Medicaid Cuts Spur Debate over Impact on Providers

The disagreement between the Obama administration and Republican governors over how much say the federal government should have over Medicaid spending is escalating.

Under the currentMedicaid system, the federal government matches each dollar states spend on the program, and those matching rates vary by state. Medicaid primarily covers low-income children, parents and the disabled, and now provides health insurance to 53 million poor Americans. Starting in 2014, the law will require states to open eligibility to an anticipated 20 million more people with slightly higher incomes.

Most states now do not offer coverage to childless adults, but starting in 2014, the new federal health care law will require them to expand Medicaid to insure adults earning up to 133 percent of the poverty level. The federal government will initially pay the entire cost of coverage for the people who are newly eligible for Medicaid, but beginning in 2017, the states’ share will gradually increase to 10 percent by 2020.

The new health care law generally prevents states from adopting more restrictive eligibility requirements for Medicaid (example-lowering personal income limits). The Republican Governors Association has asked President Obama to lift that constraint.

Many governors want the Federal government to switch to a block grant. The block grant would require states to cover the shortfall if expenditures exceeded the federal allotment. Democrats say that block-granting Medicaid would leave states with inadequate funding, which would mean that fewer people have health coverage. Republicans say that block grants would save the federal government billions and give states the freedom to make changes in the program that would decrease costs and improve coverage. For example, Gov. Haley Barbour wants to require Medicaid beneficiaries to take an annual physical exam to help detect and treat illness early. But the Medicaid program cannot require beneficiaries to do that, Barbour said, and so he must ask permission from the federal government before he can make the exam a requirement.

Representative Joe Pitts, Republican of Pennsylvania and chairman of the Subcommittee on Health, said Congress might need to give states more latitude. “If states cannot change their eligibility criteria,” Mr. Pitts said, “governors are left with few choices but to cut payments to providers or cut other parts of the state budget, such as education and transportation.”

Mississippi Gov. Haley Barbour and Utah Gov. Gary R. Herbert complained that by prohibiting states from limiting who is eligible for Medicaid, the law has locked them into unsustainable spending at a time of fiscal crisis.

“Worst of all,” added Herbert, is the law’s mandatory expansion of Medicaid to cover a larger share of the poor beginning in 2014. “Medicaid is poised to wreak havoc on the state’s budget for years to come,” he said, “threatening our ability to fund critical services, such as transportation and education.”

With Republican governors complaining that the Affordable Care Act doesn’t give them enough flexibility, President Obama offered a compromise: He’d allow them to opt out of the law altogether, just as long as they had an alternative method of providing universal coverage.

The actual change Obama proposed is, to be sure, modest. Under the Affordable Care Act, states are responsible for creating exchanges (the marketplaces where individuals and small-businesses can buy coverage) as well as implementing other key aspects of reform. That work must be done by 2014. The law allows states to opt out of the scheme, by getting a special waiver from the federal government, as long as they have alternative means for achieving the measure’s mandated goals. But states can’t do that until 2017.

Any permissible flexibility from the Federal government would have limits. The administration made clear that states could opt out of the health law’s requirements only if they could show they would insure at least as many people, providing coverage that was at least as comprehensive and at no greater expenses to the taxpayers. Those aren’t easy conditions to satisfy simultaneously. Virtually any workable state system relying primarily on private insurance would end up looking something like the scheme envisioned by the overhaul: Prohibiting insurers from discriminating against the sick, compelling people to obtain insurance and then providing subsidies so that everybody could afford coverage.

Arizona is one of many financially strapped states looking to cut Medicaid spending, although most are doing it by reducing reimbursements to providers and so-called optional benefits, such as dental care. Arizona is seeking to cut reimbursements, benefits and eligibility. Arizona lowered Medicaid rates for doctors 5 percent last year. On April 1st, the state will again cut rates by 5 percent.

Arizona’s plan to scale back its Medicaid coverage of 250,000 childless adults and 30,000 low-income parents would save the state $541.5 million. It’s the single biggest component in Republican Gov. Jan Brewer’s plan to eliminate a projected $1.2 billion shortfall in the next state budget. Last month, Health and Human Services Secretary Kathleen Sebelius said the proposal for the 250,000 childless adults would not violate a federal law that prohibits states from reducing eligibility for Medicaid because Arizona’s coverage was an optional program that is set to expire September 30th.

After meeting with Sebelius in Washington, Brewer said she may scale back the reductions if the federal government allows the state to eliminate some benefits such as transportation and to impose co-payments on Medicaid patients.

Mississippi Gov. Haley Barbour made it clear that he wants control over how to spend Mississippi’s Medicaid money. “We shouldn’t have to kowtow and kiss the ring” to make changes that will work for Mississippi residents, he said. His solution: block grants, with no strings attached on how the money would be spent.

Mr. Barbour said: “We can save money without taking people off the rolls. In return for total flexibility in managing my Medicaid program, I would agree to a block grant, with growth capped at half the national rate of increase. We should not have to kowtow to Washington to get permission for every change.”

Missouri Gov. Jay Nixon, whose state cut 100,000 adults from Medicaid in 2005, said a study published in the Journal Health Affairs in 2009 found the Missouri cuts led to an increase in uninsured patients in hospital ERs and in uncompensated care hospitals provided. But the hospitals were able to avert “serious financial pressure” because the number of Medicaid patients needing hospital care held steady and extra state Medicaid funding to hospitals also cushioned the blow.

Indiana’s Gov. Mitch Daniels, a Republican, introduced a Medicaid alternative for his state that conservative pundits have talked up as an alternative to the Affordable Care Act. But its coverage, which is pegged to a “consumer-directed” health saving account for low-income people who are not eligible for Medicaid, is less comprehensive. For instance, the benefit package has an annual limit of $300,000 and a lifetime limit of $1 million, which is less than some people with serious medical problems will need. And although the program has yielded some positive results, the preliminary assessments suggest that, on a per person basis, it’s still more expensive than Medicaid.

Vermont lawmakers want to create a single-payer plan-that is, a government-run insurance program, similar to Medicare. They would probably be among the first to apply for a Federal waiver. Furthermore, they’d probably get it because most estimates suggest a single-payer could satisfy Obama’s criteria: covering as many people with the same or better financial protection, for similar or even lower costs. But, of course, that’s not the sort of health care alternative conservatives have in mind.

Utah Gov. Gary R. Herbert of Utah, a Republican, said Medicaid had been a large and growing part of his state’s budget even before the federal law was passed. “In this recession,” Mr. Herbert said, “Medicaid enrollment has skyrocketed. In December 2007, enrollment in Utah stood at 158,267 individuals. In December 2010, enrollment stood at 230,812 individuals, a 46 percent increase in three years. Mr. Herbert said Utah had been trying for eight months to get federal permission to communicate with Medicaid recipients by e-mail and through a secure Web site. Only after he raised the issue with President Obama at the White House on Monday, did federal officials agree to the arrangement.

Utah estimates that the move will save more than $6 million a year. Federal officials said that Medicaid recipients had low incomes and that some might not have access to computers. So in a letter approving Utah’s request, the Obama administration said the state could use e-mail only if beneficiaries “elect to receive notices through an electronic mailing system.”

Pennsylvania citizens without health insurance shot up this year after a nearly nine year old state-subsidized insurance program for the working poor was shut down by Gov. Tom Corbett recently in one of the largest disenrollments in recent memory.

Mr. Corbett, a Republican elected in November, has said the program he inherited is not sustainable with facing a $4 billion budget shortfall. He blames his predecessor, Edward G. Rendell, a Democrat, for not keeping the plan solvent. His administration notified beneficiaries in late January that their coverage would expire February 28th.

The program’s revenue streams have never met more than a fraction of its demand, which has soared in the economic downturn. When the program closed, 505,000 people were on its waiting list, nearly seven times as many as in early 2007. Pennsylvania is one of several destitute states seeking to help balance budgets by removing adults from government health insurance programs.

Florida has one overriding goal this legislative session: to close a $4.5 billion budget shortfall. And one of the key programs it is targeting for cuts is Medicaid. In reforming the program, Florida hopes to save $1 billion in what it spends on Medicaid.
Ten years ago in Florida, Medicaid cost $9 billion. By last year, it had risen to more than $22 billion. More than half of that cost is picked up by the federal government. Even so, Florida’s share still amounts to nearly one-third of the state’s budget.
State Sen. Joe Negron wants to scrap the old fee-for-service model and replace it with managed care. He proposes negotiating contracts with health care providers, which would agree to deliver care to the state’s 3 million Medicaid recipients for a predetermined fee. Moving more Medicaid recipients into managed care is something that’s been happening not just in Florida, but in almost every state in the country.

ADVOCATE will continue to provide updates on this matter as they arise.

With best regards,
Kirk Reinitz, CPA
President/CEO