States faulted for Medicaid estimates U.S. says technical flaws made; Maryland, other states investigated.


WASHINGTON -- States have systematically underestimated the huge and rapid increase in Medicaid costs in the last few years, resulting in billions of dollars in unexpected medical bills for the federal government, the Bush administration charges in a new study.

State officials say unanticipated economic trends, especially the recession, caused much of the rise in costs, by increasing the number of low-income people eligible for Medicaid.

But the study says the recession is responsible for "a relatively small percentage" of the cost increase.

A confidential draft of the report, marked for "internal use only," says one-fourth to one-third of the unexpected increases were attributable to "technical problems" in the way the states estimated costs, including a failure to recognize foreseeable trends.

Alarmed at the increases, Budget Director Richard G. Darman announced April 30 that he was sending out what officials described as "SWAT teams" of federal budget and health officials to investigate. Maryland was one of the states visited.

Erroneous estimates by the states cause problems because the federal government relies on state estimates in writing the budget for Medicaid, which finances health care for 27 million low-income Americans. The program last year cost $72 billion: $41 billion in federal money, $31 billion from the states.

Under law, the federal government reimburses each state for Medicaid, paying from 50 percent to 80 percent of the cost depending on the per capita income of the state.

There is no trust fund or other special source of money earmarked to pay for Medicaid. When costs increase, they contribute to the federal budget deficit. One objective of the report is to give the states guidelines and incentives to improve the accuracy of the estimates.

In November 1989, the report says, states estimated their Medicaid programs would cost the federal government $44.4 billion in the fiscal year that began Oct. 1, 1990. But this May, they projected federal costs for the same period at $52.6 billion, an increase of 18 percent in just 18 months.

Estimates of 1991 hospital costs for Medicaid recipients quadrupled in Alabama, tripled in Massachusetts and doubled in Pennsylvania.

The report notes there has been a "rapid increase in federal Medicaid mandates," requiring the coverage of millions of additional children and pregnant women, and it implies that Congress would be less willing to expand the program if it had a truer picture of future costs.

The report lays a foundation for federal efforts to curb the use of techniques by which states obtain extra Medicaid money from the federal government while putting up little or no extra money themselves.

Besides Maryland, the states investigated were Alabama, California, Florida, Massachusetts, New York, Ohio, Pennsylvania and Texas. Together, the report says, they account for almost half of projected Medicaid spending in 1991 and 1992, and for about 55 percent of the increase in estimates.

The report lists other reasons for increases in Medicaid costs,

including state decisions to raise payments to hospitals and nursing homes in response to either court orders or threatened lawsuits. The report says state officials need "definitive guidance" from Washington to help them resist such lawsuits.

State officials cooperated with the investigation, but say the federal budget office, which frequently underestimates the federal budget deficit, is in no position to lecture the states.

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