Dr. C.D. Casscells is the policy director for the Center for Health Policy at the Caesar Rodney Institute.
Critics of the new federal budget bill signed July 4 say that it puts access to health care at risk. Is that true in Delaware? The simple answer is no, not at all. In fact, the bill will likely improve access.
How Medicaid works and why states game the system
Medicaid provides care to low-income Americans. It is financed in part with state funds, with the rest coming from federal matching funds. Medicare, by contrast, is for the elderly and is financed entirely by the federal government.
States — except Alaska — raise some or all of their Medicaid contribution through Medicaid provider taxes, usually imposed on nursing homes and hospitals but sometimes on other providers. To qualify for the roughly 2-to-1 federal match, these taxes must meet three federal conditions: They must be broad-based (applied to all providers within a defined class), uniform (charged at the same rate across that class) and free of hold-harmless provisions — meaning the state can’t refund the tax or compensate providers in a way that offsets it.
The loophole: Get more federal funds without spending more
Over time, states have learned to game this system. By increasing tax revenue from “providers,” a state can draw down more federal funds. For example, if a state raises $3 from the providers’ tax, it receives $7 in federal matching funds from the Centers for Medicare & Medicaid Services. The state can then spend $3-$6 on Medicaid payments to the providers and still come out ahead. Every administration since President Barack Obama — who introduced this provider tax structure under the Affordable Care Act — has tried to eliminate the loophole that allows this. That includes Obama himself, who tried multiple times to fix what he later recognized as a mistake. President Donald Trump’s bill addresses and corrects it.
Delaware’s unusual — and unfair — approach
Delaware presents a unique case. Until recently, it taxed doctors who treat Medicaid patients but did not apply a similar provider tax to hospitals. That changed with the hospital quality assessment act, which, as of July 1, imposes a 3.58% tax on hospital net patient revenue. Nursing homes, however, have been subject to a Medicaid-related provider tax since 2012. Despite these changes, physicians remain uniquely disadvantaged in Delaware’s tax structure, which still affects access to care for Medicaid patients.
The real-world impact: fewer doctors, longer waits
Because Delaware taxes doctors who treat Medicaid patients — while reimbursing them at very low rates — fewer doctors choose to participate. As many as one-third of Delawareans are enrolled in Medicaid. But, because it’s difficult to find a participating doctor, Medicaid patients often go to clinics or hospital emergency rooms, where the cost is far more expensive, less personal and slower.
This also burdens emergency departments for everyone. Delaware consistently ranks among the worst states for ER wait times.
What happens next? Better access, lower costs
If the Trump budget bill results in the reduction or elimination of the provider tax on doctors, we expect more doctors will consider becoming Medicaid providers. This would mean better access to lower-cost, high-quality and more continuous care for patients — and savings for taxpayers.
Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.
