Fiscal Fitness: How States Cope
Real money: Medicaid 'drastic changes' could cost states a whopping $50 billion
Seven Medicaid regulations issued by the Centers for Medicare & Medicaid Services (CMS) could cost states nearly $50 billion over the next five years more than three times the $15 billion CMS estimated, according to a report by U.S. House of Representatives Committee on Oversight and Government Reform.
See table: Summary of State Responses to Committee Requests
"As the economy tips into recession, the last thing we should be doing is taking federal funds from states, especially funds that are supposed to help people with their health and medical expenses," said committee chairman Henry Waxman (D-CA). "The Bush administration has proposed drastic changes in the Medicaid program, without even attempting to understand the financial impact on states, localities, and the people they serve. The governors have opposed these proposals on a bipartisan basis. With this report, we can really see why. I hope the administration will reconsider these misguided regulations."
Mr. Waxman said the large discrepancy between state estimates and CMS' estimates is evidence that the regulations are likely to have a much larger fiscal and programmatic impact on state Medicaid programs and state budgets than people realize.
Two of the regulations would reduce Medicaid reimbursements for services furnished by public hospitals and teaching hospitals. Another would restrict how states can raise revenues from their economies' health sector to fund their share of Medicaid. And the remaining regulations would narrow the scope of allowable Medicaid coverage for outpatient hospital services, rehabilitation services, school-based administrative and transportation services, and case management services.
Mr. Waxman said with few exceptions, the changes are unilateral actions by CMS and not policy changes ordered by Congress. He quotes Kentucky Medicaid director Elizabeth Johnson that the changes "represent a continuation of CMS' efforts over the last four to five years to continually eliminate and scale back needed services for Kentucky's Medicaid recipients that had previously been allowable under longstanding federal regulations."
Savings not from efficiency
The federal Office of Manage-ment and Budget said the regulations will reduce spending by $15 billion over a five-year period from FY 2009 to FY 2013. Mr. Waxman said the estimated reductions in federal Medicaid spending are not a result of a drop in the need for the services or a decline in the cost of delivering the services but rather occur because the federal government will no longer match the cost of services or administrative activities for which it is currently making matching payments. State Medicaid programs then would face the choice of no longer paying for the service or activity, or continuing to pay for the service or activity entirely with state funds. In those instances in which states decide to continue to pay for the service or activity, Mr. Waxman said, the regulatory policy change will shift costs from the federal government to the states.
CMS director Dennis Smith testified to the savings before the committee but was unable to provide state-by-state estimates. Waxman said the administration statements "do not enable members of Congress or the public to assess the effect of the regulation on their own states. In a program like Medicaid, which is operated by the states on a day-to-day basis and is famous for its variation from state to state, the lack of state-specific estimates represents a major failure of transparency."
To overcome that lack, the committee wrote to each state Medicaid director, asking for that state's analysis of the impact of each regulation. Responses were received from 43 states and the District of Columbia, accounting for some 95% of total Medicaid spending.
Very high cost to states
According to the states that responded, the regulations would reduce federal payments to them by $49.7 billion over the five-year study period, more than three times the administration's estimate. And in the case of one regulation, the state estimates of lost federal funds are more than 10 times the administration estimate.
The report also found that:
- The combined effect of the reduction in federal funds from all seven regulations would be a major fiscal blow for many states. Estimates of the loss of federal funds (see chart, p. 4) ranged from $7.4 million over five years in Ohio to $10.8 billion over five years in California.
- The regulations will reduce spending by shifting costs, not through greater efficiencies. Oregon Medicaid director Jim Edge told the committee the overall effect "will reduce federal Medicaid spending within Oregon by approximately $877 million over the next five years. Most of these costs simply will be shifted on the state and local government, at a time when Oregon has less capacity to absorb added costs given the economic slowdown, reduction of timber revenue, weakening fiscal condition, increased caseloads, and an increase in client demand."
- The regulations will disrupt existing systems of care for fragile populations. Minnesota Medicaid director Christine Bronson wrote the regulations "will limit state flexibility to implement or maintain effective and innovative models of care, require us to fragment integrated care programs, and significantly increase the administrative complexity and therefore cost of our Medicaid program. In issuing the rules, CMS cites the need to protect the fiscal integrity of the federal commitment to Medicaid. Ironically, many of the agency's proposals will actually result in special needs populations receiving less effective models of care at increased state and federal cost."
- The regulations threaten the financial viability of the hospitals, emergency departments, and clinics that treat Americans without health insurance.
The regulations will impose significant administrative burdens and costs on state Medicaid programs. Virginia Medicaid director Patrick Finnerty wrote, "One cost that is not quantified is the administrative burden on the state Medicaid agency and many providers to implement these regulations. These costs may be worthwhile if they represent an improvement in policy. In some cases, however, much of the policy embedded in the regulation is dubious or pointless. In other cases, the regulations represent a reversal of longstanding policy, such as Medicaid reimbursement for graduate medical education or school administrative costs..."
- The impact of the regula- tions extends beyond Medicaid beneficiaries.
- The regulations do not have the support of the state Medicaid directors. Texas Medicaid director Chris Traylor said that while the state shares the CMS goal of achieving greater accountability in the Medicaid budget, it urges a different approach that more fully weighs the programmatic and fiscal implications of making program changes.
Mr. Waxman's report notes that the methodologies used by the states in preparing their estimates for the committee differ from state to state and from CMS' methodology. "Nonetheless," the report insists, "the large discrepancy between the state estimates and the CMS estimates is evidence that the regulations are likely to have a much larger fiscal and programmatic impact on state Medicaid programs and state budgets than federal policy-makers realize."
Change would hurt most
The regulations estimated to have the greatest impact, measured in terms of number of responding states affected, were those relating to case management (only one state said the regulation would have no impact), graduate medical education (two states reported no impact), rehabilitative services (three states reported no impact), and school administrative and transportation (three states reported no impact). In each of the remaining regulations, a majority of responding states reported an impact.
The regulation that the responding states estimated would cause the greatest loss in federal funds was the cost limit on public providers ($21.1 billion over five years), followed by graduate medical education ($9.8 billion), rehabilitative services ($5.2 billion), provider taxes ($5.1 billion), school administration and transportation ($3.2 billion), case management ($3.1 billion), and outpatient hospital services ($2.1 billion).
Among the responding states, those projecting the highest loss of federal funds over the next five years from all seven regulations were California ($10.8 billion), New York ($7.3 billion), Michigan ($3.9 billion), Texas ($3.4 billion), North Carolina ($2.7 billion), Georgia ($2.6 billion), and Illinois ($2.5 billion). "In short," the report says, "these seven states alone estimate a five-year fiscal impact of $33.2 billion, twice as large as that estimated by the Office of Management and Budget."
Mr. Waxman said the estimates should be viewed with caution for several reasons. First, not all states responded. Second, the states that did respond may have used different estimation methods that could lead to differences in five-year estimates. Third, some of the states that provided estimates sometimes qualified those estimates by indicating that they had not had an opportunity to conduct a full analysis, meaning the actual impact might be understated. And finally, in many cases, states indicated that one or more regulations would have an impact but they were not able to specify it, often because they didn't have a clear understanding of what the regulation would require.
Download the report at http://oversight.house.gov/story.asp?ID=1778.
Seven Medicaid regulations issued by the Centers for Medicare & Medicaid Services (CMS) could cost states nearly $50 billion over the next five years - more than three times the $15 billion CMS estimated, according to a report by U.S. House of Representatives Committee on Oversight and Government Reform.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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