The Bush administration’s budget for fiscal year (FY) 2006 was presented to Congress on February 7, 2005. States, among many stakeholders in the health policy arena, have been particularly interested in the implications of the budget on Medicaid reform. Bush’s budget proposes to reduce Medicaid spending by $60 billion over 10 years, yet the burden of approximately 75 percent of those reductions falls directly on states. When taking into account some program increases in the program related to increased outreach through the new Cover the Kids campaign, extending transition medical assistance (TMA), and some long-term care proposals, the net reduction would be approximately $45 billion in spending over the next decade.
The budget addresses maintaining the integrity of the Medicaid program by proposing restrictions on intergovernmental transfers, redefining reimbursement policies for targeted case management and rehabilitation services, phasing down allowable provider tax rates from 6 to 3 percent, reforming transfer of asset policy for Medicaid eligibility, capping administrative allocations to states, and other administrative reforms. The FY06 budget also seeks to reduce Medicaid spending by proposing reductions in pharmacy costs, altering payment formulas, and changing the reimbursement for targeted case management. New analysis by the Congressional Budget Office suggests that the savings from the Medicaid and the State Children’s Health Insurance Program (SCHIP) reductions would be much less than the administration’s estimates. However, there is some disagreement on the amount of savings that would be incurred.
While the President’s budget also proposes to provide states with additional flexibility in Medicaid, little detail regarding the options available to states has been revealed. Many expected new information regarding Medicaid reform to become available after the National Governors Association annual winter meeting, where Medicaid was the emphasis of discussion. However, during this crucial meeting between the governors and the Bush administration, no agreement was made on changes to the Medicaid program. Immediately following the meeting, HHS Secretary Mike Leavitt stated there were certain issues upon which there had been some agreement. These include:
- Medicaid is overpaying for prescription drugs;
- The elderly should not be allowed to transfer their assets to their children to qualify for Medicaid nursing home coverage;
- Governors should be able to charge co-payments to Medicaid beneficiaries based on income, and should be able to manage care and costs by using the tools available to private insurers;
- States should have more flexibility to decide benefits; and
- Home- and community-based care should be recognized by Medicaid as a “preferred alternative” to nursing homes.
Despite conflicting reports, many governors have cited that there is still much disagreement even with regard to the aforementioned issues. Several are still concerned that Medicaid reform will be linked to the budget, and will only come in the form of budgetary reductions. With uncertainty in many aspects of the federal reforms, the governors will continue moving forward in this process. They are currently developing short-term strategies that may allow them certain flexibilities and long-term plans for finding efficiencies and making critical structural changes to the program.
According to Theresa Sachs, former technical director at the Centers for Medicare and Medicaid Services, it is likely that many of the principles from the Bush administration’s previous attempt at Medicaid reform in 2003 may be included in the current plan. However, only time will tell whether any changes to the program will include sweeping reforms that will facilitate coverage expansions, such as a departure from the categorical nature of the program. Sachs added, “If the financing reforms squeeze states’ budgets, it will be extremely difficult for them to even consider coverage expansions in the future.”
