Report: States Bet on Medicaid Loophole to Boost Revenue

Published March 2, 2015

A new study published by the Buckeye Institute for Public Policy Solutions examines how some states, including Ohio, are trying to scam the federal government and make Medicaid expansion look like a winner, financially speaking.

The report, “Medicaid Expansion Relies on Uncertain Funding,” explains how claims of Medicaid expansion’s budgetary benefits are based on applying sales and use taxes to Medicaid managed-care organization premiums.

Pennsylvania, one state using such a scheme to boost revenue, used its gross receipts tax to collect $1.76 billion in “impermissible” revenue over 3 years.

In May 2014, the Office of the Inspector General of the Department of Health and Human Services released its findings on Pennsylvania’s exploitation of the loophole in Medicaid rules, ruling “under Medicaid rules, revenues from an impermissible health-care-related tax may not be used to finance the State’s share of Medicaid expenditures.”

Because Ohio also utilizes this loophole, the report’s author, Joe Nichols, says the state “will likely need to abolish its sales tax on Medicaid MCO premiums, and lose the critical revenue it provides.”

“Ohio effectively increases total state Medicaid spending, foists the added burden on to federal taxpayers, and pockets the savings for itself,” Nichols writes. “Meanwhile, net managed care revenues remain constant, preventing MCOs from providing additional services, but allowing the state to use its budget savings to raise Medicaid premium payments the next year.”

Jesse Hathaway ([email protected]) is managing editor of Budget & Tax News.

Internet Info:

“Medicaid Expansion Relies on Uncertain Funding,” Joe Nichols, Buckeye Institute,