Medicaid Reform: States Clamor For “Relief and Flexibility”

States want flexibility in implementing the health care law, and President Obama told the National Governor’s Association yesterday that he supported a bipartisan bill that would allow states to apply for innovation waivers in 2014 instead of in 2017, as currently written into the health law. This bill, introduced last year by Sens. Ron Wyden (D-Ore.) and Scott Brown (R-Mass.) would allow states to opt out of major provisions like the individual mandate and pursue alternative routes to reform—as long as they meet the same coverage targets as the federal plan. Kathleen Sebelius, Secretary of the Department of Health and Human Services, called this action “another crucial step in empowering states to lead,” giving Vermont, for example, a chance to try a single-payer approach at the same time that Utah was developing a market-driven insurance exchange.

Meanwhile, Obama’s announcement was greeted far less enthusiastically by conservative critics of the health law who are intent on repealing the entire legislation, not making it more innovative. “Mandating many of the same requirements, this plan would treat states as agents of the very law these governors are running away from,” said Michael Steel, spokesman for Speaker John Boehner. “A better approach would be working with reform-minded governors to give states more flexibility to lower health care costs immediately by, for example, fixing costly federal regulations on Medicaid.” This chilly reception doesn’t bode well for the Wyden-Brown bill’s chances in the House.

The President’s support of innovation waivers also isn’t placating many of the 33 (mostly Republican) governors who signed a letter to Obama in January asking for “flexibility and relief” in dealing with the strain on their budgets caused by expanding Medicaid programs. The $346 billion jointly funded state-federal program provides health coverage for 53 million poor and disabled Americans. Under the Affordable Care Act, by 2014 Medicaid coverage will be expanded to include all citizens who earn under 133 percent of the poverty line—about $30,000 a year for a family of four. Some 18 million more people—most of them from the ranks of the uninsured, working poor are expected to join the program, straining state coffers further. Kansas Republican Gov. Sam Brownback, echoing the concerns of many governors, told NPR that “what he really wants isn't more flexibility when it comes to the health care law, but for Medicaid.

“‘Medicaid is creating a huge hole in my budget and we had to take money from all other places in state government to fill the Medicaid hole,’ Brownback said.”

Stuart Butler of the right-leaning Heritage Foundation says the Wyden-Brown bill is “much less than meets the eye.” By not allowing innovation waivers to be granted for the health law’s provisions for Medicare, Medicaid or the State Children’s Health Insurance Program (SCHIP) Butler writes in an editorial in the New England Journal of Medicine, “it will not grant the states, especially conservative ones, the degree of flexibility that Wyden claims, nor will it defuse state resistance to major parts of the ACA.”

This weekend, Medicaid was a main focus of the National Governor’s Association meeting in Washington. Governors from both sides of the political spectrum agreed that they want “relief and flexibility” from the federal government’s so-called eligibility maintenance requirements for the program. More than half have asked HHS for an exemption from having to meet federal Medicaid rules. As part of the ACA, states are required to maintain current eligibility standards for Medicaid until 2014, or face a loss of federal matching funds for their programs in the future.

This has become increasingly difficult as the recession continues to lead to job losses and states see a surge of people newly eligible for Medicaid. Short-term cash grants from the 2009 federal stimulus package helped states to meet this increased demand. But after more than two years, these grants will run out in June and states are facing looming budget shortfalls as well as continued demand for Medicaid services.

Sebelius, who has been working with individual states on the Medicaid cost problem, has already indicated that there is some wiggle room in maintaining Medicaid eligibility—mainly for states that currently provide more than the basic level of coverage. For example, Arizona’s Governor Jan Brewer was advised that the state would not need a waiver to exclude about 250,000 adults from its Medicaid program — people who were added under special conditions years ago and are not part of the state’s regularly covered Medicaid group.

But the possibility of a waiver isn’t enough for conservative governors like Wisconsin’s Scott Walker and Florida’s Rick Scott. They are calling for the federal government to replace matching funds with block grants to states that would give them the power to adapt (or more likely, slash) Medicaid programs to fit their individual needs. Scott told CNN on Sunday, “All of us know that Medicaid is a problem for the states,” he said. “So we are going to do a better job of managing our Medicaid population and our Medicaid program. We would like the federal government to just give us a block grant because I could spend the money way better without all the strings attached.”

This is a terrible idea. There are basically four tried-and-true strategies that conservative states (like Texas) use to trim costs in their Medicaid programs: 1) Change income eligibility requirements and drop everyone except pregnant women, kids and the most severely disabled, 2) Reduce reimbursement to providers, causing many to drop out of the program and refuse to see Medicaid recipients, 3) Cut or severely limit covered services like dental care or mental health visits, 4) Make signing up for and maintaining benefits such an onerous process that many who qualify do not receive or even apply for coverage.

Using any of these strategies would currently leave a state at risk of losing federal funding for its Medicaid program. But the governors who support block grants plan on employing just these techniques for cutting their groaning budgets. Some, like Wisconsin’s Walker, want to give poor people vouchers to buy private insurance—not a bad idea until you realize that the vouchers will allow access to only the most bare-bones of policies that include high out-of-pocket expenses. Others want to impose cost-cutting measures like greater cost-sharing or a sliding scale of premiums that would make Medicaid unaffordable to many low-income Americans. Still another suggestion is to bring back stricter enforcement of eligibility requirements—i.e. requiring birth certificates, excessive financial information, regular drug tests and other coercive practices whose main goal is to dissuade vulnerable, low-income people from signing up for Medicaid.

Of course, states do need new methods for dealing with the growing–and unsustainable–cost of Medicaid. And the call for flexibility isn’t only coming from conservatives. Oregon’s Gov. John A. Kitzhaber, a Democrat, is also in favor of “flexibility,” yet he opposes the idea of most block grants. “If you give a state a block grant and they spend it on a smaller population by just dropping people off, that’s not the outcome you want,” he told Politico. Rather, says Kitzhaber, ideas like block grants are only acceptable if states maintain accountability to three things: “expand coverage, reduce costs and improve health outcomes.”

The Washington Post reports that Kitzhaber favors “a plan in which deviations from Medicaid rules would be handled by the [HHS] as ‘case-by-case’ demonstrations or temporary experiments, rather than broad, permanent changes to the program.” Gov. Jerry Brown of California, for example, is asking HHS for permission to cut $1.7 billion from his state's Medicaid program by limiting most recipients to no more than 10 physician visits a year. Other deviations might include eliminating coverage for certain overused medical procedures or withholding payments to hospitals that have high rates of readmission. The point is, these would be demonstration projects—not wholesale, permanent changes that lead to reduced Medicaid costs by sacrificing coverage and quality of care.

In New York, where Medicaid spending is the nation’s highest at $50 billion, there are promising signs that states can make significant cuts without resorting to waivers or block grants. Last week, a Medicaid Redesign commission set up by Governor Andrew Cuomo that included 27 representatives from groups as disparate as the Greater New York Hospital Association, health care worker unions, patient advocates, and state government agencies, agreed to 79 recommendations that would trim $2.3 billion from the state’s Medicaid program and budget. The commission’s recommendations have been added to the state budget, and according to the New York Times include “measures to move more people to managed care; impose spending controls on home health care and personal care; and limit noneconomic damages in medical malpractice cases.” More controversial, perhaps, are savings that would come from a spending cap (i.e. cuts in provider reimbursement), “which would require a rate cut that totals $345 million, and as much as $640 million in future cuts if providers cannot find their own ways to reduce spending in the meantime.” The proposed plan would also give the State Health Department significant power to make some future rate cuts without legislative approval.

The wrangling over Medicaid is center stage now as federal stimulus funding dries up and states grapple with their looming budget deficits. There’s little national consensus on Medicaid; not even on how serious the cost problem really is. Politico reports today that “Congressional Republicans [from the Senate Finance and House Energy and Commerce committees] estimate that the health care reform law’s Medicaid expansion will cost state taxpayers about $118.04 billion through 2023.” That figure contrasts dramatically with an earlier estimate from the chief actuary at the Center for Medicare and Medicaid Services that states will have to shoulder new costs of about $21 billion through 2019.  Meanwhile, conservatives are using this new projection to step up their efforts to win more states maintenance of eligibility waivers from HHS and to put pressure on the administration to undertake the ill-advised policy of Medicaid block grants.

In the end, the Wyden-Brown bill will do nothing to help lessen the strain on state budgets from the mounting burden of Medicaid spending. But it does signal that the Obama administration is flexible and demonstrates that the health law is a dynamic piece of legislation that is open to state innovation, as long as the underlying tenets of reform are preserved. If the bill passes—which hinges on whether House conservatives choose to hold out for repeal of the entire health law—it would allow states like Oregon, Utah, Massachusetts and Vermont who have well thought-out alternatives to some of the mandates of the ACA to get started early on their innovations without having to spend money on setting up a different system—only to redesign it in three years. The administration would be wise to consider similar initiatives that encourage innovation and cost savings in state Medicaid programs—while still holding firm on preserving the scope and quality of expanded coverage.

2 thoughts on “Medicaid Reform: States Clamor For “Relief and Flexibility”

  1. folks in the House know that repeal isn’t a current option. so the question is whether they view the Wyden-Brown approach as incremental progress.

  2. More like put up or shut up.
    Repubs have a choice: show they have a better way, or let the ACA stand or fall on its own.