Nov/Dec 2009

State News: August 2009



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Health Care Reform Heats Up

By Nell Etheredge and Chris Whatley, CSG Washington office
August is typically the month when Congress flees Washington and the media turn their attention to other matters. But an increasingly volatile debate on health care reform has transformed this August into a potential turning point for the state-federal partnership.
While heated exchanges at town hall meetings have drawn media attention, a small group of senators and legislative staff are quietly working behind the scenes to craft a compromise on health care reform that may determine state Medicaid spending, one of the largest state expenditures second only to education in expenditures for most state budgets, for decades to come.
Although the House and Senate reform plans have yet to be finalized, two of the three health care proposals in Congress passed out of their respective House and Senate committees. The Senate Finance Committee is negotiating the third proposal behind closed doors. All the proposals apparently will rely on the states to share the cost of covering the uninsured through a dramatic expansion of Medicaid.
That expansion could increase enrollment by 11 million people across the country and add billions in new costs to already strained state budgets, according to early estimates. In addition, both the House and the Senate appear to be committed to including maintenance of effort requirements that would restrict the ability of states to alter or restrict Medicaid programs in the future.  
The House bill initially provided full federal funding for Medicaid expansion. Following negotiations between Democratic leadership and members of the fiscally conservative Blue Dog Coalition, however, the House Energy and Commerce Committee passed an amendment that requires states to share part of the cost. This amendment would provide full federal support for the first two years of a Medicaid expansion, after which states will be expected to cover 10 percent of the costs for the expanded population beginning in 2015.
The Senate Finance Committee plan is still under wraps as Chairman Max Baucus of Montana works to craft a compromise plan to keep the total cost of the bill under $1 trillion by working with the so-called gang of six—moderate senators Baucus, Jeff Bingaman of New Mexico, Kent Conrad of North Dakota, Mike Enzi of Wyoming, Charles Grassley of Iowa and Olympia Snowe of Maine. Observers on Capitol Hill expect the Senate will hew close to House colleagues in expanding Medicaid up to 133 percent of the federal poverty level for families, but it is less clear if and how the committee will expand coverage to childless adults.
Most observers expect the Senate to require states to shoulder much more of the cost for expanding Medicaid, possibly by subsidizing states for the first few years of expansion, but then requiring states to pay for the costs of the expanded population at their existing Federal Medical Assistance Percentage rates.
Other aspects of the proposed reforms may help states save costs. An individual health insurance mandate, which is included in all the current proposals, could lead to a reduction in costs incurred by uninsured patients visiting public hospitals and clinics. In addition, the House bill takes measures to coordinate care and reduce costs for dually eligible beneficiaries in Medicare and Medicaid, the single most costly category of state Medicaid programs. Finally, promoting primary and preventive care could increase overall patient health and may lower costs for states in the long run.
Baucus committed to negotiate throughout the August recess. Regardless of what these negotiations yield, the proposals Congress will consider when members return will have the biggest potential impact on state budgets since the enactment of the Great Society programs of the 1960s.

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