NJ Medicaid Fraud and the Pension Cost Conundrum

When you see a headline about Medicaid fraud it usually involves prison time for some medical provider. But when it’s a government committing the fraud….

The Office of the Inspector General (OIG) in the Department of Health and Human Services alleges that New Jersey claimed hundreds of millions in unallowable or unsupported Medicaid school-based reimbursement. New Jersey is disputing the charges but, knowing a little about how government accounting and oversight operate around here, I tend to side with the feds.

Among the charges:

OMB Circular A-87 states that accrued pension costs are allowable for a given fiscal year if they are funded for that year within 6 months after the end of the year. Costs funded after the 6- month period are allowable in the year funded. The State agency’s payment rates incorporated the cost of payments to the school employees’ pension fund totaling $435,287,077; however, the State has not made regular payments or a full annual payment to the fund in nearly 20 years. The base year used to set the State agency’s payment rates was State fiscal year (SFY) 2004. During this year, the State made zero payments to the pension fund. The State has not provided us with evidence that it ever paid the $435,287,077 that PCG claims is a 2004 pension cost. Therefore, the State agency should not have included these costs as a SEMI expense in its payment rate calculations.

To which New Jersey responded:

In its memorandum, PCG (company NJ contracted with to handle Medicaid reimbursements) disagreed that the State agency incorporated unpaid pension costs into the payment rates. PCG stated that it reasonably relied on Medicare regulations on cost data (42 CFR § 413.24) when it included accrued pension costs in its computation of the rates. Further, PCG stated that State officials informed PCG that 96 percent of the pension liability was paid prior to PCG’s rate-setting activities.

OIG did not buy that:

Medicare regulations on cost data do not apply to Medicaid rate-setting methodologies. We note that PCG stated in its rate analysis that it followed OMB Circular A-87, not Medicare regulations. As described in our findings, OMB Circular A-87 states that accrued pension costs are allowable if they are funded within 6 months after the end of the fiscal year. Further, per Medicare regulations, accrued pension costs would be unallowable unless they were paid within 1 year. Finally, neither the State agency nor PCG provided evidence that any of the accrued pension costs detailed in our findings have been paid.

The rule OIG cites works fine for Defined Contribution plans, where contributions go into participant accounts, but falls apart with a Defined Benefit plan where contributions often do not match benefits being accrued in cases like:

  1. New Jersey in 2004 which claimed exemption from having to make contributions on account of the plan being fully funded yet benefits accrued,
  2. New Jersey in a 2022 dreamland when they are supposed to be making full ‘required’ contributions, a large part of which would be amortization payments for unfunded liabilities generated by benefits accrued in prior years,
  3. New Jersey in between which has been putting in a percentage of the ‘required’ contributions, part of which were for prior years underfunding, and finally
  4. New Jersey again in 2022, but a real-world 2022 this time, when the plan defaults on a large part of benefits accrued.

9 responses to this post.

  1. Posted by dentss dunnigan on December 1, 2017 at 10:43 am

    It seems to me the government is a little harder to flim flam that the average nj taxpayer is …I read yesterday in the SL that we owe the gov 600 million ,and Murphy thought the weed tax will help pay that off ……


  2. Posted by Anonymous on December 1, 2017 at 11:15 am

    NJ’s problems are not just P&B’s. NJ has been making bad budget choices for decades, squandering billions. One significant example is the homestead rebate program reimplemented under Whitman. This was ‘suppose to be’ a ONE TIME rebate of ‘excess’ GIT collections. It turned into another ‘entitlement program’ of sorts that drained untold billions from other programs.


    • Posted by Tough Love on December 1, 2017 at 12:26 pm

      It’s no surprise to me that you consider the pittance in Homestead rebate payments (with is really nothing but a VERY small return of NJ’s VERY high Property Taxes) a big deal, but neglect to mention the ROOT CAUSE underlying NJ’s financial problems ……… Public Sector pensions (AND benefits) that are ROUTINELY 3 to 4 TIMES greater in value upon retirement than those granted COMPARABLY SITUATED Private Sector workers.

      Might that be BECAUSE you or a family member (as a NJ worker or retiree) are riding NJ’s Public Sector Pension/Benefit “gravy train” and don’t want it derailed ?


      • Posted by Anonymous on December 1, 2017 at 12:37 pm

        You are a fool to believe things would be any different without public pensions you are really a fool


        • Posted by Tough Love on December 1, 2017 at 2:48 pm

          Well, because they “deserve” no more, I will continue to advocate for the pensions & benefits provided NJ’s PUBLIC Sector workers.to be brought ALL THE WAY down to the level typically granted NJ’s Private Sector workers by their employers.

          And if we ever get there (or reasonably close), it will undoubtedly have a HUGE positive impact on NJ’s finances.


          • Posted by S Moderation on December 2, 2017 at 9:55 pm

            I guarantee, for all New Jersey state and local workers in jobs requiring less than a BA degree, take away their retiree healthcare, put them on a 5 percent match DC plan plus Social Security, and the average compensation will be equal to or lower than the private sector, even using Biggs’ discount assumptions.

            The average public compensation will be equal to or lower than the average private compensation. Bam !!! EQUAL !!!

            Dumb, but equal.

          • Posted by Anonymous on December 3, 2017 at 6:32 pm

            Happy Holidays and a White (Sands) Christmas ‘Love Stinks’ et al from beachfront in the Sunshine State – LOL!

  3. Posted by Anonymous on December 2, 2017 at 6:27 pm

    Anybody know what the State match on this program? Just how much net $s did NJ forego by skipping its’ pension payment?


  4. Posted by Anonymous on December 2, 2017 at 6:46 pm

    I’m just putting it out there…..

    I’ll trade my modest FL home, straight up, for your overpriced, on the decline, can’t fully deduct my SALT NJ home! I can’t and never could itemize b/c I made such a huge salary working for the government and now my P&B’s are out of this world I would just bring my suitcase filled with cash from my offshore, never taxed account to the closing table. Yeah right…..

    USA the only place where budget Hawks applaud a tax cut that increases the deficit. I know, I know trickle down economics b/c we’re in for a real boom time – LOL!


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