Optimizing Federal Medicaid Revenue, A Primer

States are struggling to balance budgets in hard times. Medicaid is often seen by states as a budget buster, creating enormous pressure to cut the program. This paper provides technical information on how a state can transform its Medicaid program from a budget problem into a budget solution. The key is to ensure that the state is drawing down the full amount of Medicaid matching funds from the federal government available under federal law. As with most aspects of Medicaid, there is wide variation among states in the extent to which they are making use of available federal matching funds. No state currently makes full use of all of the funding opportunities available to it, and which are described below. Given Medicaid?s large impact on every state?s budget, making use of those opportunities has important implications for the state budget as a whole.

A state?s failure to optimize its federal Medicaid revenues means, in effect, that the state is subsidizing the federal government by rejecting federal funds allocated for the states? use. Regardless of party affiliation or political philosophy, there are few state officials who, if they understand that reality, would argue for subsidizing the federal government when their state is in a budget crisis.

The details of Medicaid financing are complex, and implementation of a Medicaid optimization strategy can, in some states, involve the development of arcane, technically complicated fiscal policies. Not to worry! There are numerous consultants that state officials or health care providers can hire who have the requisite expertise and who can help tailor detailed policies that will fit the state?s political and economic environment. Federal officials are also willing to help. Secretary of Health and Human Services Kathleen Sebelius, in a 2/15/11 letter to Arizona Governor Janice Brewer, assured the governor that ?the full resources of our Department are available to you as you and the [Arizona Hospital] Association work to structure [a hospital] fee in a fiscally responsible and permissible manner to help sustain program coverage in difficult economic times.?1