Governors Resist Bush Plan to Slow Costs of Medicaid

WASHINGTON, May 24, 2004 — After two months of intense secret negotiations, governors and Bush administration officials have been unable to agree on a plan to rein in the soaring cost of Medicaid, participants in the talks say.

Governors of both parties are resisting a proposal offered by President Bush this year to set firm limits on federal Medicaid spending in each state over the next decade.

"I am extremely wary of that approach," said Gov. Bill Richardson of New Mexico, a Democrat on the bipartisan team of 10 governors negotiating with the Bush administration.

Negotiators emphasized that it was not just Democrats resisting Mr. Bush's proposal to give each state a fixed allotment of federal money to cover all Medicaid costs in each of the next 10 years.

Republican governors, including Jeb Bush of Florida and John G. Rowland of Connecticut, have also expressed reservations, the negotiators said. The negotiations have been conducted privately, but details of the talks were obtained in interviews and from documents exchanged by the negotiators.

The basic concern, set forth in documents from the National Governors Association, is that the president's proposal does not protect states against unforeseen costs that might result from changes in the economy, natural disasters, outbreaks of disease or the development of expensive drugs and other treatments.

Dr. Rhonda M. Medows, secretary of the Florida Agency for Health Care Administration, said Governor Bush was "right there with the other governors" on this issue.

"Governor Bush is not going to make a decision without knowing there's a safety net to address the possibility of a phenomenal or catastrophic event, like a new disease or a man-made or natural disaster," Dr. Medows said. "He's a responsible man. He doesn't want to take money up front and dump problems on his successor."

State officials recalled the experience of New York, which added more than 300,000 people to its Medicaid rolls in four months after the terrorist attacks of Sept. 11, 2001.

Some of the 10 governors have come under pressure from advocates for the disabled, hospitals and other health care providers lobbying against any caps on federal Medicaid spending.

The American Hospital Association and the American Academy of Pediatrics have sent letters opposing the president's plan.

Federal officials have been trying to explain the president's proposal to governors since late January.

But Thomas A. Scully, administrator of the federal Centers for Medicare and Medicaid Services, said he found "a surprising level of misunderstanding" when he met with the governors on May 14. The Bush administration had wanted an agreement by May 15.

The governors association tries to work by consensus and would adopt a new policy on Medicaid only if two-thirds of the governors endorsed it. Negotiations continue, governors said, because they see Medicaid costs as growing out of control and they desperately want more authority to manage the program.

The governors readily embraced Mr. Bush's proposal to give states power to alter Medicaid benefits, modify eligibility rules and charge higher co-payments.

But the governors said they had reached no consensus, among themselves or with the administration, on the financing of the program, which provides health insurance to 50 million low-income people.

The negotiations are immensely important. Medicaid, the nation's largest health insurance program, pays for one-third of all births, covers one-fourth of all children and finances care for two-thirds of nursing home residents. It is also the fastest-growing item in most state budgets, rising 13 percent last year, even though state revenues were virtually flat.

Medicaid is expected to cost $277 billion this year, of which $158 billion is the federal share and $119 billion comes from the states. The federal share of Medicaid spending varies with a state's per capita income, ranging from a high of 77 percent in Mississippi to a low of 50 percent in 12 states, including New York, New Jersey and Connecticut.

Having rejected elements of President Bush's proposal, the governors are trying to devise an alternative that would make federal costs more predictable while still allowing Medicaid to respond to economic fluctuations and other unforeseen events.

One option being considered by the governors is simply to recalculate the federal allotments every year or two. Each state taking this option would receive a lump sum of federal money, but the amount could be adjusted if, for example, Medicaid costs increased because of a recession, a bioterrorist attack or the discovery of new medicines to treat AIDS or Alzheimer's disease.

Another option would continue the current open-ended commitment of federal money to some of the most vulnerable Medicaid recipients, including poor children whom states are now required to cover. But under this proposal, the federal government would set a cap on its spending for other groups that now account for one-third of all Medicaid recipients.

This hybrid approach, combining Medicaid's current payment formula with a fixed allotment of federal money for some costs, "has gained quite a bit of support among governors" on the negotiating team, Dr. Medows said.

Gov. Paul E. Patton of Kentucky, a Democrat who is chairman of the National Governors Association, has floated a version of the proposal, under which states would accept more financial risk in return for greater freedom to manage the program.

Medicaid benefits are now generally all or nothing. Eligibility standards vary widely from state to state, but states have to cover children under the age of 6 whose families have incomes up to 133 percent of the poverty level. People who qualify for Medicaid usually have access to a package of benefits more extensive than those available in commercial health insurance.

Some governors would offer different Medicaid benefits to different population groups: less generous benefits to children of higher-income families, for example, or a handful of specific drugs for people with the virus that causes AIDS.

Advocates for children and the disabled fear they could lose access to critical services as a result of such changes.

Governors said their top priority was to get the federal government to pay the full cost of providing care to six million low-income elderly people who qualify for both Medicaid and Medicare.

Bush administration officials said this issue should be addressed separately, in discussions to revamp Medicare. That answer does not satisfy the governors, who see health care for the elderly as a federal obligation. Medicaid provides more extensive benefits than Medicare, a program financed entirely with federal money.

People who qualify for both programs account for 12 percent of Medicaid recipients, but more than 30 percent of state Medicaid spending, including $7 billion a year for prescription drugs and $24 billion a year for nursing homes and other long-term care. If Congress adds outpatient drug benefits to Medicare, the federal government would pick up those pharmaceutical costs. But, governors said, they would still be left with their share of the costs for long-term care.

House Republicans said they would soon begin drafting legislation to overhaul Medicaid. Representatives Heather A. Wilson of New Mexico and Billy Tauzin of Louisiana, the chairman of the Energy and Committee Committee, will lead the effort. Ms. Wilson said Congress would consider the administration's proposal and the governors' ideas.

But Mr. Scully, the top federal Medicaid official, said: "It will be hard for Congress to pass any legislation unless it has strong bipartisan support from governors. They need to come to an agreement very soon, or they'll lose this opportunity."