First Bear Stearns, then Fannie and Freddie … and now the Commonwealth of Massachusetts?

Last week Massachusetts received another short-term extension of its Medicaid waiver—which in part funds the state’s health care reform — until next Monday (July 28th) because the terms and conditions of its renewal are still pending. State and federal officials have mostly been silent on the details of their talks but there is no apparent sign that negotiations will come to an end by the next deadline.

In a recent memo I authored with my colleague Ed Haislmaier, we explained that the last renewal of this long-standing waiver in 2005 was the catalyst for Massachusetts adopting a package of major health reform measures in 2006. One key element was an agreement between state and federal officials that Massachusetts would begin redirecting federal Medicaid funds away from “safety net” institutions and to individuals instead.

The basic idea was that instead of giving heath care providers various “supplemental” Medicaid payments to subsidize them for treating the uninsured, the state would instead use those same dollars to — drum roll, please — subsidize buying health insurance for low-income uninsured adults.

Since this was a way to get insurance coverage to more of the uninsured without having to increase government spending in the process, the proposal also attracted — another drum roll, please — broad, bipartisan support.

As we explained, this shift in health care financing can work so long as state and federal officials stick to the agreements they made in 2005.

However, at least one Massachusetts politician thinks that the state ought to forget its end of the bargain and just keep subsidizing hospitals directly. In fact some institutions are getting paid not once, but twice. In addition to getting paid for covering the uninsured through their own managed care plans they also continue to gets special supplemental payments for — well, actually it’s not clear what they are getting those extra payments for.

What is clear is that “Get a federal bailout,” is not the correct answer to the question, “How does a state government fix a budget problem it created by double paying some of its health care providers?”