Imagine if you told your kid they could have dessert, but only if they ate all of their vegetables. Then, as you looked away, they quietly slipped their spinach to the dog before reaching out to receive dessert. Here you have what California is doing with Medicaid funding, and the whole country is paying for it.
For years, states have found creative ways to game the federal Medicaid system, such as using questionable financing mechanisms that artificially inflate what they claim to spend, resulting in pulling more federal funds than they should. One popular scheme is Intergovernmental Transfers (IGTs), which were originally intended as a legitimate way for local governments and public hospitals to share the cost of Medicaid with states.
IGTs have morphed into a fiscal sleight-of-hand that undermines the program’s integrity, and California is setting the model for pulling it off.
Here’s how it works: A local government agency (like a public hospital district) sends money to the state Medicaid agency. The state uses that money to claim additional matching funds from the federal government; money that’s supposed to go toward actual Medicaid services. Instead of investing those dollars into patient care, the state quietly reroutes the funds toward unrelated priorities.
Take California’s ambulance ride hustle as an example. Through a state request for increased IGT funding tied to public Ground Emergency Medical Transportation services, California reported inflated ambulance costs by more than $800 per ride. After reeling in enhanced federal reimbursements, the state turns around and contracts out those ambulance services to private companies at a fraction of the inflated cost, effectively undermining any sort of meaningful competition.
Leftover money doesn’t go back to patients. It’s used to fill state budget holes elsewhere, like firefighter pension funds.
You can call it clever bookkeeping, but Medicaid is a federal-state partnership, which means when one state pulls out more than its fair share, the rest of America pays the price.
Billions of dollars in federal funding are siphoned into California’s public agencies each year through this scheme, inflating health care costs out of state, pushing insurers to raise prices on consumers, and ultimately reducing access to care. What California does here as such a populous state matters greatly.
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Washington can’t continue rewarding states for finding new ways to exploit old rules. No dessert when we all know you’re slipping veggies to the dog. Medicaid financing requires some degree of trust between Americans in a very large country. To ensure the program serves the people it was created to help, California needs to be held to account on how its leaders have gamed the system.
Elizabeth Hicks is the U.S. policy analyst at Consumer Choice Center.
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