U.S. Government to End Federal Budget Loophole

BOSTON--A cramped state office cluttered with paper seems an odd place to find the sharp-eyed sleuth who squeezed $500 million in Medicaid money from the federal government.

But after getting national attention for her efforts to rescue Massachusetts' state budget, Kathy Betts isn't at all surprised that federal officials are now trying to plug the enormous hole she helped expose.

Betts, 38, a part-time employee who has worked 10 years for the state, entered the limelight in June after she discovered a 1990 federal law entitled Massachusetts to recoup the Medicaid money.

Her discovery not only allowed Massachusetts to erase its budget deficit, it earned her a $10,000 reward from the state--on top of her $22,000 salary.

But it also got the attention of the federal government, which already was planning to rewrite its regulations.

Last week, federal officials announced new rules designed to block states that were joining the bandwagon.

"I think the federal government must have had some concerns about the wording of their regulations from day one," Betts said.

"And maybe this publicity brought the ruling to the attention of other states that were unfamiliar with it," she said. "And that may have spurred [the government] to revise the wording."

The federal government's proposed new rules would stop states from getting Medicaid money to supplement special taxes or voluntary donations collected from hospitals and other health care providers.

The government argued that states were simply gathering these funds from hospitals in order to attract matching dollars, and then were returning the funds to the hospitals without spending state money.

In Massachusetts, hospitals pay taxes that are funneled into a pool that pays medical costs for poor people who don't qualify for Medicaid. State officials insist their reimbursement program differs from those in most other states and should be able to qualify for more money.

"Personally, I think that's the federal government's responsibility," Betts said. "We don't have national health insurance. We do need to provide care for those without insurance."

State budget officials, however, say they don't count on receiving Medicaid reimbursements after Jan. 1, when the government hopes to put the new rules in effect.

The new regulation, which has drawn fire from the National Governors Association, would prevent states from receiving billions of matching dollars. The rules would end matching funds for voluntary donations and would sharply limit them for special taxes.