Medicaid reform: Politically doable or wasted effort?

Washington observers are questioning the degree to which Congress will be willing and able to address thorny health care issues such as Medicaid reform, especially as funds go to war and rebuilding in Iraq.

At a March 28 roundtable discussion sponsored by the Washington, DC-based Kaiser Family Foundation — which was titled Déjà Vu All Over Again?? The Great Health Debates of 2003 — Washington Post columnist David Broder said that he sees forces mobilizing to prevent the Medicaid situation from becoming worse, but not to improve the program and its funding.

"My sense is that from now until 2004, we’re going to be in a holding pattern where the victories will come in avoiding the things that would make this situation even worse," he said. Mr. Broder predicted that health care once again will be high on the country’s agenda in the 2004 election campaign.

Facing enormous fiscal pressures

Former Secretary of Health and Human Services (HHS) Donna Shalala, now president of the University of Miami, told the roundtable that governors facing enormous fiscal pressures from Medicaid have "come to Washing-ton, hat in hand, assuming that with a Republican president who had been a governor and a number of governors in the administration and in Congress, they would get a response, but they haven’t yet gotten a serious response."

While current HHS Secretary Tommy Thompson, one of those former governors in the administration, has proposed a block grant approach to Medicaid reform, and has said that as a governor he would have jumped at such an opportunity, Ms. Shalala said governors "are smart enough to realize that’s a very short-term approach and they won’t have the kind of money they need until at least the next cycle of elections."

She also referred to the large number of uninsured and said that while there seems to be consensus on describing the problem accurately, "in politics that’s not enough. We may get consensus on what the problem is, but we still don’t have consensus any more than we did in 1993 on the solution to the problem.

"This is not a situation in which large groups of people are convinced that there’s a government role here and a government solution. I would argue that if you’re going to take a major step in health care, you have to both describe the problem and have a solution on which there’s a consensus, a bipartisan consensus, and we don’t have that now," Ms. Shalala said.

American Enterprise Institute resident scholar Norm Ornstein said that to understand the administration’s block grant approach to Medicaid reform, people need to regard President Bush as "President Reagan’s son," a very politically conservative person who wants to get the federal government out of the Medicaid business by "giving an inducement to the states in the short run and then taking it down and leaving it to them."

Mr. Ornstein said that what states would prefer is that the federal government take on Medicaid and relieve states of the burden.

Given those very different approaches, he predicted a highly politicized confrontation that will divide the governors. "I don’t see much of it happening," he said. "I also have to say that I don’t see much appetite either in the White House or for many in Congress for the generous aid that the states want."

A key solution

He said that one key to a solution could be the effectiveness of Sen. Olympia Snowe (R-ME), a member of the Senate Finance Committee who would like to see states get more money.

Mr. Ornstein said that if Sen. Snowe "keeps her resolve, . . . she might be able to work out a bargain in which we simply provide more money to the states along with some flexibility for Medicaid, but without the other changes."

Ms. Shalala predicted a higher federal match for Medicaid but without any other program restructuring.

Against that political backdrop, the National Governors Association (NGA) has appointed a Medicaid Reform Task Force and charged it with developing a reform package for the association to push.

Task Force co-chairman Dick Kempthorne, governor of Iowa, said the governors have made Medicaid their highest priority because "the program is crushing our budgets, and we believe that restructuring it to meet the demands of the 21st century is one of the most effective actions we can take to bring state budgets under control."

In a working session, the task force identified six key issues for states:

  • Dual Eligibles. The task force is reviewing prescription drug benefits, long-term care, and premiums, copays, and deductibles currently financed by states for Medicare beneficiaries who also qualify for Medicaid. The NGA said states have long advocated for the federal government to finance all of the health care needs of Medicare beneficiaries who also qualify for Medicaid, the so-called dual eligibles. There are some 6.2 million elderly and disabled individuals who qualify for both programs. About one-third of states’ Medicaid spending is on the dual eligibles.
  • Flexibility. The NGA said there now are more than 2,500 approved Medicaid waivers, many of them in operation in multiple states for many years. States have advocated for more flexibility in administering the Medicaid program without having to resort to waivers. Such flexibility would relate to every part of the program, including benefit packages, cost sharing, and eligibility determination.
  • Prescription Drugs. With costs associated with prescription drugs increasing significantly, states have sought more flexibility in determining benefit design, copays, and eligibility.
  • Long-Term Care. The NGA said that governors recognize that the entire long-term care system needs broad restructuring. In the past, governors have pursued waivers to allow Medicaid beneficiaries to be able to choose from an array of long-term care options, and not only be faced with selecting a nursing home as the only alternative.
  • Private Sector Coordination. Current statutes and regulations deter states from partnering effectively with the private sector to deliver cost-effective services, the NGA reported. Effective partnerships between Medicaid and the private sector would facilitate improvements in quality and efficiency.
  • Financing. The governors pledged to review and evaluate the current structure and various alternative proposals.

Meanwhile, the American Hospital Association (AHA) testified before a U.S. House subcommittee on its concerns about the administration’s Medicaid reform proposal.

"The administration proposal seeks fundamental change to the Medicaid program and ties any fiscal relief for states to the acceptance of such proposed changes," the AHA statement said.

"It weakens the guarantee of coverage for vulnerable populations and dismantles the Disproportionate Share Hospital [DSH] Payment program [which is] our nation’s primary source of support for safety-net hospitals that serve the most vulnerable Americans — Medicaid beneficiaries and the uninsured and underinsured. The proposal loosens federal oversight and state accountability, and it is the poor, disabled, and elderly that would be affected."

The AHA called for immediate fiscal relief for states through higher federal match payments or other relief under which states could use the funds to help their Medicaid programs.

"States should not be forced to radically transform their programs to receive such relief," the association said, "nor should they be compelled to reduce future spending to repay the federal support given now."

The AHA also called for maintaining a federally enforced entitlement to a set of meaningful benefits for the nation’s most needy people and argued against giving states absolute flexibility in deciding which non-mandatory populations and health care services will be covered in the future.

On the question of financing and financial integrity, the AHA said that both federal and state governments have a responsibility to maintain their financial commitment to the Medicaid program.

"The administration proposes to sever the federal and state financial partnership and replace it with a fixed federal commitment and a state maintenance of effort, which begins to unravel the financial foundation of the Medicaid program," the hospital groups’ testimony said. "At the heart of the proposal is the absorption of the Medicaid disproportionate share payment funds into the acute care allotment. The current Medicaid DSH program is the reason that many hospitals have been able to continue serving our most vulnerable people. The elimination of this discrete payment program would be a devastating blow to these hospitals, and to the poor and uninsured patients they serve. Many of these hospitals are in financial jeopardy; many are the sole source of care in their communities. Their failure would put communities at risk because without them, medical services, social services, and important jobs would disappear."

The hospital group also argued against the administration proposal to cap federal spending using FY 2002 spending as the base year, updated annually by a nonspecified trend factor. The administration also would tie required state maintenance of effort to the FY 2002 base year amounts, with annual updates. "What this translates into is a capped program that over time will struggle to meet the needs of the mandatory population by putting pressure on states to reduce coverage to the nonmandatory populations and to reduce payments to providers."

Opposition to any federal cap on funding or elimination of the federal-state partnership in Medicaid also has been voiced by the National Health Law Program, which urged advocates and providers to identify the financial and public health consequences that a cap could have in terms of limiting the flexibility and staff needed to respond to newly developing diseases such as severe acute respiratory syndrome or other currently unforeseen events.

[Contact NGA public affairs specialist Jason Feuchtwanger at (202) 624-5333; Norm Ornstein at (202) 862-5800; and the American Hospital Association at (202) 638-1100.]