How The Baucus Bill Harms State Budgets

Dennis Smith /

Just hours after the Senate Finance Committee completed its mark-up of its version of health care reform, Committee staff released a statement that announced, “[i]n a letter sent to Congressional leaders yesterday, Democratic governors affirmed their shared commitment to expanding health care coverage to millions of low-income Americans through the Medicaid program.”

Worried Governors
The press release, however, overstates the case. The governors’ letter does not even mention Medicaid. The very general sentiments expressed in the governors letter such as “… the status quo is no longer an option …” and “[s]kyrocketing health care costs hurt families …” are broadly if not universally shared. Democratic governors from 21 states signed the letter, of which 8 will be out of office before the Medicaid expansion even begins. One Democratic governor who did not sign the letter, Tennessee Gov. Phil Bredesen warns, “I can’t think of a worse time for this bill to be coming. I’d love to see it happen. But nobody’s going to put their state into bankruptcy or their education system in the tank for it.”

Tying State Hands
The letter was also produced before the Committee completed its amendment process and before a final score by the Congressional Budget Office (CBO). A number of amendments will reduce state flexibility in the management of Medicaid. States lost flexibility in designing their benchmark plans. States will be required to extend “spousal impoverishment” rules which apply when one spouse is in a nursing home to community settings as well which will substantially shift costs from private pay to Medicaid. States will be faced with a new, broader definition of medical assistance, the implications of which will be determined through regulation and litigation. Finance is turning SCHIP into Medicaid. CBO has not yet calculated how much it will cost the states in administrative changes that will be required to comply with the new federal mandates.

Higher State Costs
Medicaid programs will be forced to absorb open-ended costs in the foster care system. In adopting the Stabenow Amendment on therapeutic foster care, the Committee is now on record to overturn litigation won by the state of California to limit Medicaid’s role in funding the child welfare system. California prevailed in part because there is no agreed upon definition of therapeutic foster care and that while it is required to provide services, it is not required to “bundle” those services as a package. The Federal Court of Appeals for the 9th Circuit determined that states still have administrative discretion in how to run their Medicaid programs. The Stabenow Amendment takes one more step towards taking that authority away.

The wide-open language of the Stabenow will likely cost states billions as providers will seek to tap into the Medicaid entitlement to fund the child welfare system, which is really what the California litigation was about. Of course the child welfare system must be adequately funded, just as education, child care programs, and the criminal justice system to name a few other government programs that are also trying to tap into Medicaid must be. But should these responsibilities fall to Medicaid? Finance has jurisdiction over the foster care system. But instead of facing its responsibilities in the program, it was apparently easier for Senators to push the issue back onto the states’ Medicaid program. Why have schools turned to Medicaid for funding for special needs children? Because Congress has never fulfilled the promises made under the Individuals with Disabilities Education Act (IDEA). Medicaid has become an enabler. Washington promises more then passes the bill to the states.

Medicaid Expansion
States cannot afford a Medicaid expansion and neither can the federal government. The Finance Committee plan includes extra federal funds to pay for most of the new costs and when the bill gets to the Senate floor, Senators will try to get 100 percent federal funding just as Majority Leader Reid has done for Nevada. But simply adding more federal funds into an unreformed Medicaid program is not the answer either.

One day perhaps, Congress will realize that expanding Medicaid comes at the expense of other state and federal priorities including education and the child welfare system. As Medicaid grows, funding for other programs shrink, which in turn, increases demand for Medicaid to become the source of funding for those other programs. Only the governors have the clout to push back and break the vicious cycle that, as Gov. Bredesen warns, threatens to bankrupt the states.