Feds: Medicaid is a partnership, not an exercise in gamesmanship

The debate over Medicaid funding apparently will continue through this volatile election year. In his FY 2005 budget, President George Bush said the secretary of Health and Human Services (HHS) will work with Congress to pass an option for states to receive Medicaid and State Children’s Health Insurance Program (SCHIP) funds in the form of flexible allotments, presumably a reference to an idea floated last year that Medicaid become a block grant program.

HHS secretary Tommy Thompson also served notice at the National Governors Association winter meeting that he intends to propose "tough new rules [to] curb creative bookkeeping" used by many states to obtain additional federal funds for Medicaid. Federal officials say state efforts to shift the cost of the joint federal-state program to the federal government have resulted in rising federal Medicaid expenditures.

Bush said in his budget message that the federal government could save $1.5 billion in the next fiscal year and $23.6 billion over the next 10 years through efforts to restore the fiscal integrity of the Medicaid program.

The administration contends that in many instances, states have paid for their share of Medicaid costs with phantom dollars rather than state or local tax revenues. State officials admit to working to maximize what they contend are legitimate federal financing opportunities, especially important to them in hard financial times.

Earlier this year, the General Accounting Office (GAO), Congress’ investigative arm, dubbed Medicaid a high-risk program, saying states have "used various financing schemes to generate excessive federal Medicaid matching funds, while their own share of expenditures has remained unchanged or decreased."

In some instances, according to the GAO, states have created the illusion that they have made large Medicaid payments to county hospitals and nursing homes and then claimed federal Medicaid money to help defray the costs, even as they required the counties to return most of the funds to the states.

"State financing schemes have driven up federal Medicaid costs," says GAO health care specialist Kathryn Allen. "Congress has repeatedly tried to curtail such arrangements, but states have consistently developed new variations," she says.

In a notice in the Federal Register, states were advised that the federal government plans to require them to provide detailed descriptions of each source of revenue used to pay their share of Medicaid costs. The federal government wants to approve state Medicaid budgets, and states would not be able to receive federal funds for additional costs unless and until federal officials approve the expenditures.

The governors have said this would be a very expensive and time-consuming administrative burden. Faced with opposition from governors of both parties, Mr. Thompson said the federal government would consult with governors and state officials on the proposed changes and would provide a formal 60-day period for public comment before implementing any new rule on the subject.

Trying to end gamesmanship

"The Medicaid program must be a federal-state partnership, not an exercise in federal gamesmanship," says Dennis Smith, the top federal official for Medicaid since Tom Scully resigned from the Centers for Medicare & Medicaid Services at the end of 2003. (President Bush has nominated FDA administrator Mark McClellan to head the Medicare and Medicaid programs.)

Meanwhile, at Academy Health’s State Coverage Initiatives National Meeting early in 2004, State Coverage Initiatives director Alice Burton reviewed the state of the states in 2004 in a presentation — Cultivating Hope in Rough Terrain. She joined other analysts in saying that states may have hit bottom in their fiscal crises, although improvement still will take quite a while. There are 21 states reporting revenues above forecast, she said, and 24 states report a stable revenue outlook. But states still need to address massive shortfalls — for FY 2004, states collectively face a shortfall of $40 million to $50 million, and for FY 2005, at least 21 states project budget gaps.

States addressed their FY 2003 budget gaps in a variety of ways, Ms. Burton said, including across-the-board cuts (32 states), raiding rainy-day funds (25 states), raising sales taxes (17 states), layoffs and early retirement of state workers (13 states), program reorganization (13 states), and temporary income tax increases (10 states).

Medicaid cost-control strategies employed by states in FY 2002 through FY 2004 include controlling drug costs, reducing or freezing provider payments, reducing or restricting eligibility, reducing benefits, and increasing copayments. State strategies for sustaining coverage in hard times, according to Ms. Burton, include bolstering the safety net, partnering with the private sector, prioritizing populations most in need, and limiting or redesigning benefit packages. She reviewed expansion plans being considered in five states: Maine, California, Idaho, New York, and Utah.

Maine’s Dirigo Health Insurance, a voluntary program addressing cost, quality, and access, is being offered to small businesses with fewer than 50 workers, self-employers, workers without offered coverage, and low-income workers in large firms. The state also is working on a MaineCare (Medicaid) expansion to 200% of the federal poverty level for parents, 125% for childless adults, and sliding-scale subsidies to 300% of the poverty level. Innovative financing and cost-containment mechanisms would be included.

Under California’s Pay or Play mandate, companies would pay into a state health purchasing fund for each worker and receive credit for providing what the state calls "acceptable" coverage. The program would be phased in over several years, starting with firms with more than 200 employees in 2006. Many challenges to the plan are expected.

Idaho’s Health Insurance Access Card legislation would expand SCHIP from 150% of the federal poverty level to 185%. In a pilot program covering 1,000 adults, participants would receive a $100 per month subsidy to buy private health insurance for those under 185% of the federal poverty level who work for businesses with two to 50 employees.

New York is working on changes to its Healthy New York small group market product intended to boost enrollment in the program. The stop-loss corridors are lowered from 90% of claims between $30,000 and $100,000 to between $5,000 and $75,000, and there are increased eligibility provisions.

Utah’s Primary Care Network has a benefit package focused on primary and preventive care. It hit an enrollment cap of 19,000 for the traditional primary care network and is focusing on enrolling 6,000 in its Covered at Work program using a voucher to buy employer-sponsored insurance. There is a $50 enrollment fee and a $1,000 cap. Specialty physician and hospital coverage comes through community donated care alliances.

Ms. Burton said that in terms of Medicaid reform, the questions for policy-makers include:

1. What is the appropriate financing system for Medicaid?

2. What roles should states and the federal government assume?

3. Is there a reform strategy in the near future that will receive bipartisan support?

In a separate study, the Kaiser Commission on Medicaid and the Uninsured cautioned that when one-time federal Medicaid financial aid ends in June 2004, few states will have resources available to fill the gap. "The issue is not out-of-control Medicaid spending, but the economic downturn and sluggish state revenue growth that are pushing states to cut Medicaid," said commission executive director Diane Rowland. "Federal fiscal relief has clearly helped to stave off deeper cuts this year, but the June end of fiscal relief is likely to bring more aggressive cost containment next year."

Kaiser released a survey of all 50 states plus two reports on state budget conditions. The first report indicates that while economic conditions are improving, state revenue growth is too weak to pull states out of their slump. The second study looks at responses in 10 states to budget pressures in FY 2004, showing that health spending cuts in Medicaid and SCHIP were more severe than in earlier years of the fiscal crisis, as states generally remained reluctant to increase income or sales taxes and already have exhausted one-time budget fixes and revenue measures such as raising alcohol and cigarette taxes.