Stateline Story

Feds Aim to Keep Medicaid Costs in Check

  • February 06, 2006
  • By Daniel C. Vock
President Bush's budget would scale back Medicaid once again. Bush wants to reduce spending on the federal-state health care program by $13.6 billion over the next five years. 

It marks the second year in a row the president sought to rein in the growth of Medicaid. Last year, he called for cuts of $45 billion over 10 years. Instead, Congress passed a budget-trimming law last week (Feb. 1) that would hold down the program's growth by $6.9 billion over five years, which amounts to $26 billion over 10 years.

The bulk of the savings in Bush's current proposal could occur administratively, without the help of Congress. The proposal would change arcane rules governing the flow of Medicaid money between Washington, D.C., and state capitols to keep states from using accounting ploys to get larger shares of federal matching funds.

For example, the administration plans to save $3.8 billion over five years by using stricter rules when paying for services provided by other government agencies, such as public hospitals. The rules would prevent those providers from inflating the costs of services and giving the excess money back to the state.

The administration's budget also would limit the taxes states could impose on health care providers. Those taxes often prove to be a net gain for providers, because states turn around and use the money they generate to recoup federal matching funds for Medicaid. The administration predicts that the change would save $2.1 billion over five years.

Other provisions of the budget would change the way states negotiate drug prices for their Medicaid recipients.

Currently, Medicaid buys drugs cheaper than any private purchaser, because federal law mandates it. Bush wants to repeal that law.

Also, the president's budget calls for limits on how much the federal government would spend on generic drugs.

Meanwhile, Bush's spending plan includes $100 million annually to fund a new program called Cover the Kids designed to boost enrollment for children in Medicaid and the State Children's Health Insurance Program (SCHIP), which covers 6.1 million low-income children who don't qualify for Medicaid.

The administration also presented good news to states along with the budget. Because the new Medicare prescription drug benefit turned out to be less expensive than anticipated, the states' share of the tab is also expected to fall.

Originally, the federal government expected the states collectively to pony up $6.8 billion this year and $9.7 billion next in so-called clawback payments. Now, it estimates states will owe $5.8 billion this year and $7.6 billion in the coming year, according to the Centers for Medicare and Medicaid Services.