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MEMORANDUM
To:
Carol Rasco
From: Chris Jennings
Date: January 27, 1995
re:
Latest Version of Medicaid Background Memo
cc:
Jennifer Klein
Jeremy Ben-Ami
Dianna F.
Attached is an updated version of the draft 7-page Medicaid background memo on
implications of capping the program. I know you probably will not need it for the NGA
meeting and that you have too much paper already. However, in case it comes up and you
wanted to get a sense of what the Department and OMB is now willing to consider in
the face of the Medicaid cap, I thought you would like to in particular have page 7
available to you. Preceeding the memo is the one pager on the advantages and
disadvantages of the cap.
We have made a number of clarifying edits to the background memo, so I would suggest that
you discard yesterday's version. If you have any questions, please do not hesitate to call me.
(703) 527-6494 or 456-5560 or through signal. Good luck this weekend!
Thanks.
ADVANTAGES AND DISADVANTAGES OF MEDICAID CAP
Advantages
Allows Federal Government to achieve savings by lowering or capping growth rate.
Increases flexibility for States to design and administer Medicaid programs to reflect
their priorities.
Avoids requiring Congress or the Administration to specify cuts.
Provides greater predictability in future Federal Medicaid funding.
Disadvantages
Impact on States
Leaves States at risk during recessions.
Places States at risk for cost of aging population.
Makes States less able to expand coverage.
Forces Governors -- not the Congress -- to specify cuts.
Impact on health reform
Increases number of uninsured.
Exacerbates cost shifting.
MEDICAID CAP/BLOCK GRANT BACKROUND INFORMATION
PURPOSE:
To review the implications for states and for coverage under the Medicaid program of NGA
and likely Republican proposals to cap Medicaid spending.
BACKGROUND:
Although not on the formal agenda, it is possible that the topic of capping the Medicaid
program may be raised at the upcoming meeting with the Governors. (In all likelihood, if it
is raised, it would come up in the context of the balanced budget amendment discussion.)
NGA's proposed policy would give states the choice between continuing Medicaid as an
individual entitlement or accepting a capped federal payment. The NGA staff recognize this
"choice" is a political and not a practical policy response to a desire by many Republican
Governors to assure that a Medicaid cap/block grant proposal is on the table for
consideration. Democratic Governors, like Governor Chiles, have made the point that such a
choice would not work in the Congress or in the budget world since states could choose what
is best for them financially; as a result, the primary incentive for enacting a cap -- saving
Federal dollars -- would likely not be achieved in any significant way.
A number of Governors have been discussing a Medicaid block grant with the Republicans in
Congress. Both Governor Dean and Governor Thompson have indicated that they might be
able to "live with" a Medicaid block grant that caps the growth in federal contribution at a
5% growth rate (the projected baseline growth rate is 9.3%). Under a 5% growth rate
scenario, the reduction in federal spending would be very large -- about $375 billion over
ten years (over $500 billion under the CBO baseline). In recent days, however, Governor
Dean and his office have made clear he has made no deal and does have concerns.
It is worth pointing out that a 5% cap means that the states (in aggregate) must reduce total
program costs by the $375 billion before they can begin reducing their own spending levels.
While there are some low growth with fairly large base levels who could save money in the
short-term, it is unlikely they could do so over the long term without cut-backs in services or
programs.
Obviously, the Governors are interested in block grants because they free states from federal
requirements and oversight. Many Governors appear to be willing to consider reductions in
federal payments in exchange for greater flexibility that results from eliminating the
individual entitlement. However, if the Administration can come up with proposals that are
responsive to the flexibility requests of the States that do not include Federal caps, such an
approach could well be more attractive. (Such approaches are discussed at end of the memo).
1
Proposals to convert Medicaid to a block grant raise a number of serious concerns. Some
relate to converting Medicaid from an individual entitlement to a block grant. Others relate
to the effect that significant reductions in federal payments would have on coverage. The
following outlines these concerns.
Converting from Individual Entitlement to a Block Grant Raises State Concerns:
States At Risk from Inflation and Recession. As an individual entitlement
program, Medicaid automatically adjusts federal payments to meet changes in medical
costs or the level of need. For example, when a recession occurs, the number of
people without work that qualify for Medicaid can rise dramatically, increasing
program costs. Under an individual entitlement, the federal government shares the
additional costs. Under a block grant, states must address the increased need on their
own, either by increasing state spending or reducing services and coverage.
Block Grants Do Not Recognize Differences Among State Programs. A block
grant that fixes the growth in federal payments at a set percentage would benefit some
states and penalize others. State growth rates can vary for many reasons, including
changes in population, regional medical costs, enrollment patterns or service mix.
States also have very different opportunities to achieve savings through managed care
(e.g., some states already have achieved savings; rural states have less capacity to
implement capitated payment arrangements). An individual entitlement adjusts federal
payments to these changing circumstances; a block grant does not. The variation in
state growth rates for the 1990 to 1993 period is shown in Attachment 1.
States At Risk for Cost of Aging Population. As the population continues to age,
the growing need for long-term care services will put increased stress on the Medicaid
program. Under a block grant approach with a fixed federal payment, states would
bear the burden for providing these services as the population ages.
Tough Choices Are Devolved To States. Under a block grant approach, the federal
government can achieve substantial federal budget savings without taking
responsibility for identifying specific cuts in payments, services or eligibility. The
tough choices about where to cut are left to the states. This problem is likely to get
worse over time, since reducing the rate of growth of a block grant payment is much
easier than making specific program cuts.
2
Effects of Capping Federal Payments
Given the magnitude of cuts necessary to fulfill Republican promises, a block grant would
inevitably result in a significant reduction in federal Medicaid payments to states. For
example, the 5% growth proposal that Speaker Gingrich has discussed with the Governors
would reduce federal payments to states by $130 billion between 1996 and 2002, and by
about $375 billion between 1996 and 2006. (Under the slightly higher CBO baseline, the
reduction is over $500 billion over the ten-year period). In 1997, projected federal payments
would be reduced by about 7% to 10%; in 2006, the reduction rises to 35% (40% under CBO
baseline). This is due to the cumulative effect of annual reductions in federal payments. This
is shown graphically in Attachment 2.
You may hear from some Republican Governors (and particularly Republicans from the Hill)
that large reductions in the growth of federal payments are acceptable because managed care
can produce enormous savings. Although managed care can improve efficiency and thereby
produce meaningful savings, the savings are not nearly enough to compensate for the very
large reductions being discussed with the block grant proposals.
Given the rapid expansion of managed care that already is occurring in states, a significant
portion of the potential savings are already being realized. Also, managed care is applied
almost exclusively to the nonelderly, nondisabled population, who account for only about one
third of Medicaid expenditures. Preliminary OMB estimates show that if all nondisabled,
nonelderly recipients were enrolled in managed care by the year 1999, any additional savings
through 2005 would be less than $5 billion. However, some states may use managed care as
a mechanism simply to make large cuts in provider payments. In reality, this is a cost shifting
strategy rather than cost containment.
Under the current baseline, Medicaid enrollment is projected to grow at about 4% annually.
Medicaid per capita spending actually is projected to grow at approximately the same rate as
per capita private health spending. Therefore, capping federal Medicaid payments substantially
below baseline would appear to assume either that states can contain costs much better than
the private sector or that substantial reductions in the scope of the program (including cuts in
eligibility) are acceptable. While some states may be able to adapt to such a large reduction
in federal support for a few years, most probably cannot. Over a longer period, few states
could respond to this level of reduction without significant program cuts.
Illustration of State Responses to Capping Federal Payments
The following discussion illustrates the impact on states of a block grant that caps the federal
payments at a 5% rate of growth. For ease of presentation, the information is presented under
the assumption that states would respond to reduced federal payments entirely through one of
the following: (1) higher state spending, (2) lower provider payments, (3) benefit cut backs,
or (4) eligibility cutbacks. Although a few states might increase spending in response to
federal payment reductions, most would likely reduce eligibility, benefits or payment levels.
3
The following scenarios assume that states maintain (or in the first case, increase) the level of
spending projected in the baseline. The state responses shown below merely offset the
reductions in federal spending -- they do not produce any savings to states. If states were to
reduce their spending below the projected levels in order to achieve savings in their own
budgets, additional reductions would be needed.
Increase State Medicaid Spending
If states chose to increase their own spending in response to the reduction in federal
payments, between 1996 and 2002, state spending would need to increase by over
20% over baseline projections. However, because the size of the federal payment
reduction would grow each year, the percentage increase in state spending would also
need to grow:
In 2002, the increase in state spending would be 32% over baseline
projections;
In 2005, the increase in state spending would be 43% over baseline
projections.
Reduction in Provider Payments
If states chose to reduce provider payments in response to the reduction in federal
payments, between 1996 and 2002, payments to hospitals, physicians and nursing
homes would be reduced on average by 13.7%. And because the size of the federal
payment reduction would grow each year, the percentage reduction in provider
payments (relative to baseline projections) would also need to grow. For example:
In 1997, a 6% reduction in hospital payments would be needed;
In 2002, a 22.9% reduction in hospital payments would be needed;;
In 2005, a 32.8% reduction in hospital payments would be needed.
These reductions are on top of Medicaid's already low payment rates. This level of
provider cuts will disproportionately harm public hospitals and clinics, for whom
Medicaid is a significant payment source.
Reductions in Benefits
States also could choose to reduce benefit levels in response to the reduction in federal
payments. The amount of savings that could be achieved through eliminating
particular categories of benefits is shown in Attachment 3. For example, eliminating
all dental benefits could achieve about 28% of the necessary savings from baseline in
1997. Eliminating personal care services would achieve about 55% of the necessary
savings.
4
These reductions, however, would not be sufficient over time, because the size of the
federal reduction would increase each year. For example, in 2002, eliminating dental
benefits would produce only 8% of the necessary savings, and in 2005, only 6%. In
2005, eliminating all benefits for dental, prescription drugs, EPSDT, home health
care, hospice, personal care services and payments for Medicare premiums and cost-
sharing still would not be sufficient to compensate for the lost federal funding.
Reductions in Program Eligibility
States also could choose to reduce coverage eligibility in response to the reduction in
federal payments. The amount of savings that could be achieved through eliminating
particular eligibility categories is shown in Attachment 3. For example, eliminating
eligibility for non-cash children (the OBRA expansions) would achieve about 62% of
the necessary savings in 1997, but only about 14% in 2005. Again, because of size of
the federal reduction would grow each year, the reductions in eligibility also need to
grow.
In reality, states would respond through a combination of these approaches. However, given
the magnitude of the reduction in federal payments, even when states spread the cuts over
several of these categories, the reductions in each category would still be quite large. For
example, a 5% cap would reduce federal payments to states in 2005 by about $66.3 billion
below baseline projections. If a state chose not to increase spending and were to allocate
their portion of this reduction roughly equally to reductions in provider payments, benefits
and eligibility, it could achieve approximately the necessary savings through:
Reducing provider payments by 12 to 13%.
Eliminating coverage for prescription drugs and EPSDT, and
Eliminating coverage for noncash children and qualified and special Medicare
beneficiaries (QMBs).
And, because federal payments would continue to decline, further reductions would be
needed in each future year. Other options are, of course, possible. Chart 3 gives you
a partial menu of how much the elimination of particular populations and services (on
a nantional level) would save. Some would argue that states would be more likely to
choose eliminate AFDC adults rather than noncash kids and QMBs.
Even under less extreme proposals, federal payment reductions can be significant over time.
For example, a 2 percentage point reduction in baseline rate of growth would result in a
large reduction in federal payments -- $ 66 billion- between 1996 and 2002. In 2006,
projected federal payments to states would be reduced by nearly 20%.
5
CONCLUSION
Medicaid block grant proposals under discussion would dramatically reduce federal Medicaid
payments to states over time. Increased use of managed care cannot generate the savings
necessary to make up for these reductions and there is little room in state budgets to increase
state Medicaid spending to compensate for the reduced federal commitment.
Unless states choose to offset federal reductions with increases in state spending, they would
be forced to respond by reducing provider payments, services, and/or coverage. Given the
inflexibility of a block grant to respond to the needs of individual states and differences in
state political environments, the level and nature of the reductions in the scope of the program
would vary significantly from state to state.
Reducing the scope of the Medicaid program to such a large extent would not only put those
served by Medicaid at some risk, but also set back movement towards more comprehensive
health reform in a number of ways, including:
Increasing the number of uninsured. Recipient growth currently accounts for two-
fifths of overall Medicaid program growth. In fact, spending per person under
Medicaid is increasing at about the same rate as in the private sector.
During the early 1990s, Medicaid increased coverage as employers decreased
coverage. This trend would be reversed under a block grant, increasing the number of
people who are uninsured. The changes in employer-based coverage and Medicaid
are shown in Attachment 4.
Exacerbating cost shifting. One of the central problems in our health system is the
shifting of uncompensated care costs and Medicaid underpayments to business and
families who purchase insurance. Reductions in Medicaid provider payments or
increases in the number of people uninsured would exacerbate this problem.
Alternative To Capping Federal Payments that States May Find Attractive.
The obvious question is how to be responsive to States' legitimate need and desire for more
flexibility without imposing significant reductions in Federal support. We have reviewed the
NGA's health policy position paper's recommendations and have conducted our own internal
analyis, which included discussions with OMB and HHS, and have come up with some
interesting possibilities -- there may be even more -- that Iwe believe would be welcomed
by the Governors. (Since Medicaid is not scheduled to come up before the NGA meetings,
we probably should discuss when would be the most strategic and opportune time to begin
discussions with the Governors on this issue.)
6
Specific and preliminary options to Medicaid cap now include:
Agree to NGA's request to eliminate the 1915(b) waiver approval process for
states implementing managed care programs. Instead, the states would simply file
a standard state plan amendment and would be approved as long as basic
accountability measures, such as budget neutrality, are achieved.
Consistent with NGA request, agree to eliminate the waiver approval process for
states implementing home and community-based care programs. Instead, the
states would simply file a standard state plan amendment and would be approved as
long as basic accountability measures, such as budget neutrality, are achieved.
Enable states to target programs and services to specific populations and
communities. Requirements that programs and services be uniform statewide would
be removed for Medicaid managed care, home and community based programs, and
optional services.
Agree to NGA's request to establish safe harbors under the Boren amendment for
state hospital payments.
Agree with NGA that Boren amendment requirements do not apply to managed
care arrangements.
Agree to NGA's request for substantial modifications to the PASARR provisions
under nursing home reform. For example, agree that the annual resident review
should be repealed.
Agree to NGA's request for the development of more demonstration programs
that investigate the integration acute and long-term care services.
7
Variation in State Medicaid Growth
Difference from Average, 1990-1993
20%
15%
LA
10%
DE
5%
CA IN TX CO MD PA OR NV KS NE
0%
-5%
ND SC OK
FL
-10% MA
*
Note: Average annual per capita growth rates, excluding Disproportionate Share Expenditures
Data from The Urban Institute and HCFA
Federal Medicaid Payments 1996-2006
Baseline & Capped Federal Payments
$240
$220
Federal
$200
Payments
Dollars in Billions
Reduced by
$180
35% in 2006
$160
(CBO:40%)
$140
$120
$100
$80
1996
1998
2000
2002
2004
2006
-
Baseline Growth
I
Baseline Minus 2%
5% Growth
This wedge llustrates the cumulative effect of capped expenditures.
Over time, the size of the federal payment reduction grows.
Potential Savings From Eliminating
Selected Services or Recipient Categories
1997
2005
$ in billions
$ in billions
Reduction in Federal Payments with Growth at 5%
-7.0
-66.3
Cost of Services
Dental
1.9
3.9
Drugs
9.3
17.6
EPSDT
1.1
4.0
Home Health & Hospice
2.5
5.8
Medicare Premiums & Cost Sharing
4.7
10.8
Personal Care Services
3.8
7.1
Cost of Services for Recipients
AFDC Adults
12.0
24.4
NonCash Kids (OBRA Expansion)
4.3
9.5
QMBs/SLMBs (1)
4.7
10.8
Medically Needy
22.1
38.8
O
The 1997 reductions will not be sufficient over time, because
the size of the federal reduction would increase each year. For example,
while eliminating dental benefits could achieve 28% of the required
savings in 1997, in 2005 this service reduction would produce
only 6% of the necessary savings.
(1) Since there are no data that separately estimate costs associated with QMBs/SLMBs, this estimate is the full cost
of Medicare premiums and cost sharing.
NOTE: All of these effects vary significantly across states, and overstate savings,
because of interactions in the expenditure categories.
Changes in Insurance Coverage
1989 to 1994
1989
1994
Employer 59%
Employer 66%
Uninsured 16%
Uninsured 16%
Other 11%
Other 9%
Medicaid 9%
Medicaid 14%
SOURCE: The Urban Institute analysis of the TRIM2-edited March 1993 Current Population Survey.
The 1989 data represent an average of three years, 1988-1990, with 1989 data having a weight of .50 and 1988 and 1990 data having weights of
.25. The 1994 estimates are based on 1993 CPS data on insurance coverage as adjusted by The Urban Institiute's TRIM2 microsimulation model
and 1993 HCFA data on Medicaid enrollment. Estimates for 1994 were derived using CBO projections of changes in insurance coverage.
Variation in State Medicaid Growth
Difference from Average, 1990-1993
20%
15%
LA
10%
DE
5%
CA IN TX CO MD PA OR NV KS NE
0%
-5%
ND SC OK
FL
-10% MA
*
Note: Average annual per capita growth rates, excluding Disproportionate Share Expenditures
Data from The Urban Institute and HCFA
Federal Medicaid Payments 1996-2006
Baseline & Capped Federal Payments
$240
$220
Federal
Payments
Dollars in Billions
$200
Reduced by
$180
35% in 2006
$160
(CBO:40%)
$140
$120
$100
$80
1996 1998 2000 2002 2004 2006
-
Baseline Growth - Baseline Minus 2% -- 5% Growth
This wedge llustrates the cumulative effect of capped expenditures.
Over time, the size of the federal payment reduction grows.
Potential Savings From Eliminating
Selected Services or Recipient Categories
1997
2005
$ in billions
$ in billions
Reduction in Federal Payments with Growth at 5%
-7.0
-66.3
Cost of Services
Dental
1.9
3.9
Drugs
9.3
17.6
EPSDT
1.1
4.0
Home Health & Hospice
2.5
5.8
Medicare Premiums & Cost Sharing
4.7
10.8
Personal Care Services
3.8
7.1
Cost of Services for Recipients
AFDC Adults
12.0
24.4
NonCash Kids (OBRA Expansion)
4.3
9.5
QMBs/SLMBs (1)
4.7
10.8
Medically Needy
22.1
38.8
The 1997 reductions will not be sufficient over time because
the size of the federal reduction would increase each year. For example,
while eliminating dental benefits could achieve 28% of the required
savings in 1997, in 2005 this service reduction would produce
only 6% of the necessary savings.
(1) Since there are no data that separately estimate costs associated with QMBs/SLMBs, this estimate is the full cost
of Medicare premiums and cost sharing.
NOTE: All of these effects vary significantly across states and overstate savings
because of interactions in the expenditure categories.
Changes in Insurance Coverage
1989 to 1994
1989
1994
Employer 66%
Employer 59%
Uninsured 16%
Uninsured 16%
Other 11%
Other 9%
Medicaid 9%
Medicaid 14%
SOURCE: The Urban Institute analysis of the TRIM2-edited March 1993 Current Population Survey.
The 1989 data represent an average of three years, 1988-1990, with 1989 data having a weight of .50 and 1988 and 1990 data having weights of
25. The 1994 estimates are based on 1993 CPS data on insurance coverage as adjusted by The Urban Institiute's TRIM2 microsimulation model
and 1993 HCFA data on Medicaid enrollment. Estimates for 1994 were derived using CBO projections of changes in insurance coverage.
MEDICAID: BUDGET AND POLITICAL ENVIRONMENT
Congressional Republicans need hundreds of billions of dollars to finance tax cut
and deficit reduction pledges.
Medicaid is seen as major cash cow because it is vulnerable as it serves the poor and
because many Governors may be willing to negotiate over a cap. (In addition,
Republicans growing increasingly nervous about excessively large Medicare cuts.)
Speaker Gingrich discussing a 5% cap on Medicaid program growth, which would
yield $130 billion ($193 billion using CBO numbers) in Federal savings through 2002
and $375 billion ($500 billion using CBO) in Federal savings through 2005.
Republican Governors either supportive or staying quiet for now because they
philosophically support. Moderate Republicans from states with high growth rates are
evaluating just how they could live with these reductions in Federal dollars.
Governor Dean sending signals he might be open to a cap, although most
Democratic Governors appear to be extremely nervous about it. Governor Chiles,
for example, is very opposed to eliminating individual entitlement. Having said this,
some low growth rate states think it might not be a bad deal for them and others are
nervous about defending a program for the poor. The fear that unifies almost all of
the Democrats, however, is the size of potential reductions in Federal support.
Not on NGA agenda for this weekend, although DGA meeting may discuss to plan
out a more unified Democratic Governors' strategy. Medicaid capping may also come
up in context of balanced budget disucssions that may be raised at NGA meeting.
Any block grant deal on welfare reform will serve as precedence and political
cover for Republicans who need the Medicaid money.
Weak but vocal advocates are opposed and scared: many of these are considered
our traditional Democratic base.
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PURPOSE:
To discuss the implications for states and for coverage under the Medicaid program of NGA and
Republican proposals to cap Medicaid spending through a block grant.
DISCUSSION:
The topic of capping the Medicaid program is likely to be raised at the upcoming meeting with the
Governors. NGA's proposed policy would give states the choice between continuing Medicaid as
an individual entitlement or accepting a capped federal payment. In addition, the Governors have
been discussing a Medicaid block grant with the Republicans in Congress, and both Governor
Dean and Governor Thompson have indicated that they might be able to "live with" a Medicaid
block grant that caps the growth in federal contribution at a 5% growth rate (the projected
baseline growth rate is 9,3%). Under a 5% growth rate scenario, the reduction in federal
spending would be very large -- about $375 billion over ten years (over $500 billion under the
CBO baseline).
The Governors are interested in block grants because they free states from federal requirements
and oversight. The Governors appear to be willing to consider very large reductions in federal
payments in exchange for greater flexibility that results from eliminating the individual entitlement.
However, their desire of states for additional flexibility can be accommodated without changing
the entitlement nature of the program. For example, states could be permitted to implement
managed care and home and community-based care programs without applying for a waiver.
Boren amendment restrictions on hospital payments also could be eliminated. The key difference
is that providing increased flexibility under the current structure, in contrast to a block grant,
assures that coverage will not be reduced.
An interesting point is that under a block grant approach, states do not necessarily realize any
savings in their own budget. In fact, if federal payments are capped at 5% growth, states must
reduce total program costs by the $375 billion reduction in federal payments before they can begin
reducing their own spending levels.
Proposals to convert Medicaid to a block grant raise a number of serious concerns. Some relate
to converting Medicaid from an individual entitlement to a block grant. Others relate to the effect
that significant reductions in federal payments would have on coverage. These concerns will be
discussed below.
Converting Medicaid From an Individual Entitlement to a Block Grant
Although some Governors appear to favor block grants in order to get greater flexibility,
converting Medicaid from an individual entitlement to a block grant would be a radical change to
the structure of the program that would shift a substantial economic risk to the states.
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States At Risk from Inflation and Recession. As an individual entitlement program,
Medicaid automatically adjusts federal payments to meet changes in medical costs or the
level of need. For example, when a recession occurs, the number of people without work
that qualify for Medicaid can rise dramatically, increasing program costs. Under an
individual entitlement, the federal government shares the additional costs. Under a block
grant, states must address the increased need on their own, either by increasing state
spending or reducing services and coverage.
Block Grants Do Not Recognize Differences Among State Programs. A block grant
that fixes the growth in federal payments at a set percentage would benefit some states
and penalize others. State growth rates can vary for many reasons, including changes in
population, regional medical costs, enrollment patterns or service mix. States also have
very different opportunities to achieve savings through managed care (e.g., some states
already have achieved savings; rural states have less capacity to implement capitated
payment arrangements). An individual entitlement adjusts federal payments to these
changing circumstances; a block grant does not. The variation in state growth rates for
the 1990 to 1993 period is shown in Attachment 1.
States At Risk for Cost of Aging Population. As the population continues to age, the
growing need for long-term care services will put increased stress on the Medicaid
program. Under a block grant approach with a fixed federal payment, states would bear
the burden for providing these services as the population ages.
Tough Choices Are Devolved To States. Under a block grant approach, the federal
government can achieve substantial federal budget savings without taking responsibility
for identifying specific cuts in payments, services or eligibility. The tough choices
about where to cut are left to the states. This problem is likely to get worse over time,
since reducing the rate of growth of a block grant payment is much easier than making
specific program cuts.
Effects of Capping Federal Payments
Given the magnitude of cuts necessary to fulfill Republican promises, a block grant would
inevitably result in a significant reduction in federal Medicaid payments to states. For example, the
5% growth proposal that Speaker Gingrich has discussed with the Governors would reduce
federal payments to states by $130 billion between 1996 and 2002, and by about $375 billion
between 1996 and 2006. (Under the slightly higher CBO baseline, the reduction is over $500
billion over the ten-year period). In 1997, projected federal payments would be reduced by about
7% to 10%; in 2006, the reduction rise to 35% to 40%. This is due to the cumulative effect of
annual reductions in federal payments. This is shown graphically in Attachment 2.
You may hear from the Governors that managed care can produce enormous savings. Although
managed care can improve efficiency and thereby produce meaningful savings, the savings are not
nearly enough to compensate for the levels of reductions being discussed with the block grant
proposals. Given the rapid expansion that already is occurring in states, significant savings are
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already being realized. Preliminary estimates show that if all nondisabled, nonelderaly recipients
were enrolled in managed care by the year 1999, any additional savings through 2005 would be
less than $5 billion. Some additional savings might be achieved in states that can use managed
care as a vehicle to further reduce provider payment levels below costs (as opposed to achieving
true program efficiencies).
Under the baseline, Medicaid per capita spending is growing at approximately the same rate as per
capita private health spending. Therefore, capping federal Medicaid payments substantially below
baseline assumes either that states can contain costs much better than the private sector or that
substantial reductions in the scope of the program are acceptable.
Illustration of State Responses to Capping Federal Payments
The following discussion illustrates the impact on states of a block grant that caps the federal
payments at a 5% rate of growth. For ease of presentation, the information is presented under the
assumption that states would respond to reduced federal payments entirely through one of the
following: (1) higher state spending, (2) lower provider payments, (3) benefit cut backs, or (4)
eligibility cutbacks.
The following scenarios assume that states maintain (or in the first case, increase) the level of
spending projected in the baseline. The state responses shown below merely offset the reductions
in federal spending they do not produce any savings to states. If states were to reduce their
spending below the projected levels in order to achieve savings in their own budgets, additional
reductions would be needed.
Increase State Medicaid Spending
If states chose to increase their own spending in response to the reduction in federal
payments, between 1996 and 2002, state spending would need to increase by over 20%
over baseline projections. However, because the size of the federal payment reduction
would grow each year, the percentage increase in state spending would also need to grow:
In 2002, the increase in state spending would be 32% over baseline projections;
In 2005, the increase in state spending would be 43% over baseline projections.
Reduction in Provider Payments
If states chose to reduce provider payments in response to the reduction in federal
payments, between 1996 and 2002, payments to hospitals, physicians and nursing homes
would be reduced on average by 13.7%. And because the size of the federal payment
reduction would grow each year, the percentage reduction in provider payments (relative
to baseline projections) would also need to grow. For example:
In 1997, a 6% reduction in hospital payments would be needed;
In 2002, a 22.9% reduction in hospital payments would be needed;;
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In 2005, a 32.8% reduction in hospital payments would be needed.
These reductions are on top of Medicaid's already low payment rates. This level of
provider cuts will disproportionately harm public hospitals and clinics, for whom Medicaid
is a significant payment source.
Reductions in Benefits
States also could choose to reduce benefit levels in response to the reduction in federal
payments. The amount of savings that could be achieved through eliminating particular
categories of benefits is shown in Attachment 3. For example, eliminating all dental
benefits could achieve about 28% of the necessary savings from baseline in 1997.
Eliminating personal care services would achieve about 55% of the necessary savings.
These reductions, however, would not be sufficient over time, because the size of the
federal reduction would increase each year. For example, in 2002, eliminating dental
benefits would produce only 8% of the necessary savings, and in 2005, only 6%. In 2005,
eliminating all benefits for dental, prescription drugs, EPSDT, home health care, hospice,
personal care services and payments for Medicare premiums and cost-sharing still would
not be sufficient to compensate for the lost federal funding.
Reductions in Program Eligibility
States also could choose to reduce coverage eligibility in response to the reduction in
federal payments. The amount of savings that could be achieved through eliminating
particular eligibility categories is shown in Attachment 3. For example, eliminating
eligibility for non-cash children (the OBRA expansions) would achieve about 62% of the
necessary savings in 1997, but only about 14% in 2005. Again, because of size of the
federal reduction would grow each year, the reductions in eligibility also need to grow.
In reality, states would respond through a combination of these approaches. For example, under
the 5% growth proposal, federal payments to states in 2005 would be $66.3 billion below baseline
projections. If a state were to allocate this reduction equally to reductions in provider payments,
benefits and eligibility, it could achieve the necessary savings by (as compared to baseline
projections):
Reducing provider payments by about 11%
Eliminating coverage for prescription drugs and EPSDT, and
Eliminating coverage for noncash children and qualified and special Medicare
beneficiaries.
And, because federal payments would continue to decline, further reductions would be
needed each future year.
Even under less extreme proposals, federal payment reductions can be significant over time. For
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example, a 2 percentage point reduction in baseline rate of growth would result in a large
reduction in federal payments -- $ 66 billion-- between 1996 and 2002. In 2006, projected
federal payments to states would be reduced by nearly 20%.
CONCLUSIONS
Medicaid block grant proposals under discussion would dramatically reduce federal Medicaid
payments to states over time. Increased use of managed care cannot generate the savings
necessary to make up for these reductions and there is little room in state budgets to increase
state Medicaid spending to compensate for the reduced federal commitment.
Unless states choose to offset federal reductions with increases in state spending, they would
be forced to respond by reducing provider payments, services, and/or coverage. Given the
inflexibility of a block grant to respond to the needs of individual states and differences in state
political environments, the level and nature of the reductions in the scope of the program
would vary significantly from state to state.
Reducing the scope of the Medicaid program to such a large extent would not only put families
at risk, but also set back movement towards more comprehensive health reform in a number of
ways, including:
Increasing the number of uninsured. Recipient growth currently accounts for two-
fifths of overall Medicaid program growth. In fact, spending per person under
Medicaid is increasing at about the same rate as in the private sector.
During the early 1990s, Medicaid increased coverage as employers decreased coverage.
This trend would be reversed under a block grant, increasing the number of people who
are uninsured. The changes in employer-based coverage and Medicaid are shown in
Attachment 4.
Exacerbating cost shifting. One of the central problems in our health system is the
shifting of uncompensated care costs and Medicaid underpayments to business and
families who purchase insurance. Reductions in Medicaid provider payments or
increases in the number of people uninsured would exacerbate this problem.
The Administration can offer states flexibility without shifting costs to states or reducing
coverage. For example, regulations could be relaxed so that states could use managed care to
achieve savings without current restrictions. And, the 1115 waiver process could continue to
be used to provide states with the flexibility to change categorical eligibility rules. While these
changes would retain the individual entitlement under Medicaid, they would provide states
with much of the flexibility they are seeking.
MEDICAID: BUDGET AND POLITICAL ENVIRONMENT
Republicans need hundreds of billions of dollars to finance tax cut and deficit
reduction pledges.
Medicaid is seen as major cash cow because it is vulnerable as it serves the poor and
because many Governors may be willing to negotiate over a cap. (In addition,
Republicans growing increasingly nervous about excessively large Medicare cuts.)
Speaker Gingrich discussing a 5% cap on Medicaid program growth, which would
yield $130 billion ($193 billion using CBO numbers) in Federal savings through 2002
and $375 billion ($500 billion using CBO) in Federal savings through 2005.
Governor Dean sending signals he might be open to a cap, although most
Democratic Governors appear to be extremely nervous about it. Governor Chiles, for
example, very opposed to eliminating individual entitlement. Having said this, some
low growth rate states think it might not be a bad deal for them and others are nervous
about defending a program for the poor. The fear that unifies almost all of them
appears to be the size of potential reductions in Federal support.
Not on NGA agenda for this weekend, although DGA meeting may discuss to plan
out a more unified Democratic Governors' strategy. Medicaid capping may also come
up in context of balanced budget disucssions that may be raised at NGA meeting.
Any block grant deal on welfare reform will serve as precedence and political
cover for Republicans who need the Medicaid money.
Weak but loud advocates are very nervous: many of these are considered our
traditional Democratic base.
Medicaid Expenditure Growth 1996-2002
Capped Expenditures to States
$240
$220
35%
$200
Reduction in
Dollars in Billions
Expenditures
$180
by 2006
$160
$140
$120
$100
$80
1996 1998 2000 2002 2004 2006
-
Baseline Growth
-
Baseline Minus 2%
5% Growth
HOW WOULD STATES RESPOND TO MEDICAID CAP?
(Recall states would need to realize savings to replace $130 billion Federal spending by
2002/$375 over 10 years -- using OMB numbers)
Increase State Medicaid Spending
-- A few states might, but seems much more unlikely in this environment.
Reduce Provider Payments
Medicaid baseline program growth is at 9 percent, but 4 percent of that number
is population growth; the additional 5 percent is at or very near private sector
growth rate.
--
New baseline has assumed much of managed care/other delivery savings.
There is some savings, OMB says at most 5 percent, but nowhere near what is
necessary to cover the 35-40% reduction in Federal payments that would
result from 5 percent cap.
Rural states still having hard time getting new managed care delivery systems
established.
Reduce Benefits
Reduce Program Eligibility
ROUGH EXAMPLE:
If a state were to reduce provider payments, benefits, and eligibility, it could achieve the
necessary savings by (1) reducing provider payments by about 11 percent, (2) eliminating
coverage for prescription drug and EPSDT, and (3) eliminating coverage for non-cash
children and Medicare QMBs. And, because Federal payments would continue to decline,
further reductions would be needed each future year. (No interactive effects assumed.)
Medicaid Services and Recipient Expenditures
(Dollars in billions)
1997
2005
Reduction in Federal Payments with Growth at 5%
-7.0
-66.3
Cost of Services
Dental
-1.9
-3.9
Drugs
-9.3
-17.6
EPSDT
-1.1
-4.0
Home Health & Hospice
-2.5
-5.8
Medicare Premiums & Cost Sharing
-4.7
-10.8
Personal Care Services
-3.8
-7.1
Cost of Services for Recipients
AFDC Adults
-12.0
-24.4
NonCash Kids (OBRA Expansion)
-4.3
-9.5
QMBs/SLMBs (1)
-4.7
-10.8
Medically Needy
-22.1
-38.8
(1) Since there are no data that separately estimate costs associated with QMBs/SLM8s, this estimate is the full cost
of Medicare premiums and cost sharing.
NOTE: All of these effects vary significantly across states
ADVANTAGES AND DISADVANTAGES OF MEDICAID CAP
Advantages
Allows Federal Government to achieve savings by lowering or capping growth rate.
Increases flexibility for States to design and administer Medicaid programs to reflect
their priorities.
Avoids requiring Congress or the Administration to specify cuts.
Provides greater predictability in future Federal Medicaid funding.
Disadvantages
Impact on States
Leaves States at risk during recessions.
Places States at risk for cost of aging population.
Makes States less able to expand coverage.
Forces Governors -- not the Congress -- to specify cuts.
Impact on health reform
Increases number of uninsured.
Exacerbates cost shifting.
Medicaid Per Capita Expenditure Growth
Average Annual Growth Rates, 1990-1993
30%
25%
20%
LA
15%
DE
10%
OK CA IN TX CO MD PA OR NV KS NE
5%
ND SC
FL
0%
-5% MA
*
Note: Excludes Disproportionate Share Expenditures
Data from The Urban Institute and HCFA
Changes in Insurance Coverage
1989 to 1994
1989
1994
Employer 59%
Employer 66%
Uninsured 16%
Uninsured 16%
Other 11%
Other 9%
Medicaid 9%
Medicaid 14%
SOURCE: The Urban Institute analysis of the TRIM2-edited March 1993 Current Population Survey.
The 1989 data represent an average of three years, 1988-1990, with 1989 data having a weight of .50 and 1988 and 1990 data having weights of
25. The 1994 estimates are based on 1993 CPS data on insurance coverage as adjusted by The Urban Institute's TRIM2 microsimulation model
and 1993 HCFA data on Medicaid enrollment. Estimates for 1994 were derived using CBO projections of changes in insurance coverage
POSSIBLE ALTERNATIVE TO MEDICAID CAP
Agree to NGA request to eliminate waiver approval process for states
implementing managed care programs.
Enable states to target programs and services to specific populations and
communities. Requirements that programs and services be uniform statewide would
be removed for Medicaid managed care, home and community based programs, and
optional services.
Agree to NGA proposal to establish safe harbors under the Boren amendment for
state hospital payments.
Agree with NGA that Boren amendment requirements do not apply to managed
care arrangements.
Agree to NGA proposal for substantial modifications to the PASARR provisions
under nursing home reform. For example, we agree that the annual resident review
should be repealed.
Advantages
Federal Government could achieve savings by lowering or capping growth rate.
States given more flexibility to design and administer Medicaid programs to
reflect their priorities.
Avoids having Congress or the Administration being required to specify cuts.
Greater predictability in future Federal Medicaid funding.
Disadvantages
States at risk during recessions. As an individual entitlement program, Medicaid
automatically adjusts federal payments to meet the current level of need. During
recessions or natural disasters, the number of families without work and without
insurance can increase dramatically. Because of the entitlement nature of Medicaid,
the amount of federal support will automatically adjust to help states cope with the
increased need for services. A capped entitlement to states would not respond to
changes in economic conditions, leaving states to address the increased need on their
own. Although states in theory could cut off participation or benefits if funds were
not available, as a practical matter states would be unable to make significant
reductions at times of recession.
States at risk for cost of aging population. The demographic changes that are
occurring in the Medicaid population increase the risk that a capped entitlement to
states will result in states getting fewer federal resources over time. As the population
continues to age, the growing need for long-term care services will put increased
stress on the Medicaid program. If federal payments to states are fixed based on
current enrollment and growth, the states will would bear the burden for providing
these services as the population ages.
States less able to expand coverage. States that wish to expand coverage are better
able to do so under Medicaid an individual entitlement than under a capped
entitlement to states. The current system is a partnership, in which the federal
government has agreed to match state spending. For example, virtually every state has
elected to expand coverage to one or more of the optional coverage categories under
Medicaid, in part because the federal government is paying between 50 and 78% of
the cost of each new enrollee. Under a capped entitlement to states, expanding
coverage would require states to pick up 100% of the costs of the new enrollees,
making it far less likely that states would expand enrollment.
Governors -- not the Congress -- have to specify cuts. The Congress can talk
about "reducing the rate of growth" to a seemingly generous 5% (or so) amount. The
Governors will be the ones who have to deal with the reality that they, on average, are
now facing an almost 10% growth rate in their programs and cutting the rate down to
5% translates into an almost $100 billion dollar reduction in Federal Medicaid
support. It will be the Governors who have to come up with the politically painful
spending cuts.
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PURPOSE:
To discuss the implications for states and for coverage under the Medicaid program of NGA and
Republican proposals to cap Medicaid spending through a block grant.
DISCUSSION:
The topic of capping the Medicaid program is likely to be raised at the upcoming meeting with the
Governors. NGA's proposed policy would give states the choice between continuing Medicaid as
an individual entitlement or accepting a capped federal payment. In addition, the Governors have
been discussing a Medicaid block grant with the Republicans in Congress, and both Governor
Dean and Governor Thompson have indicated that they might be able to "live with" a Medicaid
block grant that caps the growth in federal contribution at a 5% growth rate (the projected
baseline growth rate is 9.3%). Under a 5% growth rate scenario, the reduction in federal
spending would be very large - about $375 billion over ten years (over $500 billion under the
CBO baseline).
The Governors are interested in block grants because they free states from federal requirements
and oversight. The Governors appear to be willing to consider very large reductions in federal
payments in exchange for greater flexibility that results from eliminating the individual entitlement.
However, their desire of states for additional flexibility can be accommodated without changing
the entitlement nature of the program. For example, states could be permitted to implement
managed care and home and community-based care programs without applying for a waiver.
Boren amendment restrictions on hospital payments also could be eliminated. The key difference
is that providing increased flexibility under the current structure, in contrast to a block grant,
assures that coverage will not be reduced.
An interesting point is that under a block grant approach, states do not necessarily realize any
savings in their own budget. In fact, if federal payments are capped at 5% growth, states must
reduce total program costs by the $375 billion reduction in federal payments before they can begin
reducing their own spending levels.
Proposals to convert Medicaid to a block grant raise a number of serious concerns. Some relate
to converting Medicaid from an individual entitlement to a block grant. Others relate to the effect
that significant reductions in federal payments would have on coverage. These concerns will be
discussed below.
Converting Medicaid From an Individual Entitlement to a Block Grant
Although some Governors appear to favor block grants in order to get greater flexibility,
converting Medicaid from an individual entitlement to a block grant would be a radical change to
the structure of the program that would shift a substantial economic risk to the states.
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States At Risk from Inflation and Recession. As an individual entitlement program,
Medicaid automatically adjusts federal payments to meet changes in medical costs or the
level of need. For example, when a recession occurs, the number of people without work
that qualify for Medicaid can rise dramatically, increasing program costs. Under an
individual entitlement, the federal government shares the additional costs. Under a block
grant, states must address the increased need on their own, either by increasing state
spending or reducing services and coverage.
Block Grants Do Not Recognize Differences Among State Programs. A block grant
that fixes the growth in federal payments at a set percentage would benefit some states
and penalize others. State growth rates can vary for many reasons, including changes in
population, regional medical costs, enrollment patterns or service mix. States also have
very different opportunities to achieve savings through managed care (e.g., some states
already have achieved savings; rural states have less capacity to implement capitated
payment arrangements). An individual entitlement adjusts federal payments to these
changing circumstances; a block grant does not. The variation in state growth rates for
the 1990 to 1993 period is shown in Attachment 1.
States At Risk for Cost of Aging Population. As the population continues to age, the
growing need for long-term care services will put increased stress on the Medicaid
program. Under a block grant approach with a fixed federal payment, states would bear
the burden for providing these services as the population ages.
Tough Choices Are Devolved To States. Under a block grant approach, the federal
government can achieve substantial federal budget savings without taking responsibility
for identifying specific cuts in payments, services or eligibility. The tough choices
about where to cut are left to the states. This problem is likely to get worse over time,
since reducing the rate of growth of a block grant payment is much easier than making
specific program cuts.
Effects of Capping Federal Payments
Given the magnitude of cuts necessary to fulfill Republican promises, a block grant would
inevitably result in a significant reduction in federal Medicaid payments to states. For example, the
5% growth proposal that Speaker Gingrich has discussed with the Governors would reduce
federal payments to states by $130 billion between 1996 and 2002, and by about $375 billion
between 1996 and 2006. (Under the slightly higher CBO baseline, the reduction is over $500
billion over the ten-year period). In 1997, projected federal payments would be reduced by about
7% to 10%; in 2006, the reduction rise to 35% to 40%. This is due to the cumulative effect of
annual reductions in federal payments. This is shown graphically in Attachment 2.
You may hear from the Governors that managed care can produce enormous savings. Although
managed care can improve efficiency and thereby produce meaningful savings, the savings are not
nearly enough to compensate for the levels of reductions being discussed with the block grant
proposals. Given the rapid expansion that already is occurring in states, significant savings are
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already being realized. Preliminary estimates show that if all nondisabled, nonelderaly recipients
were enrolled in managed care by the year 1999, any additional savings through 2005 would be
less than $5 billion. Some additional savings might be achieved in states that can use managed
care as a vehicle to further reduce provider payment levels below costs (as opposed to achieving
true program efficiencies).
Under the baseline, Medicaid per capita spending is growing at approximately the same rate as per
capita private health spending. Therefore, capping federal Medicaid payments substantially below
baseline assumes either that states can contain costs much better than the private sector or that
substantial reductions in the scope of the program are acceptable.
Illustration of State Responses to Capping Federal Payments
The following discussion illustrates the impact on states of a block grant that caps the federal
payments at a 5% rate of growth. For ease of presentation, the information is presented under the
assumption that states would respond to reduced federal payments entirely through one of the
following: (1) higher state spending, (2) lower provider payments, (3) benefit cut backs, or (4)
eligibility cutbacks.
The following scenarios assume that states maintain (or in the first case, increase) the level of
spending projected in the baseline. The state responses shown below merely offset the reductions
in federal spending - they do not produce any savings to states. If states were to reduce their
spending below the projected levels in order to achieve savings in their own budgets, additional
reductions would be needed.
Increase State Medicaid Spending
If states chose to increase their own spending in response to the reduction in federal
payments, between 1996 and 2002, state spending would need to increase by over 20%
over baseline projections. However, because the size of the federal payment reduction
would grow each year, the percentage increase in state spending would also need to grow:
In 2002, the increase in state spending would be 32% over baseline projections;
In 2005, the increase in state spending would be 43% over baseline projections.
Reduction in Provider Payments
If states chose to reduce provider payments in response to the reduction in federal
payments, between 1996 and 2002, payments to hospitals, physicians and nursing homes
would be reduced on average by 13.7% And because the size of the federal payment
reduction would grow each year, the percentage reduction in provider payments (relative
to baseline projections) would also need to grow. For example:
In 1997, a 6% reduction in hospital payments would be needed;
In 2002, a 22.9% reduction in hospital payments would be needed;;
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In 2005, a 32.8% reduction in hospital payments would be needed.
These reductions are on top of Medicaid's already low payment rates. This level of
provider cuts will disproportionately harm public hospitals and clinics, for whom Medicaid
is a significant payment source.
Reductions in Benefits
States also could choose to reduce benefit levels in response to the reduction in federal
payments. The amount of savings that could be achieved through eliminating particular
categories of benefits is shown in Attachment 3. For example, eliminating all dental
benefits could achieve about 28% of the necessary savings from baseline in 1997.
Eliminating personal care services would achieve about 55% of the necessary savings.
These reductions, however, would not be sufficient over time, because the size of the
federal reduction would increase each year. For example, in 2002, eliminating dental
benefits would produce only 8% of the necessary savings, and in 2005, only 6%. In 2005,
eliminating all benefits for dental, prescription drugs, EPSDT, home health care, hospice,
personal care services and payments for Medicare premiums and cost-sharing still would
not be sufficient to compensate for the lost federal funding.
Reductions in Program Eligibility
States also could choose to reduce coverage eligibility in response to the reduction in
federal payments. The amount of savings that could be achieved through eliminating
particular eligibility categories is shown in Attachment 3. For example, eliminating
eligibility for non-cash children (the OBRA expansions) would achieve about 62% of the
necessary savings in 1997, but only about 14% in 2005. Again, because of size of the
federal reduction would grow each year, the reductions in eligibility also need to grow.
In reality, states would respond through a combination of these approaches. For example, under
the 5% growth proposal, federal payments to states in 2005 would be $66.3 billion below baseline
projections. If a state were to allocate this reduction equally to reductions in provider payments,
benefits and eligibility, it could achieve the necessary savings by (as compared to baseline
projections):
Reducing provider payments by about 11%.
Eliminating coverage for prescription drugs and EPSDT, and
Eliminating coverage for noncash children and qualified and special Medicare
beneficiaries.
And, because federal payments would continue to decline, further reductions would be
needed each future year.
Even under less extreme proposals, federal payment reductions can be significant over time. For
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example, a 2 percentage point reduction in baseline rate of growth would result in a large
reduction in federal payments $ 66 billion-- between 1996 and 2002. In 2006, projected
federal payments to states would be reduced by nearly 20%.
CONCLUSIONS
Medicaid block grant proposals under discussion would dramatically reduce federal Medicaid
payments to states over time. Increased use of managed care cannot generate the savings
necessary to make up for these reductions and there is little room in state budgets to increase
state Medicaid spending to compensate for the reduced federal commitment.
Unless states choose to offset federal reductions with increases in state spending, they would
be forced to respond by reducing provider payments, services, and/or coverage. Given the
inflexibility of a block grant to respond to the needs of individual states and differences in state
political environments, the level and nature of the reductions in the scope of the program
would vary significantly from state to state.
Reducing the scope of the Medicaid program to such a large extent would not only put families
at risk, but also set back movement towards more comprehensive health reform in a number of
ways, including:
Increasing the number of uninsured. Recipient growth currently accounts for two-
fifths of overall Medicaid program growth. In fact, spending per person under
Medicaid is increasing at about the same rate as in the private sector.
During the early 1990s, Medicaid increased coverage as employers decreased coverage.
This trend would be reversed under a block grant, increasing the number of people who
are uninsured. The changes in employer-based coverage and Medicaid are shown in
Attachment 4.
Exacerbating cost shifting. One of the central problems in our health system is the
shifting of uncompensated care costs and Medicaid underpayments to business and
families who purchase insurance. Reductions in Medicaid provider payments or
increases in the number of people uninsured would exacerbate this problem.
The Administration can offer states flexibility without shifting costs to states or reducing
coverage. For example, regulations could be relaxed so that states could use managed care to
achieve savings without current restrictions. And, the 1115 waiver process could continue to
be used to provide states with the flexibility to change categorical eligibility rules. While these
changes would retain the individual entitlement under Medicaid, they would provide states
with much of the flexibility they are seeking.
Possible Sources and Uses of Funds
Fiscal Years. Billions of Dollars
5-year Total
10-year Total
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-2000
1996-2005
Sources of Funds
Tobacco Tax (phased-in)
I/
0.0
00
4.3
60
6.0
5.9
5.9
8.3
9.1
9.0
8.9
22.2
634
Medicare Savings
2/
0.0
0.5
3.4
4.9
6.6
9.1
11.8
14.1
16.6
19.6
226
24.5
109.2
Medicare Receipt Proposals
3/
0.0
1.4
29
2.6
2.8
3.0
3.3
3.6
4.0
4.3
4.8
12.7
32.7
Medicaid DSH Freeze
4/
0.0
0.6
1.1
17
2.4
3.1
3.8
4.6
5.4
6.2
7.0
8.9
35.9
Indirect Effects on Receipts
5/
0.0
0.0
02
0.2
0.2
0.2
02
0.2
0.2
0.2
0.3
08
2.0
Medicaid Offset
6/
0.0
0.0
0.0
0.0
0.0
0.0
0.1
01
0.1
0.1
0.1
0.0
0.5
Total Sources of Funds.
0.0
2.5
12.1
15.7
18.3
21.7
25.5
31.2
35.8
39.8
44.1
70.3
246.7
Uses of Funds
Kids Program (133% - 240%) +
Temporarily Unemploy (100% - 240%)
7.8.9/
0.0
0.0
6.9
9.6
101
10.8
11.4
12.2
13.0
13.8
14.7
37.3
1024
Subsidies for Kids
00
0.0
4.2
5.7
59
6.1
6.3
66
6.9
7.3
7.7
21.9
56.7
Subsidies for Temporarily Unemployed Adults
0.0
0.0
2.7
3.9
4.2
4.6
5.1
5.6
6.1
6.5
7.1
15.4
45.7
Net Effect on Unemployment
Insurance Program
10/
0.0
0.0
0.6
0.7
0.5
0.4
02
0.2
02
0.2
0.2
2.1
32
Self-employed Tax Deduction Phased to 100%
11/
0.5
0.5
0.9
1.4
2.0
2.2
24
2.7
3.0
3.2
3.5
7.5
22.3
Long-term Care Program
12/
00
00
1.5
15
1.6
16
1.7
18
1.8
1.9
20
6.2
15.4
Long-term Care Tax Changes
13/
00
02
05
06
0.8
0.9
1.0
1.1
1.2
1.4
1.5
30
9.2
Public Health Service/FQHC Expansion
14/
00
0.2
02
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
10
2.0
Total Uses of Funds:
15/
05
0.9
10:55
14.0
15:2
16:0
16.9
18:2
19.4
20.7
22.2
57.1
154.5
Impact on Deficit:
15/
0.5
1.6
-1.6
-3.1
8.5
13.1
16.4
19.2
-21.9
13:2
923
01/26
1227
JAN24PAK WBI
NOTES:
All estimates are preliminary. Totals may not add due to rounding.
While both Sources and Uses of Funds appear in this table as positive numbers, in the budget, Medicare and Medicaid savings would be indicated in negative numbers as reductions in outlays.
Similarly. the cost of the self-employed tax deduction would be indicated in negative numbers as a revenue loss. Increased receipts would be shown in positive numbers.
1/ Increases from $0.24 to $0.64 1/1/97 and to $0.90 1/1/2002. Estimate from Treasury. ESTIMATE SHOWN MUST BE REESTIMATED (to reflect change in kids' subsidy cost).
2/ Estimates from HCFA/OACT.
3/ Includes income-related Part B premium and extension of HI tax to all state and local employees. Estimates from HCFA/OACT and Treasury.
4/ Includes 25% behavioral offset. Estimate from HCFA/OACT.
5/ Indirect effects on receipts of the kids subsidy. Subsidies for unemployed cause a negligible effect on receipts under standard assumptions. Includes on-budget effects only.
Estimates from Treasury. ESTIMATE SHOWN MUST BE REESTIMATED (to reflect change in kids' subsidy costs.)
6/ Medicaid offset reflects savings to Medicaid as a result of Part B savings. Estimates from HCFA/OACT.
7/ These estimates assume some employer or employee dropping of insurance, which would result in small. increased tax revenues.
8/ Assumes that unemployed compensation is included in income determinations. Also assumes that kids and families with access to employer contriubtions of 50% or more are ineligible for
subsidies. Assumes 100% ESI takeup for unemployed program. Assumes durational effects on health insurance subsidies.
9/ Eligibility for subsidies based on monthly cash income. Basing eligibility on annual cash income would reduce costs and coverage.
10/ Reflects increase in duration and incidence in Unemployment Insurance program as a result of health insurance subsidies. Net of offsetting UI reciepts.
11/ Five and ten year totals include $0.5 billion cost for self-employed tax deduction in FY 1995. Assumes that self-employed must provide health coverage to their employees in order to claim a
deduction in excess of 25%.
12/ Grant program to states to expand home & community-based services for disabled individuals. Estimate from HHS/ASPE.
13/ Includes long-term care insurance tax incentives, personal assistance services tax credits, and accelerated death benefit changes. Estimates from Treasury.
14/ Estimate from HHS/PHS.
15/ Five and ten year totals include $0.5 billion cost for self-employed tax deduction in FY 1995.
01/26 12 27
JAN24PAK WBI
Possible Sources and Uses of Funds
Fiscal Years. Billions of Dollars
5-year Total
10-year Total
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-2000
1996-2005
Sources of Funds
Medicare Savings
I/
0.0
0.5
3.4
4.9
6.6
9.1
11.8
14.1
16.6
19.6
22.6
24.5
109.2
Medicare Receipt Proposals
2/
0.0
1.4
2.9
2.6
28
30
3.3
3.6
4.0
4.3
48
12.7
32.7
Medicaid DSH Freeze
3/
0.0
0.6
1.1
1.7
2.4
3.1
3.8
4.6
5.4
6.2
7.0
8.9
35.9
Indirect Effects on Receipts
4/
0.0
00
0.2
0.2
0.2
02
02
0.2
0.2
0.2
0.3
0.8
2.0
Medicaid Offset
5/
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.1
0.1
0.1
0.1
0.0
0.5
Total Sources of Funds.
0.0
2.5
7.8
9.7
12.3
15.7
19.6
23.0
26.7
30.8
35.1
48.1
183.3
Uses of Funds
Kids Program (133% - 240%) +
Temporarily Unemployed (100% - 240%)
6,7.8./
00
00
69
9.6
10.1
10.8
11.4
12.2
13.0
13.8
14.7
37.3
102.4
Subsidies for Kids
0.0
0.0
4.2
5.7
5.9
6.1
63
6.6
6.9
7.3
77
21.9
56.7
Subsidies for Temporarily Unemployed Adults
0.0
0.0
27
39
4.2
46
51
5.6
6.1
6.5
71
15.4
45.7
Net Effect on Unemploy ment
Insurance Program
9/
0.0
0.0
0.6
07
05
0.4
0.2
0.2
0.2
0.2
0.2
2.1
3.2
Self-employed Tax Deduction Phased to 100%
10/
05
05
0.9
1.4
2.0
2.2
2.4
2.7
3.0
32
3.5
7.5
22.3
Long-term Care Program
11/
0.0
00
15
1.5
1.6
1.6
1.7
1.8
18
1.9
2.0
6.2
154
Long-term Care Tax Changes
12/
00
0.2
05
0.6
0.8
0.9
10
11
12
14
1.5
3.0
9.2
Public Health Service/FQIIC Expansion
13/
0.0
0.2
02
0.2
0.2
0.2
0.2
0.2
0.2
02
0.2
1.0
2.0
Total Uses of Funds:
14/
0.5
0.9
10:5
14.0
15.2
16.0
16.9
18.2
19.4
20.7
22.2
57.1
154.5
Impact on Deficit:
14/
0.5
1.6
27
4.3
2.9
0.2
2.6
4.8
7.3
-10.1
-13.0
9.0
28.8
01/26
1227
JAN24PAK WBI
NOTES:
All estimates are preliminary. Totals may not add due to rounding.
While both Sources and Uses of Funds appear in this table as positive numbers, in.the budget. Medicare and Medicaid savings would be indicated in negative numbers as reductions in outlays.
Similarly, the cost of the self-employed tax deduction would be indicated in negative numbers as a revenue loss. Increased receipts would be shown in positive numbers.
1/ Estimates from HCFA/OACT.
2/ Includes income-related Part B premium and extension of HI tax to all state and local employees. Estimates from HCFA/OACT and Treasury.
3/ Includes 25% behavioral offset. Estimate from HCFA/OACT.
4/ Indirect effects on receipts of the kids subsidy Subsidies for unemployed cause a negligible effect on receipts under standard assumptions. Includes on-budget effects only.
Estimates from Treasury. ESTIMATE SHOWN MUST BE REESTIMATED (to reflect change in kids' subsidy costs.)
5/ Medicaid offset reflects savings to Medicaid as a result of Part B savings. Estimates from HCFA/OACT.
6/ These estimates assume some employer or employee dropping of insurance, which would result in small, increased tax revenues.
7/ Assumes that unemployed compensation is included in income determinations. Also assumes that kids and families with access to employer contriubtions of 50% or more are ineligible for
subsidies. Assumes 100% ESI takeup for unemployed program. Assumes durational effects on health insurance subsidies.
8/ Eligibility for subsidies based on monthly cash income. Basing eligibility on annual cash income would reduce costs and coverage.
9/ Reflects increase in duration and incidence in Unemployment Insurance program as a result of health insurance subsidies. Net of offsetting UI reciepts.
10/ Five and ten year totals include $0.5 billion cost for self-employed tax deduction in FY 1995. Assumes that self-employed must provide health coverage to their employees in order to claim a
deduction in excess of 25%.
11/ Grant program to states to expand home & community-based services for disabled individuals. Estimate from HHS/ASPE.
12/ Includes long-term care insurance tax incentives. personal assistance services tax credits. and accelerated death benefit changes. Estimates from Treasury.
13/ Estimate from HHS/PHS.
14/ Five and ten year totals include $0.5 billion cost for self-employed tax deduction in FY 1995.
01/26 12:27
JAN24PAK.WB1
Possible Sources and Uses of Funds
Fiscal Years, Billions of Dollars
5-year Total
10-year Total
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-2000
1996-2005
Sources of Funds
Tobacco Tax
I/
0.0
00
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Medicare Savings
2/
0.0
0.5
3.4
4.9
6.6
9.1
11.8
141
16.6
19.6
22.6
24.5
109.2
Medicare Receipt Proposals
3/
0.0
1.4
29
26
2.8
3.0
33
3.6
4.0
4.3
4.8
12.7
32.7
Medicaid DSH Freeze
4/
0.0
0.6
1.1
1.7
2.4
3.1
3.8
4.6
5.4
6.2
7.0
8.9
35.9
Indirect Effects on Receipts
5/
0.0
0.0
0.2
0.2
02
0.2
0.2
0.2
0.2
0.2
0.3
0.8
2.0
Medicaid Offset
6/
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.1
0.1
0.1
0.1
0.0
0.5
Total Sources of Funds.
0.0
2.5
7.8
9.7
12.3
15:7 P
19.6
23.0
26.7
30.8
35.1
48.1
183.3
Uses of Funds
Kids Program (133% - 240%) +
Temporarily Unemployed (100% - 240%)
7.8,9/
0.0
0.0
69
9.6
101
10.8
11.4
12.2
13.0
13.8
14.7
37.3
102.4
Subsidies for Kids
0.0
0.0
4.2
5.7
5.9
6.1
6.3
6.6
6.9
7.3
7.7
21.9
56.7
Subsidies for Temporarily Unemployed Adults
0.0
0.0
2.7
39
4.2
4.6
51
5.6
61
65
7.1
15.4
45.7
Net Effect on Unemploy ment
Insurance Program
10/
00
0.0
0.6
0.7
0.5
0.4
0.2
0.2
0.2
02
02
2.1
3.2
Self-employed Tax Deduction Phased to 100%
11/
0.5
0.5
0.9
1.4
2.0
2.2
24
2.7
3.0
3.2
3.5
7.5
22.3
Long-term Care Program
12/
0.0
0.0
1.5
1.5
16
1.6
17
18
1.8
1.9
2.0
6.2
154
Long-term Care Tax Changes
13/
0.0
0.2
0.5
0.6
08
0.9
1.0
11
1.2
1.4
1.5
3.0
9.2
Public Health Service/FQHC Expansion
14/
0.0
0.2
0.2
0.2
02
0.2
0.2
02
0.2
0.2
0.2
1.0
2.0
Total Uses of Funds:
15/
0.5
0.9
10.5
14.0
15.2
16.0
16.9
18:2
19.4
20.7
22.2
57.1
54.5
Impact on Deficit:
15/
0.5.
1.6
2.7
4.3
2.9
0.2
2.6
-4.8
7.3
10.1
13.0
9.0
28.8
01/25
10.11
JAN24PAK WBI
NOTES:
All estimates are preliminary. Totals may not add due to rounding.
While both Sources and Uses of Funds appear in this table as positive numbers, in the budget, Medicare and Medicaid savings would be indicated in negative numbers as reductions in outlays.
Similarly. the cost of the self-employed tax deduction would be indicated in negative numbers as a revenue loss. Increased receipts would be shown in positive numbers.
1/ Increases from $0.XX to $0.64 in I/1/9X. Estimate from Treasury. ESTIMATE SHOWN MUST BE REESTIMATED (to reflect change in kids' subsidy cost).
2/ Estimates from HCFA/OACT.
3/ Includes income-related Part B premium and extension of HI tax to all state and local employees. Estimates from HCFA/OACT and Treasury.
4/ Includes 25% behavioral offset Estimate from HCFA/OACT.
5/ Indirect effects on receipts of the kids subsidy. Subsidies for unemployed cause a negligible effect on receipts under standard assumptions. Includes on-budget effects only.
Estimates from Treasury. ESTIMATE SHOWN MUST BE REESTIMATED (to reflect change in kids' subsidy costs.)
6/ Medicaid offset reflects savings to Medicaid as a result of Part B savings. Estimates from HCFA/OACT.
7/ These estimates assume some employer or employee dropping of insurance, which would result in small, increased tax revenues.
8/ Assumes that unemployed compensation is included in income determinations. Also assumes that kids and families with access to employer contriubtions of 50% or more are ineligible for
subsidies. Assumes 100% ESI takeup for unemployed program. Assumes durational effects on health insurance subsidies.
9/ Eligibility for subsidies based on monthly cash income. Basing eligibility on annual cash income would reduce costs and coverage.
10/ Reflects increase in duration and incidence in Unemployment Insurance program as a result of health insurance subsidies. Net of offsetting UI reciepts.
11/ Five and ten year totals include $0.5 billion cost for self-employed tax deduction in FY 1995 Assumes that self-employed must provide health coverage to their employees in order to claim a
deduction in excess of 25%.
12/ Grant program to states to expand home & community-based services for disabled individuals. Estimate from HHS/ASPE.
13/ Includes long-term care insurance tax incentives, personal assistance services tax credits, and accelerated death benefit changes. Estimates from Treasury.
14/ Estimate from HHS/PHS.
15/ Five and ten year totals include $0.5 billion cost for self-employed tax deduction in FY 1995.
01/25 10.11
JAN24PAK WBI
Possible Uses of Funds
Fiscal Years, Billions of Dollars
5-year Total
10-year Total
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-2000
1996-2005
Kids Program (133% - 240%)
1,2,3/
0.0
0.0
14.2
5.9
6.1
6.3
6.6
16.9
7.7
21.9
56.7
Temporarily Unemployed (100% - 240%) Only 3,4,5/
0.0
0.0
3.8
5.4
5.7
6.0
6:4
7.0
76
82%
8.9
21.0
59.2
Subsidy Cost
0.0
0.0
3.3
4.7
5.2
5.7
6.2
6.8
7.4
8.0
8.7
18.9
56.0
Net Effect on Unemployment Insurance
0.0
0.0
0.6
0.7
0.5
0.4
0.2
0.2
0.2
0.2
0.2
2.1
3.2
Kids Program (133% - 240%) +
Temporarily Unemployed (100% - 240%)
1-5/
0.0
0.0
7.4
10.2
10.7
THE
11.7
12.4
13.2
14.0
15.0
39.4x
105.6
Subsidy Cost
0.0
0.0
6.9
9.6
10.1
10.8
11.4
12.2
13.0
13.8
14.7
37.3
102.4
Net Effect on Unemployment Insurance
0.0
0.0
0.6
0.7
0.5
0.4
0.2
0.2
0.2
0.2
0.2
2.1
3.2
Self-employed Tax Deduction Phased to 100%
6/
0.5
10.5
0.9
14
2.0
22
2.4
2.7.
304
3.2
135
7.5
223
Long-term Care Program
7/
0.0
0.0-
1.5
15
-1.6
1.6
1.8.
7.41.8
19
2:0
62
15.4
Long-term Care Tax Changes
8/
0.0
0.2
0.5
0.6
0.8
0.9
1.0
1.1
1.2
1.44
1.5
3.0
92
Public Health Service/FQHC Expansion
9/
0.0
0.2
0.2
$02
0.2
0.2
0.2
02
$02
0.2
0.2
1.0
2.0
01/26 12:28
JAN24PAK WBI
STIMATED IMPACTS OF MEDICARE AND MEDICAID PROPOSALS
DRAFT
Fiscal years, $ in billions, FY 1996 President's Budget baseline)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-2000
1996-2005
1EDICARE
/
Hospital Proposals
Moratorium on Long-Term Care Hospitals
-0.0
-0.0
-0.1
-0.1
-0.2
-0.2
-0.2
-0.3
-0.3
-0.4
-0.4
-1.8
Expand Centers of Excellence
0.0
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.2
-0.5
Reduce PPS-Exempt Capital Payments
-0.1
-0.2
-0.2
-0.2
-0.3
-0.3
-0.3
-0.3
-0.3
-0.4
-1.0
-2.6
Lower Indirect Medical Education
0.0
0.0
0.0
-0.5
-1.5
-2.4
-27
-3.0
-3.3
-3.6
-2.0
-17.0
GME Reform
1/
-0.2
-0.4
-0.6
-0.8
-1.1
-1.3
-1.6
-1.9
-2.2
-2.5
-3.1
-12.6
Reduce Medicare DSH Payments by 25%
0.0
-1.1
-1.3
-1.4
-1.5
-1.6
-1.7
-1.8
-1.9
-2.1
-5.2
-14.2
Reduce Hospital PPS Update
0.0
-0.3
-0.7
-1.2
-1.7
-2.3
-3.0
-3.7
-4.5
-5.4
-4.0
-22.8
Physician Proposals
Eliminate MVPS Upward Bias
0.0
0.0
0.0
-0.1
-0.4
-0.9
-1.6
-2.5
-3.5
-4.5
-0.4
-13.5
Other Provider Proposals
Competitive Bidding for Labs
0.0
-0.1
-0.3
-0.3
-0.3
-0.4
-0.4
-0.5
-0.5
-0.6
-1.0
-3.3
Competitive Bidding for Part B Services
0.0
-0.1
-0.2
-0.2
-0.2
-0.2
-0.2
-0.2
-0.3
-0.3
-0.6
-1.8
HMO Payment: Part B Floor/Ceiling
-0.0
-0.1
-0.1
-0.1
-0.2
-0.2
-0.2
-0.3
-0.3
-0.3
-0.5
-1.8
Home Health Prospective Payment
0.0
0.0
0.0
-0.2
-0.2
-0.2
-0.2
-0.3
-0.3
-0.3
-0.4
-1.7
Home Health Coinsurance (10%; exempt 30-day post-discharge) 2/
0.0
-1.2
-1.5
-1.6
-1.7
-1.8
-1.9
-2.0
-2.1
-2.2
-5.9
-15.8
Receipt Proposals
Income-Related Part B Premium
-0.3
-1.3
-1.1
-1.3
-1.6
-1.9
-2.3
-2.7
-3.1
-3.7
-5.5
-19.2
Extend HI Tax to All State & Local Employees
3/
-1.1
-1.6
-1.5
-1.5
-1.4
-1.4
-1.3
-1.3
-1.2
-1.1
-7.1
-13.5
TOTAL, Medicare
-1.9
-6.3
-7.5
-9.4
-12.1
-15.1
-17.7
-20.6
-23.9
-27.4
-37.3
-142.0
MEDICAID
Freeze DSH at 1995 Level
4/
-0.6
-1.1
-1.7
-24
-3.1
-3.8
-4.6
-5.4
-6.2
-7.0
-8.9
-35.9
TOTAL, Medicare + Medicaid
-2.5
-7.4
-9.2
-11.8
-15.2
-18.9
-223
-26.0
-30.1
-34.4
-46.2
-177.9
Memo: Medicaid Offset
0.0
-0.0
-0.0
-0.0
-0.0
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.5
NOTES:
All savings estimates are net of beneficiary premium offsets.
Current estimates assume that the 25% Part B premium is extended beyond 1998.
Numbers may not add due to rounding.
1/ Pricing assumes 7/1/95 implementation date for most GME proposals. Pricing does not include proposal to remove GME and IME from the AAPCC formula.
2/ An alternative proposal with no 30-day post-discharge exemption would have savings of $8.8 billion over FY 1996-2000 and $23.5 billion over FY 1996-2005.
3/ Treasury estimate (1/12/95).
4/ Estimate assumes 25% behavioral offset.
Sources: HCFA/OACT, Treasury, and OMB/HFB.
01/20/95
MEDICAID
Medicaid block grant that caps the growth in federal contribution
at a 5% growth rate. The projected baseline rate of growth is
about 9.3% (per capita spending growing at approximately same
rate as per capita private spending).
Federal savings
Federal reduction = $375 billion over 10 years. Projected
federal payments would be reduced by 7 to 10% in 1996 and 35 to
40% in 2006 (due to cumulative effect of annual reductions).
Govs say that managed care can produce enormous savings. Not
nearly enough to compensate for levels of reductions of block
proposals. ($5 billion over 10 years if all nonelderly,
nondisabled recipients enrolled in MC.)
Possible state responses
Higher state spending (Between 1996 and 2002, state spending
would need to increase by 20%. In 2005, increase would be
43% over baseline projections.)
Reduction in provider payments (Between 1996 and 2002,
payments to hospitals, physicians and nursing homes would be
reduced on average by 13.7%)
Reductions in benefit levels (But, in 2005, eliminating all
benefits for dental, prescription drugs, EPSDT, home health
care, hospice, personal care services and payments for
Medicare premiums and cost sharing still would not be
enough.)
Reductions in program eligibility (But, eliminating
eligibility for non-cash children would achieve 62% of the
savings in 1997, but only about 14% in 2005.)
Concerns
Risk for states:
States would be at risk for inflation and recession.
Block does not react to changing numbers of Medicaid
eligibles as individual entitlement does.
Would benefit some states and penalize others. (State
growth rates vary for numerous reasons, like changes in
population, different medical costs in different
regions -- this would fix the growth rate.)
Population is aging and long-term care needs,
therefore, increasing. States would bear this burden.
States must make the tough choices. Federal government
gets savings without taking responsibility for specific
cuts.
Number of uninsured will increase. (See chart)
Cost shifting will be exacerbated (because of reductions in
Medicaid provider payments or the number of uninsured).
Alternatives:
Admin can offer additional state flexibility without shifting
costs to states or reducing coverage:
Permitting states to implement managed care and home and
community-based care programs without applying for a waiver.
Using 1115 waiver process to allow states to change
categorical rules.
Eliminating Boren amendment restrictions on hospital
payments (i.e., they must be "reasonable").
ERISA
[Federal preemption of state laws that "related to" employee
health plans. States can regulate indemnity plans and HMOs;
can't regulate employee health plans that "self-insure" under
ERISA rather than buy insurance.]
NGA is proposing two ERISA preemption changes:
(1) Create a set of national minimum standards, including
minimum insurance reform and uniform data collection
standards. States could regulate self-insured plans if
states adopt these standards.
(2) Dept of Labor can issue ERISA waivers, especially for
states that want to develop alternative financing and cost
control strategies. State's waiver would have to include
plan for expanding coverage.
Also proposing that federal health care standards be
developed for self-funded plans (e.g., remedies, minimum
solvency). NGA is also proposing that employers below a
certain (unspecified) size threshhold be prohibited from
forming self-funded plans.
01/25/95
18:20
JENNINGS
002/002
MEDICINE & HEALTH
Gov. Dean Nears Medicaid Deal
cuts promised in the "Contract with America. But
Budget Committee Chair John Kasich (R-OH) said
A week after publicly applauding a sweeping Medicaid
Jan. 18 that that schedule has changed. Now a
reform proposal pending in the Senate, the head of
spending reduction package will be released Feb.
the National Governors' Assn. (NGA) began privately
9; a separate, more far-reaching budget reconciliation
crafting a Medicaid deal with the House Speaker.
bill that will be the "down payment" for balancing
NGA Chair Howard Dean (D-VT) and Speaker Newt
the budget will be released later in the spring,
Gingrich (R-GA) last week discussed a pact under
budget aides said Jan. 20. The delay allows
which the states would receive fewer federal Medicaid
Republicans to see President Clinton's budget -
dollars than in years past, but have more say over
to be unveiled Feb. 6 - before showing their
how to use them. Under the most likely scenario,
own hand. Kasich's rationale is that lawmakers
states would receive an annual Medicaid block
need extra time to examine budget options "more
grant equal to the amount received the year before
thoughtfully." The Ohio Republican backed away
plus 5 percent, Dean told M&H 3an. 19. That increase
from another promise: to propose a seven-year budget
would be far below today's roughly 10 percent growth,
with a surplus at the end. Instead, be said, GOPers
but Dean said be would be willing to live with
will release program changes for fiscal years 1996-
the smaller rise because the block-grant funding stream
2000 as a "road map" for reaching the zero target
would free him from Medicaid "categorical hoops"
by year seven. Meanwhile, a series of new reports
such as requiring federal permission to move recipients
show just how daunting that target is. A Price
into managed care. "There is a real possibility of
Waterhouse report released Jan. 17 estimates that
a deal" on the block grant idea, he said. "A lot
if the Contract's tax cuts and the GOP's proposed
of governors would be interested." Dean will likely
defense spending increase of $80 billion are enacted,
try to sell the idea to his fellow governors at the
and Social Security is exempted, Medicare, Medicaid,
association's annual winter meeting beginning Jan.
and all discretionary programs would have to
28. Dean also lobbied Gingrich to support Senate
absorb cuts of 24.1 percent over seven years.
Human Resources Chair Nancy Kassebaum's (R-KS)
Democratic leaders and the Center on Budget and
welfare bill. which would turn the Medicaid acute
Policy Priorities have arrived at similar estimates.
care program entirely over to the states (M&H 1/
16/95), but got no commitment. Dean said the meeting
took place largely because the Speaker was intrigued
GOP Offers Long Term Care Plums
by statements on Medicaid by New York Gov. George
Pataki (R-NY). He urged the House Ways & Means
The budget hits that Medicare will likely take later
Committee Jan 12 to provide states with incentives
this year could stir up the powerful seniors' lobby,
- such as increased federal matching funds - for
but House Republicans are considering some early-
using their Medicaid dollars more efficiently. Following
session long term care tax proposals to sugar-coat
his conversation with Dean, Gingrich brought the
the bitter medicine. The House Ways & Means
block grant proposal up with Gov. Tommy Thompson
Committee last week held separate hearings on three
(R-WI), the Speaker reported at a Jan. 19 Capitol
"Contract with America" provisions designed to benefit
Hill news conference. Thompson, who will succeed
the elderly: repealing a 1993 tax increase OD Social
Dean as NGA chair this summer, "said he could
Security benefits (at a five-year cost of $15 billion):
live with a 5 percent increase," Gingrich said, adding
providing a $500 refundable tax credit for providing
that be has tapped the Wisconsin governor to head
long term care at home ($8 billion); and providing
a task force assigned to address Medicaid reform.
tax incentives for the purchase of long term care
insurance ($1.3 billion). During a Jan. 19 hearing
on the tax repeal, American Assa. of Retired Persons
GOP Budget Plans
spokesperson Bob Shreve argued that the 1993 Law
Grow Less Ambitious
that made 85 percent of Social Security benefits taxable
instead of 50 percent was unfair, since the program
House Republican leaders, who pledged to crank
is in surplus. Ways & Means Committee Democrat
out budget-cutting legislation early in the 104th
Andrew Jacobs (IN) agreed taxes on the elderly
Congress, are having trouble finding the revenue
should be more progressive, but said means testing
of Medicare would be "better" than repealing the
they need and have already missed their first self-
new tax. Several other Democrats are wary of the
imposed deadline. The GOP plan at the outset
of the session was to raise $200 billion in five-
repeal, including Reps. Gerald Kleczka (WI) and
before
Benjamin Cardin (MD). because the revenue goes
Policy Number:
EC-7
Committee:
Executive
Title:
Health care Reform
RESPONSE TO:
7.2.1 Employer Retirement Income Security Act
SUMMARY:
NGA is proposing that ERISA preemption of state laws be modified in two
respects. The first calls for a set of national minimum standards to be created
by federal regulators. States would be able to impose réquirements on self-
funded ERISA plans, such as minimum insurance reform and uniform data
collection standards. The second calls for empowering the Department of
Labor to issue ERISA waivers to states that apply for them. There are no
specific criteria for who get such a waiver except that states applying for
waivers to impose financing or cost containment strategies on ERISA plans
would be required to show a plan for expanding coverage.
CONCERNS:
This proposal will be very controversial with large employers and many labor
unions, particularly because there is súch a lack of standards for which states
could apply for an ERISA waiver. Advocates of big business have stated that
maintaining ERISA preemption is their highest legislative priority.
RESPONSE TO:
7.2.2 The Health Insurance Market
SUMMARY:
NGA is proposing that federal health care standards be developed for self-
funded ERISA plans. The standards would be similar to the standards states
apply to commercial insurers. The NGA paper suggests that standards might
be appropriate in the areas of portability requirements, minimum solvency
standards, and remedies for people that have problems with their plans. NGA
also is proposing that employers below a certain (unspecified) size threshold
be prohibited from forming self-funded health plans.
CONCERNS:
Although both of these proposals are consistent with the policy the
Administration took in the Health Security Act, they are likely to be
cóntroversial with the business community, particularly the requirement to
create a remedy standard under ERISA. The small business community will
particularly oppose a prohibition on their forming self-funded health plans.
(Note: Rep. Fawell, new chair of the Employer-Employee Relations
Subcommittee in the House has indicated that he intends to sponsor legislation
expanding ERISA to permit small business associations to form self-funded
health plans outside of state jurisdiction).
RESPONSE TO:
7.2.3.2 Entitlement and Financing
SUMMARY:
NGA is proposing that each state be able to choose between continuing under
an individual entitlement or switching to a capped entitlement to states.
CONCERNS:
This appears to be a no-lose proposition for states, they can keep what they
have or make a change in program structure if it appears more advantageous.
However, by making this proposal, NGA is signaling that a capped entitlement
might be acceptable. This opens the door to deficit hawks in Congress who
want to use a program cap to dramatically reduce federal Medicaid spending.
Advocating transforming Medicaid into a capped entitlement is a risky strategy
for states. Given the current budget climate, capping the federal payments to
states would inevitably result in a reduction in the federal government's
financial commitment to the program. Reducing the "level" of a block grant
payment is much easier than making specific program cuts, because the hard
choices about how to make do with the reduced payments are devolved to the
states. Even if initial payment reductions were a small (e.g., one percentage
point below baseline), over a reasonably short period of time the reduction in
federal resources provided to states would be tens of billions of dollars.
State and local governments ultimately will face the consequences of such a
reduction, because the need for medical and long-term care by the poorest and
most vulnerable populations will continue. States will be forced to respond
either through increased state spending or reductions in coverage and benefits.
Cuts in Medicaid coverage and services not only would result in severe
hardships for needy populations, but would also result in more uncompensated
care and greater costs shifts to other private and public payers.
1.
States At Risk During Recessions. As an individual entitlement
program, Medicaid automatically adjusts federal payments to meet the
current level of need. During recessions or natural disasters, the
number of families without work and without insurance can increase
dramatically. Because of the entitlement nature of Medicaid, the
amount of federal support will automatically adjust to help states cope
with the increased need for services. A capped entitlement to states
would not respond to changes in economic conditions, leaving states to
address the increased need on their own. Although states in theory
could cut off participation or benefits if funds were not available, as a
practical matter states would be unable to make significant reductions
at times of recession.
2.
States At Risk for Cost of Aging Population. The demographic
changes that are occurring in the Medicaid population increase the risk
that a capped entitlement to states will result in states getting fewer
federal resources over time. As the population continues to age, the
growing need for long-term care services will put increased stress on
the Medicaid program. If federal payments to states are fixed based
on current enrollment and growth, the states would bear the burden for
providing these services as the population ages.
3.
States Less Able to Expand Coverage. States that wish to expand
coverage are better able to do so under an individual entitlement than
under a capped entitlement to states. The current system is a
partnership, in which the federal government has agreed to match state
spending. For example, virtually every state has elected to expand
coverage to one or more of the optional coverage categories under
Medicaid, in part because the federal government is paying between
50 and 78% of the cost of each new enrollee. Under a capped
entitlement to states, expanding coverage would require states to pick
up 100% of the costs of the new enrollees, making it far less likely
that states would expand enrollment.
Policy Number:
EC-12
Committee:
Executive
Title:
Medicaid
RESPONSE TO:
12.2.3 Give States Greater Leeway in Containing the Cost of Hospital
and Long-Term Care Through the Boren Amendment
SUMMARY:
NGA believes that any coherent approach to national health care reform must
address the inflexible provider reimbursement standard of Boren. The
governors support a strategy that would replace the current Boren Amendment
with provisions that establish "safe harbor" standards, where a state meeting
any of them would satisfy the statute. The NGA resolution describes five
"safe harbors."
NGA also believes that Boren is not applicable when a hospital is part of a
managed care network for Medicaid, and that procedural requirements in the
current Boren process be streamlined.
CONCERNS:
We support the "safe harbor" standards for hospital reimbursement. While the
nursing home standards are less onerous than what has been previously
proposed by states, we still are concerned that payments to facilities may be
inadequate for efficiently run facilities. Reducing payments below current law
Boren requirements may result in deteriorating quality of care.
We agree with NGA that the current Boren Amendment language does not
apply in managed care settings, and this is reflected by our current operating
policy. We also support NGA's recommendation that the current Boren
procedural requirements be streamlined, and will gladly work with NGA on
proposing changes to the process.
RESPONSE TO:
12.2.4 Allow States to Manage Costs in the Early and Periodic Screening,
Diagnostic, and Treatment (EPSDT) Program
SUMMARY:
According to NGA, States currently have no ability to limit the range or cost
of services required in the EPSDT program. HHS needs to issue rules that
allow States to efficiently manage case costs and utilize the least expensive
alternatives for providing services without reducing the quality of care.
CONCERNS:
This issue was part of the HHS/NGA negotiations in 1993. In response to
States' concerns, HCFA issued an "All States" letter on May 24, 1993
emphasizing the flexibility States have in applying medical necessity criteria to
determine the scope of services provided under the EPSDT program. We
would be willing to continue discussions with NGA on ways that States can
select less costly alternatives for diagnosis and treatment without risking
quality.
Even with the 1993 policy clarification, States have continued to express a
desire to seek legislative change to limit the scope of Medicaid services even
further, perhaps limiting EPSDT services to only those covered in their State
plan. We believe that in matters concerning EPSDT, as well as other
statutorily required services, the Federal government has a role in assuring that
those required services are covered.
RESPONSE TO:
12.2.5 Ensure that States Will Not be Expected to Implement any
Medicaid Program Changes Until HCFA Has Published Final
Regulations to Guide Program Administration.
SUMMARY:
NGA claims that HCFA has too often failed completely to publish regulations
associated with statutory changes in Medicaid, or, has do so after many years
of delay. States have had to implement statutory changes and have been held
financially accountable for unclear laws, even though HCFA failed to provide
clarification through regs.
CONCERNS:
We have been committed to making every effort to develop and publish
regulations as rapidly as possible, resources permitting. HCFA has continued
to disseminate timely information in other ways (Medicaid manual issuances,
"All States" letters, etc.). In addition, HCFA works closely with States
through Medicaid Technical Assistance Groups (TAGs) which provide States
with an opportunity to assist HCFA in the development of new regulations.
RESPONSE TO:
12.2.8 Reconsider The Nursing Home Reform Mandates In The Omnibus
Reconciliation Act of 1987.
SUMMARY:
The NGA proposes that the quality of care provisions included in the nursing
home reform legislation in 1987 should be modified to increase State
flexibility and reduce the Federal government "micro-management." In
addition, the NGA recommends repeal of the preadmission screening and
annual resident review (PASARR) provisions, since they are not cost-efficient
and States have developed alternative methods to ensure appropriate
placement.
CONCERNS:
We do not support changes to the basic quality of care provisions for nursing
homes. We believe that these provisions are necessary for the protection of
this especially vulnerable population.
We agree in concept that the PASARR provisions are duplicative of other
efforts, and believe that the annual resident review should be repealed.
At this time, we wish to retain the preadmission portion of the statute. We
believe that more information is needed before we are convinced that this
portion of the law could also be repealed.
RESPONSE TO:
12.2.9 Make Audit And Disallowance Policies More Equitable.
SUMMARY:
The NGA wants to revise the current program disallowance process to focus
the Federal review process on those policies that might have direct harm to
beneficiaries. The NGA proposal would prohibit heavy sanctions for
violations that have no harm to beneficiaries.
CONCERNS:
We would oppose this proposal. We share the States' concern that the size of
a disallowance often seems out of proportion to the significance of the State
violation. This occurs because HCFA is charged with ensuring State
compliance, and has no choice but to disallow all Federal funding related to a
violation. The Departmental Appeals Board (DAB) likewise must sustain or
reverse the disallowance in its entirety, on appeal.
We do not agree that penalties should be limited only to violations that
directly harm patients. The Federal government could not responsibly oversee
the Medicaid program if it lacked the threat of disallowances for such
violations as unauthorized or inappropriate payments.
Proposals for basing the magnitude of disallowances on the seriousness of the
violation were considered by Congress in 1993. We support this concept and
provided extensive technical assistance to Hill staff to develop acceptable
language. This proposal was included in section 1668, introduced by Senator
Moynihan on November 17, 1993.
01/19/95
15:41
202 401 7321
HHS ASPE/HP
JENNINGS
002/002
U.S. Department of Health and Human Services
RESPONSE TO:
7.2.3.3
Statutory Changes to the Social Security Act
SUMMARY:
Change the statute to allow activities currently conducted under research
and demonstration waivers to be enacted through state plan amendment.
If the statute is not changed as described above, remove the requirement
that the waiver include a research and demonstration component,
streamline administration and allow for five-year renewal.
CONCERNS:
Disagree with changing statute: The reason why reform activities occur
within the waiver context is that we do not know if they are effective at
delivering high quality, efficient care. The research results are needed prior
to consideration of letting these activities occur through plan amendments.
Disagree with removing research and demonstration requirement (see
reasons above).
Currently, no statutory change is required to extend the demonstration
beyond the demonstration (e.g., Arizona).
THE WHITE HOUSE
WASHINGTON
To Jen
January 13, 1995
MEMORANDUM
TO:
Chris Jennings
Jennifer Klein mit
FROM:
Marcia Hale
SUBJECT:
NGA Policy on Health Care Reform
As you know, the National Governors' Association will hold its Winter meeting on
January 28-31 in Washington. Please review the proposed policy on Health Care Reform and
let me know of any comments or suggestions you may have regarding this policy so that I
may advise the Democratic Governors' representatives on the Executive Committee. Please
return your written comments to my office on Tuesday, January 17.
During the last NGA meeting, your office was helpful in providing talking points on
health care reform that were distributed among Democratic governors. I would appreciate it
if you could again provide talking points on this subject. Please return them to Lawton
Jordan in Room 106 by Friday, January 20.
Thank you for your help in reviewing the NGA policies and in providing these talking
points. Please call me if you have any questions.
Attachment
NATIONAL
Howard Dean, M.D
Raymond
Governor of Vermont
Executive Director
GOVERNORS
Chair
ASSOCIATION
Hall of the States
Tommy G. Thompson
444 North Capitol Screet
Governor of Wisconsin
Washington, D.C. 20001-1512
Vice Chair
Telephone (202) 624-5300
1995 Winter Meeting
EXECUTIVE COMMITTEE
Governor Howard Dean, M.D., Chair
Governor Tommy G. Thompson, Vice Chair
Raymond C. Scheppach, Executive Director
Proposed Changes in Policy
EC-7
Health Care Reform
Page 4
EC-10
HIV/AIDS
Page 19
EC-11
Long-Term Care
Page 26
EC-12
Medicaid
Page 32
EC-13
Conference of the States
Page 39
Reaffirm Existing Policy
EC-4
Indian Gaming
Page 40
EC-6
Political Self-Determination
Page 41
for Puerto Rico
EC-14
Commonwealth Status for Guam
Page 42
EC-15
Public Pay and Pension Plans
Page 43
EC-16
Out-of-State Sales Tax Collections
Page 44
EC-17
Ethics in Government
Page 45
EC-18
Equal Rights
Page 46
New language is typed double-spaced and in ALL CAPS, with deleted material
lined-throughout
(-).
The Executive Committee recommends the consideration of three new policy positions, one of which is
current interim policy, amendments in the form of substitutes to two existing policy positions, and the
reaffirmation of seven existing policy positions (three with technical amendments). Pursuant to the
recommendations of the Strategic Review Task Force, these proposals are time limited to two years.
Background information and fiscal impact data follow.
1. Health Care Reform (Amendment in the form of a substitute to EC-7)
While federal efforts to develop a consensus on national health care reform have to date been
unsuccessful, reform efforts in the states continue to move ahead. However, more needs to be done.
This proposed policy describes policy areas where additional federal support is needed to facilitate
and accelerate the development of state-based efforts. Included among the areas are the Employee
Retirement Income Security Act (ERISA), the health insurance market, acute care services for low-
income individuals and families, medical tort reform, and administrative simplifications.
2. HIV/AIDS (EC-10, amendment in the form of a substitute to C-17)
The human immunodeficiency virus (HIV) and acquired immunodeficiency syndrome (AIDS) are
critical public health problems. This proposed policy calls for strong action by all
government, including the reauthorization of the Ryan White Care Act, to address this disease.
esn't
3. Long-Term Care (New Policy Position, EC-11)
With an aging United States population, the demand for long-term care will continue to grow for the
next half century. This proposed policy calls for a more integrated approach to long-term care that
supports the availability of a continuum of services, including home- and community-based care, so
that placement in nursing homes can be prevented or delayed for as long as possible. The proposed
policy supports a comprehensive approach to long-term care and recognizes the importance of a
viable market for long-term care insurance and managed care networks that address long-term care
needs.
4. Medicaid (New Policy Position, EC-12)
The Medicaid program, now more than 18 percent of total state spending, continues to be the
fastest-growing state expenditure. Over the last decade, the partnership between the states and the
federal government has eroded to the point that states now have relatively little flexibility in
administering this program. This proposed policy calls on the federal government to reestablish
that partnership through a series of programmatic recommendations that restore important
flexibility to states. Included among the recommendations are allowing more flexibility in
establishing managed care networks, establishing institutional reimbursement rates, and designing
and implementing home- and community-based care programs as an alternative to institutional
long-term care. The proposed policy also opposes a unilateral cap on federal Medicaid spending
and calls for the repeal of certain unfunded mandates.
-1-
5. Conference of the States (EC-13, Current Interim Policy Position adopted by the Executive
Committee on December 19, 1994)
On December 19, 1994, the Executive Committee unanimously adopted this proposal as "interim"
policy. The rules require the association to approve all interim policy at its next meeting.
It is proposed that state legislatures pass a "Resolution of Participation" in a conference of the states
that would develop a "States' Petition" as a new form of communication between the states and
Congress. Once adopted by a majority of the states, the petition would be presented to Congress for
action.
6.
Reaffirmation of Existing Policy Positions
Indian Gaming (EC-4)
Under the sponsorship of the Senate Committee on Indian Affairs, the Governors, attorneys general,
and Indian tribal government leaders participated in a negotiation process aimed at resolving the
conflicts arising out of the implementation of the Indian Gaming Regulatory Act (IGRA) of 1988.
After numerous meetings and hearings, as well as hours of staff-level negotiation, no compromise
was reached.
No action has been taken on this issue since Senator Inouye and Senator McCain, then chair and
vice chair respectively of the committee, presented a substantially revised version of S. 2230 to
amend IGRA in August 1994. The revised bill discarded the scope of gaming and process
framework that was developed through months of negotiations between state and tribal government
representatives and replaced it with scope of gaming language similar to the original IGRA and a
fast-track compacting process for tribes. NGA forwarded a letter to Senator Inouye and Senator
McCain expressing disappointment with the revised bill and predicting the Governors' vehement
opposition to such legislation.
Senator McCain, the current chair of the committee, intends to revise the bill's language further and
to introduce a third version around March 1, 1995. He has requested gubernatorial input. NGA's
current policy on amending IGRA will be held over to allow Governors to review and revise their
policy position based on new information gained through the negotiation process and recent court
decisions. The objective would be to have policy developed in time for the 1995 NGA Annual
Meeting.
Political Self-Determination for Puerto Rico (EC-6, with a technical amendment)
The National Governors' Association has continuously supported Puerto Rico's request for a
plebiscite regarding its status either as a state of the Union, a commonwealth, or independent status.
The Executive Committee once again endorses the right of the people of Puerto Rico to political
self-determination made freely by majority vote.
Commonwealth Status for Guam (EC-14)
The Executive Committee recommends reaffirmation of NGA's support of legislation designating
Guam as a commonwealth.
-2-
Public Pay and Pension Plans (EC-15)
The Executive Committee recommends reaffirmation of this policy, which states that these issues
are the primary responsibility of state and local governments. It also calls upon the federal
government to revise the Fair Labor Standards Act with regard to state and local government
concerns.
Out-of-State Sales Tax Collections (EC-16)
The Executive Committee recommends reaffirmation of this policy. The Supreme Court, in its
1992 decision North Dakota Y. Quill Corporation, said that interstate sales tax collection was not a
due process question but a Commerce Clause issue to determined by Congress. This policy calls
upon Congress to exercise its powers to regulate interstate commerce and to grant states authority to
collect the taxes owed on interstate mail transactions.
Ethics in Government (EC-17, with a technical amendment)
The Executive Committee recommends reaffirmation of this policy, which calls on every elected
official to support actions to maintain citizen confidence in government.
Equal Rights (EC-18, with a technical amendment)
The Executive Committee recommends reaffirmation of the principles embodied in the Equal
Rights Amendment.
-3-
EC-7. HEALTH CARE REFORM
7.1
PREAMBLE
THE HEALTH OF OUR NATION DEPENDS ON THE HEALTH OF OUR PEOPLE.
AND TODAY, THE UNITED STATES HAS THE MOST SOPHISTICATED AND
TECHNOLOGICALLY ADVANCED HEALTH CARE SYSTEM IN THE WORLD.
HOWEVER, THE TECHNOLOGICAL EXCELLENCE OF OUR SYSTEM HAS COME WITH
A PRICE GROWTH IN THE AMERICAN HEALTH CARE INDUSTRY HAS EXCEEDED
GROWTH IN THE OVERALL ECONOMY FOR ALMOST EVERY ONE OF THE LAST
THIRTY YEARS. THE COST OF THIS EXTRAORDINARY GROWTH CONTINUES TO
CONCERN GOVERNMENT, BUSINESSES, AND INDIVIDUALS. A GROWING NUMBER
OF AMERICANS ARE WITHOUT HEALTH COVERAGE, WITH EVEN BASIC CARE
BEYOND THE REACH OF MANY. WITH HEALTH CARE COSTS EXCEEDING
GENERAL ECONOMIC GROWTH, COVERAGE DECLINING, AND COSTS SHIFTING TO
A SMALLER PERCENTAGE OF AMERICANS WHO CAN AFFORD TO PAY,
AFFORDABLE QUALITY CARE IS BECOMING MORE ELUSIVE. THE CHALLENGE
THAT WE FACE IS TO EXTEND ACCESS TO AFFORDABLE QUALITY CARE TO ALL
AMERICANS, INCLUDING THOSE IN UNDERSERVED AND RURAL AREAS, WHILE
CONTAINING COSTS.
THE LAST SEVERAL YEARS HAVE SEEN INTENSE FEDERAL EFFORTS TO
DEVELOP A CONSENSUS ON NATIONAL HEALTH CARE REFORM. THUS FAR, THOSE
EFFORTS HAVE BEEN UNSUCCESSFUL BY CONTRAST, THE REFORM EFFORTS OF
GOVERNORS AND STATE LEGISLATORS HAVE BEEN MUCH MORE SUCCESSFUL
THE EMPHASIS OF GOVERNORS TODAY IS TO DEVELOP STATE-BASED HEALTH
CARE REFORM EFFORTS.
IN ALMOST EVERY STATE, STRATEGIES HAVE BEEN IMPLEMENTED TO
IMPROVE THE QUALITY AND AVAILABILITY OF HEALTH CARE. IN MOST STATES,
THE REFORM EFFORTS HAVE BEEN FOCUSED TO ADDRESS A SPECIALIZED
PROBLEM. IN SEVERAL NOTABLE CASES, THE STATE IS ENGAGED IN A
COMPREHENSIVE EFFORT THAT IS LIKELY TO PROVIDE NEAR-UNIVERSAL
COVERAGE FOR ITS CITIZENS. IN GENERAL, STATES ARE TESTING STRATEGIES TO
RESTRUCTURE THE HEALTH CARE MARKET AND RESTRUCTURE THE PUBLIC
PROGRAMS THAT SUPPORT THE MOST VULNERABLE CITIZENS.
7.1.1
PRIVATE MARKET. WITHIN THE PRIVATE INSURANCE MARKET, STATES HAVE
ACTED TO ENHANCE ACCESS AND IMPROVE EQUITY FOR BOTH EMPLOYERS AND
.4.
EMPLOYEES. IN SOME STATES, FOR EXAMPLE, LIMITS HAVE BEEN PLACED ON
PREEXISTING CONDITIONS EXCLUSIONS FOR CERTAIN MARKET SEGMENTS. SOME
STATES ARE EXPERIMENTING WITH GUARANTEED ISSUE AND PORTABILITY OF
COVERAGE WHERE INDIVIDUALS CAN BE ENSURED ACCESS TO COVERAGE
AFTER CHANGING JOBS. AND WITHIN THE SMALL GROUP INSURANCE MARKET, A
NUMBER OF STATES ARE ESTABLISHING MODIFIED COMMUNITY RATING
SYSTEMS, WHILE TWO STATES HAVE MOVED TO A PURE COMMUNITY RATING.
MORE THAN SIXTEEN STATES ARE EXPERIMENTING WITH TAX INCENTIVES
TO INCREASE COVERAGE. INCLUDED AMONG STRATEGIES ARE TRANSITIONAL
TAX CREDITS TO SMALL BUSINESSES AND MEDICAL SAVINGS ACCOUNTS. THESE
STRATEGIES ARE APPLICABLE ONLY TO STATE TAXES AND DO NOT AFFECT
FEDERAL TAX LAWS.
FINALLY, SOME STATES ARE ENCOURAGING THE ESTABLISHMENT OF
PURCHASING ALLIANCES OR GROUP PURCHASING POOLS. BY SPREADING RISK
AND ENCOURAGING COMPETITION AMONG HEALTH NETWORKS AND INSURERS,
ALLIANCES ARE ABLE TO OFFER AFFORDABLE COVERAGE TO INDIVIDUALS,
THOSE WHO ARE SELF-EMPLOYED, AND PEOPLE WHO WORK IN SMALL
BUSINESSES-THOSE WHO FIND IT MOST DIFFICULT TO PURCHASE AFFORDABLE
COVERAGE. ALTHOUGH THESE PROGRAMS ARE STILL IN THEIR EARLIEST
STAGES, THE RESULTS LOOK PROMISING.
7.1.2
PUBLIC PROGRAMS. THE MEDICAID PROGRAM REMAINS THE ONLY NATIONAL
HEALTH CARE PROGRAM FOR THOSE WHO ARE POOR. ALTHOUGH THE
PROGRAM SERVES MORE THAN 30 MILLION BENEFICIARIES ANNUALLY, MANY
EXTREMELY POOR PEOPLE DO NOT QUALIFY FOR CARE.
SEVERAL STATES HAVE ACTED TO ELIMINATE THIS INEQUITY BY
RESTRUCTURING THEIR MEDICAID PROGRAM. PROVISIONS OF THE SOCIAL
SECURITY ACT, OF WHICH MEDICAID IS ONE PART, ALLOW STATES TO
EXPERIMENT WITH THE PROGRAM so THAT INDIVIDUALS NOT OTHERWISE
ELIGIBLE FOR THE PROGRAM MAY BECOME SO. THESE PROVISIONS ALSO HAVE
BEEN USED TO ENSURE THAT MEDICAID BENEFICIARIES RECEIVE CARE
THROUGH SYSTEMS OF MANAGED CARE.
7.2
FEDERAL SUPPORT FOR STATE-BASED HEALTH CARE REFORM
STATES HAVE MADE SIGNIFICANT PROGRESS IN REFORMING THEIR HEALTH
CARE SYSTEMS; HOWEVER, MUCH MORE NEEDS TO BE DONE. THE NATION'S
-5-
GOVERNORS CALL UPON THE PRESIDENT AND CONGRESS TO WORK WITH STATES
TO FACILITATE AND ACCELERATE THE DEVELOPMENT OF STATE REFORM
EFFORTS.
7.2.1
EMPLOYEE RETIREMENT INCOME SECURITY ACT. ALTHOUGH THE GOVERNORS
ARE EXTREMELY SENSITIVE TO THE CONCERNS OF LARGE MULTISTATE
EMPLOYERS, THE FACT REMAINS THAT ONE OF THE GREATEST BARRIERS TO
SOME STATE REFORM INITIATIVES IS THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT (ERISA).
ERISA WAS ENACTED IN 1974 AND APPLIES TO EMPLOYEE BENEFITS PLANS,
INCLUDING EMPLOYEE HEALTH PLANS. ERISA PROVIDES FOR A COMPLETE
FEDERAL PREEMPTION OF STATE LAWS THAT "RELATE TO" EMPLOYEE HEALTH
PLANS. UNDER THE MCCARRAN-FERGUSON ACT, STATES RETAIN THE ABILITY TO
REGULATE INSURANCE CARRIERS, SUCH AS INDEMNITY PLANS AND HEALTH
MAINTENANCE ORGANIZATIONS. HOWEVER, STATES ARE POWERLESS TO
REGULATE OR OTHERWISE AFFECT EMPLOYEE HEALTH PLANS THAT
"SELF-INSURE" UNDER ERISA RATHER THAN BUY INSURANCE.
SELF-INSURANCE WAS VERY RARE WHEN ERISA WAS ENACTED, BUT IT NOW
COVERS ALMOST HALF OF THE EMPLOYEES IN THE UNITED STATES WHO
RECEIVE HEALTH BENEFITS. THIS PROLIFERATION OF SELF-INSURANCE,
COUPLED WITH THE FEDERAL COURTS' BROAD INTERPRETATION OF THE REACH
OF ERISA PREEMPTION, HAS MADE ERISA A FORMIDABLE BARRIER TO STATES
WISHING TO IMPLEMENT CERTAIN HEALTH CARE REFORM.
ERISA PREEMPTS ALL SELF-INSURED HEALTH PLANS FROM STATE
REGULATIONS AND SUBJECTS THOSE PLANS ONLY TO FEDERAL AUTHORITY. AS
A RESULT OF JUDICIAL INTERPRETATIONS OF ERISA, STATES ARE PROHIBITED
FROM:
ESTABLISHING MINIMUM GUARANTEED BENEFITS PACKAGES FOR ALL
EMPLOYERS;
DEVELOPING STANDARD DATA COLLECTION SYSTEMS APPLICABLE TO ALL
STATE HEALTH PLANS;
DEVELOPING UNIFORM ADMINISTRATIVE PROCESSES, INCLUDING
STANDARDIZED CLAIM FORMS;
ESTABLISHING ALL-PAYER RATE-SETTING SYSTEMS;
.6.
ESTABLISHING A STATEWIDE EMPLOYER MANDATE;
IMPOSING A LEVEL PLAYING FIELD THROUGH PREMIUM TAXES ON
SELF-INSURED PLANS; AND
IMPOSING A LEVEL PLAYING FIELD THROUGH PROVIDER TAXES WHERE
THE TAX IS INTERPRETED AS HAVING AN IMPERMISSIBLE DIRECT OR
INDIRECT IMPACT ON SELF-INSURED PLANS.
7.2.1.1
STRATEGY FOR REFORM. A MULTIDIMENSIONAL APPROACH TO REFORM
COULD BE TAKEN THAT INCLUDES FLEXIBILITY FOR STATES DIRECTLY IN THE
Reforms
ERISA STATUTE, AND THROUGH NEW WAIVER AUTHORITY.
STATUTORY FLEXIBILITY. CONGRESS MAY ACT QUICKLY TO HELP STATES
BY INCLUDING FLEXIBILITY DIRECTLY IN STATUTE. THIS MAY BE
ACCOMPLISHED THROUGH STATUTORY DIRECTIVES TO THE FEDERAL
EXECUTIVE BRANCH REGARDING NATIONAL UNIFORMITY. SPECIFICALLY,
A STATE WOULD BE PERMITTED TO IMPOSE REQUIREMENTS ON
SELF-FUNDED PLANS IF THE STATE WAS WILLING EITHER TO ADOPT AND
BUILD UPON MINIMUM NATIONAL STANDARDS OR WORK WITHIN SOME
TYPE OF FEDERAL FRAMEWORK. THE FEDERAL EXECUTIVE BRANCH
WOULD BE INSTRUCTED TO WORK WITH STATES TO IDENTIFY AND DEFINE
ins.
THOSE STANDARDS.
THIS APPROACH HAS THE POTENTIAL FOR BROAD APPLICABILITY BUT IS
MOST RELEVANT TO ADMINISTRATIVE SIMPLIFICATIONS AND INSURANCE
REFORM. FOR EXAMPLE, STATES AND THE BUSINESS COMMUNITY
GENERALLY AGREE ON THE NEED FOR UNIFORM CLAIMS AND DATA
REPORTING PROCEDURES. IN ORDER TO ENCOURAGE UNIFORMITY IN
HEALTH PLAN ADMINISTRATIVE REQUIREMENTS, THE U.S. SECRETARY OF
LABOR, IN CONSULTATION WITH THE U.S. SECRETARY OF HEALTH AND
HUMAN SERVICES AND THE STATES, COULD BE DIRECTED TO COMPILE,
PUBLISH, AND PUBLICIZE EXISTING NATIONAL STANDARDS FOR CLAIMS
PROCESSING FORMATS AND PROCEDURES FOR DATA REPORTING. IF A
STATE SELECTED ONE OF THE EXISTING STANDARDS, IT WOULD BE
PERMITTED TO IMPLEMENT THAT STANDARD AND INCLUDE SELF-FUNDED
PLANS. THIS TYPE OF DIRECTIVE ALSO COULD BE EXTENDED TO QUALITY
AND UTILIZATION REVIEW PROCEDURES.
-7-
TO FACILITATE THE PROCESS, THE LEGISLATION SHOULD BE STRUCTURED
TO RELY ON EXISTING NATIONAL STANDARDS. WHERE NONE EXIST, THE
LEGISLATION COULD DIRECT THE EXECUTIVE BRANCH TO DEVELOP THEM.
HOWEVER, IF THE EXECUTIVE BRANCH FINDS IT NECESSARY TO DEVELOP A
NATIONAL STANDARD, STATES SHOULD BE GIVEN LIMITED FLEXIBILITY
DURING THE DEVELOPMENT PERIOD SO THAT THEY CAN MOVE AHEAD
WITH THEIR INNOVATIONS.
WAIVER AUTHORITY. IN ADDITION TO DIRECT STATUTORY FLEXIBILITY,
CONGRESS SHOULD ESTABLISH DIRECT WAIVER AUTHORITY IN ERISA.
waiver cost
WAIVER AUTHORITY WOULD BE MOST APPLICABLE FOR STATES THAT
WISH TO DEVELOP ALTERNATIVE FINANCING AND COST-CONTROL
STRATEGIES THAT ARE NOW PRECLUDED BY THE STATUTE. WAIVER
AUTHORITY COULD HAVE THE FOLLOWING PARAMETERS.
THE SECRETARY OF THE U.S. DEPARTMENT OF LABOR WOULD HAVE THE
AUTHORITY TO REVIEW AND GRANT ERISA WAIVERS.
THERE WOULD BE NO PROHIBITION AGAINST REPLICATING OTHER STATE
ERISA WAIVERS. HOWEVER, EACH STATE WOULD HAVE TO SUBMIT A
WAIVER APPLICATION.
WAIVERS WOULD BE APPROVED FOR AN INITIAL FIVE-YEAR PERIOD WITH
FIVE-YEAR RENEWALS THEREAFTER.
WAIVER APPLICATIONS WOULD BE SUBMITTED BY THE GOVERNOR.
AS A CONDITION FOR WAIVER APPROVAL, THE STATE WOULD HAVE TO
DEMONSTRATE THAT THE STRATEGY HAS THE SUPPORT OF THE STATE'S
LEGISLATURE.
FOR STATES MAKING REQUESTS FOR EXEMPTIONS IN THE AREAS OF
plantor erage expanding
FINANCING OR COST CONTROL, THE STATE'S WAIVER APPLICATION
WOULD HAVE TO INCLUDE A PLAN FOR EXPANDING COVERAGE AND A
STRATEGY FOR DOCUMENTING THE STATE'S PROGRESS TOWARD
ACHIEVING THAT GOAL
7.2.2
THE HEALTH INSURANCE MARKET. WITH THE ENACTMENT OF THE
MCCARRAN-FERGUSON ACT IN THE 1930S, A STATE'S PREROGATIVE TO
REGULATE HEALTH INSURERS HAS BEEN RECOGNIZED BY FEDERAL LAW.
-8.
HOWEVER, SINCE ERISA'S ENACTMENT IN 1974, THAT DELINEATION OF STATE
AND FEDERAL RESPONSIBILITIES HAS BEEN BLURRED. ERISA PROVIDES THAT
SELF-FUNDED SINGLE EMPLOYER OR TAFT-HARTLEY JOINTLY ADMINISTERED
PLANS ARE EXEMPT FROM STATE REGULATION. STATES CANNOT ESTABLISH
MINIMUM SOLVENCY AND CAPITAL REQUIREMENTS FOR THESE SELF-FUNDED
PLANS. THEY CANNOT ENSURE THAT EMPLOYEES AND DEPENDENTS IN
SELF-FUNDED PLANS RECEIVE THE BASIC CONSUMER PROTECTIONS THAT ARE
OFFERED TO THOSE IN COMMERCIAL STATE-REGULATED PLANS; NOR CAN THEY
ENSURE THAT THOSE IN SELF-FUNDED PLANS HAVE REMEDIES AVAILABLE
WHEN PROBLEMS ARISE OVER COVERAGE DECISIONS AND OTHER MATTERS.
STATES, ATTEMPTING TO MAKE THE PRIVATE INSURANCE MARKET MORE
STABLE AND EQUITABLE, ARE PROHIBITED FROM IMPOSING GUARANTEED ISSUE
OR LIMITATIONS ON PREEXISTING CONDITIONS EXCLUSIONS REQUIREMENTS ON
SELF-FUNDED PLANS. AS SUCH PLANS PROLIFERATE, THEY REPRESENT A
GROWING SHARE OF THE TOTAL HEALTH CARE MARKET AND GREATLY ERODE
THE ABILITY OF STATES TO REGULATE THE PRIVATE HEALTH CARE MARKET.
THE FEDERAL GOVERNMENT MUST ACT TO RECTIFY THE SITUATION.
THE NATION'S GOVERNORS CALL ON THE FEDERAL GOVERNMENT TO
CORRECT THESE INEQUITIES BY ADOPTING ONE OR MORE OF THE FOLLOWING
OPTIONS.
CONGRESS SHOULD ESTABLISH NATIONAL HEALTH CARE STANDARDS FOR
natil self- standard plans
SELF-FUNDED PLANS THAT ARE SIMILAR TO THOSE IMPOSED BY STATES
ON COMMERCIAL PLANS. IF CONGRESS IS UNWILLING TO DEFINE
LEGISLATIVE STANDARDS IN ERISA, THE U.S. DEPARTMENT OF LABOR
for
SHOULD BE GIVEN THE AUTHORITY TO DEVELOP REGULATIONS THAT, AT
THE VERY LEAST, ESTABLISH ESSENTIAL CONSUMER PROTECTIONS AND
REMEDIES STANDARDS FOR SELF-FUNDED PLANS.
ANECDOTAL EVIDENCE SUGGESTS THAT CONSUMER PROTECTIONS
PROBLEMS ARE MORE LIKELY TO ARISE IN SMALL SELF-FUNDED PLANS.
SIZE funded limitations
CONGRESS COULD LIMIT SELF-FUNDING AUTHORITY TO BUSINESSES
ABOVE A CERTAIN SIZE. BUSINESSES BELOW THAT LIMIT WOULD BE
REQUIRED TO FOLLOW STATE LAWS. THE U.S. DEPARTMENT OF LABOR
on
WOULD NEED TO ENFORCE STANDARDS FOR THOSE PLANS THAT REMAIN
UNDER ITS JURISDICTION.
.9.
THE GOVERNORS ALSO SUPPORT STANDARDS THAT RESULT IN PORTABILITY
OF COVERAGE, GUARANTEED RENEWABILITY OF POLICIES, LIMITATION ON
BOTH MEDICAL UNDERWRITING AND PREEXISTING CONDITIONS EXCLUSIONS,
AND OPPORTUNITIES FOR STATES TO ESTABLISH MEANINGFUL AND EQUITABLE
RATING SYSTEMS.
IF CONGRESS CHOOSES TO SET MINIMUM NATIONAL STANDARDS, THEY
SHOULD BE DEVELOPED WITH STATE OFFICIALS IN CONSULTATION WITH
REPRESENTATIVES OF AFFECTED SMALL BUSINESSES, INSURERS, AND
CONSUMERS.
7.2.3
ACUTE CARE SERVICES FOR LOW-INCOME INDIVIDUALS AND FAMILIES.
IRRESPECTIVE OF THE HEALTH CARE REFORM STRATEGY, A PUBLIC SECTOR
Medicaid
ROLE WILL REMAIN IN THE FINANCING AND DELIVERY OF SERVICES TO THE
POOR, THE ELDERLY, AND PEOPLE WITH DISABILITIES. THE MEDICAID PROGRAM
IS THE VEHICLE CURRENTLY USED TO FINANCE SUCH CARE. TODAY, MEDICAID
STRUGGLES TO SERVE A WIDELY DIVERSE POPULATION WITH A BROAD ARRAY
OF SERVICES. IT IS NOT ONLY DIFFICULT TO EFFECTIVELY ADMINISTER, BUT
ALSO PROHIBITIVELY EXPENSIVE.
THE GOVERNORS BELIEVE THAT THE MEDICAID SYSTEM HAS BECOME A
RIGID AND OVERLY COMPLEX PROGRAM. ITS BIAS TOWARD INSTITUTIONAL
CARE PREVENTS STATES FROM PROVIDING PREVENTIVE AND PRIMARY CARE IN
SETTINGS MOST APPROPRIATE FOR ITS BENEFICIARIES, AND ELIGIBILITY FOR
THE PROGRAM IS DOMINATED BY ARCANE RULES THAT PENALIZE ALL WHO
INTERACT WITH IT.
THEREFORE, THE GOVERNORS ENVISION A STRATEGY THAT WOULD ALLOW
THE STATES TO MANAGE PUBLIC RESOURCES IN A MORE EFFICIENT AND
EFFECTIVE MANNER THAN IS CURRENTLY POSSIBLE THROUGH MEDICAID.
7.2.3.1
PROGRAM STRUCTURE. MANY STATES BELIEVE THEY CAN MAKE BETTER USE
OF THEIR MEDICAID DOLLARS BY RESTRUCTURING THEIR MEDICAID
w/core coverage
PROGRAMS. SPECIFICALLY, SOME STATES WOULD RATHER OFFER A CORE
BENEFITS PACKAGE TO LOW-INCOME PEOPLE WITHOUT TYING THE PROGRAM TO
ELIGIBILITY FOR CATEGORICAL PROGRAMS. THIS MAY BE A BETTER APPROACH
THAN THE CURRENT MEDICAID STRUCTURE, WHICH PROVIDES A VERY
COMPREHENSIVE PACKAGE TO THOSE WHO ARE CATEGORICALLY ELIGIBLE, BUT
LEAVES MANY LOW-INCOME PEOPLE WITHOUT ANY INSURANCE AT ALL IN
-10-
ADDITION, SOME STATES WOULD LIKE TO OFFER SLIDING SCALE SUBSIDIES so
w
THAT LOW-INCOME PEOPLE CAN PURCHASE HEALTH INSURANCE ACCORDING TO
THEIR ABILITY TO PAY. THE FEDERAL GOVERNMENT SHOULD ENCOURAGE
THESE INNOVATIONS.
7.2.3.2
ENTITLEMENTS AND FINANCING. STATES AND THE FEDERAL GOVERNMENT
opens
SHOULD SHARE IN FINANCING THIS PROGRAM. STATES SHOULD BE GIVEN THE
doorto
OPTION TO OPERATE THIS PROGRAM AS AN INDIVIDUAL ENTITLEMENT OR AS AN
capped
program
ENTITLEMENT TO STATES. AS AN INDIVIDUAL ENTITLEMENT, THE PROGRAM
WOULD OPERATE IN A MANNER SIMILAR TO THE CURRENT MEDICAID PROGRAM
AND ANYONE QUALIFYING FOR THE PROGRAM WOULD HAVE TO BE SERVED.
AS AN ENTITLEMENT TO STATES, THE FEDERAL GOVERNMENTS FINANCIAL
EXPOSURE WOULD BE ESTABLISHED BY AN UPPER LIMIT ON AVAILABLE
FEDERAL DOLLARS. STATE CONTRIBUTIONS TO THIS PROGRAM ALSO WOULD BE
LIMITED BY THE FEDERAL UPPER LIMIT. IN OPERATING IT AS AN ENTITLEMENT
TO STATES, INDIVIDUALS COULD QUALIFY FOR THE PROGRAM; HOWEVER,
PARTICIPATION WOULD BE LIMITED BY AVAILABLE STATE AND FEDERAL FUNDS.
STATES COULD NOT OPERATE THESE PROGRAMS WITH FUNDS THAT ARE
SUBJECT TO ANNUAL FEDERAL APPROPRIATIONS. RATHER, THE FINANCING
STRUCTURE SHOULD APPEAR IN STATUTE AND BE TREATED AS A PERMANENT
APPROPRIATION.
7.2.3.3
STATUTORY CHANGES TO THE SOCIAL SECURITY ACT. STATES HAVE BEGUN TO
LOOK SERIOUSLY AT COMPREHENSIVE SYSTEMS OF HEALTH CARE WHERE THE
ARTIFICIAL CATEGORICAL BARRIERS OF MEDICAID ARE REMOVED AND WHERE
THEY CAN ESTABLISH STATEWIDE NETWORKS OF CARE FOR MEDICAID
BENEFICIARIES. UNFORTUNATELY, THERE ARE NO PROVISIONS IN THE SOCIAL
SECURITY ACT THAT CAN BE USED TO ESTABLISH SUCH PROGRAMS ON AN
ONGOING BASIS.
CURRENTLY, STATES HAVE BEEN DEVELOPING THESE MORE
COMPREHENSIVE NETWORKS THROUGH THE RESEARCH AND DEMONSTRATION
PROVISIONS OF SECTION 1115(A) OF THE SOCIAL SECURITY ACT. SECTION 1115(A).
HOWEVER, WAS DESIGNED FOR RESEARCH PURPOSES AND HAS SOME
IMPORTANT LIMITATIONS. STATES MUST DEMONSTRATE, THROUGH THE
APPLICATION PROCESS, THAT THEY ARE TESTING AN INNOVATION. THE LAW
REQUIRES AN EVALUATION THAT, IN SOME CASES, REQUIRES CONTROL GROUPS.
-11.
PROJECTS APPROVED UNDER THE 1115(A) PROCESS ARE APPROVED FOR A
LIMITED TIME PERIOD, USUALLY THREE TO FIVE YEARS AT THE DISCRETION OF
THE ADMINISTRATION, AND REQUIRE SPECIAL STATUTORY CHANGES TO GO
BEYOND THE DEMONSTRATION PERIOD. FINALLY, THESE PROJECTS MUST BE
COST NEUTRAL OVER THE LIFE OF THE PROJECT. SECTION 1115(A) IS ESSENTIAL
TO ENSURE THE TESTING OF ALTERNATIVE HEALTH AND SOCIAL POLICIES.
HOWEVER, THE CURRENT STATUTE FALLS SHORT BY REQUIRING STATES
WHO WANT TO CONTINUE A SUCCESSFUL EFFORT TO CONTINUALLY REAPPLY
FOR AND RENEW THEIR WAIVERS. IN SHORT, ONCE A STATE HAS PROVEN THAT
ITS RESEARCH PROJECT WORKS, IT CANNOT CONTINUE WITHOUT PURSUING
DEMONSTRATION GOALS AND WAIVER RENEWALS FOR A PROGRAMMATIC
EFFORT OR WITHOUT SPECIAL TREATMENT IN FEDERAL LAWS UNDERTAKEN BY
CONGRESS. EXISTING SECTION 1115(A) WAIVERS SHOULD BE GRANDFATHERED
INTO THIS NEW SYSTEM.
THE GOVERNORS SUPPORT CHANGES TO THE SOCIAL SECURITY ACT TO
PERMIT THESE TYPES OF PROGRAMS TO BE APPROVED IN A MANNER SIMILAR TO
THE "PLAN AMENDMENT PROCESS" UNDER MEDICAID, WHERE THE STATE
DESCRIBES THE PLAN AND, ONCE APPROVED, IT BECOMES A PERMANENT
PROGRAM SUBJECT TO ROUTINE FEDERAL OVERSIGHT. IF THIS STRATEGY IS NOT
CHOSEN, THE WAIVER APPLICATION PROCESS MUST BE STREAMLINED, THERE
MUST BE NO RESEARCH AND DEMONSTRATION REQUIREMENTS, AND THE
WAIVERS MUST BE APPROVED FOR FIVE YEARS AND BE RENEWABLE NO LESS
THAN EVERY FIVE YEARS. MOREOVER, THE EXECUTIVE BRANCH MUST BE
INSTRUCTED TO STREAMLINE THE WAIVER OVERSIGHT PROCESS AND SHORTEN
REVIEW AND APPROVAL PERIODS.
7.2.4
MEDICAL TORT REFORM. REFORM OF THE MEDICAL TORT SYSTEM SHOULD BE
UNDERTAKEN WITH A VIEW TOWARD ACHIEVING HIGH-QUALITY AND
Tort
APPROPRIATE CARE. IDEALLY, THE MEDICAL TORT REFORM WILL REDUCE THE
COST OF DEFENSIVE MEDICINE AND PROVIDE APPROPRIATE LEVELS OF
COMPENSATION FOR PATIENTS INJURED BY MEDICAL NEGLIGENCE. TOWARD
THAT END, THE FEDERAL GOVERNMENT SHOULD ESTABLISH NATIONAL
MINIMUM TORT AND LIABILITY STANDARDS. STATES COULD ESTABLISH MORE
RESTRICTIVE STANDARDS IF THEY so CHOOSE. THE FEDERAL GOVERNMENT,
WORKING WITH STATES, ALSO MUST CONSIDER ALTERNATIVE DISPUTE
-12-
RESOLUTION STRATEGIES THAT COULD BE USED TO REDUCE THE COSTS OF
LITIGATION.
7.2.5
RELIEF FROM ANTITRUST STATUTES. MORE AND MORE AMERICANS ARE
RECEIVING THEIR CARE THROUGH HEALTH DELIVERY NETWORKS.
ESTABLISHING THESE NETWORKS REQUIRES NEW APPROACHES TO
COOPERATION AMONG PROVIDERS AND BUSINESSES THAT HERETOFORE HAVE
BEEN COMPETITORS. CONGRESS AND THE ADMINISTRATION MUST WORK WITH
THE STATES TO ACCOMMODATE THIS NEW HEALTH CARE ENVIRONMENT WHILE
ENSURING THAT COMPETITION REMAINS IN THE MARKETPLACE
7.2.6
OUTCOME AND QUALITY STANDARDS. IF MEANINGFUL CHOICES ARE EVER TO BE
MADE IN HEALTH CARE, RESEARCH MUST BE SUPPORTED TO DEVELOP
OUTCOMES AND QUALITY STANDARDS FOR USE BY PROVIDERS AND CONSUMERS
ALIKE. ALSO, INFORMATION SYSTEMS MUST BE DEVELOPED THAT INCLUDE
PRICE AND QUALITY INFORMATION FOR ALL PROVIDERS AND CONSUMERS OF
HEALTH CARE SERVICES IN A GIVEN GEOGRAPHIC AREA. THE FEDERAL
GOVERNMENT AND THE STATES MUST COOPERATE IN THE DEVELOPMENT AND
IMPLEMENTATION OF SUCH STANDARDS.
7.2.7
ADMINISTRATIVE SIMPLIFICATIONS. THE ADMINISTRATIVE COMPLEXITY OF THE
CURRENT SYSTEM MUST BE REDUCED. THE NATION MUST MOVE TOWARD
UNIFORM CLAIMS FORMS AND UNIFORM STANDARDS FOR ELECTRONIC DATA
INTERCHANGE.
7.2.8
PUBLIC SECTOR HEALTH CARE DELIVERY. ALTHOUGH THE GOVERNORS SUPPORT
THE DELIVERY OF CARE THROUGH THE PRIVATE HEALTH CARE SYSTEM, THERE
ARE SOME AREAS IN THE COUNTRY THAT HAVE AN INADEQUATE NUMBER OF
HEALTH CARE PROVIDERS OR SERVICES. IN OTHER AREAS, THE PRIVATE SYSTEM
DOES NOT PROVIDE SERVICES TO LOW-INCOME INDIVIDUALS AND FAMILIES,
AND THESE PEOPLE SEEK CARE THROUGH PUBLIC CLINICS. IN THESE
CIRCUMSTANCES, FEDERAL AND STATE GOVERNMENTS HAVE PROVIDED FOR
THE DELIVERY OF PERSONAL HEALTH CARE SERVICES. THE GOVERNORS
BELIEVE THAT THIS PUBLIC HEALTH CARE SYSTEM SHOULD BE CONSIDERED IN
ANY BUDGET STRATEGY AND COORDINATED WITH THE PRIVATE HEALTH CARE
SECTOR, WHEREVER POSSIBLE.
7.2.9
ENHANCE OPPORTUNITIES FOR PRIMARY CARE PRACTICE THE MEDICAL
EDUCATION SYSTEM IS NOT PREPARING THE PROVIDERS THAT ARE NEEDED FOR
-13-
A HEALTH CARE SYSTEM WITH A FOCUS ON PREVENTIVE AND PRIMARY CARE.
STATES ARE CURRENTLY EXPERIMENTING WITH A WIDE VARIETY OF
INITIATIVES THAT ADDRESS THE CRITICAL ISSUE OF INCREASING PRIMARY CARE
PRACTICE, ESPECIALLY IN RURAL AND URBAN MEDICALLY UNDERSERVED
AREAS. THESE INITIATIVES INCLUDE DATA COLLECTION TO BETTER
UNDERSTAND THE DISTRIBUTION OF, AND NEED FOR, PROVIDERS IN SPECIFIC
LOCATIONS; LOAN REPAYMENT PROGRAMS TO PRACTITIONERS WHO PRACTICE
IN UNDERSERVED AREAS; AND TECHNICAL ASSISTANCE PROGRAMS TO ENHANCE
PRIMARY CARE DELIVERY SYSTEMS IN UNDERSERVED LOCATIONS.
THEREFORE, THE GOVERNORS RECOMMEND THAT THE FEDERAL
GOVERNMENT RECOGNIZE, REVIEW, AND SUPPORT PROGRAMS CURRENTLY
UNDERWAY IN STATES THAT ARE SUCCESSFULLY ADDRESSING THE ISSUE OF
INCREASING AND PRESERVING ACCESS TO PRIMARY CARE PHYSICIANS IN
MEDICALLY UNDERSERVED AND RURAL AREAS. MOREOVER, THE GOVERNORS
RECOMMEND THAT THE FEDERAL GOVERNMENT PROVIDE INCENTIVES FOR
STUDENTS, PHYSICIANS, AND MID-LEVEL HEALTH PROFESSIONALS TO SERVE IN
PRIMARY CARE PROFESSIONS, PARTICULARLY IN RURAL AND UNDERSERVED
AREAS.
7.3
CONCLUSION
IN MANY STATES, GOVERNORS HAVE BEGUN TO MEET THE CHALLENGE OF
REFORMING THEIR HEALTH CARE SYSTEM AND ARE BEGINNING TO LEARN
ABOUT THE SUCCESSES AND FAILURES. THE FEDERAL GOVERNMENT SHOULD
SUPPORT STATES AS THEY DEMONSTRATE DIFFERENT APPROACHES TO ACHIEVE
UNIVERSAL ACCESS TO AFFORDABLE HEALTH CARE AND SHOULD EVALUATE
CREATIVE COMPREHENSIVE APPROACHES TO HEALTH CARE REFORM.
Time limited (effective Winter Meeting 1995-Winter Meeting 1997).
EC7. HEALTH CARE REFORM: A CALL TO ACTION
7.1
Preamble
The nation's Governors are committed to comprehensive health reform that calls for & federal
framework with significant state flexibility, and they will work with Congress and the administration
to develop such a system At the same time, however, the growing demand for affordable quality health
care, coupled with the immediate budgetary pressures caused by the Medicaid program, requires
immediate action. Virtually every Governor has some health reform initiative in progress. These
include comprehensive state based reform initiatives programs that assist small businesses in securing
affordable health insurance, programs that expand health care coverage to a greater number of
uninsured poor, and programs that implement managed care networks for Medicaid beneficiaries.
-14- -
None of these state initiatives are incompatible with national reform; instead, they continue to build
a strong policy foundation for reform at the federal level.
7.2
Federal Barriers to State Health Care Reform
As states have moved ahead, their success has been limited by barriers resulting from current
federal statutes The nation's Governors call upon the administration and Congress to immediately
remove those federal barriers.
7.2.1
Medicaid By far, Medicaid represents the largest health care expenditure for states. On average, only
spending for elementary and secondary education constitutes a larger portion of state budgets.
Governors believe that irrespective of any national health reform strategy, Medicaid costs must be
brought under control Should Congress move to limit or cap the federal contribution to Medicaid, a
move the Governors adamantly oppose, the Governors believe these changes and other relief will
become even more urgent. The Governors recommend the following changes that will contribute to
controlling those costs.
7.2.1.1
Managed Care Waivers There is a national trend in health care service delivery toward systems
of care These systems or networks have been shown to provide cost efficient care while ensuring that
the patient has a reliable place from which to seek primary care and to which specialty care can be
directed Although the private sector is moving aggressively toward these networks, the Medicaid
program continues to require states, in virtually all cases, to apply for a waiver from fee for service
care in order to enroll Medicaid beneficiaries in such networks And while the Bush and Clinton
administrations have taken significant steps toward simplifying the application and renewal process,
states still must apply for renewals every two years. Moreover, states have been unable to sustain
networks where there is a predominance of Medicaid beneficiaries because, under current law, states
are permitted only one nonrenewable three year waiver to have beneficiaries served in a health
maintenance organization (HMO) where more than 75 percent of the enrollees in the HMO are
Medicaid beneficiaries. This requirement should be repealed.
If the nation is serious about controlling health care costs, it is essential to give states the
opportunity to establish networks in Medicaid (including fully and partially capitated systems) through
the regular plan amendment process Governors recognize the special significance of consumer
protections and assurance of solvency in establishing these systems of care and support federal
guidance through the regulatory process.
7.2.1.2
Comprehensive Waivers States have begun to look seriously at comprehensive systems of health
care where the artificial categorical barriers of Medicaid are removed and where they can establish
statewide networks of care for Medicaid beneficiaries. Unfortunately, there are no provisions in the
Social Security Act that can be used to establish such programs on an ongoing basis.
Currently, states have been developing these more comprehensive networks through the research
and demonstration provisions of the Social Security Act (Section 1115a) Section 1115a, however, was
designed for research purposes and has some important limitations States must demonstrate, through
the application process, that they are testing an innovation The law requires an evaluation that, in
some cases, requires control groups. Projects approved under the 1115a process are approved for a
limited time period, usually three to five years at the discretion of the administration, and require
special statutory changes to go beyond the demonstration period. Finally, these projects must be cost
neutral over the life of the project.
Section 1115a is essential to ensure the testing of alternative health and social policies However,
the current statute falls short by requiring statutory changes if a state wants to continue its successful
effort In short, once a state has proven that its research project works, it cannot continue without
congressional action Governors support changes to the Social Security Act so that a state may apply
through the executive branch of government for renewable waivers of their innovations This waiver
process should be consistent with the streamlined approaches used by the Clinton administration and
states should have to reapply for these waivers no less than every five years.
7.2.1.3
Boren Amendment. The Boren Amendment to the Medicaid provisions of the Social Security
Act was passed in the early 1980s to give states greater flexibility in establishing reimbursement rates
for hospitals and nursing homes and to encourage health care cost containment. Instead, it has led to
havec in the administration of Medicaid programs. Court decisions have interpreted the Boren
Amendment to embody a restrictive and unrealisticset of requirements in setting reimbursement rates,
and have in effect given judges the power 10 establish reimbursement rates levels and criteria Because
15
of these decisions, states remain frustrated in their ability to bring some discipline to their budgets and
have been thwarted in their attempts to achieve the original purpose of the amendment.
The nation's Governors believe that any coherent approach to national health reform must
address the issue of the Boren Amendment. They believe that a statutory change to this amendment
is an important tool necessary to bring Medicaid institutional costs under control. Therefore, the
Governors urge the administration and Congress to adopt these or other changes to the Boren
Amendment that will give states the relief they need.
Statutory and Regulatory Changes. The Governors agree that standards for establishing ade-
quate reimbursement rates for hospitals, nursing facilities, and intermediate care facilities for persons
with mental retardation (ICF/MRs) must be designed to promote access to care for Medicaid patients,
quality of services, cost containment, and efficient service delivery. The Governors support a strategy
that would replace the current cost efficiency based standard in the Boren Amendment with
provisions that establish "safe harbor" standards where & state meeting any of these "safe harbor"
provisions would satisfy the statute Standards might include the following.
The payment rate is equal to the Medicare based upper payment limit.
The payment rate is no less than the rate agreed to by the facility for comparable services paid
for by another payer (e.g. payment rates for Medicaid patients would not have to be higher
than rates paid by any large managed care plans or large business).
Regarding nursing facilities, the aggregate number of participating licensed and certified
nursing home beds in the state (plus resources devoted to home or community based care for
the elderly) is at least equal to a specified percentage of the population age 65 or over.
The reimbursement rate is sufficient to cover at least 80 percent of the allowable costs of all
facilities in the class in the state in the aggregate, or is sufficient to cover the allowable costs
of 50 percent of all facilities in the class in the state.
The reimbursement rate is equal to a benchmark rate plus inflation no less than the rate of
inflation for the overall economy according to a general index (national or state), such as the
consumer price index (CPI) or the gross domestic product (GDP IPD) The benchmark rate
would be the approved rate as of the date of enactment of the statute or the current rate
approved by the Health Care Financing Administration (HCFA) This standard is satisfied by
a rate methodology currently in effect and approved by HCFA that contains a provision for
inflation adjustments.
The Governors also believe that the procedural requirements in the current Boren Amendment
must be streamlined Finally, the Governors support strategies that would reduce or eliminate the
costs of prolonged and costly litigation.
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Employee Retirement Income Security Act. Although the Governors are extremely sensitive to the
concerns of large multistate employers, the fact remains that one of the greatest barriers to state reform
initiatives is the Employee Retirement Income Security Act (ERISA). ERISA preempts all self in
sured health plans from state regulations and subjects those plans only to federal authority. As result
of judicial interpretations of ERISA, states are prohibited from:
establishing minimum guaranteed benefits packages for all employers;
developing standard data collection systems applicable to all state health plans;
developing uniform administrative processes, including standardized claim forms;
establishing all payer rate setting systems;
establishing a statewide employer mandate;
imposing premium taxes on self insured plans; and
imposing provider taxes where the tax is interpreted as a form of discrimination on
self insured plans.
7.2.2.1
ERISA Flexibility. Governors call on the administration and Congress to modify the ERISA
statute to give states the flexibility they need to move ahead on health reform. This may be done either
by establishing the flexibility directly in statute or through the establishment of waiver authority. The
flexibility could include a requirement that the state demonstrate broad based support for the change,
such as by passage of state legislation States must be assured, however, that the flexibility is stable and
not time limited.
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73
A Call to Action
The nation's Governors call upon President Clinton and Congress to pass health care legislation
this year that includes, at a minimum, the following.
73.1
Insurance Reform. The Governors support minimum federal standards that result in portability of
coverage; guaranteed renewability of policies; limitations on both medical underwriting and preexist
ing conditions exclusions; and modified community rating that limits the variation in rates that
different individuals and groups are charged.
7.3.2
State Organized Purchasing Cooperatives. Through purchasing cooperatives, affordable insurance
products will be made available States and the federal government must work together to ensure that
states have flexibility in establishing and operating these cooperatives.
7.3.3
Core Benefits and Access. In order to ensure portability of coverage, Governors believe that there
must be a core benefits package that is comparable to those that are now provided by the most efficient
and cost effective health maintenance organizations The cornerstone of this package must be primary
and preventive care All employers must make the core benefits package available to those employees
who wish to purchase it Although Governors do not agree on whether employers should be required
to pay for any portion of the premium, Governors agree that coverage should be available.
7.3.4
Tax Deductibility of Health Care Premiums Health insurance premiums should be tax deductible to
the value of the core benefits package regardless of who pays the premium Governors do not support
limiting health benefits; however, policies that afford benefits above the limit should be subject to
taxation The Governors do support tax changes that would correct the inequities now suffered by
self employed individuals. These individuals would be eligible to purchase fully deductible health
insurance within the federal limit.
7.3.5
Low Income Subsidies Low income families and individuals will require subsidies in order to afford
health care. Governors support a streamlined eligibility process for these subsidies and believe that
the subsidies must be sufficient to make this goal a reality. Governors also look forward to a system
of subsidies that provides low income families and individuals with a core benefits package that
Governors believe will be a more effective method for providing care than the current Medicaid
program. This program could be financed partially through revenues resulting from limits on tax
deductibility.
7.3.6
Changes to the Current Medicaid System Governors strongly believe that some critical changes to
the Medicaid program must be made now to improve the cost efficiency of the program. Specifically:
States should have the ability to move their Medicaid populations into managed care settings
through a plan amendment rather than through a waiver.
During the phase in of the new low income subsidy program, states must have the flexibility
to establish new programs that expand eligibility to a larger indigent population This flexibility
would require additional waiver authority under Medicaid.
In addition, states have been unable to control the costs of reimbursement rates to institutional
health care providers as a result of judicial interpretation of the Boren Amendment States
must be given legislative and regulatory relief from these interpretations in order to get better
control of these costs.
7.3.7
Medical Malpractice and Liability Reform Another important step in developing a rational health
care system is the modification of current medical malpractice and liability statutes The Governors
believe that minimum standards should be set by the federal government. Alternative dispute resolu-
tion is among the strategies that should be explored to reduce the amount of litigation in this area.
7.3.8
Relief from Antitrust Statutes. More and more Americans are receiving their care through health
delivery networks. Establishing these networks requires new approaches to cooperation among
providers and businesses that heretofore have been competitors. The current antitrust statutes must
be revised to accommodate this new health care environment.
739
Relief from the Employee Retirement Income Security Act. ERISA must be modified to give states
the flexibility they need to move ahead on state reform Ata minimum, Congress should enact ERISA
waiver authority for states that meet certain criteria for health care reform.
7.3.10
Federally Organized Outcome and Quality Standards. If meaningful choices are over to be made in
health care, research must be supported to develop outcomes and quality standards for use by providers
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and consumers alike. Also, information systems must be developed that include price and quality
information for all providers and consumers of health care services in a given geographic area.
7.3.11
Administrative Simplifications. The administrative complexity of the current system must be reduced.
At a minimum, we must adopt a single national claims form and electronic billing.
7.3.12
Conclusion. We believe that these provisions should be included in any reform strategy. As Governors,
we do not vary in our support of these changes, and we urge Congress and the President to act as quickly
as possible.
Adopted February 1994.
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