Governors' Plot Revamping of Medicaid

The nation's governors are working behind the scenes on a Medicaid proposal to fundamentally change how states and the federal government provide health care for the needy.

Governors are drawing up a reform proposal to present to Congress that goes beyond tinkering around the edges of the nation's most expensive health care program, which now covers 53 million Americans. The changes largely are aimed at curbing the explosive growth in the number of people who turn to government-funded Medicaid for medical care and at cutting the staggering public spending on long-term and nursing home care.

The ideas include allowing states for the first time to offer a slimmer package of benefits for certain people, such as the working poor or uninsured, and letting states seek higher co-payments for medical care, such as emergency room visits.

About a dozen governors, consulting with Medicaid officials from at least 35 states, have been holding teleconferences since early this year to draw up a counter-proposal to President Bush's budget plan to slash $45 billion from the federal contribution to the $330 billion state-federal Medicaid program. Details of the package haven't been publicly disclosed, but experts close to the negotiations said governors feel pressure to produce a Medicaid solution soon before Congress finishes work on the budget.

Virginia Gov. Mark Warner (D), questioned about the proposal at a Medicaid forum April 14, said governors still are ironing out the details of a comprehensive reform package that he described as "Medicaid Plus."

Warner, who is chairman of the National Governors Association, said "an overwhelming majority" of the governors of both parties are on board for major overhaul, but he admitted that the coalition is fragile. The NGA is spearheading the negotiations to overhaul Medicaid.

"We're not saying we are going to swallow the whole whale at this point and do total health care reform," Warner said at a "Conversation on Health" hosted by the nonprofit Kaiser Family Foundation. But he said the current structure of Medicaid needs revision because its growing costs and swelling rolls are unsustainable. "We're on our way to a meltdown," he said.

"What's happening in Tennessee is a precursor to what is going to happen to every state in the country. It's just a matter of when," Warner said, referring to Tennessee Gov. Phil Bredesen (D)'s decision to drop 323,000 people from the rolls of TennCare because of ballooning medical costs. TennCare is the state's 10-year-old health care program for the poor and uninsured that went beyond Medicaid's requirements and covered working families who couldn't afford private insurance. Without the cuts, the state would have had to find an extra $650 million dollars to cover TennCare's bills in fiscal 2006.

According to experts close to the negotiations, the governors are trying to tackle the reasons for the explosive growth in Medicaid that, in many cases, is largely beyond states' control. Medicaid, for example, was originally designed for the poor but has become the health care plan by default for many working uninsured and for millions of disabled and elderly in nursing homes. Medicaid enrollment has jumped 40 percent in the past five years.

Medicaid is now more expensive than the Medicare program for the elderly, and has surpassed elementary and secondary education as the largest single portion of state budgets.

In seeking more leeway to charge co-payments, governors are treading carefully. Under current Medicaid law, low-income children and pregnant women are protected from cost-sharing, along with elderly and disabled who receive federal cash assistance known as Supplemental Security Income. But states might seek to recover some costs, for example, by imposing a penalty on Medicaid beneficiaries who go to the emergency room for routine ailments, Warner said.

Long-term care also is being eyed for reform. States spend an average of 38 percent of their Medicaid money on long-term care and more than half of that on nursing homes, which cost about $57,000 a patient per year.

On this front, the governors agree with the president's proposal to clamp down on wealthy seniors who "game" the system by transferring their assets to reach the poverty level and qualify for government-funded nursing home care through Medicaid.

Warner said cracking down on asset transfers should be softened by giving people tax credits to buy long-term care insurance.

"Maybe we ought to be honest and allow people to keep some percentage of their home, some amount of fixed dollars that they can pass on and then encourage reverse mortgages" to pay for their long-term care, Warner said.

While they disagree with White House proposals to cut federal Medicaid dollars, governors are lining up behind some of Bush's suggested Medicaid reforms, including offering tax credits to the working poor who don't have health coverage. The governors also are considering tax credits for small employers who often can't afford to offer health care.

Governors also like Bush's plan to allow states to create purchasing pools to help low-income people buy health insurance with a proposed health insurance tax credit.

The governors also want the green light from Congress to create special programs enabling seniors to pre-pay for long-term care with guarantees the state will pick up costs if policy benefits run out. Currently, only four states have the federal government's blessing to operate such plans.

One controversial area that many governors are reluctant to touch is the accounting loopholes that some states now use to draw down additional federal money, known as intergovernmental transfers.

"No one comes to this debate with clean hands," Warner said. Clearly states used the rules to maximize the amount of federal Medicaid dollars they could get, but the federal government always blessed these arrangements, he said.

Virginia was among the 15 states identified by the Bush administration as using the techniques to get millions of extra federal dollars. The other states on the list, prepared for Congress by the administration, are Alabama, Alaska, California, Georgia, Idaho, Illinois, Iowa, Massachusetts, Minnesota, Mississippi, North Carolina, North Dakota, Tennessee and Washington, as reported in The New York Times.

Warner said Virginia ended its use of the practice and hinted that states over time might be willing to give up the arrangements if a "more rational Medicaid system" were in place.