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Medicaid Budget Outlook Brightens a Bit

February 4, 2005—Bush administration officials said Friday that without any changes in current law, they now expect federal Medicaid spending to be $73 billion lower over the next 10 years than they previously estimated. Officials emphasized, however, that measures must still be taken to make the program more affordable and to ease the financial burden it places on states and taxpayers.

"This is better news about costs," Centers for Medicare and Medicaid Services Administrator Mark McClellan conceded in a press briefing, but added that the administration's new projected Medicaid rate averaging 7.6 percent a year over 10 years "is not very sustainable for states."

The new estimate was revealed in a briefing in which CMS officials detailed their plan to widen coverage of the uninsured and save money in Medicaid.

HHS Secretary Michael O. Leavitt scheduled the briefing after questions arose in his meeting with the press Thursday about funding for expanded health coverage, including the use of existing Medicaid spending as a financing mechanism.

CMS officials played down the significance of the lower spending estimate, noting that the projected Medicaid spending baseline is subject to frequent revisions.

The lower figure stems from changing the projected annual growth rate of federal Medicaid spending from 7.8 percent to 7.6 percent per year over 10 years. The CMS actuary made the change because the actual Medicaid spending growth rate in 2004 proved to be 9 percent rather than a projected 11percent.

Earlier this week, Leavitt detailed Medicaid policy changes to be included in the administration's budget proposal that would reduce spending growth by $60 billion over 10 years. The policy changes saving $60 billion would drive the growth rate down to 7.3 percent, officials said. Adding the $60 billion from policy changes to the $73 billion from the revised forecast means Medicaid spending will be $133 billion lower over 10 years than the administration previously estimated, officials said.

But because they plan to use $15 billion of the savings from policy changes to widen coverage, the net reduction is $118 billion. Only half of that figure can be attributed to policy changes, they stressed. A CMS official said it would be incorrect to describe the administration proposal as one seeking $118 billion in cuts.

The impact of the new figure on the drive for overhauling Medicaid is unclear. "They've already found savings, and nobody's hurt. I've got my party hat on," quipped former Senate Finance Committee aide Alec Vachon, now with the D.C.-based consulting firm Hamilton PPB. The figure from the revised forecast "is even more than the president proposed to save in the first place," he added.

Another Medicaid analyst suggested that Congress might be tempted not to go as hard at Medicaid because of the lower estimate. "You don't have to get your hands bloody and throw people off the rolls," he said.

But the new math may mean little to House and Senate Budget Committee chairmen who view Medicaid in its current form as a serious long-term threat to state and federal budgets. The Congressional Budget Office is still assuming yearly growth at the higher figure of 7.8 percent, though that could change, sources say.

On the issue of coverage, CMS said the $142 billion that the administration will propose to widen access to health care over the next 10 years includes $82 billion in new spending and $60 billion derived from changes in Medicaid spending.

Of the $142 billion, $126 billion in new coverage initiatives would not require states to put up matching funds, a CMS document said. Of the $126 billion, $74 billion would go for tax credits to buy health coverage, $28.5 billion for tax incentives to buy health savings accounts, $19.2 billion for rebates to small employers who contribute to health savings accounts, $4 billion for grants to states to create purchasing pools to buy insurance using tax credits, and $2.038 billion for new or expanded community health centers. The $2.038 billion is an increase of $304 million over the 2005 enacted amount.

The rest of the $142 billion—$16.5 billion—would be used for various state-based programs. A total of $11.3 billion would go for a "Cover the Kids" campaign to enroll uninsured children in Medicaid or the State Children's Health Insurance Program. Almost $3 billion would go for the "New Freedom Initiative" in which Medicaid enrollees needing long-term care would get care in the home or in a community setting rather than in a nursing home. A total of $1.4 billion would go for children's vaccines.

The Transitional Medical Assistance program would get $560 million, which provides Medicaid benefits for former welfare recipients moving into the workforce. And a total of $230 million would go for state programs that assist low-income residents with out-of-pocket Medicare costs.

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