Medicare Looms as Budget, Logistical Iissue for States

A Medicare prescription drug benefit for senior citizens through private plans is still more than a year away. But for state lawmakers and health officials preparing to help administer the complex new law, crunch time is now.

Although Medicare is a federal benefit, states will play a central role in administering and financing a large chunk of the coverage for prescription medicine.

Over the next 12 months, states will have to examine everything from the wording of existing state laws relating to prescription drug coverage, to creating systems to process thousands of applications, to ensuring they have enough staff to answer phones and field questions from flustered residents trying to understand the new drug benefit.

State budget writers are waiting to learn how much they’ll still be required to pay of the billions of dollars of drug bills for 6.4 million poor seniors who account for more than half of almost every state’s spending on prescription medicines but who soon will qualify for Medicare drug benefits.

These were just a few of a litany of Medicare concerns that were raised at the National Conference of State Legislatures’ health policy conference Dec. 8 10, where several hundred state lawmakers and policy experts convened to discuss health care priorities for 2005.

“One of the biggest challenges is just trying to siphon through what all the regulations are going to be. … Our challenge as legislators is to be prepared,” said Illinois state Sen. Donne Trotter (D), who heads NCSL’s health committee.

High among states’ concerns is how to shift poor seniors who will be eligible both for the state-federal Medicaid program, because of their income level, and for Medicare, because of their age, from one prescription drug plan to another in less than two months. Senior citizens can start enrolling in the Medicare plans Nov. 15, 2005; the sign-up deadline is Jan. 1, 2006, when their Medicaid prescription drug coverage expires.

To ease the transition, the federal government promises to automatically enroll these so-called “dually eligible” seniors in a Medicare plan if they don’t sign up themselves. However, the federal agency that oversees Medicare (the Centers for Medicare and Medicaid Services) hasn’t yet laid out its plans for the switch.

States worry that this population of seniors the majority of whom earn less than $10,000 a year and often reside in nursing homes or suffer serious health problems will suffer gaps in their drug coverage or be confused at the pharmacy counter.

“(The federal government) is going to have to do something. You can’t in six weeks get that many people moved who are chronically ill, heavy users of medication, mentally ill or folks in nursing homes who are really sick. … You’ve got to give it some time,” said Ohio Deputy Medicaid Director Barbara Coulter Edwards, who wants the federal government to grant a phase-in period for the dual eligibles during which old Medicaid benefits could be honored for 90 or 180 days.

Medicare also will play into state budget debates.

In approving the Medicare overhaul in 2003, Congress failed to deliver on a provision lobbied heavily for by states: having the federal government pick up the prescription drug tab for the “dual eligibles.” This population makes up about 21 percent of all Medicaid patients, but accounts for more than half of almost every state’s spending on prescription medicines, according to the Kaiser Commission on Medicaid and the Uninsured.

While the dual eligibles in 2006 will qualify for federal Medicare drug benefits, states won’t get to keep all of the savings from dropping the indigent seniors from state-financed Medicaid drug plans. Instead, states will get hit with what’s been coined the “clawback” provision, which will require states to finance a large share of the federal drug benefit by making payments on an ongoing basis to the U.S. government based on a formula.

States are waiting to learn exactly how much their “clawback” payments will be, but the Kaiser Commission estimates that between 2006 and 2014, states will make $88 billion in payments to the federal government for Medicare and will see little, if any, fiscal relief.

Meanwhile, states will have to make their best guess when debating their Medicaid and overall state budgets. Some states fear that under the clawback formula, they’ll wind up paying even more to cover dual eligible’s drug bills than before. For example, Edwards estimates that Ohio’s “clawback” payment to the federal government in 2007 will be $84 million more than what the state would have paid if the dually eligible population had remained on Medicaid drug coverage.

States also will have to decide whether or how to fill in any coverage gaps left by the federal law, which may not provide as rich or comprehensive a benefit as state plans. But if states choose to supplement the federal prescription drug benefit, they must pay for it with state-only funds.

Donna Boswell, a health-care lawyer with Hogan & Hartson L.L.P. in Washington, D.C., said state lawmakers need to focus this year on the Medicare changes so that they don’t grant extra drug benefits in 2006 that they can’t pay for out of state dollars.