It is not surprising he wanted control over the federal money. As Governor, Romney proposed financial strategies to maximize federal Medicaid funds and then divert the money to his general coffers rather than for Medicaid services. I have written more details about his strategies here, also discussed here, including explanation of how the GAO labeled such strategies “illusory” and the Wall Street Journal labeled them “Medicaid Monday Laundering.”

Unfortunately, Romney is not the only governor to embrace illusory schemes to maximize and misuse federal Medicaid funds (but other governors are not currently running for president, criticizing federal aid spending and proposing to block grant Medicaid to the states). For example:

·      - Recent budget estimates for Indiana show $58 million from federal Medicaid funds intended for hospitals serving the poor placed into the general fund each year.

·      - Similarly, North Carolina’s budget estimates of general fund availability include $100 million in federal Medicaid funds intended for hospitals serving the poor placed in general revenue.

·     - And Texas dwarfs the other two states’ efforts, explaining how it puts federal aid intended for the poor in the general fund “available for general purpose spending.” The Texas budget estimate lists “General Revenue-related revenues” from shifting federal Medicaid funds intended for hospitals serving the poor into state general funds as totaling $669 million in 2012-13.

In a recent New York Times story by Nina Bernstein about Medicaid maximization questions in New York, available here, I further discuss the concerns with Romney’s proposal to block grant Medicaid:

But New York is hardly the only state to maximize the flow of federal Medicaid dollars. Indeed, as Massachusetts’s governor, Mitt Romney hired private consultants and on contingency fees to find new ways to capture Medicaid money, and proposed an amendment to state law to shift Medicaid revenue from a health care trust fund for the needy into the state’s general fund. . .  “In such strategies, health care facilities serving the poor are used to claim federal funds,” Professor Hatcher said. “But the health care facilities and the poor may get nothing, as the state diverts the federal aid to general coffers, and revenue maximization contractors reap millions in contingency fees.”

Mr. Romney, the Republican nominee for president, now says the best way to rein in Medicaid is to turn it into a limited block grant to the states, shrinking it and ending federal oversight because, he said in the debate on Monday, “states run these programs more efficiently.” While that would give New York much more freedom to spend the money as it wished, it would also cut financing.

Like President Obama, Professor Hatcher disagrees with that approach. “That would allow states to have free rein to funnel the money into state revenue, and the poor wouldn’t stand a chance,” he said. “In hard budget times, when the poor need more help, they’ll be the first to be cut.”

As I explained in the Boston Globe:

It’s not hard to imagine how a governor – one that employs complex shell games to find loopholes in federal rules in order to maximize and divert federal aid – would use the federal funds if handed to the state without any federal oversight. The answer to state misuse of federal aid is not to give those states even more discretion to do whatever they wish – but to simplify the claiming process, reduce loopholes allowing the revenue schemes, and improve oversight to ensure Medicaid funds are used as intended.

In the end it is not complicated. Medicaid funds should only be used for Medicaid purposes. Romney, and some other state governors, have lost sight of that simple notion and have betrayed the public trust by diverting funds intended for their vulnerable citizens into general state coffers. Block granting Medicaid to the states would not fix the problem, but would rather increase the harm.

Hatcher is an associate professor of Law at the University of Baltimore.