Dems Fight To Protect A $600 Billion Medicaid Tax Scam That Joe Biden Tried To Kill
By Issues & Insights Editorial Board | March 07, 2025
Before Texas’ embarrassment of a congressman, Al Green, was kicked out of the House chamber during President Donald Trump’s address on Tuesday, he shouted “You have no mandate to cut Medicaid!” while pointing a cane at Trump.
Green is dead wrong. Trump does have a mandate. And it comes from none other than Joe Biden.
Republicans are looking at substantial spending cuts to help reduce the nearly $2 trillion deficit and keep the economy moving. And one big, fat, juicy target for savings is a Medicaid funding scam that lets states steal tens of billions of dollars from the federal government every year.
Here’s how this particular scam works.
States tax health care providers and use those funds to help cover their Medicaid costs. Then, the states turn around and increase what they pay these same providers for Medicaid benefits – effectively covering the cost of the tax. Then, because of the way Medicaid is financed, the states can bill the federal government for half of the spending increase.
Let’s say, for example, a state imposes a provider tax on hospitals that raises $100 million. And then it returns that $100 million to the hospitals in the form of higher Medicaid reimbursement rates. There’s been no increase in benefits. Providers aren’t better off. But the state gets an extra $50 million from the federal government’s matching fund, money that it can use for anything it wants. (The fed pays states up to 90% to cover the cost of expanding Medicaid under Obamacare.)
An Oregon state representative once called it a “dream tax.” States can use Medicaid to steal money from the federal treasury. It’s such a wonderful dream that Alaska is the only state in the nation that hasn’t leveraged it.
We’re not talking pennies here. The Congressional Budget Office figures that the 10-year cost of this tax scam is more than $600 billion, which is almost exactly what Republicans are eyeing in savings from Medicaid. Provider taxes are now the second largest source of funds for Medicaid.
Take California, which is the premier abuser of this scam. The state’s budget projects $119 billion in federal Medicaid funds – more than Florida’s entire budget – an increase of $11 billion from the prior year. American Commitment President Phil Kerpen notes that the increase alone is bigger than Nevada’s entire state budget.
And California makes clear who is picking up the tab, talking about a tax it imposes on state insurers: “While the tax is charged to health insurance plans, most of the burden of the cost of paying the tax falls on the federal government.”
This isn’t a new problem, either, and it’s one that both Democrats and Republicans have tried to fix for decades.
In the late 1980s and early 1990s, states using this gimmick pushed federal Medicaid spending up by 20% a year, resulting in a 1991 law aimed at curtailing the practice. But it didn’t work. From 2008 to 2015, for example, provider tax revenue doubled and the federal share of Medicaid spending climbed from 57% to 63%.
“Both George W. Bush and the Obama administrations recognized the problem of provider taxes and proposed limiting the amount that states could raise through them,” noted Brian Blase in a 2016 article published in Forbes.
Now, here’s the kicker.
In Bob Woodward’s 2011 book, “The Price of Politics,” he writes about budget negotiations during the Obama administration and notes that Republicans brought up the issue of Medicaid provider taxes with then-Vice President Joe Biden. Here’s how Woodward recounts the scene:
It’s a scam, Biden agreed. The states were gaming the system, taxing doctors and hospitals so they could get federal reimbursements and then returning the money to providers. Let’s call it like it is, and let’s just do this … It could save $40 billion. ‘If we can’t do this,’ the vice president said, ‘come on!’
Someone needs to ask Green – and by extension the rest of today’s corrupt Democratic party – why he’s willing to face congressional censure to defend a $600 billion tax scam that even Joe Biden has decried. Maybe follow Green around the Capitol, screaming the question while waving a cane in his face.
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