New Budget Plan Cuts Medicaid Spending
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RAY SUAREZ: Last week the U.S. House and Senate passed budget outlines for the year ahead. As part of those plans they agreed to trim the Medicaid program by $10 billion of planned spending over the next five years. This program, a joint state-federal venture, currently serves roughly $52 million and costs more than $300 billion annually.
For more on how this issue is seen at the state and congressional level, we’re joined by New Hampshire Sen. Judd Gregg, Republican chair of the Senate Budget Committee, and Kansas Gov. Kathleen Sebelius, a Democrat.
Sen. Gregg, you called the compromise that led the way to this Medicaid slowdown in spending growth a major step. Why was it so important to you?
SEN. JUDD GREGG: It probably wasn’t a major step. I may have gotten carried away in the moment. But it’s a step forward because the issue for us as a country is the fact that we’ve got on the books a huge amount of unfunded liability in the entitlement accounts which are going to become extremely expensive for our children to support when my generation, the baby boom generation retires. And we need to begin to address those accounts.
The three major accounts are: Social Security, Medicare and Medicaid. Medicaid is probably one of the easier ones to address, at least in the short term, because there’s a lot of fixing that can be done in Medicaid. And the proposal, which would slow the rate of growth from 41 percent down to 39 percent taking $10 billion out over a $1.12 trillion base so it’s not a major step in the area of slowing the amount of money spent but the policy which would be behind it — addressing that hopefully working with the governors we’d be able to get some control in the out years over how much we’re spending on Medicaid. And that being one of the three major entitlement programs, that would be a step forward towards making sure our kids could afford the government when my generation retires.
RAY SUAREZ: Gov. Sebelius, you heard Sen. Gregg describe the cut as a small one over ten years. What does it mean at the state level?
GOV. KATHLEEN SEBELIUS: Well, I think governors worry a lot about the critical role that Medicaid plays in delivering health care services to our citizens. Over 10 percent of Kansans rely on Medicaid for essential medical care, for nursing home care, for pharmaceutical care and $10 billion is not an insignificant amount to cut out of the care of our neediest citizens. It will make insurance for all of us more difficult to obtain. And I think while we’re eager to come to the table and have a discussion on fixes for Medicaid over the long run, we hate to do that with a budget number already chosen, and that will drive the discussion as opposed to a policy-driven discussion.
RAY SUAREZ: Senator, you heard the governor. It’s already tough to bring everybody who is eligible in on budget and get them the care that they are eligible for. How are they going to cut costs in the coming years?
SEN. JUDD GREGG: Well, I happen to believe that any governor who wants to can probably accomplish this. We’re talking $2 billion on a $300 billion annual expenditure; $10 billion on a $1.12 trillion five-year number. These are not dramatic reductions in rate of growth. The program will still grow at 39 percent. And we know, for example, that there are a series of activities occurring in Medicaid which simply shouldn’t be occurring. For example, there’s a lot of spend down. That’s where people basically hide their assets to get on Medicaid. We know the drug reimbursement policy is probably overspending by about $8 billion. We know that states are using the Medicaid funds for the purposes of funding general state operations — not Kansas by the way — but 15 states have been identified as doing this –
GOV. KATHLEEN SEBELIUS: Thank you, Senator.
SEN. JUDD GREGG: — that’s true — to the tune of $5 billion. We know if we take effective action in the area of co-pays, we can save two or three billion dollars. So you can accomplish all these savings and actually significantly more without affecting program.
And, in fact I think you can expand program to many children and to seniors if you gave governors a lot more flexibility and a little less rate of growth, which is what we’re proposing. And we are proposing to do it in concert with the governors. Gov. Leavitt is meeting, the head of HHS, the former governor of Utah is meeting with a number of governors to try to work out an agreement which will hit the $10 billion number rather I think comfortably and maybe even exceed it and give the governors more flexibility and allow them to care for more kids because they have more flexibility but a little less rate of growth in the program. And that’s what we need to do because very simply our children can’t afford the pay the taxes it’s going to cost to bear the burden of our generation when it retires in Social Security and Medicare and Medicaid. There’s a rather startling chart that shows that those three programs alone will spend every dollar that the federal government theoretically will take in by the year 2035. And we need to get on the business of reforming our entitlement programs so that our children can afford to have a quality lifestyle and don’t have to spend all their money to support those of us who retire and are baby boomers.
RAY SUAREZ: Well, Governor, the senator made some suggestions about concrete steps that could be taken. He suggests that you can still serve the population you need to serve and actually cut your rate of growth. Can you?
GOV. KATHLEEN SEBELIUS: Well, I think as I say, governors I think are eager to come to the table. We readily acknowledge that there are some fixes we can enter into in a collaborative fashion. What we hate to do though is have the number picked in advance and have that number $10 billion over five years drive the discussion. That’s pretty dangerous, particularly when you’re talking about very vulnerable populations who live in our states. The long-term care issue is huge. If a poor and elderly citizen ends up in a nursing home, that cost is borne by the state, not by Medicaid, Medicare. If that citizen needs drug costs, that cost is born by the state — expensive medical equipment.
So these folks live in our small towns and communities. They live in rural communities in New Hampshire and in Kansas and all over the country. The people don’t get cut because the budget number gets cut. And we would really love to engage in a discussion, finding ways together that we can make this program work into the future.
RAY SUAREZ: Sen. Gregg, if I understand the way the numbers add up correctly, the medical rate of inflation in the United States is much higher than the generate of inflation, the Consumer Price Index. At a time when the cost of getting health care in the general population is growing faster than getting other goods and services, how do you cut Medicaid?
SEN. JUDD GREGG: Well, we know, for example, that there are overpaying for pharmaceuticals. If we went to a sales price index instead of a wholesale price index, we would end up saving somewhere in the vicinity of, $5 billion approximately. We also know that if we took the discount on pharmaceuticals up from 15 percent to 20 percent, we’d save another $2 billion.
We also know there’s a lot of money in the system. When you’re talking $1.1 trillion, it’s hard to figure out what a trillion dollars is, but it’s a lot of money. We know that much. We can certainly save $10 billion without impacting services. And I know that strong governors are going to be able to come up with very creative ways to deliver more services to more kids if they have more flexibility. That’s the goal here.
GOV. KATHLEEN SEBELIUS: I certainly like the notion of more flexibility. This is a program where it’s a one-size-fits-all cookie cutter. We would love flexibility at the state level to tailor benefits to more appropriately fit a population. Everybody doesn’t need exactly the same services. There certainly is an issue of CO-pays that we could introduce particularly at some population levels.
But we worry a lot about picking the number in advance, declaring that this is the number of savings without having the policy discussions. I do think again – I do think that the program works extremely well for children; it works extremely well for poverty-level adults. It actually is more cost effective than commercial insurance with a very beneficial package of preventive services. Where the cost drivers are and the conversation that needs to be had is what’s happening with elderly Americans who should be part of the Medicare population but have been shifted to the states? What happens with disabled Americans who qualify for Medicare at a younger age, but are in very expensive care facilities? Those have been shifted to the states. And we would love to engage in that policy discussion, long-term care, pharmaceuticals, expensive medical equipment for that population without hindering our ability to deal effectively with the health insurance program for women and children.
RAY SUAREZ: Well, Senator, if it’s true that one of the big drivers of cost is the number of elderly people, we’re about to crest with a demographic wave and have more and more older Americans, people entering the most expensive era of their lives in terms of medical care. You want to make the eventual slowdowns in growth even steeper, don’t you?
SEN. JUDD GREGG: Well, we’ve got to face the fact that if we continue with the programs we have under their present benefit structure, we can… we will end up overwhelming our children’s capability of supporting those programs. The graph which I mentioned earlier shows that by about the year 2035, those three programs alone will absorb all the money being spent by the federal government. We won’t be able to spend federal money on anything else: Roads, schools, national defense, anything, because those programs will absorb all the money. You can’t tax your way out of this problem because the programs grow so fast that literally you’d have to double the taxes on your children which would mean they couldn’t send their kids to college or buy their first home.
So you’ve got to address the benefit side of the ledger for senior citizens who are coming, especially my generation. And one of the ways you do that is to start with programs like Medicaid where there is a lot of money that can be saved in pharmaceuticals; there is a lot money that can be saved by giving governors more flexibility on co-pay. There is money that can be saved by having states not use the program to fund their general government operation and work with the governors to give them the tools they need to be creative.
I happen to believe that governors are the most creative managers we have in the country when it comes to delivering services. And I do believe any package that comes forward here working with Gov. Leavitt, that’s his commitment, and the president is going to be vetted with the governors and it’s going to be something the governors are going to feel they’re quite comfortable with overall because it’s going to give them more flexibility — maybe a little slower rate of growth which we need from 41 percent to 39 percent. That’s a tolerable slowdown in rate of growth. That’s still a huge rate of growth.
RAY SUAREZ: Gov. Sebelius, before we go, you heard the senator plead that brief, that eventually we’re going to have a day of reckoning with these costs. In the out years, in ten years, in twenty years, is Kansas just going to have to say, no, we just can’t do this much any longer for this population of people?
GOV. KATHLEEN SEBELIUS: Well, there’s no question states are really grappling with this. It’s a large part of our state budget — about 20 percent now. We’re on the low side. One of the things about some of the cuts that the senator is suggesting is that states who have done a good job who have been very flexible, who have been very strategic really end up in some ways in the worst situation. We’re about to inherit some huge costs with the new Medicare Part D drug program. We don’t know how big. At the state level we’re going to enroll people. We think that will bring more Medicaid eligible seniors forward because they will now qualify for those so-called free drug benefits, so we’re at a point where we’re about to see an increase in population in every state in the country and an arbitrary cut on the table.
So this is a very troublesome time and the seniors that we’re talking about are the poorest Americans or they wouldn’t qualify for Medicaid. So it will put a big hole in the state’s ability to try and provide affordable health care for all of our citizens and we’ll be left in a situation of trying to figure out who to cut off the rolls, who doesn’t qualify any longer for essential medical services? And that’s a very difficult place for American citizens to be.
RAY SUAREZ: Gov. Kathleen Sebelius of Kansas, Sen. Judd Gregg of New Hampshire, thank you both.
SEN. JUDD GREGG: Thanks.
GOV. KATHLEEN SEBELIUS: Thank you.