The Daily Signal and the author of two books: "Making Hate Pay: The Corruption of the Southern Poverty Law Center," and "The Woketopus: The Dark Money Cabal Manipulating the Federal Government."
Even ex President Biden wanted to end states taxing Medicaid insurers and health care providers:
Dems Fight To Protect A $600 Billion Medicaid Tax Scam That Joe Biden Tried To Kill
By the I & I Editorial Board - March 7, 2025Before Texas’ embarrassment of a congressman, Al Green, was kicked out of the House chamber during President Donald Trump’s address on Tuesday, he shouted “You have no mandate to cut Medicaid!” while pointing a cane at Trump.
Green is dead wrong. Trump does have a mandate. And it comes from none other than Joe Biden.
Republicans are looking at substantial spending cuts to help reduce the nearly $2 trillion deficit and keep the economy moving. And one big, fat, juicy target for savings is a Medicaid funding scam that lets states steal tens of billions of dollars from the federal government every year.
Here’s how this particular scam works.
States tax health care providers and use those funds to help cover their Medicaid costs. Then, the states turn around and increase what they pay these same providers for Medicaid benefits – effectively covering the cost of the tax. Then, because of the way Medicaid is financed, the states can bill the federal government for half of the spending increase.
Let’s say, for example, a state imposes a provider tax on hospitals that raises $100 million. And then it returns that $100 million to the hospitals in the form of higher Medicaid reimbursement rates. There’s been no increase in benefits. Providers aren’t better off. But the state gets an extra $50 million from the federal government’s matching fund, money that it can use for anything it wants. (The fed pays states up to 90% to cover the cost of expanding Medicaid under Obamacare.)
An Oregon state representative once called it a “dream tax.” States can use Medicaid to steal money from the federal treasury. It’s such a wonderful dream that Alaska is the only state in the nation that hasn’t leveraged it.
We’re not talking pennies here. The Congressional Budget Office figures that the 10-year cost of this tax scam is more than $600 billion, which is almost exactly what Republicans are eyeing in savings from Medicaid. Provider taxes are now the second largest source of funds for Medicaid.
Take California, which is the premier abuser of this scam. The state’s budget projects $119 billion in federal Medicaid funds – more than Florida’s entire budget – an increase of $11 billion from the prior year. American Commitment President Phil Kerpen notes that the increase alone is bigger than Nevada’s entire state budget.
And California makes clear who is picking up the tab, talking about a tax it imposes on state insurers: “While the tax is charged to health insurance plans, most of the burden of the cost of paying the tax falls on the federal government.”
This isn’t a new problem, either, and it’s one that both Democrats and Republicans have tried to fix for decades.
In the late 1980s and early 1990s, states using this gimmick pushed federal Medicaid spending up by 20% a year, resulting in a 1991 law aimed at curtailing the practice. But it didn’t work. From 2008 to 2015, for example, provider tax revenue doubled and the federal share of Medicaid spending climbed from 57% to 63%.
“Both George W. Bush and the Obama administrations recognized the problem of provider taxes and proposed limiting the amount that states could raise through them,” noted Brian Blase in a 2016 article published in Forbes.
Now, here’s the kicker.
In Bob Woodward’s 2011 book, “The Price of Politics,” he writes about budget negotiations during the Obama administration and notes that Republicans brought up the issue of Medicaid provider taxes with then-Vice President Joe Biden. Here’s how Woodward recounts the scene:
It’s a scam, Biden agreed. The states were gaming the system, taxing doctors and hospitals so they could get federal reimbursements and then returning the money to providers. Let’s call it like it is, and let’s just do this … It could save $40 billion. ‘If we can’t do this,’ the vice president said, ‘come on!’
Someone needs to ask Green – and by extension the rest of today’s corrupt Democratic party – why he’s willing to face congressional censure to defend a $600 billion tax scam that even Joe Biden has decried. Maybe follow Green around the Capitol, screaming the question while waving a cane in his face.
Despite using bogus Medicaid provider taxes to stick the federal government with the cost of illegal immigrant health care, Medi-Cal needs a $ 3.44 Billion loan, and probably a lot more, to stay solvent. America has become a free medical tourism destination for the entire world:
https://www.sacbee.com/news/politics-government/capitol-alert/article302024149.html
California Republican lawmakers raise questions about $3.4B loan to bail out Medi-CalBy Kate Wolffe - March 13, 2025
California lawmakers will meet Monday to discuss a controversial $3.44 billion loan to the state’s health care department this week.
The state’s Department of Finance sent a letter to legislators involved in the budget process Thursday to notify them it had approved the loan to allow the Department of Health Care Services to “complete critical payments” for Medi-Cal, California’s health insurance program for very low-income people.
The $3.44 billion is the maximum loan amount that could be authorized, according to budget analysts.
The one-page letter didn’t include specifics on what had contributed to the higher costs. The lack of information led to public questions from Republican lawmakers Friday morning.
An assembly budget subcommittee on health will take up the issue Monday morning.
Freshman Republican lawmaker Carl DeMaio, R-San Diego, said he believes the increase is due to the state expanding the Medi-Cal program to undocumented immigrants.
Since 2016, the state has been expanding Medi-Cal eligibility to different parts of the undocumented population. There are an estimated 1.8 million undocumented immigrants in the state. As of January 1, 2024, all people who meet the income limits are eligible for Medi-Cal, regardless of immigration status. The last expansion, to people between 26 and 49, was slated to cost about $2.2 billion annually. During a hearing in February, a representative from the state’s Department of Finance said the state is currently paying $9.5 billion to cover all undocumented Medi-Cal enrollees.
“The $3.4 billion loan is just the first of many I expect will continue to have to be made in order to prop up a failing program that simply cannot cover the costs of illegal immigrants,” said DeMaio.
The lawmaker added he wants undocumented people to no longer have access to Medi-Cal, and he wants the federal government to conduct an audit of its Medicaid reimbursements to the state. Medi-Cal is the state’s Medicaid program, which is funded partly by federal funds, although the federal government doesn’t reimburse for coverage for undocumented people.
DeMaio brought attention to the higher-than-anticipated health care costs in February during the Assembly budget committee hearing. He was removed from the committee without explanation a few weeks later, as part of a shakeup that affected mostly Republican lawmakers. Speaker of the Assembly Robert Rivas, D-Salinas, did not explain why DeMaio was removed.
Jason Sisney is the Budget Advisor to the Assembly Speaker. In an edition of his Substack newsletter issued Thursday, he said loans like this are “fairly common” for the Medi-Cal program, “but it is less common for the maximum loan amount to be authorized.” Last year, the finance department loaned the department of health care services $1.75 billion to make up for late tax receipts.
A spokesperson for Governor Gavin Newsom didn’t comment on how costs for covering undocumented immigrants were impacting the budget. However, spokesperson Izzy Gardon said the problem “isn’t new.”
“As the administration already outlined in the Governor’s January budget proposal, additional funding is needed to support Medi-Cal,” he said.
The authors of the proposed budget said they were anticipating the program to cost $2.8 billion more because of “higher overall enrollment due to continuing unwinding flexibilities and higher-than-projected caseload and pharmacy costs.”
That number includes $1.6 billion in additional pharmacy costs alone, attributed in part to increased usage of anti-obesity drugs, like Ozempic.
Gardon added the issue isn’t unique to California. Other states are also dealing with higher prices for their Medicaid programs. In some cases, it’s being attributed to sicker-than-expected enrollees.
“There are all these issues that I’m willing to admit is part of it, but we won’t know, the citizens won’t know, unless we have a hearing on this,” said Senate Budget vice-chair Roger Niello, R-Fair Oaks.
Rivas said there will be “tough choices ahead” in managing the budget, but Assembly Democrats “will not roll over and leave our immigrants behind.”
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