Governors Forge Plan to End Budget Deadlock

With extraordinary bipartisanship, the nation’s governors Monday reached tentative agreement on Medicaid and welfare reforms that they urged President Clinton and the Republican-controlled Congress to embrace as a way to break their federal budget deadlock.

In a spirit of cooperation that contrasts sharply with the acrimonious on-again, off-again negotiations between the Democratic White House and Republicans in Congress, the governors worked among themselves behind closed doors--often without aides--and refrained from virtually all public posturing until they had forged a consensus on the complex issues.

Even then, they would not reveal details of the reforms, which were endorsed by a unanimous vote of the 26 governors present at a meeting that ended Monday evening. The Times, however, did obtain a copy of the Medicaid proposal.

A formal vote by all the governors is scheduled for today. The plans, which require approval by three-fourths of those present, are expected to be adopted despite unhappiness with certain specific provisions.

California Gov. Pete Wilson said that he would vote for the Medicaid proposal--even though “it’s not as good as it should be.” He said he would like to have seen the plan give states even greater flexibility. “It’s an improvement . . . but not all that I would hope for,” Wilson said.

In a day of wide-ranging budget action, there were also these developments:

* Overseers of the trust fund that pays elderly Americans’ hospital bills under the Medicare program acknowledged that the fund registered a deficit in fiscal 1995, two years earlier than expected. The fund spent more than it collected in revenue in the fiscal year that ended Sept. 30, although it was back in the black for the first quarter of fiscal 1996, which began Oct. 1.

* President Clinton delivered a bare-bones budget to Congress for the next fiscal year, which begins on Oct. 1. He will have to revise the budget extensively when the spending decisions for the present fiscal year are finally made.

At the meeting of governors, Medicaid was the most contentious issue. According to that proposal, the governors would make a concession to Democrats by retaining a basic guarantee of Medicaid eligibility for all pregnant women and children 6 years of age or younger in families whose incomes are no higher than 133% of the federal poverty level.

But the proposal also meets GOP demands that states be given broad authority to otherwise design their own programs with a minimum of federal oversight or interference.

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The language of the agreements on Medicaid and welfare, as well as a third on job training, were still being drafted Monday night and are not expected to be made public until this morning.

Also today, the president and Senate Majority Leader Bob Dole (R-Kan.) are scheduled to address the governors on the final day of their semiannual National Governors’ Assn. meeting here.

Opinions differed as to whether the governors’ suggestions will actually stimulate the stalled budget talks. Most participants agreed that the proposals probably represent a last-gasp effort.

“If it doesn’t happen, there won’t be any more negotiations,” predicted Republican Gov. Christine Todd Whitman of New Jersey.

Among the skeptics was Robert D. Reischauer, former director of the Congressional Budget Office. “The governors are only one of the stakeholders when it comes to welfare and Medicaid reform,” Reischauer said. “Something may be peachy keen for the governors,” but unacceptable to the doctors and hospitals, for instance.

But Govs. Tommy G. Thompson (R-Wis.) and Robert Miller (D-Nev.), association chairman and vice chairman, respectively, were more optimistic.

Calling the agreements “a grand slam,” Thompson said their proposals could be “the catalyst” that breaks the logjam in Washington.

White House Chief of Staff Leon E. Panetta agreed, saying that the breakthrough among governors “gives a lot of impetus” to the deadlocked talks.

Earlier in the day, the governors met at the White House with Clinton, who encouraged their efforts to reach a consensus on proposals for Medicaid, welfare and job training.

“We approached it as to what works for the states and the people within the individual states that we all agree on,” Miller said later. “From there, the president and the Congress have to make their own assessments.”

Under the governors’ proposal for Medicaid--the joint federal-state health program for the needy--federal standards for nursing homes would be retained. The earlier congressional Republican plan would have repealed those standards.

In another major Medicaid policy change, the governors would abolish the so-called Boren Amendment. This law, long regarded as unduly burdensome by states, provides that state payment rates for hospitals and nursing homes must be reasonable and adequate.

On eligibility requirements, the governors agreed that coverage would be guaranteed for children age 6 through 12 in homes with incomes up to 100% of the poverty level--$15,150 for a family of four. It would also ensure coverage for the frail elderly who meet supplemental security income standards and related criteria.

The proposal would allow states to set eligibility standards for people with disabilities, but those standards must be approved by the secretary of Health and Human Services.

Those eligible for Medicaid would be guaranteed a basic package of health benefits, including inpatient and outpatient hospital services, physician services, nursing facility services, home health care, family planning services and supplies, and lab and X-ray fees.

At the same time, according to the tentative agreement, states would have “complete flexibility in defining the amount, duration and scope” of those services.

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The proposal also includes a complex funding formula to determine the amount of federal dollars each state would receive, and it takes into consideration such factors as population growth, the presence of illegal immigrants and natural disasters.

Gov. Howard Dean (D-Vt.) characterized the governors’ Medicaid package as “a hybrid between entitlements and block grants.”

The news of a deficit last year in Medicare’s hospital insurance trust fund was cited by congressional Republicans as vindication of their effort to chop the program’s growth rate. “I hope that this latest news serves as a wake-up call for those who have been hesitant to take action to protect Medicare,” said Senate Finance Committee Chairman William V. Roth Jr. (R-Del.).

The Medicare trustees’ annual report, dated last April, predicted that the hospital trust fund, which now boasts a substantial surplus, would begin drawing down the surplus in 1997 and run out of money altogether in 2002. The 1995 deficit could accelerate that date.

“It is too soon to draw a firm conclusion about the projected depletion date,” said Richard S. Foster, the chief actuary for the Health Care Financing Administration.

Times staff writers Janet Hook, Paul Richter and Robert A. Rosenblatt contributed to this story.