Obama administration looking to help states cut Medicaid costs

Facing a brewing revolt among states wrestling with massive budget shortfalls and tattering healthcare safety nets, the Obama administration is intensifying a drive to help state leaders find ways to wring savings from their Medicaid programs.

Thursday, Health and Human Services Secretary Kathleen Sebelius sent a letter to the nation’s 50 governors suggesting a range of cuts they can make to Medicaid, including dropping some people from the program.

“I know you are struggling to balance your budget while still providing critical healthcare services to those who need it most,” Sebelius told governors in the letter.

“In light of difficult budget circumstances, we are stepping up our efforts to help you identify cost drivers in the Medicaid program and provide you with new tools and resources to achieve short-term savings and longer term sustainability.”

The nation’s Medicaid programs, which are jointly funded by federal and state governments, now cover about 53 million poor children and adults, after swelling substantially in the recent economic downturn.

The expanded safety net was made possible by more than $100 billion in emergency aid provided by Congress over the last two years. But as that special aid expires, states are scrambling to preserve their programs.

And many governors -- including some Democrats -- are chafing at a requirement in the new healthcare law that they maintain coverage for many of their poorest residents.

The Obama administration is particularly concerned with maintaining state Medicaid programs because under the new healthcare law, these government insurance plans are expected to provide a foundation for guaranteeing coverage to all Americans beginning in 2014.

In her letter, Sebelius reminded governors, many of whom are in their first months in office, that they actually have numerous options to trim spending from their programs now.

And she offered help from Washington to develop ways to streamline care, cut prescription drug costs and modernize their programs.

“Medicaid really is an extraordinarily flexible program,” Cindy Mann, who heads the Center for Medicaid and State Operations at the Department of Health and Human Services, said in an interview.

In a mark of the dire situation in states, the Obama administration is suggesting that governors could cut optional health benefits that many Medicaid programs offer, such as physical therapy, dental care, eyeglasses and even some prescription drugs.

States could also require beneficiaries to pay more themselves for some of these services.

Although the federal government requires that state Medicaid programs cover a basic set of benefits, states have historically added these additional benefits, leading to great variety in programs nationwide.

These optional benefits currently consume 40% of the benefit spending, according to the administration.

Sebelius also said the new healthcare law allows states to cut some people from their Medicaid rolls if they are facing budget deficits. And she said she is reviewing the administration’s authority to allow states to cut even more people.

“The Affordable Care Act gives a state the flexibility to reduce eligibility for non-disabled, non-pregnant adults with incomes above 133 percent of the Federal Poverty Line,” the secretary wrote. That threshold is currently $14,500 for an individual.

Twenty-five states currently offer benefits to these lower-income adults above the threshold, though Obama officials said they do not know how many people could be affected by such cuts nationwide.

State Medicaid programs are required by law to cover only poor children, poor pregnant woman and disabled adults.

Administration officials want to head off these kinds of cuts, however. And Sebelius and other administration officials are encouraging state officials to look instead for ways to make their Medicaid programs more efficient.

This could include new initiatives to reduce the number of patients on Medicaid who are re-admitted to hospitals because of complications. A single re-admission can cost thousands of dollars.

“We could stop some of those re-admissions,” Mann said, citing efforts in some states to provide more care to recently discharged patients. “If we do that, that is more savings than you get for cutting off a non-disabled parent.”

Noam.levey@latimes.com