Medicaid Loophole Closure ‘Concessions’ Buried in Tax Bill

While the Clinton administration and Congress have moved to close a "glaring" Medicaid loophole that could cost U.S. taxpayers at least $20 billion over the next five years, many states have "secured special protections" that will "cushion the impact" of the "loophole-closing" legislation, the Washington Post reports. Under the loophole "gimmick," states pay local- or county-owned provider facilities more than the actual cost of services, receive inflated matching funds from the federal government, and then require providers to return the extra state funds while pocketing the extra federal funds -- a practice that the Post says could "undermine" the "fiscal integrity" of the program. Congress may pass legislation this year that would "phase out" the loophole, a move backed by the White House. However, many GOP fiscal conservatives and foes of government waste remain "incensed" because some "well-connected states" have lobbied for "special concessions" -- buried in the "fine print" of a larger $240 billion tax cut bill -- that will slow the effects of the measure. House Speaker Dennis Hastert (R-Ill.), for example, "engineered" a tax bill provision that would allow Illinois to collect $1.2 billion in special federal Medicaid funds over the next six years, while New York would receive $788 million in federal payments in 2003 and 2004. In addition, according to federal budget officials, California, Pennsylvania, Wisconsin and New Mexico have also received special protections. "It's a shell game. It's been a way for states to squeeze out a few more dollars even when state officials often feel that what they are doing is wrong," Leighton Ku of the Center on Budget and Policy Priorities said. In October, the Clinton administration proposed regulations "phasing out" use of the loophole over five years, but the announcement "drew a howl of protest" from health care lobbyists, governors and some lawmakers. Congress will tackle the Medicaid loophole, which has fallen "below the radar screen" of the "highly partisan" budget battle, when lawmakers return for a special session on Nov. 14. Meanwhile, the "tangled politics" of the Medicaid loophole has "scrambled" partisan divisions and "spilled" into the election. "Liberal" New York Democrats Rep. Charles Rangel, Sen. Daniel Patrick Moynihan and Sen. Charles Schumer have sided with Republicans Gov. George Pataki and Rep. Rick Lazio to "actively suppor[t]" special concessions for the state. This week, Lazio "chided" senatorial opponent first lady Hillary Rodham Clinton for "not adequately standing up" for New York in the face of loophole-closing measures proposed by the Clinton administration. In early October, civil rights leader Jesse Jackson joined forces with his son, Rep. Jesse L. Jackson (D-Ill.), Sen. Richard Durbin (D-Ill.) and Illinois hospital officials to "plead" with HHS Secretary Donna Shalala for special consideration for the state. On the other side, a bipartisan group of lawmakers have urged House and Senate leaders to "resist efforts" to "weaken" Medicaid loophole regulations. "Tens of billions of dollars are at risk because of the misuse of the enhanced payment arrangement. This scheme could have the long term effect of jeopardizing public support for Medicaid," the lawmakers -- including Sen. William Roth (R-Del.), Sen. Don Nickles (R-Okla.), Rep. John Dingell (D-Mich.) and Sen. Richard Bryan (D-Nev.) -- wrote in a letter to Hastert and Senate Majority Leader Trent Lott (R-Miss.) (Morgan, Washington Post, 11/4).