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Leavitt defends Medicaid proposal, cost of Medicare drug benefit

WASHINGTON—In Senate testimony on Wednesday, Health and Human Services Secretary Michael Leavitt stood by earlier comments that the Medicaid program could save $60 billion over the next 10 years without any funding cuts.

Leavitt also told the Senate Committee on Finance that he opposed a bipartisan proposal for a national commission to study the Medicaid funding problem, saying, "It's time for us to make decisions. ... There is a need for swift and early action."

Leavitt also brushed aside suggestions that the government negotiate for lower prices in the new Medicare drug benefit. He said competition among pharmaceutical firms and drug plans would bring greater savings.

Leavitt's comments were based on an analysis by Medicare actuaries. But Senate committee member Olympia Snowe, R-Maine, said government-negotiated drug prices were still a "critical tool" to help hold down costs. Sen. Max Baucus, D-Mont., the committee's ranking Democrat, said he was satisfied that the program's cost projections were in line with original estimates.

The drug benefit is projected to cost $724 billion between 2006 and 2015. Annual program spending will jump from $37 billion a year in 2006 to roughly $98 billion in 2014 and $109.2 billion in 2015. The higher estimates reflect more beneficiaries, more prescriptions being filled and inflation.

Several committee Democrats expressed skepticism that the president's proposed savings for Medicaid—the state and federally funded health plan for the poor—could be achieved without funding cuts.

But Medicaid actuaries estimated that a crackdown on questionable state accounting practices—such as overstating Medicaid expenditures—would save the federal government about $40 billion over 10 years.

Baucus, however, said an analysis by the Centers for Medicaid and Medicare Services, which runs the Medicaid program, could find only $120 million in federal overpayments to states in 2003. That amount indicates that $40 billion in savings are unrealistic, he said.

"So where's the big problem?" Baucus asked Leavitt.

Bill Pierce, an HHS spokesman, said he wasn't aware of the findings that Baucus referred to. He said, however, that Medicaid actuaries came up with the projected $40 billion savings estimate based on an analysis of seven typical accounting loopholes that states use to increase federal funding.

Leavitt said previously that "most states use accounting loopholes in this manner." Joy Wilson, the health policy director for the National Conference of State Legislatures (NCSL), has denied that charge. The organization characterized the federal proposals for Medicaid as an attempt to export the federal budget deficit to the states.

By law, the federal government must pay 50 percent to 70 percent of state spending for Medicaid.

Leavitt said states had become very sophisticated in their Medicaid bookkeeping and often hire consultants to find loopholes to maximize federal funding.

"We're still trying to figure out where they're doing it and how they're doing it," Leavitt said.

Leavitt said he's working with the nation's governors to craft a Medicaid funding proposal that will meet congressional approval, but he has to overcome "significant challenges that will take time."

He chafed at accusations that the federal government was trying to shift the bulk of the Medicaid cost burden to the states in order to trim the federal budget deficit. States have already cut services and tightened eligibility for Medicaid to rein in spending.

"This isn't about reducing services," Leavitt said. "It's a question of who's paying. We believe the states should be paying."

Sen. John Kerry, D-Mass., took issue with Leavitt's claim that HHS would spend nearly $126 billion over the next 10 years to provide health insurance for up to 14 million uninsured Americans. The Department of Treasury estimates that $73 billion of that money would be in $1,000 tax credits, which poor families could use to help purchase private health care.

But because health care is so expensive, many experts say the tax credits probably won't be used.

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(c) 2005, Knight Ridder/Tribune Information Services.

ARCHIVE PHOTOS on KRT Direct (from KRT Photo Service, 202-383-6099): Mike Leavitt

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