Under the Gun

The administration, the National Governors Association and Congress are negotiating over ways to contain what policy analysts describe as the explosive growth in Medicaid costs.

The president's budget proposal for fiscal year 2006 identified $60 billion in savings over 10 years. Medicaid savings is one of the key sticking points separating the House and Senate budgets reported by the two chambers in March. Before the Senate Budget Committee reconciliation instruction was altered on the Senate floor, it would have directed the Senate Finance Committee to trim $15 billion from its programs; $14 billion was expected to come from Medicaid cuts.

The FY 2006 budget approved by the Senate contains no Medicaid cuts but does include an amendment by Sen. Gordon Smith, R-Ore., protecting Medicaid from budget cuts and calling for the establishment of a commission to study the program before enacting major reforms.

In the House, the budget plan calls for the Energy and Commerce Committee to achieve Medicaid savings of $20 billion. The House Ways and Means Committee, which oversees most of the Medicare program, was also directed to cut $18.7 billion over five years from its programs.

Now the House and Senate must reconcile the differences in the two budget packages.

Medicaid is now considerably larger than Medicare, covering about 53 million people, or 18 percent of the United States population. Analysts project that federal spending on Medicaid will rise 41 percent over the next five years, from $186 billion in 2005 to $262 billion in 2010. Federal and state spending on Medicaid has grown an average of 10 percent a year over the last five years.

For almost every state, however, the crisis is right now. This fiscal year, 47 states and the District of Columbia will cut payments to health care providers, according to the Henry J. Kaiser Family Foundation.

Fifteen states will reduce the number of people on their Medicaid rosters, and nine states will cut benefits for the remaining eligible recipients. Given these reductions, any compounding reductions from the federal government will hurt the states even more. So far this year, our industry has been battling state-level proposed budget cuts, and even proposed elimination of the entire DME benefit in Missouri.

Part of what is fueling Congress' desire to cut Medicaid is a budget tactic that has come under scrutiny — so-called intergovernmental transfers. The White House says the federal government could save as much as $20 billion over the next five years by clamping down on what it sees as fraudulent or abusive budget tactics certain states employ.