Bush FY2008 Budget:
Analysis of SCHIP and Medicaid Provisions
SCHIP
The State Children’s Health Insurance Program (SCHIP) is set to expire at the end of fiscal year (FY) 2007 (September 30), making the reauthorization of SCHIP one of the most important health care issues that Congress will address this year. As such, the President’s 2008 budget was expected to include information about future federal funding and policies for the program. But while his budget does mention SCHIP, it does so only briefly, and without much detail.
The President’s budget offers the following provisions regarding SCHIP:
- Reauthorization: The President proposes to reauthorize SCHIP for another five years, through 2012.
- Funding: The President assumes that SCHIP will be reauthorized with funding at the same level it received in FY2007, approximately $5 billion per year. The President proposes to add only $4.8 billion in federal funding for SCHIP over the next five years above the baseline allotment. This level of funding is significantly less than is needed simply to continue covering current SCHIP enrollees, let alone expand coverage to any of the millions of uninsured children.
- Limiting Eligibility: SCHIP was created to provide health coverage to low-income, uninsured children (children in families with incomes less than twice the federal poverty level, or $34,340 for a family of three in 2007). Over the past 10 years, several states have used the flexibility built into SCHIP to provide coverage for children in families with incomes above twice the poverty level. States have also obtained waivers to extend coverage to parents, pregnant women, and other adults.
The President’s budget proposal discusses “refocusing” the program on low-income children with family incomes below twice the poverty level, although it does not provide details about how this is to be accomplished. This proposal appears to contradict the prevailing political winds, as governors in both parties across the country are seeking to build on the success of SCHIP and Medicaid to expand coverage to more uninsured people in their states. There is no “score” attached to this proposal.
Budget Impact: The proposal for SCHIP reauthorization is estimated to cost an additional $5 billion over five years.
Families USA’s Commentary on the President’s SCHIP Proposals
The President’s budget fails to demonstrate a strong commitment to supporting this very popular and successful program. The funding level proposed falls far short of what is needed to allow states to sustain even current enrollment in SCHIP, let alone enroll any of the nearly 7 million children who are already eligible for SCHIP or Medicaid but who remain uninsured. Moreover, the proposal ignores growing national sentiment that covering children is the right thing to do and contradicts the President’s own statements about the importance of finding and enrolling the uninsured children who are already eligible for these programs. Finally, the suggestion that states should reduce their eligibility levels for children or cut parents and pregnant women from the program flies in the face of the goal of reducing the number of uninsured in this country, and it undermines what governors of both parties are attempting to accomplish with coverage expansions.
Medicaid
The President’s 2008 budget for Medicaid continues a trend seen in his past budgets: proposing a laundry list of ways to shift costs from the federal government to the states and to low-income beneficiaries. In addition, the budget proposes significant changes to the rules about how Medicaid pays for prescription drugs.
Proposals to Shift Costs to the States and to Beneficiaries
- Reduce Medicaid Administrative Match Rates: Currently, states can receive higher reimbursements—up to 90 percent—for certain administrative costs, such as costs related to the development of information technology (IT) systems, operation of claims payment systems, and services performed by skilled medical professionals.
The President’s proposal would cut the reimbursement rate that states receive for Medicaid administrative costs to 50 percent across the board. This proposal represents a very significant reduction in federal funds to states, since state Medicaid agencies rely on the higher administrative match to make important improvements in their Medicaid programs. The Administration has touted the virtues of health information technology investments numerous times, and investing in Medicaid data systems should be part of this effort. Moreover, implementing the DRA citizenship documentation requirement has produced many new IT burdens that states must work though, and cutting administrative reimbursement only exacerbates these burdens [legislative change].
Budget Impact: This proposal would cut $945 million in the first year and $5.3 billion over five years.
- Eliminate Medicaid Graduate Medical Education: The Administration’s proposal would eliminate Medicaid as a source of funding for physician training through graduate medical education, reasoning that it is outside Medicaid’s primary purpose of providing health care to low-income people [administrative change].
Budget Impact: This proposal would cut $140 million in the first year and $1.8 billion over five years.
Budget Impact: No cost estimate is provided.
- Cut Duplicative Administrative Costs: The President’s budget seeks to prohibit states from billing the federal government for administrative Medicaid costs that the Administration says are already funded through the TANF block grant [legislative change].
Budget Impact: This proposal would cut $280 million in the first year and $1.8 billion over five years.
- Require State Reporting and Tie Grants to Performance: The budget proposal would require states to report their performance on certain measures to CMS, and states’ performance would be tied to federal Medicaid reimbursement [administrative change].
Budget Impact: This proposal would save $0 in the first year and $330 million over five years.
- Lower Reimbursement for Targeted Case Management: The budget proposes to lower reimbursement for targeted case management from a state’s full Medicaid matching rate to the flat 50 percent administrative matching rate [legislative change]. Currently, many states’ full Medicaid matching rates are higher than 50 percent.
Budget Impact: This proposal would cut $200 million in the first year and $1.2 billion over five years.
- Cap Payment to Government Providers: The budget proposes to stop certain state financing mechanisms that divert federal funds from government providers to state governments. The Administration also proposes to limit payments to government providers to no more than the cost of furnishing a particular Medicaid service to an individual [administrative change]. It is unclear how or whether this proposal differs from the proposed regulation issued by CMS in January 2007.
Budget Impact: This proposal would cut $530 million in the first year and $5 billion over five years.
- Cut Services for People with Disabilities: The budget proposal would eliminate reimbursement for certain rehabilitation services for which states are now receiving funding through Medicaid [administrative changes].
Budget Impact: This proposal would cut $230 million in the first year and $2.3 billion over five years.
- Eliminate Certain School-Based Services: This proposal would prohibit federal funding for transportation and administrative costs related to Medicaid services that some children receive at school [administrative change].
Budget Impact: This proposal would cut $615 million in the first year and $3.6 billion over five years.
- Restrict Provider Taxes: The budget proposal would clarify and limit how Medicaid’s provider tax operates [administrative change]. In 2006, Congress enacted legislation limiting the Administration’s ability to restrict provider taxes, so the move to “clarify” the provider tax is another attempt by the Administration to restrict this funding mechanism.
Budget Impact: This proposal has no costs associated with it.
- Limit Allowable DSH Costs: The budget would codify in regulation which costs states may claim for reimbursement under the Disproportionate Share Hospital (DSH) program [administrative change].
Budget Impact: This proposal has no costs associated with it.
- Third Party Liability: The budget proposal would require states to collect payments for prenatal or pediatric services owed by third party payers, collect medical child support when the non-custodial parent has an obligation to provide health insurance, and recover Medicaid expenditures from beneficiary liability settlements [legislative change].
Budget Impact: This proposal would save $10 million in the first year and $85 million over five years.
- Stop “Pay and Chase”: This proposal would require states to seek reimbursement for all pharmacy claims from any applicable third party payers before allowing Medicaid to pay the claim [administrative change].
Budget Impact: This proposal has no costs associated with it.
- Redefine the Home Equity Limit: The DRA allows states the option of increasing the home equity limit from $500,000 to $750,000 in order for individuals to qualify for Medicaid long-term care services. In areas of the country that have experienced inflated home prices in the last few years, even low-income individuals may have homes worth more than $500,000. This budget proposal would eliminate this state option and codify the home equity limit at $500,000, thereby making it harder for people to qualify for long-term care services under Medicaid [legislative change].
Budget Impact: This proposal would cut $70 million in the first year and $430 million over five years.
Prescription Drug Reimbursement Proposals
In addition to shifting costs to states and beneficiaries, the President’s budget contains a number of changes to how Medicaid pays for prescription drugs.
- Multiple Source Drugs: Building on changes contained in the DRA, this proposal would reduce the federal upper limit reimbursement for multiple-source drugs to 150 percent of the average manufacturer price of the lowest-priced drug in the group [legislative change].
Budget Impact: This proposal would save $160 million in the first year and $1.2 billion over five years.
- Allow Optional Managed Formularies: The budget proposal would allow states to use “private sector management techniques” to negotiate greater discounts with prescription drug manufacturers [legislative change].
Budget Impact: This proposal would save $160 million in the first year and $870 million over five years.
- Replace the Best Price Rebate: This budget proposal would replace the use of “best price” in the Medicaid drug rebate formula with a budget-neutral flat rebate [legislative change].
Budget Impact: This proposal has no costs associated with it.
- Require Tamper Resistant Prescription Pads: This proposal would require providers to use “tamper resistant” prescription pads in states where hand-written prescription pads are still used [legislative change].
Budget Impact: This proposal would save $35 million in the first year and $210 million over five years.
Proposals that Increase Federal Medicaid Spending
The President’s budget does contain a few proposals that would increase federal spending on Medicaid. These include the following:
- Extension of Transitional Medical Assistance: The budget proposal would allow Transitional Medical Assistance (TMA) to continue through September 30, 2008. The TMA program extends Medicaid eligibility for up to 12 months after a person enters the workforce and loses TANF cash benefits.
Budget Impact: This proposal would cost $460 million in the first year and $665 million over five years.
- Extension of the Qualified Individuals Program: This proposal would allow the Qualified Individuals (QI) program to continue through September 30, 2008. This program helps Medicare beneficiaries with incomes of between 120 and 135 percent of the federal poverty level and with limited financial resources pay their Medicare Part B premiums.
Budget Impact: This proposal would cost $425 million in the first year and $425 million over five years.
- Extension of the Refugee and Asylee Exemption: This proposal is actually within the budget proposal for the Social Security Administration’s (SSA), but it affects the Medicaid program as well. The proposal would extend the exemption period that refugees and asylees have to complete the citizenship application process from seven years to eight years. Refugees and asylees would be eligible for Medicaid during this time period.
Budget Impact: This proposal would cost $33 million in the first year and $99 million over five years.
Miscellaneous Provisions
- Asset Verification Demonstrations: The Social Security Administration (SSA) runs a pilot program that uses electronic financial records to verify an applicant’s assets to determine his or her eligibility for Supplemental Security Income (SSI). The budget proposal would require state Medicaid agencies to establish similar pilot programs to verify assets of Medicaid applicants in locations where the SSA pilot programs operate [legislative change].
Budget Impact: This proposal would save $65 million in the first year and $640 million over five years.
- Extension of the 1915(b) Waiver Period: The budget proposes to extend the renewal period for Section 1915(b) waivers (“freedom of choice” waivers) from two ars to three years [legislative change].
Budget Impact: This proposal has no costs associated with it.
- HIPAA Modifications: This proposal would ensure that people receiving Medicaid and SCHIP benefits would have protections under the Health Insurance Portability and Accountability Act (HIPAA), which increases the continuity, portability, and accessibility of health insurance [legislative change].
Budget Impact: This proposal has no costs associated with it.
Families USA’s Commentary on the President’s Medicaid Proposals
The President’s FY 2008 budget proposes cutting almost $26 billion from Medicaid over the next five years. If enacted, these cuts would place tremendous financial constraints on states. Although state budgets are mostly healthy, and the growth of their Medicaid programs has slowed, in the face of these new federal financial pressures, states will be hard-pressed not to make cuts to Medicaid that will reduce access to care for the people who rely on the program. Many of these proposals would restrict the types of services that can be reimbursed under Medicaid, so states will almost assuredly cut benefits, and people will lose access to critical services.
The President’s FY 2008 budget contains an astonishing number of proposals that appear to be identical to items introduced in his FY 2007 budget but that were never implemented, either legislatively or administratively. However, his new proposals contain minimal detail, which makes it difficult to ascertain if they are indeed identical. The lack of detail also makes it difficult to fully understand the implications that these proposals have for Medicaid. Many of these proposals would impose new requirements on states, cut funding, or “redefine” or “clarify” the kinds of services for which states may claim reimbursement under Medicaid.
In addition to the specific proposals discussed above, the President has mentioned another new health care reform proposal, although with little details. In his State of the Union address, the President discussed a plan to allow states to use Medicaid disproportionate share hospital (DSH) payments to fund proposals to expand health care coverage to the uninsured. Although we had hoped that the President would present more details about the plan in his budget, the “Affordable Choices” initiative is discussed only in the vaguest terms in the FY 2008 HHS budget document. These health care proposals must be “state-based” and “budget neutral” and must “not create a new entitlement.” State proposals to use this public spending source would need to “avoid costly and unnecessary medical visits” and emphasize “upfront, affordable private health insurance options.” Secretary Leavitt is directed to work with Congress and the states to flesh out this initiative, so details on this proposal may or may not be forthcoming.
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