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States Worry Over Medicaid Expansion in Overhaul

By Jane Norman, CQ HealthBeat Associate Editor

August 3, 2009 -- State officials continue to be deeply concerned about the impact of provisions in the health overhaul bills under development in Congress, including an expansion of Medicaid coverage in states struggling to provide—and in some cases, cutting back—services for current beneficiaries.

As members of Congress arrive in their states for the summer work period, they're likely to get an earful from state lawmakers who in some cases already have been called back into session to repair ailing state budgets. "I don't think we have to coach anybody on the Medicaid message," said Joy Johnson Wilson, health policy director for the National Conference of State Legislatures (NCSL).

Just Friday, California Gov. Arnold Schwarzenegger sent a letter to congressional leaders warning that "we simply cannot be locked into a cost structure that is unsustainable" and lead to states experiencing chronic budget shortfalls.

Similarly both the NCSL and the National Governors Association (NGA) have issued statements and written letters to lawmakers warning that they can't foot the bill for unfunded mandates in connection with health care coverage.

"The truth of the matter is states are battling budget shortfalls and face increased demand for services," Joe Hackney, speaker of the House in North Carolina and immediate past president of the NCSL, said in a statement. "We just can't enroll more people on Medicaid when we can't pay for the ones we currently have."

Some 15 percent of state general budgets goes toward states' share of Medicaid, and costs are going up as the unemployment rate rises. In some states unemployment is not expected to peak until later this year.

Additional alarm bells went off when the House Energy and Commerce Committee while marking up its version of the bill late last week included a provision that shifts a portion of the costs of a proposed Medicaid expansion on to states, rather than having the federal government foot the entire bill.

Wilson said states are worried this is just the beginning of a trend in which Congress will look to states to pick up more of the cost of proposals extending Medicaid to childless adults and parents. "That's not the right signal, especially when there's no talk of extending the stimulus to get us through the recession," said Wilson.

While $87 billion that was included in the stimulus bill to help states with Medicaid costs already is flowing out, states are still in trouble, she said. In California, Schwarzenegger has signed a bill that cuts the state's Medicaid program by $1.4 billion.

The governor told Congress that California administers one of the most efficient Medicaid programs in the nation but it's still too costly. The House originally said its overhaul bill would fully fund Medicaid but now has shifted a portion to states, he noted.

"I will be clear on this particular proposal: if Congress thinks the Medicaid expansion is too expensive for the federal government, it is absolutely unaffordable for states," the governor wrote congressional leaders.

Proposals in the Senate envision passing on more than $8 billion in new costs to California annually—crowding out other priority or constitutionally required state spending and presenting a false choice for all of us. I cannot and will not support federal health care reform proposals that impose billions of dollars in new costs on California each year."

The chairmen of the NGA's Health and Human Services Committee also have written the chairman and top Republican on the Senate Finance Committee warning that governors are "steadfastly opposed to unfunded federal mandates and reforms that simply shift costs to the states."

Vermont Gov. James H. Douglas and West Virginia Gov. Joe Manchin II urged that the Senate provide permanent full funding for the cost of expanding Medicaid. "Any unfunded expansions would be particularly troubling given that states face budget shortfalls of over $200 billion over the next three years," they wrote.

Lawmakers are well aware of the concerns. Sen. Kent Conrad, D-N.D., a key negotiator in the Senate Finance Committee, has said the panel wants governors to be "comfortable" with what the committee is doing in terms of Medicaid. Finance Committee Chairman Max Baucus, D-Mont., has pointed to the expansion and strengthening of Medicaid as a key goal for the health overhaul.

But lawmakers also are dealing with the reality that costs can only climb so high. Baucus last week announced that the Congressional Budget Office reported that a draft Finance bill would total $900 billion over 10 years and cover 95 percent of Americans. No final details have been announced about how Medicaid would be treated though the committee earlier was thought to be considering full funding for newly eligible beneficiaries through 2015, with a 20 percent reduction thereafter.

"They're not saying very much about what they're doing but we have to assume some savings have to be Medicaid," Wilson said of the Senate negotiations. The committee has set a deadline of Sept. 15 for a markup of its bill but six senior members continue to meet this week prior to leaving town Friday.

State lawmakers also are tracking how insurance regulation will be structured in the overhaul, she said. "We're not quite sure how the exchange thing is going to work," said Wilson, and states want to retain the regulatory structures they already have put in place.

Another concern is how states will gear up fast enough to provide the infrastructure to cover more eligible Medicaid beneficiaries. It's already difficult to find enough doctors who will accept Medicaid patients, said Wilson.

A health policy statement adopted by the NCSL at a meeting in Philadelphia in late July called on Congress to avoid unfunded mandates that would shift costs to states, preserve state regulation of insurance, avoid expanded mandatory benefits unless they are fully funded by the federal government, protect states that already have enacted health system changes and provide a trigger in legislation that would guarantee enhanced federal Medicaid funding when economic indicators decline.

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