Pennsylvania Medicaid Tax Plan Cost U.S. $1 Billion, Audit Says

May 30, 2014 1:02 pm ET

May 30 (Bloomberg) -- Pennsylvania reduced its share of spending for Medicaid, raising federal costs in the process by about $1 billion over three years under a tax system criticized by U.S. auditors.

While the inspector general for the U.S. Department of Health and Human Services said Pennsylvania didn’t follow tax rules, the state won’t be penalized by the Centers for Medicare and Medicaid Services, which oversees the state-federal health program for the poor.

Instead, the agency said it would clarify the regulations for Medicaid taxes and “work with Pennsylvania to develop an approvable tax structure,” according to the report released today by Daniel Levinson, the HHS inspector general. The state disagreed with the findings in a written response to Levinson.

Pennsylvania reaped about $1.1 billion in reduced Medicaid spending from 2009 to 2012 using a tax on health insurers who cover people enrolled in the program. The state reimbursed the insurers for more than 91 percent of the tax by increasing their Medicaid payments.

Forty-nine states and the District of Columbia levy similar taxes on hospitals, nursing homes, insurers or other companies in Medicaid, according to the National Conference of State Legislatures. The states can count the revenue toward their share of Medicaid costs while reimbursing companies for the tax, a structure that shifts the burden of Medicaid spending toward the federal government.