Government Pays Bonuses for Increasing Medicaid Expenditures

In December, HHS announced the bonuses for 15 states that had made “significant progress in enrolling uninsured children in Medicaid.” The 2010 bonuses totaled $206.2 million. They were double the $75 million that was awarded to ten states in 2009. Despite HHS claims, there is no way that it can be shown that the additional children enrolled were previously uninsured or even that they needed taxpayer supported health care.

When the 2009 Children’s Health Insurance Program Reauthorization sailed through Congress, it included a bonus program for states that increased Medicaid expenditures by enrolling more children. Cynics would note that in health programs children are used as a relatively inexpensive wedge to start program expansions. Children are the healthiest segments of the population so the program seems inexpensive and later it can be argued that a child’s health depends on the health of his parents and that it is excessively burdensome to exclude parents. Cynics would also note that enrolling more people protects programs against significant reform or cancellation.

To get a bonus, a state had to incorporate 5 of 8 federally mandated features into its Medicaid program. All of the mandated features increased expenditures. Some made it easier to commit fraud. Required features included reducing or eliminating asset tests for Medicaid eligibility, ending in-person interviews, providing 12 months of continuous Medicaid coverage upon enrollment regardless of income, and using the same application for both the Medicaid and Children’s Health Insurance programs. To be eligible, states had to show that they increased child enrollment beyond the increases that would have been expected to result from the recession.

In a study of the effect of continuous coverage on utilization patterns in Medi-Cal in 2001, researchers funded by the Robert Wood Johnson Foundation were shocked by the “largely unexpected” finding that the rate of unnecessary ER visits for children with continuous coverage was nearly double that of children who were on and off Medicaid. It is not clear why this result was “unexpected.” The existing literature showed that the uninsured used emergency rooms at about the same rate as the privately insured, and that people with Medicaid coverage, who pay relatively little to use the ER, tend to be disproportionately high ER users.

In many states, the state agency that runs Medicaid gets more of its budget from the federal government than from state taxpayers. This creates an obvious conflict of interest for the agency if its federal paymaster wishes to spend more than state taxpayers can afford. In Colorado, a bonus of $13.7 million equaled roughly a quarter of the total amount that the state spent on the 288 FTEs (SIO) in the Executive Director’s Office of the state’s Medicaid oversight agency.