HHS disagreed with the auditors' assessment, insisting that its own projections of state spending were accurate.
This seemingly arcane accounting question could carry huge additional costs for the federal government, as states continue to have waivers approved for projects affecting massive numbers of people—all premised on their ability to stay within their existing spending arc. The federal government matches state spending in the $437 billion program at an average rate of 57%.
"The GAO report makes clear that the Obama administration has a great deal of authority under current law to engage in all manner of creative financing that is not budget-neutral,” said Ben Domenech, a research fellow at the conservative Heartland Institute. “This creates a huge loophole that can be used by CMS to unilaterally increase entitlement spending in Medicaid, and state politicians are happy to take advantage of it.”
The federal government continued to approve major waivers after the time frame studied by the GAO report, including a large Florida waiver in June to place 2.9 million beneficiaries in managed care.
The waiver problem goes beyond HHS projections, said Devon Herrick, a senior fellow at the conservative National Center for Policy Analysis. Spending in states that have gotten Medicaid waivers will generally outstrip estimates because states don't have to cover any cost overruns.
“There needs to be a consequence for the states or they're not going to make the hard decisions to control costs, such as cutting politically powerful providers,” Herrick said.
The demonstration projects are expected to accelerate in 2017, when the Patient Protection and Affordable Care Act authorizes expanded federal matching funds when such waivers are used to restructure states' Medicaid programs.
But the challenge of accurately determining budget-neutrality for future waivers is expected to grow more complicated, according to Joy Johnson Wilson, director of health policy for the National Conference of State Legislatures. Designing a budget-neutral program requires a spending baseline, which the range of federal Medicaid changes in recent years—including a historic 2014 eligibility expansion in about half of the states—have clouded.
“Going forward, it's a lot more complicated to determine budget-neutrality,” Wilson said.