Fast, fizzy relief for Medicaid pain.

Medicaid lives, and feels much better, thank you!

AHCA, its National Center for Assisted Living (NCAL), and AAHSA joined in praising the bipartisan legislation providing a federal aid package to the states directed specifically toward supporting Medicaid. The package took the form of an amendment to the jobs and Growth Tax Relief Reconciliation Act of 2003 that President Bush had defined as his highest legislative priority for this year. Ninety-three of the 100 members of the Senate voted for the amendment--more than those who supported the final Senate tax bill--and the House of Representatives went along just to get the overall legislation passed. President Bush signed the legislation on May 28.

The principal authors of the bill comprised a bipartisan quartet of moderate senators from small, largely rural states. "Susan Collins (R-Maine), Ben Nelson (D-Nebr.), Jay Rockefeller (D-W.Va.), and Gordon Smith (R-Ore.) have worked steadfastly and persistently to ensure America's most vulnerable seniors retain access to quality long-term care," said Charles H. ("Chip") Roadman II, MD, CNA, president and CEO of AHCA/NCAL, in praising the results. The legislative purpose, of course, is to substantially reduce Medicaid's cost to states in 2003 and 2004, and thus ease budgetary pressures to cut the program.

The centerpiece of the amendment is a short-term increase in the federal matching rate for Medicaid, otherwise known as the Federal Medical Assistance Percentage, or FMAP. Relatively "wealthy" states, such as New York and Massachusetts, are required to provide a dollar of state-raised revenue for every federal dollar contributed to Medicaid; the FMAP for these states is thus 50%, with the federal government bearing half of the cost of the Medicaid expenditures. Less wealthy states have a higher FMAP; Montana and Idaho, for example, have FMAPs of more than 70%, and Mississippi has an FMAP of nearly 77%. In other words, Idaho, Montana, and Mississippi receive more than $7 from the federal treasury for every $3 that their state governments spend on Medicaid.

Under the new law, from April 1, 2003, to June 30, 2004, each state's FMAP will be increased by 2.95 percentage points. This means that states with a 50/50 FMAP will now receive nearly $53 dollars for every $47 that they spend. Mississippi will receive nearly $80 for every $20+ it spends.

A 2.95% difference may not in itself sound impressive, but when translated into those dollar terms, it adds up and can make a big difference to a state's revenues. To illustrate, consider a state that planned on spending $200 million on Medicaid during the fiscal year. Under a 50% FMAP, the state would be required to provide $100 million from state taxes to receive $100 million in federal matching funds. With the 2.95% increase, the state's share of the $200 million Medicaid bill drops to $94 million and the federal government's rises to $106 million. The state can claim a "savings" of $6 million from the total cost of Medicaid services for the year.

There are (of course) a few catches--for example, the new law does not allow states to reap the benefits of the increased federal match if they implement plans to cut the number of residents eligible for Medicaid. If Medicaid eligibility falls below the levels in effect in a state plan as of September 2, 2003, that state will not receive the 2.95% increase in its FMAP. If a state restricts eligibility but subsequently reinstates it, the state can begin to collect the higher FMAP in the quarter the reinstatement begins. Similarly, states like New York that require local contributions to Medicaid costs are not allowed to gouge local governments for a greater percentage of the state share of costs than the local governments paid prior to April 1, 2003.

The growing and nearly irresistible pressures in the state legislatures across the country to cut Medicaid eligibility and/or reimbursement led to the rush to pass the package this spring. When the law was adopted, many state governments were still working on their budgets for a fiscal year that, for most states, began on July 1. Because the higher FMAPs for the April 2003 to June 2004 period mean that states' Medicaid costs will be significantly lower than anticipated, it is expected that states will feel less pressure to cut the program and put an even tighter pinch on nursing homes than they're already suffering (as Medicaid is already a proven money-loser in many areas of the country).

Ironically, though, by the time the legislation was adopted, the states were already feeling less worried about double-digit growth in Medicaid expenditures; Medicaid costs nationwide were reportedly growing at roughly half of the increase experienced in 2001-2002 (a growth rate much slower, in fact, than that experienced by healthcare's private sector) Efforts that many states have already made to reduce Medicaid costs, including the cost of medications, coupled with the largesse provided by the new law mean that most states will experience only modest growth in Medicaid expenditures in the coming fiscal year, even with no significant budget reductions.

Before the celebrating gets out of hand, though, it's worth remembering that the FMAP increase is scheduled to end in less than a year. By mid-2004, unless the economy improves significantly in every state, state legislators will again be sharpening their Medicaid budget-cutting knives as the key to balancing their budgets.

The basic problem is that unlike Washington, D.C., state governments are not allowed to borrow an unlimited amount of money to pay their bills; they have to balance their budgets. It might be said that with the new law, the federal government is spending $10 billion that it does not have to help states with money they can't (or won't) raise. However, just like the fizzy pill that advertises its ability to provide fast relief, the short-term change in FMAP relieves these symptoms of fiscal dysfunction, but doesn't provide a cure. The real medicine needed--a long-term care financing system that makes sense--is still a bit too powerful for politicians at any level to handle.

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