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Medicaid News

States May Face Showdown With Feds Over Cutting Medicaid Rolls, Many Seniors

Elderly and disabled account for majority of Medicaid spending… good chunk used for long term care; Medicare has cost-cutting suggestions

By Marilyn Werber Serafini and Julie Appleby, KHN Staff Writers

Jan. 31, 2011 - Financially strapped governors, Congress and the Obama administration could be headed for a showdown over the Medicaid health care program that covers 48 million poor, disabled and elderly people nationwide.

Arizona's governor has already asked for permission to drop people from the joint federal-state program, which states say is eating up huge portions of their budgets. But to do so, they need the green light either from Congress or the Obama administration.

If they don't get one? States warn they may need to slash payments to doctors and hospitals and make deep cuts in other programs such as education. They could even thumb their nose at the law and cut eligibility, which would force the Obama administration to decide whether to cut all federal Medicaid funding to those states.


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By Phil Galewitz, KHN Staff Writer

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The new health care law requires states to maintain their Medicaid eligibility levels for adults until 2014, when much of the law kicks in. In the meantime, federal funds that helped most states maintain their Medicaid programs – part of the 2009 stimulus package --comes to an end in June, even as enrollment remains at an all-time high while the nation struggles to recover from the recession.

Republicans in the House generally want to allow states more leeway, but their only hope is to get some members of the Democratic-controlled Senate on board.

Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee, said in an interview he is aware that states are under pressure to cut eligibility and that he will "look at" options. Still, he said, any such effort should "find a way to maintain as much coverage as we can."

He and other Democrats, including Iowa Sen. Tom Harkin, chairman of the Health, Education, Labor and Pensions Committee, and House Minority Leader Nancy Pelosi of California, said they would like to extend the expiring Medicaid aid until 2014.

The odds are against making such a move. Republicans have complained bitterly about the stimulus funding. Now that they control the House, they’re stressing the need to narrow the ballooning federal budget deficit.

Arizona, which says its Medicaid spending has gone from 17 percent of its general fund in 2007 to nearly 30 percent this year, recently asked the administration for permission to drop coverage for 280,000 Medicaid recipients. The state argues it's already more generous than most states – it's one of only 7 states that cover childless adults -- and says Medicaid costs are jeopardizing other priorities.

Other states also are likely to seek waivers. "The states are reaching a crisis point fiscally," said Dan Mendelson, CEO of Avalere Health, a consulting firm. Still, allowing states to drop coverage "runs directly counter to the goals" of the Obama administration, he said, adding that it would lead to "an erosion of coverage before the next (presidential) election."

Earlier this month, the National Governors Association and the Republican Governors Association urged congressional leaders to let them downsize their programs. Matt Salo, director of the Health and Human Services Committee at the NGA, said that some governors’ staff members are warning congressional offices that, unless they get help, they might have to ignore the law and change their eligibility rules anyway.

If that occurred, the federal government would have to decide whether to stop sending Medicaid money to those states. Even without the extra stimulus aid, the federal government, on average pays 57 percent of the cost of the joint program; in some states it is as much as 75 percent.

The health law – and the stimulus program – both require states to maintain eligibility, just as do other agreements between the states and Congress where matching federal funds are involved. Without such rules, there "isn’t a mechanism that the states will use funding the way it is intended by Congress," says Mendelson.

"States have taken a lot of federal money over the past couple of years with strings attached and these are the strings."

Under the law, Medicaid will expand sharply in 2014 when 16 million more people are expected to become eligible for the program. The federal government will pick up the full tab for the newcomers for the first three years. By 2020, the federal share ratchets down to 90 percent.

When asked whether he would support loosening the eligibility rules for states, Donald Berwick, the administrator for the federal Centers for Medicare and Medicaid Services, said that he was sensitive to the states’ situation. His solutions, however, were to point states to funding that he said is already available to them, such as subsidies to establish insurance exchanges.

Moreover, he added, his agency plans to make recommendations to states on ways to lower costs by improving care. One example is reducing hospital admissions, said Cindy Mann, director of the federal Center for Medicaid and State Operations.

Democrats in Congress have additional ideas, but most have little chance of moving forward because they go against Republican priorities of reducing federal spending and control.

Harkin, for example, said he also plans to look into an idea that has surfaced in the past to turn Medicaid over entirely to the federal government. "Maybe the federal government should take over the whole thing, and in exchange states would do other things," he said.

Mendelson points to another past proposal for the federal government to pick up the nursing home costs for Medicaid enrollees who are also eligible for Medicare, the federal health program for the elderly.

The elderly and disabled account for the majority of Medicaid spending, with a good chunk of that being used for long term care. Medicaid payments represent 40 percent of all nursing home spending, according to the Kaiser Commission on Medicaid and the Uninsured. (KHN and the Kaiser Commission on Medicaid and the Uninsured are both part of the Kaiser Family Foundation.) 

While AARP's state policy director JoAnn Lamphere says the idea is "intriguing," it is "a long term policy discussion that not going to save the states right now."

This information was reprinted from with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery. © Henry J. Kaiser Family Foundation. All rights reserved.

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