Federal Health Care Fight to Have Major Impact on State

Health care providers in California are watching anxiously as President Clinton and Congress battle over the future of Medicare and Medicaid, a fight that could dictate the direction of health care programs in the state for years to come.

Whatever the outcome, the final resolution is expected to bring about profound changes in the two programs, which bring badly needed money into the state for county hospitals, nursing homes and medical schools, to say nothing of paying for direct medical care for one in four state residents.

The fight over Medicaid and Medicare was elevated to a new level this week when Clinton vetoed the Republican budget plan Wednesday, then introduced his own counterproposal on Thursday.

Both plans call for significant spending reductions in health services, with either capable of creating what many in state health care circles say could be the most sweeping changes in medical services in at least 10 years, or perhaps since the two programs were created in 1965.

The expected compromise is likely to incorporate elements of both proposals.

The Republican plan would cut more deeply into Medicare and Medicaid, known as Medi-Cal in California.

But the President’s plan for health services also calls for a broad scaling back of federal spending on the two programs.

Rep. Henry Waxman (D-Los Angeles), one of the Democratic budget negotiators in the House, applauded Clinton’s veto, saying it would “maintain the basic integrity of the Medicare and Medicaid programs.”

But he said the $154 billion in cuts in the administration’s plan would still hurt state and local health care programs that have been under stress for at least a decade.

“It is a lot of money,” Waxman said of the cuts contained in the Clinton health care initiative. “[The reductions] are far higher than I would like.”

Today, there are 5 million to 5.5 million residents of the state receiving Medicaid benefits under the Medi-Cal program. Most Medi-Cal beneficiaries are poor; just over half are children. There are 3.6 million Californians enrolled in Medicare, a health insurance program for people 65 and older that all workers, regardless of age, pay into through a payroll tax.

Some health officials are particularly worried that if the Republican plan dominates the compromise, it could:

* Trigger another round of cuts in health services comparable to those that crippled the county system this year.

* Spark deficits at the five University of California academic medical centers.

* Weaken long-term care protections among 164,000 Californians in nursing homes.

* Swell the state’s large army of the medically uninsured, already the biggest group of uninsured in the nation, according to an analysis by UCLA researchers.

The Republican plan calls for bundling Medicaid expenditures into large block grants, and then turning the grants over to states with relatively few strings attached. Dollars going into the grants would allow for some growth, but various studies show that the money would cover only about half of what budget projections say will be needed over the next year to keep up with caseload increases and medical expenses.

Under the Republican plan, Medicaid would be effectively repealed--and along with it, guarantees of health care for millions of Californians. New rules, from deciding who would be eligible to what kind of benefits would be offered, would be written by the governor and Legislature.

Clinton’s proposal would cut expected Medicare spending by about $100 billion over seven years and Medicaid by $54 billion, less than a half to a third of what the Republicans are seeking. In another major difference, one applauded by many traditional health care providers, the president rejected the Republican proposal for block grants and vowed to maintain the traditional Medicaid system of guaranteed benefits to anyone who qualifies.

“The [Clinton] cuts are still going to be bad, no question,” said Jeanne Finberg, a health analyst with Consumers Union. “But keeping the Medicaid law in place will make a tremendous difference. I am very pleased he is keeping the entitlements.”

But the Republican approach also has a legion of defenders in California, including Gov. Pete Wilson and top administrators of the state Department of Health Services, who long have argued that freedom from federal controls is needed to modernize taxpayer-supported health services.

“Our current system is pretty inequitable,” said S. Kimberly Belshe, director of the California Department of Health Services, which administers the Medi-Cal program. “It is not overly efficient. It is difficult to administer.”

Here and in most states, the Medicaid program represents one of the most expensive programs in government. In California, only the education budget is higher.

“It’s a runaway freight train,” said Mike Collins, a Republican consultant on the House Commerce Committee, which drafted the GOP Medicaid bill. “The problem is that it is going to eat up the state’s budget and there is no way to stop it.”

Finberg, based in San Francisco, is a coauthor of a study by Consumers Union on the impact of the Republican budget cuts on nursing homes. The study concluded that 395,000 nursing home patients across the nation--164,000 in California--would lose Medicaid payments over the seven-year life of the budget plan vetoed by Clinton.

In California this year, about 17% of the $15-billion Medi-Cal budget will go to support nursing homes and other 24-hour-care facilities. Medicaid pays the bills for about 60% of the nursing home residents nationally.

Clinton’s plan to reduce the growth in Medicaid payments but maintain guarantees of coverage for the needy could also create problems, analysts say.

For example, they say that if the number of people becoming eligible for benefits continues to grow and money coming into the system fails to keep pace, something will have to give.

That “something” would probably be the patient, according to the Kaiser Commission on the Future of Medicaid. In its analysis, the commission noted that when caseloads grow faster than revenues, further cuts are inevitable and would have to come from hospitals, a cap on payments to nursing homes, or by tightening eligibility requirements so that fewer recipients would qualify for care.

Each of those scenarios has been played out in California, with sometimes drastic results. Medicaid cuts during the 1980s that knocked large numbers of recipients off the rolls were directly linked to patient deaths. A tightening of money going to hospitals resulted in the closure of trauma centers and emergency rooms. Nursing home administrators say any future reduction in funding would force them to consider reduced levels of service.

Still more savings could come by forcing more Medi-Cal recipients into managed-care plans. Under these plans, the state pays providers a flat rate per patient, which controls costs but creates a system of incentives to limit care.

But health system analysts said that the savings expected in Washington may already have been achieved in California, which has been a leader in expanding managed care.

“California has already cut fat from its health care system,” said David Langness, a spokesman for the Healthcare Assn. of Southern California, a group of hospitals and health care providers. “Other states have not yet really begun the conversion to managed care and can still squeeze money out of their systems. It would be very difficult in California.”

Once the easy savings are gone, Langness said, “there are only two places to go for more savings: Doctors and hospitals would get less or patients would have fewer benefits.” The history in California with Medicaid is that once provider rates get cut, physicians begin turning away patients.

One area of concern for both public and private hospital administrators is that both budget plans would reduce special payments now being made under Medicare and Medicaid to hospitals that treat a disproportionately large number of the poor and elderly.

As a result of the so-called “disproportionate share” program, roughly $1.5 billion will come into California this year, according to one estimate. The money helps balance the budgets of county hospitals, University of California medical centers and private urban hospitals. A drop-off in Los Angeles County’s share of this pot of money was a key factor in creating the $655-million budget deficit that paralyzed county health services this year and for a time threatened to force the closure of several county hospitals and more than two dozen clinics.

A study of the Republican budget plan by the UC Board of Regents found that the proposed reductions in the special allocations “would be devastating” and for the first time would create deficits at all five of UC’s hospitals.

UC was still analyzing Clinton’s counterproposal and an analyst said it was uncertain whether similar deficits could be expected under the president’s plan.

Gary Wells, assistant director for administration and finance for the county Department of Health Services, said the county faces a $160-million deficit in its health care budget. Any further cuts in federal grants “will only aggravate” the county’s budget problem.

Wells said a preliminary analysis of Clinton’s plan indicated the county would lose 35% of its money from the special “disproportionate share” program in 1998. The county received $100 million from the program this year, an amount expected to be bumped up to $220 million next year.

The Wilson administration’s Belshe challenges many of the assumptions in the various studies and doomsday forecasts.

She concedes fewer dollars for health care would be coming into the state under either plan, but argues that if the state had the freedom to make better use of those dollars it would not necessarily have to deny care to anyone now eligible.

Belshe said “states like California have to go to Washington” each time they want to make serious changes in the Medicaid program.

If the Republican plan ultimately survives, she said, “we will probably see some fairly significant changes in the way health care is financed and delivered in this state. I think this has the potential to be very positive.”

As for fears that the Wilson administration would impose draconian budget cuts affecting nursing home residents and others, Belshe said that isn’t likely to happen. She said Wilson has expanded Medi-Cal eligibility and benefits to include larger numbers of recipients, particularly pregnant women and children.

“We think there are some real opportunities to achieve cost containment and we think we could do it without [hurting] people,” she said.