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States' Budget Woes Fuel Medicaid Cuts

By Amy Goldstein
October 11, 2002

The Washington Post


Oklahoma will mail letters soon to nearly 79,000 poor residents -- some families that recently left welfare, others people who are disabled or old -- telling them that, as of March, they no longer will be eligible for Medicaid.

In Illinois, Medicaid officials last month began to require patients who need a popular anti-depressant drug, Zoloft, to get tablets that are twice as strong as they need, then break the pills in half.

And Missouri's Medicaid program last July stopped paying for adults to get eyeglasses or for doctors to perform circumcisions on newborn boys.

Such cost-cutting would have been unthinkable a few years ago, but now it is part of a contraction of the nation's largest public health insurance program. All but nine states have taken -- or are planning -- steps to rein in Medicaid expenditures this year.

Those decisions by governors, legislators and Medicaid administrators underscore the pressures states are confronting in a weakened economy. Their revenues are plunging, and increases in unemployment and poverty are prompting more people to sign up for government help. Those pressures coincide with a resumption of rapid medical inflation, particularly for prescription drugs.

As a result, states are reversing a trend that lasted nearly a decade. During the 1990s, the federal government and states, which share responsibility for Medicaid and the newer Children's Health Insurance Program (CHIP), added money and changed rules so that public insurance programs could reach more Americans who lack health coverage -- and pay for more kinds of care. The piecemeal additions to government insurance have been the main method Congress used to help lessen the problem of the uninsured after lawmakers rejected President Bill Clinton's efforts to redesign the nation's health care system eight years ago.

But in the changed fiscal climate, a new survey of Medicaid programs shows, increasing numbers of states are dropping certain groups of patients, curtailing some services, requiring poor people to help pay for their care, limiting access to expensive drugs, and cutting -- or freezing -- payments to hospitals, doctors, nursing homes and other providers of care.

"We are beginning to undo the expansions that have taken place," said Rob Restuccia, executive director of Health Care for All, an advocacy group in Massachusetts, where the legislature has decided to stop covering about 50,000 unemployed adults, added to Medicaid four years ago, as of next April.

The states' problems are spilling into Congress as governors and other state officials lobby the federal government aggressively for relief. "Many of us are dealing with the crisis," said Mike Fogarty, chief executive officer of the Oklahoma Health Care Authority, the state's Medicaid agency. "We are hopeful there will be a crisis response."

States are pinning their hopes on a plan, passed by the Senate in July, that would temporarily increase federal Medicaid payments -- $6 billion over 18 months, although some senators are considering providing less. But the White House opposes the measure. And asked whether the House would consider it, a spokesman for Speaker J. Dennis Hastert (R-Ill.) said, "I don't think we are doing it."

Medicaid, the public insurance program for Americans who are poor and disabled, is expected to cover 47 million people this year, making it larger and faster-growing than Medicare, the federal health insurance program for the elderly. In Medicaid, the federal government supplies slightly more than half the money -- currently nearly $150 billion a year in federal subsidies -- and sets minimum coverage rules. States are free to offer extra services and include more people. It is those options that states are now cutting.

In recent years, health care for the poor and uninsured has been a subordinate political issue as the Bush administration and Congress have placed priority on trying to provide prescription drug coverage for the elderly and protections for Americans in private health plans.

"We've got to get Medicaid reform on the national agenda," said Ray Scheppach, executive director of the National Governors Association. "Everybody says, 'We'll do it after Medicare,' but we don't ever seem to get Medicare done."

In the meantime, states' Medicaid cuts, which began to appear about a year ago, are becoming more pervasive. The new study, sponsored by the Kaiser Commission on Medicaid and the Uninsured, found that Oklahoma is one of 18 states that are tightening their eligibility rules in fiscal 2003, compared with eight states in fiscal 2002. Similarly, the number of states trimming services has increased from nine last year to 15, with cuts in dental care for adults particularly common. In the most widespread strategy, 40 states this year are trying to limit their expenditures on prescription drugs, by reducing pharmaceutical payments or making it more difficult for doctors and patients to select expensive medicines.

And in a departure from Medicaid's traditions, states are beginning to charge patients small fees for services that used to be free. Delaware this month began to require its Medicaid patients to pay $1 for the vans that take them to hospitals and doctors' visits.

Medicaid programs throughout the Washington area are taking steps to control their spending on prescription drugs, the Kaiser study shows, and Maryland and Virginia also are curbing payments for certain health care providers.

The Connecticut legislature, which convened a special session last June on its budget troubles, authorized elimination of a variety of services that are not required under federal rules. As a result, Medicaid officials are working to decide how to pare benefits for podiatry, vision care, certain mental health services and treatment of speech and hearing problems. Michael P. Starkowski, deputy commissioner of Connecticut's Department of Social Services, which faces a $20 million to $30 million deficit this year, said the agency is trying to "cut on the fringes" in order to "preserve the critical services."

Other states are halting expansions of coverage. Oklahoma canceled plans to broaden its coverage for breast and cervical cancer. And last month, California Gov. Gray Davis (D) vetoed a $50 million item in the state budget that would have enabled 300,000 low-income parents to enroll in a public insurance program that already covers their children.

In a subtler strategy, some states are curtailing recent innovations that were designed to find more people who were eligible for public insurance -- and make it easier for them to stay covered once enrolled. Delaware stopped an initiative, which had been paid for through an outside grant, to publicize Medicaid and CHIP, the children's insurance program, and to help clients fill out applications. "We are accepting applications, but there are no more little signs on the sides of buses that we used to have," said Philip Soule Sr., Delaware's Medicaid director, who has reduced agency staff and is preparing to propose more cuts to the governor. "It's nuts to go out there and drag people in if you can't even serve them or deal with them."

In a different strategy to curb enrollment, Indiana has changed its rules for how long children remain covered. Children used to be able to stay on Medicaid for a year at a time, regardless of whether their family's income went up during that period. Now, their family has to report income changes right away.

Stringent as they are, the changes that states are making are likely to preface still deeper cuts in the next year or two, Medicaid directors and health policy analysts predict.

The Kaiser study shows that states have not brought their Medicaid programs into fiscal balance: Medicaid budgets around the country are increasing this year, on average, by slightly less than 5 percent, even though their Medicaid spending grew last year by nearly 13 percent and their enrollment this year is expected to increase by 6.3 percent.

Inadequate state budgets are not the only reason some states may need to find further cuts. Parts of the health care industry are going to court to try to obstruct state decisions that would cause them to lose money.

Indiana, which is cutting 10 percent from its Medicaid program over a two-year period, began last year by lowering hospital payments by 5 percent, reducing reimbursements to pharmacies and changing its method of paying nursing homes. Nursing homes and pharmacists sued. Eventually, Indiana put the cuts into effect, but the nursing home change took a year because of the litigation.

"Several of our hard choices are tied up in court, which means we are not yet booking those savings," said Gregory Vadner, director of the Missouri Division of Medical Services, which is facing four lawsuits by health care providers and advocacy groups.

In the long run, many state officials contend, states lack the capacity to absorb their Medicaid burdens on their own -- particularly for nursing home care and services for the disabled, aspects of their programs that involve relatively few patients but the greatest expense. "Increased participation on the federal side is warranted," said Vadner, vice chairman of the National Association of State Medicaid Directors. "All the states have been lobbying for this, and lobbying pretty hard."

The Bush administration has been encouraging states to experiment with their Medicaid programs -- using existing federal subsidies. Mark McClellan, a senior White House health policy adviser, noted that the president's budget last spring proposed $8 billion for the next three years to help states pay for prescription drug coverage for elderly people.

But the administration does not favor giving states more Medicaid money to use however they want. "We prefer to have something that focuses more on making sure it addresses an important policy priority," McClellan said. "The urgent policy priority is assistance with prescription drug costs."

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