Seeking New Funds, Washington State Officials Consider Expanding Medicaid ‘Loophole’ Use

Washington state legislators have found a way to "capture" more than $250 million in additional federal funds over the next two years: "taking better advantage" of the Medicaid loophole, the Seattle Times reports (Thomas, Seattle Times, 5/18). Under the loophole, states pay city- or county-owned care facilities more than the actual cost of health services, and consequently receive more matching funds from HCFA than they would otherwise and then require the facilities to return the extra state funds. The state then sometimes pays the facilities a small fee for participating, and uses the funds for health and/or non-health-related items (Kaiser Daily Health Policy Report, 1/3). In its current two-year budget, Washington state has earmarked an extra $224 million to be received through the loophole. According to the Times, a "federal auditor" alerted state budget officials that the state could garner "even more" loophole funding -- an estimated total of $490 million -- by revising the way the state calculates the "difference between" the rate the state bills the federal government and the rate it pays care facilities. "Alarmed" by states' use of the loophole, which is expected to cost more than $12 billion over the next five years, HHS last fall decided to phase out the practice, closing it in 2003. HCFA still must "sign off" on the Washington plan, but state officials do not expect any "friction" because the loophole currently remains legal and a federal auditor suggested the financing plan.

Restoring 'Deep Cuts'
The possible Medicaid windfall comes as good news for state legislators, who have been locked in a budget "impasse" for more than a month. Lawmakers have been "struggling" to find a compromise for balancing the state budget, which faces a $500 million shortfall in the next two years, and are considering "deep cuts" in health-related programs (Thomas, Seattle Times, 5/18). Upon hearing the news of the potential cash infusion, health care interest groups have "rushed" to suggest ways to spend the windfall. "With this new money, there are no longer any excuses for cuts to health care and hospitals in the state budget," Cassie Sauer of the Washington State Hospital Association said. But for the state's Legislature, which has struggled through three sessions this year, the money does not represent a "complete bailout," but rather a "go-home" budget, according to Greg Devereux of the Washington Federation of State Employees (Roesler, Spokane Spokesman-Review, 5/19).