MediScam Back in the News 
By John McClaughry

About twenty years ago a Medicaid bureaucrat in Massachusetts came up with a bright idea. Since 1965 the Federal government has agreed to pay for a percentage of eligible state expenditures for medical care for the poor and disabled. This is called the FMAP, and for Vermont it is currently 59%. The state is required to raise money to pay the remaining 41%.

The Massachusetts woman told her superiors "Why don't we tax all the health care providers to create a big pot of money, and take it to Washington to get the federal matching amount. Then we can refund the tax to the providers who paid it, and spend all the Federal money on health care programs? The providers will come out even, and the state will gets lots of free Medicaid money from Uncle Sucker!"

Her state eagerly did just that. This became known as "MediScam", and other states were quick to follow suit. Vermont passed its legislation in 1991.

But the 1991 legislature faced up to an important question raised by the hospitals, nursing homes and home health agencies that were targeted by the new provider taxes. "How can we trust you (the state) to actually repay us for the 'assessment' we are required to pay?"

The legislature wrote into the law that the fund shall make hold harmless payments so that each provider gets back what it was required to pay in. And thus it was done for 16 years, through thick and thin. But as part of the Catamount Health bill enacted in 2006, that inconvenient hold harmless requirement was quietly repealed.

 And now, with the state shifting money around to try to squeeze through the 2009 budget, the providers have suddenly found that they won't be held harmless anymore. The state now sees the MediScam scheme not just as picking Uncle Sam's pocket, but also as a way to use the "assessments" of the three provider groups to cover other Medicaid expenses.

The administration says the hospitals will take a $6 million hit this year, but they'll be allowed to recoup that in higher rates in the next two years. The hospitals claim that it's a $16 million hit that will go on and on.

If the state allows the hospitals to recover by jacking up the rates they are allowed to charge, that will shift more of the costs of failing government health programs to private insurance premiums. The hospital Medicaid cost shift this year is $94 million.

The 1991 legislature foresaw this also. Their law provided that "the assessment made under this chapter shall not be passed on to other payers of hospital, nursing home, and home health care." That provision too has been quietly repealed. Now, instead of each provider getting back what it paid in, there will be "winners and losers" depending on the outcome of the rate setting process.

But regardless of whose calculation one accepts, this battle highlights a greater problem. Medicaid has steadily expanded since 1994, when Gov. Howard Dean, thwarted in his desire to enact HillaryCare for Vermont, chose Medicaid expansion as his fallback alternative.

The revenue sources proposed for expanding Medicaid inevitably failed to bring in enough to pay the costs. Equally inevitably, the uncovered costs were shifted through the system to fall on providers and private insurance premiums. That's a significant reason why thousands of Vermonters find basic insurance coverage "unaffordable".

The state is now projecting a $57 million Medicaid deficit for FY 2010, even with continued diversion of the provider tax. Every year these fiscal contortions will reoccur in one form or another, as the state desperately tries to keep Medicaid afloat without imposing new taxes, cutting back benefits, or taking money from somebody else's favorite program.

The dark prospect of perpetual insider struggles over complex Medicaid financing suggests that Vermonters need to come up with a new and clear agreement on the state's role in health care. Where does the responsibility for maintaining one's own health end, and the taxpayer's responsibility take over? To whom will the state send the bill? And will the accounting be honest and transparent?

John McClaughry is President of the Ethan Allen Institute