Bush's Medicaid plans could be worse.

The communications departments of the long-term care associations have been working overtime this spring, papering Washington with news about budgeted cuts in Medicaid spending proposed by the Bush administration. The proposals are described as limiting access to long-term care for hundreds of thousands of Americans and costing state governments vast sums. Citizen interest groups and press reports claim that the proposals finance federal tax cuts for the wealthy by cutting services to low-income Americans.

This can be looked at from a very different perspective. In the short run, the administration actually proposes to increase federal Medicaid spending by 2.2% to $198 billion for FY 2006. The White House proposes reducing federal Medicaid spending by $14 billion over the next five years; this would mean roughly a loss of slightly less than 1.5% of the nearly $1 trillion to be spent on Medicaid during that period.

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According to Health and Human Services Secretary Mike Leavitt, a former governor of Utah, savings in Medicaid spending proposed by the administration for the next several years come from four sources:

* closing administrative loopholes that allow states to increase their federal matching funds (One method Leavitt singled out is used by some states to make "ghost payments" to nursing homes and other healthcare providers, which are returned to the state treasury after they have been credited to the state's Medicaid match);

* transferring a substantial portion of public expenses for medications from Medicaid to the newly enacted Medicare Part D (details of which are very much in limbo at this point);

* tougher enforcement of eligibility standards to reduce access to Medicaid by middle-class elderly and encourage purchase of private long-term care policies; and

* the perennial federal government fantasy of economic growth that will sufficiently reduce the uninsured, low-income population to allow millions of Americans to escape from dependence on Medicaid.

Regardless of whether the administration's crystal ball is cloudy or clear, the budget predictions for Medicaid spending over the next several years have more to do with public relations than with real dollars and cents. The federal budget under debate by Congress omits large categories of anticipated government spending to give an impression that growth in the federal deficit has been reined in. These omitted items, including all costs of foreign military operations (President Bush's beloved "supplementals"), will be included in the more crucial appropriations process, a legislative exercise that is guided but not dictated by federal budget projections. If actual federal Medicaid costs run higher than the budget projections, the difference can be made up through appropriations. The President's budgeted "cuts" thus amount to little more than a White House wish list of what the administration hopes will occur.

The "wish list" aspect of White House budget proposals for Medicaid is vividly illustrated by its description of spending plans after 2010. The President's budget proposes to save an additional $46 billion in federal funds on Medicaid and related insurance for low-income children through 2015, but roughly $15 billion of these "savings" would be returned to the Medicaid SCHIP program for children. The budget also lacks details on how the "savings" will be achieved, although administration officials suggest that one method might be a block grant system for Medicaid that would cap funding for certain categories of recipients.

Despite all this, a fundamental reality is driving the administration's wish list for changes in Medicaid: The program is not financially sustainable. Administration economists at recent budget hearings reported that unchecked annual costs for Medicaid may surpass $1 trillion by 2050. The federal government might be able to fund its share of Medicaid if the economy expands at a very healthy rate for the next 40 years. State governments, however, lack a revenue source that would provide anywhere near the necessary matching funds.

The interim report of a Health Care Reform Working Group appointed by New York Gov. George Pataki (R) in 2003 provides insights into the problem at the state level. The Working Group estimates that New York State's share of Medicaid spending, unless checked, will exceed more than half of the state government's total budget by the end of this decade. Specifically, the Working Group reported gross New York Medicaid spending on long-term care at $10.4 billion in 2003-04, growing from $9.5 billion in state FY 2002-03. At that rate of growth, New York's annual bill for matching funds for Medicaid long-term care will exceed $25 billion by 2016.

Faced with these projections, and a state government that actually has had declining revenue in recent years, Pataki's budget statement in January 2005 focused extensively on Medicaid nursing home expenses. To counter Medicaid costs that are "crushing taxpayers," Pataki used his budget address to outline a proposal to restructure Medicaid. This statewide restructuring could include:

* creating a point of entry into the system that would include a comprehensive assessment of would-be beneficiaries;

* tightening of Medicaid long-term care eligibility requirements, e.g., extension of the 36-month "lookback" to five years;

* expanding and improving current long-term care insurance options;

* expanding substitution of home and "community-based" services for services delivered in SNFs; and

* "rightsizing" nursing homes (in effect, decertifying SNF beds).

Overall, New York's proposed restructuring is designed to block access to SNF-based long-term care. One of its more ominous suggestions is "independent" assessment of all consumers, regardless of payer source, as a condition of nursing home placement. By comparison, the White House musings on Medicaid appear moderate and benign.

Even more draconian possibilities exist. It has been more than ten years since a state government declined to participate in Medicaid--Arizona held out for more than 20 years after Medicaid's enactment--but that option remains viable. President Bush's budgetary proposals may in fact represent an attempt to keep states from selecting that ultimate cost-saving measure. Seen in this light, the real danger with the Bush administration's budget is not that it tries to slow the growth in Medicaid, but that it does not do enough to prevent the requirement for state matching funds from destroying the system entirely.

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