16.1 Preamble

Medicaid is the nation's largest health care program, providing health and long-term care services to millions of low-income pregnant women, children, individuals with disabilities, and seniors. It is a vital health care safety net and provides important services to those who cannot obtain care from any other source. Medicaid coverage is also critical for reducing the number of the uninsured, currently estimated at 45 million nationwide. Medicaid spending, however, has continued to rise as a result of increased caseloads and increases in costs per beneficiary. The Congressional Budget Office's March 2007 baseline projects that Medicaid will provide services to 62.2 million individuals over the course of the year, and that total costs in the program are projected to increase an average of 8 percent per year for the next decade, strengthening the impetus for reform. Comprehensive Medicaid reform must focus both on reforming Medicaid and on strengthening other forms of health insurance and long-term care coverage.

The Governors believe that meaningful Medicaid reform should include both short-term flexibilities that allow states to more efficiently manage the program and subsequently serve all those in need, as well as long-term structural reforms that will make Medicaid sustainable going forward.

Many important short-term reforms were accomplished in the Deficit Reduction Act of 2005 (DRA). These include—but are not limited to—improvements in the transparency of prescription drug pricing, additional tools for states to prevent the inappropriate transfer of assets, and new flexibilities for states to improve the cost-sharing requirements and benefit packages for beneficiaries. It is critical that these flexibilities be maintained and that the Centers for Medicare and Medicaid Services (CMS) continue to work with states to ensure the successful implementation of the new provisions.

16.2 Reforming Medicaid

Additional flexibilities that will make Medicaid a more cost-effective and high quality program include the following.

16.2.1 Prescription Drug Improvements. The DRA made a number of important reforms in the area of pharmaceutical benefits and pricing. CMS must continue to work with states as it implements the new definition of the Average Manufacturer Price to ensure it remains an accurate and useful benchmark. Governors are interested in ensuring the appropriate reimbursements for prescription drugs and continue to oppose arbitrary increases, such as mandated dispensing fees. States' experiences with the Medicare Part D benefit raise concerns that Medicaid is not actually receiving the competitive prices in the market, and more reforms are necessary to ensure that this is realized. Furthermore, Governors encourage Congress and the Food and Drug Administration to establish a workable regulatory framework that will enable timely access to safe, effective, and more affordable biosimilar pharmaceutical products. By taking such action, lower cost biopharmaceutical products could be available to Medicaid recipients as well as other health care consumers.

16.2.2 Asset Policy. While Medicaid remains a vital source of long-term care coverage for many individuals who cannot receive that care elsewhere, there is growing concern that many individuals are utilizing Medicaid estate planners or other means in order to shelter or transfer assets and therefore qualify for Medicaid funded long-term care services. While the DRA did provide states with new tools to address unscrupulous Medicaid estate planners, CMS must continue to work with states to ensure that states have the necessary tools to prevent fraudulent transfers of assets. Further reforms are still needed to encourage reverse mortgages, as well as other policies that encourage individuals and their families to self-finance care rather than rely on Medicaid.

16.2.3 Benefit Flexibility and Cost Sharing. The DRA contained language allowing states to improve their Medicaid programs by providing for greater tailoring of benefit packages and modernizing the rules on beneficiary cost sharing. These tools will be critically important as states struggle to expand coverage or maintain existing coverage expansions.

16.2.4 Comprehensive Waiver Reforms. Waiving various portions of the federal Medicaid statute has become the norm—rather than the exception—for states. Reforms are needed to increase efficiency and reduce costs, increase the ease with which states obtain current waivers, expand the ability to seek new types of changes, and change the federal statute to eliminate the need for many waivers altogether.

16.2.5 Judicial Reforms. The right of states to locally manage the optional Medicaid categories is clearly defined in both policy and law, and the federal government should remove legal barriers that impede this fundamental management tool. Also, U.S. Department of Health and Human Services (HHS) officials should have to stand by states when one of their waivers is questioned in the judicial system and should work with states to define for the judiciary system that any state has a fundamental right to make basic operating decisions about optional categories of the program. Federal judicial actions have often become a means by which the judicial branch makes decisions about Medicaid programs that should be left in the hands of state elected officials and program managers.

16.2.6 Commonwealths and Territories. The federal Medicaid partnership with U.S. commonwealths and territories has become increasingly unbalanced over a period of years, to the extent that some of the jurisdictions are financing over 80 percent of their Medicaid costs, and many of the Medicaid expansions such as transitional medical assistance are not available. The imbalance affects quality of care issues and creates increased financial stress. Medicaid reform needs to include a review of the current relationship and the development of a pathway that moves to a rebalancing of this partnership.

16.2.7 Medicaid Financing. While many of the provisions of the DRA provided states more flexibility in administering Medicaid, others were added that Governors have long opposed as they mainly rely on shifting costs from the federal government to states rather than achieving fundamental program reform. Provisions in the DRA that restricted Governors' flexibility to assess certain provider fees on Medicaid managed care organizations, which prior to the DRA were legitimate sources of revenue to fund the Medicaid program, simply shifted costs. Governors believe Congress should rescind these provisions of the DRA and continue to oppose these types of cost shifts.

Governors strongly support recent actions taken by Congress to define in statute the safe harbor limits for all health care provider assessments. However, Governors remain concerned about recent regulatory actions taken by CMS that ignore congressional intent. CMS' new rules regarding Medicaid provider assessments appear to give CMS broad authority to deny any such assessments, regardless of nearly 20 years of existing regulations and definitions that have worked quite well in this area. Governors urge HHS to rescind this rule; however, if HHS does not take this action, Governors urge Congress to clarify their intent and take action to stop this rule from becoming permanent.

Governors also appreciate Congress extending a one-year moratorium on CMS proposed rules regarding the imposition of cost limits for public health care providers and the elimination of federal Medicaid financing support for graduate medical education. The fundamental policy changes contained in these rules would diminish long-standing, legitimate state funding mechanisms that CMS has previously approved. Such changes in state plans also would impose a huge administrative burden on states, providers, and school-based health clinics. In addition, the proposals overstep statutory authority by defining what sub-units of state government may contribute to, and what financing sources states may utilize, in financing the non-federal share of Medicaid—discretion that has been left to state governments since Medicaid was created in 1965. These proposals simply shift costs from the federal government to states and ignore state efforts to implement fundamental Medicaid reforms that reduce costs for both states and the federal government, while expanding affordable health insurance coverage. Governors urge Congress to make these moratoriums permanent.

16.3 Strengthening Employer-Based and Other Forms of Private Health Care Coverage

While Medicaid remains the most important part of the nation's health care safety net, it is not a structurally sustainable means of providing health care coverage to an ever-expanding population. Efforts to reverse the trends of both declining employer-based coverage and increasing numbers of the uninsured will help keep Medicaid sustainable.

16.4 Slowing the Growth of Medicaid Long-Term Care

Medicaid has quietly over the years become the nation's largest payer of long-term care services, funding approximately 50 percent of all long-term care spending and nearly two-thirds of all nursing home residents. Several policies are needed to encourage greater reliance on long-term care insurance rather than Medicaid.

16.4.1 Tax Credits and Deductions for Long-Term Care Insurance. Tax credits and deductions for qualified long-term care insurance policies and the encouragement of public-private partnerships are likely to save money in the Medicaid program in the long-run, if not in the short-term.

16.4.2 Improving Access to Home- and Community-Based Care. In addition to strengthening the alternatives to Medicaid-financed long-term care, reforms should also produce better health outcomes for beneficiaries who remain within Medicaid and should result in greater efficiencies for both the federal government and states. These reforms should mirror those contained in current NGA policy, HHS-28, Long-Term Care.

16.4.3 Improving Chronic Care Management. Reforms should also encourage better care for the chronically ill populations in Medicaid. Although this is a small population, it demands a large portion of the available resources. States should be rewarded for program improvements that produce savings for both Medicaid and Medicare—particularly through improved chronic care management—by sharing savings with states in the form of an enhanced federal medical assistance percentage (FMAP) on a year-to-year basis. States should be allowed to provide financial incentives for care management methods that save money and improve outcomes outside of the targeted case management benefit.

16.5 State Contribution to the Medicare Drug Benefit

While Medicare beneficiaries began to receive their prescription drug benefit on January 1, 2006, states remain without a guarantee that their fiscal burden will be reduced. Some states report that the Part D benefit has reduced their expenditures. However, in many states, contrary to clear congressional intent, the phased-down state contribution (clawback) provision will actually cause states to spend more than they would have in the absence of the law. Congress and the Administration should partner with the states to make regulatory changes and enact legislative fixes to the law to ensure that the congressional intent of the program is realized and all states gain some form of relief from passage of the Medicare Modernization Act.

These concerns are further outlined in current NGA policy, EC-13, The Medicare Drug Benefit.

Time limited (effective Annual Meeting 2009–Annual Meeting 2011).
Adopted Annual Meeting 2005; revised Annual Meeting 2007; reaffirmed Annual Meeting 2009.