Elder Law FAX -- August 8, 2005

Federal Medicaid Commission Looking at Governors' Proposal for Cost Savings
Governors' ideas on Medicaid reform could play a role in the cost cutting decisions of the Medicaid Commission, which is assigned the task of making recommendations to cut $10 billion from the program over the next five years.

The Medicaid Commission is the creature of a political compromise. Earlier this year, the U. S. Senate told the Bush administration it would not vote on a Medicaid reform proposal unless the administration created an advisory board to bring back before the Senate suggestions for how to save $10 billion on the federal budget over the next five years.

As a result, in July the Secretary of U. S. Department of Health & Human Services, Mike Leavitt, established the Medicaid Commission, "to advise the Secretary," according to its charter, "on ways to modernize the Medicaid program so that it can provide high-quality health care to its beneficiaries in a financially sustainable way."

The Commission must submit two reports to the Secretary for his consideration and submission to Congress. By September 1, 2005, the Commission must provide recommendations on options to achieve $10 billion in Medicaid savings while at the same time "make progress toward meaningful longer-term program changes to better serve beneficiaries."

By December 31, 2006, the Commission is tasked with making longer-term recommendations on the future of the Medicaid program that ensure the long-term sustainability of the program.

Secretary Leavitt appointed the 28 individuals to serve as members of the Medicaid Commission, including former Tennessee governor Don Sundquist, who was named chairperson of the commission.

The commission had its first meeting on July 27. Another is scheduled in Washington on August 17 and 18.

Medicaid covers 58 million Americans. As measured by expenditures, Medicaid is America's largest single health and long-term term care program.

Total Medicaid spending is projected to be $329 billion in 2005 or 2.6 percent of the nation's Gross Domestic Product (GDP). (Total health care spending in the U. S. from all sources is about 15 percent of GDP.) Medicaid accounted for 17 percent of all U.S. health care spending in 2003.

Both the states and the federal government fund the Medicaid program, which is administered by the states. Twenty years ago, states set aside eight percent of their budgets to fund Medicaid. By 2003, that figure had risen to 22 percent. In most states, Medicaid now exceeds education in total state dollars spent.

The commission likely will look at governors' proposals because they have been under discussion for 10 years and are well thought-out, said Mr. Leavitt last week.

The governors say that Medicaid's system for purchasing prescription drugs is "flawed" and must be replaced. The governors' July 20 reform proposal calls for increased rebates from drug manufacturers, lower rates for prescription drugs, and higher Medicaid copayments and deductibles for beneficiaries.

The governors also propose changes to Medicaid asset transfer rules. The reform proposal seeks changes that increase the penalties for transfers, restrict the types of assets that can be transferred, and encourage reverse mortgages and other policies to get individuals and their families to self-finance care rather than rely on Medicaid.

The governors are also asking for more flexibility in designing benefits packages for their states, stating that the populations that Medicaid services are "very diverse" but the Medicaid benefit package remains "one-size-fits-all."

As Secretary Leavitt signaled last week, it is highly likely that the Medicaid Commission's recommendations will look a lot like the governors' proposals -- and not just because they have been working on them for 10 years, but because the Medicaid Commission only has six weeks to come up with its proposals. Don't expect that body to reinvent the wheel in such short time.

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