Medicaid fight shapes up as states deal with budget crunching

The Obama administration is gearing up for an influx of state requests to modify the federal-state Medicaid partnership when the nation's governors descend on the capital for their winter meeting next weekend.

High on state leaders' list of priorities is changing the healthcare reform law's Medicaid expansion, which 26 states challenged in federal court. The issue received renewed attention last week when Health and Human Services Secretary Kathleen Sebelius told Arizona it could drop thousands of Medicaid beneficiaries without running afoul of federal law — something 33 Republican governors have asked to be able to do.

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Sebelius is under heavy pressure to work with states, which are faced with great fiscal strain and worry about the healthcare reform law's requirement that Medicaid cover everyone — even childless adults — up to 133 percent of the Federal Poverty Level. Last month, 33 governors and governors-elect wrote to Sebelius requesting that she lift the reform law's so-called maintenance of effort (MOE) requirement, which restricts states' ability to cut their Medicaid rolls ahead of the expansion in 2014.

"States are unable to afford the current Medicaid program, yet our hands are tied by the MOE requirements included in the [reform law]," they wrote. "The effect of the federal requirements is unconscionable; [they] force governors to cut other critical state programs, such as education, in order to fund a 'one-size-fits-all' approach to Medicaid."

The law does, however, allow states to pare down their rolls if they cover people above the level required by the healthcare law and are facing a documented budget deficit.

In a Feb. 3 letter to state governors, Sebelius outlined several solutions to the states' Medicaid woes, including increasing co-pays and cutting benefits.

She took a further step this week when she told Arizona Gov. Jan Brewer (R) that the state could drop 250,000 adults from its Medicaid rolls when its temporary commitment to cover them expires on Sept. 30.

The looming possibility of such massive cuts is causing consternation among healthcare advocates. Cutting the Medicaid rolls now makes no sense, said Ron Pollack of the healthcare advocacy group Families USA, even if he acknowledges that the secretary's hands were tied.

"It makes no sense to go backward before you go forward," he said.

The Arizona case is unique, however, and it's not clear if other states will be able to replicate it. For one thing, it operates its Medicaid program under a temporary waiver that expires before 2014, and it's not clear how many other states are in the same boat; in addition, states must meet federal minimum levels regardless of waivers.

According to Families USA, only eight states and the District of Columbia provide "meaningful coverage" for childless adults beyond the minimum requirement: Arizona, Connecticut, Delaware, Maine, Massachusetts, Michigan, New York and Vermont.

States vary greatly in their intentions, however.

Minnesota received permission from the federal government this week to quickly expand its program to the level required in 2014, a move that makes fiscal sense because of the federal matching funds. Connecticut and D.C. have already done the same.

Meanwhile, Florida legislators are threatening to make the state the first in the country to leave Medicaid if the federal government doesn't approve of a proposal to privatize the program and cut its benefits.

"In the unlikely event that Washington decided, 'We're not going to work with you, instead we’re going to dictate unilaterally the terms of surrender,' then as a state, we're prepared to manage our own program with our own resources and we set out in the bill exactly how we're going to do that," state Sen. Joe Negron told reporters this past week.

In addition to giving states options, the federal government should do more to help cut costs, said Bruce Lesley of the children's advocacy group First Focus.

For example, Congress could repeal the prescription drug "clawback," whereby states have to pay back the federal government for drug coverage for seniors on Medicaid. The Medicare prescription drug program covers all seniors, but then charges the states for the so-called "dual eligibles" who are also on Medicaid.

Between 2006 and 2009, says the National Association of State Budget Officers, the 50 states and the District of Columbia paid back $28.8 billion in prescription drug costs to the federal government. Arizona alone paid $237 million under the policy.

Other groups have entered the fray with their own proposals.

Chain drug stores and community pharmacies, for example, wrote to Sebelius on Wednesday to reiterate the need for greater use of generic drugs and coordinating care — through medication therapy management services provided by pharmacists, for example.

The letter also takes issue with Sebelius's suggestion that states don't have to cover prescription drugs and can "generally change optional benefits or limit their amount, duration or scope."

"Attempts to discontinue prescription drug coverage in the Medicaid program have been short-lived and ill-advised," says the letter from the National Association of Chain Drug Stores and the National Community Pharmacists Association. "States have found that while this policy resulted in savings in the prescription drug benefit, other expenditures such as nursing home costs increased dramatically."