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1993.08.13 :  State Medicaid Match

Contact:  Anne Verano  (202) 690-6145
August 13, 1993

     A federal regulation published today modifies earlier rules on the use of
federal grants to match state Medicaid funds raised by special taxes and
donations from health care providers.
     The regulation published in the Federal Register also revises restrictions on
spending for disproportionate share hospitals -those that serve large numbers
of Medicaid recipients and the poor.
     Under the provisions on disproportionate share hospitals, states could
receive an additional $800 million for their Medicaid programs in fiscal year
*This is an archive page. The links are no longer being updated. 
1993.

     HHS Secretary Donna E. Shalala said the changes are required because
"rules published last year were so restrictive that the impact on state Medicaid
budgets threatened to affect access to health care."
     In developing the revisions, the Health Care Financing Administration not
only reviewed written recommendations from the public, but also consulted
extensively with the states, including the National Governors' Association.
     "The regulation maintains appropriate budget controls while
accommodating the needs of the states," said Bruce C. Vladeck, administrator
of the federal Health Care Financing Administration.
    "This administration is committed to a good working
relationship with the states on health care issues," he said.
     "We place a high value on the work of the states in developing cost-effective
programs to expand access to quality health care, and they will have an
important role in implementing reform of the nation's health care system."
     Under the new regulation, federal grants will be available to match state
Medicaid spending of revenues from permissible taxes on 19 classes of health
care items and services, instead of the nine classes previously authorized.
     The regulation continues generally to prohibit federal funding to match
state Medicaid spending of provider tax revenues that exceed 25 percent of a
state's Medicaid expenditures.  This provision is in effect until Sept. 30, 1995.
     By redefining a national limit on spending for disproportionate share
hospitals as a "target," the regulation enables states with low DSH
expenditures to increase their payments to such hospitals.
     States in recent years started using a strategy of taxing or receiving
donations from health care providers, such as disproportionate share
hospitals, refunding the money as Medicaid payments to the providers, and
collecting federal grants to match the payments.
     This enabled states to substantially increase the flow of federal Medicaid
funds to their treasuries without any expenditure of state general revenues.
     Congress in 1991 enacted legislation designed to preserve the shared
federal-state responsibility for the Medicaid program.  It placed limits on state
provider taxes and donations and on expenditures for disproportionate share
hospitals that can be matched by federal funds.
     The legislation provided that health care-related taxes must be
broad-based, applying to all providers in a class at a uniform rate, and not
contain a guarantee that the money will be refunded to the providers.

EDITOR'S NOTE: The Health Care Financing Administration, an agency of the
U.S. Department of Health and Human Services, helps pay the medical bills for
36 million Medicare beneficiaries and 31 million Medicaid recipients.  HCFA
has a fiscal year 1993 budget of almost $230 billion.