TRANSFORMATION OF THE MEDICAID

PROGRAM

THURSDAY, JUNE 8, 1995

HOUSE OF REPRESENTATIVES,
COMMITTEE ON COMMERCE,

SUBCOMMITTEE ON HEALTH AND ENVIRONMENT,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:34 a.m., in room 2322, Rayburn House Office Building, Hon. Michael Bilirakis (chairman) presiding.

Members present: Representatives Bilirakis, Hastert, Barton, Upton, Stearns, Klug, Franks, Greenwood, Burr, Bilbray, Whitfield, Ganske, Norwood, Coburn, Bliley (ex officio), Waxman, Brown, Lincoln, Deutsch, Stupak, Wyden, Hall, Towns, Pallone, and Dingell (ex officio).

Staff present: Howard Cohen, majority counsel; Melody Harned, majority counsel; Mary McGrane, majority counsel; Bridgett Taylor, minority professional staff member; and Chris Knauer, minority investigator.

Mr. BILIRAKIS. The hearing will come to order.

Before the Chair goes into his opening statement, I would like to announce that in the interests of time because we know that our distinguished guests don't have really that much time with us, I am going to limit opening statements to myself, to Mr. Waxman, Messrs. Bliley and Dingell. I ask the remaining members please to submit your statement for the record.

And I also would afford the Governors a 10-minute period of time in terms of your statements, although our questioning would be limited to 5 minutes.

Today begins a series of hearings that this subcommittee will have on the Medicaid program. It is a special pleasure for me to welcome this group of distinguished Governors to testify on the state of the Medicaid program and their ideas about restructuring the program. As we all know, many of the Medicaid mandates first originated in this subcommittee. You, our Nation's Governors, then had to finance these expansions, and administer a program which began to devour, you have told us this over the years, your State budgets.

In the past years, following the Medicaid program has been like riding a roller coaster. Beginning in 1987, we have a string of Medicaid expansions, the prototype for Federal unfunded mandates. They were all written into complicated reconciliation bills in the middle of the night. No hearings, no study, no consultation with

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the Governors, no consideration of the impact on Federal and State budgets.

They came in a tidal wave as part of bills like the Omnibus Reconciliation Act of 1987, which we fondly call OBRA-87, the Tax Technicals of 1988, the Family Support Act, the Medicare Catastrophic Coverage Act, OBRA 1989 and OBRA 1990. And they have proved the old adage, that haste sometimes makes waste.

The cumulative impact of what Mr. Bliley has termed "midnight Medicaid mandates" has been staggering, not just for the Federal budget but for the Governors and State taxpayers as well. Medicaid spending has been exploding, growing at an average annual rate of 19 percent between 1990 and 1994. We know that in virtually every State it is the fastest growing part of their budgets.

Certainly, the Governors and the National Governors' Association has been attempting to redress this problem for years. In August 1989, 49 Governors, including then-Governor Clinton of Arkansas, signed a resolution asking Congress for a 2-year freeze on the enactment of further Medicaid mandates. They stated, "Our resolution was based on our increasing concern with the impact of the last 3 years of Medicaid mandates on our budgets, and consequently, on our ability to properly fund education and other important services." Unfortunately, Congress under its old leadership responded to this honest request by then passing eight new unfunded Medicaid mandates in reconciliation bills in 1989 and 1990. So much for the voice of Governors in those years.

This was followed by a second National Governors' Association resolution unanimously approved by all Governors, including thenGovernor Clinton who was on the task force who drafted the resolution, requesting modifications and delays in all of these mandates.

This resolution stated, "Currently, 31 States are struggling with budget shortfalls. A significant part of the fiscal pressure on States is coming from increased costs in the Medicaid program. The increased costs of Medicaid not only represent the generally inflated costs of health care but are exacerbated by 4 years of Medicaid mandates." Let me finish by making some brief comments concerning the extensive micromanagement of this program by the Health Care Financing Administration, HCFA.

For too long, the States have been under the yoke of arcane HCFA regulations, rules, manual instructions, and transmittals. You have been buried under an avalanche of Washington bureaucrats and needless paper. Even when a State attempts to create an innovative program, this is what happens.

And I see that my Governor from Florida, Governor Chiles, is not here, but I think he would appreciate this. This Governors ladies and gentlemen, Governor Chiles, is a copy of the State of Florida's official 1115 waiver application. I might add this is printed on both sides of the sheets, which does not include the thousands of pages of additional backup documentation. This represents the obstacle course, you have gone through it, many of you, that HCFA places in front of States in their attempt to create innovative delivery systems tailored to the needs of their citizens. We need to make this model of top-down HCFA micromanagement and restructure this

program so that States can have the flexibility to create health programs for the 1990's.

Thank you. At this time I would recognize Mr. Waxman for his opening statement.

Mr. WAXMAN. Thank you very much, Mr. Chairman.

This is the first of the historic series of hearings. This committee has been instructed by the Republican Majority to report out legislation by July 14th that cuts Federal Medicaid spending by a staggering $187 billion over the next 7 years.

It is hard to overstate the severity of this cut, as you can see from chart one. Under the Republican cuts, in the year 2002, the growth in Federal Medicaid spending would be slashed from 9.3 percent to 1.9 percent. As a result, Federal payments to the States will drop from projected levels by nearly $57 billion, or 32 percent, in that year alone.

Perhaps in order to mask the effects of these massive cuts, the Republican Budget Committee report stipulates that the remaining Federal Medicaid spending be distributed to the States in the form of a block grant. Under a block grant, over 30 million Americans, more than half of whom are children, would lose their guarantee of health insurance coverage and join the ranks of the uninsured. Over 10 million elderly and disabled Americans would lose their coverage for nursing home and other long-term care.

The Republican Budget Committee's purpose in block granting Medicaid is clear: They want to limit the Federal Government's financial responsibility for health care and for long-term care. They also want a place in the Federal budget to go to in the future to get large savings for additional deficit reduction or additional tax

cuts.

Anyone with any doubt about the fiscal destiny of the Republican Medicaid block grant need only look at the Budget Committee's recommendations with respect to the maternal and child health block grant and the preventive health block grant. These two block grants, first established at the request of the Reagan administration in 1981, are cut by more than three-fifths next year in this Republican budget.

Today's hearing will focus on problems in the current Medicaid program. We can all agree that the Medicaid program has many problems and can be improved. But the real issue before this committee is not whether the current program has problems or what those problems are. The real issue is how in the world are the States going to be able to handle the loss of $187 billion in Federal Medicaid funds over the r.ext 7 years and what this will mean for the people who are relying on this program.

Unfortunately, we have no legislative proposal before us, even though we have only 5 weeks until we have to report out our recommendations. When we do I hope that the chairman will reserve at least as much hearing time for his proposal as he has allocated to an examination of the current program.

There are issues which we can start discussing today even in the absence of legislative language. We don't need legislative language to estimate the effect of the proposed cuts in coverage.

The Kaiser Commission's independent analysis of the Medicaid cuts in the House Republican budget contains a summarized in

chart, No. 3. Under the Republican cuts, even if States hold the growth in spending for beneficiaries to the rate of inflation, nearly 4 million Americans will lose Medicaid coverage in the year 2002 alone.

In the States represented here this morning, by Governors who are testifying, the numbers of Americans losing coverage would range from over 30,000 in Utah to over 115,000 in Tennessee, and in Florida, the chairman's home State, the number of residents losing coverage would be over 430,000.

Of course there is no way to know who those 4 million Americans will be. That is the whole point of the block grant. It is a mechanism that leaves the States with the burden of deciding whether to terminate coverage for the elderly or the disabled or mothers and children, or all of the above.

Regardless of how efficient they are, unless they replace the lost Federal Medicaid dollars with their own funds, they will have no choice but to cut back on coverage.

The Kaiser Commission's analysis assumes States will continue to spend their own funds in order to draw down Federal Medicaid matching funds.

Of course there is much opposition to that requirement among proponents of block grants. If States are no longer required to spend their own funds in order to get Federal Medicaid dollars, and the Federal Government is slashing its spending, then the total amount available for health and long-term care for vulnerable Americans will shrink even faster.

The results for coverage are devastating. Even if States hold their own Medicaid spending at 1995 levels, the number of Americans who will lose coverage in the year 2002 will not be just 4 million, but 9 million. And I have chart No. 4 which shows in the four States led by the Republican Governors here today, the numbers losing coverage would range from 44,000 in Utah to 313,000 in Illinois and 728,000 from Florida. Obviously, if States decide to reduce their spending below 1995 levels, the loss in coverage would be even greater.

Mr. Chairman, we have many vital issues to discuss today. I hope that we will have a full opportunity to have hearings on what is a major rearrangement of the Medicaid program which—in 5 weeks we are supposed to recommend to the Congress.

Let's have that proposal on the table. Let's hold hearings on that proposal. Let's get the Governors, these Governors or others, to come back and tell us what they think of those specifics, because that is what we are going to need to do, is adopt specific legislative changes cutting large numbers of Americans out of the Medicaid program, throw them on the rolls of the uninsured-large numbers of people who are poor, and among the most vulnerable in our population. The elderly, disabled, and children are the ones who will be affected.

I would like to ask unanimous consent that I put in a much more extensive opening statement. We have a number of charts. We will make that opening statement and the accompanying charts available to the press and to members of the public, because I think we need to get a full airing of what is at stake in this task before us. Mr. BILIRAKIS. Without objection.

[The prepared statement and attachments of Hon. Henry A. Waxman follow:]

PREPARED STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

This is the first of a historic series of hearings. This Committee has been instructed by the Republican majority to report out legislation by July 14 that cuts Federal Medicaid spending by a staggering $187 billion over the next 7 years.

It is hard to overstate the severity of this cut. As you can see from chart #1, under the Republican cuts, in the year 2002, the growth in Federal Medicaid spending would be slashed from 9.3 percent to 1.9 percent. As a result, Federal payments to the States will drop from projected levels by nearly $57 billion, or 32 percent, in that year alone.

In 1996 which happens to be an election year-the Republican cuts are relatively small. But as you can see from chart #2, they quickly explode to unmanageable levels.

Perhaps in order to mask the effects of these massive cuts, the Republican Budget Committee report stipulates that the remaining Federal Medicaid spending be distributed to the States in the form of a block grant.

Under a block grant, over 30 million Americans—more than half of whom are children-would lose their guarantee of health insurance coverage and join the ranks of the uninsured. Over 10 million elderly and disabled Americans would lose their coverage for nursing home and other long-term care.

The Republican Budget Committee's purpose in block granting Medicaid is clear. They want to limit the Federal government's financial responsibility for health care and for long-term care. They also want a place in the Federal budget to go to in the future to get large savings for additional deficit reduction or additional tax cuts. Anyone with any doubt about the fiscal destiny of the Republican Medicaid block grant need only look at the Budget Committee's recommendations with respect to the Maternal and Child Health Block Grant and the Preventive Health Block Grant. These two Block Grants were first established at the request of the Reagan Administration in 1981 and are currently funded at $684 million. The Budget Committee wants them cut by $421 million, or more than three fifths, next year, and then freeze them at that level.

Today's hearing will focus on problems in the current Medicaid program. We can all agree that the Medicaid program is not perfect. In fact, we in this Subcommittee spent the last two years unsuccessfully trying to improve it in the context of health care reform. So it is important that we continue to look closely at the existing program to see where improvements might be made.

But the real issue before this committee is not whether the current program has problems, or what those problems are. The real issue is how in the world the States are going to handle the loss of $187 billion in Federal Medicaid funds over the next 7 years.

In short, what we should be holding hearings on is the specific Republican proposal to block grant the Medicaid program. Unfortunately, we have no concrete legislative proposal before us, even though we have only 5 weeks until we have to report out our recommendations.

Of course, any proposal to take this much Federal money away from the States, and to radically alter an insurer that covers so many Americans, will require careful scrutiny. I hope that the Chairman will reserve at least as much hearing time for his proposal as he has allotted to an examination of the current program.

There are some issues which we can start discussing today, even in the absence of legislative language.

We don't need legislative language to estimate the effect of the proposed cuts on coverage. The privately-funded Kaiser Commission on the Future of Medicaid, using the expertise of health care economists at the Urban Institute, has provided some valuable information on this point.

The Kaiser Commission analysis of the Medicaid cuts that the House Republican budget contains is summarized in chart #3. Under the Republican_cuts, even if States hold the growth in spending per beneficiary to the rate of inflation, nearly 4 million Americans will lose Medicaid coverage in the year 2002 alone. In the States represented here this morning by Republican Governors, the numbers of Americans losing coverage would range from over 30,000 in Utah to over 115,000 in Tennessee. In the State represented by the Chairman, the number of residents losing coverage would be over 430,000.

Of course, there is no way to know who those 4 million Americans will be. That's the whole point of the block grant. It is a mechanism that leaves the States with