despite protests from states and members of Congress, Health and Human Services Secretary Margaret M. Heckler last week imposed penalties of $82.3 million on more than two dozen states that had error rates in their welfare programs in 1981 that HHS considers to be too high.
The penalties spring from an amendment pushed through Congress in 1979 by Rep. Robert H. Michel (R-Ill.). It required each state to reduce its error rates for the Aid to Families with Dependent Children (AFDC) and Medicaid programs to no more than 4 percent of total benefit payments in three equal steps from fiscal 1981 to 1983. Errors include payments to ineligible persons or excess payments to eligible recipients. Congress subsequently set an even lower rate for 1984 and subsequent years: 3 percent.
Under the provision, states that fail to meet their targets must refund the federal matching portion of payments over the allowable margin of error. The federal government reimburses the states for between 50 and 79 percent of their AFDC and Medicaid outlays, with the higher percentages going to states that have a low per capita income.
Initially, HHS said that 28 states had failed to meet their 1981 AFDC targets and were threatened with the loss of their federal payments, but Heckler waived the penalty for six states -- including Maryland -- because of their "good-faith" efforts to improve their error rates. Without the waiver, Maryland would have lost $1.325 million.
But HHS decided to proceed against 21 states and Puerto Rico, penalizing them $69.2 million. California faces the biggest loss -- $35 million -- while New York is second at $6.3 million. Neither Virginia nor the District of Columbia was among the jurisdictions penalized.
In Medicaid, a dozen states failed to meet their targets, but Heckler absolved three of penalties, leaving nine with penalties of $13.1 million. The District, Maryland and Virginia were not among them.
Rep. Robert T. Matsui (D-Calif.) has introduced legislation to ease the way penalties are assessed and may seek a rollback of the 1981 penalties.