'Fool the Feds'

September 03, 1991

It is a measure of the desperation confronting states these days that 23 of them have resorted to a blatant shell game with the federal government designed to enrich state coffers.

Maryland's flim-flam is perhaps the most obvious -- because Gov. William Donald Schaefer and his aides openly bragged about it. That brazen approach may have backfired, though: Federal officials are about to shut down this confidence game, leaving Maryland $55 million in the hole.

Here's how it works. Since Washington picks up half of all costs related to the Medicaid program, Maryland officials decided to inflate artificially the fees doctors charge by adding a "tax" to their bills. The doctors wouldn't actually pay the tax, it would simply be passed along to Washington, which would pay its half-share. The state ends up $55 million ahead, enabling it to close a yawning deficit in its Medicaid budget.

Such flagrant sleights of hand threaten to cost American taxpayers $12 billion by 1993. That is the reason federal agencies are about to propose new rules outlawing these so-called Medicaid "taxes." As it is, Washington has refused to pay Maryland's new charges, arguing that the "tax" is as phony as a $3 bill. And that's exactly the case.

The Schaefer scheme is known in State House hallways as "fool the feds." The governor claims Congress has gone on record supporting such an approach to help the states. Still, that doesn't explain why Annapolis would engage in this dubious practice. Any citizen who tried to pull off such a scam would wind up in jail.

Nonetheless, the governors have a legitimate complaint. Congress has dumped costly new Medicaid mandates on the states ($2.3 billion worth last year alone) without giving states the money to pay for these expanded services. With the recession adding tens of thousands more to the Medicaid rolls (Maryland's caseload has grown by 80,000 in just three years), the states are going deep into debt to keep the Medicaid program afloat.

More financial help and greater flexibility in administering Medicaid are clearly in order. But that does not excuse the state government's attempt to con the federal government out of $55 million a year. Whatever happened to integrity in state government? What kind of example is the Schaefer administration setting for citizens when it engages in deliberately deceptive practices?

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