[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                MEDICAID TODAY: THE STATES' PERSPECTIVE

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 12, 2003

                               __________

                           Serial No. 108-24

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                               __________

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                            WASHINGTON : 2003
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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                   Ranking Member
JAMES C. GREENWOOD, Pennsylvania     HENRY A. WAXMAN, California
NATHAN DEAL, Georgia                 RALPH M. HALL, Texas
RICHARD BURR, North Carolina         EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
  Vice Chairman                      BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           GENE GREEN, Texas
JOHN B. SHADEGG, Arizona             TED STRICKLAND, Ohio
CHARLES W. ``CHIP'' PICKERING,       LOIS CAPPS, California
Mississippi                          BART GORDON, Tennessee
STEVE BUYER, Indiana                 DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania        CHRISTOPHER JOHN, Louisiana
ERNIE FLETCHER, Kentucky             JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey              (Ex Officio)
MIKE ROGERS, Michigan
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Bush, Hon. Jeb, Governor, State of Florida...................    14
    Richardson, Hon. Bill, Governor, State of New Mexico.........    27
    Rowland, Hon. John G., Governor, State of Connecticut........    22
Material submitted for the record by:
    American Hospital Association, prepared statement of.........    66
    Bush, Hon. Jeb, Governor, State of Florida, response for the 
      record.....................................................    65
    Florida Hospital Association, prepared statement of..........    68
    National Association of Children's Hospitals, prepared 
      statement of...............................................    69
    National Association of Public Hospitals and Health Systems, 
      prepared statement of......................................    71
    National Association of Urban Hospitals, prepared statement 
      of.........................................................    73
    Rowland, Hon. John G., Governor, State of Connecticut, 
      response for the record....................................    62

                                 (iii)

  

 
                MEDICAID TODAY: THE STATES' PERSPECTIVE

                              ----------                              


                       WEDNESDAY, MARCH 12, 2003

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Barton, Upton, 
Deal, Burr, Whitfield, Norwood, Wilson, Buyer, Fletcher, 
Rogers, Tauzin (ex officio), Brown, Waxman, Towns, Pallone, 
Stupak, Green, Strickland, DeGette, John, and Dingell (ex 
officio).
    Also present: Representatives Stearns, Davis, and 
Schakowsky.
    Staff present: Chuck Capton, majority counsel; Steve 
Tilton, health policy coordinator; Eugenia Edwards, legislative 
clerk; Patrick Morrisey, deputy staff director; Bridgett 
Taylor, minority professional staff; Amy Hall, minority 
professional staff; and Nicole Kenner, minority staff 
assistant.
    Mr. Bilirakis. The committee will come to order. Without 
objection, the committee will proceed to Committee Rule 4(e). 
That rule specifies that for purposes of opening statements, 
the Chair and ranking minority member of a hearing have 5 
minutes each, and all other members receive 3 minutes. In 
response to members' concerns regarding the period for opening 
statements, any member, when recognized for an opening 
statement, may completely defer his or her 3-minute opening 
statement and instead use those 3 minutes during the initial 
round of witness questioning. Without objection, so ordered.
    The Chair recognizes himself for an opening statement. Good 
morning. I am very pleased to welcome our distinguished guests 
here today. I would like to extend a special thank you, of 
course, to my home State Governor, Jeb Bush, and also to the 
other two Governors here with whom I have had the pride and 
pleasure of having served with here in the Congress, John 
Rowland and Bill--as I call him ``Billy''--Richardson. I know 
they have taken a very keen interest in the topic of Medicaid, 
and I appreciate your willingness to work time into your busy 
schedule to be here with us today.
    Clearly, each of you gentlemen has tremendous struggles in 
dealing with your budget crisis, implementing plans for 
homeland security, and dealing with the real risks of 
bioterrorism. These issues alone must occupy a great deal of 
your time.
    I know that a large contributing factor to your budget woes 
is spending related to the Medicaid program. Therefore, it is 
critical for us to examine issues related to this program that 
has not seen any fundamental changes since its inception in 
1965.
    Medicaid is growing at astronomical rates, and 
Congressional Budget Office projections estimate total Federal 
spending on Medicaid to double--to double--over the next 10 
years to $360 billion. This is an average growth rate of 8 
percent, clearly outpacing inflation.
    The Federal Government cannot sustain this rate of growth 
nor can State governments, and I hope that each of you will be 
able to address the impact of this kind of growth, coupled with 
already existing deficits, might have on each of your States.
    Unfortunately, we have not done a very good job in policing 
this program the last few years. Today, I am announcing that 
this will be changing. Over the next several weeks and months, 
if need be, I plan to hold a number of hearings that will 
explore the entire Medicaid program. These hearings will help 
us determine where and how to focus our limited Medicaid 
resources. I would also like to state that this effort is not 
an attempt to erode the safety net, it is an attempt to 
strengthen it and ensure that it will remain firmly in place 
for future generations.
    I am sure that each of you has been exploring alternatives 
to the problems you are facing in Medicaid. I know in some 
instances Governors have scaled back eligibility and coverage 
for some people. I know in other instances you have used the 
Section 1115 waiver process to address your unique concerns. I 
am hopeful that each of you will expand on some of the ideas 
that you have tried in your States to address your spending 
concerns. In particular, I am anxious to hear how flexible the 
Medicaid program is in allowing you to meet the needs of your 
State populations.
    These issues of flexibility in coverage are ones that we 
need to discuss. I would like to say at the outset that I do 
not have--I do not have--any preconceived notions about the 
answers to these questions. I plan on exploring a variety of 
ideas--and I hope I speak for the entire committee when I say 
we don't have any preconceived notions. We plan on exploring a 
variety of ideas that will express our concerns with burgeoning 
Medicaid costs.
    Last, I would like to commend the President for recognizing 
the need for Medicaid reform. He has requested $3.2 billion in 
new money--in new money--in his budget to help with the State 
fiscal crises and reform Medicaid. This is a very positive step 
and we will look critically at the President's proposal, but 
this hearing is not about the President's proposal--and I 
emphasize that, it is not about the President's proposal. This 
is an opportunity to hear from people on the front lines 
administering this program what they need from us to make it 
work better and more efficiently.
    Again, thank you all for being willing to testify today, 
and I will recognize my good friend from Ohio, Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Thanks to the three 
Governors that are joining us. I want to acknowledge four 
individuals in our audience who are currently enrolled in 
Medicaid--Carolyn Chavan, Donna Lucero, Rose Spears, and 
Jeannette Morrisette Johnson.
    The President's Block Grant would freeze Federal funding 
for optional coverage and benefit placing the health of 
millions of Americans at risk. Thank you all for joining us.
    To truly appreciate the impact of the President's Block 
Grant proposal, we will obviously need to hear from those who 
will be directly affected by it. I would ask, Mr. Chairman, you 
schedule a hearing that features current Medicaid beneficiaries 
and providers who serve the program.
    This is ``Cover the Uninsured Week,'' an initiative 
sponsored by the Chamber of Commerce and Families, U.S.A. Their 
message is simple: 41 million Americans are uninsured. It hurts 
working families, the public health, and the economy. I am 
assuming it was similar logic that prompted the President, 
during his State of the Union Address, to name health care for 
all Americans as one of his top three domestic policy goals.
    Our mantra when it comes to the uninsured should reflect 
the oath that all doctors take--``First, do no harm.'' That 
means preserving the advances made by Medicaid, Medicare, and 
the State Children's Health Insurance Program. Together, these 
programs serve 90 million Americans, one-third of our 
population. We can't build a solid structure if we allow the 
foundation that is Medicaid, Medicare and SCHIP to crumble.
    Medicare, Medicaid and SCHIP typically cover individuals 
who are disenfranchised from the health insurance system. They 
either live in poverty and can't afford insurance, or they are 
medically uninsurable, which means insurers refuse to cover 
them. Before Medicare, 50 percent of seniors had no health 
insurance. Before Medicaid, virtually every low-income child 
and every low-income disabled American lacked coverage.
    Medicare, Medicaid, and SCHIP have helped lift millions of 
seniors out of poverty and have given children a fighting 
chance at a healthy, productive life. If we forsake these 
commitments, the number of uninsured inevitably swell.
    In regard to Medicaid, the President's Block Grant--excuse 
me--Block Loan approach is premised on the notion ``a little 
fiscal discipline and a dose of flexibility will put the brakes 
on Medicaid spending.'' The problem is Medicaid costs are not 
rising because Medicaid is inefficient or inflexible. The myth 
that public programs like Medicare and Medicaid are less 
efficient than private insurance, is just that. It is a myth.
    According to a study released yesterday, Medicare costs 
have been growing more slowly than that of private insurance 
for the last 30 years. Medicaid costs for children and non-
elderly adults are growing at half the pace of private health 
insurance premiums. Put another way, private health insurance 
plans would have to cut their annual premium increases by half 
to rival Medicaid growth rates. Pretty good for an entitlement 
without responsibility, to borrow one of the terms of 
endearment our friends Governor Bush and Governor Rowland used 
in referring to Medicaid. It would be difficult to accuse State 
Medicaid programs of profligate spending on children and non-
elderly adults. The same holds true for spending on the elderly 
and the disabled.
    I understand Governor Rowland is cracking down on long-term 
care eligibility abuses, but I am sure even he would agree 
these abuses have a relatively small impact overall.
    If anyone can produce evidence that elderly and disabled 
Medicaid beneficiaries are systematically receiving care they 
don't need, or the States are paying providers too much for 
that care, I would like to see the evidence. What beneficiaries 
are getting too much coverage? What benefits should we not be 
providing? Tell us.
    And while I think we can certainly find common ground when 
it comes to Medicaid flexibility, increased flexibility is not 
going to enable States to reduce Medicaid spending appreciably. 
Medicaid costs are increasing because our population is aging 
and because health care costs, particularly drug prices, are 
rising in both the public and the private sector. Medicaid 
costs should grow because Medicaid fulfills a societal need 
that is growing. If we abandon Medicaid beneficiaries when 
actual and projected costs don't line up perfectly, then we 
will be fully responsible for increasing the number of 
uninsured. So much for the President's coverage goal.
    There are responsible steps we can take to ease the 
pressure on State budgets and protect beneficiaries. We can 
adopt the administration's proposal to increase the Medicaid 
rebates required from drug makers. We can pass a meaningful 
prescription benefit. We can Federalize the qualified Medicaid 
beneficiary program. But our top priority must be to help State 
Medicaid programs weather the current budget crisis so that 
beneficiaries don't lose coverage.
    Peter King, Republican from New York, and I have introduced 
legislation to provide a temporary increase in Federal matching 
funds. The bill would provide $70 million to Connecticut, $217 
million to Florida--not in form of a loan tied to a Federal 
funding cap jeopardizing the future of Medicaid, but through 
direct assistance to protect coverage for current 
beneficiaries. I understand Governors Rowland and Bush oppose 
this legislation. Apparently they don't need help weathering 
enrollment increases associated with economic downturn and the 
unanticipated explosion in prescription drug costs.
    Governor Rowland just cut 23,000 low-income adults from 
Medicaid. Governor Bush plans to cut 20,000 elderly and 
disabled individuals from Medicaid next year. I guess some are 
more entitled, Mr. Chairman, to public dollars than others. You 
can't eliminate a societal need by ignoring it. Medicaid is too 
important for that.
    Mr. Bilirakis. The Chair thanks the gentleman. Under our 
rule, I would appreciate it if members would defer their 
opening statements as much as possible. Governor Bush, I know, 
has another appointment at something like 12:30. He has to 
leave between 12 and 12:30. It is just important that we all 
have an opportunity to question him. But in any case, I will 
recognize the members for 3 minutes, and hope that many of you 
will defer, and now recognize Dr. Norwood for 3 minutes.
    Mr. Norwood. Mr. Chairman, I will defer my opening 
statement in order to gain my 10 minutes worth of questioning.
    Mr. Bilirakis. Eight minutes worth of questions.
    Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman. Mr. Chairman, time 
and time again, President Bush proclaims that our goal is high 
quality, affordable health care for all Americans, and time and 
time again, Mr. Chairman, our President and the Republican 
leadership did not follow up their words with actions.
    In this hearing today, I am sure we are going to hear that 
the President's Medicaid proposal expands access to health 
care, however, in reality this is a proposal that blackmails 
States into block granting Medicaid. By undermining access to 
care for the poor, the sick, and the disabled, the President's 
proposal weakens the health care safety net and, in my opinion, 
adds to the widening credibility gap that is putting him and 
the Republican leadership that support his proposal further out 
of touch with the American people.
    By block granting a large portion of the Medicaid program, 
this proposal simply passes the buck on to hard-pressed States 
like my own, New Jersey. By shifting fiscal responsibility to 
States, the Medicaid Block Grant encourages States to limit 
their liability by capping enrollment, cutting benefits, and 
increasing cost-sharing for millions of low-income people.
    Mr. Chairman, I think we need to strengthen not undermine 
the Medicaid program by supporting an increase in the Federal 
Medicaid contribution. Mr. Brown mentioned the legislation that 
he sponsored, that I have co-sponsored. That bill would provide 
a direct infusion to States of over $9 billion in 2003 alone. 
And I know States are always amenable to flexibility, but this 
kind of legislation is the type of Medicaid relief States 
desire, not a budget neutral block grant.
    Now, I know it was mentioned that this is Cover the 
Uninsured Week, and it is very sad to me to see what has been 
going on. In the time of the Clinton Administration, we 
recognized the fact that there were a significant number of 
uninsured. We tried to establish new programs, expand Medicaid, 
establish the SCHIP program, do additional things through 
Medicare, and we even had additional proposals to try to bring 
more and more people through money infusion to the States, to 
try to reduce the number of uninsured.
    The opposite is happening now under this administration. 
The number of uninsured goes up, and that is because in many 
cases the States don't have the money to continue with SCHIP, 
to cover not only the children but the adults, their parents, 
or even to expand it to include single adults. And I am afraid 
that what we are seeing today is the continuation of the Bush 
Administration policy that would simply say, ``Look, we are not 
going to do anything,'' or ``We can't do that much for the 
States, we have a budget problem, and so you are just on your 
own. We will give you a little more flexibility, but we are not 
going to give you the money so that you can expand and cover 
more of the uninsured.'' And it is very unfortunate. The States 
cannot handle this. In my own State of New Jersey, because of 
the budget crisis, there are going to be more and more people 
that are uninsured.
    The only way that we are going to reverse this is for the 
States to give more money to the Federal Government, not to 
provide some flexibility that ultimately is nothing more than a 
block grant. The numbers show it. The facts show it. The number 
of uninsured are going up. They were going down before this 
administration took office. Thank you, Mr. Chairman.
    Mr. Bilirakis. The gentleman's time has expired. The 
gentlelady from New Mexico, Ms. Wilson.
    Mrs. Wilson. Thank you, Mr. Chairman. I wanted to welcome 
all three of you here today, particularly Governor Richardson 
from New Mexico. You deal with now some of the things that I 
had to deal with in a previous life in dealing with children 
who are abused and neglected and in the custody of the State.
    In New Mexico, we have one of the highest rates of 
uninsured of any other State in the Nation, and 70 percent of 
the people enrolled in Medicaid in New Mexico are children, 
many of them in the custody of the State, often physically 
healthy and emotionally a wreck. And the way Medicaid deals 
with those children is terribly important to our future and 
their access to health care.
    I wanted to highlight the importance of some inter-
relationships here between Medicare and Medicaid and the SCHIP 
program. The Federal Government sets the reimbursement rates 
for Medicare, and most States and private insurance companies 
tie what they pay to what Medicare pays, which is all set by 
the Federal Government, and New Mexico and a handful of other 
States get the short end of the stick because the Federal 
Government pays less in Bernlillo County, or Torrance County, 
or Sandoval County, than they do in Cook County or in Staten 
Island. We don't pay into Medicare based on where we live, and 
we shouldn't be denied access to health care because of where 
we live.
    We need to add a prescription drug benefit to Medicare, and 
that will help you, as State Governors, with your budgets 
because, if we model it on the lines that we did a couple of 
years ago--in New Mexico, for example--by adding a prescription 
drug benefit, $87 million worth of pressure comes off of the 
State Medicaid program that is trying to cover prescription 
drugs for low-income seniors.
    We also need to address the disproportionate share hospital 
issue, and I hope that we will address that this year. There 
are pockets of poverty and areas of hopelessness that we need 
to address. We need to reform this system, and I look forward 
to working with you and with this committee to do so. Thank 
you, Mr. Chairman.
    Mr. Bilirakis. The Chair thanks the gentlelady. If he is 
still there--Mr. Dingell, are you there--you are recognized.
    Mr. Dingell. Good morning, Mr. Chairman. Thank you. I would 
like to welcome our three Governors. Governor Bush, welcome. 
Governor Rowland, welcome. And to our old friend, Governor 
Richardson, a former member of this committee, welcome. It is 
good to see you back in this room. We have missed you.
    I am delighted, Mr. Chairman, to have this hearing. I think 
that this is only the beginning of the inquiry that must be 
made by this committee into the business that we discuss this 
morning. I note that as we are sitting here, the Budget 
Committee is preparing instructions to this committee to cut 
$110 billion out of Medicare and Medicaid. I think we ought to 
see this proposal before us with an appreciation of what it 
means not just to this committee, but to others.
    I am delighted that we have the Governors here. I think it 
would be splendid if we were to be hearing from witnesses who 
are recipients of Medicare and Medicaid so that we can 
understand what these proposals mean to us. It would be very 
useful if we could hear from witnesses on behalf of the 
administration. I would note that this committee is hearing 
this matter with a bag on our head. We haven't got the vaguest 
idea, nor do the three Governors sitting here before us have 
the least idea of what this legislation means because it has 
not been submitted to them or to the Congress. In a word, we 
don't know what is going on here.
    I would note that I would normally counsel my friends, the 
Governors, to read the fine print because I think we have at 
hand here a situation which might best be described as a kind 
of legislative ``bait-and-switch.'' I hope that that is not the 
case, but I think that we are looking at a situation where we 
are going to see block grants, and I would warn the Governors 
that block grants have a way of being cut over time, and that 
the money which would normally appear to be available may start 
out to appear to be available, but when we are done it 
``ain't'' there.
    Having said that, I think that the proposals that I have 
seen and the description I have seen of them coming from 
President Bush are not reform but, rather, a frontal assault on 
the health insurance safety net of this country. Under the 
guise of helping States with fiscal relief, the President has 
proposed capping Federal assistance to the States, ultimately 
shifting more, not less, of the burden to the State. And this 
is going to be sweated out of the hides of the recipients of 
Medicare and Medicaid.
    Some say the proposal is optional, so what is the harm? 
Simple fact of the matter is it is not optional, and it is not 
optional to those who have needs. I believe we need a dialog on 
this matter.
    I would note that the optional populations are an 
interesting group. Illness knows no such designation as 
optional nor should we. An elderly widow living on Social 
Security benefits, a mother of two diagnosed with breast cancer 
through a CDC screening program, or a 7-year-old with cerebral 
palsy living in a rural farm area, these people may be optional 
by the letter of the law, but by the great horn spoon they are 
not optional when we look at their health needs and the 
concerns which they feel and the sheer terror with which they 
confront their health problems.
    I am particularly interested to hear today how our 
Governors think this will affect the long-term benefits and 
others to their residents in their respective States. How will 
this proposal benefit working families who rely on Medicaid to 
care for a disabled child or a frail elderly parent, for 
example?
    And I would note to you that most of the people who lack 
health insurance in this country are working families and not 
parasites who do not seek to work or to carry their end of the 
log.
    There are a lot of needs here. The States need help to 
address the problems of a growing--indeed, a burgeoning--low-
income Medicare and Medicaid population. The Bush proposal 
provides no such relief.
    States need assistance to deal with the cost of 
prescription drugs. There is little, if anything, of that sort 
to be discerned here. The Bush proposal provides, again, no 
such relief.
    States need assistance with the cost of long-term health 
care. There is no sign of that being here. I would note that, 
indeed, we could probably expect that there will be cuts in 
these things, with consequences not just to patients, but 
consequences to providers--to doctors, to nurses, to nursing 
homes, and the hospitals--all of which are in significant peril 
or, indeed, may kindly be described as being in desperate 
straits.
    For more than 35 years, the Federal Government has been a 
partner in this program. It has been a great program and it has 
helped the people of this country.
    I think I should close with a little advice to all 
concerned. I would tell our Governors ``read the fine print,'' 
but there ain't no fine print here before us today, so we have 
no way of knowing exactly what the administration proposes 
except to know that shortly this committee will be receiving 
instructions to cut some $110 billion out of this program.
    I thank you for your recognition, Mr. Chairman. I ask 
unanimous consent to revise and extend my remarks.
    Mr. Bilirakis. Without objection, the opening statements of 
all members will be made a part of the record. The gentleman's 
time has expired.
    I would remind all of the members of the subcommittee that 
I was very pleased to see $3.2 billion in new money in the 
President's budget. That does not connote a cut in Medicare 
services to me. It basically says to us, improve it. We have 
additional money here for those improvements.
    And now the Chair would recognize Dr. Fletcher for an 
opening statement.
    Mr. Fletcher. I will defer to the question period.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman. I am going to put my 
full statement in the record and maybe take just a minute. I 
would like to welcome our guests, and note that Governor 
Richardson looks a little more wide awake than he did on the 
Today Show the other day, but I figure that was 3:30 in New 
Mexico and you got up for that show. Governor Rowland, it is 
good to have you back week after week. And, Governor Bush, 
welcome.
    I would just say I just came from the Republican Conference 
where we talked a lot about the Republican budget, the Nussle 
budget, that is likely to be on the floor next week. We were 
reminded that Medicaid has gone up to the States--Medicaid 
payments to the States--reimbursements have gone up by 78 
percent since Republicans took charge in 1995. However, the 
Nussle budget apparently cuts 1 percent from the baseline for 
Medicaid, which is a 2.5 percent reduction from the President's 
request. And since the Governors are on the front line of 
Medicaid and leading the States to see who is eligible and the 
services that are provided, I will be most anxious to hear from 
you three in terms of what will happen if you look at a 2.5 
percent reduction from the President's request. I yield back my 
time.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. Waxman.
    Mr. Waxman. Mr. Chairman, I am going to make no opening 
statement, and reserve the time for my question period.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. Stupak.
    Mr. Stupak. Mr. Chairman, I will reserve the time for my 
questioning.
    Mr. Bilirakis. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I won't take the 
full 3 minutes, but I would like to just make an opening 
statement because I know the timeframe that we have.
    I was in the Legislature for many years in Texas and 
welcome Governor Richardson. We obviously miss you on our 
committee. And I know what my legislators in Texas are going 
through right now, just like in Florida and other States.
    And the concern I have is our solution is to block grant it 
and provide flexibility. The problem is both on the Federal 
level and the local level, we are seeing so much--I am worried 
we are getting into the quality of the program in particularly 
States like Texas who would not have a rich Medicaid program. 
That is the concern I have, and so many people, particularly in 
urban areas and some of our rural areas, are dependent so much 
on it. I do think we are seeing maybe ultimately the demise of 
the Medicaid program, although I can tell you right now the 
proposal that is on the table, if States can borrow against 10 
years from now under Medicaid, we would do it because, again, 
we have a balanced budget requirement in our State, like most 
States have, and we will do it now to pay it back later, but I 
think the program will be hurt, and that is the concern I have, 
Mr. Chairman.
    Again, I am glad you are going to have a continuing series 
of hearings not just from our Chief Executive of our States, 
but also for providers, for recipients, for everyone else, 
because I think this is too important for us not to delve into. 
Thank you.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. Barton.
    Mr. Barton. Mr. Chairman, I will defer. I do just want to 
welcome my classmate from 1984, Mr. Rowland, and my nemesis on 
the baseball field, Governor Richardson, and our good friend, 
Governor Bush, from Florida. We appreciate you Governors being 
here.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. Burr for 
an opening statement.
    Mr. Burr. Thank you, Mr. Chairman. Clearly, Mr. Barton has 
aged at a much faster pace than his classmates.
    Let me also take this opportunity to welcome Governor Bush, 
Governor Rowland, and our good friend, Bill Richardson. And let 
me stand up for the three of you in your defense. There are 
some of us that believe that Governors do care about the people 
that live in their State; that when you are sworn into office 
it is not to serve as the leader of your State for some people 
and not for others; that when you are in charge of a budget--in 
many cases like North Carolina where ours is mandatory to 
balance--that getting control of a Medicaid problem is an 
important budgetary item, but it is also a great responsibility 
to make sure that those people at-risk are covered in some way, 
shape or form.
    There are some in this town that believe that great ideas 
only come from here and, in many cases, whether you call 
something a block grant or a gift or a stipend, if we send 
along with that money the regulations as to how you have to 
spend it, it does you no good. The fact is that each one of the 
States that are represented here today--and I believe any other 
Governors that we could invite up--have different challenges in 
their States as to how to design their systems if they want 
them to rely on the strength of the health care delivery system 
in that given State.
    My hope--and I believe the President is right--to allow 
more money up front, to allow you to make the structural 
changes that you need to make to fix the health care delivery 
in your State, that it not come with a set of mandates out of 
this institution or this town, that it come with suggestions if 
we believe we have some that are worthwhile, but ultimately we 
leave it up to you. I thank the Chair.
    Mr. Barton. The gentleman's time has expired. The 
gentleman, Congressman Davis, do you wish to make an opening 
statement?
    Mr. Davis. I do, thank you, Mr. Chairman, very briefly. I 
want to welcome my Governor, Governor Bush, as well as the 
other Governors, and briefly state that I understand why 
Governor Bush is here today to promote the flexibility. 
Governor Bush has done some very positive things for the State 
of Florida using flexibility, particularly with the 
developmental disability program, that I think are a model for 
the rest of the country, and he is building upon a tradition 
that Laughton Childs seized in using flexibility in the 
Medicaid program.
    But I think the key point to highlight here, that I am 
hopeful Governor Bush will address, as well as the other 
Governors, in States like Florida where the rate of aging in 
the population is beginning to skyrocket, it is not truly 
reflected yet in the Medicaid budget. By taking the flexibility 
and the additional funds, I am terribly concerned that Florida 
and other States are giving up the additional Federal funds it 
will need in the years ahead as the population grows and ages 
remarkably because, if you study the fine print that Mr. 
Dingell referred to, each of the States that accepts this 
program are being locked-in to a percentage rate of growth off 
your 2002 fiscal year baseline. It does not take into account 
population increase, does not take into account fully the rate 
of increase in aging and the additional mental cost that poses. 
And I am terribly concerned about the long-term implications of 
that to the residents of all of our States.
    I want to close by saying that one of the documents that 
has been presented to this committee in support of the 
administration's recommendation are OMB numbers that show that 
ultimately the goal here behind the President's proposal is to 
reduce the cost of the program and save money to the Federal 
Government. The key question is how is that going to affect the 
folks at home, particularly in States that are growing rapidly 
and aging rapidly. Thank you, Mr. Chairman.
    Mr. Barton. Does the gentleman from New York wish to make 
an opening statement?
    Mr. Towns. I won't use the entire 3 minutes, Mr. Chairman.
    Mr. Barton. The gentleman is recognized.
    Mr. Towns. First of all, let me take the opportunity to 
welcome my former colleagues to the committee, and also to 
thank Governor Bush for coming.
    My concern is Medicaid has been able to respond to the 
change in treatment therapies for AIDS patients because there 
was no cap or block grant of the program. When the cost of new 
innovative therapies increased, Federal Medicaid dollars were 
available to assist States with those rising costs. So I am 
concerned now as to how States will be able to provide new 
therapies to people with chronic illnesses like HIV infection 
if this administration's proposal actually goes through.
    So, I would hope that in your comments that you would 
address this because I think this is a very important issue. 
And on that note, Mr. Chairman, I yield back.
    Mr. Barton. The Chair thanks the gentleman. Does the 
gentlelady from Colorado with to make an opening statement?
    Ms. DeGette. Thank you, Mr. Chairman. I would like to join 
my colleagues in welcoming our distinguished guests, and 
particularly my Governor, the friend to the South, whose seat I 
took on this committee when I was elected to Congress. This is 
a very important hearing. I am looking forward to all of your 
testimony.
    I would like to talk about Medicaid in general, but in 
particular a couple of the programs. I have read the testimony, 
and there is one point on which Governor Bush and I agree, and 
that is that the Medicaid program which was adopted in 1965 was 
created at a different time for a different population. It was 
established for people who were not in general employed. But 
contrary to popular belief, today most of the people in this 
country who are uninsured are working. They are the working 
poor. Nearly 4 out of 5, or 78 percent, of those without health 
insurance in 2001 and 2002 were employed. And Medicaid, in 
1965, never factored in this population or the challenges they 
face. And, similarly, Medicaid never factored in our elderly 
population who is in need of these services.
    In Colorado, 1.2 million people, almost 1-in-3 in Colorado 
under the age of 65 do not have health insurance, and many 
States, because of their fiscal crises, are considering plans 
to cut funding for Medicaid coverage. For example, the Colorado 
General Assembly recently passed and my Governor, Bill Owens, 
signed a bill which eliminates Medicaid coverage to legal 
immigrants. This is going to affect, we estimate, maybe 17,000 
people in Colorado. Now, this affects people like 85-year-old 
women who have immigrated from the former Soviet Union with 
promises that they would be taken care of in the Land of 
Freedom. It affects young Latino children in my district whose 
mothers are working several jobs, but whose employers do not 
offer health insurance. This is going to be devastating to 
these populations.
    Our Nation's public hospitals are also suffering because of 
Medicaid and disproportionate share hospital or DSH cuts. 
Denver Health, for example, is having a huge number of 
increasing people coming in without insurance, but yet in the 
1997 Balanced Budget Act, Congress froze the disproportionate 
share funds.
    The President's proposal is silent on how the funding for 
these providers is going to be treated. It doesn't have a 
separate funding stream, as near as I can see, to deal with 
these folks or to deal with the many millions of children for 
whom SCHIP has been such a benefit in the last 2 years. I am 
interested to hear in the testimony how this will work.
    And, finally, Mr. Chairman, I have a letter in my hand 
dated January 16, and it is from Governor Bush, my Governor, 
Governor Owens, and Governor Rowland, who is here, to President 
Bush and Secretary Thompson about Medicaid. I would ask 
unanimous consent that this be placed in the record.
    Mr. Barton. Without objection, so ordered.
    Ms. DeGette. And the point I want to make about----
    Mr. Barton. The gentlelady's time has expired.
    Ms. DeGette. If I may just finish my sentence.
    Mr. Barton. Finish your sentence.
    Ms. DeGette. Thank you, Mr. Chairman. The point I would 
like to make is that all of the Colorado programs that I know 
of in this letter could continue without any fundamental 
changes to the Medicaid program. Thank you, Mr. Chairman.
    Mr. Barton. Thank you. And thank you for talking in 
complete sentences, that was excellent.
    Ms. DeGette. Always glad to help, Mr. Chairman.
    Mr. Barton. Does the gentleman from Louisiana wish to make 
an opening statement?
    Mr. John. Yield.
    Mr. Barton. Does the gentleman from Michigan, Mr. Rogers, 
wish to make an opening statement?
    Mr. Rogers. Not at this time.
    Mr. Barton. The Chair would recognize Mr. Stearns of 
Florida to personally welcome his Governor, and ask Mr. Upton 
to take the Chair.
    Mr. Stearns. Thank you, Mr. Chairman. I just want to 
welcome the great Governor from Florida, Mr. Bush, and our 
colleagues from the House, Mr. Rowland and Mr. Richardson. 
These are great individuals who served with distinction here in 
the House, and so it is always a pleasure to welcome our 
colleagues back.
    For Governor Bush, I have touted his consumer directed care 
on the House floor, and also talked about his preference for 
home and community based care over institutionalizing our 
disabled. So I think he is to be commended, Mr. Chairman, for 
his initiatives here, and I thank all of them for coming on the 
floor.
    And thank you, Mr. Chairman. I just want to make my opening 
statement a part of the record.
    Mr. Upton [presiding]. Mr. Deal, would you like to make an 
opening statement?
    Mr. Deal. Pass.
    [Additional statement submitted for the record follows:]

    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California

    Today we will hear from several of the Nation's Governors on the 
current state of Medicaid, and their views on what can be done to make 
the program work better in serving the 47 million vulnerable Americans 
who depend on it.
    This hearing occurs against a backdrop of extremely difficult 
fiscal times for our States, and an clear need for increased Federal 
assistance to help maintain Medicaid services during this economic 
downturn. And obviously, this hearing is held against the backdrop of a 
proposal from the Administration which would take the first steps 
toward block granting the Medicaid program, removing vital protections 
for beneficiaries, and capping the Federal commitment to bear its fair 
share of the cost of the program.
    Let's be clear: the Bush Administration's proposal is very bad news 
for the vulnerable people who depend on help from the Medicaid 
program--

--most of the people in nursing homes--in fact nearly 5 of every 6 of 
        this vulnerable population,
--the wives and husbands left alone in the community who need enough 
        money to live on when their spouses have to go into a nursing 
        home so that they can avoid impoverishment,
--at least one-quarter of the disabled people covered by Medicaid, 
        including severely disabled people who need help in order to 
        stay in the work force,
--many of the children now covered in the program, as well as many of 
        the pregnant women,
--people with AIDS who depend on Medicaid help for their life-saving 
        drug therapies,
the list goes on and on. In fact, there is hardly a current beneficiary 
who is not at risk under the Administration proposal because of the 
simple fact that this proposal caps the Federal financial commitment 
and severs the link between Federal support and the cost and eligible 
population growth in any given State.
    Instead of giving States the fiscal relief they need to maintain 
their Medicaid programs, the Bush proposal is an outrageous attempt to 
use the current fiscal crisis to entice States to give up their open-
ended access to Federal funds and to agree to block grant the program.
    There had been a great deal of attention to the carrot the Bush 
Administration has put on the table to bribe States to give up the 
long-term Federal support that under current law is inherently part of 
Medicaid. The Administration promises a short-term loan of some $3.25 
billion next year, and a total of some $12.7 billion over the next 
several years--all of which has to be paid back through reduced Federal 
funding in the following three years--to States which agree to the 
block grant. Not only is this increased funding clearly insufficient, 
not only does it have to be returned out of future budgets--but it 
masks the real long-term fiscal threat to any State that takes up the 
offer: a cap on future matching payments. It is unconscionable that the 
extra assistance has to be paid back. But even if it didn't, closing 
the end on the Federal share of the program--determining it by formula 
unrelated to a State's expenditures, is the real dagger pointed at the 
heart of Medicaid.
     This Administration has made the calculation that Governors, 
understandably desperate for fiscal relief now, will ignore the long-
term fiscal plight in which they will place their States if they agree 
to a cap on Federal support for Medicaid. I think this demeans the 
Governors, and is a cynical attempt to deny fiscal help now to States 
that stand up for their future rights and refuse to accept a future cap 
on Federal funds.
    Over a long history of block grant programs, we know that once an 
artificial cap on Federal funds is in place, ultimately significantly 
less Federal funds will be available. The fact that the Administration 
has proposed an increase factor, based on a nationwide formula, does 
not change that fact one wit. Once an artificial limitation is in 
place, future increases in need, cost, and demand will no longer be the 
Federal government's problem.
    This is particularly ironic and troublesome given the aging of the 
population and the critical role Medicaid plays in providing nursing 
home and community care services.
    The very area States have identified as the one that should 
ultimately be a Federal responsibility is one for which the Federal 
government is capping its contribution.
    All of us are willing to consider views of the Governors and of the 
beneficiaries Medicaid serves to see what legislative changes would 
improve the program. We know that immediate help in the form of an 
enhanced Federal match is critical. And adjustments to make the program 
work more efficiently and effectively should of course be considered.
    But asking Governors to pick short-term fiscal relief over long-
term Medicaid support is wrong. It is bad for the States' ability to 
provide coverage to their needy citizens. And the ultimate losers will 
be the people who depend on the program.
    The Administration has tried to mask the effect of their proposal 
by claiming that ``mandatory'' populations will be protected. The 
implication is that the poorest will be protected. That is wrong. It 
implies that this population will be unaffected. That is wrong. Match 
for critical services like prescription drugs would face limited 
funding through the block grant. Further, there has been no assurance 
that growth in payments for the population that still gets the regular 
Federal match would not further reduce the block grant funds available.
    This Administration has made no secret of its desire to get out of 
the open-ended financial obligation that they have with the current 
Medicaid program. They know that the population is aging, that services 
for baby boomers are on the horizon, that expenditures for prescription 
drugs are increasing at double digit rates, that as the technology to 
deal with severe disabilities increases costs do as well. They want to 
insulate themselves from these fiscal problems and leave them in the 
lap of the States.
    This is the Administration that refused to support the bipartisan 
Senate bill that passed overwhelmingly that would give an immediate 
increase in Federal matching funds to all the States.
    This is the Administration that let funds lapse under the SCHIP 
program to provide health care coverage for low-income children.
    This is the Administration that puts tax breaks for high-income 
people way above any help for low and middle income people.
    Make no mistake: if the Congress passes this proposal, it will mean 
more uninsured people, more vulnerable people who will not be able to 
get the services they need, more tragedies for America's families 
trying to care for aging parents, disabled children, and kids with 
special needs.
    It would mean a tremendous shift of responsibility to the States 
without adequate Federal help.
    It would mean the end of Medicaid, and a loss of its protections 
for the nearly 47 million Americans that depend on it.

    Mr. Upton. That concludes the opening statements. 
Governors, welcome to the full committee, particularly Governor 
Bush, we appreciated the welcome you gave to my Wolverines in 
the Orange Bowl on January 1. Governor Bush, we will start with 
you. Your statements are all part of the record, and if you 
would limit your remarks to about 5 minutes or so--I know they 
are expecting votes close to 11 o'clock for us. So, Governor 
Bush, welcome.

 STATEMENTS OF HON. JEB BUSH, GOVERNOR, STATE OF FLORIDA; HON. 
JOHN G. ROWLAND, GOVERNOR, STATE OF CONNECTICUT; AND HON. BILL 
           RICHARDSON, GOVERNOR, STATE OF NEW MEXICO

    Governor Bush. Thank you, Congressman Upton, and I want to 
thank Congressmen Stearns and Bilirakis and Davis for being 
great Floridians and representing us so well up here in 
Washington. I was going to say something nice about Congressman 
Dingell. My dad told me to do that. It doesn't help much, but 
it is a joy to be with him and I appreciate the fact that he 
came to this subcommittee meeting.
    Rather than read what I was going to read, I want to 
respond to some of the concerns. First of all, I am not here 
and I don't believe that my fellow Governors are here to defend 
a concept that hopefully will be thoroughly discussed--
Congressman Brown and others that have expressed--we don't know 
what the fine print is, but yet you all seem to have defined 
the fine print in your own terms. I don't know what the fine 
print is either, but I do know--I do know--any proposal that 
does not deal with reforming the system will create significant 
problems for all State governments. If we do nothing, we almost 
assure that there is going to be reduction in the number of 
people that are receiving care from Medicaid. I believe that 48 
or 49 of the States have either proposed cuts in this year's 
upcoming budget in terms of the number of people eligible, or 
have already done so.
    Reform is essential for many reasons, but one of them is to 
protect the people that are already receiving Medicaid because 
it is such an important insurance benefit for so many people.
    I think by providing flexibility, that we can embark on a 
period of time where reform is the norm, where new ideas and 
innovations are the norm rather than the exception. I 
appreciate the fact that Washington has allowed us to take 
advantage of Medicaid waiver requests and they have come faster 
than before, and we are very appreciative of that. But managing 
the waivers is a complicated process, and a cumbersome one at 
best.
    So, I would hope that the National Governors Association, 
in a bipartisan fashion, working with Congress and the 
administration, could come up with meaningful reform that gives 
us flexibility, that allows us to protect the growing Medicaid 
populations that we have--Congressman Davis, I concur with your 
assessment completely, that if we are locking into a budget 
allocation over a 10-year period without having any recognition 
of the fact that some States grow faster than others, then that 
would be a difficult--we couldn't participate in that both 
because of the aging of our population as well as just the 
ongoing growth. We have 250,000 children brought into the world 
each year in our State. Roughly 45 percent of them are financed 
by Medicaid. We have a growing population of the 
developmentally disabled. We have provided care over the last 4 
years. We have added 25,000 new people on those rolls through a 
Medicaid waiver program, and those numbers are growing. So any 
reform has to recognize that there is a baseline growth that is 
different for every State.
    Having said that, an 8 to 9 percent increase in the 
Medicaid budget, which is about where we are today--in the 
State of Florida, that is $1 billion a year--will mean that in 
12 years our State budget will be completely--the budget we 
have today, the $52 billion budget, that is the size of our 
Medicaid budget in 12 years' time. That is not a sustainable 
amount. No matter how generous Washington wants to be to 
provide support for the States, we cannot sustain that type of 
growth. There needs to be significant reform so that we focus 
more on prevention to lessen the cost of health care, that we 
are creative in providing benefits that Medicaid beneficiaries 
want--and I will give you one example, and I will conclude.
    The SCHIP program is a great example of how, in partnership 
together, Washington and States have provided health care 
insurance for moderate and lower-income Floridians and 
Americans. It is a great program. Medicaid beneficiaries would 
opt into that program if they were given that chance because it 
has higher a quality set of providers, a more expansive list of 
providers. It has the kinds of options that families need. It 
is not as demeaning in many cases as it is, sadly, for many of 
the Medicaid beneficiaries in terms of their access to health 
care. It requires a co-payment. It requires deductibles. But it 
is a wildly successful program. And because of that, now 94 
percent of all the children that are eligible for Medicaid or 
KidCare are receiving it. It is the vehicle by which we have 
attracted many lower-income Floridians' families to be able to 
receive the Medicaid insurance policy that they are qualified 
to receive. Were it not for that KidCare or SCHIP program, we 
would have lagged behind. And so that, to me, is one of the 
models that we should emulate. I guess that's a block grant, I 
don't know, but it is incredibly successful, and our State is 
the third largest provider of SCHIP insurance in the country 
because people have embraced it. And that is, to me, the type 
of thing that working together we can achieve.
    And I will conclude by urging the Congress to work with the 
Governors. We hope to have a group under the leadership of 
Governor Patton and Kemfor--we hope to have a group prepared to 
negotiate to take the best practices that we have used in a 
wide variety of different areas, in curbing costs and expanding 
benefits, to work with Congress and the administration to build 
a Medicaid system that won't be forced to cut people off over 
the long haul. Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Jeb Bush follows:]

    Prepared Statement of Hon. Jeb Bush, Governor, State of Florida

    Chairman Tauzin, Chairman Bilirakis, Congressman Dingell, 
Congressman Brown, and Members of the Committee, good morning. Thank 
you for the opportunity to speak to you today about Medicaid--the 
nation's health program for lower income Americans.
    The Medicaid program has now surpassed Medicare as the single 
largest health insurance program in the nation. As the nation's major 
health insurer of low-income families, the elderly and the disabled, 
Medicaid spending nationally exceeded $250 billion in fiscal year 2002. 
The program consumes more than 20 percent of state budgets and 
represents a growing and significant portion of the federal budget. 
Medicaid enrollment is growing at annual rates of more than 6 percent, 
and spending is increasing nationally at a rate in excess of 13 
percent.
    Two weeks ago, the Nation's governors met here in Washington and 
agreed that the reform of Medicaid was an urgent priority. Secretary 
Tommy Thompson requested that the National Governors' Association form 
a Medicaid Reform Task Force to work with the Administration and 
Congress NGA is formulating the Task Force and expects to soon have a 
formal announcement. I have already agreed to participate.
    Prior to the NGA winter meeting, Connecticut Governor John Rowland, 
Colorado Governor Bill Owens and I wrote to President Bush and 
Secretary Thompson. In our January 16th letter, we provided a profile 
of today's Medicaid beneficiaries, shared our thoughts and concerns 
about the program, and offered suggestions and support for reforming 
Medicaid. We must resolve not merely to tweak an old system. We must 
seize the opportunity to create a new system that honors the original 
vision of Medicaid while also recognizing that our society and health 
care system have changed dramatically over the 38 years since its 
inception.
    I believe Florida can serve as a model for discussing Medicaid 
reform. On the one hand, we are the very picture of the future of the 
United States, given our population growth, our cultural diversity and 
our large number of seniors. On the other hand, while we have 
implemented several programs designed to improve access to appropriate 
services, those programs have also helped us to highlight the barriers 
to a more flexible, responsive system. My hope is that this hearing 
will set in motion a national discussion on Medicaid reform.

                       FLORIDA'S MEDICAID PROGRAM

    Let me begin by reviewing how Medicaid serves Floridians.
    Medicaid currently provides health insurance for more than 2 
million Floridians, or over one-eighth of our population--and finances 
more than $11 billion of our state's health care expenditures.
    Medicaid provides health care coverage to our most vulnerable 
populations--children in lower income homes, the aged and the disabled. 
For these Floridians, Medicaid has enhanced their access to care, 
improved their health, and contributed to their quality of life.
    The program currently serves more than 45 percent of the state's 
pregnant women, provides care for more than 1.2 million children, 
offers acute and chronic care for 330,000 disabled individuals, 
supplements Medicare coverage for 288,000 seniors, provides coverage 
for more than 20,000 of our AIDS victims, and pays for 60 percent of 
nursing home days for approximately 47,000 seniors.

                             THE CHALLENGES

    Florida's experience also demonstrates that the Medicaid system has 
endemic problems--problems that cannot be fixed by a growing economy or 
by one-time adjustments in the federal matching formula. Many of these 
problems are due to the vast changes that have occurred in our society 
over the past several decades--changes that could not have been 
anticipated by the original designers.
    I'd like to outline briefly five challenges we face in Florida--
population changes, disease prevention, diminishing provider networks, 
red tape, and unpredictable program costs.

                           POPULATION CHANGES

    Medicaid was adopted in 1965--at a different time, for a different 
population, to finance a different health care system. Nevertheless, 
Medicaid today is largely unchanged from what it was nearly four 
decades ago. It is tethered to an outmoded insurance model that does 
not fully accommodate the changes in the marketplace or reflect the new 
faces of our Medicaid populations.
    The dramatic population shifts across the nation are especially 
visible in Florida. The table below illustrates just some of the 
demographic changes that have occurred in our state since Medicaid was 
created.

                     Florida--1965 Compared to 2000
------------------------------------------------------------------------
         Characteristic                  1965                2000
------------------------------------------------------------------------
Total Population................  5,954,000.........  15,982,378
% Elderly.......................  11.2% (1960)......  17.5%
Ages 5-17.......................  23.7%.............  16.9%
National Rank Population........  10th (1960).......  4th
Foreign Born....................  272,000...........  2,400,000
  Percent of Total Population...  4.6%..............  15%
Life Expectancy.................  69.7 (1960).......  76.9
Per Capita Income...............  $2,498............  $27,764
% Below Poverty.................  26.5%.............  12.5%
High School Degree..............  41.1% (1960)......  84.0%
------------------------------------------------------------------------
* Note: Data are from 1965 and 2000 unless indicated.

    Medicaid was originally created to provide benefits to those 
receiving public assistance and having exceedingly low incomes. Today, 
many beneficiaries work and have incomes above the poverty level and a 
substantial percentage no longer receive publicly financed economic 
assistance. Typical health care needs have changed from acute care to 
chronic and long-term needs; and Medicaid increasingly serves as a 
supplement to Medicare. We see more beneficiaries entering our program 
who have worked and have had positive experiences with commercial 
insurance plans. They come into the Medicaid program with an 
expectation and desire to be treated as active participants in their 
own health care decisions.
    The current Medicaid system, however, has not adapted to any of 
these changes. For example, 47,000 Floridians are potentially eligible 
for consumer-directed care, but only 1,500 participants are permitted 
under the federal cap on Florida's waiver. As a result, a 38-year old 
quadriplegic living in Key Largo without consumer-directed care must go 
to bed at 5:00 pm every night, because the assistance he needs is only 
available through agency health providers until that hour. Without the 
ability to direct his own care and choose his own providers, he has 
lost his independence and dignity in choosing his bedtime.
    A mother with two children contacted us to say that her two 
children--ages 10 and 5--had been members of the S-CHIP, Florida 
Healthy Kids. She appreciated its affordability and the coverage it 
offered her family. In May 2002, she lost her job, and needed to apply 
for food stamps. While she was not informed, Medicaid rules required 
that her youngest daughter move out of the Healthy Kids program and 
into Medicaid. After finding work three months later, the mother 
requested that her daughter be re-enrolled in Healthy Kids, but was 
told that the child had to remain in Medicaid for another 9 months. At 
this time, her 10 year old was also removed from the S-CHIP program and 
enrolled in Medicaid
    The current Medicaid system is increasingly isolating beneficiaries 
from personal choice and common sense answers to today's health care 
dilemmas.

                      LACK OF FOCUS ON PREVENTION

    Despite the billions devoted to Medicaid in Florida there is 
substantial dissatisfaction with the program. Beneficiaries have 
trouble finding doctors who will accept Medicaid. Specialists and 
continuity of care are particular problems. Patients struggle with 
chronic diseases and their long-term effects. Medicaid focuses on 
treatment and allows very little for prevention.
    In order to design a system that focuses on prevention, it would be 
necessary to provide incentives to those we contract to run our 
delivery systems (HMOs, EPOs), using prevention to improve the health 
of our beneficiaries and lower short-and long-term costs. It would also 
be important to reimburse health care providers using a fee schedule 
that places value on prevention. The system permits payments to treat 
and rehabilitate a stroke victim, but does little to encourage 
preventing the stroke in the first place through blood pressure 
control, education and counseling. By focusing on treatment rather than 
prevention, the current Medicaid system has its priorities reversed.

         HEALTH CARE PROVIDERS ARE LEAVING THE MEDICAID SYSTEM

    Frustrations are spilling over from our patients to our providers. 
Federally mandated services and the burdensome costs of administering a 
disjointed system leave very little room in Florida's Medicaid budget 
to adequately compensate doctors, hospitals, and other health care 
providers. Many of our health care providers are no longer willing to 
participate in the Medicaid program due to the rules and regulations 
that have become more complex, and have compromised their ability to 
provide the best care.
    Consider that a child with cerebral palsy living in Volusia County 
must travel to Hillsborough County--a five-hour round trip--to see a 
neurologist and orthopedic surgeon to treat chronic back pain. Lack of 
local providers willing to participate in Medicaid reduces access to 
health care, and worse, perpetuates an inferior tier of care. This is 
only one example of the failures of the Medicaid program, but similar 
failures occur daily.
    Florida has sought to offer new opportunities for care, but we are 
limited when we cannot keep providers in the system. Medicaid patients 
should not have to rely on emergency room services, or have to delay 
receiving care because of limited providers available for coverage. 
Last year, non-critical Medicaid visits to Florida's hospital emergency 
rooms cost the system more than $40 million.

                           TOO MUCH RED TAPE

    Bureaucracy is also isolating our patients from care. Providers 
constantly complain about the difficulty of navigating patients through 
the current system--with its paperwork and low fees. Patients also must 
maneuver the system, and are equally discouraged. There are costs 
associated with time delays, approvals, needless paperwork, and 
processes for monitoring each individual component of our state 
program. Current inefficiencies and bureaucracies also create an 
atmosphere for fraud and abuse. These additional costs are burdensome 
for all, and dilute health care resources.
    To provide a more patient-focused system, Florida has implemented 
waivers to attain some flexibility in meeting the needs of our 
beneficiaries. We have welcomed the spirit of cooperation between the 
Administration, HHS, and the states in addressing Medicaid issues. We 
appreciate their effort to grant the states new flexibility and 
opportunities for innovation through measures like the Health Insurance 
Flexibility and Accountability waiver process.
    However, managing multiple waiver programs on top of the federally 
mandated Medicaid program has become a challenge in and of itself. 
Florida has seized the opportunities afforded by federal Medicaid 
waivers, but a better system would eliminate the need for waivers by 
building flexibility in as a guiding principle.

                              EXPENDITURES

    The bottom line is that Medicaid is not serving the needs of those 
it is meant to serve. If that isn't frustrating enough, the program 
costs are unpredictable and growing rapidly.
    Virtually all states are facing unsustainable growth in Medicaid 
costs, and the nation's Medicaid price tag now surpasses that of 
Medicare. Florida ranks 4th nationally in beneficiaries and 6th in 
spending. Our state spending is now increasing by an average of $1 
billion annually. Spending has nearly doubled in just six years. 
Florida Medicaid now represents more than 22 percent of the state's 
budget.
    The number of Florida Medicaid patients is growing by more than 8 
percent per year. One in eight Floridians are covered by Medicaid. One 
in three Floridians get their health insurance coverage through either 
Medicare or Medicaid. In just 12 years, at current growth rates, 
Florida's Medicaid costs will equal today's entire state budget.
    These are only five of our daily challenges. Populations continue 
to change, needs are shifting, providers are dwindling, red tape is 
growing, and costs are spiraling. Medicaid beneficiaries deserve a 
better system of care. The size of our joint federal and state 
investment demands reform.

                       CONFRONTING THE CHALLENGES

    While we believe that a new Medicaid system is a necessity, that 
belief has not stopped us from implementing reforms to make the old 
Medicaid system work better.
    Let me highlight what we have done in Florida to enhance Medicaid 
services for beneficiaries.

 In the early 80s, Florida implemented home and community-based 
        services for our citizens who are disabled and elders. We 
        participated in a demonstration to test consumer directed care, 
        allowing beneficiaries more discretion in planning for and 
        buying their services. Expanding this effort of choice and 
        control for other beneficiaries requires further permission 
        through waiver approval--a timely process that delays and 
        limits access.
 We have expanded drug coverage for our seniors, while 
        implementing a comprehensive prescription drug cost management 
        program--one that preserves benefits but uses aggressive 
        utilization monitoring measures, oversees prescribing and 
        benefit use, secures supplemental rebates from manufacturers, 
        and promotes the use of preferred products. These efforts to 
        serve this Medicare population have been important to 
        maintaining the health of those seniors who qualify. Until a 
        Medicare prescription drug benefit is enacted, there are still 
        many who do not have coverage.
 Recognizing that 50 percent of our spending is devoted to 5 
        percent of the population, we implemented a large disease 
        management program. We've developed partnerships with drug 
        manufacturers to prevent disease, engage and educate our 
        beneficiaries and encourage healthy lifestyles.
 This includes our groundbreaking public-private partnership 
        with Pfizer, Inc. and 10 of the state's largest hospital-based 
        health care systems to help more than 80,000 patients diagnosed 
        with asthma, hypertension, heart failure or diabetes to manage 
        these chronic diseases and their health. With Pfizer, we have 
        also launched a large-scale Health Literacy program. Knowledge 
        is power. Literacy and understanding are the keys to self-
        sufficiency, and the ability to participate fully in the care 
        of one's health. As successful as these initiatives are in 
        maintaining good health and avoiding costly treatment 
        alternatives, expanding it into the mainstream can only be 
        achieved through the flexibility of reform.
 Fraud and abuse are problems facing all payers and states. In 
        Florida, we are working to minimize the problem. We have done 
        this by quantifying the extent and nature of the issue, and 
        where it is occurring. This effort has led to the utilization 
        of new software in order to develop better profiles of 
        potential fraud and abuse. We are limiting provider networks, 
        using more sanctions, expanding investigations, and increasing 
        background checks. We will continue this effort to safeguard 
        our limited health care resources.
 We've greatly expanded the percentage of our population 
        receiving managed care, not just through health maintenance 
        organizations (HMOs), but through new provider owned and 
        operated networks, minority physician networks, exclusive 
        provider organizations (EPOs), and emergency department 
        diversion programs. These are examples of meeting the distinct 
        needs of the people in Florida. Taking ideas from the drawing 
        board to reality requires a lengthy process of approval and 
        limitations that hinder progress.
 In working with the state legislature, one of my highest 
        priorities has been to provide a better system of care for 
        Floridians with disabilities. Funding for the developmentally 
        disabled population has increased by more than 100% during my 
        administration. The state provides our disabled citizens a 
        meaningful choice of home and community-based supports, rather 
        than institutional care. Medicaid reform will offer more 
        flexibility for consumers and their families, and done 
        properly, will enable the state to manage the costs more 
        effectively by targeting the appropriate services for the 
        individuals' needs.
 Florida is also financing new residential programs for 
        emotionally disturbed children, nursing home diversion 
        programs, and has implemented breast and cervical cancer 
        coverage statewide. Florida would like to do more in these 
        emerging areas and others, but is constrained by the 
        inflexibility of the Medicaid program. For example, we have 
        been working for the past six months on federal waiver approval 
        to implement a demonstration adult day health care program. 
        However, the waiver is focused in a two-county area for only 
        100 daily placements. Despite sound reasons for seeking federal 
        waivers, and successful demonstrations in other states, federal 
        regulations do not guarantee waiver approval even after a 
        lengthy process.
 We have the third largest State Children's Health Insurance 
        Program (S-CHIP) in the nation that together with Medicaid is 
        reaching 80 percent of those eligible. S-CHIP has been good for 
        our children and stands out as a model federal/state 
        partnership.
    We have implemented these initiatives in Florida while reducing the 
growth in Medicaid spending by $1.3 billion from 1999-2002--without 
major changes in eligibility or benefit coverages.
    I have no doubt that other states have implemented Medicaid reforms 
that also provide a glimpse of what a more flexible Medicaid program 
might look like. But please make no mistake. None of Florida's 
innovative programs represent comprehensive reform. While these ``band-
aids'' make an outdated system work better, they do not create a new 
system.

                           REFORM PRINCIPLES

    In our January 16 letter, Governors Rowland, Owens and I suggested 
that it is time to fundamentally rewrite the nation's Medicaid law. In 
order to modernize this program, we need to reaffirm its purpose, 
assure its long-term viability and establish a set of guiding 
principles.
    We have the opportunity to restructure the program to increase 
access for the uninsured, improve treatment outcomes, promote private 
sector coverage, and lower future-year costs. Our goal should be to 
create a program that is grounded in patient access, preserves the 
dignity of the patient, and is predictable in terms of cost.

                             PATIENT FOCUS

    I believe that the Medicaid program should be modified to encourage 
beneficiaries to be active participants, make informed choices, and 
direct their own care. The system should assist a family in identifying 
their specific needs and choosing the right plan for those health 
concerns. Emphasizing current screening components of the Medicaid 
program, we can determine patient needs and establish a medical 
relationship that addresses their personal requirements, and is 
seamless to Medicaid providers.
    This focus is critical to families who participate in the current 
program--about 50 percent of Medicaid beneficiaries in a 2000 
nationwide study by George Washington University reported at least one 
stigma-related problem with receipt of Medicaid. They suggested that 
the application process is humiliating, with unfair personal questions, 
and they felt that they were treated unequally by physicians. They felt 
badly about themselves, and believed that others had a misperception 
that the Medicaid program is only for those receiving welfare. These 
problems can often times lead to a delay in primary care until a 
beneficiary's health becomes critical.
    This dissatisfaction has been shared with us through feedback from 
our Florida beneficiaries. Family after family has indicated that they 
would trade their Medicaid for S-CHIP like coverage and pay for it, but 
states are prevented from allowing these choices. Like S-CHIP, 
beneficiaries could contribute to the cost of their care through 
policies that use incentives for good preventive care, appropriate 
utilization, and sound decision-making regarding their family's needs.
    When used properly, beneficiary cost sharing can improve health 
care. For example, if states were able to use meaningful but affordable 
co-payments for the non-emergency use of emergency rooms, patients 
would have an incentive to see their physician more regularly for care. 
The result would be better treatment and preventive care, with more 
emphasis on total well-being.

                              FLEXIBILITY

    Medicaid is today largely what it was in 1965. Unlike other public 
programs, it has not been modernized. It still has many of the original 
eligibility and benefit mandates, discourages personal responsibility, 
encourages dependency, and limits cost sharing. The program emphasizes 
treatment rather than prevention, and does not reflect the new health 
care marketplace, the changing demographics of Medicaid beneficiaries, 
and new options tested by the states through waivers.
    Extensive state plan and waiver standards and processing 
requirements are unwieldy and time-consuming. Although states have 
served as laboratories to test innovations in health care, we are 
constrained under the current outdated Medicaid model. State 
flexibility will create economies, lead to further innovation, and 
facilitate the spread of best practices between states. Flexibility 
will allow a state to tailor its program to fit its unique needs, even 
community by community. Truly, one size does not fit all. States should 
have the additional flexibility to partner in innovative ways with 
cities and counties in providing health care through locally designed 
networks.

              CHOICE OF COMMERCIAL MODELS-PRIVATE OPTIONS

    The nation's most recent work in designing a health insurance 
program was with S-CHIP in 1997. I commend Congress and the Governors 
for this outstanding effort, and for the legacy it is creating. It 
required states to use commercial coverage as the benefit standard, and 
providers and consumers alike have given high marks to the results. I 
believe the development of an S-CHIP-like model could be a roadmap for 
Medicaid reform.
    Across the country, we applaud our private health insurance system, 
but that system is increasingly a public one. One of four Americans 
gets their health care through Medicare, Medicaid, and S-CHIP. As 
encouraged by the S-CHIP statute, through buy-ins and subsidies, we can 
promote private coverage.

                       SIMPLIFIED ADMINISTRATION

    Many potential beneficiaries delay Medicaid participation to avoid 
the difficult, and often humiliating administrative process. New 
flexibility will encourage earlier access to health care, and healthier 
patients.
    Medicaid beneficiaries have extensive application hurdles. Provider 
billing is complicated and medical record requirements are extensive. 
Simplification through HIPAA will help, but I think there are many 
other things we can do to simplify the administration of the program.
    In Florida, we are trying to further limit administrative costs and 
reduce burdens on our beneficiaries by out-posting eligibility workers, 
shortening and streamlining eligibility applications, using passive 
eligibility re-determinations, using presumptive eligibility, 
coordinating eligibility between public programs, expanding provider 
electronic billing and remittance, and limiting attachments to claims. 
These efforts help maintain the dignity of those in the program, and 
control costs. Flexibility will allow us to eliminate many of these 
barriers.

                             AFFORDABILITY

    If we reform Medicaid by emphasizing the first four principles, we 
will also realize our final principle, and that is affordability. We 
simply must get a handle on the exploding costs of this program.
    The Medicaid program has now surpassed Medicare as the single 
largest health insurance program in the nation, covering 44 million 
Americans. The nation's governors and state legislatures are struggling 
to balance their budgets, some are facing billions in deficits, and 
many have been asking for immediate fiscal relief.
    I urge you to recognize that spiraling Medicaid costs are not 
merely a budget issue. Any program in which costs spiral out of 
control--no matter how noble--severely limits our ability to fund other 
state priorities that also enhance our quality of life and which our 
people clearly want to fund.
    These are basic principles--patient focus, flexibility, choice, 
simplification and affordability. With reforms that address these 
principles, Medicaid should ensure that we get both good care and good 
health.

                            A REFORM AGENDA

    While Congress has updated the Medicare program several times since 
its enactment, there have been few attempts to reform the Medicaid 
program. No matter how successful states have been in stretching the 
muscles of the Medicaid program to compensate for the lack of 
meaningful reform--these efforts will only take us part of the way.
    As a first step to reform, I would like to offer the following 
specific suggestions:

 Tailor a program to meet the needs of different populations. 
        Medicaid could have many parts providing different coverages 
        for different populations to meet different needs. It might 
        include a core package of benefits, a long-term care package, 
        and a supplemental package for lower income individuals with 
        specific chronic health conditions.
 Recognizing S-CHIP as an example of how comprehensive, 
        affordable packages can be crafted, we should consider state 
        proposals to design benefit packages that look more like 
        commercial models.
 Encourage Medicaid beneficiaries to be active participants in 
        the program by making informed choices, directing their own 
        care, sharing in the cost of their care, and helping to control 
        program costs.
 States should be provided with greater flexibility in 
        determining their Medicaid program designs and addressing the 
        needs of their unique populations.
 Recognize state and federal funding limits. We want to provide 
        care for those in need and seek their active participation in 
        managing their health. We recommend moving away from 
        entitlement without responsibility and encourage the 
        recognition of the capabilities of beneficiaries.
 Reverse recent trends and encourage choice through private 
        health insurance, and supplementing costs when necessary.
 Promote better integration and collaboration between Medicare 
        and Medicaid programs for common populations and break down the 
        distinct walls between acute and long-term care.
 Modernizing Medicare, including a prescription drug benefit, 
        would provide an essential step in advancing Medicare reform 
        and assist state Medicaid programs.
 Focus on healthy lifestyles and promote personal 
        responsibility.
 Consider mental health reform as an important component of any 
        Medicaid restructuring.

                         THE FUTURE OF MEDICAID

    The current Medicaid system simply cannot be the best system 
possible. Across the nation, patients feel stigmatized and families 
have inferior access to care, providers are abandoning the system and 
costs are exploding. Florida does not have all the answers to these 
problems, but our experience does suggest that a better model for a new 
Medicaid program is not unrealistic.
    I believe that this Congress has the courage and the vision to see 
what is working in the Sunshine State and in other states. I believe 
that this Congress can craft a new program for the nation that will 
serve our people better. I believe that this Congress has its work cut 
out for it, but we all must proceed as if lives depend on our very 
actions. They surely do.

    Mr. Upton. Thank you, Governor Bush.
    Welcome, Governor Rowland.

                STATEMENT OF HON. JOHN G. ROWLAND

    Governor Rowland. Thank you, Mr. Chairman. First, we would 
like to thank you for the opportunity to present some of our 
ideas and some of the suggestions we have for what we think is 
a work-in-progress.
    I certainly appreciate the comments made by the members, 
and what I would like to also do is respond to some of the 
comments. Congressman Dingell came to the NGA meeting a few 
weeks ago and made some of the similar comments, and talked 
about reading the fine print. And at that time, I responded by 
saying that the Governors of this Nation would like to help 
write the fine print. And we fully recognize that we have the 
most to lose or gain, that the Congress is very busy. You have 
numerous issues to direct your attention to, and when all is 
said and done, this is a plan that allows Governors, Republican 
and Democrat, to better manage their budgets but, more 
importantly, to better serve our constituents.
    So I wanted to respond to some of the comments I have even 
read in the papers from Members of the Congress that have said, 
``Well, we can't possibly allow this reform to go back to the 
States because the Governors and the Legislatures, they don't 
really care as much about the constituencies as we do.'' And I 
would like to add that we do this for a living, all of us and, 
believe it or not, the days of Governors coming to Washington 
just asking for more money are over. Of course, we would all 
love to have more resources and increases in every budgetary 
line item, but the new day, the Governors that you see in the 
modern era, are here to say we are willing to try to reform the 
systems that we are managing back home each and every day of 
our lives.
    And as I listen to some of the comments on both sides of 
the aisle, I can't help but look back in a sense of deja vous 
that I am sure that the welfare reform discussions of years ago 
were very similar to these discussions, that if we reform the 
welfare system people will go hungry, and so forth and so on. 
Probably the best thing we have ever done in government was to 
reform that welfare system. In my State, 40,000 people now off 
of welfare and working and getting educated and having a much 
better quality of life.
    The reality, as Governor Bush pointed out, there are 
probably 42, 43, 50 States, in some way, shape or form, that 
are making changes, negative changes to Medicaid. We have 45 
States that are facing deficits. We have growing populations. 
You know all the issues and I know the issues as well. But I 
want to add that during the good economic times of the last six 
or 7 years, many of our States, the majority of our States, 
added to the Medicaid program, added options, increased the 
populations, increased the poverty levels. We are up to, in 
what we call our HUSKY plan, which is our uninsured program for 
children and parents, we increased that for children up to 300 
percent of the poverty level. So we had working families making 
$54,000 a year that were eligible to put their children on the 
State-run HUSKY plan, which is a darn good plan.
    And so Governors and legislatures, in the good times, have 
desperately tried to increase the poverty levels and increase 
the population served and increase the benefits across-the-
board. So we do recognize the tougher economic times, and I 
want to just review a couple of the facts, and the facts are 
all going north. All of our populations are increasing. Health 
care costs, the percentages of our budgets, the Medicaid 
population costs certainly are 20 to 25 percent of our budgets. 
If you take in all health care costs, easily 40 percent of all 
of our State budgets. So this is something that Governors have 
laser-like focus on.
    And during our National Governors meetings and discussions, 
we recognized and realized that we have an opportunity, and we 
recognize it is our opportunity, and it is a defining moment 
and a window of opportunity that we could lose if we do not 
engage with the Congress and tell you all how we think the 
program can work.
    Now, some will say, ``Well, it is not broken and it doesn't 
need fixing.'' I have heard those arguments and read those 
arguments over the last several weeks. We are not saying that 
it is totally broken. What we are saying is we need the 
flexibility. Most of us who have been Governors for a period of 
time have spent most of our time seeking waivers to expand 
Medicaid, and seeking waivers to do more resourceful things.
    And in my testimony I have an example of three working 
families that can take part in a variety of different programs 
offered by the State of Connecticut. A family making $40,000, 
working, can of course use their insurance plan at work, and 
those costs are increasing by 15 or 20 percent per year, and 
their co-pays are increasing. We have another plan that allows 
working families to put just their children into the uninsured 
health care plan, and that is a great program, but those co-
payments and those changes are taking place, as well. And then, 
of course, a third family with a lower income, both the father, 
mother and the children can go into the plan.
    The reality, however, is that with our budget constraints 
we will be taking away that benefit to the parents. And so now 
the question becomes ``How do we take care of that uninsured 
person?'' And Governor Richardson will talk about the huge 
percentage of uninsured people he has in his State. I will tell 
you that we do a great job insuring our people because we have 
great benefits and a fairly wealthy population. But because of 
the budget situation, I now have to think creatively of how to 
help that person who had the HUSKY plan for adults last year, 
who on April 1 will no longer have that plan. Give me the 
flexibility to help--and in my presentation I have a 
hypothetical presentation to help my friend Tony be able to pay 
for the plan at work.
    The other key issue is long-term health care. We try to get 
most of our residents to move to Florida, to retire in Florida, 
and to be on the Medicaid rolls in Florida, and we are very, 
very successful. But for those that choose to stay, I need 
flexibility. Our health care costs and our nursing home costs 
are through the ceiling.
    I did a comparison of the average nursing home cost versus 
assisted living, for example. You are talking $3,000-4,000 
difference per month. And doesn't it make more sense to use at-
home health care and assisted living programs and have a whole 
menu of possibilities ranging from a lot of medical attention 
to providing meals? If Governors have that flexibility, we can 
avoid paying $4,000 or $5,000 per month to take care of our 
aging population and allow our seniors to have some dignity to 
live at home or to live in assisted living accommodations, and 
right now we don't have that flexibility, and I think that 
would be a huge, huge savings.
    Now, someone will say that we are going to run out of money 
in 7 years. The truth is that what you see from the proposal is 
a $12 billion up-front investment. And then I think the job 
becomes the States'. Can we, with that up-front investment of 
$12 billion over the next 7 years, can we creatively the 
options and the savings and the programs that serve our 
populations?
    And I said this to some congressmen earlier today, I am a 
firm believer that if we fail miserably--if we fail miserably--
seven years from now--and I don't think we will--I am sure the 
Congress is not going to walk away from that population. So 
this window of opportunity allows the Governors of this great 
country to provide the flexibility, the resources, the 
ingenuity, and the capabilities to change the status quo 
because the status quo is not working. The status quo is a 
budget-buster. We are not saying it is totally broken, we are 
just saying, my gosh, we need to do something about it because, 
if we don't do anything, I will guarantee you one thing, you 
will continue to see the Medicaid population decline in terms 
of who we serve.
    Mr. Brown mentioned Connecticut and how many Medicaid 
recipients we have taken off, and in Florida, and I would also 
point out, in California, the Governor there wants to cut 
543,000 people off the Medicaid rolls. And in Michigan they are 
cutting 52,000 patients. Missouri, it is 20,000. Nebraska, it 
is 22,000. Tennessee, 160,000. So what we do know is that will 
continue to decline in our services and our capability. And I 
have the optimism and I believe that with the work of the 
legislatures and the Governors, we can fix this problem before 
it gets any worse.
    So I would end by saying that I know that many things in 
Washington end up being somewhat of a partisan nature, as 
welfare reform was a handful of years ago, the States can 
provide the safeguards, we can provide the flexibility, if you 
give us the opportunity. And I guarantee you that we will not 
let the citizens of this country down.
    I know that there are many interest groups that will 
protect the status quo, and I am saying to you that, hey, we 
can work with everybody, and I believe with the Congress, in 
assuring that we put a proposal together that everyone can be 
happy with, with the appropriate safeguards to make sure that 
at the end of the day we can take care of those that we serve 
and those that we care so much about.
    So, I thank you for the opportunity. I am looking forward 
to your questions. And as Governor Bush said, the National 
Governors Association is in the process of putting together a 
committee which now sounds like of 12--which is a frightening 
number--but we recognize the sense of urgency in working with 
all of you. And tomorrow morning when you are all talking about 
Iraq and tax policy and other issues, the Governors of this 
country will be home at work doing what we do best, and that is 
trying to take care of our citizenry, and we just need your 
help and your support and your trust. And it is not a leap of 
faith, we truly believe that this is a partnership that can 
work very effectively.
    [The prepared statement of Hon. John G. Rowland follows:]

    Prepared Statement of Hon. John G. Rowland, Governor, State of 
                              Connecticut

    Chairman Tauzin, Chairman Bilirakis, members of the subcommittee, 
and distinguished guests. Good morning. Thank you for the opportunity 
to appear before you today to testify in support of the President's 
proposal to reform the Medicaid program. If there is one message that 
you take away from speakers that you will hear today, it is that these 
reforms are necessary if the states are going to able to sustain a 
health care safety net for working families during the hard economic 
times that the states now confront. The status quo based on outdated 
concept of the same individual entitlement for all covered populations 
is not an option.
    Let me begin by describing a theoretical conversation between three 
workers employed by a light manufacturing company in my hometown of 
Waterbury, Connecticut. The first worker, we'll call him ``Joe'', is 
the head of a household of four persons, including his wife and two 
children. ``Joe'' earns over $40,000 a year. He is the only wage earner 
in his family. He has provided health insurance to his family for the 
past ten years through the group health plan provided by his employer. 
During the last three years he has seen his contribution towards 
coverage for his dependents increase by 15% per year. He pays a $20 co-
payment each time a member of his family sees the doctor. He pays a co-
payment of $10, $15, or $35 for each prescription depending on whether 
the prescription is for a generic drug, a legend drug, or a drug, which 
is not covered by the formulary, offered by his health plan. All of his 
covered benefits are subject to defined limits on amount and duration. 
His employer plan is self-insured, and is therefore protected from 
state or federal regulation by ERISA. His appeal rights for any denials 
of service are limited to those defined by his employer. He has no 
coverage for dental care, vision care, or home care and only limited 
coverage for behavioral health and rehabilitation services.
    The second worker is ``Maria'', a single mother of three. She earns 
just under $40,000 a year. She has declined coverage for her dependents 
and has enrolled her children in Connecticut's SCHIP program known as 
HUSKY B. For her three children she pays a maximum premium of $50 a 
month. Her children have no drug formulary. She pays a $3 co-payment 
for generic drugs and a $6 co-payment for legend drugs. Her co-pay for 
office visits for her children is only $5. Her children enjoy full 
coverage for dental, vision, and behavioral health services. If a 
service is denied, she can appeal that decision at no cost through the 
State Department of Insurance.
    Finally, there is ``Tony''. As a new employee with less seniority 
than either ``Joe'' or ``Maria'', ``Tony'' earns $27,000 a year. With 
an household income under 150% of the federal poverty limit (FPL) for 
his family of four, ``Tony'' has enrolled himself, his wife and his two 
children in Medicaid managed care, known in Connecticut as HUSKY A. 
``Tony'' pays no monthly premium for any member of his family. He pays 
no co-pays for any service, including prescription drugs. His family is 
not subject to any absolute limits on services. The Managed Care 
Organization (MCO) in which he is enrolled does require prior 
authorization for certain prescription drugs, but he can obtain a 30 
day temporary supply even if prior authorization is denied if his 
physician certifies that there is an urgent need for the medication. If 
any member of his family is denied a service, he must be informed in 
writing. If the denial is for a service that has been ongoing, he can 
continue to receive the service pending the outcome of an appeal to his 
MCO or a Fair Hearing with the Department of Social Services. His 
family enjoys full coverage for all the services covered under the 
Medicaid State Plan. His children may be eligible to receive services 
beyond those covered in the State Plan under the EPSDT (Early and 
Periodic, Screening, Diagnosis, and Treatment) benefit if the services 
are deemed to be either medically necessary or medically appropriate.
    The topic of their conversation today is the reductions in benefits 
faced by these three workers on April 1. ``Joe'' is anticipating 
another increase of 10 to 15% in his contribution towards the cost of 
covering his dependents in the year ahead. He may have to consider a 
plan for his family with a higher deductible or increased co-payments. 
``Maria'' will see her monthly premium for her children enrolled in 
HUSKY B increase more moderately from $50 to $75 a month. Some of their 
ancillary benefits will be eliminated, but she is looking forward to 
new in-home behavioral services for her son under the Behavioral Health 
Partnership involving the Departments of Social Services, Mental 
Health, and Children and Families.
    For ``Tony'', the future is more uncertain. Due to the rising cost 
of health care and the sharp decline in state revenues, his wife will 
lose coverage under Medicaid on April 1. The family will no longer be 
able to receive coverage through the same health plan. Although his 
children will be able to retain their coverage, ``Tony'' may find 
himself uninsured if he is unable to pay the cost of his own rising 
employee contribution at work. He is hopeful that the State will be 
able to provide a subsidy towards the cost of family coverage at work, 
but he knows that it is dependent on federal approval for a waiver that 
may take many months to obtain.
    It is a cruel irony in this situation that the working family that 
recently benefited from the expansions in Medicaid eligibility during 
the economic boom now find themselves in the most precarious position. 
The entitlement that was supposed to protect them has caused some 
members of the family to lose their coverage all together due the 
costly benefits and administrative requirements that are unique to the 
Medicaid program. In 22 states, including my own, Medicaid eligibility 
has been reduced. Medicaid benefits have been reduced in 22 states, and 
many others are seeking to implement premiums, co-payments, preferred 
drug lists, and other techniques routinely applied in the private 
sector to contain health care costs. Faced with the startling rich 
benefit package and cumbersome administrative requirements adopted in 
Medicaid to protect the most vulnerable, states find themselves forced 
to withdraw coverage from working families.
    Now, you might ask, why don't the states move expeditiously to 
implement cost containment measures? The answer is, we have and we 
will. States have a great deal of experience in managing a health care 
delivery system that goes far beyond the mandates of the current 
Medicaid statute.
    However, that capability is eroding. Prescription drug costs 
continue to rise at 15 to 20% per year. Legal challenges and regulatory 
requirements have made it increasingly difficult for the states to 
maintain a managed care network to control costs. Amendments to waivers 
and State Plans are slow and subject to challenge in the courts. We 
need the flexibility to adapt the coverage that we offer to all of the 
Joes, and Marias, and Tonys to fit the times we live in, coverage that 
makes sense, maintains equity and personal responsibility, and is 
sustainable.
    The President's proposal offers the states a realistic chance to do 
just that. But there is another face to the Medicaid program. It is the 
face of thousands of individuals living with disabilities, of the 
elderly in long term care, of the families receiving benefits under the 
Temporary Assistance to Needy Families (TANF) program. We will never 
turn away from the obligation that we have to provide Medicaid benefits 
to these mandatory populations and federal funding should continue for 
these groups as it is today. The flexibility that we seek through the 
President's reform proposal will only enhance our existing efforts to 
provide services to these populations with dignity and in the least 
restrictive environment.
    In Connecticut we have provided state funded assistance to these 
populations that pushes the boundaries of Medicaid coverage for 
prescription drugs, home care, and assisted living. Often times these 
programs have been state funded, simply because we cannot wait for 
Washington to do the right things to forestall the onset of the looming 
crisis in providing affordable long term care for the aging baby boom 
generation. Make no mistake about it, if the states cannot develop a 
comprehensive network of care that includes alternatives to nursing 
home care for this population, our resources will be consumed by this 
issue, leaving little to provide for the uninsured. That is why we are 
pursuing a waiver of the current rules on the penalty period for 
illegal asset transfers; Long Term Care Insurance; Medicaid 
reimbursement for assisted living; a spend down option for persons who 
receive home care to address the institutional bias in Medicaid 
eligibility; and a host of other strategies to contain the costs of 
lifelong care. These strategies are every bit as dependent for their 
success on the kind of flexibility offered by the President's proposal 
as those directed at providing coverage for working families.
    President Bush has taken an important step towards addressing this 
problem with his proposal for prescription drug coverage under 
Medicare. There are a host of other issues concerning the dual 
eligibles, those individuals who are covered by both Medicare and 
Medicaid, that that are of great concern to the states. States must be 
given the ability to manage the care of those Medicare beneficiaries 
whose premiums they pay for and whose benefits they supplement through 
the Medicaid program or that financial relationship must also be 
revisited.
     This proposal provides a forum for that conversation, meaningful 
conversation, to take place. I ask that you support it, and that you 
help us provide sustainable coverage that can address the challenges of 
the new century. Thank you. I would be happy to answer any questions 
that you might have.

    Mr. Upton. Thank you very much, Governor Rowland.
    Welcome back, Governor Richardson.

                STATEMENT OF HON. BILL RICHARDSON

    Governor Richardson. Thank you very much, Mr. Chairman. 
First, let me say how great it is to be back in this room with 
my old colleagues. Fifteen years I spent on this what used to 
be the most exciting committee in the Congress. I take it it 
still is. And I want to just thank all of you for the nice 
comments, and it is great to be with my colleagues from the 
National Governors Association.
    Mr. Chairman, I want to make four basic points and then 
perhaps suggest some ways we can work out some of these very 
serious problems that we are having with Medicaid in our 
country. I think we have to look in the larger context that 
this is a time of an economic downtown, a serious economic 
downturn in our country. People are hurting. We may be going to 
war soon. There is a lot of economic uncertainty. And the four 
basic points I want to make are obvious, but I think they need 
to be made.
    First, Medicaid plays an essential role in the health care 
delivery system and economies of all the States. It is a key 
program. Forty-seven million Americans use this Medicaid 
program. In my State, two-thirds of Medicaid enrollees are 
children. I think what also needs to be noted is Medicaid also 
plays a key role in the economies, in the economic health of 
our communities, $3.4 million in business activity for every $1 
million spent.
    The second point I want to make is Medicaid costs are 
rising despite the best efforts of Governors trying to control 
those costs, and there are several reasons for those increases. 
First, prescription drug costs--I know you are going to try to 
deal with that--$7 billion per year growing at a rate of about 
20 percent per year. The second is enrollment increases. In my 
State of New Mexico, 10 percent will increase next year just by 
normal activity--10 percent more enrollees--and it will 
increase by 3 million in this country since 2000.
    Long-term care of our aging society, that is another reason 
for the increases. Medicaid cost growth is causing serious 
State budget problems. State revenues have plummeted with 16 
States actually experiencing negative growth in 2002. 
Medicaid's aggregate cost grew by 13 percent in the year 2002, 
the fastest growth in a decade just this last year.
    Third, Medicaid's historic Federal/State partnership is 
critical and has to be preserved. We have to find ways to keep 
that partnership strong and alive. The Federal side has always 
participated proportionately in the Medicaid program.
    Fourth, and my fourth point, Mr. Chairman, is in this year 
that you are going to deal with Medicare and Medicaid, it is 
critically important that the Congress act to strengthen 
Medicare and Medicaid and make some of these programs more 
responsive to States and more responsive to beneficiary needs.
    What we need to do is also find ways that States get some 
kind of fiscal relief and we put in some kind of adequate cost-
containment that already have broadbased national support. We 
also have to look at Medicare, and I know you are going to be 
doing that. Medicare reform is as key as Medicaid reform. We 
have got to do them together, and we have got to do them now 
because what is happening is the State share of Medicare 
enrollees' health care cost has increased from 30 to 40 percent 
and expected to reach 45 percent by the year 2012.
    Now, Mr. Chairman, I think what is also important is that 
we be concerned about some of the reports that are coming out 
about plans that are going to be considered, perhaps the 
administration plan. Capping the Federal portion of Medicaid 
spending leaves the States with most of the risk. This new 
proposal, if it happens--and I admit that details are still 
sketchy, that it is going to be formulated, that we are 
discussing it--that increased flexibility is always great, but 
what does that mean for a Governor? Does that mean that I can 
now make easier decisions on who to take off the rolls? I think 
we have to be very careful that that is not the flexibility 
that we are talking about.
    I think it is also important that we not have a choice 
between limited new resources--and I admit that the early funds 
that we get in the Medicaid proposal perhaps the first 3 years 
are good, but then in the outyears as you get into the seventh, 
eighth and ninth year, the resources dwindle dramatically and 
there is a cap, and that is going to be a problem for many 
States.
    What do we do about this, Mr. Chairman? I think, first of 
all, let us do no harm. One of the concerns that we have is 
that at this point, as I have said, we have potentially 
millions of Americans whose coverage is at risk as a result of 
the State fiscal crises and the economic downturn. We should 
act quickly to provide some kind of State fiscal relief to 
preserve coverage for families, and I am talking about now, at 
this time, before your plan and your consideration is given in 
the next year to changes in Medicaid and Medicare.
    Second, let us remember that Medicaid is the lifeline of 
our most vulnerable citizens. I don't think that capping 
Federal assistance is going to improve access, and I hope that 
you seriously consider that.
    Third, I think we can provide States with fiscal relief and 
new flexibility without block granting the program. You did 
this, the Congress did this, in 1997. Congress provided States 
with many new flexibilities without capping a Federal program. 
The health care needs of our people aren't going to go away. 
Capping is just going to shift the burden down to the States 
and down to families, but capping the program shifts the 
burden, and I don't think we should do that.
    My last point, Mr. Chairman, we need to continue the State/
Federal partnership, not weaken it. And my hope is that through 
the Governors Association and through working with this 
committee and the other body, we can come up with a plan that 
is truly bipartisan, that truly reflects the needs of our 
citizens. I want to echo what Governor Rowland said, we are not 
here to ask for handouts, we are not here to ask for just give 
us money and let us decide everything, I think we are ready to 
see a viable Medicaid program. The status quo is not working. 
Thank you.
    [The prepared statement of Hon. Bill Richardson follows:]

  Prepared Statement of Hon. Bill Richardson, Governor, State of New 
                                 Mexico

    Mr. Chairman, former Chairman and Ranking Democrat Dingell, 
Subcommittee Chairman Bilirakis, Ranking Democrat Brown, Congressman 
Waxman and Members and friends of the House Energy and Commerce 
Committee, it is privilege and a pleasure to be before you in my new 
capacity as Governor of New Mexico. As a former Member of this 
distinguished Committee, it is also an honor to be asked to testify 
about the essential role Medicaid plays in our health care delivery 
system, the many challenges and opportunities that confront it, and the 
competing visions for this important program's future that are now 
before you.
    As a Governor and a former Member of this Committee, I have had the 
opportunity to work on Medicaid policy from different perspectives. 
From my new vantage point, I can tell you that the costs of this 
program can and do produce great challenges for my State and all 
States. There is no question that we need some changes to ensure that 
this program will be able to continue to serve as the critical safety 
net it has for almost 40 years. Having said this, we must also make 
certain than any change that is contemplated does not do more harm than 
good. We can never forget what a vulnerable population Medicaid serves. 
Its 47 million enrollees include over 23 million children, 5 million 
seniors and 8 million adults with disabilities. As such, we should 
strive to improve--and not undermine--the program's Federal-State 
financing and delivery partnership.

                                OVERVIEW

    Today, I would like to make four basic points.
    First, Medicaid plays an essential role in our health care delivery 
system, assuring affordable, meaningful insurance coverage for seniors, 
children, and disabled individuals. As the second largest proportion of 
State governments' budgets and the fastest growing part of our budgets, 
it also plays a critical role in the economic health of our 
communities, representing $3.4 million in business activity for every 
$1 million spent.
    Second, Medicaid costs are rising in spite of the best efforts of 
Governors to control them. The major cost challenges Medicaid faces--
recession-driven enrollment increases, pharmaceutical cost increases, 
and the aging of America--are largely outside the Governors' control. 
Almost every state has had to consider and implement cuts in services, 
covered populations, and/or provider rates. Clearly, States need the 
Federal government to act now to assume its fair share of 
responsibility for financing and managing these growing costs.
    Third, Medicaid's historical federal/state partnership is a 
critical element and must be preserved. The Federal government has 
always participated proportionately in the rising costs of the Medicaid 
program. Now, while States are in desperate need of Federal assistance 
with increasing healthcare costs, the policy offered by the current 
Administration is simply to cap Federal cost increases and shift to the 
States the tough decisions about whether to cut people or services. 
States would be given a choice to accept short-term fiscal relief that 
is insufficient and will end in a few years, in order to obtain 
additional flexibility to design the program to meet each State's 
needs. Federal responsibility must increase as uninsured populations 
increase.
    And fourth, Congress should act to strengthen Medicaid and make the 
program more responsive to States' and beneficiaries' needs. Democratic 
Governors have and will continue to advocate for Federal policies that 
provide for increasing flexibility, immediate fiscal relief and long-
term cost containment and that have already received broad-based 
support--amongst Governors and the Congress alike. We also welcome a 
serious, well thought-out discussion about even broader, more long-term 
Medicare and Medicaid reforms that seriously address flexibility issues 
and appropriate Federal and State divisions of coverage, delivery and 
financing responsibility. We call for a truly equitable prescription 
drug program for Medicare recipients, not one that forces seniors into 
managed care in order to obtain assistance with increasing drug costs. 
And we call on Congress to adopt legislation to cover the acute and 
long-term care costs of elderly and disabled beneficiaries so that 
States can focus on building a true safety net for children, seniors 
and disabled Americans not covered by Medicare.

       I. MEDICAID ROLE IN THE HEALTH AND ECONOMIES OF THE STATES

    Medicaid is a lifeline for millions of the most vulnerable 
Americans. Fully two-thirds of the nation's nursing home residents are 
covered by the program. Medicaid assures affordable, meaningful 
insurance coverage for over one in five of all American children. In my 
home state of New Mexico, 44 percent of our children are enrolled in 
the Medicaid program. The majority of our nation's people with severe 
disabilities, including most people with HIV/AIDS, get their insurance 
through Medicaid. Until the recent round of State cuts to populations 
and benefits, this program was also helping States begin to address the 
issue of individuals who are unable to purchase or become insured. 
Because it helps low-income families, Medicaid is the only health 
insurance program in the nation whose enrollment increases during 
economic downturns, when States face lowered revenues and deficits. New 
Mexico is anticipating a 10 percent growth in enrollment in the next 
fiscal year, even without increased outreach efforts. It is worth 
noting, Mr. Chairman, that without Medicaid's enrollment increases in 
recent years, it is virtually certain that the nation would have at 
least 2 million more uninsured Americans, causing individual financial 
hardship and increases in uncompensated care in the healthcare 
industry.
    Medicaid represents a major source of reimbursement to our nation's 
health care providers and health plans, including 17 percent of 
hospital payments and nearly 50 percent of nursing home payments. Not 
surprisingly, the impact of Medicaid's contribution to the economy is 
significant. A recent report found that every million dollars spent on 
Medicaid creates another $3.4 million in business activity, supporting 
jobs and related businesses, especially in rural areas. In 2001, New 
Mexico saw the second highest rate of return of all the states with 
$5.76 in new state business activity per dollar of Medicaid spending. 
State Medicaid spending throughout the country generated almost 3 
million jobs with wages in excess of $100 billion in FY 2001. New 
Mexico will have the second highest number of jobs generated per $1 
million in State Medicaid spending. In fact, as bad as it is, the 
current recession would be much worse without the actual growth of jobs 
in the health care sector. In short, the positive role Medicaid has 
played for both our nation's health care and its economy cannot be 
overstated.
    Unfortunately, the challenges the program faces are at least as 
great as its successes. Medicaid cost growth is causing serious State 
budget problems. State revenues have plummeted, with 16 States actually 
experiencing negative growth in 2002. Coupled with greater demands on 
services due to the economic slowdown, States' year-end balances in 
2002 were 70 percent below where they were in 2000. Medicaid is the 
largest single growth area for State budgets and has clearly 
contributed to this imbalance. The program's aggregate costs grew by 13 
percent in 2002, the fastest growth in a decade. In New Mexico, we are 
fortunate to have a modicum of new revenues and reserves upon which to 
draw. However, over 55 percent of the growth in our State expenditures 
for FY 2004 will be for Medicaid, leaving little for teacher pay 
increases or non-Medicaid social services.
    To find a solution to this rapid cost growth in Medicaid, it is 
important to understand the problem. A recent survey of States found 
that the top three reasons for Medicaid cost growth were prescription 
drug costs, enrollment increases (largely driven by the downturn in the 
economy), and long-term care. What is remarkable about these cost 
drivers is their reflection of the challenges in the larger health 
system. These factors are not just driving Medicaid costs but are 
affecting Medicare, private insurance, and out-of-pocket spending on 
health care. They also are similar in that comprehensive responses to 
them require more than action by State Governors who by law cannot 
spend more than the revenues they can generate in any given year, and 
who have little control over these factors most associated with 
Medicaid cost growth.
    Prescription drug costs: States spend about $7 billion per year on 
Medicaid-covered prescription drugs, and that amount has grown in 
recent years at a rate of 20 percent per year. New Mexico's 
expenditures for prescription drugs in its fee-for-service Medicaid 
program have grown from $46 million in FY 2000 to $79 million in FY 
2003, an increase of 73 percent. These expenditures represent about 8 
percent of the entire Medicaid program costs in New Mexico.
    I am working with New Mexico's legislature to develop a Medicaid 
prescription drug program for seniors, with the non-federal costs born 
in part by State funds and in part by out-of-pocket costs to seniors. A 
significant proportion of this spending is for Medicare beneficiaries 
who should have had a prescription drug benefit years ago. Since its 
inception, Medicaid has been forced to fill the major coverage gap in 
Medicare's benefits for seniors with very low income or high health 
care costs. The Congressional Budget Office estimated last year that, 
from 2005 to 2012, States will spend about $120 billion on prescription 
drugs for Medicare beneficiaries. Moreover, the payment system for 
prescription drugs is largely set in law at the Federal level. States 
that have tried to extend rebates or extract additional discounts have 
frequently encountered political and legal challenges. In New Mexico, I 
am working with our State Legislative Medicaid Reform Committee to 
develop voluntary rebate programs, a preferred drug list, and pooling 
of resources to increase our pharmaceutical buying power to help 
contain these rising costs.
    Enrollment: Enrollment in Medicaid, the second cost factor named by 
States, has increased in large part due to the economic downturn--the 
worse fiscal crisis facing the States since World War II. The surge in 
unemployment has caused millions of families to lose their jobs and 
health insurance. For these families, Medicaid and SCHIP are the only 
affordable health insurance options. Since the year 2000, Medicaid 
enrollment has increased by 3 million, at a rate of 10 percent in most 
States. In New Mexico, enrollment has tripled since 1991, providing 
coverage for one of every five people in New Mexico and, as indicated 
above, 44 percent of my State's children. Without further changes to 
the program and without additional outreach efforts, we are 
anticipating a more-than-10 percent increase in enrollment in FY 2004. 
While some States have shouldered the cost of this enrollment increase, 
this cost increase has occurred at the same time that State revenues 
have plummeted and, for most States, the Federal contribution to 
Medicaid has declined. For many States, eliminating optional 
populations is the only solution to control this enrollment increase, 
leaving many children and adults uninsured.
    Long-term care: Third, long-term care costs have been rising 
rapidly, and this rate will only accelerate as the baby boom generation 
ages and needs this service. Within the next 27 years, the population 
age 65 years and older will increase by 60 percent over 2000 levels and 
one in five adults will be 65 or over. Neither private health insurance 
nor Medicare insures against the catastrophic costs of nursing home and 
other long-term care needs. Additionally, few insurers provide 
supportive services to enable people with disabilities to live at home. 
States, through Medicaid, have filled this gap, providing innovative 
and high-quality long-term care to citizens who need it. Eighty-two 
percent of the projected growth in Medicaid expenditures between 2002 
and 2004 is attributable to increased costs for elderly and disabled 
individuals. Yet, because many of these people are also covered by 
Medicare, not only are there care-coordination and coordination of 
benefits (COB) problems between these two disparate programs, but there 
is cost shifting from Medicare to Medicaid and States. This will only 
worsen as the elderly population doubles by 2030 with the retirement of 
the baby boomers. Today, while seniors represent about 5 percent of New 
Mexico's Medicaid enrollees, costs associated with the healthcare for 
seniors represent 19 percent of New Mexico's Medicaid budget. Almost 
all the seniors enrolled in Medicaid are also eligible for Medicare. 
This is yet another example of the importance of integrating Medicare 
into any serious Medicaid reform debate.

                II. MEDICAID'S STATE/FEDERAL PARTNERSHIP

    Medicaid was created as a partnership between the Federal and State 
governments. The Federal government requires certain mandated 
populations be served and identified mandated basic benefits be 
offered. States are provided considerable freedom to design a program 
that adds populations or benefits and defines services within certain 
parameters to meet the unique needs of each State. The Federal 
government provides oversight and assurance that basic access, quality 
and accountability requirements are achieved. When the costs of the 
program go up, these governmental partners share in the burden; when 
costs go down, they share in the savings. This sharing of financial 
risk creates a dynamic that allows States the flexibility to expand and 
contract coverage while maintaining core support for the poorest and 
sickest people that they cover.
    This federal/state partnership is particularly critical when there 
is an economic downturn. The Federal government's lack of a balanced 
budget requirement with which the States contend means that the Federal 
government is more able to absorb the increasing costs of healthcare 
for an increasing number of otherwise uninsured citizens. Any proposal 
that would put a limit on the growth in the Federal government's share 
of these costs while shifting the difficult decisions about coverage 
and benefits to the States would be an abdication of this historical 
partnership and the Federal government's role in assuring the health of 
our nation.
    All the Governors want more flexibility to meet their changing 
needs and the changing face of healthcare service delivery. However, 
flexibility should not mean having to cut people from the rolls, 
reducing coverage, or watching children and seniors suffer, or even 
die, due to lack of healthcare. And, all the Governors need immediate 
fiscal relief. But receiving new federal monies now to address 
immediate issues should not be coupled with acceptance today of a 
future drop in these funds when we know that healthcare costs are going 
to continue to rise.

       III. COMPETING REFORM PROPOSALS: WHAT SHOULD CONGRESS DO?

    I applaud this Committee, the Congress and the President for taking 
up the issue of Medicaid reform. Indeed, my Democratic Governor 
colleagues and I agree with many of the sentiments expressed by 
Secretary Thompson in announcing the President's proposed Medicaid 
initiative. However, while we may agree on this program's importance 
and, to some degree, its challenges, we do not believe there are 
sufficient details of the Administration's proposal to determine the 
true impact at this time. The apparent solution: to provide State 
fiscal relief--however limited--only to those Governors willing to 
accept a capped, block grant for most Federal Medicaid and SCHIP 
funding causes us great concern. The Federal government needs to step 
up to the plate, not away from it; if it does not, States will either 
be overwhelmed by the new costs and need OR will have to shift an 
excessive amount of the burden to populations least able to afford it 
and to providers already burdened with extensive uncompensated care.
    Later this week, the NGA will appoint a bipartisan Medicaid Task 
Force to review many different approaches to the financing and delivery 
challenges facing the Medicaid program and the other health systems it 
supplements. We look forward to working with all interested parties on 
this critically important issue and to receiving the Task Force's 
findings and recommendations. Some of our concerns are discussed below.
    The President's Plan--Capping the federal portion of Medicaid 
spending leaves States with all the risk. President Bush's proposed 
Medicaid plan would replace the historical state/federal partnership 
with a forced choice between limited and capped new resources and 
increasing flexibility and the status quo in which costs are rising 
beyond States' ability to control them. The President's proposal is not 
well-defined at this point. As questions are asked by Governors, 
advocates and media, it is clear that the proposal's details are not 
determined and in fact are changing. Without those details, it is hard 
for anyone to determine the exact implications for any particular 
State. However you look at it, this plan protects the Federal 
government's budget while shifting difficult decisions and/or exploding 
costs onto States and their citizens. The Federal government--despite 
its lack of a balanced budget requirement and broader revenue base--
would leave States at full risk for the two-thirds of Medicaid costs 
that represent ``optional'' populations and services. While Federal 
financing for ``mandatory'' populations and services would remain as a 
Federally-matched entitlement, Federal financing for the two-thirds of 
the Medicaid program that is ``optional'' populations and services 
would be set in law, and would grow at an arbitrary, capped rate. Since 
80 percent of spending on the elderly is ``optional,'' 86 percent of 
nursing home residents are ``optional'' and 90 percent of long term 
care spending is ``optional,'' and since these costs are the ones 
rising the quickest, this cap on ``optional services'' would be 
especially devastating for States.
    What would this mean if this proposal were applied to New Mexico? 
The Federal funding for prescription drug coverage in New Mexico--and 
all States for that matter--would be capped. Why? Because prescription 
drug coverage is an optional benefit. If my State is unable to 
constrain drug costs, we would be forced to reduce coverage, drop other 
benefits or limit enrollment. Moreover, because Federal funding for 
most of our so-called ``optional'' nursing home residents would be 
capped, New Mexico's influx of older residents would be made even more 
vulnerable to coverage or service cuts should costs exceed what appears 
to be an arbitrarily-imposed capped formula. Similarly, spending on 
mental health would be capped under this proposal. Many of the 
rehabilitative services necessary for adults with serious mental 
illness and children with severe emotional disturbance are 
``optional.'' Inevitably, these caps for various populations and 
services would eventually force us to make unconscionable decisions 
between various populations in need, if we take this option in order to 
receive fiscal relief.
    In addition to these difficult choices, it is important to note 
that projections of health care costs are often wrong. The 
inflexibility of block grants punishes the States and their citizens 
for this unpredictability. An unexpected surge in unemployment, a 
breakthrough in medicine that produces miracles--but at a high cost--or 
an epidemic or rise in chronic illness could all create an unexpected 
demand for health coverage. Governors would be under immense pressure 
to be responsive, but the Federal funding commitment would be limited 
by the cap on its portion of these costs. If a Governor did not respond 
to the demand through Medicaid, his or her State would likely be on the 
hook for the cost in any event as it would pay--directly or 
indirectly--the costs of uncompensated emergency room use, delays in 
care that result in unnecessary hospitalization, and public health 
problems resulting from un-immunized people or untreated diseases. In 
addition, local economies and providers would suffer from the loss of 
Federal Medicaid revenue. What is more, a poor decision by one Governor 
in one State, would tie his or her successor Governors and their 
citizenry to a permanent limitation on Federal support for the 
foreseeable future, or until Congress acts again.
    What States Get In Return Is Not Likely to Be Worth the Gamble. In 
return for accepting the proposed Federally capped financing structure, 
States that opt for this approach would get a portion of the $3.25 
billion allocated for 2004 and additional flexibility to design the 
Medicaid program as they want. The amount available for each State 
would depend in part on the number of States who choose this option. 
This amount of funds is actually less than the revenues the States are 
projected to lose if the President's economic stimulus bill is passed. 
It is one-fourth the amount of funds that would be made available with 
the enactment of the bipartisan and NGA-endorsed Collins, Hutchinson, 
Rockefeller, Nelson ``State Budget Relief Act of 2003''. It is less 
than one-tenth the amount of relief that Democratic Governors are 
advocating. And it is three times less than the King, Brown ``State 
Budget Relief Act of 2003.'' Moreover, even if this funding were 
sufficient to meet today's needs, accepting the block grant on most 
Federal Medicaid funding means that this relief comes at the cost of 
coverage for State residents tomorrow. This creates an untenable 
position for future leaders saddled with choices made by their 
predecessors without the benefit of hindsight.
    In addition, because the vast majority of the ``optional'' 
populations have incomes below poverty (about $9,000 a year), savings 
achieved by the proposed cost-sharing flexibility are low. Over half of 
the elderly covered by Medicaid are considered ``optional''. They are 
on Medicaid in the first place because they have been impoverished by 
health care costs. The income line between optional and mandatory 
coverage for parents is set at an average of 41 percent of the poverty 
line--about $3,600 of income for the year. How much cost-sharing can 
one obtain from these populations before either reducing access to 
needed care or shifting all the costs to health care providers? In New 
Mexico, a legislative Medicaid Reform Committee spent several months in 
2002 looking at ways Medicaid costs could be controlled. That Committee 
found that while cost-sharing was an important component of cost 
control and should be implemented, it would only generate minimal 
savings for the program.
    States do need additional flexibility with regard to delivery 
system innovations. Eligibility categories and processes could and 
should be streamlined. Services that can be covered should be flexible 
to keep up with evidence-based practices. And we should consider adding 
funding to SCHIP for parents and uninsured adults and ensuring that 
benefits and cost sharing for higher income populations make sense. 
However, reducing benefits and increasing cost sharing on populations 
with extremely limited means or high health care costs would work to 
shift costs to seniors, families, and health care providers. Moreover, 
appropriate and well thought out flexibility reforms should not only be 
provided to States that agree to block grant a major portion of their 
programs; they need to be considered in the context of broad and 
thoughtful Medicare and Medicaid reforms that should and would benefit 
all States.
    Another vision for Medicaid reform. As my comments have made clear, 
Democratic Governors do not favor the status quo. I am unaware of any 
Democratic Governor who is anything but strongly supportive of Medicare 
and Medicaid reforms to be enacted this year. Frankly, we believe the 
sooner the better. We are reserving judgment on any final reform 
proposal until we understand the details, and until we have engaged in 
a process to determine the best approach for our States and the 
individuals they serve.
    If we learned anything from all the fights in Washington, D.C. over 
health reform in the last decade, we have learned that we must find a 
way to pursue changes that can attract bipartisan support. We should 
start this process by looking at the policies recommended by the 
majority of Governors. And, likewise, we should look at Medicare and 
Medicaid reforms that have broad, bipartisan support in the Congress.
    Both the NGA and the DGA have endorsed the bipartisan State Budget 
Relief Act of 2003, which would provide short-term fiscal relief to the 
States through a temporary Federal Medicaid payment increase. Congress 
should go further and set the Federal Medical Assistance Percentage 
(FMAP) to an on-going formula that is flexible and that would be 
responsive to economic downturns to help States maintain healthcare 
services and still live within their balanced budget requirements. 
Congress should also consider increased FMAP for Federal mandates such 
as translation services, transportation, emergency services for 
undocumented immigrants and EPSDT services for children. Frankly, in my 
State, some legislators and public commentators think of Medicaid as 
offering ``rich benefits'' because it covers things employer and 
commercial insurance often does not. Most of these so-called ``rich 
benefits'' are actually federal requirements for a State's 
participation in the program. For some of these services that are 
access mandates, the Federal government should be higher than the 
States' regular FMAP. Finally, Congress should provide opportunities 
for increases in disproportionate share hospitals for low DSH states 
and utilization of unspent SCHIP funds by those States such as New 
Mexico that could use such funds now. Prompt enactment of legislation 
such as this would provide the States the ability to avoid senseless 
and harmful cuts to some of our most vulnerable seniors and children. 
Moreover, such an investment is one of the most effective economic 
stimulus tools we have.
    One of the most important contributions you could make would be the 
passage of a meaningful, workable and bipartisan Medicare prescription 
drug benefit. If structured properly, such an initiative would rightly 
reduce States' prescription drug liability by finally providing 
Medicare beneficiaries who are also eligible for Medicaid (dual 
eligibles) the benefits they so desperately need. Governors from both 
parties want to be constructive players in this debate and have much to 
offer in terms of expertise in administering benefits and assisting 
low-income populations. The relationship between Medicare and Medicaid 
in funding acute, primary and long-term care needs of persons who are 
dually eligible also needs to be considered. When changes are made to 
Medicare, such as increased co-payments or premiums, the States have to 
pick up a portion of these costs through the Medicaid program. In fact, 
as new service mechanisms are developed, the federal government could 
actually save money in hospital costs while State costs in 
pharmaceutical and other costs could actually increase.
    States' Medicaid programs are paying a larger share of health 
insurance costs for older and disabled persons. In 1984, Medicaid paid 
30 percent of these costs and Medicare paid 70 percent. In 1998 this 
proportion had shifted to 40 percent for States and by 2012, the 
States' share of these costs is expected to be 45 percent. The Federal 
government's responsibility is decreasing for this population, and this 
latest proposal will decrease that responsibility further at a time 
when the population's needs are increasing.
    Governors want to work with our Federal partners on ways to reduce 
costs at least as much as to encourage them to provide needed and 
appropriate financial assistance during severe economic downturns. 
Along these lines, many Governors and Members on both sides of the 
aisle have supported ways to constrain pharmaceutical costs by reducing 
barriers to generic competition and, in some cases, supporting ways to 
increase and expand access to the pharmaceutical rebates and discounts. 
In New Mexico, we are engaging in a ``Working Smarter'' initiative to 
explore these issues as well as the expansion of disease management 
approaches to improve care and decrease rising costs of care for those 
with chronic illness. We are also undertaking initiatives to examine 
ways to utilize existing State dollars as match and ways to increase 
our collection of third party benefits and our detection and prevention 
of Medicaid fraud.
    States should be given more flexibility to cover pregnant women, 
parents, uninsurable adults and to expand coverage to children with 
disabilities. States should also be given flexibility to change or 
implement services and cost-sharing approaches that will encourage 
community-based cost-effective care, rehabilitation and supports. In 
New Mexico, we are exploring ways to create innovative approaches to 
addressing the needs of those who are uninsured. And, we are 
undertaking a Medicaid System Redesign effort this Spring and Summer to 
determine how best to structure and define services to meet the needs 
of New Mexico's residents.
    Finally, while my fellow Governors and I are focused on how to make 
ends meet now, we have a responsibility to think about the future of 
Medicaid, the future of Medicare, the future of long-term care, and how 
our health and retirement security systems are going to respond to the 
aging of America. The time is now to begin the discussion and to 
develop bipartisan solutions. I more than most Governors know how hard 
it is to do this in Washington, D.C., but we must take on these 
challenges.
    Medicaid, in particular, faces enormous challenges as both its 
long-term care costs increase with the changing demographics, and its 
basic health insurance role expands if only because the number of 
uninsured Americans grows unabated. I urge you all to rethink the 
Federal-State partnership. I, for one, believe that if Medicare were to 
assume all--or certainly a much greater portion--of the health and 
long-term care costs of the elderly, then States could provide a true, 
nationwide safety net for all Americans, regardless of family type, 
illness, immigration status or age. I think we could build on SCHIP to 
create a Medicaid safety net for elderly and disabled Americans, as we 
have done for children. And I think we could contribute to a dialogue 
about how we set the nation on a path to ensure that all Americans have 
basic health insurance.

                               CONCLUSION

    In conclusion, I want to emphasize the importance of working across 
party lines at both the Federal and State levels to address challenges 
we all face. We faced a crossroads in the debate around Medicare and 
Medicaid in 1995 and 1996. After a face-off that literally closed down 
the Government, both parties eventually agreed to reject block grant 
approaches and provide more flexibility to the states in administering 
the Medicaid program and the establishment of the SCHIP program. 
Ironically, in 1997, three Governors who have since become members of 
President Bush's cabinet, signed a letter to then President Clinton 
along with 38 other Governors. These three Governors included current 
HHS Secretary Tommy Thompson as well as Tom Ridge and Christine 
Whitman. This letter stated as follows:
        We adamantly oppose a cap on federal Medicaid spending in any 
        form. Unilateral caps in federal Medicaid spending will result 
        in cost shifts to states, enabling the federal government to 
        balance its budget at the expense of the states . . . Under a 
        cap, once the federal spending obligation is fulfilled, states 
        would become solely responsible for meeting uncontrollable 
        program cost increases . . . Governors must be involved in any 
        budget negotiations related to the future of Medicaid.
    With a Congress and a nation so evenly divided politically, we must 
again find ways to govern across political lines. This cause is not 
served well by proposals that require states to agree to a block grant 
for much of the Medicaid population we serve in order to gain access 
desirable new flexibility and to short term fiscal relief--however 
insufficient. Democratic Governors stand ready to participate and 
contribute to this debate as I hope my comments have made clear. We 
strongly support reforms that would stop harsh cuts from occurring to 
the program and to the seniors and children it serves, to provide more 
flexibility to the States in administering the program, and to 
seriously engage in a substantive discussion to strengthen and 
modernize our retirement security programs, including Medicare and 
Medicaid.
    Mr. Chairman, I hope my comments have been responsive to your 
request. Again, it is a pleasure to appear before you and I would be 
happy to answer any questions you may have.

    Mr. Bilirakis. Thank you very much, Governor. Well, we have 
a vote on the floor, but I am going to start and see if we can 
get in as much as we can before we have to run over.
    I apologize, Governors, for my having to run out, but we 
have a prescription drug meeting taking place in another room 
on the other side of the building, so it is that kind of a life 
up here.
    Governor Bush, you did go into the cash and counseling 
Medicaid waiver in your statement. I wonder if I could ask you 
to maybe in a couple of minutes at least expand upon that, and 
then I would ask Governor Richardson to comment, if he has any 
comments regarding that Florida plan. I don't know whether 
Governor Richardson is familiar with it or not. If he is, 
possibly he may want to comment on it without Governor Bush 
going into more expanding upon it. Do you know what that is, 
Governor Richardson?
    Governor Richardson. Mr. Chairman, vaguely. I think I could 
just probably----
    Mr. Bilirakis. Why don't we do that then. Would you please 
proceed, Governor Bush?
    Governor Bush. Well, it is a waiver that we receive where 
we provide self-directed care possibilities for Medicaid 
beneficiaries, where they work with a third-party benefits 
administrator and they create their budget, and then we empower 
them and we give them--we trust them to be able to select their 
providers. They can move--they have the flexibility of moving 
to different providers if they are not satisfied, not treated 
respectfully, or if they are not comfortable with the quality 
of care. And it is designed rather than to give them these 
mandated benefits, they basically create their own health care 
policy for their own family. It works, I think, better, 
Congressman, for the motivated beneficiaries, the insured that 
are engaged in their making decisions for their families and 
for their health care needs.
    We have hundreds of people, not thousands of people, on 
this Medicaid waiver program and, frankly, this is just an 
example of scores of examples across the country, I believe, 
where through waivers people are trying to move toward 
empowering people to make decisions for themselves and giving 
them greater health education and focus more on prevention and 
give them more choices, give them more ability to direct their 
own care.
    Mr. Bilirakis. The Chair yields to Mr. Richardson, but when 
my time is up, I will yield to Mr. Tauzin. Will you have time, 
Mr. Chairman, to wait another 5 minutes?
    Chairman Tauzin. Yes.
    Mr. Bilirakis. All right. Mr. Richardson.
    Governor Richardson. Mr. Chairman, I would just like to add 
to what Governor Bush said, and that is, when somebody talks 
about flexibility and a Governor talks about flexibility, what 
is it exactly we are talking about? And I think what we are 
talking about new delivery system innovations.
    In New Mexico, we want to look at some of the initiatives 
that the Governor talked about. Cash and counseling for seniors 
as part of what is called the ``Working Smarter Medicaid 
Plan.'' This is a plant that allows individuals and families to 
direct their own care and, in essence, helps prevent 
institutional care which I know, Mr. Chairman, you have done a 
lot on. At the same time, I think streamlining eligibility 
categories is also something that is important in flexibility.
    Finding ways to keep up with evidence-base practices, 
adding parents, pregnant women--you know, it is not easy to get 
waivers. We keep talking about waivers. I know that GAO is 
doing a study on how many waivers are granted by Governors. I 
think that would be very interesting to see, but I think if we 
talk about some of these issues, Mr. Chairman, in terms of what 
is flexibility--pharmacy, disease management, cost-sharing, 
auditing fraud and abuse, benefit limitations or restrictions, 
service designs and structures. I just wanted to add to what 
Governor Bush had said about what exactly flexibility means.
    Mr. Bilirakis. We are talking about waivers, and you 
indicated it is difficult to get waivers. Should it be easier 
to get waivers?
    Governor Richardson. Yes, Mr. Chairman. And I have known 
some Governors that have gotten waivers, but I think it would 
be very interesting to see statistics on how many States are 
actually succeeding in getting waivers. I was talking to some 
of the very able staff members earlier, and I don't know if it 
is 50-50 or 60-40 or maybe 10 percent, perhaps these Governors 
that have served longer than I have--I have been in office 60 
days, so I hardly have enormous expertise.
    Mr. Bilirakis. We expect an awful lot from you.
    Governor Rowland. Mr. Chairman, if I may----
    Mr. Bilirakis. Very, very quickly, if you would.
    Governor Rowland. I would just simply add that if you 
actually give true Medicaid reform, we won't have to go through 
this ``May I please`` waiver process. And the other thing that 
none of us pointed out, that I would like to leave you with is, 
we have skin in this game. This is not just the Federal 
Government sending us a bunch of money that we willy nilly 
spend on a variety of programs. For the most part, we are 50 
percent partners in all of these programs. So we have skin in 
this game all the time.
    And so as we try to use creative, innovative ways to serve 
our constituencies, we are using our dollars as well, and I 
think we keep forgetting that. We keep thinking it is just a 
Federal program.
    Mr. Bilirakis. Thank you. Chairman Tauzin is recognized.
    Chairman Tauzin. Thank you, Mr. Chairman. Mr. Brown, I want 
to thank you and the Minority for allowing me to go first. I 
simply want to take a moment to thank our three guests and 
witnesses today, Governors of three incredibly important States 
in our Union, and apologize. I know this is the second time we 
have tried to bring you together where we could discuss with 
you our mutual problems in keeping Medicaid programs afloat in 
our States. I particularly wanted to welcome my friend Bill 
Richardson back, a former U.S. Congressman who served on this 
Energy and Commerce Committee and a dear friend for many 
years--by the way, our mutual friend Ed Gabriel asked me to 
wish you well, Bill--and to congratulate him on his years of 
service for this country as U.N. Ambassador, Secretary of 
Energy, and now Governor of a great State. So, again, what a 
career, Bill. We are glad to see you back in our committee.
    And to Governor Rowland and Governor Bush, let me also 
thank you for coming. We have gotten some good news today--at 
the same time we got bad news--as the Budget Committee is 
struggling with the Federal budget, as you are struggling with 
State budgets, we learn that there is a very strong likelihood 
the Budget Committee will recommend including the $12.7 billion 
over the next 7 years the President has recommended as 
additional funds to assist the States in return for working 
with us on reform programs that will create even more 
flexibilities for you in designing the State programs. The bad 
news, of course, is that we are in a terrible budget crunch. 
And if we are going to get the budget balanced again, all of us 
are going to be looking at ways in which to restrain the growth 
of Federal programs, all Federal programs, and that means 
``all'' Federal programs. So we have got a lot of work to do in 
terms of dealing with this crisis, just as you have on the 
State level.
    I mainly wanted to come as Chairman of the full committee 
and thank the chairman and the ranking member for bringing you 
together so that we can learn with you what problems you are 
experiencing on the State level, that we might understand 
better how this administration recommendation might be of some 
help and assistance and how we might change it to make it 
better for you and for all the populations that you serve.
    In short, I simply want to say thank you for spending this 
time with us and, Mr. Chairman, Mr. Brown, thank you for the 
courtesy of allowing me to do so. Thank you.
    Mr. Bilirakis. I thank the chairman. We have three votes on 
the floor, so we are going to have to break and come back 
immediately after those three votes are up. So we are probably 
talking about 20 minutes, something of that nature. Thank you.
    [Brief recess]
    Mr. Bilirakis. The Chair thanks everybody for their 
cooperation, and now recognizes Mr. Brown for 5 minutes.
    Mr. Brown. Thank you, Mr. Chairman. We all know from the 
comments of Governors Bush and Rowland and Richardson that 
Governors want more flexibility, and I think all of us want 
them to have it.
    We can look back, however, in 1997 Congress gave States 
flexibility to provide health care services through managed 
care organizations for the vast majority of beneficiaries 
without a waiver. We can look at what happened after September 
11 in New York, when several hundred thousand people, my 
recollection is, were added to Medicaid under this sort of 
block grant loan--block loan more than block grant--proposal of 
the President's. I am not sure that because their budget would 
have been set, that they could have done that.
    Governor Richardson, if you would for a moment sort of talk 
that through so we better understand it, it just doesn't seem 
to me that we need to block grant/block loan this program to 
give flexibility. We have been able to do that, it seems, in a 
program like that. If you would share that with us.
    Governor Richardson. The first element in flexibility is, 
as I said, do no harm. I think the greatest flexibility of all 
is the flexibility that the Medicaid program has to adjust in 
an economic downturn, which we are in right now. We have to 
preserve the flexibility in the program so that we are 
guaranteed to have the money that we need to provide for health 
care needs at a time of recession, at a time that the needs may 
be greater.
    Let me just give you an example. After 9/11 in New York, 
the State enrolled an additional 350,000 people in their 
Medicaid program in just 4 months. The State hadn't budgeted 
for that increase. It wasn't built into any Federal projections 
of Medicaid spending. It came as a result of an unforeseeable 
tragedy. And under Medicaid today, the State had the 
flexibility to enroll those individuals and make sure that they 
had health coverage under very difficult circumstances.
    If there is a block grant program in New York, Federal 
funding in this instance would have already been established 
for the year, and the State would have been unable to cover the 
full cost of these people.
    So, I think, in summary, what does flexibility mean? It 
means new delivery system innovations. In other words, new 
Federal/State/private sector partnerships. It means streamline 
eligibility categories in ways that you can improve the 
process. It means services to keep all evidence-based 
practices. It means adding parents. It means adding pregnant 
women, uninsurable adults, cost-sharing for higher income 
populations. And, finally, different services for different 
populations.
    I have a huge number of Native Americans in my State, and 
nine times more than in any State, and the Indian Health 
Service System is not working as well as it should. So you need 
that flexibility to cover on the State basis all of your 
people.
    Mr. Brown. Thank you very much. Governor Bush, I understand 
the House Republican budget is including reconciliation 
instructions for this committee, charging this committee to cut 
$110 billion out of entitlement programs. I understand $101 
billion of the $110 billion comes out of what is called 
Function 550, which is Medicaid. The Republican budget had to 
have room for the tax cuts. It was fully in the budget. There 
is, unfortunately, not in the budget any entertaining of the 
concept of what this war is going to cost. But putting the war 
aside to make room for the tax cut, there is $110 billion cuts 
in apparently Medicare/Medicaid, another $260 billion in Ways 
and Means, and I don't know if that is Social Security, 
Medicare, or what that is.
    How do we cut $110 billion? Could you give us ideas of 
which services Medicaid now covers that it should not, or which 
people Medicaid now covers that it should not?
    Governor Bush. Well, you know, I have got my own budget 
problems, Congressman. Is this Washington cut where you cut the 
growth, or is this real cuts?
    Mr. Brown. This is real cuts. I would add----
    Governor Bush. That means the budget would be $110 billion 
less?
    Mr. Brown. No. And I would add that the $9 billion that the 
President has proposed, the $9 billion reserve fund which Mr. 
Tauzin and Mr. Bilirakis mentioned, we don't get access to that 
$9 billion. The States don't get that $9 billion until the cuts 
have come from the entitlements.
    Governor Bush. If there was a year-to-year decrease of $110 
billion on Social Service spending, it would have a very 
dramatic impact on Florida and other places. If this is a cut 
of projected growth which is not family income kind of budget 
talk, but government budget talk, I don't know what the 
implications of that would be.
    What we have tried to do is curb the cost so that we can 
maintain benefits. And we have increased benefits--we have cut 
benefits for some, we have dramatically increased benefits for 
others. We have done it in the traditional ways of focusing on 
ratcheting down reimbursement rates. We have been successful--
after double-digit increases in our prescription drug budget 
costs, we have been successful in lowering the cost there. We 
have disease management programs that have lessened the 
increases. But our Medicaid budget will grow--we project it to 
grow by 8 percent or 9 percent this year, even with some pretty 
dramatic efforts to reduce costs. And since we have begun this 
process, in 4 years we have reduced the growth, the projected 
growth, by about $1.4 billion which for a State our size is 
pretty significant.
    Mr. Brown. Governor Rowland, could you absorb those kinds 
of cuts that this Congress apparently is going to make to 
Medicaid?
    Governor Rowland. Well, again, to echo what Governor Bush 
has said, we don't know what your numbers are, whether it is a 
cut from last year or this year. We have had probably 40 or 42 
States that have had to make changes in Medicaid either 
ratcheting back some of the optional benefits that had been 
added.
    One of the things that our growing population is in the 
nursing home side, and we probably don't give it--I would say 
the last 2 years I don't think we gave a 1 percent increase to 
the nursing home providers.
    But, again, getting back to the reason we are here--and we 
all appreciate that you would like us to solve your budget 
problems, but 45 States have deficits. The reason we are here 
is that we can save you money, meaning the Federal Government. 
By the way, it is not your money or our money, it is 
everybody's money, the taxpayers' money. Give us the 
flexibility, we can run these programs and really have either 
budget savings or more options.
    Mr. Bilirakis. The gentleman's time has long expired. Dr. 
Norwood for 8 minutes.
    Mr. Norwood. Thank you very much, Mr. Chairman. Gentlemen, 
thank you for being here, we are honored to have you. And as 
you know and we know, this is a very serious discussion. I do 
want to make the record clear that the budget previously 
mentioned is in a discussion draft. And when you use the term 
$110 billion, that is over 10 years. Nothing is settled yet at 
all, and it makes a big difference when you talk about $110 
billion, whether it is a year or 10 years. So the record should 
be correct.
    Governor Bush's testimony indicated that one-eighth of 
Florida's population is on Medicaid, and 45 percent of pregnant 
women are on Medicaid. Governor Richardson indicated that 1 out 
of every 5 New Mexico residents are now covered by Medicaid, 
and 44 percent of the State's children are under Medicaid.
    Given that Medicaid now covers large populations--we are 
covering a lot of people--doesn't it make sense to you--and I 
think you have implied that--that no longer this deal of one 
set of rules fits all, that Washington knows best about these 
number of patients, doesn't it make sense to you that we do 
offer our Governors flexibility?
    Now, I am curious to know if any of you disagree--and this 
would be a good time to state that--if you disagree that you 
should be allowed the flexibility to work the Medicaid problem 
in your State. Does anybody disagree with that?
    Governor Rowland. I don't think so.
    Mr. Norwood. Do any of you disagree with the thought that 
block grants would give you a lot more flexibility to deal with 
your problems at home? Yes, sir?
    Governor Richardson. Dr. Norwood, I would categorically 
state it. If a block grant means capped funds--then I believe 
that we are talking about that--that would limit, seriously 
limit my flexibility in a State with a high number of 
uninsured--you have cited the statistics of children and 
pregnant women--to account for the increases in Medicaid 
population. And so a diminishing fiscal commitment from the 
block grant capping these services at a time that the States 
have serious fiscal problems would be a problem for me in my 
State.
    Mr. Norwood. Well, you are rather capped now in a sense. 
The budget caps you every year. There is a known amount that 
you are going to get, and if you knew precisely what that 
amount was, I have got great confidence in my Governor, and the 
three of you, too, for that matter, to be able to operate your 
State on a given number.
    You said earlier that the problem with flexibility--or it 
means to you do no harm. My view of that is flexibility is 
given to you and it means you do no harm, not us, but the 
flexibility would be your responsibility to deal with.
    Let me ask a question that is different from anything maybe 
we have discussed here. I have, for a long while, tried to 
understand the policy of putting long-term care into Medicaid. 
Long-term care, by its very name, implies mostly people who are 
eligible for Medicare.
    Now, I understand the political policy of putting long-term 
care under Medicaid, but it really actually makes no sense to 
me. It would be better, in my view, if long-term care were put 
under Medicare. We dealt with that problem, as we should, not 
make you deal with that problem, and I am curious if any of you 
have any thoughts about that.
    Governor Bush. I think there are ways to provide support 
for the States in this discussion of reform, without--I know 
that there seems to be an interest here to just give the States 
more money without reform--I would prefer to consider embarking 
on a discussion about that or, for example, Medicare reform 
with a prescription drug benefit where the Federal Government 
would take as its responsibility the duly eligible that we 
now--it is one of the fastest growing parts of our budget--is 
for duly eligible Medicare and Medicaid beneficiaries, that we 
pay the prescription drug costs, and that to me is a good 
tradeoff. Give us more flexibility and responsibility over our 
program; in return, assume responsibility for senior citizens 
in that particular area.
    I would have to look at the long-term care element, but it 
is a very different part of--it is an incredibly important part 
of Medicaid today. Increasingly in our State each year the 
number of people that are Medicaid-eligible in our nursing 
homes is growing. We want to make sure that we provide care for 
them. But I would hope that this would be the kind of 
discussion we would have about how Medicaid was set up 38 years 
ago. There have been interesting and important additions to 
Medicaid, but there hasn't been a systemic review in 38 years. 
The world has changed. Health care delivery has changed. Modern 
medicine is a miracle--I mean, if people 38 years ago thought 
that medicine and the technologies and the drugs that exist 
today, they would probably have thought you were from another 
planet.
    And so I think having this kind of discussion in a systemic 
way, hopefully with the inclusion of the Governors, would be 
very meaningful right now.
    Mr. Norwood. Governor Rowland, you indicated that in your 
State the cutoff for Medicaid was at $54,000?
    Governor Rowland. That was for a program for uninsured 
children. We have a 300 percent of poverty level number. So you 
can be a family of three or four, making $54,000, and be 
eligible for the HUSKY children's program.
    Mr. Norwood. Right. But in a sense, meaning they are 
eligible for Medicaid benefits.
    Governor Rowland. That is correct, under our optional plan.
    Mr. Norwood. Governor Richardson, what is the cutoff in 
your State?
    Governor Richardson. Dr. Norwood, I will answer that. I 
also want to make the point that I do agree with you that it is 
important that Medicare stay at the Federal level. I just think 
we should recognize, though, that prescription drug costs, 
nursing home care just statistically has increased from 30 to 
40 percent--in other words, the State share--and it is expected 
to reach about 45 percent by the year 2012.
    So, I think Medicare reform, we have to approach it at the 
same time. Now, my cutoff, I think, is 235.
    Mr. Norwood. Two thirty five of poverty?
    Governor Richardson. Yes.
    Mr. Norwood. What is that in dollars? Ask that smart 
staffer back there.
    Governor Richardson. It is about $41,000.
    Mr. Norwood. And, Governor Bush, what would be the dollar 
amount cutoff in Florida?
    Governor Bush. Over which you are no longer eligible for a 
family?
    Mr. Norwood. Or for SCHIP.
    Governor Bush. It varies, 185--with children, it is 185 
percent down to 100 percent by the time someone turns 18. The 
largest are newborns at 185 percent, I believe.
    Mr. Norwood. Well, time is going to run out, but basically 
hadn't we ought to give some serious thought to that, the fact 
that we are covering higher income families much more than we 
used to in the future. And we all face a budget problem, your 
States as well as us up here. It appears to me that the higher 
that income level goes, the less amount of treatment and 
dollars can go to the actual people that this program started 
out to help. And I would presume that number is yours to 
choose, at what point the cutoff is. And I would suggest that 
that ought to deserve at least some very good discussion about 
how high that number should be. Mr. Chairman, I see it is up.
    Mr. Deal [presiding]. Mr. Waxman is recognized for 8 
minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman, and I 
appreciate the testimony of the Governors. Governor Richardson, 
it seems to me that there is no reason to say that giving more 
flexibility to the States means that we have to cap the Federal 
contribution, that one implies the other. In fact, to me, if 
they are tied together, it really reflects a philosophy--which, 
by the way, I think is the philosophy of this administration--
that we can't trust the States with more flexibility in an 
open-ended Federal matching program because they will just 
abuse it. Do you agree with that?
    Governor Richardson. Well, Mr.----
    Mr. Waxman. I mean, in other words, do you think we can 
trust the States with an open-ended program as we have seen it 
now, and give them more flexibility?
    Governor Richardson. Well, now that I am a Governor, the 
answer is yes.
    Mr. Waxman. It seems to me, Governor Richardson--because I 
only have 5 minutes and I want to make a number of points--you 
have made that point so clearly. You can have flexibility 
without a cap of the Federal dollars. Nothing will make it 
easier than if we put a cap on the Federal dollars, for 
Washington to make cuts after that because once the States lose 
their entitlement to matching funds, they are going to be left 
holding the bag and with a lot bigger problem than they face 
today. It was interesting that Governor Bush said if you look 
at the amount of money that they are spending for Medicaid in 
Florida, that budget is unsustainable down the road, obviously, 
because of seniors going into nursing homes.
    So, if you don't think your budget is sustainable and you 
are going to get less Federal dollars, then the States are 
going to have to come up with even more money in the future, 
and that strikes me as really an untenable situation for the 
States, unless they just cut large numbers of people out of the 
program.
    Now, all of the Governors here testified how important 
their Medicaid program is--how many women are getting prenatal 
care because of Medicaid, having healthier babies, how many 
severely disabled people who can get appropriate care nowhere 
else get it because of Medicaid, how many seniors depend on the 
program for drugs and long-term care. I think that is exactly 
the same point I would make about how critical it is for some 
very vulnerable people, and what an important program it has 
been in keeping millions of people from joining the rolls of 
the uninsured.
    Governor Richardson, do you think we would have seen the 
expansions in Medicaid we have, if your State and other States 
didn't have the assurance that Federal matching dollars would 
increase if you expand your program or served more people?
    Governor Richardson. I share that view, Chairman Waxman. 
And my concern is this. If you look at the proposal that has 
been outlined, the block grant program--there is an initial 
increase in Federal funding of $3.25 billion in fiscal year 
2004, and then $12.7 billion over 7 years, but then you have to 
pay it all back in the last 3 years.
    Mr. Waxman. Well, it is a bribe for a Governor faced with a 
tough budget decision right now to say, ``I will take care of 
my situation and I will leave my successor Governors with a 
problem that is going to be untenable if I, in fact, make the 
choice.'' But we have had ideas of these fixed or preset amount 
of Federal funding on the table before. We had this in 1981. 
The administration proposed we fix the Federal funding for 
Medicaid and freeze it. At that time we had never heard of 
AIDS, and suddenly we had this epidemic. Before 10 years, there 
were over hundreds of thousands of Americans who never expected 
to need Medicaid enrollment to cover AIDS patients, and then we 
had to pay for the AIDS epidemic. We found that there were new 
drugs that had to be paid for. No one could have predicted this 
sudden surge in the cost of care.
    I want to put in the record, Mr. Chairman, a statement 
about how Medicaid matters to people with AIDS because it 
illustrates that if we had just predetermined the Federal 
dollars and that is it, without knowing what the future would 
bring and not recognizing the changes in epidemiology, 
demographics, retirement patterns, migration, recession, 
natural disasters, cost of drugs, cost of diagnostics, cost of 
care, and on and on and on--and the AIDS epidemic is the single 
best example we could point to--that if we didn't have the 
Federal Medicaid program increasing the Federal dollars to take 
care of the AIDS epidemic, the States would have been 
overwhelmed by that epidemic.
    It seems to me that what we have is a tradeoff. It is not a 
good tradeoff for the people in the States. Governor Rowland, 
you said that you think there ought to be flexibility to deal 
with the long-term care issue in a more realistic way, not just 
force people into nursing homes. But the States have the 
ability to do that now under waiver programs, and perhaps we 
should allow even more flexibility to pay for some of the 
noninstitutional care for those who are required to get some 
help, but every time there is a waiver, it has to be cost-
neutral. Do you think we ought to have waivers that allow 
greater expenditure of Federal dollars and State dollars?
    Governor Rowland. Yes. As Governors, we have been chasing 
waivers for the last 5 years and, frankly, it is our money, it 
is the taxpayers' money, it is your money, it is the State's 
money. And I think Mr. Norwood asked a key question when he 
talked about some of the dual-eligibles as well. I mean, for 
us, especially in Florida and Connecticut, the dual-eligible 
issue is huge. So between the drug benefit and our ability, 
whether it is redefining what homebound is or being able to 
manage that homebound person, that will save us significant 
dollars in the future.
    Mr. Waxman. Well, I think we ought to take those ideas to 
heart and figure out some way to add flexibility to deal with 
people in a less costly and more humane setting than forcing 
them into nursing homes, but we don't need to cap the program 
to do that. We need to assure that flexibility.
    Governor Bush, your State of Florida, as we have already 
heard, is the ``retirement capital of the United States,'' and 
we all know people--seniors in my family have moved there. 
Shouldn't you be concerned that the vast majority of Federal 
Medicaid funding for seniors would be capped in the 
administration's proposal. It would place a cap on funding for 
so-called ``optional'' people or benefits. We have heard that 
these people are not optional, but very vulnerable low-income 
people, including the seniors. More than 80 percent of spending 
on seniors would be under the cap. More than 85 percent of 
nursing home residents are considered optional. Ninety percent 
of long-term care spending would be under the cap. Isn't the 
State concerned that if the Federal cap does not meet a State's 
actual needs, Florida would have no choice but to institute 
devastating cuts to our seniors, especially those in nursing 
homes?
    Governor Bush. Congressman, first of all, I would agree 
that, as I mentioned to my friend Congressman Davis, that there 
needs to be underwriting of natural population growths in any 
reform. And, again, I am not sure--if anybody was watching 
this, they would, when they hear caps and fixed amounts--as I 
understand it, the administration's proposal is a 9 percent per 
annum increase, and then the extra money on top of that to 
provide the necessary investments in reforms that might yield 
the savings that then would allow for that money to decline in 
the outyears.
    Mr. Waxman. But it is still limited in terms of cost of 
care going up, and the population numbers increasing for care, 
and unforseen epidemics. It is still limited. Even though it 
sounds generous to say 9 percent, you don't know what the 
future will hold, except in your State we know there are going 
to be more and more seniors who are going to need long-term 
care, and no block grant is going to provide for that.
    Governor Bush. Absolutely, and that is why in the last 4 
years we have expanded State dollars and matched them with 
Federal dollars for community care for the elderly programs. 
Significant numbers of people are receiving services where they 
can age in place and age with dignity. And all States--I mean, 
we are just ahead of the game. I mean, I appreciate the fact 
that your relatives are in Florida, and if I ever can help 
them, please let me know, but----
    Mr. Waxman. Let me write that down.
    Governor Bush. California is faced with the same issue, and 
so is Ohio, and so is Georgia. Thankfully, we are aging 
demographically because we are living longer and living 
healthier. So these issues are going to have to be dealt with 
in the most comprehensive ways, not just related to Medicaid. 
But a 9 percent compounded rate of growth over 10 years is 
explosive. It is not sustainable. And if it is Medicare or 
private health care or Medicaid, we have to figure out how do 
we curb these costs and provide better health care benefits 
together.
    Mr. Waxman. If we put you in a block grant, we are not 
going to do it together. You are going to do it and you are 
going to have to cut people because you are not going to be 
able to come up with the funds to sustain it.
    Mr. Upton. We are doing it now.
    Mr. Waxman. My time is up.
    Mr. Bilirakis [presiding]. Dr. Fletcher for 8 minutes.
    Mr. Fletcher. Thank you, Mr. Chairman, and I appreciate you 
holding this hearing. I want to welcome the Governors and thank 
you all for your testimony, Governor Bush, Governor Rowland and 
Governor Richardson. I am glad to see that members of this 
committee have a history of becoming Governors.
    When we look at Medicaid, one of the things that we need to 
realize is it is estimated that Medicaid's long-term care cost 
will quadruple by the year 2030. Now, some people use a 
different date, but around 2030 we will have a quadrupling at 
least of the long-term care cost.
    The other thing when you look at quality of health care, 
the thing that is disturbing to me is that the National Cancer 
Institute reports that women on Medicaid are three times more 
likely to die from cancer than women who aren't on Medicaid. 
The Institute also found that women on Medicaid were 41 percent 
more likely to be diagnosed with breast cancer at a late stage, 
and 44 percent less likely to receive radiation treatment.
    So, I think we have a problem, and most of us, if we had a 
choice between going on Medicaid or keeping the insurance that 
we have through our employer or through the Federal Employee 
Health Plan would choose to stay where we are rather than 
choosing Medicaid.
    There are plenty of examples--and, Governor Bush, from your 
State, examples of individuals who have to drive extra distance 
because of the problem of having providers who will participate 
with the current Medicaid program.
    So, when I look at what is happening in Medicaid, I am 
reminded of why I got in politics. I was practicing medicine. I 
was seeing a number of single moms on Medicaid and Welfare. And 
I was talking to one specifically, and I was talking about 
their future. I said, ``What are you going to do in the future 
as your child now is entering school?'' She said, ``You know, 
if I go out and get a job and go out and do some other things 
to improve my life, I start losing benefits, and actually I 
can't take care of my child as well as I can staying where I 
am.''
    And at that point we had a social welfare system that was 
capturing people in a cycle of dependency. We had Welfare 
Reform. And I think it has made a tremendous and improved the 
lives of numbers. We had the lowest poverty rate of minority 
children in the history of this Nation, we have been keeping 
records of it, because of that reform, I believe.
    I believe Medicaid is the next Welfare Reform. And I think 
we hear, and we heard a lot of demagoguery when we reformed 
Welfare, about endless soup lines and those sorts of things, 
and I think we are going to hear the same demagoguery about 
taking people out of mandated regimens and those sorts of 
things.
    But I am here to say that I think as we look at the future 
of Medicaid, that we must do some reform so that we can improve 
the quality of health care and, not only that, but be able to 
expand who we cover and make sure it is more appropriate.
    Let me make a few corrections, too, that have been said 
here. This 1 percent cut they are talking about, the $110 
billion, it was over 10 years, it is not a cut. It is just 
controlling the rate of growth. CBO estimates it is going to 
control 8.5 percent or 9 percent. It is not a real cut at all. 
So let us make that accurate. Only in Washington where we use 
this fuzzy math would that be a cut. It is actually controlling 
the rate of growth.
    The President's plan additionally increases the rate above 
what is projected out those years, and then there is not really 
a payback system, it just again begins to control and reduce 
the rate of growth of Medicaid in those outlying years. So, let 
us get our facts straight and make sure we are using the words 
that really mean something.
    Let me ask a few questions now because I think--Governor 
Bush, I know in Florida, in your cash and counseling program, 
you have found that at least thus far it seems to be budget-
neutral, and in the future there are hopes of actually reducing 
the cost, but it incorporates some things of education which is 
a counseling, and flexibility allowing the money to follow the 
patient. I wonder if you would address that and what you have 
seen in that program.
    Governor Bush. Well, that program and others that we have 
implemented are focused on empowering people to make decisions 
for themselves. Frankly, I think--again, this is broader than 
just Medicaid--the concern that I have looking over the horizon 
is if we maintain our reactive health care system where we 
focus on intervening when people are sick--and in the case of 
the Medicaid population, there are five illnesses that create a 
significant percentage of the cost--rather than focus on health 
care education and prevention and disease management, it is not 
a sustainable situation, and that is not related to Medicaid, 
that is related to the private sector health care insurance 
system as well.
    So anytime that you can provide, using the medical model 
but also a social model where you intervene in people's lives, 
give them the information that they need to make decisions, 
empower them to be part of that process, you are going to, I 
believe, save a lot of money but, more importantly, have a 
better health care result.
    Ultimately, what we should be focused on is healthier 
people. Healthier people will create significant decreases in 
expenditures in any of the insurance programs that exist. This 
is one example of that. We have others related to ventures with 
drug companies where, in the case of one drug company, 80,000 
people are receiving their prescription drugs, but they are 
also receiving through nurse-practitioners and through 
paraprofessionals, information about lifestyle choices that 
they make that the combination of which will save money. In 
fact, the drug company is guaranteeing us the savings by 
participating in this program.
    And back to the subject at hand, waivers can help us with 
some of this, but to move to the prevention model all together 
in a more dramatic way I think will require significant reforms 
in Medicaid.
    Mr. Fletcher. Thank you, Governor. Governor Richardson, let 
me ask you a question--and I don't know, this may be too 
specific--I hope you can answer. Do you know how much per 
patient per month that you are spending on the Medicaid 
patient? I know there is a disparity in whether it is long-term 
care, institutional, but if you could kind of give me a figure 
of that so we could get an idea.
    Governor Richardson. Average cost per enrollee per year has 
grown from $4,133 in Fiscal Year 2000 to $4985 in State Fiscal 
Year 2003, an increase of 21 percent. That is for us in our 
State.
    Mr. Fletcher. Let me ask you a question. I know we agree, 
and I agree with you clearly on the flexibility, and I want to 
see incorporated education flexibility personal responsibility 
in a way that will work, and that is the reason I think it is 
important, particularly in the optional individuals. In the 
mandated individuals, there is one thing, but the President has 
talked about giving flexibility in this optional population, 
which is a population which you all could quit covering 
immediately if you wanted to because it is not mandated, and so 
we are just giving you option on what kind of benefit. If you 
could use that $4985, say, instead of using it for one optional 
benefit, say you could use $2400 or $2500 for two individuals 
that you optionally cover, wouldn't that be a better option for 
the States to do so that you could help some people--maybe not 
help them with a fully mandated benefit, but you could help 
them where they needed help, especially in that 300 percent 
poverty rate that you talked about?
    Governor Richardson. Well, that would strike me as being a 
flexibility that would be welcome. I don't necessarily think 
that flexibility is just a definition of who you could take on 
or off the rolls. I think that this is the kind of flexibility 
that a Governor would want to have.
    But I think, Congressman, you have to have the resources, 
and my worry is that in the outyears, that when you cap--you 
are telling me it is going to be $12.5 billion over 7 years and 
in the outyears I have to pay it back----
    Mr. Fletcher. Well, I have said that there is really not a 
payback on that, Governor, it is a reduction. I think my time 
is up, but thank you. We really appreciate your being here.
    Mr. Bilirakis. Thank the gentleman. Mr. Pallone for 5 
minutes.
    Mr. Pallone. Thank you, Mr. Chairman. Governors, I have to 
say that I can't help but think that the real issue here is 
resources. I think that was what Governor Richardson just ended 
talking about the need for resources.
    When I was doing my opening statement earlier, I was trying 
to get the point across that, from my perspective--and I think 
it is true for most of us, at least on the Democratic, but 
hopefully everyone--the real goal is to try to cover as many 
people as possible, and provide them with as much care as 
possible that they need.
    So, for us, the issue of how much money is available, what 
the flexibility is, all of that has to be in the context of 
what is going to accomplish the goal of covering the most 
people. And the concern that I have is that--I know it sounds 
political in saying it--but in the last few years of the 
Clinton Administration we were, through the efforts of this 
committee, on a bipartisan basis expanding the number, the 
money and the programs that were available to the States, and 
the number of uninsured, for the first time in anybody's 
memory, was actually going down--the SCHIP program, the parents 
of the kids in the SCHIP, expansion of Medicaid.
    Now we see the opposite happening, and I don't really 
understand why the issue is flexibility at all. It seems to me 
that we have had Secretary Thompson here. He has tried to give 
States, like my own, flexibility with waivers where they have 
been able to waive in the parents of the SCHIP children, or 
even maybe single adults in some cases, I understand. So I just 
think that the President's proposal has nothing to do with 
flexibility. He has provided flexibility by giving waivers 
through Health and Human Services when it is needed. The 
problem is money. The problem is lack of resources. And there 
is nothing that anybody has said that convinces me that that is 
not the case.
    You may have some limits on your flexibility by what the 
Health and Human Services does, but the bottom line is that 
there has been a lot of flexibility there as well.
    Just let me give you an example. I know there is a young 
woman here in the audience today, Jeannette Morrisette Johnson. 
She is over here in the orange dress and sweater. In 2001, 
after 12 years of being on a waiting list, she was admitted to 
the Minnesota Cash and Counseling Program. But she just 
received a letter this February telling her that her allocated 
money has been reduced 51 percent due to the State budget 
crisis and, worse yet, the allocated amount was to be cut 
retroactively.
    So this is the problem with caps and waiting lists. 
Jeannette's care under this demonstration will be cut. Now, 
because Medicaid is an entitlement under current law, she still 
is able to get services, but she has to enter a nursing 
facility to get them. But under the Bush block grant, she would 
no longer have that entitlement. She would be left with nothing 
after March 29.
    So, my point with this is--Governor Bush talked about this 
Cash and Counseling program, and maybe there is some 
flexibility there. But if you don't have the money because of 
the cap, then what good is the flexibility? I mean, that is 
what this is all about.
    I wanted to ask Governor Richardson, if I could quickly, 
one question, and I wanted to ask about American Indians 
because you brought it up. In your home State--because I know 
it is true in New Jersey--our Governor has had to cut back on 
SCHIP. No single adults anymore. No parents. Now even some of 
the kids are going to be cut. What is happening in your State? 
Is that because of flexibility, or is it because of lack of 
resources?
    Governor Richardson. Well, I think it only has been because 
of congressional intervention that we have been able to 
maintain the unspent SCHIP funds that you talked about. And I 
think this is an example why I am concerned about the Medicaid 
proposal on the table right now, that this program for kids, 
the SCHIP program, basically has to be preserved by the 
Congress every year because, otherwise, it allows States to 
maintain their allotments permanently.
    So, I think what is important is that a poor State, unless 
we have the flexibility to spend that money, we lose some of 
these funds to more affluent States that are able to juggle 
their resources more effectively, or they are reverted to the 
Federal Treasury. This is why I think it is very important that 
you are not just talking about increased flexibility, but you 
are talking about resources.
    Mr. Pallone. And I appreciate that. I understand it is an 
issue of flexibility, but I just think without the resources it 
is meaningless. I wanted to ask you, though, because you 
brought up American Indians. Many American Indians rely on a 
mix of Indian Health Service and Medicaid funding. Can you 
provide some insight into how you think this administration's 
proposal would impact the American Indian people of your State, 
and how it might be improved or better address their needs, 
because you have expressed concern in that regard.
    Governor Richardson. Well, in my State----
    Mr. Bilirakis. The gentleman's time has expired. Please 
proceed, Governor Richardson, but if we can be brief, I would 
appreciate it.
    Governor Richardson. Yes. And I think many of you have 
Native American populations. In my State, we have nine times 
the national average, we have 173,000. Of those 173,000, 68,000 
are on Medicaid. So when you have rural areas, when you have 
increased access, it is more difficult. You have Native 
Americans with highest incidence of diabetes, alcoholism, 
health care needs from drug abuse. You have a very vulnerable 
population. And twice as many Native Americans live below the 
poverty level.
    So at the same time that the Indian Health Service costs 
and budgets are being reduced, you have got the States trying 
to plug in some of those gaps, and it is a problem. And the 
worry that I have is that the capping of the block grant is 
going to just make some of the American Indian populations more 
vulnerable, especially in rural areas.
    Mr. Bilirakis. The gentleman's time has expired. Governor 
Richardson, very quickly, talking about the waivers, what does 
it cost the State to go in and request these waivers, and what 
is the process there? We talk about waivers we have gotten all 
the time, and flexibility, and that sort of thing, but what 
does it cost you?
    Governor Richardson. Well, I don't think it costs that 
much. I think there is a lot of I think necessary bureaucratic 
effort. I have my Secretary of Health and Human Service--we 
have only been in office 60 days, but----
    Mr. Bilirakis. You keep repeating that.
    Governor Richardson. [continuing] I am really hoping to get 
some waivers. I hope this testimony doesn't hurt me.
    Governor Rowland. I think it is going to help.
    Governor Richardson. But, again, I don't think there is 
much of a cost. Just dealing with the Federal Government, as 
you know, is difficult, but I don't think there is much of a 
cost.
    Mr. Bilirakis. Governor Bush, I know you have to leave. 
Anything you want to add to that as far as cost is concerned?
    Governor Bush. Well, the cost really relates to the 
administering of the waivers. We have 13 of them, I believe, 
and there is administrative cost. And as it relates to 
flexibility, just to make the point, the SCHIP program is a 
great example of flexibility that we can't now implement. If a 
Medicaid beneficiary, a family, wanted to go to a KidCare SCHIP 
like program today, they would not be allowed. No waiver will 
change that, they would not be allowed. And there are people in 
our State that are receiving Medicaid that would be happy to do 
a co-pay, would be happy to get the better quality health care 
professionals, would be happy to be in that program, but they 
can't.
    Wouldn't it be better to provide that option in a new 
system? And as it relates to people that are in consumer 
directed care, as you stated, Congressman, if a pilot program 
runs out and they have to go back to an institutionalized 
setting, a new system wouldn't necessarily require that.
    We can find lower cost ways of providing better dignity, 
better care for people, and waivers are part of it. We are 
thankful for the waivers we have, particularly for the 
developmentally disabled. Were it not for the MED waiver 
program that frankly was granted in the Clinton Administration, 
in the last days, we would not have been able to dramatically 
increase the number of people receiving care at a lower cost 
than putting them in institutions.
    I just think we can go beyond where we are and, Mr. 
Chairman, I appreciate the opportunity to start this dialog. I 
hope that you will invite others that are, as people have said, 
patients and providers and others, to be part of this debate, 
but we should not let this opportunity go to waste.
    Mr. Bilirakis. We plan to do that. Thank you very much for 
taking your time to be here, Governor. Governor Rowland, very 
briefly, did you want----
    Governor Rowland. Mr. Chairman, I just wanted to add, the 
experience I have had is a little bit different than my two 
colleagues. I served under two administrations and went through 
a waiver process with both administrations and, frankly, the 
previous administration, with all due respect, was very 
difficult to get a waiver. It was almost impossible. But, more 
importantly, the waiver system should not be at the discretion 
of who happens to be the HHS Secretary. There should be some 
uniformity. On any given day at any given moment, it shouldn't 
be, ``Well, on Tuesday we will do a waiver, but not on 
Thursday. In New Mexico we will do one, but not California,'' 
and so forth. So there has to be some consistency, something 
that we can work off of. And it just flies in the face of what 
we are trying to do--and that speaks to Congressman Pallone's 
point--we are trying to cover as many people as possible. And 
the more flexibility we have, the more people we can cover.
    So I think your argument leads to--and I would like to try 
to convince you--leads to us having more flexibility. We can 
cover more people. I look at California. California has a $30 
billion budget deficit. You can pour more Federal dollars into 
that program, but they are going to have great difficulty 
matching it dollar-for-dollar for some of those optional 
benefits.
    Mr. Bilirakis. Thank you. Mr. Deal is recognized for 8 
minutes.
    Mr. Deal. I, too, want to express my appreciation to the 
Governors for their appearance here today and for your insight 
into what is a difficult issue for you as well as for those of 
us here at the Federal level.
    I want to mention one topic that for my State is a problem, 
and I think probably at least for Governor Richardson is a 
problem. That is the issue of undocumented aliens and their 
impact on the cost of providing care.
    There is a study that has been commissioned through GAO to 
try to study that impact and submit a report by the end of this 
fiscal year for the top ten States in estimated illegal 
populations, and New Mexico, as I understand it, is in that 
list.
    There has also been legislation introduced on both the 
House and Senate side that would propose to make additional 
allocations to those States that are the sixth highest in 
estimated undocumented populations. Since my State of Georgia 
is seventh and is not included, I have some problems with that 
cutoff. And since New Mexico is not in that top seven, I would 
assume the Governor of New Mexico would also have similar 
problems.
    Would you care to comment on that aspect of the cost to 
your system, and suggestions as to how we might better deal 
with that problem?
    Governor Richardson. Well, Congressman, first, I would say 
that both of our States deserve to be on that list. And then, 
second, I do think we have to, with this population, revert to 
our role as a Nation that is compassionate. Many of these 
undocumented workers are participating in civic society, and 
they are going to school, they are law-abiding citizens. And in 
New Mexico, even though we are on the border, we don't 
experience the dramatic growth that exists in other border 
States like California, like Texas, but it is a strain on 
resources, but one that we are trying to find ways that we have 
sensible policies.
    Now, again, it is--I just keep saying it--it is a matter of 
resources. It is a matter of finding ways to have eligible 
populations that you can take care of not just with resources, 
but with partnerships with the State, the Federal Government, 
clinics, private sector, but this is something that I know your 
Hispanic population in Georgia is one of the highest growing in 
the country. In fact, I think you elected a Hispanic State 
Senator for the first time, so I know this is a problem for 
you.
    Mr. Deal. Let me move to the topic and the one word I think 
we have heard the most of, and that is flexibility. Having just 
met with a health care provider group just a few minutes ago 
during the midst of this hearing, one of the concerns for some 
that are maybe not considered mainstream in the health care 
providers is that flexibility will mean that they cut out of 
the system, whether it be dental services, therapeutic 
services, et cetera.
    We have gone through that same argument, as you know, when 
we dealt with the education bill during the last Congress, 
about doing away with categorical areas and giving broader 
discretion to the States.
    Can you all give some assurance to these groups that if you 
are given some flexibility, that they will have their just say 
and hearing at the State level so that you don't have certain 
provider groups being excluded? I think that is a concern that 
is always there when you remove people from mandatory 
categories and put them into discretionary categories.
    Governor Rowland. I would be glad to take a stab at that, 
and my first comment would be that, first and foremost--and 
this hasn't come up in our discussions just yet--but this whole 
talk of the reform plan is voluntary to the States, and that 
needs to be highlighted. So if 20 States that, for example, 
don't even have optional benefits, or do not have a SCHIP 
program, or don't have a drug prescription plan, if they think, 
well, things are going fine under the way we are doing this, 
then they can continue to do what they are doing, and the other 
30 States that have been creative with optional plans and 
extensions of programs, they may presumably go running after 
the $12 billion over the next 7 years.
    With regard to various groups that provide benefits, what I 
have seen at the State level is that you have got that 
balancing act. And what we are facing today, if you look at the 
Medicaid pie, you are looking at the dollars and then make a 
determination to, in Congressman Pallone's comment, you want to 
serve as many people as possible. And over the last 6 years, I 
would argue that because of the better economic times and for 
the State economic times, all of us have surpluses. We are 
chasing optional programs like crazy--dental plans, this plan, 
that plan. But certainly under the Medicaid plan, you know, the 
dental care, braces, everything is no co-pays, no contribution, 
it is the best plan in America.
    But my point is that you will see at the State level that 
debate over extending the optional care or trying to take care 
of more. I would caution, however, under these tighter fiscal 
times, you are going to see more focus on taking care of the 
lower-income and making sure that--well, arguably, that the 
bells and whistles won't be there. Having said that, if we 
don't do anything, if we don't adopt this type of a plan and we 
maintain the status quo, we are only going in one direction, 
and that is less benefits and less people covered. That we know 
for sure.
    Governor Richardson. Congressman, I would give you that 
assurance, too. In fact, in New Mexico, I think, because of 
this dramatic increase in Medicaid services and enrollees, that 
we are looking at peer practitioners. I think this is where you 
can experiment a little bit--alternative practitioners, 
traditional healers and services. I should be careful because I 
know there are a lot of doctors on this committee. But I think 
a State like mine has to do that with very rural Native 
American and Hispanic populations that have access problems, 
that have delivery problems, that have limited resources, few 
rural health clinics.
    Mr. Deal. Thank you both. Another topic that I know we all 
have concerns about, and that is the disproportionate share 
payments. And for States like--I am sure probably New Mexico is 
like Georgia in the regard that we have many areas where 
disproportionate share makes a big difference in terms of rural 
hospitals that have those large Medicaid populations.
    Certainly, it is one of those topics that is on the table 
for discussion as to how we deal with it in the future, and I 
would just simply lay that subject matter out for your 
consideration as to any comments later down the road that you 
would like to share with us. And, also, as I understood it, the 
Governors Conference is going to provide us with some list of 
waivers that have been effective, and I think that would be 
very, very beneficial for us to hear from you as to the kinds 
of waivers you think have worked and the kind that maybe should 
be incorporated and not have to be asked for, but maybe 
incorporated into the basic system.
    Governor Rowland. I think, Congressman, that is a great 
starting point for discussion, and I would take it a step 
further, and I would say to the chairman and to interested 
members that what you ought to do is put the gauntlet down and 
say to the Governors of this country, ``If you want this reform 
plan, you sit down and work with the administration and 
interested parties on this committee, and put something 
together that we can all agree upon.'' Absent that, it 
becomes--if we have five different plans floating around out 
there and the DSH payments aren't satisfactory to New Mexico 
and Connecticut, and this plan is not satisfactory, and we 
don't engage and make sure that there is a sense that the 
mandatory populations are going to be protected--and I think 
that has to happen--then shame on us.
    And so I would encourage you to challenge the Governors to 
make it happen.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Bilirakis. The gentleman's time has expired. Mr. Stupak 
for 8 minutes.
    Mr. Stupak. Thank you, Mr. Chairman, and welcome to the 
Governors. I have sat through most of this hearing, and we met 
Jeannette Johnson over here with her parents, and Donna Lucero 
is right over here, and she recently lost her job and, when she 
lost her job, she lost her health insurance. She was told she 
could go buy her health insurance under COBRA once you lose 
your job. But we all know when you try to do that and get a 
single-payer plan, it is too expensive, especially when you 
don't have a job, and there was no way she could afford any 
health care plan. So she went in and applied for Medicaid and, 
of course, Medicaid denied her, but at least her daughter got 
some coverage under Medicaid. And Donna says that Medicaid does 
matter to her, it is a relief that at least her daughter is 
covered by any illness that she might encounter. She is a star 
student at her high school, and being able to stay healthy is 
critical for her to be able to continue learning at an optimum 
level.
    And as I have listened to all this today--and Governor 
Rowland indicated that even with the proposal of the President, 
there may be a decline in service and, therefore, with a 
decline in service we may not be capable of providing services 
like we have in the past to people like the Johnsons or Lucero. 
And both the Governors, Governor Richardson and Governor 
Rowland, also mentioned the war.
    So I ask this question with all due respect because when I 
am back in my district, this is what I am hearing. And this 
weekend, Saturday, I will be at UP legislative dinner, with all 
of our American Legion Post and don't have enough money for 
health care for veterans. Sunday I will be down in Patosci with 
the nurses, never enough money there in health care. I'm doing 
a town hall meeting Monday night. But my constituents have been 
asking me lately--and now they are hearing about proposals to 
cap Medicare and Medicaid because States can't afford it, and I 
think you mentioned that my State of Michigan lost 50,000 
people on Medicaid--but then, yet, last week they saw the 
President on TV saying that after we defeat Iraq, the U.S. will 
go on to provide food and medicine for Iraq. And, yet, here in 
the United States we don't either have enough resources and we 
don't have enough money for Medicaid to take care of people, 
whether it is the 50,000 in Michigan or the Johnsons or 
Luceros, and we don't have a prescription drug program. 
Medicaid pays for some prescription drugs for beneficiaries.
    So how do we cut Medicaid recipients' benefits here at 
home, but we promise medicine to Iraq, or how do we pass a plan 
that caps Medicaid benefits, but I don't hear any caps on aid 
we are going to give to countries we may be at war with. And my 
constituents are saying, ``How do you do that? What is going on 
up there? Where are your priorities?'' How do we answer that?
    Governor Rowland. I think it is a great question, and the 
answer, I think, comes back to what your colleague said 
earlier, and the challenge should be for all of us. Let us 
cover as many people as we can. The dilemma we continue to face 
is as we expand the coverages and the optional categories and 
as we begin to get into the SCHIP programs, are we taking away 
from the mandatory population? So there is this constant give-
and-take, and I am not sure that at the State level we see 
funds being diverted, if you will, to the war, or funds 
diverted to health care for other countries, but all I know is 
that we spend probably 40 percent of our entire budget on 
health care for the people of our State, some of it matched by 
the Federal Government and much of it not.
    What I do also know is that economically, except for New 
Mexico, most of our States are in a real jam, your State in 
particular. I mean, you have got layoffs of State employees, 
reduction of benefits across-the-board, and I don't see it 
going away anytime soon.
    So, leaving aside foreign policy discussions, all the more 
reason to engage with your Governor, who I think is 
enterprising enough and flexible enough in working with the 
Federal Government, and courageous and creative enough to 
figure out what population to serve and how to utilize the 
Federal and State dollars that are available.
    Mr. Stupak. But if you start capping it--and this plan I 
think Mr. Pallone said lack of resources--there is no doubt in 
outyears you do have a cap on it, and hopefully the economy is 
better--we can always hope against hope--but, still, 40 percent 
of your budget right now is going for health care and you don't 
have enough. How do you help these other people?
    Governor Rowland. That is why this plan is a home run, it 
increases by $12.5 billion over the next 7 years. So you are 
going to look at $3.2 billion next year and $12 billion over 
the next 7 years.
    Mr. Stupak. So $3.2 billion will take care of all your 
health care needs?
    Governor Rowland. Better than the alternative which is the 
status quo? Absolutely.
    Mr. Stupak. Well, shouldn't we really put more resources 
into Medicaid? After all, the Federal Government picks up about 
57 percent of every Medicaid dollar.
    Governor Rowland. There is no question, we would all love 
to see more money. Believe me, all of us, every Governor, would 
love to see more dollars, but let me emphasize that the State 
still has to match those dollars.
    Mr. Stupak. On, I don't disagree.
    Governor Rowland. And whether it is Michigan or California, 
the ability to match it is going to be difficult.
    Mr. Stupak. And I agree with the SCHIP program, Governor 
Bush was saying they would rather be in the SCHIP program as 
opposed to the Medicaid program because they get more benefits, 
and I think that is what people are saying, and health care is 
so critically important. But you talk about the $3.2 billion, 
Governor, how much would your State give of the $3.2 billion? 
You have 50 States out there, plus Puerto Rico and the other--
--
    Governor Rowland. No. 1, all 50 States wouldn't utilize it. 
It is a volunteer program. The estimate is that probably half 
would. So, if that is the case, it would be about a 2 percent 
increase. With that 2 percent increase I can do an enormous 
amount.
    Mr. Stupak. But unless the economy really picks up 
tomorrow, you are going to have more than a 2 percent increase 
or demand in your State of Connecticut.
    Governor Rowland. It would be a 9 percent increase, but 
what I am saying is that a 2 percent increase with flexibility 
is a much better plan than the status quo. And I would also add 
that if you would do a drug prescription plan at the Federal 
level, that would be great relief to many States, as long as 
that is flexible as well.
    Mr. Stupak. Sure, but if you are going to get a 2 percent 
increase and a 9 percent increase in demand in your State, 
there is a 7 percent gap there. How do you cover that?
    Governor Rowland. By not having to spend $5,000 a month for 
a nursing home recipient. I can spend $1,000 or $2,000.
    Mr. Stupak. What would that nursing home recipient do then, 
if the State wasn't there to help out, and they are qualified 
for Medicaid so you know they don't have a lot of resources, so 
what does that recipient, that nursing home recipient?
    Governor Rowland. Oh, I would offer a menu of services, 
anything from assisted living to at-home health care. We only 
have one option right now. The option is to go into the nursing 
home. With dual-eligibles, we have a disaster at the management 
level at home health care and homebound. So, right now, if you 
look at, for example, my $3.5 billion spent on Medicaid, both 
Federal and State, half of that is going to optional services, 
well over half of that. And of that half, of that $2 billion, 
$1 billion of it is going directly into the nursing homes. They 
haven't had an increase in the last 2 years.
    Mr. Stupak. Governor Richardson, anything you want to add 
to that?
    Governor Richardson. When you have a Democratic Governor or 
a Republican Governor, one of the things that we have tried to 
do is approach these problems on a bipartisan basis. Where I 
would differ a little bit with John is I do worry about the 
capping at this time of uncertainty, at this time when we are 
telling Turkey we are going to give them $26 billion, and then 
we have got this shortfall in the States and so many other 
problems.
    I guess my position, Congressman, is that at this time of 
economic downturn and uncertainty, it is important that we not 
do the status quo--I am with John on that--but that we not 
experiment so dramatically that by capping--and I have looked 
at those numbers, it is $12.7 billion over 7 years--but then in 
the outyears it is a drop off, and I do think we have to pay it 
back. And I worry about what you are going to do in States like 
mine where this program just continues to grow, and where you 
have--I would hope that you consider having Medicare be more 
active in dealing with health and long-term care costs of all 
people so that the States, regardless of immigration, 
regardless of illnesses, family type, status of age, so that we 
at the Medicaid level can really concentrate on doing that, and 
have the SCHIP program expanded so that we can deal with 
disabled, with kids, with seniors. I think that would be a 
constructive step that we could take to deal with the long-term 
issue that you talked about.
    Mr. Stupak. Thank you.
    Mr. Buyer [presiding]. Thank you, Mr. Stupak. Mr. Brown.
    Mr. Brown. Mr. Chairman, I would like to ask unanimous 
consent to enter these letters and statements on Medicaid from 
groups like the Alabama Hospital Association, ACT-UP Atlanta, 
American Academy of Pediatrics, American College of Ob/Gyn, 
American Diabetes Association, AFL/CIO, American Hospital 
Association, AARP, Catholic Health Association, Center on 
Budget Priorities, Children's Defense Fund, Consortium for 
Citizens with Disabilities, Florida Alliance for Retired 
Americans, Health Care for All Coalition, Leadership Council of 
Aging Organization, March of Dimes, Association of Children's 
Hospitals, National Association of Public Hospitals, National 
Citizen's Coalition for Nursing Home Reform, National Committee 
to Preserve Social Security and Medicare, National Health Law 
Program, National Mental Health Association, National Women's 
Law Center Premier, and AARP. If I could submit these letters 
for the record.
    Mr. Buyer. Hearing no objection, so ordered.
    Mr. Strickland, you are recognized for 5 minutes.
    Mr. Strickland. Thank you, Mr. Chairman. I am sitting here 
thinking that we make decisions that affect real people, and we 
have one of those real people in the audience today. I would 
like to recognize Rose Spears, from Portland, Oregon. Rose has 
two children, four grandchildren. She has heart problems and 
diabetes. Thank you, Rose, for being here today.
    She gets her health coverage through Medicaid. She is one 
of the optional beneficiaries. She is on disability, not on 
SSI. She has been getting her drugs through Medicaid. What does 
that mean? It means in February she was told that she would no 
longer be able to get her prescription drugs paid for. She pays 
$912 a month for her medications and her insulin. She receives 
$728 a month in disability payments, and $61 a month in food 
stamps, and her rent is $373 a month. Her medications cost more 
money than she has each month to live on. She is an optional 
beneficiary.
    Governor Richardson, I have a question, but before I have a 
question I want to thank you because when you were Secretary of 
Energy, you did something courageous, you admitted that this 
government injured people without their knowledge. And today in 
my district and across this country, people are being 
compensated because of your courage, and I want to thank you 
for that.
    Your two colleagues with you sent a letter to the President 
not long ago opposing the State Fiscal Relief legislation that 
has been introduced or authored by Congressman King and 
Congressman Brown. They wrote, ``Rather than seeking one-time 
relief from the Federal Government through the Federal medical 
assistance percentage increases or other measures, we would 
suggest it is time to review and fundamentally rewrite the 
Medicaid program.''
    In the State of Ohio, the Governor has recently terminated 
Medicaid coverage for adults with vision problems, 
psychological problems, sight problems. Anything above the neck 
is pretty much excluded from Medicaid coverage.
    I have met with pediatric dentists who have been treating 
disabled children who are now disabled adults, and they are 
stunned by the fact that they will no longer be able to treat 
these disabled adults that have serious dental problems.
    I note that--I think I am correct here--Connecticut is now 
trying to close a budget deficit of at least $700 million. The 
State already dealt with a $650 million hole in their budget 
this current year. Florida has a deficit of $2 billion expected 
for the upcoming year, and is unlikely to be able to cap the 
classroom sizes as required by the Florida Constitution. Those 
States would gain $71.5 million and $217 million under this 
Federal medical assistance percentage proposal.
    In your State, Governor, you would gain $87.7 million. It 
would seem to me that it would be important to have these 
additional monies to at least preserve coverage for the States 
that are faced with these awful choices.
    Don't you think, Governor, that our first choice should be 
to protect coverage which is currently being provided to 
vulnerable families and to maintain this as much as possible? 
In other words, doesn't the Federal Government have 
responsibility to step in and help out these States now because 
people like Rose Spears are being hurt now, and not wait for 
some reform that may be desirable in the system?
    Governor Richardson. Congressman, I agree, and I said in my 
opening statement that I felt that passing the legislation, the 
King, Brown, and in the Senate I think Collins and Hutchinson 
of Texas, which is bipartisan immediate fiscal relief for the 
States. This process is going to take about a year of drafting 
legislation on Medicaid and Medicare. And my hope is that some 
of these funds are available now, and hopefully as part of a 
compromise there can be--I don't know if we can expect all the 
$10 billion that you talked about.
    I do want to say something that is very healthy, and 
Congressman Rowland alluded to it, and that is when I used to 
sit on this committee, even more junior than some, and 
Governors would come up, I didn't recall the committee really 
listening to them. And I would say, ``God, they are just 
whining.'' And now that I have seen first hand how we are the 
ones that are managing this Medicaid, but we are the ones that 
see the people that are hurting.
    I have Donna Lucero, from New Mexico, who is here, who lost 
her job. And they look in your face and they say, ``What am I 
going to do? I pay my taxes. I want to work. I want some hope 
for my family,'' and you can say, ``Well, you know, I can't 
deal with Medicare reimbursement, that is a Federal issue. I 
can't deal with giving you this new program because I have to 
get a waiver, and I don't know if I can do it,'' and you 
sometimes feel powerless.
    My point is that I would hope that this committee--I know 
it has policymaking authority in the health care area--works 
with the Governors--and we are forming a task force of 12 
Governors that will work with the administration and with the 
Congress in fashioning legislation that at least limits the 
pain, the short-term pain that we have in this time of economic 
uncertainty.
    And I want to return the compliment to you for your work on 
behalf of your people. I have never seen a Member of Congress 
that fought more for his people especially in need than you do.
    Mr. Strickland. Thank you, Governor. Thank you, Mr. 
Chairman.
    Governor Rowland. Mr. Chairman, if I may, I just wanted to 
correct the Congressman, apparently he has got some 
misinformation alluding to a letter that was sent from myself 
and Governor Bush and Governor Owens in opposition. I believe 
he referred to H.R. 816. We did not send a letter in opposition 
to H.R. 816, we sent a letter to the President and to the 
Secretary of Health and Human Services, talking about 
flexibility and the process that we are following. That letter 
that we sent was on January 16. H.R. 816 was not even 
introduced until February 13. So our letter was not in 
opposition, and I know that some of that misinformation is 
being spread around, but it is not the case.
    Mr. Buyer. Do you support the legislation, sir?
    Governor Rowland. I don't even have an idea what the 
legislation is.
    Mr. Buyer. Thank you. I just have a couple quick questions. 
First of all, gentlemen, thank you for coming. One of the 
challenges we face in drafting this Medicare prescription drug 
piece is trying to prevent dumping. I hate to use that word, 
but corporations that have legacy costs want to put retirees on 
the Federal Government. States have an interest on dual-
eligibles.
    When I looked at--just to go by last year's bill, 
Connecticut alone, over 10 years, would stand to reap about 
$729 million. That is a tremendous benefit over 10 years if the 
Federal Government picks up the cost of dual-eligibles. New 
Mexico is $87 million. So, I just want you to know those are 
things that add to our cost----
    Governor Rowland. We can negotiate that.
    Mr. Buyer. Sir?
    Governor Rowland. We can negotiate that.
    Mr. Buyer. I do have a question follow-on from Mr. Deal's 
about the unauthorized aliens and emergency medical expenses. 
When he asked you the questions about DSH payments, I would 
like to know if you have any data on the amount of DSH payments 
that are used for unauthorized aliens? Do you have anything on 
that?
    Governor Richardson. We will provide that for the record, 
Congressman. We are what is called a low DSH State. This would 
be added to the administrative part of the allotments under the 
administration's proposal. These are service dollars, but not 
administrative.
    Mr. Buyer. Governor Rowland, would you have any data?
    Governor Rowland. We do. Our DSH payments are about $230 
million. I didn't catch the whole question but, if, indeed----
    Mr. Buyer. It was whether or not you have any data on the 
amount of DSH payments used for unauthorized aliens.
    Governor Rowland. For unauthorized aliens, I could probably 
get that information for you.
    Mr. Buyer. If you could get this for the record----
    Governor Rowland. I don't think it is significant in the 
State of Connecticut.
    Mr. Buyer. It would be, though, in New Mexico.
    Governor Richardson. Probably higher, yes, than 
Connecticut.
    Mr. Buyer. The last question I have, I was surprised when I 
reviewed the testimony, and Governor Bush talks about 45 
percent of the State of Florida's pregnant women served by 
Medicaid, 44 percent in New Mexico--I don't know what yours is, 
Governor Rowland--but that is very high. I immediately began to 
think about the fathers out there, and we have a system to go 
after deadbeat dads and the collections on welfare. Is this 
included in what is happening in your courts, your AGs are 
going after the deadbeat dads to make collections back to your 
State relative to the cost of Medicaid for providing for these 
children?
    Governor Richardson. Yes. In my State, it is.
    Mr. Buyer. Do you know what that number is, and how well it 
is being done?
    Governor Richardson. Well, it is not being done as well as 
it should. The number on the program--I am informed that we get 
$1.56 for every $1.00 that we spend on the program, from the 
Federal Government. So we do well proportionately.
    Mr. Buyer. I just want to make sure that you are 
comfortable. That AGs are actually making those demands and 
collecting on judgments on deadbeat dads.
    Governor Richardson. I am comfortable with the efforts of 
our officials. The results, I would like us to do a lot better 
like obviously we should.
    Mr. Buyer. Governor Rowland?
    Governor Rowland. We have had a very successful rate, I 
can't give you exact percentage. I will tell you that the 
challenge for us is out-of-state dads. And I know that the 
Attorney Generals Association has been diligently working and 
we are using all kinds of technology, and there have been many 
cases we have actually sent people out of the State to other 
States to pick up the dads and to force them to pay the price.
    Mr. Buyer. Could both of you provide that for us for the 
record? What we will attempt to do is--there is a myth--well, 
it is the difference between myth and reality. If you come to 
the Federal Government and you just ask us for more money, our 
question to you is how well have you been collecting with 
regard to those costs. If you are doing it well, that is great. 
If you are not doing it well, then we know how we need to sort 
it out. That would be very helpful.
    I have no further questions. Mr. Davis is recognized for 5 
minutes.
    Mr. Davis. Thank you, Mr. Chairman. I want to thank the 
Governors for sticking around, given your busy schedules, and 
my Governor, Governor Bush, for spending so much time here.
    There are three ingredients to what we discussed today that 
I would like to briefly go back and highlight and give you the 
chance to comment on and respond to a question. The first is 
the level of the proposed increase, the second is the proposed 
flexibility, and the third is what I will essentially refer to 
as a cut in the per capita amount of Federal dollars you 
receive for each of the people you represent who are Medicaid 
beneficiaries.
    As Governor Bush said so eloquently early, this is not 
about government numbers, this is about family incomes and 
people. And I want to refer to simply one Floridian who is in 
the audience today--I hope there are others--Carolyn Chavan is 
here. Carolyn, would you raise your hand so folks can see you.
    Carolyn--I expect she doesn't mind me mentioning this--was 
diagnosed with cancer in April of 2000. She is fighting the 
good fight and hopefully doing well. She had to quit working. 
She had to fall back on the medically needy program in Florida 
to pay her prescriptions, in addition to some disability she 
receives.
    What Governor Bush would have acknowledged if he were still 
here is that under the budget that he has had to submit in 
Florida, the medically needy program is eliminated. And, 
Carolyn, I don't know what is going to happen. I guess I hope 
that isn't going to happen and the Federal Government can help 
Governor Bush avoid doing that so you and others can fight the 
good fight and get well and get back to work and be with your 
families.
    But the point is, I believe you need this increase. And a 
lot of people laughingly refer to Florida as the place where, 
as Senator Gramm likes to say, if you live long enough you will 
be a resident one of these days. But the truth of the matter 
is, one of the reasons the Federal Government needs to provide 
some support is because of the issue of mobility. And certainly 
in New Mexico, perhaps less so in Connecticut, Governor 
Rowland, more and more people are moving to your State because 
of the good things it holds and what you are trying to do for 
it, and that is one of the reasons why the Federal Government 
needs to support Medicaid and needs to provide increase because 
of your budget situation.
    On the flexibility, Governor Bush--and I am sure you as 
well--have done some very nice things with the developmental 
disability area in terms of getting the dollars where they need 
to go, to people that need it. One of the projects he has 
pursued is something we talked about today and I think is 
terribly important, which is getting out of the 
institutionalization business for developmentally disabled 
people and the seniors, and allowing people to age at home in 
place.
    One of the projects that Governor Bush referred to in his 
testimony is only in two counties, serving about 100 people. 
That is simply a beginning. To me, it is another example of why 
we need to give you the increase, and we need to give you the 
flexibility as well.
    Finally, I think it is very important that we try to reach 
agreement, Democrats and Republicans, Federal and State, on 
exactly what this proposal means because I think what it means, 
based on the numbers we have gotten from OMB and the CBO, is 
that once this program really kicks in, the amount of Federal 
dollars you perceive on a per capita basis, which is ultimately 
what affects Carolyn, is going to be dramatically reduced at a 
time the Baby Boomers are starting to retire. And once we can 
agree on those facts, if that is where people want to head, 
then we will go ahead and take the votes and move accordingly, 
but I don't think that is where we want to head. I think those 
of you all who are encumbered by tremendous amount of knowledge 
of the details as Governors, need to help us make an informed 
judgment on this, and hopefully there will be bipartisan 
agreement on this, and I expect you will be leaders in that, on 
whether that is the direction the Federal Government needs to 
take.
    The last thing I want to say is that I do support giving 
you the flexibility on the co-payment. I supported it as a 
State legislator in Florida. But you know that is a very, very 
powerful tool to be used, and it can be abused, and I want to 
cite you one example and give you the chance to comment on this 
or any other points I raised.
    The Department of Veterans Affairs budget this year 
suggests a $15 co-payment on drugs and a $250 deductible for 
low-income veterans. They further estimate this will result in 
a 34 percent drop in Priority 7 and 8 veterans--these are low-
income veterans using health care. I don't think that is what 
we intend to do when we talk about personal responsibility in 
cost-sharing. That sounds to me as something that is going 
entirely too far. Ultimately, we have to resolve the level of 
trust and flexibility we will give you to make the right 
decisions for the people we all represent.
    So, I just want to give you in my remaining time any chance 
to comment on any of the matters I have said, or anything else 
you haven't had a chance to raise.
    Governor Rowland. Congressman Davis, let me first thank you 
for what I think are very constructive remarks. I think you had 
to duck out for a moment when we talked about at the NGA level 
we will have a task force, if you will, of about 12 Governors, 
Republican and Democrat, that are willing and able to meet with 
your committee and any other interested individuals, to try to 
craft something. And I also said to the chairman at the time, I 
think it is imperative that the challenge and the burden is 
placed on us. I think the burden has to be placed on the 
Governors bipartisanly to come up with a plan that you feel 
comfortable with, that the administration feels comfortable 
with and, frankly, that is the only way it is going to work. 
Absent that, this falls apart under its own weight.
    When we talk about flexibility, we are talking about the 
ability to better serve our constituents and not a one-size-
fits-all program. I would say that one of the things I have 
learned after 9 years as Governor is that what works in New 
Mexico may not work in the State of Connecticut. What works in 
Idaho may not work in New York State. We are a very diverse 
population, but the rural challenges and health care delivery 
systems and benefit levels are all very different. The mere 
fact that only half of the States have adopted what I call the 
CONPACE program, which is State drug prescription plan, the 
mere fact that only about half the States have adopted any of 
the optional programs under Medicaid. So you have a very 
diverse population, and the flexibility that you would give us 
will help us better do our jobs.
    Mr. Davis. And, Governor, I want to strongly urge you to 
include Medicaid beneficiaries on this commission you are 
describing.
    Mr. Buyer. Thank you. The gentleman's time has expired. I 
ask unanimous consent to enter into the record questions by Mr. 
Brown which will be submitted to you gentleman.
    At this point, I want to thank Governor Bush, Governor 
Rowland, and Governor Richardson for coming, your testimony, 
and adding your contributions. Thank you very much. This 
hearing is concluded.
    [Whereupon, at 1:10 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

      Responses to Follow-Up Questions of Governor John G. Rowland

                 QUESTIONS OF THE HONORABLE STEVE BUYER

    Question 1). What portion of the DSH dollars you receive are used 
to pay for the care of unauthorized aliens?
    Response: In Federal Fiscal year 2002, Connecticut made hospital 
disproportionate share (DSH) payments to private acute care hospitals 
totaling $151,729,042. In addition, the state made $89,921,52 in DSH 
payments public psychiatric hospitals for a total of $241,650,894.
    DSH payments are made in accordance with the payment methodologies 
described in the Medicaid State plan, which identify how costs for 
uncompensated care and costs attributable to the Medicaid shortfall can 
be claimed. In both categories, costs are an aggregate amount reported 
by the facilities.
    We do not determine the eligibility or the status of individual 
recipients in this process, including any determination their 
citizenship status. We do not have any way of estimating what costs, if 
any, were attributable to the cost of uncompensated care provided to 
unauthorized aliens.
    Question 2). What sums have been collected from dead-beat dads to 
support their Medicaid eligible children/spouses expenses?
    Response: In State Fiscal Year 2002 (July 1, 2001 through June 30, 
2002), the state colleted $13,971,821 in child support collections 
specifically for Medicaid expenditures. In addition, the state 
collected $19,374,977 in additional Child Support, some undetermined 
portion of which was attributable to Medicaid.

                QUESTIONS OF THE HONORABLE CLIFF STEARNS

    Question 3). Are Medicaid rates a contributing factor in 
``physician flight'' from Medicaid? What about the administrative 
requirements?
    Response: Medicaid rates for physician's services average about 60% 
of the allowable rates under Medicare. Following the passage of the 
Balanced Budget Act of 1997, Connecticut no longer automatically pays 
the Part B crossover payments for recipients who are dually eligible 
for both Medicare and Medicaid. We now pay crossover payments for 
Medicare coinsurance and deductibles only up to the Medicaid allowed 
amount.
    Despite the lower fees and the reductions in so-called Medicare 
crossover payments, physician participation in Medicaid has declined 
only slightly in recent years. This may be, part, attributable to the 
fact that nearly 70% of all Connecticut Medicaid recipients are 
enrolled in Managed Care Organizations (MCOs). The two largest MCOs 
(Anthem Blue Cross Family Plan and HealthNet Northeast) are commercial 
plans and pay physicians fees, which are approximately 20% higher than 
the Medicaid, fee schedule. The majority of the remaining recipients in 
fee for service are dual eligible so the Medicare fee schedule 
ultimately determines their reimbursement.
    In recent months we have seen some ominous signs in recent months 
of significant practices either limiting their Medicaid caseload or 
withdrawing from the program. If this tend continues we could face an 
issue with access to care.
    We don't know how much of this trend is attributable to rates, 
versus malpractice, versus administrative requirements. We can tell you 
that over 90% of the claims for physicians services are submitted and 
paid electronically. We are implementing the new HIPAA requirements 
this weekend to bring our system into compliance with the national 
standard. We do not believe that administrative requirements pose a 
significant barrier.
    The most helpful thing that Congress could do would be to help the 
states with the cost of care provided to dual eligible recipients. This 
fiscal relief would allow the states greater flexibility to adjust or 
own reimbursement rates in a more timely fashion to continue to attract 
physicians to provide high quality care.
    Question 4). Please clarify your statement about recipients 
receiving medical assistance in your state with household incomes up to 
$54,000 a year?
    Response: In that context Governor Rowland was referring to 
coverage of children under our SCHIP (Title XXI) program, known in 
Connecticut as HUSKY Part B. In our HUSKY managed care program, 
different categories of individuals are eligible at different income 
levels.
    In HUSKY Part, A which is Medicaid managed care; children up to the 
age of 19 are eligible with household incomes up to 185% of the federal 
poverty level (FPL) ($34,000 a year for a family of four). Adults are 
currently eligible up to 150% of FPL ($27,600 a year for a family of 
four), although we were recently enjoined under a temporary restraining 
order in attempting to reduce that coverage ultimately back to 100% FPL 
($18,400 a year for a family of four).
    In HUSKY B, uninsured children up to age 19 are eligible for 
subsidized coverage with monthly premiums and co-payments with 
household incomes up to 300% FPL ($55,200 a year for a family of four). 
Families with incomes above 300% FPL can buy into HUSKY B coverage for 
uninsured children at the group rate negotiated by the state with no 
subsidy.
    Eligibility for HUSKY B is limited to children under the age of 19. 
Eligibility is determined solely based on insurance status (i.e. 
uninsured), residency in Connecticut, and household income. There is no 
asset test in HUSKY A or HUSKY B.
    As of March, 2003, there were 14, 352 children enrolled in HUSKY B. 
During the same month, there were 206,584 children and 88,836 adults 
enrolled in HUSKY A.

                QUESTIONS OF THE HONORABLE CLIFF STEARNS

    Question 5). How can we justify covering optional services such as 
optometry dental, non-emergency medical transportation, and others to 
Medicaid clients with incomes up to 300% of poverty when we don't 
provide such services in Medicare or to our veterans?
    Response: As noted above, in Connecticut coverage at 300% of 
poverty is provided only children in SCHIP. In Medicaid, income 
eligibility varies widely by coverage group but does not approach 300% 
of poverty (see response to Congressman Norwood's question).
    That having been said, Connecticut does recognize the cost of 
providing such optional services and the need to re-evaluate that 
coverage in difficult financial times. In January, 2003 Connecticut 
eliminated coverage of the following optional state plan services for 
adults 21 years of age and older: podiatry, chiropractic, naturopaths, 
psychologists, physical therapy, occupational therapy, and speech 
therapy. We have proposed the elimination of adult dental coverage to 
our legislature beginning July 1, 2003.
    States cannot eliminate coverage of any optional services for 
children due to the federal mandate for coverage of EPSDT services 
(Early and Periodic Screening, Diagnosis, and Treatment). What that 
means is that the Medicaid program must cover any medically necessary 
service that is diagnosed and ordered by licensed practitioner of the 
healing arts within his or her scope of practice. This mandate applies 
whether or not the service ordered is included in the State Plan.
    Question 6). Do you think that a $5 co-payment is sufficient to get 
beneficiaries aware and involved in their health care and to perform a 
utilization and cost-sensitizing function?
    Response: Under federal regulations, which have not been updated 
since 1983, all Medicaid co-payments must be nominal and cannot exceed 
$3 per service. Broad classes of individuals and services are 
completely excluded from co-payments, including children, pregnant 
women, family planning and preventive services, and individuals 
residing in institutions. The $5 co-payment which I believe you were 
referring to was referring to the co-payment imposed on services in our 
HUSKY B program which operates under Title XXI (SCHIP) where the rules 
are somewhat more flexible.
    Our actuaries tell us that there is a quantifiable effect on 
utilization in low-income populations even from the application of co-
payments at the $5 level. Higher co-payments in tiered structures for 
pharmacy where the lowest amount would be applied to generic drugs, a 
higher amount to legend drugs, and the highest amount to drugs which 
are off-formulary are a common practice in the private sector and have 
been shown to be effective in changing market behavior.
    A first step would be to allow states to use even limited co-
payments that exceed the current $3 limit. Co-payments should also be 
enforceable, at least for some services for certain populations. Today, 
a Medicaid provider must provide the service even if the recipient 
fails to pay the co-payment.

               QUESTIONS OF THE HONORABLE CHARLIE NORWOOD

    Question 8). Please identify the income levels in your state at 
which a person qualifies for Medicaid.
    Response: The Medicaid program is actually a composite of different 
coverage groups based on various categories of individuals. The major 
groupings are Family Medicaid, which includes pregnant women as well as 
children and their adult caretakers, and Medicaid for the Aged, Blind, 
and Disabled, which includes aged, blind, and disabled individuals as 
well as residents of nursing facilities.
    Each Medicaid coverage group has its own income requirements. 
Additionally, each group has different rules on how much income is 
counted toward the income limit. For example, we do not count $90 per 
month of gross wages under the Family Medicaid groups. Aged, blind, and 
disabled individuals are allowed a $183 per month disregard of their 
Social Security benefits.
    With respect to income limits, pregnant women and children under 
age 19 may qualify for Medicaid if their household income, after 
certain deductions, does not exceed 185% of the Federal Poverty Level 
(FPL). Adult caretakers may qualify if their household income, after 
certain deductions, does not exceed 100% of the FPL. Non-disabled 
individuals aged 19 and 20 may qualify if their household income, after 
certain deductions, does not exceed our Medically Needy Income Limit 
(MNIL). For most of Connecticut, the MNIL is $476.19 for a household of 
one, $633.49 for a household of two, $776.49 for a household of three 
and $913.77 for a household of four. Our MNIL's are somewhat higher in 
our state's Fairfield county area.
    Aged, blind, and disabled individuals generally qualify for 
Medicaid if their counted household income is less than the MNIL. The 
limits are, however, different for certain aged, blind, and disabled 
individuals. For example, residents of nursing facilities generally 
qualify if they do not have enough income to pay for their nursing home 
care independently. Individuals receiving home and community-based 
services as well as State Supplement recipients may qualify if their 
gross monthly income is less than $1,656, which is 300% of the 
Supplemental Security incomes program's payment standard. (State 
Supplement recipients are also required to pass a net income test in 
which their income, after certain deductions, is compared to a payment 
standard based on their living arrangement.) Disabled individuals who 
are working may also qualify for Medicaid if their annual income is 
less than $75,000.
    All of the Family Medicaid and Medicaid for the Aged, Blind, and 
Disabled groups cited above that use the MNIL as their income limit 
allow income spenddowns. With an income spenddown, individuals with too 
much income can deduct medical expenses from their income until their 
income reaches the MNIL. Medicaid would then pay for any additional 
medical expenses through the end of the budget period, which is 
typically six months in Connecticut.

                                 ______
                                 
  Response for the Record of Hon. Jeb Bush, Governor, State of Florida

    Question 1. Governor Bush: What are some of the challenges facing 
Medicaid unique to Florida? For instance, does being a low cost of 
living state, and a border state, contribute to your Medicaid woes? 
(Congressman Cliff Stearns)
    Response: Florida has many challenges that are unique or only faced 
by a few states in the same way as Florida: a small business economy 
with higher uninsurance rates, high immigrant/illegal alien/
undocumented population, large population growth/increases, and the 
highest percentage elderly in the nation.
    Question 2. Governor Bush: I have spoken here in the Committee and 
also on the floor on your consumer-directed care program. And I want to 
reiterate its high satisfaction rate: according to Mathematica, the 
independent evaluation firm, 96% of CDC participants describe 
themselves as satisfied with their relationship with their provider, 
and of those 96%, 99% of those are very satisfied. Do we know how that 
compares with the rates of satisfaction in traditional Medicaid? 
(Congressman Cliff Stearns)
    Response: Although we have some studies indicating that 
satisfaction of Medicaid participating families with children is high, 
no study demonstrates a level of satisfaction that participants in the 
Florida Consumer Directed Care project indicate.
    Question 3. Governor Bush: Because I have heard that CDC is very 
popular, I am concerned that everyone who would like to participate 
should be allowed to. Is this the case? (Congressman Cliff Stearns)
    Response: Florida Medicaid was recently granted a federal waiver to 
increase the number of participants in the program by 150 individuals. 
We have also filed another waiver application with the federal Centers 
for Medicare and Medicaid Services seeking federal approval to 
eliminate the research and control segments of the demonstration 
project in order to increase participating to more than 3,200 
individuals.
    Question 4. All Governors: We have been hearing about providers 
fleeing the medical profession because of both low Medicare rates and 
high malpractice insurance rates. Are Medicaid reimbursement rates also 
a contributor to ``physician flight'' from Medicaid? And what about 
administrative requirements--I suspect we are burying providers in 
paperwork so that they can't treat patients. What solutions could we 
help with? (Congressman Cliff Stearns)
    Response: Like many states, Florida has been unable to pay Medicaid 
participating physicians reasonable fees for their services. Physicians 
are increasingly complaining about the level of Medicare fees. On 
average, Florida Medicaid reimburses physicians at even lower levels--
57% of Medicare. Florida Medicaid is having increasing difficulty 
ensuring beneficiaries access to care. In many counties there are 
insufficient participating physicians, particularly specialists. To 
help with this problem, I have proposed to the Legislature an across 
the board fee increase of 9% for FY 2003-04. This is only a start. 
Although there may be additional claims processing improvements, we 
receive 92% of our claims electronically and we pay clean claims in 
just 8 days, the fastest of all payers in Florida. We are making other 
adjustments to our processing so that more claims can be processed 
without attachments to avoid manual review and accelerate payment.
    Question 6.  All Governors: What concerns me is that what I would 
consider to be rather generous of the ``optional'' populations, for 
optional services. On February 4, 2003 the GAO presented to Committee 
Staff these findings. It was noted that States' Medicaid programs might 
include over thirty optional services, including optometry, dental, 
transportation services among others. We're providing these services 
sometimes to persons 300% of the poverty level (roughly $27,000) that 
we don't provide in Medicare, or for veterans. How can the States 
justify these expansions to less than needy populations? (Congressman 
Cliff Stearns)
    Response: As I testified on March 12, 2003, we estimate that in 
just 12 years Florida Medicaid spending will equal today's total state 
budget. Spending is growing at a rate of 13 percent annually. Unlike 
SCHIP or commercial coverages, Florida Medicaid covers virtually every 
conceivable benefit. Much of this coverage is mandated or, if optional, 
subject to many federal rules. As Governors Owens, Rowland and I wrote 
to President Bush and Secretary Thompson, Medicaid costs are no longer 
sustainable. We need substantive reform, and benefit requirements are a 
key area that must be addressed.
    Question 7. All Governors: Related to #6, on February 4, 2003, the 
GAO says that for prescription drugs there is no cost sharing for 
children, and for adults it must be ``nominal,'' which usually ends up 
being $5. A very accepted tenet of health insurance is that ``cost-
sharing,'' whether it is co-payments or deductibles, helps instill 
proper utilization and cost-consciousness amongst beneficiaries. Do you 
think $5 is sufficient to get beneficiaries aware and involved in their 
health care, to perform this utilization and cost-sensitizing function? 
(Congressman Cliff Stearns)
    Response: I firmly support affordable but meaningful beneficiary 
cost sharing. Current Medicaid laws and regulations preclude anything 
but nominal cost sharing, exempt many populations from any cost 
sharing, and prohibit making cost sharing mandatory on the beneficiary 
(not passed on to the provider). Under current limits, states cannot 
promote beneficiary cost-consciousness. I have secured federal approval 
for a tiered co-payment for drugs for seniors under state's Medicaid 
Silver Saver program ($2 for generics, $5 for Medicaid Preferred Drug 
List (PDL) products, and $15 for non-PDL drugs). I have proposed the 
same tiered co-payments for other eligibles and a $15 co-payment for 
non-emergency use of hospital emergency departments.
    Question 8. All Governors: Please identify the income levels in 
your states at which a person qualifies for Medicaid. (Congressman 
Charlie Norwood)
    See attachment
    Question 1. What portion of the DSH dollars you receive is used to 
pay for the care of unauthorized aliens? (Congressman Steve Buyer)
    Response: Unqualified aliens, individuals who are illegal or in the 
first five years of legal residence, are eligible for Medicaid funded 
emergency services. In FY 2001-02, Florida Medicaid spent approximately 
$67.6 million for emergency services for this population, of which 
about $57.6 million was for hospital inpatient care.
    Question 2.  What sums have been collected from dead-beat dads to 
support their Medicaid eligible children/spouses expenses? (Congressman 
Steve Buyer)
    Response: The following are child support collections related to 
Medicaid beneficiaries from FY 1994-95 to FY 2001-02. The amount for 
support of insurance or medical expenses is not separately 
identifiable.

------------------------------------------------------------------------
                                                             Collections
                        Fiscal Year                               (in
                                                              $millions)
------------------------------------------------------------------------
FY 1994-95.................................................       $425.6
FY 1995-96.................................................       $498.3
FY 1996-97.................................................       $540.4
FY 1997-98.................................................       $585.2
FY 1998-99.................................................       $656.6
FY 1999-00.................................................       $735.0
FY 2000-01.................................................       $779.9
FY 2001-02.................................................       $870.5
------------------------------------------------------------------------

                                 ______
                                 
          Prepared Statement of American Hospital Association

    On behalf of our nearly 5,000 hospital, health care system, network 
and other health care provider members, the American Hospital 
Association (AHA) appreciates the opportunity to submit this statement 
for the record regarding Medicaid reform. The AHA shares the 
committee's concern that the Medicaid program must be strong in order 
to continue meeting the health care needs of our most vulnerable 
people. Nearly 45 million poor, disabled and elderly individuals rely 
on Medicaid for their care. Over its nearly 40-year history, Medicaid 
truly has become the nation's health care safety net.
    The importance of this role has never been more critical than 
today. The current economy has forced many Americans out of work, 
pushing them and their families into the ranks of the uninsured. 
Medicaid has historically served as a buffer to the perils of an 
uncertain economy by providing access to health services for those who 
cannot afford it. Yet, today's recession has thrust upon states the 
most serious fiscal crisis in over 50 years. Last year nearly all 
states imposed Medicaid cutbacks in some form to fill budget gaps, or 
used up all of their specials funds to prevent direct cuts in Medicaid 
eligibility or key services. State governments currently face budget 
shortfalls of $40 to $50 billion, and projections are pushing that 
figure to over $70 billion next year. The vast majority of states 
expect to consider proposals to cut Medicaid eligibility, health 
services and payments to health care providers. It is imperative that 
any federal action to address the current crisis, and any federal 
efforts to change the current structure of the Medicaid program, must 
not put further financial pressure on the states nor diminish the 
guarantee of coverage for our most vulnerable Americans.
    The Administration proposal seeks fundamental change to the 
Medicaid program and ties any fiscal relief for states to the 
acceptance of such proposed changes. It weakens the guarantee of 
coverage for vulnerable populations and dismantles the Disproportionate 
Share Hospital Payment (DSH) program. DSH is our nation's primary 
source of support for safety net hospitals that serve the most 
vulnerable Americans--Medicaid beneficiaries and the uninsured and 
underinsured. The proposal loosens federal oversight and state 
accountability. And it is the poor, disabled and elderly that would be 
affected.
    Provide Fiscal Relief--The AHA believes that the current fiscal 
crisis faced by states demands immediate and meaningful federal 
support. That support could be in the form of an increase in the 
federal Medicaid matching percentage or other relief that would allow 
states to use such funds to help support their Medicaid programs. 
States should not be forced to radically transform their programs to 
receive such fiscal relief, nor should they be compelled to reduce 
future spending to repay the federal support given now.
    Protect the Vulnerable--The AHA believes that this nation has an 
obligation to care for the neediest of our society. A federally 
enforced entitlement to a set of meaningful benefits for this 
population must be maintained. An approach that requires coverage of 
the mandatory Medicaid population, but allows states absolute 
flexibility in deciding which non-mandatory populations and health care 
services will be covered in the future, begins to erode the guarantee 
to coverage that has long been a fundamental feature of the Medicaid 
program. Optional services such as prescription drugs for the poor, 
elderly, and disabled, could be eliminated. Health services to more 
than 12 million non-mandatory children, parents, disabled and elderly 
people could stop if these populations are dropped from the Medicaid 
rolls, thereby swelling the ranks of the uninsured.
    Maintain Financial Integrity--The AHA believes that the federal and 
state governments have an obligation and responsibility to maintain 
their financial commitment to the program. The Administration proposes 
to sever the federal and state financial partnership and replace it 
with a fixed federal commitment and a state maintenance of effort, 
which begins to unravel the financial foundation of the Medicaid 
program. At the heart of the proposal is the absorption of the Medicaid 
DSH funds into the acute care allotment. The current Medicaid DSH 
program is the reason that many hospitals have been able to continue 
serving our most vulnerable people. The elimination of this discrete 
payment program would be a devastating blow to these hospitals, and to 
the poor and uninsured patients they serve. Many of these hospitals are 
in financial jeopardy; many are the sole source of care in their 
communities. Their failure would put communities at risk, because 
without them, medical services, social services and important jobs 
would disappear.
    The committee should enact the Access to Hospitals Act of 2003 
(H.R. 328) introduced by Reps. Ed Whitfield (R-KY) and Diana DeGette 
(D-CO), respectively. This bipartisan bill would eliminate a scheduled 
falloff in federal Medicaid DSH funding, so that in 2003 and beyond 
each state DSH program can grow with inflation. And the committee 
should support legislation to be introduced by Reps. Heather Wilson (R-
NM) and Gerald Kleczka (D-WI) to increase the federal Medicaid 
allotment for states with small Medicaid DSH programs so that those 
states can better help their safety net hospitals. Both legislative 
approaches would provide more meaningful help to states and support to 
financially vulnerable hospitals serving the neediest patients.
    In addition, the Administration's approach would cap federal 
spending using FY 2002 spending as the base year, updated yearly by a 
non-specified trend factor. The required state maintenance of effort 
would also be tied to the FY 2002 base year amounts, with annual 
updates. What this translates into is a capped program that over time 
will struggle to meet the needs of the mandatory population by putting 
pressure on states to reduce coverage to the non-mandatory populations 
and to reduce payments to providers.
    Protect Access to Care--The AHA believes that adequate provider 
payment is critical to ensuring that Medicaid beneficiaries have access 
to needed services by making certain there are providers available. 
Current Medicaid law has minimal protections that are mostly geared to 
making the payment rate-setting process more public. The AHA advocates 
that these current protections should be expanded and strengthened.
    The AHA also believes that federal oversight of state Medicaid 
programs serves as an important tool in protecting access to health 
care services for vulnerable people. The federal government oversight 
role ranges from overseeing Medicaid managed care plans to make certain 
enrollees have access to quality health care providers, to assuring the 
financial integrity of the program by making certain states spend their 
Medicaid funds on health care. The Administration's approach would 
significantly weaken this oversight role for the federal government and 
erase state accountability for the management of their programs.
    The Medicaid program has played a vital role in providing access to 
health care services to millions of Americans over its 40-year history. 
If the Medicaid program did not provide this coverage, tens of millions 
would be added to the ranks of the uninsured. The current fiscal crisis 
faced by states should not be the impetus for dismantling the program 
and abandoning its mission of serving those who need help the most--
poor children and their families, the elderly and disabled. States need 
immediate and meaningful fiscal relief and any flexibility granted 
state governments should not put at risk the mission of the Medicaid 
program. The AHA stands ready to assist the committee in any way as it 
tries to meet its many challenges.

                                 ______
                                 
         Prepared Statement of the Florida Hospital Association

    The Florida Hospital Association and its more than 200 members 
appreciates the opportunity to comment on Medicaid reform and, 
specifically, the Administration's proposal for fundamental change. 
Common sense suggests the need to revisit and examine carefully a more 
than 35-year-old program, one that must be strong to meet the health 
care needs of our most vulnerable populations. At the same time, we 
understand the urgency in addressing needed changes given the serious 
budget problems faced by Florida and many other states.
    In Florida, FHA supports Gov. Bush's call for assuring that program 
benefits meet individual needs and believes that the SCHIP model 
(Florida's Kidcare) offers important lessons for any reconsideration of 
the design of the Medicaid program. One of the critical lessons from 
the SCHIP model is highlighted by Health and Human Services Secretary 
Tommy Thompson's call to encourage coverage for whole families.
    Two concerns are fundamental for FHA and all our members. First, 
the role of the Medicaid program in supporting a safety net for the 
uninsured is critically important. Florida has 2.8 million people who 
lack health insurance and risk needing medical services they can't 
afford, and nationwide there are 44 million uninsured. Hospitals are 
mandated to provide emergency care and treatment and Medicaid supports 
these essential services through critically important Medicaid 
enhancements such as disproportionate share and the upper payment 
limit. Protecting these vital funding sources is essential as we pursue 
comprehensive reform of the Medicaid program.
    The very significant proportion of hospital patients covered by 
government programs drives the second critical issue for Florida's 
hospitals. Medicare and Medicaid combined account for two-thirds of all 
payments to Florida hospitals. Currently, Medicaid payments average 77% 
of costs and Medicare payments, while better, still come in at less 
than costs. Therefore, further erosion of the financing of hospital 
services threatens the sustainability of services for all Floridians.
    We believe that establishment of a process for ongoing evaluation 
of the Medicaid program, as FHA recommended in Florida, will improve 
the current program as well as prepare for the future. Similarly, the 
federal government should pursue a careful and thorough examination of 
the Medicaid program in order to address specific problems and changing 
conditions. Federal efforts to change the current structure of the 
Medicaid program must not put further financial pressure on the states 
nor diminish coverage for our most vulnerable Americans.
    We urge the Committee not to weaken coverage for vulnerable 
populations and dismantle the Disproportionate Share Hospital Payment 
(DSH) program--a primary source of support for safety net hospitals 
that serve the poor, disabled and elderly. The FHA believes that this 
nation has an obligation to care for the neediest of our society and 
maintain a set of meaningful benefits for this population. More than 12 
million non-mandatory children, parents, disabled, and elderly people 
are covered by Medicaid. Any approach that begins to erode this 
coverage could eliminate health services to these needy populations and 
increase the ranks of the uninsured.
    We support enactment of Medicaid safety net legislation (H.R. 328) 
re-introduced by Reps. Ed Whitfield (R-KY) and Diana DeGette (D-CO), 
respectively, to protect the integrity of America's public health 
safety net. This bipartisan bill--which garnered 190 House cosponsors 
in the 107th Congress--would extend modifications to DSH allotments 
provided under the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000, thereby eliminating a schedule falloff in 
federal Medicaid funding.
    The FHA and our member hospitals and health systems urge the 
Committee to proceed cautiously and carefully in reforming Medicaid. We 
must not dismantle the program that serves those who are most in need. 
We urge you to consider the many successful features of the Florida's 
Kidcare in considering changes to the Medicaid program. We stand ready 
to work with you in this regard.

                                 ______
                                 
    Prepared Statement of Lawrence A. McAndrews, President and CEO, 
              National Association of Children's Hospitals

    The National Association of Children's Hospitals (N.A.C.H.) is a 
not-for-profit trade association, representing more than 120 children's 
hospitals across the country. Its members include independent acute 
care children's hospitals, acute care children's hospitals organized 
within larger medical centers, and independent children's specialty and 
rehabilitation hospitals. We appreciate the opportunity to submit this 
statement for the record outlining the critical role Medicaid plays in 
the lives of the nation's children and the hospitals that care for 
them.
    N.A.C.H member hospitals strive daily to fulfill their four-fold 
missions of clinical care, education, research, and advocacy devoted to 
the health and well being of all of the children in their communities. 
Children's hospitals are regional and national centers of excellence 
for children with serious and complex conditions. They are centers of 
biomedical and health services research for children, and they serve as 
the major training centers for future pediatric researchers, as well as 
a significant number of our children's doctors. In addition, these 
institutions are integral to the pediatric health care safety net, 
providing both inpatient and outpatient care to a disproportionate 
share of children enrolled in Medicaid.
    In effect, children's hospitals are an indispensable national 
resource for the health care of all children. Although they represent 
only 3% of all hospitals in the country, they provide nearly 40% of the 
hospital care required by children assisted by Medicaid, and most of 
the hospital care for children with serious medical conditions, 
regardless of their source of health coverage. In addition, they train 
most of the nation's pediatricians and pediatric subspecialists, and 
they house the nation's leading centers of pediatric research. And they 
are leaders in addressing the public health needs of children, such as 
injury prevention.

    MEDICAID: ESSENTIAL TO LOW-INCOME CHILDREN AND WORKING FAMILIES

    The future of Medicaid is a topic of special concern to the 
nation's children's hospitals because of the 44.3 million Medicaid 
beneficiaries in FY 2000, more than half--22.7 million--were children 
under age 19. In fact, Medicaid is the nation's single largest health 
care program for children, financing health care for one in four 
children. One in three children depends on Medicaid or SCHIP for health 
coverage.
    In addition, Medicaid's health benefits are designed specifically 
to meet children's unique health care needs, including children with 
disabilities and other special needs. Preservation of Medicaid's 
federal guarantee of health coverage appropriate for children, 
including its Early and Periodic Screening, Diagnosis, and Treatment 
(EPSDT) benefits, is an essential part of sustaining the pediatric 
health care safety net.
    EPSDT assures that low-income children will have medically 
necessary benefits that incorporate their unique needs. These can 
include preventative services, developmental/habilitation services for 
very young children, eyeglasses and hearing aids to ensure that 
children may learn, as well as prostheses, orthotics and wheelchairs 
that can be provided and changed as children grow.
    Medicaid coverage of children is also vital to working families. Of 
the children covered by Medicaid or SCHIP in 2001, 75% had at least one 
parent in the workforce.

           MEDICAID: ESSENTIAL LOW COST COVERAGE FOR CHILDREN

    It is important to recognize that Medicaid coverage for children is 
low cost. Although children represent more than half of all Medicaid 
beneficiaries, in FY 2000 children under 19 (including SSI disabled 
children) accounted for only 21% of Medicaid spending. Not only are 
children a relatively inexpensive population to cover, but children's 
coverage in Medicaid is not fueling Medicaid's spending growth. In 
fact, Medicaid spending for children accounts for only 10% of the 
annual growth in total Medicaid spending. In addition, more than 50% of 
children in Medicaid are already enrolled in managed care plans, and 
Medicaid per capita spending for children is comparable to private 
coverage.

MEDICAID AND DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS: ESSENTIAL 
                        TO CHILDREN'S HOSPITALS

    Medicaid is the single largest program of public assistance for 
children's health care and the single largest payer of care delivered 
by children's hospitals. Although only 3% of all hospitals, children's 
hospitals on average devote more than 40% of their inpatient care to 
children assisted by Medicaid. Children's hospitals also provide the 
majority of inpatient care required by children with serious illnesses 
and conditions. For example, children's hospitals perform 99% of organ 
transplants and 88% of cardiac surgeries, and provide 88% of the 
inpatient care for children with cystic fibrosis. In some regions, they 
are the only source of pediatric specialty care, which makes children's 
hospitals essential not only to the children in their own communities, 
but to all children across the country.
    Medicaid generally falls far short of reimbursing children's 
hospitals for the cost of providing these essential services, so 
Medicaid Disproportionate Share Hospital (DSH) payments, which average 
more than $6 million per children's hospital, are extremely important 
to the financial health of these institutions. In hospital FY 2001, 
Medicaid, including DSH payments, on average reimbursed only 84% of the 
costs of care in children's hospitals, a percentage that fell to 76% 
without DSH payments. This crucial source of funding for children's 
hospitals aids in their ability to serve all children. Cutting these 
funds, or even worse, eliminating the program altogether, will severely 
damage the nation's health care safety net for children.

     MEDICAID: ESSENTIAL TO CHILDREN WITH SPECIAL HEALTH CARE NEEDS

    The health care needs of all children are special and distinct from 
those of adults, but the term ``children with special health care 
needs'' (CSHCN) refers to a group of children who require specialized 
health care, habilitation, and rehabilitation services. Frequently 
children with special health care needs are limited--or have potential 
limitations--in their ability to function because of a chronic or 
congenital illness, a major trauma, a developmental disability, or 
exposure to a serious or life-threatening condition.
    Because they are devoted to serving all children, children's 
hospitals dedicate a disproportionately large amount of their care to 
children with special health care needs. Although children with 
congenital or chronic conditions represent only small fraction of all 
children, children's hospitals devote extensive resources to this 
population. For example, they devote 60% of inpatient admissions, 70% 
of inpatient days, and 80% of inpatient dollars to children with one or 
more chronic or congenital conditions.
    For CSHCN, simply having access to health insurance may not be 
adequate for their healthcare needs because health insurance policies, 
like children, come in all sizes and shapes. Private insurance often 
lacks the comprehensive benefits needed by this population, such as 
physical and speech therapy, durable medical equipment, behavioral 
health services, home health care and some medications. Benefits may 
require that an individual be improving, a definition that doesn't fit 
for a child with cerebral palsy who may need a service to maintain 
function or a child with a congenital condition who may need a service 
to maximize his or her developmental potential.
    But Medicaid benefits were designed to reflect the unique needs of 
children, including CSHCN. Preservation of the Medicaid program's 
federal guarantee of accountability for children's health insurance 
needs under the Early and Periodic, Screening, Diagnosis and Treatment 
(EPSDT) benefit package is an essential part of sustaining the health 
care safety net for children. EPSDT requires that, only for children, 
states cover all Medicaid services that are determined to be medically 
necessary by their physician during a regularly scheduled EPSDT 
screening visit. States are not, however, required to provide this 
range of services to populations other than children.

                  MEDICAID: ESSENTIAL TO ALL CHILDREN

    All children benefit from the work carried out at children's 
hospitals--regardless of whether they ever step foot inside their 
doors. The nation's children's hospitals serve all children by 
fulfilling a variety of critical public needs--training most of our 
nation's doctors devoted to children, providing continuing advancements 
in children's care, performing some of the most important, cutting-edge 
pediatric research and serving as centers of excellence for the sickest 
children in the country.
    The specialty and critical care services the children's hospitals 
maintain carry costs that are not completely covered. But this ``stand 
by'' capacity assures that these services will be there when any child 
needs them. Because Medicaid is a vital revenue stream for children's 
hospitals, any single reduction in funding presents financial 
difficulties, which in turn can lead to curtailing or elimination of 
programs--programs relied upon not only by Medicaid-dependent children, 
but all children.
    As the committee discusses different proposals to restructure the 
Medicaid program, it is important that particular attention be given to 
the unique ramifications these proposals will have on children and 
children's hospitals' ability to serve them. Although tremendous 
progress has been made in insuring children, Medicaid, along with the 
State Children's Health Insurance Program (SCHIP), holds the as yet 
unfulfilled promise of removing most children from the ranks of the 
uninsured. In 2000, of the 8.9 million uninsured children under age 18, 
77% or 6.8 million were eligible for, but unenrolled, in Medicaid or 
SCHIP.
    At a time when the number of uninsured is again rising, no reform 
should threaten the progress Congress has made in insuring children. 
Rather, reforms should seek to cover those children who are eligible, 
but remain unenrolled.
    Please make sure that any reform protects Medicaid's low-cost 
coverage for children, and that it fulfills the program's potential to 
cover most of the nation's uninsured children.

                                 ______
                                 
     Prepared Statement of Larry S. Gage, President, The National 
           Association of Public Hospitals and Health Systems

    The National Association of Public Hospitals and Health Systems 
(NAPH) is grateful for this opportunity to submit a statement for the 
record to the House Energy and Commerce Committee Subcommittee on 
Health on the subject of Medicaid reform.
    NAPH represents more than 100 of America's metropolitan area safety 
net hospitals and health systems. The mission of NAPH members is to 
provide healthcare services to all individuals, regardless of insurance 
status or ability to pay. More than 61 percent of the patients served 
by NAPH members are either Medicaid recipients or patients without 
insurance. Medicare covers another 20 percent of the patients of NAPH 
members, who rely on governmental sources of financing for over 80% of 
their services.
    Medicaid is as important to our nation's safety net hospitals as it 
is to the 44 million individuals it covers. Arguably, given the well-
known gaps in Medicare benefits, Medicaid is our nation's most 
important and successful health care program. Medicaid covers 55% of 
all poor children (20% of all children in the nation) and pays for one 
third of all births. It is far and away the nation's largest purchaser 
of long term care services. It is also an essential lifeline for low-
income elderly individuals and those who are blind and disabled. 
Indeed, any effort to reform Medicaid must start with the recognition 
that over two thirds of Medicaid spending today is devoted to the 
elderly, blind and disabled.
    Medicaid is also a major source of essential financing for 
America's institutional health safety net. Forty percent of the net 
revenues of NAPH member hospitals are Medicaid revenues. In particular, 
the Medicaid Disproportionate Share Hospital (DSH) program is the 
cornerstone of financial support for hospital services to all low-
income Americans, including the rising numbers of uninsured. In 2000, 
while constituting less than 9 percent of total Medicaid spending, 
Medicaid DSH payments covered 28 percent of the otherwise unreimbursed 
costs incurred by NAPH members in treating the uninsured and 
underinsured. In this regard, Medicaid must be considered a true 
partner of state and local governments, whose payments and subsidies 
account for another 39 percent of such unreimbursed costs. Medicaid 
reimbursement is also important to Federally Qualified Health Centers 
(FQHCs), which provide a significant amount of services to Medicaid 
patients and patients without insurance.
    Yet Medicaid is not without problems. Medicaid's funding and 
benefits (including DSH payments) are spread unevenly across the 
states. Eligibility and covered services vary widely as well. At the 
same time, Medicaid has become the fastest growing part of many state 
budgets. This latter fact has been especially problematic for many 
states that are confronted with reduced revenues and fiscal crisis as a 
result of the current economic downturn. First and foremost, Medicaid 
reforms should not result in further pressure on states that are 
already facing such crises.
    These and other concerns about Medicaid can and should be addressed 
by the Congress, and NAPH is willing to work with this Committee, the 
Administration and all other stakeholders to address needed reforms. At 
the same time, it is essential that any effort to reform Medicaid 
acknowledge and build on (not seek to dismantle) the program's 
considerable strengths. In that regard, NAPH strongly urges the 
Congress to be guided by several important principles in addressing 
future Medicaid reforms. Please note that NAPH is aware of, and has 
reviewed the limited information available thus far about, the 
Administration's new proposal for Medicaid reform. We do not believe 
the Administration's proposal meets the principles described below, 
based on the proposal as we understand it. We intend these principles 
to apply to any major Medicaid reforms that may be considered or 
introduced in the future, not just to the Administration proposal.
    Protect the Guarantee of Coverage to Medicaid Recipients. Medicaid 
reform efforts should not result in reducing or eliminating the 
entitlement of our most vulnerable populations to coverage. A federally 
enforceable entitlement to coverage is the foundation of Medicaid's 
success. Eroding that entitlement for current recipients would be a 
major step backwards for a country that must already confront the 
dilemma of over 41 million uninsured residents.
    Expand Coverage Beyond Current Levels. Health care coverage is 
recognized as the primary way to provide access to needed health 
services for low-income populations. Medicaid reform should not be 
enacted in a vacuum. Rather, Medicaid reforms must be carefully tied to 
renewed efforts to expand coverage, as one important tool in an 
anticipated combination of public program improvements and private 
sector initiatives. Moreover, it is important that the impact of 
Medicaid reforms on all populations among the uninsured (including, 
e.g., legal and illegal immigrants, persons with AIDS, etc.) be taken 
into account in crafting effective reforms.
    Ensure the Availability of Comprehensive Benefits to Covered 
Individuals. As we understand it, the Administration's proposal would 
require coverage of the mandatory Medicaid population, but allow states 
absolute flexibility to decide which non-mandatory populations and 
health care services will be covered in the future. Of particular 
concern to NAPH is the erosion of coverage of optional services such as 
prescription drugs for the poor, elderly, and disabled. To the extent 
Medicaid reform permits states to limit essential services to 
enrollees, it will merely shift even more of the burden for providing 
those services to safety net providers, at a time when the health care 
safety net is already in crisis. Rising numbers of uninsured, worker 
shortages, increased drug costs, and expanded community-wide 
responsibilities (including an expanded role as first responder in the 
event of chemical and biological terrorism) are increasing costs. At 
the same time, current sources of federal, state and local funding are 
being eroded. Nearly half of NAPH members had negative margins in 2000 
(the latest year for which data are available), up from one-third with 
negative operating margins five years earlier.
    Strengthen Safety Net Providers. Particularly at a time when the 
number of Medicaid enrollees and uninsured are increasing, further 
reducing or eliminating direct payments to safety net hospitals, like 
Medicaid DSH, could rapidly destroy our nation's fragile system for 
providing care to the uninsured. Medicaid DSH is one of the most 
important funding sources for many hospitals--often the major (if not 
only) reason they can continue serving the uninsured and providing 
essential community-wide services like trauma care. The Institute of 
Medicine (IOM) in its March 2000 report recommended that ``Federal and 
state policy makers should explicitly take into account and address the 
full impact (both intended and unintended) of changes in Medicaid 
policies on the viability of safety net providers and the populations 
they serve.''
    Future Medicaid Spending Must Be Based on Need, Not an Arbitrary 
Base Year. The Administration's proposal caps future federal Medicaid 
spending at FY 2002 levels, updated yearly by a non-specified trend 
factor. The required state maintenance of effort would also be tied to 
the FY 2002 base year amounts, with annual updates. Such a cap in 
effect constitutes little more than ``price controls'' at the state 
level. It is completely arbitrary and does not reflect one of the great 
strengths of Medicaid, which has been its ability to respond to 
changing needs. While it is true that health costs have been rising 
rapidly in recent years, those costs are largely beyond the control of 
states or providers, who would instead be forced to respond to 
arbitrary caps through reduced eligibility or coverage.
    Whatever the direction this Committee chooses to take on Medicaid 
reform in the long run, there are several essential steps that need to 
be taken in the very near future, to preserve and protect both 
vulnerable patients and the providers that serve them. Those steps 
include:
    Provide Urgent Fiscal Relief to the States. States are facing 
severe budget problems caused by the current economic crisis. Many 
states clearly need help to maintain their Medicaid programs while the 
economy recovers. Congress and this Committee should pass some sort of 
fiscal relief to states to help alleviate pressure on state Medicaid 
budgets.
    Fix the Medicaid ``DSH Cliff'' Problem Created by the Balanced 
Budget Act of 1997. Congress and the Committee should move immediately 
to enact the Access to Hospitals Act of 2003 (H.R. 328) introduced by 
Representatives Ed Whitfield (R-KY) and Diana DeGette (D-CO). This 
bipartisan legislation would eliminate a drastic and untenable 
reduction in federal Medicaid DSH funding in the current fiscal year. 
This ``cliff'' has a potentially devastating impact on safety net 
hospitals and patients in many states, at a time when the number of 
uninsured is increasing and other funding sources are eroding. Last 
year, this Committee recognized the desperate need for Medicaid DSH 
relief in this fiscal year, including it in legislation passed by this 
Committee. We encourage the Committee to act swiftly and support 
efforts this year to fix this outstanding problem.
    Provide a Modest Increase in DSH Funding for ``Low-DSH'' States. A 
significant inequity in the allocation of DSH funding among states must 
also be corrected to permit states with extremely low DSH allotments to 
increase DSH payments to the minimal level of 3 percent of state 
Medicaid spending. While this does not bring such states near the 
national average of nearly 6 percent, such an increase is both 
essential and equitable for affected states. Congress and this 
Committee should support legislation like H.R. 1604 introduced last 
Congress by Representative Heather Wilson (R-NM) to increase the 
federal Medicaid allotment for such states. We understand 
Representative Wilson and Representative Jerry Kleczka (D-WI) will 
introduce similar legislation shortly in this Congress.
    Allow Section 340B Hospitals to Negotiate Better Prices for 
Inpatient Drugs. Drug prices are one of the major issues that face all 
providers, including public hospitals. Extending the best price 
exemptions to inpatient prices charged to 340B hospitals would allow 
safety net hospitals to negotiate better discounts on inpatient 
pharmaceuticals. The Congressional Budget Office has determined that 
this change would have no cost to the government. We encourage the 
Committee to clarify the law as quickly as possible.
    Increase the Medicaid Rebate and 340B Drug Discount. Congress and 
this Committee should increase the Medicaid rebate and ensure that 340B 
providers have access to the same discounts as the Medicaid program to 
save money for federal, state, and local governments struggling to 
ensure pharmaceutical coverage to vulnerable populations.
    Extend the Availability of SCHIP Allotments. Congress and this 
Committee should extend the availability of SCHIP allotments in order 
to allow states additional opportunities to use these funds to expand 
coverage.
    NAPH appreciates the opportunity to share our observations and 
concerns. We urge the Committee to take action on these important 
issues. We look forward to working with you further to develop 
legislative solutions to the problems confronting our nation's poor and 
uninsured and the safety net providers that serve them.

                                 ______
                                 
   Prepared Statement of the National Association of Urban Hospitals

    The National Association of Urban Hospitals appreciates this 
opportunity to submit testimony to the House Energy and Commerce 
Committee on the President's proposal to implement significant change 
in the federal/state Medicaid partnership. We invite questions about 
this testimony and would be pleased to offer additional perspectives 
once the entire scope of the administration's Medicaid proposal is 
unveiled.

           ABOUT THE NATIONAL ASSOCIATION OF URBAN HOSPITALS

    The National Association of Urban Hospitals (NAUH) advocates 
adequate recognition and financing for private, non-profit, urban 
safety-net hospitals that serve America's needy urban communities. 
These non-profit urban safety-net hospitals differ from other hospitals 
in a number of key ways: they serve communities where the residents are 
much older and poorer; they are far more reliant on Medicare and 
Medicaid for their revenue; they provide far more uncompensated care; 
and unlike public safety-net hospitals, they have no statutory 
entitlement to local or state funds to underwrite their costs. NAUH's 
role is to ensure that when the federal government makes health care 
reimbursement policy decisions, policy-makers understand the 
implications of those decisions for these distinctive private, non-
profit, urban safety-net hospitals. NAUH pursues its mission through a 
combination of vigorous, informed advocacy, data-driven positions, and 
an energetic membership with a clear stake in the outcome of public 
policy debates.
    Non-profit urban hospitals across America have made a deep, 
unwavering commitment to their low-income communities. These mission-
driven hospitals recognize that they almost never will enjoy what most 
organizations would call ``good'' economic times because above all 
else, their mission is to serve people suffering bad economic times. 
They work in partnership with government, with local businesses, with 
charitable organizations, and with their communities to provide care to 
those who need care, regardless of their ability to pay for it. They 
make business decisions based on their commitment to their mission and 
to their commitment to serve, not to a commitment to maximize profits 
at the expense of their mission. They do not flee their troubled 
communities in search of more lucrative markets; instead, they stand by 
their commitments and stand by their communities because they believe 
that as caregivers, they can do the most good where the need for care 
is greatest.

        THE IMPORTANCE OF MEDICAID TO URBAN SAFETY-NET HOSPITALS

    Medicaid is a major payer for most non-profit urban safety-net 
hospitals. Unlike in the typical American hospital, where Medicaid 
recipients constitute a modest proportion of the overall annual patient 
population, Medicaid patients are a major payer group for most urban 
safety-net hospitals. Because these hospitals generally are located in 
low-income communities, urban safety-net hospitals also care for higher 
proportions of uninsured patients--patients for whom they receive no 
compensation at all--than other private hospitals.
    Urban safety-net hospitals are always interested in and concerned 
about Medicaid for two primary reasons. First, Medicaid is a much more 
important part of their overall patient revenue structure than it is 
for other hospitals. Second, Medicaid has historically been a poor 
payer, compensating them for less--often, far less--than historically 
allowable costs associated with caring for Medicaid recipients.
    Poorer compensation applied to significantly more Medicaid patients 
has, over a period of years, taken its toll on the financial health of 
many urban safety-net hospitals. The operating margins of urban 
hospitals are three times lower than those of non-urban hospitals; 
among urban hospitals for which Medicaid is the payer for more than 
fifteen percent of their patients, operating margins are thirteen times 
lower than those of comparable non-urban hospitals. That latter margin 
is ``7.84 percent, which means that for every dollar of patient revenue 
that these hospitals receive, they lose nearly eight cents.
    As a result of these factors, urban safety-net hospitals have a 
much greater stake in the outcome of the Medicaid policy deliberations 
that have now begun in the wake of the President's Medicaid reform 
proposal. Consequently, NAUH offers its testimony to the House Energy 
and Commerce Committee in this context: the future of many non-profit 
urban safety-net hospitals hangs in the balance in these 
deliberations--as does access to care in low-income urban communities 
throughout America.

              MEDICAID REFORM: AN IDEA WHOSE TIME HAS COME

    While the testimony below generally focuses on aspects of the 
President's Medicaid reform proposal that NAUH finds potentially 
troublesome, this should not be interpreted as opposition to the 
concept of Medicaid reform. We agree with the President, and with many 
others, that the long-time federal/state Medicaid partnership would 
benefit from a number of well-chosen reforms. We also recognize the 
enormous financial pressure that rising health care costs and faltering 
tax revenues are causing in virtually every state in the nation and how 
this produces a heightened impetus for reform. Consequently, in 
addition to expressing our views on the President's Medicaid reform 
proposal as we understand it, we also will describe, just briefly, an 
additional component of Medicaid reform that we would like to see 
included in this public discourse.
    We welcome efforts to reform Medicaid and look forward to the 
prospect of working with Congress and the administration to craft a 
better Medicaid program.

                    A NOTE ABOUT THE VIEWS TO FOLLOW

    It should be noted that the following views are based on an as-yet 
incomplete understanding of the President's Medicaid reform proposals. 
As the administration shares more details about the reform proposal 
with Congress and the public, some of our concerns may be addressed or 
allayed and other issues may arise. We hope we will have an opportunity 
to comment again as these important policy deliberations continue in 
the coming weeks and months.

         FOUR MAJOR CONCERNS WITH THE MEDICAID REFORM PROPOSAL

    NAUH would like to address four specific aspects of the Medicaid 
reform proposal that concern us:

1. the proposed use of hard spending limits to determine future 
        Medicaid appropriations
2. the potential demise of the Medicaid disproportionate share program
3. the reduction of federal oversight of Medicaid
4. the redistribution of financial risk
    The following are NAUH's perspectives in these four areas.

The Proposed Use of Hard Spending Limits
    NAUH is very concerned about the proposal to use hard spending 
limits to determine future funding for Medicaid. Aside from the very 
real possibility that such a change potentially signifies a first step 
in moving Medicaid away from its status as an entitlement program--a 
major public policy decision that deserves much more extensive 
consideration and debate--we envision a number of potential problems 
involving how these spending caps are calculated and updated and the 
effect of this approach on eligibility, benefits, and access to care.
    Implicit in using hard spending limits based on states' 2002 
Medicaid expenditures, as has been proposed, is agreement that in 2002, 
the individual states covered the ``right'' people--that is, 
individuals whom, it is generally agreed, should receive Medicaid 
benefits; this acceptance extends beyond the mandatory population to 
those to whom individual states have voluntarily chosen to provide 
Medicaid benefits. Under the proposed approach, today's Medicaid 
program is to be used to create a baseline for tomorrow's Medicaid 
program.
    But today's program is based on today's needs; tomorrow's needs 
could be different. A variety of factors could increase the need for 
Medicaid services either nation-wide or in individual states--factors 
ranging from a continuation of the current economic downturn to the 
residual effects of the U.S.'s continued fight against terrorism to the 
continuing aging of the American population to the unforeseen and 
unforeseeable collapse of major employers or individual industries that 
are concentrated in just one or a few states. Consequently, there could 
be, at some time in the future, an absolutely compelling and widely 
accepted need to extend Medicaid benefits to more people than receive 
those benefits today--and no way to increase federal funding to allow 
the states to do so. This, in turn, could lead states to reduce 
eligibility and curtail benefits at precisely the times when the need 
for Medicaid services is greatest.
    The proposed Medicaid reform plan does not appear to provide a 
mechanism to facilitate such a necessary extension of benefits because 
it does not offer an opportunity to increase the federal share of the 
federal/state partnership at the very times that such increased needs 
may arise. Instead, it imposes arbitrary limits on future federal 
participation in this historic partnership. After ten years, according 
to the current proposal, the federal government's financial 
participation could be at a comparable level to what it is today. This 
could mean that the Medicaid partnership, as we know it today, would be 
no more: at times when the states most need help, the federal 
government will no longer be there to help them. This could leave 
states with very little choice: it could practically force them either 
to reduce Medicaid benefits among non-mandatory populations or to 
preserve benefits but reduce payments to providers. Neither solution is 
adequate: reducing benefits leaves poor people on their own, 
encouraging them either to forego seeking treatment for their medical 
needs or to seek services from already-overburdened safety-net 
providers; reducing payments to providers, on the other hand, risks 
chasing providers out of the system--as we have witnessed in recent 
months in the Medicare program--or forcing safety-net providers, 
already struggling under enormous financial pressure, to provide still-
more free care, with no compensation at all. We know from experience 
that when provider payments fail to keep pace with costs, access to 
care will inevitably suffer. In addition, there seems to be an implicit 
assumption that when government cuts payments to providers, those 
providers will continue to provide care. Based on the economic data 
already presented above, it is clear to us that this is an erroneous 
assumption: there is no way that safety-net providers will be able to 
continue serving their communities if present funding levels are not 
maintained.
    A fixed federal commitment to Medicaid and maintenance of effort 
only by the states are not enough to ensure adequate access to care for 
Medicaid recipients. Consequently, if the proposed changes are adopted, 
NAUH recommends that three important provisions be added to the 
Medicaid program.
    First, new Medicaid legislation should require states to maintain 
eligibility and benefits at their 2002 levels, at a minimum. Current 
eligibility and benefit levels, after all, constitute the foundation 
upon which future annual appropriations would be calculated; states 
should have discretion to increase eligibility or benefits but not to 
reduce them. Without such protection, the federal government could, in 
effect, be giving money to the states with no assurance that this money 
is actually spent on health care for the poor.
    Second, new Medicaid legislation should restore Medicaid 
disproportionate share funds cut from the federal budget by the 
Balanced Budget Act of 1997. Non-profit urban safety-net hospitals 
depend on these payments to help finance the cost of caring for their 
low-income (Medicaid and uninsured) patients, and the cuts introduced 
through the Balanced Budget Act of 1997 have been devastating to them. 
In addition, these restored Medicaid disproportionate share funds 
should be added to the base year's calculations for future Medicaid 
allocations to states to help restore at least a modicum of stability 
for some of these hospitals and help them withstand the effects of the 
major financial blow they may suffer over time under the proposed 
Medicaid reform program.
    Third, NAUH recommends a statutory assurance that federal financial 
participation would increase annually by 100 percent of an appropriate 
market basket index that reflects the true and full extent of health 
care input prices (as opposed to a use of a consumer price index or 
less than 100 percent of a true measure of the annual growth of input 
prices). Without such protection, the federal government's annual 
Medicaid appropriations would become less adequate with every passing 
year and necessitate shifting still more of the financial 
responsibility for caring for the poor to the states and to health care 
providers--many of which, like urban safety-net hospitals, are ill-
equipped to take on new financial responsibilities.
The Potential Demise of the Medicaid Disproportionate Share Program
    The administration's Medicaid reform proposal calls for folding all 
federal Medicaid funds into two annual allotments: one for acute care 
and one for long-term and community care. Funds currently allocated for 
the Medicaid disproportionate share program would be folded in the 
acute-care allocation. Like many others, NAUH fears that this would 
encourage states to end their Medicaid disproportionate share programs 
and use that money instead to cover their Medicaid budget shortfalls or 
to pay for benefits for additional people.
    Ending Medicaid disproportionate share payments would be an 
unqualified disaster for private, non-profit, urban safety-net 
hospitals.
    The purpose of the Medicaid disproportionate share program is to 
provide supplemental funds to hospitals that care for significant 
proportions of Medicaid recipients because historically, Medicaid does 
not adequately reimburse hospitals for allowable costs associated with 
serving Medicaid recipients; in addition, those same hospitals also 
care for large numbers of uninsured people. The Medicaid 
disproportionate share program was developed to help compensate safety-
net hospitals for inadequate state Medicaid reimbursement--California, 
for example, pays hospitals only about fifty percent of their allowable 
costs for serving Medicaid recipients--and to help them defray the 
costs they incur caring for the uninsured. Without such payments, these 
hospitals, already reeling financially, would suffer a truly 
devastating blow. Many would lose hundreds of thousands or even 
millions of dollars and would be expected to absorb these costs 
themselves; they would, in effect, be expected to continue providing 
services to lowincome patients without the revenue that would allow 
them to do so. Non-profit urban safety-net hospitals cannot do this--
they simply cannot. Without supplemental Medicaid disproportionate 
share payments, many of these hospitals will be forced to close their 
doors.

The Reduction of Federal Oversight of Medicaid
    NAUH is greatly troubled by the apparent reduction of federal 
oversight that would result from enactment of the proposed Medicaid 
reform program. Historically, Medicaid has been a federal/state 
partnership. Under the administration's proposal, as we understand it, 
the sole role of the federal partner would be to provide funds to the 
states.
    NAUH believes that the federal government has played too important 
a part in the development and protection of Medicaid, and has far too 
much expertise to abandon this absolutely vital role. In the name of 
flexibility and reducing federal expenditures, an important measure of 
oversight would be lost--and, we believe, the people for whom Medicaid 
was created to serve would suffer as a result.
    NAUH believes that the value of reducing federal oversight of 
Medicaid in the name of enhancing program flexibility is greatly 
overstated. While some maintain that Medicaid today is the same as 
Medicaid in the 1970s and 1980s, we do not think this is the case at 
all. To the contrary, a quick glimpse across the nation reveals that 
mandatory recipients are served in a variety of ways; that different 
states provide different levels of coverage to non-mandatory recipients 
in a similar variety of ways; and that different states have worked 
effectively within the parameters of the Medicaid program and under 
careful, thoughtful federal oversight to develop and implement new, 
innovative approaches to meeting their Medicaid obligations under 
federal law.
    Proof of the value and importance of federal oversight can be found 
in the performance of the states since Congress overturned the Boren 
amendment in 1997. That change in federal law, like the current 
Medicaid proposal, was intended to give states greater flexibility in 
how they spend their Medicaid funds. The Boren amendment required 
states to cover reasonable, allowable costs associated with providing 
care to Medicaid recipients; today, no such protection exists.
    Since the Boren amendment's repeal, most states have systematically 
and dramatically reduced the adequacy of their Medicaid payments to 
providers. This is a critical consideration to weigh when evaluating 
the need for federal oversight: without the Boren amendment, states 
have been left to their own devices to determine the adequacy of their 
Medicaid payments, and they have made a clear choice not to make 
adequate payments. With so many states suffering from budget problems 
today, this problem will only get worse in the coming years.
    Proponents of the Medicaid reform proposal maintain that the new 
flexibility it offers would encourage states to offer Medicaid benefits 
to more people. History has shown, however, that this will be a zero-
sum game. States will do this only at the expense of providers, paying 
them less so they can extend benefits to more people--a politically 
popular idea. In NAUH's view, that does not constitute good public 
policy; to the contrary, it only shifts a vital government 
responsibility to a group that clearly lacks the means to carry it out 
on its own.

The Redistribution of Financial Risk
    At the heart of any attempt to address health care reform is a very 
basic question: Who is responsible for financing care for the poor?
    Since the advent of Medicaid, the answer to at least part of this 
question has been clear: it has been the federal government in 
partnership with state governments. The very enactment of Medicaid 
confirmed this, as did the later development of the Medicare and 
Medicaid disproportionate share programs, the SCHIP program, and other 
government health care initiatives.
    Today, however, the answer to this question appears to be a moving 
target. In January of 2003, the chairman of MedPAC expressed that 
body's lack of interest in having the federal government shoulder this 
responsibility when he declared that ``We should not use Medicare 
dollars to offset Medicaid losses.'' In so doing, he tacitly warned of 
reductions in Medicare reimbursement in areas such as disproportionate 
share. More important, he suggested a fundamental change in Medicare's 
role--and with it, the federal government's role--in financing care for 
the poor in the U.S. today.
    The new Medicaid proposal appears, at first glance, to constitute 
yet another signal that the federal government may pull back from this 
responsibility. Under this proposal, it appears as if no provision has 
been made for the federal government to step up to help states, and 
their poorer residents, during hard times. It would base its 
contribution to care for the poor on states' 2002 Medicaid spending and 
make no further adjustments, other than for inflation in response to 
changes in the economy or our national condition.
    The states, based on how they have responded to the freedom 
afforded to them through the repeal of the Boren amendment, have 
already signaled their intention to do less for the poor, not more. 
During hard economic times today, almost every state in the nation is 
in the midst of planning to do even less, not more. The states are 
proving, beyond question, that when times get hard, they will not be 
able to support their citizens.
    The federal government seems only to be concerned with paying for 
the cost of care for the people it ensures. State governments do not 
even do that. If there is no ``extra'' money included in payments to 
safety-net providers--money that recognizes that those providers' costs 
are not covered for most of the patients they treat--then those 
hospitals will become, in effect, the insurers of last resort for low-
income patients who lack insurance coverage of any kind or who are 
covered by a Medicaid insurance program that pays providers 
inadequately.
    That leaves health care providers to shoulder an ever-increasing 
share of responsibility for financing care for the poor. Does anyone 
truly believe that where the federal government lacks the resources, 
and where the states lack the resources, that non-profit urban safety-
net hospitals, already caring for more Medicaid recipients and more 
uninsured patients and experiencing margins well below other hospitals, 
can somehow find those resources themselves and become the provider and 
de facto insurer of last resort for the poor?
    Health insurance--whether Medicaid, Medicare, or private 
insurance--always involves the careful calculation and prudent 
assumption of risk. Historically, the federal government and state 
governments have assumed most of the risk associated with financing 
health care for the poor. Providers, too, have assumed some of this 
financial risk, but there always was an implicit understanding that 
they were the least equipped to do so.
    The proposed Medicaid reform program, as we understand it today, 
calls for a fundamental shift in the assignment of risk for financing 
health care for the poor in the U.S. today. The proposed predetermined 
federal commitment to Medicaid appears to leave the federal government 
with essentially no remaining future financial risk at all. The 
proposed maintenance of effort required of the states leaves them, too, 
with no financial risk--only political risk. Strangely, only hospitals, 
such as non-profit urban safety-net hospitals, are being asked to do 
more--and at a time when they clearly lack the financial resources to 
do so.
    NAUH does not believe this is reasonable and is concerned about how 
the Medicaid reform proposal would redistribute financial risk for 
caring for the poor. We urge this committee to weigh what would amount 
to a striking change in public policy, to consider very carefully where 
this responsibility truly belongs, and to ensure that whatever 
legislation is ultimately adopted realistically places that 
responsibility where it is most appropriate. From a purely financial 
perspective, it is not possible for urban safetynet hospitals to assume 
the risk of financing care for the poor.

   A PROPOSAL: DISTINGUISH AMONG PROVIDERS AS PART OF MEDICAID REFORM

    One of the flaws of the current Medicaid program is that outside of 
the disproportionate share program, it does little to distinguish among 
health care providers. It treats hospitals that care for a few Medicaid 
patients a year more or less the same as it treats hospitals that care 
for many Medicaid patients in every corridor of their facility every 
single day. It treats safety-net providers the same as it does 
hospitals located in high-income communities that are part of extremely 
profitable hospital corporations.
    The federal government and the state governments clearly expect 
hospitals to absorb some of the costs of caring for poor patients; this 
much is clear, and to this virtually every hospital, including urban 
safety-net hospitals, readily agrees. But the absence of a poor 
population that is equally distributed throughout the country results 
in an uneven distribution of this financial burden among hospitals. 
Hospitals that care for relatively few Medicaid recipients and 
uninsured patients can bear these costs because despite significant 
ratcheting back in private health insurance payments over the past two 
decades, those payments still typically exceed the cost of the services 
provided, even if only slightly. This gives such hospitals ample 
opportunity to counterbalance their modest Medicaid losses.
    Hospitals that care for large proportions of Medicaid recipients 
and large proportions of uninsured patients, however, have no such 
opportunities. This is why the adequacy of Medicaid reimbursement is so 
much more important to some hospitals than it is to others. In a 
Medicaid system like we have today, where reimbursement is always less 
than cost, the more poor patients a hospital serves, the further behind 
it falls financially. Throughout the country, urban safety-net 
hospitals are teetering on the brink of insolvency as their margins 
plummet and their debts grow. Some move in and out of bankruptcy, 
constantly reorganizing; some have closed, and others are in danger of 
doing so.
    Today, the federal government does not formally acknowledge that 
the continued inadequacy of Medicaid payments to hospitals is much more 
important to some hospitals--such as urban safety-net hospitals--than 
it is to others. NAUH believes that federal Medicaid policy should 
formally recognize this distinction, that it should not view all 
hospitals as equal or the same, and that it should make special 
provisions to treat different, selected hospitals--including non-
profit, urban safety-net hospitals--differently and to assist those 
that help the government carry out its share of responsibility for 
financing care for the poor. It should do so, moreover, by providing 
explicit direction to the states as part of any Medicaid reform law--
just as it did when it created the Medicaid disproportionate share 
program and when it enacted the Boren amendment.
    NAUH recognizes that such a move would not be easy; it would 
require significant political will. Nevertheless, because of how 
Medicaid has been structured and how Medicare is evolving, the federal 
government has, in essence, enlisted urban safety-net hospitals--along 
with selected others--to serve as its partners in ensuring access to 
care for the poor. Now, it has an obligation to function as a true 
partner in carrying out this mission. Private, non-profit, urban 
safety-net hospitals are doing everything we can, but we must have a 
Medicaid system that pays rates to hospitals that treat significant 
numbers of Medicaid patients that are closer to the true cost of 
providing that care.

                               CONCLUSION

    Medicaid is one of the most important programs offered by 
government in the U.S. today. It signifies our intention--our 
insistence--on doing whatever we can for fellow Americans in need. The 
history of Medicaid since its inception in the mid-1960s is a true 
success story, and one of which we should be proud.
    But Medicaid is not a perfect program; any government program 
approaching forty years of age will begin to show signs of wear, and it 
is important to step back periodically and reconsider how the program 
works and whether it is structured to achieve its goals in the most 
effective, most efficient, and most compassionate manner.
    The National Association of Urban Hospitals supports efforts to 
refresh Medicaid and bring it into the twenty-first century. Some of 
the changes that have been proposed, however, would not refresh 
Medicaid, would not improve it, would not make it more effective, more 
efficient, and more compassionate. Specifically, we are concerned about 
the following aspects of the reform proposal.

1. The proposed reform program would limit Medicaid's future growth in 
        a manner that does not correlate changes in spending with 
        changes in need.
2. The proposed program would allow states to eliminate their Medicaid 
        disproportionate share programs without providing for another 
        way to achieve the essential objectives of that critical 
        program.
3. The proposed program would reduce federal oversight of Medicaid, 
        which history has shown to be absolutely vital to ensuring the 
        program's integrity and effectiveness.
4. The proposed program redistributes financial risk for financing care 
        for the poor, moving it from the federal government and state 
        governments to individual hospitals, which is not economically 
        feasible.
    For these reasons, the National Association of Urban Hospitals has 
serious concerns about the Medicaid reform proposal as it is currently 
structured. We urge the House Energy and Commerce Committee to give 
careful consideration to these issues as you discuss and debate the 
proposal's future. As you do, we also urge you to consider requiring 
the federal government to distinguish among providers when it reshapes 
Medicaid and to provide special assistance to providers that constitute 
the health care safety net in the U.S. today--providers such as 
private, non-profit, urban safety-net hospitals. These hospitals have 
demonstrated their commitment to caring for the poor, they have proven 
their willingness to do so despite the financial jeopardy in which such 
efforts place them, and they have indicated their desire to serve as 
true partners of government in caring for the poor. These partners need 
special financial consideration to enable them to fulfill their role in 
this health care partnership, and in the health care safety net, and 
any effort to reform Medicaid should include a meaningful financial 
commitment to these vital institutions.
    We appreciate the opportunity to submit this testimony and welcome 
any questions or comments you may have.

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