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Obama Rejects Governors’ Plan to Overhaul Medicaid

Mar 01, 2011

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The recession-fueled state budget crisis has turned Medicaid into the next battleground in the ongoing war over President Obama’s signature health care reform law.

The president on Monday rejected a plan promoted by conservative Republican governors including Haley Barbour of Mississippi and Scott Walker of Wisconsin to turn Medicaid, the joint federal-state program that provides health care for the poor, into a block grant program. Such a transformation would allow states to reduce benefits and exclude all but the most destitute from coverage.

The president rejected that proposal during a closed-door session with governors attending the National Governors Association annual meeting in Washington. “The president didn’t think it was necessarily the best path,” a senior administration official who attended the session told reporters.

Obama also sought to defuse mounting criticism of the new health care reform legislation by saying he is willing to give states an earlier opportunity to opt out of certain key requirements, provided they can find alternate ways to accomplish the law’s goals.

During his public address to the governors, Obama said he believes “the concept of shared sacrifice should prevail ... If all the pain is borne by only one group — whether it is workers, or seniors or the poor — while the wealthiest among us get to keep or get more tax breaks, we’re not doing the right thing.”

Medicaid provides primary health insurance coverage to 58 million low-income Americans, mostly women and children and sets basic levels of coverage in every state. The federal government currently pays for 57 percent of the Medicaid program, which cost $387 billion in 2009, according to the Kaiser Commission on Medicaid and the Uninsured.

Turning federal Medicaid support into a block grant without national standards would run counter to the intent of Obama’s Affordable Care Act, which relies on an expanded Medicaid program to cover about half the uninsured who will obtain coverage under the health care reform law. The ACA also sets a fairly high standard for minimum coverage under the law. The federal government will pay for nearly 90 percent of the additional costs that come from adding about 16 million uninsured Americans to the Medicaid rolls after health care reform goes into effect in 2015.

Cash-strapped states have seen their Medicaid rolls swell by 6 million people since the recession began in late 2007. One-time federal support from the February 2009 stimulus act helped states meet those additional obligations in the past two years, but now those funds are drying up. States are increasingly looking for ways to limit the program in order to balance their budgets, which is required by almost every state constitution.

Arizona has already said it will lop 250,000 single adults from its Medicaid rolls this fall, and Wisconsin and Maine, with newly-elected Republican governors, have similar plans. States like Georgia, Illinois, Nebraska and Missouri have introduced legislation that will reduce payments to hospitals and physicians in 2012, according to health care analysts at Families U.S.A., an advocacy group, while California, Connecticut and Georgia are contemplating benefit cuts.

Federal law requires states meet minimum standards when providing health care coverage for its least well-off citizens, but the standard isn’t very high and states can apply for waivers from even those low standards. In Mississippi, for instance, a single parent in a family of three must have income below $8,000 a year to qualify for Medicaid, which Judy Solomon, a health policy analyst at the left-leaning Center for Budget and Policy Priorities, said “is typical for states already at the minimum level.”

But that’s not how Barbour, former head of the Republican National Committee, views his state’s program. He wants to compel Medicaid patients to pay for part of their medicine, saying, according to the Washington Post, that "we have people pull up at the pharmacy window in a BMW and say they can't afford their co-payment."

To institute such cuts, states would need the federal government to rescind its “maintenance of effort” clause, which makes aid contingent on maintaining the existing level of benefits. A state already can apply for waivers from specific mandates, such as the Children’s Health Insurance Program, if it can show it is achieving the same goals for its poorest citizens through other programs. Medicaid health maintenance organizations have grown dramatically in recent years through use of such waivers and now account for a fifth of all Medicaid spending.

To help counter the growing rebellion against looming Medicaid requirements in the health care reform law, the president on Monday offered states a faster path to waivers from that program. That could give states a way to avoid imposing the mandate on uninsured Americans to purchase policies — a provision probably headed for the Supreme Court since lower courts have ruled both for and against its constitutionality. If Congress agrees, alternatives to the sale of insurance policies on exchanges could begin as early as 2014 instead of 2017, which was the date specified in the original law.

However, senior administration officials cautioned that any state seeking a waiver would have to show that coverage under the alternative would be just as comprehensive as the regulated insurance policies offered through the exchanges. Their alternative would also have to be affordable as defined in the original law, cover as many people, and not increase the federal deficit.

A state could incorporate Medicaid into its alternative plan — a move that has been proposed by Gov. Mitch Daniels, R- Ind. The early waiver proposal mirrors bipartisan legislation introduced by Sens. Ron Wyden, D-Ore., Scott Brown, R-Mass., and Mary Landrieu, D-La. Administration officials working on health care reform are looking to the states to come up with innovative ways to lower the high health care costs of the five percent of the Medicaid population that accounts for half the program’s overall costs.

“The president said he was eager to work with states to put Medicaid on a more sustainable path,” said the senior administration official, who spoke on background. “But he wants to ensure those trade-offs aren’t on the backs of children” in the program.

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