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Survey: Medicare, Budget Savings Law Yield States No Medicaid Drug Savings

By John Reichard, CQ HealthBeat Editor

November 14, 2006 -- The Medicare overhaul law thus far hasn't saved states money even though it switched prescription drug coverage for some 6.2 million elderly and disabled Americans from the state–federal Medicaid program to the federal Medicare program, according to a survey released Tuesday. And the budget savings measure signed into law in February doesn't appear to be having much impact on spending by state Medicaid programs for prescription drug benefits either, said the survey, conducted for the National Association of State Medicaid Directors (NASMD).

The Medicare law (PL 108-173) switched 6.2 million so-called "dual eligibles," who qualify for both Medicare and Medicaid, from getting Medicaid drug benefits to receiving their coverage under the new Medicare Part D prescription drug benefit. The law requires states to continue paying a portion of those coverage costs, but at a declining percentage each year. In 2006, states were supposed to reduce their outlays for dual eligibles by 10 percent, with that percentage growing larger on an annual basis. But overall, that 10 percent savings isn't materializing, according to the survey of 47 state Medicaid programs conducted in June and July of this year.

Fourteen states reported paying about the same for drug coverage for dual eligibles as they did before the Medicare drug benefit started this year. Twelve states reported paying more, and eight states said they are paying less. "The Part D benefit really hasn't saved states money," said Jonathan Blum, a vice president at Avalere Health, the consulting firm that carried out the survey for NASMD. The findings were released at a NASMD-sponsored meeting in northern Virginia.

More than two-thirds of states said they did not expect the budget savings law (PL 109-171) to reduce their spending on pharmacy benefits significantly. The law was intended to give states additional tools to control drug outlays, such as greater ability to charge Medicaid enrollees copayments for their prescription drug costs. But the survey found that only eight states are considering significant new cost-sharing responsibilities for prescription drugs in their Medicaid programs, Blum said. A key reason why states shied away was the political unpopularity of supporting such measures in an election year, suggested NASMD Director Martha Roherty. Thirty-six governors were up for reelection this year, she noted in a press briefing at the meeting.

David Parella, head of the Medicaid program in Connecticut, noted that his state has tried twice to impose a $1 copayment for prescriptions but each time repealed the requirement because pharmacists were given responsibility for collecting the money and were unable to do so. In effect, the copayments meant a loss of reimbursement and pharmacists have strongly opposed the copayment charge.

Together, the new Part D program in Medicare and the budget savings law "really haven't taken pharmacy benefits off the table" as a major cost headache for state Medicaid programs, Blum said.

A panel of state Medicaid directors who briefed reporters at the meeting said that, in general, they had not seen evidence so far of Medicaid enrollees losing coverage under a new requirement promulgated under the budget savings law requiring the program to document applicants' citizenship. Advocates for Medicaid enrollees had predicted that millions could lose coverage under the rule, not because they weren't entitled to coverage, but because documentation requirements are too onerous.

But if a general trend toward loss of coverage hasn't materialized so far, the exception to that is infants born in the U.S. to illegal immigrants. Prior to the rule, they were deemed eligible for Medicaid by virtue of their birth in the U.S. Now there is no such "deeming," and Connecticut's Parella said that as a result, he thinks infants are going without well-baby visits and treatment for complications from childbirth. The result may be that employers will have to pay part of the bill in the form of higher insurance premiums for extremely expensive stays in the neonatal intensive care unit caused by the loss of Medicaid coverage for infants, he said.

Dennis Smith, head of the Center for Medicaid and State Operations at the federal Centers for Medicare and Medicaid Services, said states have tools such as adopting "presumptive eligibility" policies and using "retroactive eligibility" to pay providers who treat such infants. But Parella said a number of states would not be able to pay for presumptive eligibility and said providers in many cases would not provide care if Medicaid payments for treating an infant were not assured.

Parella said he expects Congress next year to review the infant coverage issue. But advocates at the meeting noted that blocking the regulation, as well as other proposed regulations CMS will soon issue trimming $12 billion over five years from federal Medicaid spending, may have to offset by cuts elsewhere in the federal budget or tax increases. Smith wouldn't predict when the regulations would be issued, nor would he signal where the Bush administration might be heading in its fiscal 2008 budget proposal for federal Medicaid spending.

Conference attendees pressed Smith on whether the administration might ease its pressure on Medicaid spending in light of a sharp slowdown in enrollment and spending growth—federal Medicaid spending has actually declined recently—but Smith gave no indication that would be the case.

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