Health of the Nation: Special Update on Medicare and Medicaid

Has the rising cost of health care tightened your family’s budget? It has certainly affected state and federal budgets. Government officials at local and national levels are struggling to balance growing health care costs with the historical promise of health insurance for the elderly, disabled and poor.

With skyrocketing health expenses and mounting national debt, some worry that the federal health plan for people aged 65 and older - Medicare - and the joint federal and state health insurance program for the poor and disabled - Medicaid - will be severely cut back in the not-so-distant future.

What’s going on with Medicare

On October 17, 2005, the Bush administration notified states that, beginning January 1, 2006, they will have to contribute billions of dollars to the new Medicare prescription drug benefit.

More specifically, the Congressional Budget Office estimates that total state payments will amount to about $6 billion for the current fiscal year and around $124 billion from 2006 to 2015.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) requires states to make monthly payments to the federal government for prescription drug coverage under the new Medicare Part D. This is the first time that states have financed Medicare in any significant way since the Medicare and Medicaid programs were first enacted in 1965.

Many states are openly rejecting this new Medicare law; Texas and New Hampshire have vowed not to pay until a court decides if the new rules are constitutional. And the National Governor’s Association is at odds with the Bush administration over whether or not the state payments, which many call "clawback payments," are fair.

States that refuse to pay will be penalized - the federal government will withhold the amount owed from states’ Medicaid programs, plus interest.

Medicare and Medicaid beneficiaries have the most to lose from the policy fight, and states come in at a close second, having already-tight budgets and overflowing health care programs.

Implications for states

While Medicaid is a joint state and federal program, Medicare has always been federally-funded, and states believe that it should remain that way.

Since MMA requires the federal government to absorb the cost of prescription drugs for people on both Medicare and Medicaid - called dual eligibles - the states should save money, theoretically. But states say the clawback payments force them to pay that money back, and then some.

The 2006 clawback payments amount to 90 percent of what states would have spent on dual eligibles if MMA had never been enacted. But the formula is derived from 2003 cost averages, even though many states have cut drug costs since then. These states could lose money.

The clawback payments, which were not approved by either the House or the Senate but added later to the final conference report by a small group of legislators, link federal budget policy to states’ fiscal responsibilities.

Implications for Medicare and Medicaid beneficiaries

States that save money may expand their Medicaid programs. Likewise, states that lose money are likely to cut "optional" services or "optional" beneficiaries, even though optional services can include rehabilitation, home health care, dental and vision care, and, in a strange twist, prescription drugs. Optional beneficiaries who are dropped from Medicare will join the ranks of millions of uninsured Americans.

The upshot is that Medicare prescription benefits could cause states to lose money and tighten Medicaid eligibility requirements, causing many people who rely on Medicaid to become uninsured.

What’s going on with Medicaid

The federal government has approved a Florida pilot program that will shift its Medicaid beneficiaries to private health care plans.

Governor Jeb Bush says that managed care plans will better administer care and be able to control escalating costs.

Florida spends 25 percent of its state budget on Medicaid, and the program’s costs have been growing by 13 percent each year. Governor Bush explains that this rate is not sustainable for the state and that they need to try a fresh approach to the program.

Critics worry that large private health care companies that worry about the bottom line will be likely to cut the oldest and sickest from the plan in order to make it more cost effective.

The Florida State Legislature has yet to approve the pilot program, and critics are encouraging lawmakers to take their time considering it. Governor Bush, on the other hand, would like to begin the new program as quickly as possible; he plans to call a special session in December.

Medicaid beneficiaries in Florida are nervous that they will lose benefits under the new plan. Is it worth experimenting in hopes of finding a better way to run Medicaid? If this program corresponds with new Medicare payments, will it be doomed before it begins? Are Medicare prescription drug benefits worth greater numbers of uninsured Americans? Would you be willing to pay more taxes to support the new prescription drug benefit and maintain Medicaid? In your list of priorities, what is the value of healthcare?

What do you think?

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Posted on: 10/22/2005