Debate grows over who owns Medicaid costs

President Bush is expected to announce trims in healthcare spending, placing the burden back on fiscally strapped states.

As President Bush prepares to present his budget next Monday, the nation's governors have put him on notice: Don't try to balance it on our backs.

Their top concern is Medicaid - the $300 billion healthcare program that provides coverage for the disabled, 70 percent of the elderly in nursing homes, and low-income people.

Its costs are spiraling upward, draining state coffers as well as the federal treasury. The primary reason is that as more people lose private insurance, they end up in the Medicaid safety net. Over the past four years, the Medicaid rolls have jumped more than 30 percent. Combine that with the growing number of elderly in nursing homes, and you get a runaway fiscal train that both the states and federal governments agree has to be stopped. But there's a major fight brewing over how to do it.

On Monday, President Bush is expected to propose limiting the federal government's share of the Medicaid bill - perhaps cutting as much as $50 billion over five years. Federal spending on the program is now $180 billion a year. He'd do it by capping the federal allotment in exchange for giving states more flexibility in running their programs.

Many governors say that's no solution, since it primarily shifts the financial burden onto the states, most of which are struggling to keep their Medicaid costs in check. In the past year, all 50 states have cut benefits, restricted eligibility, or increased co-pays to keep the program's spending manageable. Some states, like Tennessee are simply cutting large numbers of people from the program.

Other states are experimenting with different ways to rein in spending. In Florida, for example, Gov. Jeb Bush is proposing essentially privatizing much of Medicaid by contracting private health organizations to provide services.

"We could well be on a collision course where state revenues are not expanding enough to meet the needs of the program at the same time the federal contributions are being cut back," says Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured. "The end result will be fewer people or services covered. There's no safety net below Medicaid."

In what could be seen as a preemptive warning to the administration, the National Governors Association sent a letter to congressional leaders last month letting them know that reforming Medicaid is their highest priority this year. But it also urged them to reject any proposed reform that just shifts "additional costs to states." The $120 billion states spend annually on Medicaid is already more than they spend for K-12 education. It now accounts for an average of 22 percent of state budgets.

But the Bush administration is taking a hard line. This week the new secretary of Health and Human Services Mike Leavitt charged that some states use "loopholes" and "gimmicks" essentially to get the federal government to pay a larger share of the program than it should.

In a speech to the World Health Congress on Tuesday, he called them the "seven harmful habits of highly desperate states." They include such things as overpaying providers, charging the federal government for the overpayment, and then having it returned to them so they can spend it for other purposes. For their part, the states argue that overall the program is already extremely efficient compared to other healthcare programs. While private health-insurance premiums went up more than 12 percent, Medicaid's annual spending per capita was up only 4.5 percent.

"We can't just shift all of the risks downstream to the states while the feds limit their exposure year to year," says Ken Thorpe, a professor of health policy at Emory University in Atlanta.

Indeed, many states say the problem is not the way the program is structured. It's that the states have become the de facto underwriter for nursing home care. While the elderly and nursing home residents make up only 6.5 million of the 50 million people Medicaid serves, they account for 42 percent of the program's $300 billion annual price tag. Some states believe the federal government has a responsibility to find another way to fund their care. The Bush administration argues that its proposal would would also allow for other types of experimentation.