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Governors Seek Escape Route From Medicaid Funding Crisis

Governors want more flexibility to decide who gets what in terms of Medicaid benefits and lower costs for prescription drugs.

In testimony presented on Capitol Hill last month, the National Governors Association (NGA) offered a plan to reform the Medicaid program that seems to contain something to please and to offend nearly everyone.

NGA Chair Mark Warner (D), governor of Virginia, and Vice Chair Mike Huckabee (R), governor of Arkansas, presented a bipartisan proposal that aims to restrain expenditures and provide governors more flexibility to administer the program. The NGA noted in written testimony that it is "difficult to overstate the impact of Medicaid on state budgets." On average, Medicaid accounts for about 22 percent of a state's budget and is the largest single item of expenditure.

Even more important, however, are trends that portend a worsening of the fiscal dilemmas that Medicaid currently poses for state officials.

The program, which is funded jointly by the federal and state governments, increasingly serves populations with "very serious and expensive health care needs," such as individuals with serious mental and physical disabilities. The proportion of older people and persons with disabilities, who already account for 70 percent of Medicaid's $330 billion annual budget, will grow considerably over the next 20 years.

The overall Medicaid caseload has increased 40 percent over the past five years. Some of that increase can be linked to a decline in the percentage of people under 65 covered by employer-provided insurance.

In addition, the Medicaid program, like all other insurers, has been faced with rising costs of health care. According to the NGA, the consumer price index for health has been increasing at a rate two to three times that of the average price index.

The result will be a three-pronged attack on the capability of states to fund Medicaid and maintain their own financial viability.

In "Medicaid Reform: A Preliminary Report," the NGA provided extensive recommendations that address both short- and long-term problems with the program.

The NGA wrote, "For individuals with disabilities who have no other recourse than to rely on Medicaid, reforms should encourage more consumer choice and benefit packages that improve the quality of their care where possible...."

In a later section, the NGA challenged the validity of a law prohibiting copays for some populations and services and restricts the amount of copays for other populations.

Instead, the NGA advocated "broad discretion [for the states] to establish any form of premium, deductible, or copay for all populations, for all services...." Some financial caps would apply.

States, in fact, have already begun to promote "consumer choice" and to increase copays for Medicaid beneficiaries (see article below).

The NGA also noted problems with the distinctions between "mandatory" and "optional" populations. For a state to participate in Medicaid, it must serve "mandatory" populations and provide "mandatory" services, according to the current law.

But, the NGA pointed out, many relatively healthy children and families technically are in mandatory populations, and many of the optional populations are among the "frailest" in the program.

For more "medically fragile populations," the NGA advocated increased chronic-care management and other services that can improve health outcomes and reduce costs.

The NGA also recommended "more tools" to encourage home- and community-based care and the elimination of the need for a waiver to provide those services.

The NGA's recommendations concerning costs of prescriptions drugs have earned the most publicity. The NGA wrote, "States and the federal government have long suspected that Medicaid overpays for prescription drugs."

It offered a multipronged attack on those prices that includes the following recommendations:

• Increasing the minimum rebates that states collect on brand-name and generic drugs.
  
• Forcing discounts on the front end of drug purchases rather than waiting an average of six months to receive rebates.
  
• Using closed formularies to drive beneficiary utilization and decrease costs similar to those that will be used in the new Medicare Part D plans.
  
• Allowing states to join multistate purchasing pools and to combine Medicaid with other state-funded health care programs to improve leverage.
  

The Pharmaceutical Research and Manufacturers of America (PhRMA) responded to the recommendations by claiming that drug costs "make up only 14 percent of Medicaid's expenses this year," according to an article in the Hill on June 21.

Jeffrey Young, in the same article, reported that Rep. Heather Wilson (R-N.M.) said, "We need to make these types of changes." Wilson led a Republican Energy and Commerce Committee working group on Medicaid in 2003.

Families USA, a major health advocacy organization, issued a written statement calling the proposal a "mixed bag." The organization applauded the efforts to decrease the costs of prescription drugs and supported proposals to improve access to home- and community-based care.

But, Ron Pollack, its executive director, expressed concern that increased premiums, deductibles, and copayments could "make health care services unaffordable...."

He also argued that it "made no sense" to enact structural changes in Medicaid before policy changes are carefully examined. Congress is requiring up to $10 billion in Medicaid cuts over the next five years.

Rep. Joe Barton (R-Tex.), chair of the House Energy and Commerce Committee, said, "I applaud the governors and generally support the reforms they are bringing to us," according to the June 16 New York Times.

Some Democrats, including Sen. John Kerry (Mass.) and Sen. Jay Rockefeller (W.Va.), blamed the impact of federal and state tax cuts for the depletion of revenue needed for Medicaid, according to the Web site <www.kaisernetwork.org> on June 16.

Lizbet Boroughs, deputy director of government relations in APA's Department of Government Relations (DGR), said that DGR agreed with Families USA's assessment that the NGA proposal is a mixed bag.

"We remain concerned with the NGA's emphasis on closed formularies but are somewhat heartened by its discussion of medically fragile populations and improving care coordination since many adults with severe and persistent mental illness may benefit from such coordination," she commented.

In related news, Sen. Gordon Smith (R-Ore.) declined an invitation from Senate Majority Leader Bill Frist (R-Tenn.) to participate in a commission established by Michael Leavitt, secretary of Health and Human Services, to make recommendations about ways to reduce Medicaid spending.

Smith spearheaded the effort to establish a commission to study Medicaid before making program cuts. Democratic legislators had already refused to participate in the commission after Leavitt announced that he would appoint the 15 voting members and that the eight members of Congress on the commission would serve only in nonvoting advisory positions.

"Medicaid Reform: A Preliminary Report" and related Congressional testimony are posted at <www.nga.org>.

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