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Mass Gov.: CMS Directive Threatens Massachusetts Overhaul

By John Reichard, CQ HealthBeat Editor

February 26, 2008 -- Massachusetts Democratic Gov. Deval Patrick told a House subcommittee on Tuesday that a directive issued last August by the Centers for Medicare and Medicaid Services (CMS) jeopardizes efforts under the state's landmark health overhaul law to increase coverage of uninsured children.

Two other Democratic governors also at the forefront of state efforts to widen coverage of uninsured children joined Patrick in warning the House Energy and Commerce Health Subcommittee panel that the directive would deny coverage to thousands of uninsured children, but Republican governors and lawmakers at the hearing showed little inclination to budge much from its current provisions.

Mississippi's Republican Gov. Haley Barbour joined the Democratic governors, however, in criticizing pending Medicaid regulations that would trim some $12 billion from Medicaid spending over five years. And he voiced no objections to a Democratic proposal to temporarily increase federal Medicaid payments to counter the looming economic downturn forecast by many economists. "I can tell you if you all have got some extra money lying around we'd like to have it," Barbour allowed in his Mississippi drawl.

Subcommittee Chairman Frank Pallone Jr., D-N.J., and full committee Chairman John D. Dingell, D-Mich., said the directive would not only block efforts to cover more uninsured children but also strip children who have coverage now of their health care benefits under the State Children's Health Insurance Program (SCHIP).

But they offered governors no assurances about legislative prospects for overturning the controversial set of CMS instructions, which prevents states in their SCHIP programs from covering children in households with incomes above 250 percent of the federal poverty line if they haven't first enrolled 95 percent of eligible children under 200 percent of the poverty line.

Georgia's Republican Gov. Sonny Perdue told the panel that "the goal of this program all along was to provide an answer to an insurance need for our most vulnerable population: low-income children. It is a grave mistake to expand taxpayer funded insurance to a level that undermines personal responsibility for those who are able to purchase private insurance on their own," he said. "By focusing funding on low-income children and re-targeting a distribution formula that has not changed in a decade, states will continue to make progress in reaching and insuring our children."

Patrick testified that although "these are still early days" for the Massachusetts law, which has been widely discussed as a model for national overhaul efforts, "our reform plan has already been very successful. Three hundred thousand adults and children who were uninsured just a year ago are insured today, reducing our uninsured population by almost half."

One of the arguments for covering the uninsured is that it will lower health care costs generally by reducing the amount of uncompensated care given by providers. That lessens the need for providers to charge higher rates to insurers and employers to cover the costs of care for which they are not reimbursed.

According to Patrick, the costs of uncompensated care in the state appear to be dropping as advertised by proponents of the law.

"Free care utilization has dropped," he said. "Between federal fiscal years 2006 and 2007, our uncompensated care pool saw roughly 9 percent fewer inpatient discharges and 12 percent fewer outpatient visits," Patrick testified. "A recent report by the Massachusetts Hospital Association shows that the number of hospital low-income uncompensated care accounts has decreased by 28 percent since October 2004. "And there are initial signs of a leveling off in health care costs, with premiums for subsidized programs increasing at an average of 5 percent, roughly half what increases in the general market have been."

Under the overhaul plan, "CMS agreed to permit Massachusetts to expand SCHIP to children at or below 300 percent of the federal poverty level. As a result, Medicaid and SCHIP enrollment has grown by 40,000 children, including 18,000 newly eligible because of the expansion [of SCHIP eligibility] from 200 percent to 300 percent of the federal poverty level."

But a retreat in commitments made by the federal government to the state, including the Aug. 17 directive, "could have devastating effects on our progress, particularly our ability to cover families who have no affordable options in the unsubsidized private marketplace," he said.

"Specifically, the Aug. 17th directive may prevent us from covering eligible children who are not yet enrolled," Patrick continued. Unless Congress overturns the directive, "many families will be discouraged from enrolling in SCHIP altogether." Patrick added that "as a practical matter in Massachusetts, this directive would leave thousands of children between 250 percent and 300 percent of the federal poverty level uninsured while their parents are covered by other features of our federally approved health care reform."

Washington state Gov. Christine Gregoire, a Democrat, said the directive will block her state's plan to expand SCHIP coverage from 250 percent of poverty to 300 percent as of Jan. 1, 2009. That provision is part of a March 2007 Washington state law Gregoire said she signed to lay "a strong foundation to ensure that all children living in Washington state have health insurance coverage by 2010." But no state including her own will be able to comply with the 95 percent standard, she said. "The effect of the rule intended or otherwise is to preclude states from covering children in low-income households," she said. Washington is one of nine states that has filed a lawsuit challenging the directive, she noted.

"The reason my state is challenging CMS is this: Picture the single mother with two children, trying to make ends meet with an annual income of $45,000 a year just over 250 percent of the federal poverty level under 2008 federal guidelines—and imagine how she will pay for lodging, food, clothing, and transportation for the kids . . . and still have $700 to $900 a month left over so that she can buy health insurance. That's roughly one-fourth of her income."

She added that the rule is "wrong" because it would require a child to go uninsured for a full year before going on SCHIP if that child had been dropped from employer-funded coverage. "This requirement is simply inviting poorer health and greater emergency room utilization," she said.

Similarly, Ohio's Democratic Gov. Ted Strickland said that because of the Aug. 17 directive, 20,000 uninsured children with family incomes between 200 and 300 percent of the federal poverty level remain uninsured. Those children would be covered under an Ohio state law if not for the directive, he said. Strickland noted that CMS recently refused an application by the state to allow Medicaid coverage above the 250 percent standard, a decision that extended the Aug. 17 requirements for the first time to Medicaid expansions. Ohio may file a lawsuit challenging that decision, he said.

But Barbour said the problem with SCHIP legislation is not the Aug. 17 directive but a funding formula that denies Mississippi enough funds to cover even half of the children in the state below 200 percent of poverty. Referring to last year's House-passed SCHIP bill, Barbour said "I cannot support a bill that does not give Mississippi enough money to fulfill the original intent of the program while allowing other states the opportunity to expand their programs to cover higher-income children and adults who don't have any children," he said.

Mississippi has relied on the unspent funds of other states' SCHIP programs to make up for its inadequate allotment, Barbour said. But "instead of sending that money back to Washington, other states starting expanding their SCHIP programs," he said. "Since then, the pool of funds available to be redistributed to states such as mine has shrunk and we are faced with significant shortfalls and much uncertainty."

Rep. Joe L. Barton of Texas, the top Republican on the Energy and Commerce Committee, noted that he has backed legislation that would lower the 95 percent coverage standard to 90 percent. Barton asked witnesses why the 95 percent standard should not be met, however. Strickland responded that children about 200 percent of poverty "are needy kids" as well. They are children from working families "that simply cannot afford the coverage." Strickland added that "every child without health insurance . . . is deserving of health care coverage."

Democrats charged that under the Aug. 17 directive states that now cover children in their SCHIP programs above the 250 percent level would have to cancel their coverage if they live in states that do not meet the 95 percent standard as of Aug. 17, 2008.

And advocates of wider SCHIP coverage say that CMS statements that those states would only be barred from enrolling new children above 250 percent of poverty after Aug. 17, 2008 if they do not meet the 95 percent standard are misleading. Advocates say that although the coverage would continue after that date, it would be canceled when it came time for states to reconsider their coverage status, which states routinely do every six to 12 months.

But CMS Spokeswoman Mary Kahn said that is not the case. The Aug. 17 directive "states that there is no effect on current enrollees," Kahn said. The directive "does not impact those children, so they would not be dropped at redetermination."

Pallone said after the hearing that "no decision has been made yet about whether or when we will move legislation" blocking the directive or the administration's pending Medicaid regulations. Pallone noted that he and Dingell and other House members have introduced legislation (HR 5268) that would temporarily increase federal Medicaid payments to protect access to Medicaid coverage "during the economic downturn."

Strickland suggested during the hearing that House Minority Leader John A. Boehner, R-Ohio, has told him the Medicaid funding increase could be folded into supplemental legislation this spring funding U.S. military efforts in Iraq and Afghanistan, but Pallone said no decision has been made on a vehicle.

"It's definitely something I'd like to move and get passed," he said. "With the economic downturn you have to hope that the president changes his mind and realizes that we've got to cover these people."

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