Bush Seeks Overhaul of Medicaid

The Bush administration on Friday proposed fundamental changes to the Medicaid program, giving states almost unlimited authority to run their health-care programs for the poor while curbing the amount of federal money they could receive.

Administration officials and advocates for the joint state-federal program agreed that the sweeping proposal was designed to force states to cut their Medicaid spending. An inducement for the states would be an upfront cash bonus of more than $12 billion -- a sum that the federal government would take back years later.

But there was sharp disagreement over the effect the proposal would have on the 44 million poor children, parents, elderly, blind and disabled Americans who get basic health care through Medicaid.

“The beauty of this plan is that we’re going to leave it up to the states” to design a program that best serves their neediest citizens, said Health and Human Services Secretary Tommy G. Thompson.

“We will not touch the mandatory population,” he said, referring to the youngest, poorest and most disabled, whose basic health-care needs are guaranteed by federal law.

But Medicaid advocates responded that benefits could be cut for even the nation’s neediest. Only basic health-care services are guaranteed by Medicaid. The states have chosen to include additional benefits -- all cover prescription drugs, for example -- and these benefits could easily be withdrawn under the administration’s plan.

“In effect, the Bush administration is giving a green light to slash health care for the people who need it the most,” said Ron Pollack, executive director of Families USA, a group that promotes better health care for all Americans.

In the end, he said, the changes would result in needy families losing health coverage, key benefits being cut, waiting lists for coverage, and premiums, co-payments and deductibles some families can’t afford.

In fact, millions of poor Americans are already experiencing such changes, the product of rising health-care costs and plummeting state revenues. Roughly half the states have received federal permission to drop optional benefits and increase patients’ out-of-pocket costs. And every state except Alabama has cut Medicaid benefits this fiscal year or plans to do so soon.

“What we’re trying to do is stem the tide of the cuts,” Thompson said Friday.

The administration’s plan, which requires congressional approval, would also alter the basic funding structure of the 38-year-old, $250-billion program.

Now, every Medicaid dollar spent by the states is matched by the federal government at a rate based on each state’s wealth. The richest states receive $1, and the poorest about $3.35. There is no limit to the state outlay that Washington will match.

Under the Bush plan, funding for participating states would be limited. The federal payment would be determined by a formula that considers medical inflation. But during rough economic times, when unemployment rises and the number of people without health coverage increases, states could no longer increase their federal Medicaid payment by increasing their own spending.

The proposal asks “states to trade the current open-ended financing” for a limited federal grant, greater flexibility to spend the money as they choose “and a little extra money added in as a sweetener,” said Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, a policy institute (it has no association with Kaiser Permanente).

The plan proposes to give the states an additional $3.25 billion in federal Medicaid funds next year on top of the current payments, and another $9.45 billion spread over the next six years. In the final three years of the program, however, federal funding would drop by the same $12.7 billion.

States could choose to participate in the new Medicaid or continue under the old Medicaid. Administration officials predicted a stampede to the new way.

“The core benefit package is not going to change ... and we’re giving [the states] a substantial bump up front,” said Medicaid administrator Tom Scully. “That’s a [good] deal for them.

“If I were still a governor,” said Thompson, a former governor of Wisconsin, “I would jump -- absolutely jump -- at something like this, and run with it. I’m quite confident that most states will take this opportunity.”

Utah Gov. Mike Leavitt, whose state has already overhauled its Medicaid program, was equally enthusiastic.

“It’s better for everyone to have basic health care than for a few to have everything,” he said.

The National Governors Assn., which has been pressing Congress and the administration for additional federal funds for Medicaid, was more restrained. In a statement, the group thanked Thompson for elevating the profile of the issue and said it was eager to see the details and to work with the administration and Congress “to reform this critical federal-state partnership program.”

Because the proposal was released in midafternoon, most governors and state health and human services departments -- including California’s -- did not have time to examine it Friday. But the first responses from Congress indicated the proposal would encounter significant opposition.

Sen. Edward M. Kennedy (D-Mass.), a leading proponent of government-sponsored health care for the poor, lashed out at the administration.

“Earlier this week, the Bush administration proposed to break the promise of Medicare to our senior citizens. Now, they are proposing to break the promise of Medicaid as well,” he said. “Low-income senior citizens, the disabled and children will all be victims of this misguided policy. Congress rejected a similar proposal in 1995, and I expect that the Congress will reject this proposal as well.”

Sen. Max Baucus (D-Mont.), ranking member of the Senate Finance Committee, said he did “not believe that the answer to the states’ problem is legislation to undermine the Medicaid program in the name of ‘reform,’ ‘state fiscal relief’ or ‘state flexibility.’ ”

Even Finance Committee Chairman Charles E. Grassley (R-Iowa) declined to offer his support for the proposal, saying that he would “reserve judgment” until he saw its details.

Governors and lawmakers alike have struggled to find ways to contain the costs of the burgeoning Medicaid program, which rose 10.8% in 2001.

The increase is due to rising health-care costs, especially for prescription drugs, and larger numbers of beneficiaries.

According to the U.S. General Accounting Office, about half of the program’s 44 million beneficiaries are children. But it is the 27% of Medicaid patients who are aged, blind or disabled who account for two-thirds of the program’s spending.

Over the years, particularly in good economic times and in response to new knowledge about the importance of prenatal care, preventive treatment and blockbuster medications, states added new services to the basic benefits package.

Now, roughly two-thirds of total Medicaid spending is for optional benefits and “optional populations,” most often the working poor and parents of eligible children.

The Bush administration proposal would give states far more flexibility than they now have in deciding which groups would be eligible for what benefits.

They could, for example, offer different benefits to urban and rural residents, cover dental care only for certain age groups and offer prescription drug coverage only for those with certain chronic illnesses.

Administration officials, however, emphasized the additional services states could provide, mentioning specifically “the mentally ill, chronically ill, those with HIV/AIDS and those with substance abuse problems.”

The Kaiser Commission’s Rowland responded: “If I were a governor, I would take a hard look at what I’m giving away in return for a small short-term gain.

“We should be making social policy not just for today but for generations to come.”