FAIRBANKS - Federal changes in programs that buy health insurance for low-income Alaskans have ended the state's heretofore legal method of double dipping into federal Medicaid funds. The changes will cause a $18.7 million shortfall in next year's state budget.
In addition, changes in the calculation of per capita income for Medicaid could cut another $8.9 million in federal dollars.
Gov. Tony Knowles last week appealed to Sen. Frank Murkowski for help, asking him for legislation that would roll back the new federal income calculation.
Knowles didn't ask Murkowski, an Alaska Republican, for help on the change that will take the bigger bite out of the state budget.
Until this year, the state took advantage of provisions in Medicaid coverage this way:
The federal government covers 60 percent of basic Medicaid costs, while the state covers 40 percent. But the federal government also sets a maximum amount it will pay for various medical procedures.
The state would calculate how much Alaska's hospitals could have charged if they had charged the Medicaid maximum. It paid that amount - millions of dollars - to small, municipally owned hospitals, such as Bartlett Regional Hospital in Juneau, that needed a little help balancing their budgets.
The state then collected the 60 percent match for that expenditure from the federal government. But the hospitals didn't keep all the money. By prior agreement, they returned most of it to the state.
The state would then spend the money again on Medicaid to get another 60 percent match.
"The program allows the state to more than double the federal match rate for Medicaid by legally laundering federal dollars through local hospitals, and then using it to match even more federal money," said Jerry McBeath, a University of Alaska Fairbanks political science professor, in a paper for the Western Political Science Association last year.
Federal managers took a dim view of the practice, and it was outlawed this year. As a result, the state will have to come up with $18.7 million more or reduce its Medicaid services.
Jay Livey, the new commissioner of Health and Social Services, said the state operated the system as a way to get a bit more money to the municipal hospitals. Most are in Southeast Alaska and most have revenues that wouldn't cover expenses without the state's help, he said.
Livey acknowledged that the system basically used federal money to get more federal money.
"Yes, that's why they shut it down," he said. "We were fairly conservative in the way we were doing it in comparison to other states, and we were plowing the money back into health care."
Livey said the small hospitals won't be hurt by the change, but the state won't have $18.7 million that it otherwise would have in its general fund for Medicaid.
"We need to figure out how to replace it," Livey said.