How to Turn $191 Million into $716 Million

October 23, 2009

Here’s a state tax scheme: tax hospitals, put some of that money in a pot labeled Medicaid, get matching funding from the Federal government, split the winnings.

It’s what Michigan politicians are trying to do. A bill that passed the House, now in the Senate, would raise $300 million with a 3% tax on all physicians and use $191 million of that to leverage $525 million from the federal government using the Medicaid matching funds formula. That’s how you turn $191 million into $716 million. One only had to tax doctors and the rest of the country.

Michigan currently has a $2.8 billion budget shortfall and,

Without new revenue, the state would cut by 4% Medicaid payments to physicians, hospitals and nursing homes — on top of a 4% cut already imposed this year.

Medicaid is financed at the state and federal level. States raise Medicaid money and then get matching funds from the federal government depending on the state’s level of poverty. But that’s not free money. Medicaid is an entitlement program, meaning the money spent at the federal level is open-ended. So federal dollars-taken from taxes or borrowed-are going to Michigan to pay for a state program they can’t control.

Michigan has the highest unemployment rate in the country(15.3% as of September). And as this article points out, about one in six residents receive Medicaid. No wonder some doctors—those likely receiving the most Medicaid patients—are asking for the tax. During bad economic times, if one must support a government program over others, no matter how inefficient it is, it might be Medicaid. With decreasing state revenue, there should be spending the government could cut elsewhere in the budget (or possibly waste within Medicaid). And again, this isn’t free money. While some doctors favor the tax, other doctors recently staged an opposition rally in Lansing. That’s because doctors that do not see many Medicaid patients won’t get the benefits of the bill—though they will get the costs.

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