An item in Gov. McCrory’s budget plan that would have utilized $60 million in federal funds to help finance the state’s Medicaid budget has been rejected by federal regulators. From the N&O:
Federal regulators have rejected a plan from Gov. Pat McCrory’s administration to tax some managed-care Medicaid providers as a way to draw down more federal money for the state budget. The result is a $60 million hole in the Medicaid budget that McCrory acknowledged Tuesday – and some angry state senators who included the maneuver in the spending plan they approved last week. McCrory had proposed taxing the 10 managed-care organizations that provide behavioral health services to Medicaid recipients who are mentally ill or developmentally disabled. But last week, federal regulators denied the request by the state Department of Health and Human Services, just as they had in Pennsylvania late last month. McCrory’s budget contained an “assessment,” as the tax is known, on the managed-care organizations that provide Medicaid services to the mentally ill and disabled. The assessment is a gambit to draw down more federal Medicaid dollars that would have worked like this: The state would collect $90 million in assessments from the managed-care organizations. The state would take $30 million of that money to draw down $60 million in matching federal funds. The state would then give $90 million back to the managed-care organizations and apply the resulting extra $60 million to the state budget.
Sounds a bit like a shell game with tens of millions of taxpayer dollars. But such are the perverse incentives created by the Medicaid system. States are incentivized to spend more money in order to “draw down” more federal dollars. Thus, the natural inclination is for Medicaid to continue to expand and bust state and federal budgets. This incident also speaks to North Carolina’s (and most other states’) growing reliance on federal funds. NC spends in excess of $50 billion in their “total budget” (the state General Fund plus transportation, federal receipts and other) and has averaged about 45% of that coming from the feds in the last decade, up dramatically from the early 1990s when federal receipts made up less than 10% of NC’s total budget. Of course, federal money is never “free,” there are always strings attached. Each one of those strings eats away at our state sovereignty and consolidates more power in DC. This latest episode with Medicaid hopefully will provide incentive for state lawmakers and the Governor to seriously examine how NC can wean itself from so much dependence on federal funds.