As talks over needed Medicaid reforms inside the Beltway stall, health care experts say Republicans can dramatically reduce Medicaid costs without affecting services by cracking down on a form of “money laundering” that enriches politicians in Democrat-controlled states at the cost of the truly needy.

Experts say Republicans should reform an accounting gimmick by reforming Medicaid reimbursements for intergovernmental transfers (IGT). In essence, a state temporarily borrows funds from a public emergency provider, such as an ambulance service, through a “provider tax.” But the state returns those funds to public providers — and counts this as a state Medicaid expense. The federal government then reimburses a share of this inflated cost, allowing politicians to pocket the padded costs.

“For every $1 in IGT funds transferred to the state, the locally or state-owned public providers receive at least $2 and as much as $4 in return, depending on the state’s FMAP, thereby generating a net 100 percent to 400 percent profit from the transaction,” notes a recent report from the Paragon Health Institute titled “Addressing Medicaid Money Laundering.”

IGTs “allow state governments to increase payments to state-owned health care facilities to draw more funding from federal taxpayers for no commensurate increase in benefits to Medicaid patients,” Niklas Kleinworth, a policy analyst who co-authored the report with the institute’s president, Brian Blase, told The Washington Stand. “States bore none of the growing cost of Medicaid in the 15 years, relative to their GDP, and IGTs are partially to blame for this boon.”

As in other issues, California stands out as a particularly bad example. The U.S. Centers for Medicare and Medicaid Services (CMS) approved California’s State Plan Amendment (SPA) 22-0015 in 2022, which increased Medi-Cal’s reimbursement for public ambulance services — and only publicly owned services — by almost $800. Curiously, a report at the 2023 Fire Chiefs Leadership Seminar listed the cost of public ambulance services at $235 an hour, $71 less than the private sector, yet California’s SPA 22-0015 raised reimbursements from $339 an ambulance ride to between $1,065 and $1,126. In the year after California adopted the measure, its share of federal Medicaid reimbursements increased by 8% — 29% higher than total U.S. Medicaid spending rose in 2023. The lucrative IGT arrangement has led to local governments rejecting bids from private providers, which cannot leverage federal reimbursement funds.

The Biden-Harris administration’s CMS retroactively approved a measure (SPA 24-0002) extending these generous terms through 2024 on January 15, 2025 — five days before President Donald Trump took office. The man who oversaw this process, California Governor Gavin Newsom (D), has not hidden his ambition to run for president, where he could impose similar procedures on the whole country.

No one questions that Medicaid is bloating the federal budget. Medicaid spending accounts for one in every six dollars spent on health care in the U.S. The federal government spent $874.1 billion on Medicaid in 2023, $589.1 billion from the federal government — $86.8 billion more than in 2021 under special COVID-19 rules.

The current congressional debate focuses on Obamcare’s expansion of Medicaid. “Medicaid expansion has bloated the program,” Vance Ginn, Ph.D., president of Ginn Economic Consulting, TWS. “Improper payments alone surged to over $86 billion.”

Ironically, nearly two-thirds of people insured during the early days of the Obamacare expansion were already eligible for coverage. In all, 63% of people insured under the Affordable Care Act in 2014 obtained coverage through Medicaid, according to an October 2016 article in the New England Journal of Medicine. Most enrollees saw zero “improvements in several physical health outcomes … and there were no changes in employment or earnings,” Katherine Baicker, a professor at Harvard’s T.H. Chan School of Public Health, told the Heartland Institute, describing her NEJM study.

The chief Trump administration figure overseeing the program understands the vast savings the nation could reap from reform. “We had tens of billions of waste and fraud and abuse. But if we fix that,” Dr. Mehmet Oz, administrator for the CMS, told Fox Business host Maria Bartiromo on Tuesday, “we have hundreds of billions of dollars of potential benefit.”

But some Republicans have lobbied Speaker of the House Mike Johnson (R-La.) against reforming FMAP in reconciliation. “I think we’re ruling that out,” said Johnson, “but stay tuned.”

Still, Republicans can curtail these abuses, if they wish. “Ending money laundering schemes like IGTs provides an opportunity to refocus Medicaid on patients and their quality of care, not financing schemes for corporate interests and states,” said Kleinworth. “Congress should ban states from paying government health care facilities more than private providers to eliminate the incentives for gaming the system.”

Congress should also pay states fixed block grants rather than open-ended reimbursements. “Block grants would align incentives — forcing states to be better stewards of taxpayer dollars and ending games like IGT abuse” and “stop Medicaid from being a blank check for state budget gimmicks,” Ginn told TWS.

“Block grants, eligibility checks, and work requirements are essential first steps,” Ginn, the author of the forthcoming book “Empower Patients” with Dr. Deane Waldman, told TWS. These reforms, coupled with “no-limit Health Savings Accounts put control back in the hands of patients and doctors, leading to better care and accountability.”

Under Medicaid expansion, states “get $9 from the federal government for the able-bodied, childless adult population that was in the Obamacare expansion, and they get $1.33 for the vulnerable population — for pregnant moms and kids and the disabled,” Paul Winfree, founder, and CEO of the Economic Policy Innovation Center, told “Washington Watch” on Thursday. “Rules the Biden administration promulgated have been redirecting health care towards the expansion population, leaving the vulnerable unprotected.”

Continued government dependence is “going to set us up for single-payer” health care, or socialized medicine, he continued, “which is exactly what the Democrats knew they were going to be doing when they passed Obamacare in the first place.”

To avoid that fate, “there are three things that they should be doing,” Winfree insisted. “The first is reducing the federal match for the able-bodied population down to the vulnerable level."

Second, the Trump administration should eliminate a Biden-era rule allowing Medicaid to pay commercial rates for care, which are “often two or three times higher than Medicare rates” — a reform that “would save about $70 billion a year,” explained Winfree, who also served as White House director of budget policy and is affiliated with the Paragon Health Institute. 

“The third thing that they should do is reduce this game, this scam that the states play where they tax Medicaid providers and then they get the federal government to cover a major share of that tax, which they pocket that and use for things that have absolutely nothing to do with healthcare, like putting sprinkler systems in front of the California governor’s mansion.”