Medicaid Narrowly Escapes Drastic Reform, Cutbacks

Health care news in recent months has been dominated by coverage of the debate on the federal Medicare prescription drug […]

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Health care news in recent months has been dominated by coverage of the debate on the federal Medicare prescription drug bill.  But, unknown to many Americans, the past six months have also seen a major debate on a plan put forth last January by the Bush administration to radically restructure and shrink the federal Medicaid program, known in Minnesota as Medical Assistance.  As of this writing, there appears to be little chance of the Bush plan being implemented in the near future, but voters should know the nature of the threat to this important program.

What Is Medicaid?

Medicaid is a health insurance program for 47 million low-income people, administered at the state level but funded jointly by the states and the federal government.  It covers children, seniors, people with disabilities, or PWD, and other people who are eligible to receive federally assisted income maintenance payments.  For every dollar a state spends on providing these services, the federal government will provide from one to three dollars; the federal government’s matching funds currently provide between 50 and 77 percent of each state’s Medicaid budget.

Services provided under Medicaid vary from state to state.  All states that participate in the program are required to provide certain services, such as in-patient and out-patient hospital services, physician services, and home health care for eligible persons, to name a few.  Other services are considered “optional,” with states given the freedom to choose whether to provide services beyond those mandated by federal law.  Minnesota has historically chosen to cover a long list of so-called “optional” services, including:  preventive health services; prescription drugs (including birth control); dental services; chiropractic services; physical, occupational, speech and respiratory therapy; nutrition advice/food vouchers for women who are pregnant, infants and children (WIC); eye exams and glasses; hearing aids; transportation services; mental health treatment; alcohol and drug treatment; hospice care; home health care for those under 21; private duty nursing; personal care services; group homes for people with developmental disabilities; prosthetics; and podiatry.

The Bush Proposal

The Bush administration’s Medicaid proposal was presented as a way to “modernize” and “expand” the program.  Many advocates for low-income people and PWD see it as an attempt to weaken or roll back the program.  The advocacy group Families USA says that the president’s plan “protects federal and state Medicaid budgets at the expense of the seniors, PWD and children who rely on Medicaid for health coverage.”

The key features of the Bush administration’s plan are:

  • Increased flexibility for states to change the coverage they currently provide under Medicaid.
  • A drastic reduction in federal funding for Medicaid services.
  • A change in the funding process from the current “federal match” system to a block grant, or “allocation,” system.

“Increased flexibility” could, in theory, mean that states would increase the levels of services provided to low-income recipients.  However, in the current budget climate this is highly unlikely.  The proposal comes at a time when many states are struggling with serious budget shortfalls.   Medicaid expenditures have increased in recent years as a percent of total state expenditures, rising from 10.8 percent in 1988 to close to 20 percent in 2001.  A recent study by the Kaiser Commission on Medicaid and the Uninsured found that 49 states were planning or taking action to reduce the growth in Medicaid spending, with nearly half of the states either reducing benefits or placing limits on program eligibility.

PWD now represent 15 percent of all Medicaid recipients and account for 37 percent of all costs because they utilize disproportionate amounts of long-term care.  This makes PWD particularly at risk in the current budget environment, where the pain of Medicaid cost containment measures is already being felt.  In this environment, the “increased flexibility” proposed for the states by the Bush administration takes on a different meaning than it might in times of budget surplus.

In a press conference announcing the Bush plan, Health and Human Services (HHS) Secretary, Tommy G. Thompson, stated that the plan would provide states with “$12.7 billion in extra funding over seven years.”  While this is true, the Secretary did not mention that this is a ten-year plan.  After the seven years is up, the plan calls for federal payments to be cut so that there would be no net increase in federal spending over the ten-year period.  If this plan were implemented, at the end of the ten- year funding period, the Medicaid and State Children’s Health Insurance Plan (SCHIP) programs would have to be cut by 16 percent.  For perspective, consider that a 16 percent funding cut, if applied today, would mean that nearly 3.9 million children, over 1.2 million PWD, almost 690,000 seniors and approximately 1.7 million other adults would lose health coverage—if the cuts were applied across-the-board.

The last major element of the Bush proposal is the change in the funding process.  Under the current federal match system, states are guaranteed additional federal funds if their Medicaid costs increase.  The Bush administration proposes to change the funding into a block grant, or “allocation,” system, in which the federal government would estimate in advance how much states need, and then provide that amount of funds, and no more, in a “block.”  As the economic think tank, The Center on Budget and Policy Priorities, points out: “The difficulty of forecasting Medicaid costs stems from the large number of hard- to- predict factors that affect them, including the state of the economy, trends in employer- based health coverage, the price of health care services, the outbreak of an epidemic or the onset of new diseases, advances in medical technology, demographic changes and changes in poverty rates.  A block grant would absolve the federal government of any risk or responsibility related to greater- than- expected increases in Medicaid costs resulting from these or other factors, with states having to bear such cost increases without any federal contribution.”

In addition, the formulas used to set the allocation amounts would be based on current spending, already at low levels due to recent cutbacks.

In the current budget environment, three specific scenarios are likely to be seen:

  • Many states would likely impose tighter Medicaid eligibility requirements, forcing untold numbers of PWD out of the program.
  • Pressure will mount to cut back or eliminate many “optional” services that specifically serve PWD, such as physical, occupational, speech and respiratory therapy, hearing aids, transportation services, mental health treatment, home health care for those under 21, private- duty nursing, personal care services and group homes for people with developmental disabilities.
  • States will be under pressure to increase co-pays and fees for program participants, reducing access to needed services for people with fixed incomes.

What Happens Next?

Exactly what is at stake for PWD in the Medicaid debate?  If the president succeeds in passing into law his proposal to cap funding at reduced levels and grant the states increased flexibility to set standards and eligibility, PWD will be among the first to feel the impact.

Soon after the Bush administration announced its plan, the National Association of Governors met and gave “a cool reception” to the proposal (according to press accounts of the meeting) but agreed to set up a task force to negotiate with Bush administration officials on a modified version.  After several months of contentious debate, the 10-governor task force (five Democrats and five Republicans) announced on June 12 that their attempt to reach bipartisan agreement on a modified version of the president’s plan had failed, in part due to “aggressive lobbying by Democratic senators who oppose the changes,” as reported in the June 13 Washington Post.

In reporting on the governors’ failure, the Post reported that “Now it appears that any Medicaid bill is destined for sharp partisan debate—or indefinite postponement.”

Speculation as to which it will be is far from unanimous.  A spokesman for Minnesota Senator Mark Dayton told Access Press that the president’s Medicaid proposal is “sort of slipping” from priority among the Senate leadership, and they don’t expect to see further action in 2003.

Outside of Minnesota, the signals are mixed.  The Post quoted Thomas A. Scully, who oversees the Medicaid and Medicare programs for the Bush administration, as saying that bipartisan support from the governors was critical. “If they don’t want to do it,” Scully said recently, “it’s not going to happen.”  At the same time, the Post reported that HHS spokesman Bill Pierce says that Secretary Thompson (a former governor of Wisconsin) is not ready to give up. “With the actions many states are taking, including cutting spending on Medicaid, this is just more evidence of why we need to continue to try to come to an agreement,” Pierce said.

It seems likely that politics will play a large role in determining the fate of the Medicaid program.  If the Republican leadership and the White House come to believe that their work on the Medicare prescription drug bill will bring in votes, perhaps they will be inclined to bring up Medicaid reform as the 2004 presidential campaign gets into gear.  If the Medicare campaign is perceived as a “loser,” then it is unlikely that we will see action until after the election.  Much of this perception, and the political momentum that comes with it, will depend on the actions and advocacy of the people—including many PWD—who depend on the Medicaid program to live healthy and independent lives.


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