NCPA - National Center for Policy Analysis

Abusing Medicaid

November 13, 2000

Some states have been using accounting techniques to "game" the Medicaid system and thereby increase federal matching payments by a total of up to $2 billion a year, according to the General Accounting Office.

The GAO says 20 states reimbursed some of their state and county health care facilities (including nursing homes) excessively, used the inflated charges to claim extra federal matching funds, and then made the facilities kick back the difference through an "intergovernmental transfer."

Although legal, U.S. Department of Health and Human Services Secretary Donna Shalala denounced the practice as abuse of Medicaid and proposed rule changes to stop it.

A major reason states want additional Medicaid funds is the spiraling cost of nursing home care. Since Medicare doesn't cover long-term care, and relatively few Americans purchase long-term care insurance, many middle and upper income Americans use estate planning to transfer or otherwise shelter their assets to qualify for Medicaid to pay for their care.

This is real Medicaid abuse, say insurance experts at the Center for Long Term Care Financing.

  • The Medicaid program was intended to provide health care for the poor, but now pays for more than two-thirds of nursing home costs in the United States -- about $43 billion in 1997.
  • A previous GAO report (1993) found that over half the persons who applied to Medicaid for nursing home care had transferred or sheltered assets to qualify for public assistance.
  • However, since Medicaid often pays less than the cost of the care -- on average, just 80 percent of the private-pay rate -- the quality of care may be compromised.

Thus resources meant for the poor are being used to subsidize higher income patients who could pay out of pocket or afford long-term care insurance.

Source: "HCFA Slams Medicaid Loophole Shut! " LTC Bullet, November 2, 2000, Center for Long-Term Care Financing, 11418 N.E. 19th Street, Bellevue, Wash. 98004, (425) 467-6840; Kathryn G. Allen, "Medicaid: State Financing Schemes Again Drive Up Federal Payments," Senate testimony, September 9, 2000, General Accounting Office, GAO/T- HEHS-00-193.

For GAO testimony:


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