Obama administration offers states ideas on how to cut Medicaid

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Facing a revolt from states confronted by huge budget shortfalls and tattered healthcare safety nets, the Obama administration is intensifying a drive to help state leaders wring savings from their Medicaid programs.

On Thursday, in a move that reflected both the changing political landscape and the still-troubled economy, Health and Human Services Secretary Kathleen Sebelius sent a letter to governors suggesting a range of cuts, including removal of 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 said. “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.”


With near double-digit unemployment, the nation’s Medicaid programs, which are jointly funded by federal and state governments, have grown to cover approximately 53 million poor children and adults. Program costs have risen accordingly.

At the same time, the sagging economy has sent state tax revenue plunging.

California’s version of Medicaid, known as Medi-Cal, covers 7.7 million people and is among the most stretched programs in the nation. Gov. Jerry Brown, a Democrat, has called for $1.7 billion in cuts to the program, proposing new limits on prescription drugs, in-home care and doctor visits that many advocates have warned could be devastating.

The governor has also proposed making even deeper cuts in what the state pays healthcare providers who care for Medi-Cal patients, at a time when many providers are closing their doors to the program.

Health Access California Executive Director Anthony Wright, a leading advocate for preserving Medi-Cal, applauded the new federal initiative for offering constructive suggestions.

“It would have been better if the letter had a check inside,” he said. “But that’s not the world we live in anymore.”

Over the last two years, Congress has provided more than $100 billion in emergency aid. But now, as that special aid expires, states are scrambling to pay for their programs as well as deal with education and other state priorities.


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 about maintaining state Medicaid programs because under the new 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 in their first months in office, that they 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.

It remains unclear how much relief the administration’s proposal will bring to state Capitols, however.

The Republican Governors Assn., whose members have asked the administration for greater authority to cut their rolls, dismissed Sebelius’ letter.


“The policies adopted since the beginning of the president’s administration have restricted state flexibility, and governors are well aware of the current options available to them,” said association spokesman Mike Schrimpf.

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 for some of these services.

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

The optional benefits consume 40% of the benefit spending, the administration said.