A New Medicaid: New Federal Law Gives State Officials Greater Latitude in Shaping Medicaid Reforms

By Tubbesing, Carl; Wilson, Joy Johnson | State Legislatures, April 2006 | Go to article overview

A New Medicaid: New Federal Law Gives State Officials Greater Latitude in Shaping Medicaid Reforms


Tubbesing, Carl, Wilson, Joy Johnson, State Legislatures


The long-term spending bill that Congress approved earlier this year left the state-federal landscape marred by fiscal craters and public policy debris. The new law "unreforms" the 1996 landmark welfare reform law and shifts several billion dollars in child care, child support enforcement and child welfare costs to the states. It reduces federal funding for Medicaid by $4.8 billion. But there is a bright spot on the horizon. The law includes the most significant legislative reforms in the Medicaid program since 1997.

Medicaid, the nation's health care program for low income individuals and families, is funded jointly by the states and the federal government. The federal government sets the Medicaid ground rules. The states administer the program and have certain latitude to determine who is eligible and what services they offer. Spending on Medicaid is second only to education in state budgets. The federal government spent $315.2 billion in fiscal year 2005--7.6 percent of its total budget. State and federal spending on Medicaid currently is growing by 7.7 percent per year. It's no wonder that state legislators, governors and federal officials are so anxious to control Medicaid costs and to execute substantive reforms to the program.

Congress' budget reconciliation bill for 2005 was a vehicle for both. Changes in the new law, now known as the Deficit Reduction Act of 2005, will save the federal government nearly $1 billion a year over the next five years. It also creates several new programs and alters some older ones. There are four common threads to the reforms. They afford state officials greater latitude in shaping the Medicaid program, at least in certain areas. They attempt a new direction in the country's approach to funding for long-term care. They encourage moving people from institutions, such as nursing homes, to care that takes place in their homes and communities. And they seek efficiencies to control Medicaid spending.

MORE FLEXIBILITY

"The new law is encouraging for state officials because it recognizes that Medicaid really is a partnership between the federal government and the states," says North Dakota Representative Ken Svedjan. "It offers us greater flexibility and emphasizes experimentation and innovation in several important areas."

North Carolina Representative Beverly Earle, who, along with Representative Svedjan, co-chairs NCSL's Medicaid task force, points out that the new law shows greater deference to the states than its predecessor. "There seem to be fewer hoops to jump through," she says. "For example, many legislators find the Medicaid waiver process to be unwieldy and wonder why a successful waiver program simply can't become permanent. In several areas, the new law dispenses with waivers and, instead, allows states to choose from among various optional approaches."

One particularly important new avenue for experimentation is in cost-sharing and benefit design. Many state officials believe that one way to control Medicaid spending is to encourage cost-sharing between the states and recipients with higher incomes. "I feel strongly," says Kansas Representative Melvin Neufeld, "that a legislature should be able to impose deductibles, co-payments or premiums on certain populations as a way of reducing the state's costs, but also to influence the kinds of health care decisions that people make." The new law grants state officials some limited authority to do that. Legislatures now can impose premiums and other cost-sharing arrangements on certain groups by simply amending their state Medicaid plan--without, that is, going through the cumbersome waiver process. They can, for example, require a payment before medical assitance is offered and they can permit providers to withhold care if the recipient does not pay the co-payment.

Under the new law, state officials also have greater flexibility in designing benefit packages for Medicaid recipients. …

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