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Background on Proposed Reductions to Medicaid

August 3, 2005

In April, Congress agreed on a budget resolution that will require changes to mandatory entitlement programs that will reduce spending by $10 billion over the next five years. While they are not required to take all of these savings from Medicaid, it is expected that Medicaid will be a prime target. The specifics of these changes to Medicaid will be considered by the Senate Finance Committee and the House Energy and Commerce Committee in September. Both Committees are expected to report their bills by September 16. Both will be considering a range of options, many of which have been developed by the Bush Administration and its recently formed Medicaid Commission. In addition, a bipartisan agreement developed by the National Governors Association (NGA) is the expected to have a major impact on the process.

Click here to read a summary of the NGA proposal.

It is important to note that the changes being developed by Congress is September are not expected to include long-term systemic reforms of the program. These changes are not expected until 2006 at the earliest, after the HHS Medicaid Commission completes its work.

Congress is expected to consider the following ideas for reaching the required $10 billion reduction goal.

Advocates are urged to send a letter to your U.S. Senators and House member, regarding this issue.  Enter your zip code below to access a sample letter on this issue and a list of your representatives to contact now.  If you do not see the box for entering your zip code, click here

Increases in Beneficiary Co-Payments 

The House Energy & Commerce Committee will be looking closely at allowing states to impose higher co-payment requirements on Medicaid beneficiaries. The NGA endorsed a similar proposal as part of its Medicaid agreement. State Medicaid programs typically allow -- and in some cases require -- services to be rendered to beneficiaries who are unable to meet even minimal co-payment requirements for services. This includes filling of prescriptions at a pharmacy counter (i.e., requiring dispensing if a Medicaid recipient is not able to pay).

NAMI is extremely concerned about the potential impact of such a proposal -- especially on children and adults living on SSI who are already at the bottom of the economic spectrum. A preliminary analysis by the Congressional Budget Office (CBO) suggests that most of the savings from such a proposal would not come as a result of increased revenues, but decreased utilization of health care services by Medicaid beneficiaries. Any proposal for higher beneficiary cost sharing could serve as a disincentive for these individuals to seek needed services. Thus, this proposal is expected to generate significant political controversy.

Reductions in State Matching Rates for Targeted Case Management

Earlier this year, the Bush Administration proposed reforming the matching rate provided to states for targeted case management services. Instead of paying states under the regular Medicaid match formula (each state has a different rate that varies from 50 cents to 80 cents on the dollar) all states would receive an administrative match of 50 cents. Such a proposal has the potential to disproportionately impact poorer states that currently receive a higher match rate for targeted case management. It could result in decisions by these states to no longer cover these services. This is particularly troublesome for NAMI because some states use targeted case management to finance assertive community treatment (ACT) programs under Medicaid.

Changes to Pharmaceutical Pricing and Reductions on Pharmacy Dispensing Fees

The Bush Administration proposed earlier this year to reform the way in which Medicaid pays for prescription drugs by shifting away from a system known as "Average Wholesale Price" (AWP) to "Average Sales Price" (ASP). Such a proposal is designed to more accurately reflect actual prices paid on the market, rather than complex formulas that rarely reflect existing market conditions. This proposal also includes changing the fees paid to retail pharmacists for filling a prescription for a Medicaid recipient.

Most of these proposals would not impact current efforts by states to address cost controls in Medicaid by restricting access to medications through restrictive formularies. At the same time, some members of Congress are pushing for increases in supplemental rebates paid by state Medicaid programs as a means of achieving federal savings to the program.

NAMI is concerned that any effort to increase supplemental rebates could result in increased proliferation of state policies that restrict access to specific products. This occurs in a climate in which some states are already imposing prior authorization or step therapy on manufacturers who do not pay a state the highest supplemental rebate. These policies serve to prevent some Medicaid recipients from being able to access the specific medications that work for them (by placing administrative and programmatic barriers to access). This is especially the case with the class of atypical anti-psychotic medications commonly used to treat schizophrenia.

Reductions in State "Intergovernmental Transfers"

For more than 15 years, Congress has been trying to clamp down on the ability of states to impose taxes on providers and local governments that are designed to artificially inflate state Medicaid expenditures and thereby draw down additional federal matching funds. At the same time, some of these payments and transfers are viewed as legitimate efforts to help certain safety net providers. This is a very complex area where federal efforts at reform are difficult to enact without harming legitimate Medicaid expenditures. It is unclear at this point if reforms of Intergovernmental Transfers will be enacted this year.

Curbs to Asset Transfers for Nursing Home Residents 

 Concern has been growing in recent years in Congress and the Bush Administration about the ability of families to transfer assets among family members in order to allow a relative in need of nursing home care to qualify for Medicaid. While there is general agreement on the need to prevent middle class families from using asset transfers to quickly accomplish Medicaid eligibility, there is concern about how to ensure that people are not inappropriately penalized as the transition to new rules occurs.

Fraud and Abuse Protections and Increased Enforcement 

 Both the House and Senate Committees are examining ways in which enhanced enforcement and oversight of Medicaid providers at both the state and federal level can result in savings by clamping down on fraudulent payments. The idea is that hiring and training more auditors and fraud examiners will result in more prosecutions of providers who submit fraudulent claims. As with all other proposed reforms to Medicaid, any and all proposals must be assessed for projected savings by the Congressional Budget Office.