The Gulf Coast states are trying to pick up the pieces after the catastrophic impact of Hurricanes Katrina and Rita. The unprecedented destruction will force the states to rebuild infrastructure and most of their essential public services. It has devastated gulf state economies and their state budgets. It is already affecting the U.S. economy, the federal budget, and other state budgets as the nation begins to rebuild and absorb displaced residents.

The uninsurance rate in the affected states was already higher than the national average and it is certainly likely to rise. Many of the evacuees who were covered by Medicaid are now being enrolled into Medicaid programs in surrounding states. Likewise, many refugees covered by private insurance are now unemployed and uninsured. The critical issues regarding how to pay for the displaced Medicaid enrollees as well as the growing number of uninsured are under debate by Federal leaders.

States Apply for Federal Waivers

Following both hurricanes, U.S. Health and Human Services Secretary Michael Leavitt declared a public health disaster and has made it his priority to “ensure that sufficient health care items and services are available to meet the needs of individuals enrolled in the Medicare, Medicaid, and SCHIP programs and to ensure that health care providers that furnish such items and services in good faith, but are unable to comply with one or more of these requirements as a result of Hurricane Katrina, may be reimbursed for such items...”[1] The Secretary has used his authority to waive certain federal rules and guidelines for areas affected by both storms.

Dennis Smith, director of the Center for Medicaid and State Operations for the Centers for Medicare and Medicaid Services (CMS), sent a letter to state Medicaid and SCHIP directors dated September 16, 2005 stating that CMS had developed a new emergency Section 1115 waiver demonstration template[2] for states hosting Hurricane Katrina evacuees, refugees or survivors so that “evacuees who have been displaced from his or her home as a result of Hurricane Katrina will be provided the opportunity to enroll to receive services under the Medicaid or SCHIP programs in whatever state they now reside.”[3]

The waivers allow host states to create a new Medicaid eligibility category for evacuees retroactive to August 24, 2005 for five months. States may enroll only populations traditionally eligible for Medicaid or SCHIP (e.g., parents of SCHIP children, pregnant women, children under the age of 19, individuals with disabilities, low-income Medicare recipients, and low-income individuals who require long-term care) and may waive documentation requirements and allow “self-declaration” eligibility using simplified guidelines.[4] States are not required to adhere to the budget neutrality requirement of traditional 1115 waivers.

Texas was the first, on September 15, 2005, to receive a new, emergency Section 1115 waiver. The state has enrolled approximately 200,000 refugees from the hurricane and flood-affected regions of Louisiana. The Texas waiver also allows the creation of an uncompensated care pool for refugees who do not qualify for Medicaid and for medically necessary services, such as mental health, not covered by Medicaid. Recipients in Texas are waived from cost-sharing requirements.[5] CMS also has granted waivers to Alabama, Arkansas, the District of Columbia, Florida, Georgia, Idaho and Mississippi.[6] The host states will be held harmless for the health care services provided to evacuees.

Congressional Action

The administration favors the CMS waiver approach rather than Congressional legislation. However, the waiver strategy does not appear to allow CMS to waive state matching requirements, meaning that the cost for the state match for the evacuees would be charged back to the disaster-area states. The Congress and Administration are currently debating how to provide fiscal relief to both the host states and disaster-area states.

Senator Charles Grassley (R-Iowa) and Senator Max Baucus (D-Mont) introduced the Emergency Health Care Relief Act of 2005 (S. 1716). The revised version of the bill provides states with streamlined access to Medicaid, SCHIP, TANF, unemployment compensation, a disaster relief fund. It also would provide Louisiana, Mississippi, and Alabama with a one-year, 100 percent federal medical assistance percentage (FMAP). The Congressional Budget Office has projected that the legislation would increase federal spending by $7.5 billion in 2006.[7]

In contrast to the CMS waiver approach, all hurricane survivors below 100 percent of the federal poverty level (FPL) and all pregnant women, children, and the disabled below 200 percent FPL would be eligible for disaster relief Medicaid (DRM) benefits.[8] The legislation does not use traditional Medicaid eligibility categories. DRM would be available for five months with the option of renewal for another five months. States that provide DRM would be reimbursed at a 100 percent FMAP.

The bill has been blocked in the Senate largely due to cost concerns. In response to the ballooning federal deficit, the Republican Study Committee issued a 23-page document called “Operation Offset.”[9] The work was an effort to find money to pay for the estimated $200 billion in federal expenditures for hurricane relief. The list of offsets is extensive, but coverage highlights include:

• Delaying the Medicare Prescription Drug Benefit for one year
• The repeal of Highway Earmarks in the 2006 Transportation Bill
• Reduced federal Medicaid administration spending
• Block granting Medicaid Acute Care
• Increase cost sharing in Medicaid and Medicare
• Ending the SCHIP redistribution of unspent funds
• Eliminating adult coverage using SCHIP funds

Medicaid and the Federal Budget

Hurricanes Katrina and Rita and their aftermath have delayed the federal budget reconciliation process that instructed committees to find $10 billion in savings over five years. Medicaid was expected to have been the source for those cuts. Congressional leadership pushed back the reconciliation date six weeks. The Senate Finance Committee and the House Energy and Commerce Committee, which control Medicaid, will now meet in mid-to-late October. Debate continues about whether the needs coming out of Hurricanes Katrina and Rita warrant a permanent delay in the proposed Medicaid cuts or whether the cuts to social programs under budget reconciliation are even more necessary to help offset the federal cost to rebuilding.