Govs Struggle To Contain Healthcare Costs

Because of rapidly rising healthcare costs and shrinking tax revenues, states are finding it increasingly difficult to pay for their share of Medicaid, a joint federal-state program that provides health insurance for 45 million low-income Americans.

"That's the one cost states can't handle," said Michigan Gov. John Engler (R), at the National Governors Association summer meeting in Boise, Idaho.

As a result, governors are exploring a variety of ways to control those costs, lest fiscal difficulties force them to cut the healthcare benefits of low-income individuals.

During the summer meeting, which wrapped-up Tuesday (7/16), the governors renewed their call for the federal government to fund a larger share of Medicaid costs, saying a temporary increase in the FMAP [federal share of Medicaid costs] would ease the states' budget problems and allow them to maintain current Medicaid coverage.

But a Bush Administration official present at the meeting said the governors should look elsewhere for funding help.

"Our preferred option is not to do an increase in the FMAP," said Thomas A. Scully, administrator of Medicare and Medicaid in the U.S. Department of Health and Human Services. "All the FMAP increase would do is transfer state costs to the federal government. It wouldn't cover any additional people. What we want to do is cover more people."

Scully said the governors should instead focus their attention and lobbying power on securing a prescription drug benefit through Medicare, a federally-funded program that provides health insurance for senior citizens.

"If you're looking to relieve pressure on the states, the number one place you're going to find relief. . .is a Medicare drug benefit," said Scully. "It would take pressure off state budgets by transferring low-income Medicaid seniors to the Medicare drug benefit. It would be almost a direct dollar for dollar savings for the states."

A prescription drug plan passed last month by the House of Representatives would save the states $40 billion over eight years, according to the NGA. But the savings won't kick-in until 2005. And that's too long for some governors.

"We're still a little short of money," said Indiana Gov. Frank O'Bannon.

One way governors are trying to save money in the short-run is by creating preferred drug lists for Medicaid recipients. At least twelve governors have done this, according to the NGA. The programs differ from state to state, but in general, they mandate the use of generic drugs in the place of higher-priced name-brand drugs.

But the drug industry has filed suit, claiming that Michigan's preferred drug program, in particular, is in violation of federal law and that Tommy Thompson, Secretary of Health and Human Services, overstepped his authority by approving it.

"I think if you view this from the perspective of a Medicaid recipient, you would want to be allowed to get a prescription and get the prescription filled in the way that the doctor intended it to be," said David Beier, a partner with Hogan & Hartson LLP, a law firm representing the drug companies.

If the drug companies prevail, every state's preferred drug list, and not just Michigan's, would be affected. Kentucky Gov. Paul Patton says this would have dire consequences for low-income Americans.

"It boils down to this," he said. "In this fiscal environment, if you don't find ways to manage drug utilization sensibly, you will have to cut people off of the rolls completely."