Executive Committee Home

December 5, 2005

Dear Senator Frist, Senator Reid, Speaker Hastert and Representative Pelosi:

As you discuss the spending reconciliation bill that is currently in conference, we urge you to include provisions that save money for both the federal government and states, and drop those provisions that directly or indirectly shift costs to states. In addition, any conference report should include provisions to help those affected by Hurricanes Katrina and Rita, and fulfill commitments to make all states whole for costs incurred in providing Medicaid, education and other services for survivors.

Medicaid

Governors continue to support the provisions in the House and Senate bills that reflect the recommendations put forth by the National Governors Association (NGA) earlier this year. Medicaid is a vital health care safety net and provides important services to those who can get care from no other source. NGA's recommendations reflect sound policies designed to improve and strengthen the Medicaid program for the future. An NGA memorandum providing greater detail on the positions outlined below will follow this letter.

Reinvestments
A critical part of the Medicaid reconciliation provisions are reinvestments back into the Medicaid program. The House bill includes some NGA recommended reinvestments that should be maintained in any final package, including: increased opportunities for the currently under-funded Medicaid programs in the Commonwealths and Territories and innovation grants to states to encourage quality and technology improvements in the Medicaid program. While we appreciate the $100 million in funding provided for in the House bill for Medicaid Transformation grants for states; we urge that this funding be increased to $500 million in the final bill.

It is also true that the governors Medicaid policy included other major reinvestments such as refundable tax credits for low income individuals and tax credits for long-term care insurance. These reinvestments are key to sustaining health care for low-income individuals and should be included in subsequent legislation.

Prescription Drug Payment
We appreciate that both the House and Senate have moved towards reforming how the Medicaid program reimburses for prescription drugs. We recommend, however, that the final package retain the Senate provisions that establish the Average Manufacturer's Price as the benchmark for prescription drug reimbursement in Medicaid. Moving from the Average Wholesale Price to the Average Manufacturer Price is critical to ensure a sound basis for prescription drug payment in Medicaid. Governors believe that the House proposed benchmarks of Retail Average Manufacturer Price and/or Retail Survey Price will not be as effective and are more vulnerable to manipulation.

The final package should include only provisions that enhance the ability of states to manage their prescription drug costs. Governors oppose House and Senate provisions that would impose new mandates on states with respect to dispensing fees. Similarly, the House provision that would limit states' current ability to include mental health drugs on a state's preferred drug list should be dropped from the final bill.

Governors believe that prescription drug reform should also include the Senate provisions to increase minimum rebates on brand name drugs as well as extend rebates to managed care organizations that care for Medicaid beneficiaries.

Finally, we urge that the House provision that would allow states to use tiered co pays to encourage use of more affordable drugs be maintained in the final package; however, the provision that limits this flexibility or otherwise links Medicaid program administration to TRICARE-approved formularies should be removed from the legislation.

Asset Transfer Provisions
We appreciate that both the House and Senate are taking steps to discourage the inappropriate transfer or hiding of assets by seniors who wish to access Medicaid long-term care services. While both bills attempt to place new restrictions on the types of assets that can be sheltered by seniors, the House should recede to the Senate annuity provisions with modifications to prevent the inadvertent creation of new loopholes. We will detail these modifications in the memorandum that follows. The conference package should also include critical House provisions that would increase the look-back period and begin the penalty period at the time of application for services. Additionally, governors continue to support provisions that would ensure that individuals with significant equity in their home be required to self-finance their long-term care.

Long-Term Care
Governors applaud the provisions in both bills to expand Long-Term Care Insurance Partnerships beyond the four participating states (CA, CT, IN & NY); however we believe that the House version should be maintained in the final bill because it grandfathers in existing Partnership states and imposes the fewest barriers to successful expansion of the program. The House language, however, should be modified to include a critical consumer protection: that all Partnership policies provide at least five percent compound inflation protection. Additionally, the House provision that requires states to link benefit requirements for Partnership polices to all long-term care policies should be stricken in the final bill.

Expanding these Partnerships is one mechanism to slow the growth of Medicaid's long-term care expenditures. Governors also encourage consideration of similar policies, such as providing financial incentives for states to establish innovative care coordination programs and increase the opportunities to develop specialized managed care plans for dual eligibles. Allowing states to share in any resulting savings to Medicare will improve beneficiary care and satisfy the policy goal of reducing costs for both the states and the federal government.

Cost-sharing
Governors broadly support the provision in the House bill that would give states flexibility to increase cost-sharing for certain beneficiaries. These provisions will allow states to use financial incentives commonly used throughout the health care system to provide care in the most appropriate setting. Similarly, we support the House provision that would allow states to implement tiered co pays for prescription drugs. This will give states an additional tool, where appropriate, to increase use of the most cost effective therapeutically equivalent drug treatments. These cost-sharing provisions should be maintained in the final bill.

Benefit Flexibilities.
Governors have long called for modernization of the Medicaid program that would include benefit flexibilities for certain beneficiaries. We therefore urge that the final package contain the House provisions that allow governors to implement S-CHIP-type benchmark benefits packages. Additionally, governors oppose any new benefit mandates on state Medicaid programs; therefore, the Senate provision that would mandate coverage of podiatry services should be dropped from the final bill.

Cost Shifts to States
Our opposition to provisions that merely shift costs to states can not be overstated. We oppose the provision that would place new limits on the ability of states to tax Medicaid managed care organizations (MCO). We commend the Senate for recognizing the importance of a permanent grandfather of existing taxes; however, the final bill should ensure that all states with such taxes enacted in state law are allowed to continue their programs.

We also oppose the provision in both bills that reduces federal support for targeted case management (TCM) services. This provision undermines current efforts in the states to provide necessary services to foster care children, individuals with HIV and AIDS, children with developmental disabilities and mental retardation, at-risk tribal populations, persons suffering from mental health illness, as well as children in need of educational assistance.

We urge you to work with states to ensure that both the MCO provider tax and TCM language are amended, and to drop any additional cost shifts to states from the final reconciliation package Amended language on these provisions and other areas of concern will be included in the memorandum that follows.

Katrina Health Care Relief
We are strongly encouraged that both proposals acknowledge the need for federal reinvestments for the Medicaid costs of individuals displaced by Hurricane Katrina. Governors urge, however, that the House provisions be maintained in the final bill to ensure that host states are able to access 100 percent federal match for these individuals directly from the federal government without having to further inconvenience the three home states. The nine month period for the enhanced match is an important down-payment for the significant costs borne by states as they ensure that these individuals' health care needs are met. Governors remain concerned, however, that neither the House nor Senate bill include any funding for the uncompensated care pools that are a critical part of efforts in states to provide health care services to survivors and evacuees.

Medicaid Integrity Program
The Senate bill includes provisions that would establish a new Medicaid Integrity Program that, while well intentioned, should be dropped from the final bill. This program would increase administrative burdens on states instead of encouraging state fraud and abuse efforts. The Senate provision would not be as effective as policies recommended by NGA that would give states greater ability to target fraud and abuse in the Medicaid program, such as providing enhanced funding for direct fraud and abuse and Surveillance and Utilization Review Services (SURS) functions. Any new resources provided should be made available to supplement and build on states' existing program integrity infrastructure and other efforts. We believe states are best equipped to monitor and implement Medicaid program integrity initiatives.

Human Service Programs

Governors oppose several provisions in the House package that would reduce federal funding for child support, child welfare and food stamps, as well as other vital human service programs, and urge conferees to drop them from the final bill.

Child Support Enforcement Program
Governors urge conferees to strike child support provisions from any agreement that would reduce the federal match rate for administrative costs, limit the funds that states can reinvest into the program, as well as implement a mandatory fee of $25 for successful collection from non-TANF families. Specifically, governors strongly oppose gradually reducing the federal match rate for child support administrative costs from the current level of 66 percent to 50 percent in the Child Support Enforcement Program. This large a reduction, which shifts costs directly to states, is unduly burdensome and will force states to reevaluate several services provided that make this program so successful. Governors applaud the Sense of the Senate that opposes such alarming reductions of federal support in the Child Support Enforcement Program.

Foster Care and Adoption Assistance
Governors have serious concerns with provisions included in the House package that would limit IV-E eligibility for children placed with relative caregivers and urge conferees to strike these provisions from the final conference agreement. In particular, governors believe that placements with suitable relatives, which provide greater permanency and stability for children who would otherwise be IV-E eligible, should not be restricted by the federal government.

Food Stamps
Additionally, governors oppose proposed policy changes to the Food Stamps Program that would cause additional administrative burdens to states by limiting state flexibility as well as limiting access to food stamp benefits for legal non citizens for an extended period. The current system for determining food stamp eligibility is extremely complex and burdensome to states. In view of that, governors urge conferees not to increase these administrative burdens by eliminating a state's option to extend categorical eligibility to recipients of TANF non-cash assistance or extending the waiting period for legal non citizens.

Temporary Assistance for Needy Families (TANF)
Governors strongly believe that TANF reauthorization should not be included in any final conference report of the budget reconciliation bill. Governors maintain that welfare reform reauthorization should be driven by good public policy and not by the federal budget process. For that reason, we continue to oppose the House's efforts to reauthorize the TANF program inside of the reconciliation process and urge conferees to omit TANF reauthorization from this process. In addition, the House's decision to reduce the additional amount of child care funding, which was initially included in H.R. 240, is of concern to governors, who remain committed to seeking new funding for child care services.

Low-Income Home Energy Assistance Program (LIHEAP)
Due to increases in energy costs and the disruption of production and supply of crude oil and natural gas caused by Hurricanes Katrina and Rita, low-income families and individuals are facing a stark reality of being unable to afford the cost of rising energy prices in the coming winter months. For this reason, Governors support, at a minimum, the additional funding for LIHEAP provided in the House reconciliation bill and urge that any additional funding quickly be made available to states.

Education

In nearly every state, the need for short and long-term federal assistance continues for the approximately 370,000 students displaced by Hurricane Katrina and the thousands more affected by Hurricane Rita. As a start, the nation's governors urge conferees to quickly take action on this critical issue and adopt the Senate's entire Katrina education provisions with clarifying language. Governors strongly request clarifying language to ensure that states can retain funds and be reimbursed for expenses related to educating displaced students.

Governors support the Senate language that adheres with the following NGA principles for any hurricane education rescue package:

• Maintain high expectations and standards for every child;
• Direct reimbursements through state education agencies for every displaced K-12 student;
• Base K-12 reimbursement rates on the state average per pupil expenditure, and provide a differentiated, higher rate for special education;
• Strengthen and expand federal transferability of funds and carry over authority for states, as well as extend the length of time for states and schools to obligate federal funds;
• Provide flexibility on highly qualified teacher provisions for 1 year; and
• Authorize temporary assistance.

Governors applaud the Senate's bipartisan effort to ensure that states and districts are given the flexibility and financial resources in these extraordinary circumstances to provide displaced students with a quality education. Governors also support aid to immediately restart school operations for Alabama, Louisiana, and Mississippi. Additionally, we remain concerned about the ability of directly impacted states with severely reduced tax bases to fund their K-12 operations.

Public Safety Spectrum Clearing and Digital Television Transition

Governors support congressional efforts to establish the earliest possible date certain for the clearing of channels allocated for public safety use by the Federal Communications Commission (FCC). The limited availability of spectrum continues to force emergency agencies to operate on several different and incompatible radio frequency bands, resulting in a lack of communication between police, fire and other emergency responders. Setting a firm release date will further empower states to protect their citizens and strengthen the nation's overall security.

Sincerely,

c:       Senate Finance Committee
          Senate Budget Committee
          Senate Commerce, Science and Transportation Committee
          Senate Health, Education, Labor and Pensions Committee
          Senate Agriculture, Nutrition and Forestry Committee
          Senate Appropriations Subcommittee on Labor-HHS-Education
          House Energy and Commerce Committee
          House Ways and Means Committee
          House Budget Committee
          House Education and Workforce Committee
          House Agriculture Committee
          House Appropriations Subcommittee on Labor-HHS-Education