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Spotlight Shifts to Governors in Debate over Remolding Medicaid

JUNE 6, 2005 -- Amid growing criticism of the Bush administration's handling of what it hopes will be a major remake of the federal–state Medicaid program later this year, the nation's governors are stepping forward to exert more influence over the process.

National Governors Association Chairman Mark Warner and Vice Chairman Mike Huckabee plan to detail an ambitious set of revisions at a Senate Finance Committee hearing tentatively set for June 15 while at the same time saying they won't be a part of the administration's proposed Medicaid overhaul commission.

"Given that the NGA Medicaid Working Group has completed much of its work and will be releasing its preliminary recommendations later this month, the members thought it would be most effective to continue their work as an independent bipartisan group," NGA said June 1.

The announcement foils a plan by the administration to include governors among the 15 voting members it plans to appoint to the commission, which would report by Sept. 1 on how to cut $10 billion from Medicaid spending growth over five years.

At the same time, a key House Republican objected that the proposed commission fails to include members of Congress as voting members.
The success of the panel's recommendations hinges on the level of congressional participation, Rep. Heather A. Wilson, R-N.M., said in May 27 letter to HHS Secretary Michael O. Leavitt. Wilson also voiced doubt about whether the commission, to be appointed solely by the administration, would have sufficient balance. "For this commission to have credibility, it must be truly bipartisan," she said.

Wilson also expressed concern that the proposed commission charter would give Leavitt the power to close meetings and to approve the agenda prior to each meeting. "It is difficult to imagine a topic under discussion pertaining to the Medicaid program which would call for an exception to the sunshine laws," Wilson wrote. "The independence of the work of the commission will be important to giving it credibility."

Democratic leaders announced May 26 that they would decline an opportunity to appoint four non-voting members to the commission.

Meanwhile, an interim set of policy recommendations announced June 1 by Warner, the Democratic governor of Virginia, and Huckabee, the Republican governor of Arkansas, reflects at least some level of bipartisan support for overhauling Medicaid.

How much bipartisan support is unclear, however, since the full NGA won't decide whether to embrace the policy changes until its summer meeting. And one of the major recommendations backed by the NGA's working group on Medicaid, requiring beneficiaries to pay more out-of-pocket costs, drew fire from a liberal think tank on grounds that it would cause the poor and frail to forego badly needed care.

The NGA interim policy advocates changes not only to Medicaid, but also proposals to cover Americans who likely otherwise would be dumped onto the program as businesses hit by rising health costs drop health coverage. And it aims to give a big boost to the spread of information technology. Here are the highlights:

  • Prescription drugs: Policy changes should include increased rebates from manufacturers, changes in the average wholesale price (AWP) reimbursement system, and "tiered, enforceable" co-payments for beneficiaries. "The current system is flawed and must be replaced," the policy says. "The goal of reducing both state and federal expenditures will require policy changes that impact all segments of the pharmaceutical marketplace."

  • Cost-sharing: Medicaid cost-sharing provisions should be modified to allow states to use "personal responsibility" to improve health care delivery. As with the State Children's Health Insurance Program (SCHIP), states should have the power to add "enforceable" premiums, deductibles, and co-payments to Medicaid.

    "As in SCHIP, there should be financial protections to ensure the beneficiaries would not be required to pay more than 5 percent of total household income (no matter how many family members are enrolled in Medicaid) as a critical balance to this proposal. For higher-income households (for example, those above 150 percent of the federal poverty level), a 7.5 percent cap should be applied."

  • Benefit cuts: Billed as benefit "flexibility," the interim policy says that Medicaid populations range from relatively healthy families to the very frail and very sick.

    "The types of services and supports needed by these populations are quite different, yet the Medicaid benefits package remains 'one-size-fits-all.' Many states have found that the flexibility built into the SCHIP program allows for greater efficiencies without compromising quality of care." Flexibility to vary benefits would allow "more targeted services while managing the program in a way that prevents sweeping cuts in the future."

  • Asset transfers: Medicaid should increase penalties for "inappropriate" transfers of assets to qualify for long-term care benefits. Other changes should restrict the types of assets that can be transferred to qualify for coverage to encourage "reverse mortgages."

    Tax credits and deductions should be offered to encourage Americans to buy private long-term care coverage. The current ban should be dropped that allows so-called Partnership policies to be sold in only four states. The policies allow holders to preserve a larger share of personal assets while still qualifying for Medicaid long-term care benefits.

  • Waivers: States should be able to obtain waivers to Medicaid regulations more easily. Also, more types of regulations should be eligible for waivers. In other cases, requirements to obtain waivers should be dropped altogether.

  • Information technology: Congress should establish a "National Health Care Innovations Program" consisting of 10 to 15 state-led, large-scale pilot programs lasting 3-to-5 years. The pilot programs would test the ability of information technology to lower the costs and improve the quality of health care. "Some of these demonstrations would be for statewide provider networks while others would be for networks in major metropolitan areas. The financing of these demonstrations should not come at the expense of Medicaid funding."

  • Judicial challenges: HHS should have to defend waivers it grants to states when challenged by the courts. HHS also should "work with states to define for the judiciary system that any state has a fundamental right to make basic operating decisions about optional categories" of Medicaid coverage.

  • Private coverage expansion: Low-income uninsured Americans should be made eligible for a premium subsidy that could be paid directly to a health plan by the U.S. Treasury. Eligible workers should be able to combine payroll deductions with the tax credits to pay for coverage. The credit also could be used to buy into a state's SCHIP program.

    Small employers should be able to obtain tax credits for providing coverage to low-income workers. States should be able to designate a minimum benefits package the employer would have to provide to obtain the credit.

    The federal government should make grants to the states to set up purchasing pools to buy coverage. States should have the power to mandate that tax credit users, enrollees in Medicaid and SCHIP, and state employees be included in the pool along with small businesses.

  • Reinsurance: A mechanism should be developed that would insure employers against the expense of very high-cost patients.

  • Other recommendations: Less costly alternatives to nursing home care should be strengthened, including programs to provide long-term care in the home or elsewhere in the community. States should not face higher costs as a result of switching Medicaid beneficiaries to the Medicare prescription drug benefit starting in January.

The liberal Center on Budget and Policy Priorities released studies May 31 concluding that increased cost-sharing could mean less care and poorer health for low-income Americans. A Center literature review concluded that "increased co-payments cause low-income beneficiaries to cut back on essential care."

In addition, charging premiums for care leads to fewer people being covered by health insurance, the review concluded. "Increased cost-sharing also can trigger the subsequent use of more expensive forms of care, such as emergency room care or hospitalization," the Center said.

"The risks of increased cost-sharing are greatest for those with serious or chronic health conditions, such as diabetes, cancer, or mental illness, since they need the most health care services and thus would face more co-payment charges or the loss of more services," said the analysis by researcher Leighton Ku.

For example, a study published in January 2001 in the Journal of the American Medical Association found that welfare recipients in Quebec filled fewer prescriptions after co-payments were increased. "The co-payments led to a 78 percent increase in the occurrence of adverse events, including death, hospitalization, and nursing home admissions," the Center review said.

A second study by the group said out-of-pocket medical expenses for poor adult Medicaid beneficiaries who were not elderly or disabled grew 9.4 percent annually between 1997 and 2002, twice as fast as their incomes increased during that period. The beneficiaries spent more than three times as much of their income on health care as middle-class adults with private coverage.

"Some supporters of increased cost-sharing claim low-income Medicaid beneficiaries pay little or nothing and bear little responsibility for their health care," said Ku. "That is not accurate."

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