Medicare Clawback Raises State Hackles

The Medicare bill just signed into law by President Bush will help states cover prescription drug costs for poor senior citizens, but states will have to give back to the federal government a large chunk of the savings.

Under the bill, which Bush signed Monday (12/8), the federal government will pay the prescription drug tab for nearly 6 million Americans who qualify for both Medicare and Medicaid, the state-federal health care program that covers the poor and disabled. The overhaul of Medicare, the nation’s 38-year-old health insurance program for those over 65 years old, will provide a prescription drug benefit to all seniors for the first time.

All 50 governors called for including poor, elderly people on Medicaid in the all-federal Medicare drug benefit, arguing this would relieve states of the cost of more than $7 billion per year for prescription drugs for this group. They said states couldn’t keep up with the burgeoning costs of health care, which will grow with the impending retirement of the post-World War II Baby Boom generation.

But states didn’t quite get what they were asking for. To state health officials’ dismay, a so-called clawback’ provision requires states to return to the federal government a significant portion of their savings starting in 2006, when the new Medicare system is slated to begin in earnest.

“I think (state legislators) may be a little bit disappointed because they think, Oh, dual-eligibles are taken care of, that’s off the books now.’ But it’s not quite that,” said Jim Frogue, a health policy analyst at the American Legislative Exchange Council (ALEC).

The Congressional Budget Office estimates that despite the clawback, states will save about $17 billion in Medicaid cost over the next decade.

Although the 700-page legislation is sparking many questions, state health officials repeatedly cited the provision as a primary concern.

Utah Medicaid Director Michael Deily is one such official. He called the clawback “a huge disappointment.” He said his state spends about $40 million per year on the dually-eligible population.

“The overall impact is unclear. With the clawback will state Medicaid programs be saving dollars or actually spending more?” Deily told Stateline.org. “Frankly, we may not know a whole lot until we actually get into it.”

In Minnesota, Medicaid Director Mary Kennedy said her staff is overwhelmed by the new legislation.

“We’re going to be in effect billed for what (the federal government) assumes we have saved by not being the direct provider of the benefit,” Kennedy told Stateline.org.

Under the bill, the federal government will use a formula to estimate what states must pay back each month based on Medicaid spending for the dual-eligibles during 2003 and inflated forward.

Health policy analysts said the clawback was put in place to make covering dual-eligibles fit within the $400 billion price Congress allotted for the bill over 10 years.

“States really won’t get a whole lot of fiscal relief from this,” said Trudi Matthews, chief health policy analyst at The Council of State Governments, a Lexington, Ky.-based organization that represents state government officials.

States are also concerned because under the plan they won’t be able to use Medicaid matching funds to supplement the federal drug benefit. “So if states want to try and fill some of the gaps in the bill they’ll have to do it all on their own,” Matthews said. The effects of this will vary from state to state.

“In some states that’s not a big deal because they probably will think the Medicare benefit is perfectly adequate,” said Jocelyn Guyer, associate director of the Kaiser Commission on Medicaid and the Uninsured. But in other states, some dual-eligibles may wind up with bigger out-of-pocket drug bills, she said.

Guyer cited Texas which caps at three the number of prescriptions a Medicaid beneficiary can receive each month as a state whose poor seniors might be better off with the federal drug benefit. “In Texas this is a tremendous boon for the Medicaid beneficiaries also on Medicare and probably for the state,” she said. “There are definitely states that will be much better off as a result of this.” The Texas Health and Human Services Commission said they were still “combing through the bill,” and declined to comment on its potential impact.

“It’s definitely going to put some states in a (quandary) when in order to preserve the benefit to their own citizens they’re going to have to supplement the Medicare system with a 100 percent state benefit,” Mike Fogarty, chief executive officer of the Oklahoma Health Care Authority, told Stateline.org. “That’s not what any state, I suspect, had in mind.”

States such as Minnesota and Utah that provide comprehensive drug benefits for dual-eligibles with few restrictions, are worried.

“The biggest unknown is will the administration of the new (Medicare prescription drug) benefit be as efficient as what we are doing?” Minnesota’s Kennedy said. “That’s what most every state is wondering.”