Medicaid costs fueling dispute between states, Senate

President Barack Obama is trying to quell a potential showdown between Congress and state governors over Medicaid spending.

The bipartisan group of six Senate Finance Committee members seeking an agreement on healthcare reform is seriously considering a proposal that would expand Medicaid to include more people.

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But because the healthcare program for the poor is jointly financed by the federal and state governments, such a policy would place an additional burden on states already facing crushing budgetary shortfalls due to the recession.

Medicaid already ranks as many states’ biggest expenditure and governors are adamant they intensely oppose any new federal policies that would add to their budgets.

Obama raised the issue during a meeting with the six senators at the White House on Thursday

“He made clear his concern about Medicaid expansion being done in a way that is coordinated carefully with the governors,” said Sen. Kent Conrad (D-N.D.), one of the “gang of six” working on the healthcare bill. Conrad said Medicaid is one of the biggest outstanding issues in the bipartisan negotiations.

The senators spoke by phone to a bipartisan group of governors later Thursday. An aide to Finance Committee Chairman Max Baucus (D-Mont.) was not able to name the governors by press time.

Senators are determined to keep the cost of their comprehensive healthcare reform bill below $1 trillion and are not eager for the federal government to pick up the whole tab for expanding Medicaid.

Baucus acknowledged Congress needs to be mindful of state budgets but said that the federal government could not afford to pay the full freight for newly enrolled Medicaid beneficiaries.

“We’re sensitive to their concerns. We want to do this right but make them sensitive to our imperatives, too, which are: we’ve got to pay for all of this,” Baucus said.

“We can’t foot the entire bill for the states. We just can’t do that,” Baucus said. “We can’t let U.S. taxpayers pay the full state bill” for the expansion.

The White House has been reaching out to governors on a regular basis to secure their support – or at least forestall opposition – to the healthcare reform proposals working their way through Congress.

"We talk to governors all the time. There are people in the White House who talk to governors every day. They are concerned about what's going to happen to the states,” said Nancy-Ann DeParle, the director of the White House Office of Health Reform.

DeParle said that White House officials have tried to reassure governors. "We've told them we're working with you and we understand where you're coming from. We've told them the healthcare reform is one step at a time."

In contrast to the plan under consideration in the Finance Committee, the House bill would provide full federal funding for newly enrolled beneficiaries.

The House bill would expand Medicaid eligibility to everyone earning up to 133 percent of the federal poverty level, leading to a net increase of 11 million people in the program.

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During a National Governors Association (NGA) meeting in July, governors from both parties expressed trepidation that Congress would pass along some of the cost of a Medicaid expansion. Tennessee Gov. Phil Bredesen (D) said that would be the “mother of all unfunded mandates.”

The NGA sent a letter to Baucus and Finance Committee ranking member Chuck Grassley (R-Iowa) last month spelling out in clear terms that governors would fight any effort to stick them with part of the cost of healthcare reform.

Governors are “steadfastly opposed to unfunded federal mandates and reforms that simply shift costs to states,” said the letter, which was signed by Vermont Gov. Jim Douglas (R) and West Virginia Gov. Joe Manchin (D), the chairman and vice chairman of the governors’ group, respectively.

“Any unfunded expansions would be particularly troubling given that states face budget shortfalls of over $200 billion over the next three years,” the governors wrote.

Sen. Sherrod Brown (D-Ohio), who does not serve on the Finance Committee, argued that states should be asked to contribute to the costs of healthcare reform once the economy improves because they would benefit from the overall reduction in costs.

“I think there’s going to be constraining of costs in these plans that are going to means we’re going to quit seeing this explosion in the cost of Medicaid and Medicare,” Brown said Wednesday.

Alexander Bolton contributed to this story