States wanting to cut Medicaid rolls may face showdown with feds

Kaiser Health NewsJanuary 31, 2011 

WASHINGTON — Financially strapped governors, Congress and the Obama administration could be headed for a showdown over the Medicaid health care program, which covers 48 million poor, disabled and elderly people nationwide.

Arizona's governor already has asked for permission to drop people from the joint federal-state program, which states say is eating up huge portions of their budgets. But to do so, it needs a green light either from Congress or the Obama administration.

If it doesn't get one? States warn that they may need to slash payments to doctors and hospitals and make deep cuts in other programs, such as education. They could even thumb their noses at the law and cut eligibility, which would force the Obama administration to decide whether to cut all federal Medicaid funding to them.

The new health care law requires states to maintain their Medicaid eligibility levels for adults until 2014, when much of the law kicks in. In the meantime, federal funds that helped most states maintain their Medicaid programs — part of the 2009 economic stimulus package — come to an end in June, even as enrollment remains at an all-time high while the nation struggles to recover from the recession.

Republicans in the House of Representatives generally want to allow the states more leeway, but their only hope is to get some members of the Democratic-controlled Senate on board.

Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee, said in an interview that he was aware that states were under pressure to cut eligibility and that he'd "look at" options. Still, he said, any such effort should "find a way to maintain as much coverage as we can."

He and other Democrats, including Iowa Sen. Tom Harkin, the chairman of the Health, Education, Labor and Pensions Committee, and House Minority Leader Nancy Pelosi of California, said they'd like to extend the expiring Medicaid aid until 2014.

The odds are against making such a move. Republicans have complained bitterly about the stimulus funding. Now that they control the House, they're stressing the need to narrow the ballooning federal budget deficit.

Arizona, which says its Medicaid spending has gone from 17 percent of its general fund in 2007 to nearly 30 percent this year, recently asked the administration for permission to drop coverage for 280,000 Medicaid recipients. The state argues that it's already more generous than most states are — it's one of only seven that cover childless adults — and says Medicaid costs are jeopardizing other priorities.

Other states also are likely to seek waivers. "The states are reaching a crisis point fiscally," said Dan Mendelson, the CEO of Avalere Health, a consulting firm. Still, allowing states to drop coverage "runs directly counter to the goals" of the Obama administration, he said, adding that it would lead to "an erosion of coverage before the next (presidential) election."

Earlier this month, the National Governors Association and the Republican Governors Association urged congressional leaders to let them downsize their programs. Matt Salo, the director of the Health and Human Services Committee at the National Governors Association, said that some governors' staff members were warning congressional offices that unless they got help, they might have to ignore the law and change their eligibility rules anyway.

If that occurred, the federal government would have to decide whether to stop sending Medicaid money to those states. Even without the extra stimulus aid, the federal government on average pays 57 percent of the cost of the joint program; in some states it's as much as 75 percent.

The health law and the stimulus program require states to maintain eligibility, just as other agreements between the states and Congress do where matching federal funds are involved. Without such rules, there "isn't a mechanism that the states will use funding the way it is intended by Congress," Mendelson said. "States have taken a lot of federal money over the past couple of years with strings attached, and these are the strings."

Under the law, Medicaid will expand sharply in 2014, when 16 million more people are expected to become eligible for the program. The federal government will pick up the full tab for the newcomers for the first three years, then the federal share tapers down to 90 percent by 2020.

When he was asked whether he'd support loosening the eligibility rules for states, Donald Berwick, the administrator for the federal Centers for Medicare and Medicaid Services, said he was sensitive to the states' situation.

His solutions, however, were to point states to funding that he said already was available to them, such as subsidies to establish insurance exchanges. Moreover, he added, his agency plans to make recommendations to states on ways to lower costs by improving care. One example is reducing hospital admissions, said Cindy Mann, the director of the federal Center for Medicaid and State Operations.

Democrats in Congress have additional ideas, but most have little chance of proceeding because they go against Republican priorities of reducing federal spending and control.

Harkin, for example, said he also planned to look into an idea that had surfaced in the past: turning Medicaid over entirely to the federal government. "Maybe the federal government should take over the whole thing, and in exchange states would do other things," he said.

(Kaiser Health News is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization that's not affiliated with Kaiser Permanente.)

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