February Q&A: The Bush Administration's Proposal
for Medicaid
To: National Association of Protection and Advocacy Systems
From: National Health Law Program
Date: February 27, 2003
Re: February Q&A: The Bush Administration's Proposal
for Medicaid
Question: I heard on the news that President Bush has proposed to turn Medicaid
into a "block grant" program. Is this true?
Answer: On January 31, 2003, HHS Secretary Tommy Thompson announced the outlines
of an Administration plan to give states still more "flexibility" to administer
their Medicaid and state children's health insurance (SCHIP) programs. As announced, the
proposal would, in essence, establish Medicaid as a block grant. However, Congressional
approval is required, and support of the nation's governors is critical. The National
Governors' Association is meeting in Washington, DC now. Following a meeting between the
governors and DHHS Secretary Tommy Thompson, there are reports that the Administration is
having to reconsider the details of the proposal
Discussion: Under the proposal as announced, states would have two options: They
could continue to operate their Medicaid and SCHIP programs subject to existing rules—and
get no additional federal funding. Or, the state could turn Medicaid into a block grant—and
get short-term federal fiscal relief. Given the dire budget conditions in many states, the
lure of additional federal funds may compel states to take the block grant option. The
proposal will require legislative approval
While many details of the proposal have not
yet been revealed or are changing over time; the major components appear to be as follows:#1
A ten-year plan: Participating states
would accept a ten-year deal. They would be provided short-term infusions of federal funds—up
to $3.25 billion in FY 2004 and $12.7 billion for the first seven years.#2The
yearly allotment would be determined using a pre-set formula that is not yet defined but
that would not be based on the actual number of beneficiaries enrolled or services
provided. After year seven (after the Bush Administration and most current Governors will
be out of office), the states would have to repay the advanced funds, as their federal
payments would be reduced.
Block grants: States accepting the
additional federal money would agree to a capped annual federal "allotment," in
effect a block grant with Medicaid and SCHIP funding merged. States would accept two
annual block grants– one for acute care and one for long term care. States could
transfer up to 10 percent of the funds between the two grants and use up to 15 percent of
the funds for administrative expenses and direct payments to hospitals. However, a state
would be foreclosed from getting federal matching funds for any expenditure that exceeded
its allotment.
State "Maintenance of Effort": States would have a
maintenance of effort (MOE) requirement based on the State's 2002 Medicaid and SCHIP
spending, The MOE requirement would increase annually by the Medicaid Consumer Price Index
(which has traditionally increased at a slower rate than actual Medicaid spending). The
MOE requirement does not seem to be a "match" requirement. In other words,
states could reduce Medicaid spending by substituting other state-only health care
spending towards its MOE.
Slicing and dicing eligibility, benefits, and protections: According to
Secretary Thompson, states would have "carte blanche" flexibility to decide
eligibility, services, cost sharing, and protections for groups currently covered through
Medicaid's optional eligibility categories. A state could have different eligibility
levels for different geographic areas in the state. Different benefits could be offered to
different populations. By contrast, under current rules, once a state elects to cover an
optional eligibility group or service, it must apply the mandatory protections of the
federal Medicaid Act. It appears that states would have to continue coverage of the
current mandatory eligibility groups; however, optional benefits for this group could be
changed at will. Moreover, it is not clear whether states would have to continue providing
mandatory eligible populations will all current mandatory benefits or whether they could
replace these benefits with a less inclusive benefit package. In addition, it is not clear
whether other current protections would have to be maintained—for example, timely
application processing, nursing home quality of care standards, or protections for
enrollees in managed care programs.
Cost sharing from beneficiaries: States would have complete
discretion to determine cost sharing, including copayments, deductibles and premiums, for
all optional beneficiaries. This marks a dramatic change from current law, which
specifically prohibits cost-sharing for children in the Medicaid program, limits
copayments to amounts that are "nominal," and limits cost-sharing for families
and children receiving coverage through SCHIP.
The Bush "flexibility" proposal should be monitored closely. One of the major
problems with the proposal is that it introduces capped allotments, essentially block
grants, into the Medicaid program—thus changing the current entitlement nature of the
program. See, e.g., Schweiker v. Gray Panthers, 453 U.S. 34, 36-37 (1981)
("An individual is entitled to Medicaid if he fulfils the criteria established by the
State in which he lives."). Block grants would allow states to curtail Medicaid
enrollment or create waiting lists for services mid-year. Block grants would also preclude
Medicaid from responding to the ebbs and flows of the economy and health care costs.
Medicaid is a counter-cyclical program - as the economy weakens and people lose jobs, they
can turn to Medicaid for health insurance. With a capped allotment, a state will not
receive additional money as it enrolls more individuals. Thus, just when the stresses on
Medicaid are greatest, states will have less money to spend per enrollee. Moreover,
flexibility has already failed as a magic bullet. Over the past decade, state flexibility
has been greatly enhanced to allow mandatory managed care and other cost containment
initiatives. However, Medicaid spending has nevertheless increased. Other factors, largely
beyond state control, are at the root of the spending increases - the aging of the
population, health care price inflation, and increases in the number of people who are
unemployed or have disabilities. Notably, states already have flexibility to eliminate
optional eligibility groups and services, so introduction of this block grant concept is
simply not necessary.
This proposal could have a particular effect on people with disabilities. Over 1.5
million individuals with disabilities now qualify for Medicaid through
"optional" eligibility categories. This includes individuals with disabilities
who have incomes above SSI eligibility levels, individuals eligible for Medicaid through
home and community based waivers, certain working individuals with disabilities, and the
medically needy. Over 66 percent of Medicaid spending on people with disabilities is
optional. The benefits needed by individuals with disabilities vary. As noted by the
Kaiser Family Foundation, children with disabilities may need specialty care, home-based
care, medical equipment, and, in some cases, institutional care. Working individuals with
disabilities may need personal attendants, prescription drugs, and other supportive
services to remain independent. Frail elderly individuals may require home health care or
nursing home care. Under the Bush proposal, however, states would have unfettered
discretion to define both eligibility and benefits, so that individuals with disabilities
will not be guaranteed coverage.
There are other
options. Most significantly, the federal funding to the states could be temporarily
increased without working massive changes to the essential structure of the Medicaid
program. Senators Rockefeller (D-WV), Clinton (D-NY), Collins (R-ME), Graham (D-FL),
Hutchison (R-TX), Nelson (D-NE), and Smith (R-OR) have introduced S. 138, a "fiscal
relief" bill. The legislation would make a $10 billion appropriation to increase the
Federal Medical Assistance Percentage (FMAP), the federal share of Medicaid costs, through
June 2005. On February 13, 2003, a similar bipartisan proposal, the State Budget Relief
Act of 2003 (H.R. 816) was introduced in the House by Representatives by Peter King
(R-NY), Sherrod Brown (D-OH), and 115 other members of Congress. In contrast to the
Administration's proposal, these FMAP proposals would not require states to alter
administration of their Medicaid/SCHIP programs or pay back federal funding in subsequent
years.
Meanwhile, the
Bush proposal will be heavily dependent on support from the nation's governors. The
National Governors' Association met in Washington, DC in mid-February. Reaction to the
proposal ranged from enthusiastic support from the President's brother to concern from
some Democratic governors that the proposal could force states to make crippling cuts to
their Medicaid programs. The NGA did not go on record supporting the President's proposal
but rather approached Congress to negotiate a solution to the problem. On February 24th,
NGA said it would establish a bipartisan committee of eight governors to negotiate
with the Administration and Congress on Medicaid reform (New York Times, Feb. 25, 2003).
The coming year promises to be a critical one at the federal level. Some Republican
leaders hope to condition any infusions of new federal money upon structural changes in
Medicaid. A series of hearings in the House Energy and Commerce Committee on Medicaid
issues is expected to last into the session. Please consult NHeLP's website, www.healthlaw.org, for regular updates.
1 These details are taken from the Administration's
budget see http://www.hhs.gov/budget/docbudget.htm,
and Secretary Thompson's announcement of the plan, see HHS News, Jan. 31, 2003.
2 It is not clear whether this level of funding would be
maintained if only a few states participate in the 10-year program.
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