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States Need Flexibility With Medicaid

Currently, about 47 million low-income Americans rely on the Medicaid program to pay for their health care needs. Medicaid provides critical services to children and pregnant women and is an important source of long-term care and prescription drug coverage for older Americans and people with disabilities as well. Although created at the same time, Medicaid is different from Medicare in that, while jointly financed by the federal and state governments (the federal government pays for 57 percent of the total costs incurred under the program), the program is entirely administered by the states within broad federal guidelines.

Total spending on Medicaid is growing at an astronomical rate. Taken as a whole, combined federal and state spending on Medicaid exceeds federal spending on Medicare. Furthermore, the Congressional Budget Office projects total federal spending on Medicaid to double in the next 10 years to $360 billion. This is an average growth rate of 8 percent, clearly outpacing inflation. The federal government cannot sustain this growth rate, nor can state governments.

H.R. 2, Jobs and Growth Tax Relief Reconciliation Act of 2003, contained $20 billion over two years in temporary aid to the states, $10 billion of which came in the form of enhanced Federal Medical Assistance Percentage. While I am not opposed to federal assistance to cash-strapped state governments per se, I do have concerns when such assistance isn’t tied to much-needed, systemic reforms.

Reforms are needed in some ways precisely because Medicaid is a joint federal/state partnership. Currently, the federal government is obligated to pay its set percentage of all Medicaid spending for services covered under a state’s Medicaid plan. This system encourages states to aggressively define their Medicaid spending as creatively as possible, which has led to the development in some states of creative financing arrangements that have allowed them to inappropriately leverage additional federal funds.

This open-ended financing mechanism also encourages states to spend as much as possible to capture the maximum number of federal dollars, while creating strong disincentives for states to be fiscally disciplined, especially when you consider that states cover much of their Medicaid population at their own discretion.

In fact, many states greatly expanded their Medicaid programs during the 1990s, when economic conditions were much better than they are today. This raises serious questions about who should be responsible for financing these so-called “optional” populations when the economy is in a downturn.

These are important questions, which is why the Energy and Commerce subcommittee on health, which I chair, will be taking a close look at ways to modernize the Medicaid program throughout the 108th Congress.

In that respect, I asked a number of members of the health subcommittee, led by Rep. Heather Wilson (R-N.M.), to investigate potential areas of reform in the Medicaid program. In addition, my subcommittee has already held two hearings on Medicaid. In the first, we heard several governors describe the challenges their states’ Medicaid programs are facing and the innovative solutions they are trying to put in place to help use their resources more effectively. Our second hearing focused on a series of “cash and counseling” demonstrations currently supported by the Centers for Medicare and Medicaid Services. These very successful demonstrations have empowered certain categories of beneficiaries with more control over how they receive services under Medicaid.

As I move forward in my subcommittee’s review of Medicaid, I intend to continue to focus on strategies for providing states with more flexibility to tailor their Medicaid programs to best meet the unique needs of their populations. I also want to ensure that federal dollars are spent appropriately and that states have incentives to use their resources efficiently.

We must never lose sight, however, of whom the Medicaid program serves. I have always been a strong supporter of our health care safety net, and I will make sure that it is not eroded as we consider ways to improve this nearly 40-year-old program. I know there are some strongly held views surrounding Medicaid, but I feel confident that we can improve this valuable program and ensure its long-term viability for future generations.

Rep. Mike Bilirakis (R-Fla.) is chairman of the Energy and Commerce subcommittee on health.

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