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Jersey City Medical Center

May 9, 2005
States Propose Sweeping Changes to Trim Medicaid by Billions
By ROBERT PEAR

WASHINGTON, May 8 - Governors and state legislators have devised proposals for sweeping changes in Medicaid to curb its rapid growth and save billions of dollars.

Under the proposals, some beneficiaries would have to pay more for care, and states would have more latitude to limit the scope of services.

The proposals, drafted by separate working groups of governors and state legislators, provide guidance to Congress, which 10 days ago endorsed a budget blueprint that would cut projected Medicaid spending by $10 billion over the next five years.

Many of the proposals resemble ideas advanced by President Bush as part of his 2006 budget. In some cases, the governors embrace Mr. Bush's proposals but go further. At the same time, they also reject some of the president's recommendations that they believe would shift costs to the states.

John Adams Hurson, a member of the Maryland House of Delegates who is president of the National Conference of State Legislatures, said: "I am a Democrat, a liberal Democrat, but we can't sustain the current Medicaid program. It's fiscal madness. It doesn't guarantee good care, and it's a budget buster. We need to instill a greater sense of personal responsibility so people understand that this care is not free."

A coalition of beneficiary advocates, labor unions and health care providers is already gearing up to fight any significant cutbacks in Medicaid. The coalition includes AARP, Families USA, pediatricians, hospitals and nursing homes.

State officials say their goal is not just to save money, but also to avoid wholesale cuts in coverage like those in Tennessee, which is dropping more than 300,000 people from its Medicaid rolls, and in Missouri, which is dropping 90,000.

Medicaid, the nation's largest health insurance program, covers more than 50 million low-income people. Though originally intended for the poor, it now covers people with incomes well above the poverty level in some states.

The National Governors Association and the National Conference of State Legislatures are still refining their proposals, with the aim of getting their recommendations to Congress for action this year. States, they say, should be allowed to impose higher co-payments and deductibles on Medicaid recipients with higher incomes.

Moreover, they say, states should not have to offer the same comprehensive set of benefits to all Medicaid recipients, but should be allowed to provide some people with more limited benefits, like those offered by commercial insurers and the Children's Health Insurance Program.

States should be able to establish "different benefit packages for different populations, or in different parts of the state," the governors say in a draft of their new policy.

The proposals developed over the last month by governors and state legislators have a substantial chance of becoming law. Congressional leaders have expressed a desire to rein in Medicaid costs, appear ready to act and are just waiting for advice from state officials. "We want to invite the governors to the table," said Representative Jim Nussle, Republican of Iowa, who is chairman of the House Budget Committee and a potential candidate for governor next year.

With Medicaid, as with welfare, states have an influential voice because they help finance the program.

Federal and state spending on Medicaid has grown an average of 10 percent a year over the last five years - much faster than federal or state revenues - and now totals more than $300 billion annually. Drug prices and hospital costs have risen at a brisk pace, but the increase in enrollment is a more important factor.

From 2000 to 2004, according to the Congressional Budget Office, the number of Medicaid recipients grew by one-third. This growth coincides with the erosion of employer-sponsored health benefits. As employers have cut back coverage and raised premiums, private insurance has become less available and less affordable to low-wage workers.

In recent months, the governors have drafted at least three versions of a paper titled "Medicaid Reform: A Comprehensive Approach." The documents, obtained by The New York Times, offer a vision of "Medicaid plus health care reform," including "incentives and penalties for individuals to take more responsibility for their health care."

The governors endorse the idea of tax credits to help individuals and small businesses buy insurance. Such credits, they say, could slow the increase in the number of people becoming eligible for Medicaid.

In their draft proposal, marked "for comment only - not for distribution," the governors say they believe that "Medicaid overpays for prescription drugs." Mr. Bush wants to reduce Medicaid payments to pharmacies, but the governors say Medicaid must also extract savings from drug manufacturers.

To achieve this goal, the governors say, Congress should increase the discounts and rebates that drug companies are required to provide state Medicaid programs - a change opposed by drug makers.

In addition, the governors say, Congress should encourage the formation of multistate purchasing pools to buy drugs at lower prices for Medicaid recipients, state employees and others in public programs.

State officials generally support Mr. Bush's proposal to limit the ability of elderly people to qualify for Medicaid coverage of nursing home care by transferring assets to their children. The governors say such restrictions "should be encouraged," because "Medicaid can no longer be the financing mechanism for the nation's long-term-care costs." Medicaid now pays for about two-thirds of nursing home residents.

Mr. Hurson, the president of the conference of state legislatures, who is also chairman of the health committee in the Maryland House, said, "Medicaid was never intended to be a middle-class entitlement program for nursing home care."

State legislators have discussed a proposal to give states a fixed amount of federal money for long-term care, a sort of block grant that would automatically be increased each year to keep pace with medical costs and demographic changes. State officials would have broad discretion to use the money for nursing homes and home health care, but individuals would not have an entitlement to such services.

State legislators are still weighing this proposal, which they know would be contentious because the legal entitlement to benefits is a bedrock of the Medicaid program.

Under current law, Medicaid officials cannot charge co-payments to pregnant women and cannot charge for specific services like family planning and emergency care. For other services, the maximum co-payment is generally $3.

"These rules, which have not been updated since 1982, prevent Medicaid from utilizing market forces and personal responsibility to improve health care delivery," the governors say in the latest version of their policy statement.

Governors seek "broad discretion" to set premiums, co-payments and deductibles, subject to certain limits. Congress, they say, could establish "financial protections to ensure that beneficiaries would not be required to pay more than 5 percent of total family income."

A more modest proposal, the governors say, is to charge higher co-payments to families with incomes above certain levels, say $22,000 a year for a family of three. Or, they say, states could charge co-payments to deter the overuse of specific services, including inappropriate use of hospital emergency rooms.

Advocates for Medicaid beneficiaries said such charges would discourage people from seeking care, so their ailments would worsen and treatment would cost more.

State officials also want to change what they see as one of the most onerous requirements of the Medicaid law. Under this provision, states must treat any health problems discovered in periodic examinations of children under the age of 21. About half of the states have been successfully sued under this provision.

The National Conference of State Legislatures says Congress should "provide more flexibility for states" to limit this benefit.

Jane Perkins, who has represented Medicaid recipients as a lawyer at the National Health Law Program, said "it would be a tragedy" if such changes were made. "These children need the full range of services because they are likely to have greater needs, more chronic illnesses and disabling conditions," she said.

Governors also want Congress to make it easier for them to persuade federal courts to set aside orders relating to their Medicaid programs.

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