Minnesota’s Department of Human Services (DHS) is in trouble for a number of things, one of which is paying out over $75 million in wrongful Medicaid billings. And that’s just the wrongful payments that we know about. Medicaid is a federally-funded welfare program that covers healthcare, but states administer the program, and pay for part of it. States can use their own money to add to the federal program too—for example, Minnesota’s Medicaid program even covers abortion, and pays for over 4,000 abortions per year.
Understanding the incentives of Medicaid, especially when it comes to the Affordable Care Act (ACA, or Obamacare) Medicaid expansion, goes a long way toward explaining the problems we are currently having at DHS. In fact, you could say that Obamacare is causing our current problems. Here’s how.
Medicaid expansion
Traditionally, Medicaid was funded 50 percent by the federal government, and 50 percent by the states. It was also only geared toward providing healthcare to certain vulnerable groups. Primarily, this was “lower-income children, pregnant women, adult caretakers, seniors (outside or in addition to Medicare) and the disabled.”
Obamacare came along and intended to expand Medicaid to poor able-bodied adults who didn’t have children under their care, but who didn’t receive employer-provided insurance. But the Supreme Court ruled that Obamacare couldn’t force Medicaid expansion on states. Instead, to get states to sign up for Medicaid expansion, the ACA said that feds would cover 100 percent of the cost of new enrollees, for a time, and would cover 90 percent of the cost starting in 2020 and beyond.
Bad incentives
The first problem was that while some expansion beneficiaries truly were unable to work, or unable to work at a job that offered employer-provided coverage, others were opting for shiftlessness. Even worse, expanded Medicaid allowed increased access to opioids—via unscrupulous doctors—which led to a marked increase in the opioid crisis in states that chose to expand Medicaid. For a $5 copay, patients could get a bottle of pills worth several thousand dollars on the street, and doctors billing the taxpayer were happy to comply.
That’s a lot of collateral damage for a program that some studies say offers no better health-outcomes than being uninsured.
Just as bad, the fact that the federal government is paying at least 90 percent for the new class of able-bodied Medicaid patients, but only 50 percent for the traditional Medicaid patients—such as the disabled—meant that states now financially preferred the new class of patients over the old class. That has led to disabled people being de-prioritized compared to able-bodied and childless adults.
You got that right. Obamacare, billed as the most compassionate thing ever, is actually hurting disabled people and increasing the opioid crisis. But the other incentive states have—based on the federal government footing 90 percent of the bill for a whole new class of Medicaid recipients—is why we have our DHS problems today.
How Obamacare makes Minnesota’s DHS problems worse
Because the feds are footing 90 percent of the bill, states are not being careful who is signing up for Medicaid. For example, studies show that some of the newly-covered are relatively well to do. In other words, states are turning a blind-eye to fraud. Jeff Leston writes in the Wall Street Journal:
“The federal government now pays for 63% of Medicaid costs in a system designed for a 50/50 split with the states. In North Carolina, for example, federal taxpayers fund 67% of Medicaid. Every dollar appropriated by the North Carolina General Assembly brings $2 from Washington. The more you spend, the more you get. Also, taking a benign attitude to fraud builds the cost base and brings in more federal taxpayer funds the next year.
“The greatest disincentive is what happens when a state recovers Medicaid fraud. In North Carolina’s case, the state would have to reimburse Washington $2 for every dollar it gets to keep. The response across the country is to make minimal efforts to address Medicaid fraud.”
All this is why the federal government now estimates that at least 10 percent of Medicaid billings are criminally fraudulent, and why the feds are only recovering 1/50th of criminal frauds. But in the face of these problems, the Obama administration stopped compiling the data on fraud in order to hide the waste.
Now, after four years of not auditing the program, the Centers for Medicare and Medicaid Services began auditing Medicaid again, and found “high levels of observed eligibility errors.” Criminal fraud aside, 20 percent of Medicaid is being wasted.
According to Brian Blase and Aaron Yelowitz, writing in the Wall Street Journal, “Twenty percent or more of Medicaid spending in 2019—an amount likely to exceed $75 billion—is improper. Before ObamaCare, the Medicaid improper-payment rate was 6%.”
Blase and Yelowitz go on: “One federal audit…found that more than half of sampled enrollees in California’s Medicaid program were either improperly enrolled or potentially improperly enrolled. Whether out of greed or incompetence, many states neglect to obtain proper documentation and fail to verify income eligibility and citizenship.” And there are “…some areas, such as New York City and Los Angeles, where the problem appears so large that it suggests purposeful and fraudulent abuse on the part of local officials and the medical industry.”
In other words, Minnesota’s DHS was spending improperly because it thought it could pass all the bills on to the feds. Because of this, it’s highly likely that the $75 million is only just the beginning of the wrongful billings at Minnesota’s DHS.
Big hospitals, insurance companies, and well-off state politicians all “win” through this fraud. But the country, and disadvantaged groups who Medicaid was originally intended to help, lose.
Willis Krumholz
Willis L. Krumholz is a fellow at Defense Priorities. He holds a JD and MBA degree from the University of St. Thomas, and works in the financial services industry. The views expressed are those of the author only. You can follow Willis on Twitter @WillKrumholz.
