Guess who’s paying for the costs of hospitals and nursing homes in red states?
Thom Tillis, the Republican senator from North Carolina, let the cat out of the bag this week. He urged his fellow Republicans to protect the Medicaid “provider tax” boondoggle from proposed cuts in the GOP’s “big, beautiful” tax bill – because their own constituents were making so much money out of it.
Tillis revealed that supposedly “conservative,” Republican-voting red states were using the Medicaid loophole to dump the costs of their hospitals and nursing homes on federal taxpayers – meaning the rest of us. The take totals billions of dollars a year, his analysis showed.
Chuck Schumer, the leader of the Democrats in the Senate, leaked Tillis’ analysis to the rest of us via social media.
Oops.
I contacted Tillis’s press office asking for more details, but they didn’t reply. I’m not surprised.
It’s not even two months since MAGA doc Mehmet Oz, the man that Donald Trump and the GOP put in charge of Medicare and Medicaid, was denouncing this provider-tax scam in official press releases. Oz claimed that this scam was the work of those greedy liberals in the blue states, as well as all their “illegal immigrants.”
Now it turns out that it’s really a gravy train for the MAGA states.
And it’s just a few weeks since Mr. MAGA himself, President Trump, was denouncing the provider-tax loophole as a scam, and an example of waste, fraud and abuse in the federal budget.
He’s right, too.
The provider tax, in case you’ve missed it, is an outrageous scam and an open theft from federal taxpayers. State governments levy a special “tax” on doctors, nursing homes and hospitals within their state, and then give them the money straight back as “Medicaid payments.” This artificially boosts the state’s supposed Medicaid spending, earning it extra matching dollars from the federal government.
Do this kind of thing in the private sector, and you’re likely to get fitted with an orange jumpsuit at taxpayers’ expense.
MAGA think tank Paragon calls this scam “money laundering.” I’m not sure they’re wrong.
Conservative and small-government think tanks like Heritage and Mercatus have spoken out against it, as well.
It bears repeating that there is no such thing as “government money” or “federal dollars.” All money ultimately comes from taxpayers. The provider-tax racket is a fraud against everyone who pays federal taxes – meaning pretty much all of us.
The campaign to save this scam relies upon claims that if the provider-tax loophole is capped as proposed in the Republican tax bill, let alone scrapped altogether, hospitals, nursing homes and doctors’ offices will close.
But this makes no sense. The voters of the states affected could instead just start paying the bill for these things themselves. If the voters of North Carolina won’t keep their own hospitals open unless the rest of us send them the money, that’s on them, not us.
Tillis seems horrified that his Tar Heel State will “lose” $38.9 billion over a decade without the provider-tax scam, and that “Medicaid coverage for over 600,000 North Carolinians would be at risk.” But another way of putting it is that the fine people of North Carolina would have to find this money – just under $4 billion a year-out of their own pockets.
That’s trivial compared to the gross domestic product of the state, currently $840 billion a year.
The provider-tax scam isn’t an isolated example, either. According to data compiled by healthcare think tank KFF, of the 25 U.S. states that most rely on “federal” (out-of-state) tax dollars to prop up their in-state Medicaid budgets, no fewer than 20 are “red” states that voted last November for Donald Trump. Of the 10 states that most rely on federal tax dollars to prop up their Medicaid budgets, nine were MAGA states. Among the greedy, lazy blue states, only New Mexico made the list.
We already know that the entire U.S. federal budget is a massive mechanism for transferring money from high-productivity blue states, like California and New York, to low-productivity red states.
This is the essential context for the debate over the so-called SALT cap, whereby Republicans capped the amount of state and local taxes you could claim on your federal tax return. It is presented, hilariously, as a heroic conservative stand against high-tax blue states. The reality is that it increases the fiscal transfers from the blue states, which pay their way, to the red states, which don’t.
Someone should propose sending all Medicaid spending back to the states – getting the federal government out of the business altogether – and helping to pay for it with a full, dollar-for-dollar federal tax exclusion for state and local taxes. Ironically, this would be an incredibly conservative policy: It would cut federal taxes, and push a major area of social policy to the states and localities. They would have greater freedom to innovate, and the programs would be much closer to the people they served.
But if you’re waiting for red-state Republicans to propose it, putting principles before their self-interest, good luck.
-Brett Arends
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