In December, Congress reached an agreement on a conference report for the long overdue budget reconciliation package. The conference agreement saves $40 billion over five years, cutting approximately $6.4 billion from the Medicare program and $4.8 billion from the Medicaid program. The long-term savings to Medicaid are projected to be $26.5 billion over 10 years. The anticipated savings result from numerous changes to both programs that will certainly have implications on state coverage efforts.
Lawmakers in both chambers worked intensely up to the winter congressional recess. However, the work on the federal budget began much earlier. In April, Congress passed a Joint Budget Resolution calling for $10 billion in Medicaid cuts over 10 years. Congress also called for the establishment of a Medicaid Commission to recommend ways to find savings from the program over the next five years, as well as to recommend longer-term changes to Medicaid. The Commission submitted its initial recommendations in September 2005, several of which were included in the conference agreement. The Commission’s long-term recommendations are expected by December 31, 2006.
In November, the House and Senate each passed their respective versions of the federal reconciliation budget package. The House of Representatives (H.R. 4241) cut approximately $50 billion from the federal budget over five years, including approximately $11 billion from the Medicaid program. The Senate (S. 1932) cut $35 billion over five years, including approximately $4.3 billion from the Medicaid program.
The contested issues in the budget ranged widely from whether oil exploration and drilling should be allowed in the Arctic National Wildlife Refuge to whether a Medicare stabilization fund would be preserved to encourage preferred provider organizations to offer drug coverage in underserved regions. For states, the central issue was how much savings would be expected from the Medicaid program and what amount of flexibility they would be given to make program changes.
Summary of Major Medicaid and SCHIP Budget Issues:
The conference report on the Deficit Reduction Act of 2005 targets several pieces of the Medicaid program for cuts. The following are the major sources of savings (all figures scored over five years):
- Cost-Sharing and Benefit Package Design: $3 billion savings
The debate over cost-sharing and benefit package cuts sparked a heated debate in Congress and continues to divide the chambers. The conference committee gave states flexibility to impose additional cost-sharing on non-preferred prescription drugs and inappropriate emergency room use. In addition, some optional populations (> 100 percent of the federal poverty level [FPL]) could receive alternative benefit packages and be charged increased cost-sharing amounts or premiums.
- Prescription Drugs: $3.8 billion savings
The bill alters prescription drug purchasing rules by establishing a new upper payment limit for multiple source drugs, mandating that states collect rebates on physician-prescribed drugs and including authorized generic drugs in calculating the average manufacturer’s price.
- Asset Transfers: $2.5 billion savings
The bill reduces Medicaid spending by increasing penalties on individuals who improperly transfer assets to qualify for Medicaid long-term care - increasing the look-back period, changing the countable income formula, and making those who own more than $750,000 in housing equity ineligible for Medicaid long-term care services.
The federal government will reimburse the states, at a 100 percent matching rate, for costs associated with caring for Katrina evacuees enrolled in Medicaid and SCHIP. The enhanced matching rate will end in May 2006. To further assist states impacted by Hurricane Katrina, the Secretary of Health and Human Services was provided $2 billion to pay for the state share of Medicaid and SCHIP as well as for uncompensated care for certain uninsured individuals. Finally, the states were provided $75 million for high-risk pool operations and an additional $15 million in seed grants to start up high risk pools. The authorization and appropriation for these high risk pools is for fiscal year 2006.
- State Children’s Health Insurance Program (SCHIP)
The conference agreement provided $283 million in redistributed SCHIP funds to states that overspend their allotment in FY 2006. The final conference committee will not allow CMS to approve additional waivers to states to cover childless adults with unspent SCHIP funds. For all states, redistributed SCHIP funds will be limited to providing coverage to children.
- Medicaid Transformation Grants
Up to $50 million in both FY 2007 and 2008 is available for grants to states to improve effectiveness and efficiency in providing medical assistance. There is no requirement that the state provide matching funds for these grants.
Although the House and Senate passed reconciliation, the Senate made changes and thus the package must be returned to the House for a new vote. The House of Representatives re-convenes January 31, 2006.
