This story is taken from Medical at sacbee.com.

States warn of Medicaid fund crisis

Governors say the system could collapse in 10 years.

By Margaret Talev -- Bee Washington Bureau
Published 2:15 am PST Monday, February 21, 2005

"Even in the worst-case scenario, Social Security isn't going to go broke until 2042," said Virginia Gov. Mark Warner, a Democrat and chairman of the National Governors Association, who is among a group of governors in talks with the Bush administration and Congress over how to reshape Medicaid and get a grip on spending.

"Medicaid is going to go broke long before that. At its current rate, it will break the bank for states in the next 10 years."

Started 40 years ago for welfare recipients, Medicaid has expanded so broadly that it now covers as many as 54 million Americans, slightly more than the number drawing on Social Security. And in the face of spiraling health-care costs and shrinking resources from Washington, states are finding it harder to pay what the federal government won't cover.

Annual costs to states and the federal government have swelled from about $225 billion in 2001 to a projected $324 billion this year. They are expected to continue at a pace that far exceeds growth in state revenue. States on average are now spending more each year on Medicaid than on K-12 schools.

Meanwhile, President Bush has proposed cutting the federal share of Medicaid by as much as $60 billion over the next decade as he struggles to pay for the war in Iraq and reel in domestic spending - a plan states and several members of Congress say they will fight.

Without big changes at the federal level, experts say, the squeeze on states will only get worse as more low-paying service industry jobs are created in which employers offer little or no subsidized insurance; as more expensive prescription drugs come on the market; and as aging baby boomers require in-home care and nursing-home care, which make up disproportionately high shares of the costs.

The president's new health and human services secretary, former Utah Gov. Mike Leavitt, told lawmakers last week that Americans could spend $5 trillion on the program in the next decade and that at its current rate of growth Medicaid is unsustainable.

Governors' fears about where all this is leading transcend party lines. Texas Gov. Rick Perry, a Republican from the president's home state, told industry officials recently that growing health-care cost pressures could push his state and others toward bankruptcy without federal and private-sector intervention.

North Carolina Gov. Mike Easley, a Democrat, wrote in a letter this month to the president that "the state does not have the resources to compensate for federal cutbacks."

Medicaid covers nearly half of that state's births and a majority of nursing home residents.

Just about every state over the past few years has cut off higher-end low-income recipients who aren't protected by federal mandates; has cut fees paid to doctors, hospitals and pharmacies; has shifted recipients into managed care; or has begun charging co-payments on doctor visits and prescription drugs.

In its annual state survey on Medicaid, the Kaiser Family Foundation in October found 47 states preparing again to cut or freeze payments to providers, while 15 states planned to further tighten eligibility. Tennessee's governor decided this year he had no choice but to cut off more than 300,000 people after Medicaid costs swelled to about one-third of the state budget.

In California, Gov. Arnold Schwarzenegger is looking at instituting monthly premiums of up to $10 for adults in the state's Medi-Cal program and capping dental benefits at $1,000 a year.

Other states, saying they can't go much further on big-ticket items, are trying to trim around the edges, experimenting with disease prevention and management programs targeting asthma, diabetes and other problems whose costs can add up. A few states actually planned to expand eligibility, given how far they'd gone in the other direction.

"Medicaid is a huge issue, and I guess the thing we emphasize is it's more than just a budget issue," said Joy Johnson Wilson, health policy director for the National Conference of State Legislatures.

"If you ended Medicaid tomorrow, the people would still exist and they'd still be sick and they'd still need health care. The question is, how do we cover the mix, and who's going to pay?"

The Bush administration says it wants to continue to close loopholes that allow states to squeeze more than their allotted share out of the federal government. In exchange, the administration says it wants to give states more freedom to decide how to save money, and that it wants to make it harder for aging Americans with money to transfer their assets to their children and get Medicaid to pay for their nursing home care.

Regardless of what Congress does about the president's long-range plans, several states are bracing this year for lower federal matching funds.

A couple of states are contemplating radical reform.

In Florida, the president's brother, Gov. Jeb Bush, wants to turn many Medicaid patients over to private insurers. But some critics note that in recent years private insurance premiums have risen even faster than Medicaid costs.

In South Carolina, which has greatly pared its Medicaid spending over the past few years under scrutiny from the federal government, Republican Gov. Mark Sanford is hoping to take advantage of the president's call for an "ownership society" to transfer more health-care decision making - and expenses - to the state's 850,000 Medicaid recipients.

South Carolina's proposal, which is still in the concept stage, would need a series of waivers from the federal government to be implemented, and is expected to draw heavy scrutiny from patient advocates. Loosely, though, the idea is to give debit cards to more than half of those on Medicaid, with preset dollars from the state and federal government, and the amounts to be determined by actuaries.

Recipients would decide for themselves how to use that money, which could be spent only on doctors' visits and medicine, and once their monthly or annual allotment was gone they would be on their own.

Patients with chronic costly or catastrophic illnesses would be exempt. South Carolina officials say the idea is to give recipients more incentive to take better care of themselves and treat their medical conditions early on, while the bills are cheaper.

"We believe it is in keeping with the administration's desire to encourage personal responsibility," said Robert Kerr, director of the state's Department of Health and Human Services.

Warner, the National Governors Association chairman, has not endorsed the South Carolina plan. But he said now is the time for the White House and Congress to encourage states to try radical reforms.

"With Congress focused on Social Security, on the war in Iraq and other issues, trying to get all the lawmakers focused and up to speed on Medicaid is going to be one of our challenges," Warner said.

"What you may see is a series of reforms around Medicaid, using State X as a laboratory for total Medicaid reform. Looking at the states as being labs has got to be one of the options out there."

About the writer:

• The Bee's Margaret Talev can be reached at (202) 383-0010 or mtalev@mcclatchydc.com.

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