[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



   MEDICAID REFORM: THE NATIONAL GOVERNORS ASSOCIATION'S BIPARTISAN 
                                ROADMAP

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

                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 15, 2005

                               __________

                           Serial No. 109-22

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                               __________
                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

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

                                  (ii)

  




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Huckabee, Hon. Mike, Governor, State of Arkansas; and Hon. 
      Mark Warner, Governor, State of Virginia...................    21
Material submitted for the record by:
    Acevedo-Vila, Hon. Anibal, Governor, Commonwealth of Pueto 
      Rico, prepared statement of................................    74
    Barton, Hon. Joe, letter dated July 5, 2005, to Gov. Mark R. 
      Warner, enclosing questions from committee members, and 
      responses to same..........................................    78
    Kennelly, Barbara, President, National Committee to Preserve 
      Social Security and Medicare, prepared statement of........    76

                                 (iii)

  

 
   MEDICAID REFORM: THE NATIONAL GOVERNORS ASSOCIATION'S BIPARTISAN 
                                ROADMAP

                              ----------                              


                        WEDNESDAY, JUNE 15, 2005

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 11:07 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Bilirakis, Upton, 
Stearns, Gillmor, Deal, Whitfield, Norwood, Cubin, Shimkus, 
Wilson, Shadegg, Pickering, Buyer, Radanovich, Bass, Bono, 
Walden, Ferguson, Rogers, Otter, Myrick, Murphy, Burgess, 
Blackburn, Dingell, Waxman, Markey, Brown, Rush, Eshoo, Stupak, 
Engel, Wynn, Green, Strickland, DeGette, Capps, Allen, Davis, 
Schakowsky, Solis, Baldwin, and Ross.
    Also present: Representative Gingrey.
    Staff present: Chuck Clapton, chief health counsel; David 
Rosenfeld, majority counsel; Jeanne Haggerty, majority 
professional staff; Brandon Clark, health policy coordinator; 
Eugenia Edwards, legislative clerk; Bridgett Taylor, minority 
professional staff; Amy Hall, minority professional staff; and 
Turney Hall, research assistant.
    Chairman Barton. The committee will come to order. Our 
witnesses today, Governor Warner and Governor Huckabee, are 
testifying in the other body and are going to be joining us 
shortly. So in the interim we are going to begin our opening 
statements. And, according to the rule we adopted at the 
beginning of this Congress, since this is a full committee 
hearing and we have two Governors, Mr. Dingell and I will each 
be recognized for 5 minutes to give our opening statements. 
Then, every other member who wishes to be recognized will be 
recognized for 1 minute to give their statement. And hopefully, 
by the time that happens, the Governors will be here and then 
we will go to their testimony and then our usual 5 minutes of 
questions per member, alternating between the minority and the 
majority. Any questions about that, anybody?
    Mr. Dingell. No questions, Mr. Chairman.
    Chairman Barton. Okay. So the Chair would recognize himself 
for an opening statement.
    Good morning. Even though our two Governors, Governor 
Warner and Governor Huckabee are not here yet, we do want to 
appreciate their agreeing to testify before us on this 
important hearing. We understand that there is the making of a 
bipartisan agreement amongst the Governors about what might be 
done to reform Medicaid. Under the aegis of the National 
Governors Association, today's witnesses have played a central 
role in bringing both Republican and Democrat Governors 
together to develop and support these innovative concepts for 
Medicaid reform. The Governors are before us today because 
Medicaid is in crisis. We have reached a point where there are 
just not enough taxes or taxpayer money to keep Medicaid going 
as we know it today.
    Most States now spend more on Medicaid than they do on 
schools or anything else for that matter. Analysts predict in 
as few as 20 years, Medicaid will consume between 80 to 100 
percent of all State budget dollars. That is an amazing 
statement. Without reform, Medicaid eventually will bankrupt 
every State in the Nation. The only alternative is the eventual 
collapse of the Medicaid program.
    Here is a thought that comes from somebody that I probably 
wouldn't agree with too much. He is John Adams Hurson, a 
Maryland State legislator who is president of the National 
Conference of State Legislatures. Let me read to you what Mr. 
Hurson says. ``I am a Democrat, a liberal Democrat, but we 
can't sustain the current Medicaid program. It is fiscal 
madness. It doesn't guarantee good care, and it is a budget-
buster. We need to install a greater sense of personal 
responsibility so that people understand that this care is not 
free.'' I couldn't agree more.
    The proposals that we will hear about this morning reflect 
the bipartisan views of the Nation's Governors. Governors know 
their State's programs and beneficiaries, what they can afford 
and what levels of benefits and services are most appropriate 
for those most vulnerable in their State populations. Governors 
have to struggle every day with Medicaid financing and service 
delivery. Governors also see the flaws in the current program. 
They seem to understand how many middle-class seniors hide 
their assets through creative accounting techniques so that 
they can get Medicaid to pay for nursing home care. They see 
how Medicaid pays too much for some prescription drugs. They 
also know how Medicaid's co-payment policies with rates that 
are frozen at 1983 levels, discourage beneficiaries from taking 
responsibility for their own healthcare decisions.
    This knowledge has helped to shape many of our Governors' 
reform proposals. This will not stop critics from challenging 
these reforms, and that is the purpose of today's hearing, to 
hear their reforms and then have a review of them. Some will 
say that any change to the system they love will hurt the poor. 
Critics conveniently ignore the fact that the system is already 
changing as States try to avoid ruin. Between 2002 and 2005 all 
States reduced provider rates and implemented drug cost 
controls. Thirty-eight States have reduced eligibility, and 34 
States have reduced benefits. This year hundreds of thousands 
of beneficiaries will lose Medicaid eligibility or face reduced 
benefits in States like Tennessee, Missouri, and Mississippi.
    I think that it is time to do something because doing 
nothing hurts Medicaid patients every day. I, personally, would 
like to reform and save Medicaid. The Federal budget does need 
some help. The State budgets desperately need help. Medicaid 
beneficiaries need help. I applaud our Governors and generally 
support the reforms that they are bringing before us. Medicaid 
is clearly in need of reform.
    This committee is tasked by Congress in the budget 
resolution to reduce the growth of Federal spending. It is my 
job as chairman to try to help the committee come up with a 
bipartisan agreement that will do the very best that we can to 
meet that target. And as I said, I hope that we can do it in a 
bipartisan fashion.
    Just as important, though, is the importance of simply 
saving Medicaid. The exercise that we discuss today is about 
much more than reconciliation; it is also about preserving the 
healthcare safety net that protects the Nation's poor. If we 
cannot make Medicaid more affordable to States and to the 
Federal Government, we will have to put the beneficiaries who 
depend on the program at grave risk.
    I look forward to today's hearing. It is an important 
hearing. I might also say that this isn't the only hearing that 
we are going to do. This is the first of many hearings that we 
are going to have this summer as we move toward a Medicaid 
reform package in the fall.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Good Morning. Let me begin by thanking Governors Warner and 
Huckabee, for appearing before the Committee today. We appreciate their 
willingness to testify about a new bipartisan agreement to reform 
Medicaid that has recently been developed by the National Governors 
Association. Today's witnesses played a central role in bringing 
Republican and Democratic governors together to develop and support 
these innovative concepts for Medicaid reform.
    The Governors are here today because Medicaid is in crisis. We have 
reached a point where there just are not enough taxes or taxpayers to 
keep Medicaid going. States now spend more on Medicaid than they do on 
schools, or anything else, for that matter. Analysts predict that in as 
few as 20 years, Medicaid will consume 80 to 100 percent of all state 
dollars. Without reform, Medicaid eventually will bankrupt every state 
in the nation. The only alternative is the eventual collapse of the 
Medicaid program.
    Here's a thought that comes from someone I probably wouldn't agree 
with much. He's John Adams Hurson, a Maryland state legislator who is 
president of the National Conference of State Legislatures. Let me read 
you what Mr. Hurson says: ''I am a Democrat, a liberal Democrat, but we 
can't sustain the current Medicaid program. It's fiscal madness. It 
doesn't guarantee good care, and it's a budget buster. We need to 
instill a greater sense of personal responsibility so people understand 
that this care is not free.'' I couldn't agree more.
    The proposals we will hear about this morning reflect the 
bipartisan views of the nation's Governors. Governors know their 
state's programs and beneficiaries, what they can afford and what 
levels of benefits and services are most appropriate for these 
vulnerable populations. Governors must struggle every day with Medicaid 
financing and service-delivery.
    Governors also see the flaws in the current program. They seem to 
understand how many middle class seniors hide their assets through 
creative accounting techniques so they can get Medicaid to pay for 
nursing home care. They see how Medicaid pays too much for some 
prescription drugs. They also know how Medicaid's co-payment policies, 
with rates still frozen at their 1983 levels, discourage beneficiaries 
from taking responsibility for their health care decisions.
    This knowledge helped shape many of the Governors' reform 
proposals. This will not stop critics from challenging these reforms. 
Some will say that any change to the system they love will hurt the 
poor. The critics conveniently ignore the fact that the system is 
already changing as states try to avoid ruin. Between 2002 and 2005, 
all states reduced provider rates and implemented drug cost controls; 
38 states reduced eligibility; and 34 states reduced benefits. This 
year, hundreds of thousands of beneficiaries will lose Medicaid 
eligibility or face reduced benefits in states like Tennessee, 
Missouri, and Mississippi.
    We must do something because doing nothing hurts Medicaid patients 
every day. I want to save Medicaid. The Federal budget needs our help. 
The State budgets need our help. Medicaid beneficiaries need our help. 
I applaud the Governors and generally support the reforms they are 
bringing us. Medicaid is clearly in need of reform.
    This Committee is tasked by Congress, in the budget resolution, to 
reduce the growth of Federal spending. We're going to do our best to 
meet that target, and I hope we can do it in a bipartisan matter. Just 
as important, though, is the importance of simply saving Medicaid. The 
exercise we discuss today is about much more than reconciliation--it is 
also about preserving the healthcare safety net that protects the 
nation's poor. If we cannot make Medicaid more affordable to States and 
the Federal government, we will have put the beneficiaries who depend 
on the program at grave risk.There are serious challenges facing 
Medicaid today and the program is clearly at a crossroads. We need to 
look for innovative, bipartisan solutions for the problems facing 
Medicaid in order to strengthen and improve the program. Medicaid 
beneficiaries deserve nothing less. So do America's taxpayers.

    Chairman Barton. With that, I would----
    Mr. Rush. Mr. Chairman? Mr. Chairman? Down at this end.
    Chairman Barton. Mr. Rush.
    Mr. Rush. Mr. Chairman, I would like just to speak out of 
order just for a moment. Since the last time the full committee 
has met we have had a death among our family. The chief of 
staff for Congressman Towns passed suddenly last week, and I 
would just ask that you would join me in a moment of prayer for 
her and her family and for our family because she was a fixture 
around this committee and around all of us. Brenda was loved by 
everybody. Brenda Pillors.
    Chairman Barton. I am honored to do that, and I think Mr. 
Dingell was going to speak to that too in his opening 
statement. But would we all just have a moment of silence, and 
those that believe in prayer, a moment of prayer. Amen. With 
that I would recognize the distinguished ranking member, Mr. 
Dingell.
    Mr. Dingell. Mr. Chairman, I thank you for the recognition, 
and I thank you also for holding this hearing on a very 
important, a very valuable question. I ask that I also be 
permitted to insert into the record a brief comment about 
Brenda Pillors, who was much loved on this side of the aisle 
and in the committee generally. She was chief of staff to our 
good friend, Mr. Towns, and she was quite a force for good 
within the Congress. She will be missed.
    Chairman Barton. Without objection.
    Mr. Dingell. Thank you, Mr. Chairman. As I said, Mr. 
Chairman, I thank you for this hearing. It is a very important 
question, and I welcome Governors Warner and Huckabee to us and 
thank them for their testimony today. We are interested in 
hearing about their Working Groups Preliminary Proposal to 
change Medicaid and how these changes will help them and other 
Governors with regard to fiscal problems. We have heard for a 
number of months the concerns of the States regarding their 
budgets and how much of each budget is consumed by Medicaid. 
These appear to be very legitimate concerns. I want the 
Governors to know that I am sympathetic to the financial bite 
that they face, but that we do need to have a perspective on 
one very important question; and that is how do we fix their 
problem within the broader healthcare system and yet take care 
of those for whom the Medicaid program is designed to be 
helpful?
    Congress has tried to eliminate the problems or at least to 
alleviate this situation many times, including a major victory 
in June 2003 when we were able to provide the States with $10 
billion to assist them through the economic downturn by 
temporarily boosting the Federal Medicaid funding. But now we 
are going in the opposite direction. Congress is looking to cut 
$10 billion from the Federal budget, keeping in mind that 
cutting $10 billion in Federal funding for these programs 
equals a $17.5 billion cut overall to Medicaid recipients 
because of the shared State-Federal financing of the program. 
That is a significant number.
    The National Governors Association has come out strongly 
against the cost shift by the Federal Government that would 
place a still-greater financial burden on the States. This is a 
very legitimate concern. I wholeheartedly agree with the 
Governors and would support giving the States $10 billion 
rather than taking it away. I believe that to be a more 
justifiable course. But we must also take care not to cost-
shift the burden from the States to the backs of the poor and 
those who have the least capacity to address the problems that 
would occasion. Unfortunately, I am afraid that much of the NGA 
proposal will do just that: shift cost to the poorest and to 
the most vulnerable citizens who depend on this program and who 
have no hope of help elsewhere.
    It appears that in the name of personal responsibility, the 
NGA proposal will make it much more difficult for children and 
pregnant woman to get needed services. Do we really need to set 
policies that will make it more difficult for a child diagnosed 
with diabetes to get insulin? Or to care of the problems of a 
pregnant woman who is desperate, alone, and destitute? In the 
end, we as a Nation will pay the financial and social costs of 
any complications that would result from such children being so 
treating.
    The proposed cost-sharing increases and the benefit changes 
will result in many going with no services at all. I understand 
the NGA proposal would eliminate the Medicaid requirement that 
low-income children who are screened and diagnosed with health 
problems get the treatment they need. That would be a little 
bit like a case I saw when I went to a hospital and they told 
me, Dingell, there is good news here; women are going to be 
able to be tested for breast cancer. I said that is wonderful. 
Yes, they said, but there is a real problem; they are not going 
to be able to get the treatment because that is not in the 
program. The cost-sharing increases and benefit changes will 
probably, then, result in no services for many at all. I 
understand the concerns of the Governor, but we must inquire 
why are we turning our backs on people who have the greatest 
need?
    Equally troubling is the proposal to take away from senior 
citizens, individuals with disabilities, pregnant woman, and 
children the ability to enforce their rights to promised 
benefits, which serves as a backstop to guarantee that they get 
the services they need. We should not kid ourselves. As I 
learned in the good Jesuit teachers' philosophy, rights without 
a remedy are no rights at all.
    I understand this is a preliminary agreement between a 
group of Governors, which meant concessions were no doubt made 
on both sides. I am, however, curious; how many senior, how 
many people with disabilities, how many pregnant woman, how 
many children were included in these negotiations? And what was 
done about the concerns that they expressed if they were heard? 
And where will these folks be when the leadership in this House 
decides that those health services will get cut while doling 
out tax cuts to the most fortunate amongst us. It is a sad day 
when the budget of the United States, as submitted by the 
Republican leadership, will require folks like the witnesses 
before us today to figure out how to hurt the people the least, 
rather than to help them the most.
    Before I yield back, Mr. Chairman, I would like your 
attention because I have a question that the minority would 
very much like to ask you and our good friends on the majority 
side. I want to express the concern of the members on this side 
that we are not hearing today from those who would be most hurt 
by these proposals. I note that our colleagues in the other 
body are hearing today from experts on the perspectives of 
beneficiaries of providers. My question to you, Mr. Chairman, 
is will the committee be holding full and adequate hearings to 
obtain the testimony from beneficiaries and providers on those 
proposals before we go forward with $10 billion in cuts to 
those who are going to get the cuts?
    Chairman Barton. The gentleman yield?
    Mr. Dingell. I yield to my good friend, of course.
    Chairman Barton. Today's witnesses are the Governors, but 
we are going to have a number of hearings. We always do. We 
will work with you and other interested members to make sure 
that we have a broad range of witnesses so that the issue is 
fully vetted before we move to a legislative solution.
    Mr. Dingell. That comment does you great credit, Mr. 
Chairman, and I thank you. I understand you to be telling me 
that we will then be hearing from representatives of the----
    Chairman Barton. We will----
    Mr. Dingell. [continuing] children, representatives of 
pregnant women, and others who are going to be affected by----
    Chairman Barton. I think we have established comity and 
trust, not just on this issue, but on all the issues. I am not 
aware that we have had a problem this year on any specific 
issue on short-changing the witness list. But this is an 
important issue, and as you pointed in your opening statement, 
there are many, many important principles in play here, and 
this committee will not move legislatively without creating a 
full record where all interested parties are a part of.
    Mr. Dingell. Mr. Chairman, if I may continue on my time, 
your record as chairman has been one of fairness and decency, 
and I want to express my appreciation to you for that. I have 
great hopes that we will see those superb tendencies at play 
here and that we will be able to get a record that will enable 
us to look at the concerns of everybody who is going to be 
affected by these matters. And with those remarks, Mr. 
Chairman, with great respect, I thank you.
    Chairman Barton. The last thing, Mr. Dingell, before we 
yield to Mr. Deal, as you know, because the reconciliation 
process, we will have a timetable to legislate sometime most 
probably in September. So we will do our fact-finding hearings 
this month and in July. There might be one final generic 
hearing in early September, but we would move to a legislative 
markup sometime in September.
    Mr. Dingell. Thank you, Mr. Chairman.
    Chairman Barton. Okay. The distinguished subcommittee 
chairman, Mr. Deal of Georgia, is recognized for 1 minute.
    Mr. Deal. Thank you, Mr. Chairman. First of all, I want to 
thank the National Governors Association and the two Governors 
that we will hear from in just a few minutes, but also the 
staffs of that organization and the staffs of the individual 
Governors who have worked very hard on coming up with a 
bipartisan solution to this issue of Medicaid reform. And I 
also want to thank the staffs here on our committee who have 
been working in conjunction with them.
    There are two things that I think need to be said about 
this. First of all is that this is, as we will hear from the 
Governors, a policy-driven debate. Certainly, finances play a 
part. At the Governors' level it is now consuming, for their 
part of Medicaid, more than they are spending on elementary and 
secondary education and continues to grow. This year it is 
costing a cumulative $300 billion, and is projected over the 
next 10 years to be $4.5 trillion in cost. But policy is what 
we will hear from the Governors in terms of policy changes, the 
kind of changes that I think all of us acknowledge need to be 
addressed.
    I want to thank them for doing this on a bipartisan basis. 
I think the fact that they have done that is a challenge to us 
to deal with this issue likewise, on a bipartisan basis. Thank 
you, Mr. Chairman.
    Chairman Barton. Thank the gentleman. The Chair would 
recognize Mr. Brown, the ranking member of the Health 
Subcommittee, for 1 minute.
    Mr. Brown. Thank you, Mr. Chairman. I first ask unanimous 
consent to enter into the record statements from the consortium 
of America's dental providers, as well as the National 
Association of Community Health Centers.
    Chairman Barton. Without objection, so ordered.
    [The material follows:]
                                                      June 14, 2005
The Honorable Nathan Deal
Chairman
Energy and Commerce Subcommittee on Health
United States House of Representatives
Washington, DC 20515
    Dear Mr. Chairman: We write as organizations committed to equitable 
access to dental care with a broad range of experience in directly 
providing care and in working to ensure that dental care is available 
to Medicaid beneficiaries. To that end, we have attached these 
principles for dental Medicaid reform to assist you as you work to 
improve efficiencies in Medicaid.
    As the Surgeon General highlighted in his 2000 report, Oral Health 
In America, oral health is an essential component of overall health. 
The report further states that dental disease is the single most 
chronic condition among children in America. Dental disease has also 
been linked in recent studies to other diseases such as cardiovascular 
disease and pre-term, low birth-weight babies.
    Failure to treat dental problems can have serious human 
consequences and impose economic burdens on our health care system as 
people seek care in more expensive circumstances. Routine primary 
dental care saves money: When primary dental services are unavailable, 
families will often wait and seek care for their loved ones in hospital 
emergency rooms--where they may receive a temporary pain fix that masks 
the worsening problem or emergency care that can cost as much as 10 
times more than regular care in a dental office.
    Lack of access to dental care has affected our national military 
readiness, with the Department of Defense reporting that 4 in 10 
recruits have dental problems severe enough to preclude their immediate 
deployment.--
    While Medicaid is a major source of oral health care, enrollment in 
Medicaid does not ensure receipt of oral health care services. Less 
than one percent of state Medicaid budgets are allocated to preventive 
oral health care. Only 7 states provide adult Medicaid dental benefits 
and only 20% of Medicaid-eligible children receive any type of dental 
care. A 2000 survey of state Medicaid program administrators found that 
95% of respondents reported an access problem for lower-income children 
in need of dental care. Dental costs for children who receive 
preventive dental services early in life are 50% lower than costs for 
children who receive care after years of neglect.
    Despite these problems, Medicaid has been innovative and has been a 
successful laboratory in some states for dental programs and policies 
that increase access to dental care for low-income and vulnerable 
populations. We stand ready to work with Congress in providing those 
best practice models as you seek to improve the Medicaid dental 
program.
    Millions of low-income children and adults postpone needed dental 
care until health emergencies result from uncovered and untreated 
dental care. Your committee has the means for correcting the bias in 
Medicaid that favors expensive treatment in emergency rooms. We look 
forward to working with you and your committee in improving 
efficiencies in Medicaid by assuring regular access to routine and 
preventive oral health care.
            Sincerely,
    Academy of General Dentistry; Alliance of the American 
            Dental Association; American Academy of Oral & 
    Maxillofacial Pathology; American Academy of Pediatric 
   Dentistry; American Academy of Periodontology; American 
   Association of Dental Editors; American Association for 
         Dental Research; American Association of Oral and 
    Maxillofacial Surgeons; American Association of Public 
 Health Dentistry; American Association of Women Dentists; 
    American Dental Association; American Dental Education 
     Association; American Dental Hygienists' Association; 
 American Student Dental Association; Association of State 
and Territorial Dental Directors; Children's Dental Health 
       Project; Dental Trade Alliance; The Hispanic Dental 
              Association; and the Pierre Fauchard Academy.

(Note: A complete list of organizations that are supporting the 
statement of dental Medicaid reform principles will be forthcoming as 
other groups continue to sign on.)

Attachment
           Dental Medicaid Reform Core Principles & Policies
    Given that Medicaid beneficiaries are more likely to access care 
than similarly situated uninsured; Given that the dental services 
children and adults receive in Medicaid are cost-effective; Given that 
dental disease is the single most common chronic disease of children; 
Given that parents consistently cite dental as the number one unmet 
health need of their children; Given that poor oral health can affect a 
child's ability to learn and an adult's ability to obtain a job due to 
appearance; Given that untreated oral disease complicates medical 
conditions like diabetes and heart disease and may be associated with 
pre-term low-birth weight babies; Given that oral disease can 
jeopardize the health of Medicaid-eligible elderly and the disabled, 
affecting the health and well being of those living in nursing homes; 
Given that preventive and routine dental services save overall health 
care dollars by avoiding costly visits to the emergency room, the 
dental community agrees to the following principles and recommended 
policies:

Preserve the Federal Guarantee of Medicaid Coverage, Services and 
        Consumer Protections
 Maintain a federal requirement for dental services for EPSDT 
        Medicaid-eligible children 1, and extend medically 
        necessary coverage to adults.
---------------------------------------------------------------------------
    \1\ See CMS Guide to Children's Dental Care in Medicaid. October 
2004. http://www.cms.hhs.gov/oralhealth/. The Guide was developed for 
the use of state Medicaid agencies, dental and other health care 
providers, and national, state and local policy makers involved in 
organizing and managing oral health care for children under Medicaid's 
Early and Periodic Screening, Diagnostic and Treatment (EPSDT) service.
---------------------------------------------------------------------------
 Ensure that preventive dental benefits are excluded from cost-sharing 
        requirements.

Preserve the Federal Financing Role in Medicaid
 Maintain the current federal-state financing arrangement within 
        Medicaid and reject proposals to establish caps on payments to 
        states.
 Update the federal matching formula to address changes in state 
        economics, and provide an enhanced match for dental services to 
        ensure a state is able to adequately cover these services for 
        Medicaid populations.
 Allow for flexibility within states without diminishing the existing 
        federal-state partnership, which includes federal requirements 
        and/or incentives to enhance program effectiveness.

Assure and Maintain Access to Care Through Adequate Provider 
        Participation
 Provide incentives to states to adopt Medicaid models that mirror 
        programs dental providers work with in the private sector, 
        improve access for beneficiaries and facilitate providers' 
        active participation in the Medicaid program.
 Ensure that dental providers receive fair and market-based 
        compensation for services provided and that compensation is not 
        decreased by cost-sharing requirements.
 Consider utilizing the private market to provide additional dental 
        coverage options to higher-income Medicaid beneficiaries or 
        populations not currently covered by the Medicaid program 
        (e.g., optional dental health savings accounts), and ensure 
        that any private insurance models offered to Medicaid 
        beneficiaries provide comprehensive dental benefits.
 Maintain equal access provision in federal law to ensure that 
        beneficiaries within Medicaid have access to dental services in 
        the same way as beneficiaries in the private 
        sector.2
---------------------------------------------------------------------------
    \2\ See Healthy People 2010--Oral Health Goals and Objectives. 
http://www.healthypeople.gov/document/html/volume2/21oral.htm.
---------------------------------------------------------------------------
 Support dental targeted case management programs that utilize 
        Medicaid funds to capitalize on disease management.

Use the Medicaid Waiver Process to Foster Improvements and Innovation, 
        Not to Eliminate Federal Protections or Reduce Benefits
 Ensure that medical necessity criteria does not restrict or eliminate 
        coverage for oral health/dental care that meets professional 
        standards and is clinically appropriate, as determined by a 
        dentist.

Improve the Integrity of Medicaid
 Eliminate fraud and abuse within the program and ensure necessary 
        oversight to determine adequate access to care is provided to 
        beneficiaries.
 Ensure that the financing of the Medicaid program is sound and 
        responds to market demands and state economic needs.

Recognize the Interdependence of Medicaid and the Public Health System
 Facilitate public-private partnerships that improve access for 
        individuals who access oral health care through a safety-net 
        provider. Such a partnership may result in private contracts 
        between safety-net clinics and dental providers and academic 
        dental institution clinics.
 Facilitate the establishment of school-linked programs.
 Encourage programs that value prevention and disease management (to 
        reduce disease burden), are science and evidence-based and 
        invest in strategies with strong potential for long-term 
        savings through preventive care.

    Mr. Brown. Thank you, Mr. Chairman. I have concerns about 
NGA's proposal, as Mr. Dingell does, but at least they didn't 
set up a kangaroo court Medicaid commission that puts life-
saving insurance on trial as if Medicaid is an evildoer. The 
NGA would cut costs in two ways: by reducing the price of 
healthcare and by reducing access to it. There is evidence that 
healthcare prices can come down with no ill effects. Drug 
makers earn three times the profit of other Fortune 500 
industries. Drug prices, for instance, can come down.
    There is not evidence that we can reduce Medicaid access 
without doing harm. Medicaid enrollees can't afford private 
health insurance or higher-cost sharing. RAND's Health 
Insurance Experiment found that low-income Americans forsake 
essential care when cost-sharing is increased. Kaiser Family 
Foundation found that Medicaid beneficiaries already spend more 
of their income on healthcare than the rest of us do. Medicaid 
only covers medically necessary care. States can use prior 
authorization in case management to make sure of it. It is a 
myth that Medicaid enrollees receive more care than their 
counterparts in privately insured plans. They don't.
    Medicaid is expensive because our demographics are 
shifting, because private insurance is eroding and----
    Chairman Barton. The gentleman----
    Mr. Brown. [continuing] because healthcare----
    Chairman Barton. The gentleman needs to sum up.
    Mr. Brown. I will. Thank you, Mr. Chairman. Let's not 
pretend that taking healthcare services away from vulnerable 
Americans is an ethical way to reduce a budget or to cover more 
people.
    Chairman Barton. Thank the gentleman. The gentleman from 
Florida, Mr. Bilirakis, is recognized.
    Mr. Bilirakis. Thank you, Mr. Chairman. I have a brief 
written statement to be made a part of the record and waive an 
oral statement.
    Chairman Barton. The gentleman yields back. The 
distinguished gentleman from California, Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. First of all, this 
hearing is prompted by a budget reconciliation, and I want to 
point out that budgets are moral documents. They reflect the 
values of our Nation, the priorities of our people, who wins 
and who loses. And I think we are required all of us to ask on 
a bipartisan basis what happens to the poor and the most 
vulnerable, especially the Nation's poorest children.
    Today we are going to hear from the Governors. They have a 
very real perspective about the Medicaid program because so 
much of the costs of this program are dumped on them, rather 
than absorbed by the Federal Government. I think we ought to 
make sure that the changes we make in the name of reform are 
simply not shifting cost to others, particularly those least 
able to bear them. We should be sure that we are not putting 
barriers in the way of participation in Medicaid by the very 
people we are trying to reach and not to make changes that add 
to the numbers of uninsured in this country, rather than reduce 
the numbers of uninsured in this Nation.
    We have a budget that I think is immoral. It gives tax 
breaks to billionaires, and yet calls for billions of dollars 
to be cut out of the program for the very poorest for their 
healthcare. Let us not go along with the priorities of that 
budget. Let us do what is necessary to make a healthcare 
program for the poor in this Nation really work.
    Chairman Barton. We thank the gentleman. Does the 
distinguished Subcommittee Chairman of Telecommunications, Mr. 
Upton, wish to make an opening statement?
    Mr. Upton. Waive.
    Chairman Barton. Waive. Does Mr. Stearns wish to make an 
opening statement?
    Mr. Stearns. Yes, I do.
    Chairman Barton. Mr. Stearns is recognized.
    Mr. Stearns. Thank you. Thank you, Mr. Chairman. I think we 
can have a bipartisan discussion on this. I think all of us 
remember the same type of thing was in play with welfare, and 
we were able to come together, both the House and the Senate 
and, finally, the President.
    No one said it better than the Tennessee Governor, Phil 
Bredesen, who delivered the National Democratic address last 
Saturday when he said, ``No. 1, everybody pays something,''--
talking about his Medicaid plan and its reform--``imagine 
shopping at a store where nothing has a price tag and you never 
get a bill. All of us know you spend a lot more than you do 
now. But this is exactly how Medicaid works today. Until there 
is a little economic tension, until everyone has a little skin 
in the game, the system will continue to be inefficient.'' And 
I commend him for his statement, and I think that is 
appropriate for all of us to realize, that we need to reform 
Medicaid and make the people who are involved to also 
participate. Thank you, Mr. Chairman.
    Chairman Barton. And we thank the gentleman. Mr. Markey of 
Massachusetts.
    Mr. Markey. Thank you. The Republicans want to cut taxes 
$106 billion in this year's budget. That is why we are here--
the $106 billion tax cut. This is proportionately skewed toward 
the wealthiest. And so the price that has to be paid is, 
amongst other things, $10 billion cut out of Medicaid to pay 
for the tax breaks for the wealthiest. One-third of all babies 
born in the United States today are on Medicaid. One-third of 
all babies. Two-thirds of all people in nursing homes are on 
Medicaid. Doesn't it make sense for the Republicans first to 
figure out what are our obligations to those babies and those 
seniors; then what is left over is a tax cut? But no. They 
decide that first they give the tax breaks to the wealthiest in 
the country clubs who have benefited the most, and then let us 
figure out how much we cut those babies and how much we cut 
Grandma in the nursing home. And that is what we are doing here 
today.
    This is not about reform, ladies and gentleman. This is 
about the Republicans paying for the tax break this year that 
they want to give to the wealthiest and taking the money away 
from those most in need in our society.
    Chairman Barton. Does Mr. Gillmor wish to make an opening 
statement?
    Mr. Gillmor. Thank you, Mr. Chairman. I have a statement I 
would like to enter into the record. But let me just make one 
brief comment on the really and detrimental effect growing 
Medicaid costs are having in Ohio. Despite efforts at cost 
containment, budget strategies, Medicaid expenditures in Ohio 
are increasing at twice the rate of State revenues. They now 
amount to more than $10 billion. And to put that in 
perspective, that is 40 percent of the entire budget of Ohio, 
and it is the reason that you are having cuts in schools and in 
other areas of State government. And in fact that number is 
larger than Ohio's entire State budget in 1987. So I think it 
makes the case that there is reform needed. And I yield back.
    [The prepared statement of Hon. Paul Gillmor follows:]

    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio

    Thank you, Mr. Chairman for holding this important hearing. 
Furthermore, I welcome Governors Huckabee and Warner, and applaud the 
National Governors Association's initiative in bringing a bipartisan 
Medicaid reform roadmap before us for public consumption.
    With a generation of baby boomers growing older, life expectancy on 
the rise, a shrinking labor force, and smaller family units, the demand 
for long-term care is likely to increase, producing an even further 
strain on our nation's Medicaid program. Absent future demographic 
realities, there no question that Medicaid is in dire need of 
transformation now.
    Today, it is safe to say that a majority of states are experiencing 
skyrocketing Medicaid costs coupled with declining revenues. In my home 
state of Ohio, despite recognizing the reality of a broken system and 
enacting a number aggressive cost containment and budget strategies, 
Medicaid expenditures are increasing at twice the rate of growth of 
state revenues, amounting to a total $10.5 billion. This figure 
represents over 40% of the state's general revenue fund spending and is 
larger than Ohio's entire state budget in 1987.
    In response, the Ohio Commission to Reform Medicaid was formulated 
in December 2003, and earlier this January, they released their 
recommendations. As we speak, the Ohio state legislature is hard at 
work, making great strides to adopt the Commission's recommendations in 
an effort to again, root out Medicaid inefficiencies and stunt its 
growth.
    With the evolution of Medicaid over the years, reform ideas have 
come and passed, or simply been swept under the rug. We must take hold 
of today's circumstances and remain committed with our governors to 
transforming our system into one of personal responsibility, quality, 
and efficiency, for our citizens that need it the most.
    I look forward to the governors' testimony, again thank the 
Chairman, and yield back the remainder of my time.

    Chairman Barton. Gentleman from Chicago, Mr. Rush, wish to 
make an opening statement?
    Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, just as I 
did at the last Medicaid hearing back in April, I really must 
voice my disappointment with the premise of this hearing. I 
simply don't believe that Medicaid is in any need of reform, 
not when there are far more egregious examples of programs and 
policies that are in need of reform, and at the same time that 
don't disproportionately impact our most vulnerable 
populations.
    It has been rather telling that this Congress's zeal for 
reform is always reserved for matters that affect poor and 
working people and never for the waste and abuse generated by 
the most privileged ranks of our society. Having said that, 
this committee is burdened with the unfortunate task of coming 
up with $10 billion in savings in the Medicaid program.
    And given this reality, I want to emphasize that it is my 
ardent position that absolutely none of the $10 billion in 
savings should come from Medicaid beneficiaries themselves. If 
we are going to squeeze savings out of the program, then the 
burden should fall entirely on those parties and those 
interests that are best able to absorb these costs. Medicaid 
beneficiaries are some of the most vulnerable and needy 
populations in our country and thus, by definition, they are 
the least----
    Chairman Barton. The gentleman needs to----
    Mr. Rush. [continuing] able to bear the costs of these so-
called Medicaid reforms. And I yield back the balance of my 
time.
    Chairman Barton. We thank the gentleman. Does Mr. Shimkus 
wish to make an opening statement?
    Mr. Shimkus. I will pass.
    Chairman Barton. Does Mrs. Wilson wish to make an opening 
statement?
    Ms. Wilson. Yes, Mr. Chairman. Thank you, Mr. Chairman, and 
thank you for holding this hearing. Over the last 4 years, 
every State in the Nation has cut eligibility, benefits, or 
payment rates--or all three--in Medicaid. And in general, the 
Federal Government has done very little to help the States with 
those difficult decisions. Yet the Governors have continued to 
get the beans to the barbecue. They have got to balance their 
budget, provide services, make tough decisions. And we have 
seen plenty of examples of where our failure to help them has 
cost them dearly.
    Medicaid is set up to pay claims. It is not set up to 
improve anyone's health, and it is ripe for reform. It is now 
the largest healthcare program in the country, and it is one of 
the most complicated programs that we have in the Federal 
Government.
    I appreciate the Governors being here today, and I also 
appreciate their efforts to develop bipartisan ideas to improve 
the health status of those who depend upon Medicaid, because 
that is what this debate is about. And the health status of 
people who are eligible for Medicaid is much lower than it is 
for the population as a whole. We should start asking why and 
start taking action to fix it. And I yield the balance of my 
time.
    Chairman Barton. We have one of our Governors here. 
Governor, welcome. We are in the process of opening statements, 
so we are going to continue that. And at the end of our opening 
statements, hopefully, Governor Warner will be here and we will 
be able to hear from you. The gentlelady from California, Mrs. 
Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, and good morning to 
everyone. On the issue of Medicaid, my entire public service 
has been--and previous to my service in the Congress was to 
strengthen it, to find ways to be smart in order to save 
dollars, afford people access to a much higher level of quality 
of care. In the county that I worked in we achieved that. We 
are still doing that. It became a model for the Nation.
    Now, here in the halls of the Congress, I think that this 
whole debate really needs to be placed in the context of both a 
moral audit of our budget and our priorities, as well as a 
values audit. We are going to talk about all the things that 
need to be done in order to come up with this $10 billion. Let 
me remind my colleagues--and this is not left, right, or 
center; it is a fact of our budget--we are spending a half a 
billion dollars a day in Iraq as we walk up and down the halls 
in the Congress. This is being driven by over a trillion 
dollars in tax cuts----
    Chairman Barton. The gentlelady needs to----
    Ms. Eshoo. [continuing] where there has been room made--I 
am not going to stay for the rest of it, Mr. Chairman, because 
I am not going to support the $10 billion cut. And the reason I 
am saying it is because we have, I believe, a moral deficit. If 
we are for----
    Chairman Barton. The gentlelady is 30 seconds over her 
time.
    Ms. Eshoo. If we are for correcting this and looking for 
smart ways to take care of people, I will be a part of it. But 
I think there is a real moral deficit in the Congress and in 
the budget, and I think it is an outrage.
    Chairman Barton. Okay. Does the gentleman from Georgia, Mr. 
Norwood, wish to make an opening statement?
    Mr. Norwood. Thank you, Mr. Chairman. I will waive my 
opening statement.
    Chairman Barton. Okay, the gentleman from New Jersey.
    Mr. Ferguson. I do, Mr. Chairman.
    Chairman Barton. The gentleman is recognized.
    Mr. Ferguson. Mr. Chairman, thank you for holding this 
hearing, and I will continue the committee's work toward 
reforming Medicaid. It has been said many times in this 
committee and elsewhere, Medicaid is broken, it is hemorrhaging 
money, it is simply unsustainable in its current form, and, 
quite frankly, it is not serving those it was designed to serve 
in the first place.
    Governor Mark Warner said this past April, ``Medicaid at 53 
million Americans is going to bankrupt all of the States, and 
indirectly, then, lead to further deficit problems at the 
Federal level and over the next decade.'' Our Governors 
recognize, Governor Warner recognizes that Medicaid is broken. 
It needs to be fixed. I look forward to their recommendations 
and their insights into what we can do to help make this 
program more efficient and more effective.
    Over the next 10 years Medicaid is slated to cost $4.5 
trillion. It is already surpassing elementary and secondary 
education in most State budgets. And I will say, Mr. Chairman, 
that the problems that we face in Medicaid and the needs that 
we have to reform Medicaid have little to do with tax cuts; 
they have little to do with tax relief. It has everything to do 
with the fact that it is a government program that is simply 
not serving those it is meant to serve. And those one-third of 
babies born today who are on Medicaid, the two-thirds of those 
in nursing homes today who are on Medicaid, it is simply not 
serving their needs. That is why this program----
    Chairman Barton. Gentleman's----
    Mr. Ferguson. [continuing] needs to be reformed.
    Chairman Barton. [continuing] time has expired.
    The gentleman from Michigan, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. I ask that my whole 
statement be made a part of the record.
    Chairman Barton. Without objection.
    Mr. Stupak. I just think the highlight in my State of 
Michigan, Medicaid accounts for 25 percent of the State's 
budget. The trouble in Michigan is an economy that is 
struggling to cope with a wave of manufacturing jobs being 
shipped overseas. Under Governor Jennifer Granholm growth in 
Medicaid spending has been held at a mere 1.5 percent per year, 
even though the Medicaid rolls have grown by 30 percent. That 
is evidence to me that Medicaid is flexible, and that Governor 
Granholm has done a great job of meeting this challenge.
    The proposal we are going to hear today from the Governors 
calls for more flexibility in setting premiums, co-pays, and 
benefits offered. I think we need to look very carefully at the 
consequences of these options. When Oregon increased its 
premiums, its rolls dropped by 50 percent. That is an alarming 
statistic. With an aging population and a weak economy, this is 
not the time to cut the safety net out from a population in 
need. So I hope we look very carefully at these proposals 
today. And with that, I will yield back my remaining 4 seconds.
    Chairman Barton. We thank the gentleman from Michigan. 
Gentlelady from California, Mrs. Bono, wish to make an opening 
statement?
    Ms. Bono. Thank you, Mr. Chairman. I will waive.
    Chairman Barton. Does the gentleman from Oregon wish to 
make an opening statement?
    Mr. Walden. Thank you, Mr. Chairman, I do.
    Chairman Barton. Gentleman is recognized.
    Mr. Walden. When I served in the Oregon legislature, I 
worked closely for a number of sessions on the creation of the 
Oregon Health Plan, an effort to expand Medicaid coverage to 
those who didn't have it by providing more preventive care and 
reaching out and trying to get the most use of the money so we 
could cover the most people. When we talk about this being a 
moral decision, I think it is.
    And, Mr. Chairman, your Oversight and Investigation 
Subcommittee has held numerous hearings on Medicaid issues, and 
clearly, there are areas that require our involvement to reform 
Medicaid. In some cases we found, for example, that Medicaid 
paid up to $5,336 for a drug that only costs a pharmacy $88 to 
acquire. That is a waste of $5,200 on one drug. Now, that is 
probably the worst example we found, but overall, we found that 
pharmacies' acquisition cost for generic drugs would be an 
average of nearly 66 percent below the average wholesale price. 
So, Mr. Chairman, I think there is room here, especially when 
Medicaid is still paying for drugs like Viagra for convicted 
sex offenders, to improve both the moral and fiscal standing of 
Medicaid. With that I return the balance of my time and ask 
that my full statement be entered into the record.
    Chairman Barton. Without objection, so ordered.
    Does Mr. Engel wish to make an opening statement?
    Mr. Engel. Yes, thank you, Mr. Chairman. Slashing funding 
to Medicaid is not a viable solution to greater budgetary 
problems. Just 2 years ago we gave States an additional $10 
billion and desperately needed FMAP funding. And this year we 
have been instructed in Energy and Commerce to cut Medicaid by 
$10 billion at a time when our citizens need it most. Medicaid 
was intended to be elastic to respond to our changing 
populations in time of need. Parts of the NGA proposal worry me 
because it advocates raising premiums, deductibles, and co-
payments, which could clearly make healthcare services 
unaffordable and out of reach for the Medicaid program's low-
income population.
    NGA calls it personal responsibility. But what about the 
low-income mother trying to care for her family by stretching 
her budget to cover housing, electricity, food, clothing, and 
now, increased cost-sharing and co-payments for medical care. I 
can assure you, these mothers are as familiar with personality 
responsibility and strapped budgets as any Governor in our 
Nation. I want to add my voice to those who say that the fact 
of the matter that tax cuts are a priority for this Congress 
and this Administration makes all the other funding 
unavailable. And the root of the problem with Medicaid are the 
tax cuts, as is the root of the problem--all the other programs 
that we don't have enough money to adequately fund. So I thank 
you, Mr. Chairman. I look forward to hearing our witnesses.
    Chairman Barton. We thank the gentleman. The gentleman from 
Idaho wish to make an opening statement? Gentleman from 
California, Mr. Radanovich, wish to make an opening statement?
    Mr. Radanovich. Thanks, Mr. Chairman. I waive.
    Chairman Barton. The gentleman from Texas, Dr. Burgess.
    Mr. Burgess. Mr. Chairman, in the interest of time, I will 
submit my statement for the record.
    Chairman Barton. All right. The gentlelady from North 
Carolina, Ms. Myrick.
    Ms. Myrick. No, I waive my time.
    Chairman Barton. Gentleman from Pennsylvania, Mr. Murphy.
    Mr. Murphy. Mr. Chairman, I will submit my whole statement 
for the record, but briefly, I just want to add that----
    Chairman Barton. The gentleman is recognized.
    Mr. Murphy. Thank you, sir. That with regard to this 
discussion, I am pleased that you are holding this hearing and 
the Governors are testifying, particularly because we need to 
change this discussion from who is paying to what we are paying 
for. What is incredible in America, our dirty little secret, is 
the amount of money we waste. And this has nothing to do with 
compassion. If we really want to talk about compassion, let us 
talk about what we waste. Every year in America from medical 
errors, every day in America, the number of deaths that occur 
is equivalent to a 747 flight going down. That is how bad it 
is. And a lot of these things are things Medicaid continues to 
pay for. If we have real compassion for our citizens, which we 
do, and I applaud the Governors for taking lead on it, let us 
stop the errors that are wasting money, that are causing 
deaths, that are causing more hospitalizations and more harm, 
and let us get down to the business of showing real compassion 
and fixing this for America. Thank you, Mr. Chairman.
    Chairman Barton. Okay. Gentleman from Maryland, Mr. Wynn, 
wish to make an opening statement?
    Mr. Wynn. Thank you, Mr. Chairman. I will waive at this 
time.
    Chairman Barton. Gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I appreciate your 
holding the hearing on Medicaid reform and, again, having the 
Governors here, because Governors certainly have a large stake 
in Medicaid reform and deserve a seat at the table. Without a 
voice today are the folks who undeniably have the single 
largest stake in the Medicaid reform, and they are the 
beneficiaries. The beneficiary who would be most affected by 
the National Governors Association roadmap, particularly its 
benefit-targeting and cost-sharing proposals.
    Medicaid was designed to provide healthcare to the most 
vulnerable populations that cannot afford healthcare, and 
frankly, do not have the means to share this cost. Faced with 
limited means and the cost-sharing requirements proposed by the 
NGA, Medicaid beneficiaries will likely avoid seeking necessary 
healthcare. The result would be poorer health outcomes, 
increased ER utilization, and increased uncompensated care that 
would drive up health costs for all Americans.
    In my State of Texas, the cost of treating the uninsured 
has caused the family insurance premiums to increase by $1,500 
in 2005. And make no mistake, Medicaid is the health insurer of 
last resort in our country, and if the NGA's Proposal takes 
away that safety net, then that population will go to our 
emergency rooms and continue to have uncompensated care. Mr. 
Chairman, I would like to have my full statement placed in the 
record.
    Chairman Barton. Without objection, so ordered.
    Gentleman from Ohio, Mr. Strickland.
    Mr. Strickland. Mr. Chairman, Medicaid serves over 50 
million low-income individuals per year, and that number 
continues to increase but at no fault of Medicaid, which 
actually provides services more cost-effectively than the 
private sector. The burden on Medicaid is increasing because 
people are losing their jobs, and therefore, their employer-
sponsored health insurance. The burden on Medicaid is 
increasing because our population is getting older, and the 
elderly need long-term care. It would be an injustice not to 
put the Medicaid debate into a meaningful context.
    We are searching for $10 billion of savings in a program 
that serves the poorest, and spending one-half billion dollars 
a day in Iraq with no end in sight. We should search our hearts 
as we make these decisions. We sit here with salaries of more 
than $150,000 a year. We have healthcare subsidized by the 
American taxpayer, and we are taking healthcare from the most 
vulnerable among us. It is a moral issue. Jesus said, ``As 
often as you have done it unto the least of these, you have 
done it unto me.'' I yield back.
    Chairman Barton. The gentleman's time has expired. The 
Gentlelady from California, Mrs. Capps.
    Ms. Capps. Thank you, Mr. Chairman, and welcome, Mr. 
Governor. Today we will hear proposals to change Medicaid. The 
advocates of these proposals will describe them as ways to 
improve Medicaid and expand its benefits. I heard this from the 
Budget Committee Chairman as well. Ultimately, the goal is to 
reduce costs. Reducing costs is a laudable goal, but only so 
long as it does not hurt the beneficiaries of the program. 
There are only two significant ways to cut costs in Medicaid: 
one is to kick people out of the program; the other is to 
eliminate covered benefits, which are already limited to 
services medically necessary. Medicaid beneficiaries are 28 
million poor children, 16 million poor working parents, 6 
million elderly and dying and disabled. They can't afford to 
pay more for healthcare. That is why they are on Medicaid. 
These approaches will add to the ranks of the uninsured. It 
will increase the amount of uncompensated care. Both are going 
to cost us a lot more in the long run. I yield back.
    Chairman Barton. Gentleman from Mississippi wish to make an 
opening statement? Okay. Gentleman from Maine, Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman. I note that page one of 
the report of the Governors recognizes that the Medicaid 
program is extremely cost-effective compared to private sector 
healthcare. We are at an historic crossroads. Just 2 years ago 
Congress approved a $10 billion FMAP increase. Now, we are 
facing a $10 billion cut to Medicaid, even as the number of 
uninsured in our country has risen to 45 million. Cutting 
Medicaid would have a devastating impact on the most vulnerable 
in our society. It will unravel an already fraying health 
safety net jeopardizing support for providers like hospitals, 
clinics, doctors, and health plans that serve low-income 
people. With Medicaid funding half the Nation's nursing home 
care, cutting or block granting the program would jeopardize 
the quality of care provided to seniors and people with 
disabilities in the Nation's nursing homes. Maine will lose $76 
million over 5 years if this $10 billion cut takes place. We 
need a better plan, and I hope you can help. Thank you.
    Chairman Barton. The gentlelady from Illinois, Ms. 
Schakowsky.
    Ms. Schakowsky. Let us at least be honest today. This is 
not about money and it is not about reform. It is about 
priorities. And in this richest Nation in the history of the 
world, poor people, the most vulnerable people, are clearly not 
a priority for the Republican majority. We are not forced to 
make these cuts. We are doing it at the same time as we are 
giving billions of dollars in tax breaks to the wealthiest. In 
fact a trillion dollars in tax breaks to the 52,000 richest 
families in this country by eliminating the inheritance tax, 
while we are asking more of those who are already paying more 
out of their income for healthcare than we who are sitting 
right here. That is the reform--that we are going to ask these 
most vulnerable of Americans to pay more for healthcare than 
they do already. If we want to talk about reform, let us talk 
about provider abuse, or let us talk about waste. But what we 
are really talking about today in large part is taking money 
out of the pockets of persons with disabilities, low-income 
children, and pregnant women. This is wrong. I think we should 
start over and come up with a real plan for reform for Medicaid 
that provides our poor people what they need. Thank you.
    Chairman Barton. We thank the gentlelady. Does the 
distinguished whip of the committee, Mr. Shadegg, wish to make 
an opening statement?
    Mr. Shadegg. I waive.
    Chairman Barton. The gentlelady from California, Ms. Solis.
    Ms. Solis. Thank you, Mr. Chairman, yes. I would like to 
commend you for having this hearing this afternoon, but I am 
also disturbed, because as you know, Medicaid provides 
healthcare coverage for over 50 million individuals currently. 
And 24 million of those are children. In fact one in three 
Latino children receives healthcare through Medicaid.
    While plenty of Americans live without health insurance, 
programs like Medicaid are often the only means and only source 
of protection for families and children. Medicaid is so vital 
for many Americans and especially Latinos, fastest growing 
population, 9 million Latinos receiving healthcare through 
Medicaid.
    We have all heard from our States about their cutbacks that 
they are proposing in their budgets. The impacts will be 
devastating on Medicaid, especially in the State of California. 
And at a time when States are seeing rising rates of Medicaid 
enrollment for children, we are proposing here to cut back. I 
think that is the wrong, wrong solution, and we need to come 
back at the table, organize, and make sure that we are more 
inclusive, and that we realistically allow for States like 
California that have been able to meet unmet needs in a way 
that is very innovative, that we should really look at that and 
use that perhaps as a model. Yield back the balance of my time.
    Chairman Barton. The gentlelady yields back the balance of 
time. Chair comments that her outfit is the most photogenic yet 
on the monitor. That pink looks very good on television. I 
wouldn't recommend it. Does the gentlelady from Tennessee wish 
to make an opening statement?
    Ms. Blackburn. Thank you, Mr. Chairman. Yes, I do, and I 
want to thank you for holding this important hearing. I also 
want to thank you for inviting my neighbors from Virginia and 
Arkansas, who are well aware of the many issues surrounding 
Tennessee. It is a decade-long Medicaid transformation, which 
is an expanded delivery system known at TennCare. And we have 
heard some about it this morning. And as you know, Tennessee is 
in the process of reducing our TennCare rolls by over 323,000 
individuals. This program is based on unattainable 
expectations, poor cost estimates, and it has proven to be too 
much for our State's budget to bear. It is now over one-third 
of our State's $26 billion budget. As I speak, the TennCare 
Bureau is mailing letters to enrollees throughout Tennessee 
notifying them of the dis-enrollment process. Having come from 
the State Senate in Tennessee to this position, I have all too 
familiar a working knowledge of the program.
    I thank the chairman for addressing the issue before States 
are forced to take some of the same steps as Tennessee. I also 
appreciate the work of the Budget Committee and the resulting 
Budget Reconciliation Agreement that has brought the issue to 
the forefront. Without addressing needed reforms, the future of 
Medicaid is ominous. As Governor Warner mentioned earlier this 
year, and I quote him, ``What is happening in Tennessee is a 
precursor to what is going to happen in every State in the 
country. It is just a matter of when.''
    Chairman Barton. The gentlelady's time has expired.
    Ms. Blackburn. Thank you, Mr. Chairman.
    Chairman Barton. The gentlelady from Wisconsin, Ms. 
Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. I welcome today's 
opportunity to talk about Medicaid. And against the backdrop of 
continuous and repeated criticisms of the program, some of 
which are unfounded, I think it is important that we take a 
moment to focus on what Medicaid actually is. Medicaid is a 
last resort that prevents millions of Americans from joining 
the ranks of the uninsured. It is a safety net.
    I also think it is important for us to remember that 
Medicaid truly serves a very low-income population. The current 
Federal poverty level for a family of four is $19,350 a year. 
This is not a population that has additional resources to be 
able to afford increased co-payments or other cost-sharing 
mechanisms. I can imagine nothing worse than having to decide 
between the health of your sick child or food for your family.
    Last, thank you, Mr. Chairman, for your earlier commitment 
to holding additional hearings on this topic that include the 
perspective of the beneficiaries.
    Chairman Barton. Does the gentleman from Michigan, Mr. 
Rogers, wish to make an opening statement? Okay. We are going 
to recognize Mr. Ross and give him additional time if he wishes 
to formally introduce his Governor to the committee.
    Mr. Ross. Thank you, Mr. Chairman. I would like to take 
this opportunity to thank the National Governors Association, 
the chairman-elect of the National Governors Association, 
Governor Mike Huckabee, from my own home State of Arkansas for 
being here with us today. Some people know this, some don't, 
but actually, not only are we from the same State, we are from 
the same hometown of Hope, Arkansas, both graduates of----
    Chairman Barton. Is everybody from Arkansas----
    Mr. Ross. [continuing] Hope High School.
    Chairman Barton. [continuing] from Hope, Arkansas.
    Mr. Ross. Well, there is about 10,000 of us, Mr. Chairman. 
Both graduates of Hope High School, although he graduated a few 
years before I did. We both worked at the same radio station 
growing up, and all I can figure out is while I was drinking 
from the water fountain by the library, he was drinking from 
the water fountain on the south side of the building because I 
am a ``D'' and he is an ``R'', but we do get along quite well, 
and I welcome him to the committee here today. When he finishes 
this term as Governor, he will be the longest-serving Governor 
at the current time in the Nation. And I had the privilege to 
get to know him when he was our lieutenant Governor and 
presided over the State Senate where I served for 10 years.
    I would like to take this opportunity not only to welcome 
Governor Huckabee here today but to point out to this committee 
that Medicaid program is absolutely crucial to our home State 
of Arkansas. Recent numbers show that there are 717,000 
Medicaid cases in our State. And, Mr. Chairman, to put that in 
perspective, that is one in five people in Arkansas that 
receive Medicaid. Over half the children in Arkansas are on 
Medicaid or have received Medicaid services in the last year, 
and close to 80 percent of Arkansas nursing home residents are 
paid for by Medicaid. I believe it is crucial that any changes 
or reforms to this program do not come at the expense of the 
necessary benefits that these individuals currently rely on. 
Any changes, any changes whatsoever that have the potential to 
shift these beneficiaries out of the program will only add to 
the number of uninsured and result in increased illnesses and 
higher healthcare cost.
    And with that, Mr. Chairman, I want to thank you for giving 
me the opportunity today to introduce my Governor from my 
hometown of Hope, Arkansas, Governor Mike Huckabee.
    Chairman Barton. We see no other member who is a member of 
the committee present. The Chair is going to conclude the 
opening statements. The Chair would recognize Dr. Gingrey of 
Georgia who is not a member of the committee, but has asked to 
sit in and observe the hearing. He is not going to be allowed 
to ask questions, but we are appreciative of his presence.
    We do want to welcome both of our Governors. We have 
Governor Huckabee of the great State of Arkansas and Governor 
Warner of the great State of Virginia. We are going to 
recognize Governor Huckabee first since he was here first, and 
then Governor Warner.
    I will say about Hope, Arkansas--I had a car break down in 
Hope, Arkansas on Bill Clinton Drive. I kid you not. And I went 
to the convenience store, and the lady that ran the convenience 
store took me to the auto parts store to pick up the part for 
the car and watched me try to fix it for 15 minutes and told me 
to get out of the way and she would fix it for me. And she did. 
And I told her that I was a Republican, and she said she didn't 
care. It was obvious that I didn't know what to do with my 
hands and she could make it happen. That is a true story on 
Bill Clinton Drive in Hope, Arkansas.
    Now, Governor Huckabee, we do recognize you, sir. We are 
going to recognize you for such time as you may consume, which 
we hope will be less than 10 minutes. We are going to set the 
clock for 10 minutes. After we hear your testimony, we will 
recognize Governor Warner; then we will start the questions. We 
understand that you, Governor Huckabee, have to leave by 12:45. 
So welcome to the Energy and Commerce Committee. Your statement 
is in the record in its entirety, and we recognize you to 
comment on it. You have to push the little button to turn the 
microphone on. No, it is right on your microphone there.
    Governor Huckabee. There we go.
    Chairman Barton. All right.

STATEMENTS OF HON. MIKE HUCKABEE, GOVERNOR, STATE OF ARKANSAS; 
       AND HON. MARK WARNER, GOVERNOR, STATE OF VIRGINIA

    Governor Huckabee. Maybe I need that lady that fixed your 
car to come turn this microphone on, Mr. Chairman. Mr. 
Chairman, thank you very much. And let me say a word of thanks 
to my friend, Congressman Ross from Arkansas. He and I do get 
along quite well, and it is a pleasure to work with him on 
issues there. From some of the comments it seems like Governor 
Warner and I and Congressman Ross and I get along a lot better 
than some of you guys do. Let me just say that.
    But we are here today to present some proposals from some 
of the National Governors Association that really do represent 
not an ending point, but a beginning point, for how we can 
improve the quality of healthcare to the neediest citizens. We 
are not here to see if we can make it more difficult for people 
to get healthcare. We are not here to see if we can cut people 
off the rolls. We are not here to see if we can hurt people. 
Let me assure you, the last thing on earth any Governor wants 
to do is to hurt the people he has been elected to serve.
    My wife and I participated in an activity for over two, 
almost 3 years where every single month we would go into the 
home and have dinner with a family who was on Medicaid. Why did 
we do that? Because we wanted to sit down and actually see and 
talk to them and ask them what problems do you have with the 
program? How would you fix it? How could you improve it? It was 
one of the most enriching experiences of our lives. The truth 
is, as a kid growing up, I wasn't many dollars away from being 
a person who would have been on Medicaid. The only reason I 
wasn't is because my parents were too proud to have accepted 
it. They would have wanted to pay something in in order to 
access it.
    Medicaid program is a great program. We are not here to 
criticize it. We are here to improve it. The fact is, it is a 
40-year-old program. Next month will mark its 40th anniversary. 
For 40 years it has been a safety net, but a lot has changed in 
40 years. 40 years ago the No. 1 song on the Billboard charts 
was the Beatles song ``Help'', probably a good anthem for today 
because that is why we are here, help. The top three television 
programs in America were ``I Love Lucy'', ``Hazel'', and 
``Bewitched''. The average family income was $5,900. A loaf of 
bread cost 21 cents. A gallon of gas cost 24 cents. A new 
Chevrolet cost $2,350.
    A lot has changed. Today, we are trying to run an MP3 
health program on a 45 RPM standard. And we need to make some 
changes. We are here to present to you some changes that have 
come as a result of meticulous, tedious, and often very 
delicate work of 50 Governors, in particular, some 10 Governors 
who have worked very diligently on a taskforce, both 
Republicans and Democrats. What is remarkable about our 
proposals is that these discussions are not simply the 
consensus or even the work of a majority; they are the work of 
the unanimous consent of both Democrat and Republican Governors 
representing the full ideological spectrum, but all of whom 
share this common conviction: while we all want to continue 
helping the people of our States, we all recognize that the 
program, as it is currently designed, as it is currently 
administered, is unsustainable. We simply are asking for the 
opportunity to improve it, to reform it, to make it better.
    There are 43 million Americans who don't have any coverage 
whatsoever. They are off the cliff. We want to make sure that 
with some reforms that we are presenting today, that it might 
be possible to better utilize the resources that you have and 
that we have so that rather than see how many people we can 
uncover, we can find creative ways to cover actually more 
people.
    My colleague, Governor Warner, who has been an outstanding 
leader not only of the National Governors Association, but also 
of this effort, will be addressing some of the larger, broad-
based concerns in a moment. But let me mention seven specific 
areas that I am going to touch upon ever so briefly that we are 
going to ask you to give us the opportunity to administrate.
    Now, I would like to remind you that a few years ago there 
was a real concern when Governors brought welfare reform 
proposals to Congress. The attitude was this will be a race to 
the bottom. It will be a disaster if we give Governors that 
flexibility. Although people will be poorer than they have ever 
been, they will be just ruined. But the proof is that after 
having implemented those flexibilities in the very kind of 
programs we are asking you to give us with Medicaid reform, 
more people are at work and fewer are on welfare, and we have 
actually improved a system that was a hopeless nightmare for so 
many, many Americans. We ask you to give us that same 
consideration, recognizing that there are clear divides here in 
Congress.
    But let me say emphatically we are not divided among the 
Governors. This is not simply a proposal that has strong 
majority presence among Governors and tepid acceptance on the 
part of the minority. This has unanimous support and strong 
support of all the Governors of all the States. That has not 
been an easy task to get us to that same place, and in part 
because Medicaid is not a program; it is 50 separate programs. 
And if there is one important message to get across to everyone 
across America is that it is not a one-size-fits-all. Every 
State plan is unique and different to that particular State. 
Even the reimbursements rates vary from State to State. And the 
components of what we consider to be the optional programs 
vary. That is why the reforms are delicate and difficult to 
come to. But these we have presented.
    First, changing the prescription drug aspect by making the 
program more transparent and insuring that whatever reforms we 
have are not at the expense of the local pharmacist, who, in 
many cases, is the only point of service health provider in 
rural communities. All stakeholders in the prescription drug 
pharmacy issue should have a stake in helping to reform it, 
including the pharmaceutical companies, as well as the 
pharmacist and the State government. But the system is 
hopelessly and irreparably broken because it is non-transparent 
and is a system of gaining in the pricing structure that makes 
it impossible to appropriately administer. Give us the tools 
that any CEO managing a healthcare program would ask for, to 
better price those prescription drugs. That is what we ask for. 
We don't ask for you to give us the ability to cut people off, 
but to manage the resources so that people are getting the 
drugs they need at a price that makes sense.
    Second, changes in the asset policy. There is a growing 
concern that many people are able, particularly those with 
great wealth because they can hire the best accountants and 
attorneys to shift their assets, to spin down and divest 
themselves so that they can become Medicaid eligible for long-
term care. There needs to be reforms in that.
    A third thing, modifying Medicaid's cost-sharing rules. I 
realize this is a sticky wicket for many. But let me assure you 
that many of our States have some serious evidence-based 
background in having some co-payment based on some services. We 
were able to actually reduce the number of uninsured children 
by more than 39 percent and lead the Nation, as a State of 
Arkansas, by expanding coverage to children but by having a 
very modest co-pay. We are not asking for families to have an 
undue burden. The burden would not exceed more than 5 percent 
of family income. What we have found--and, again, we have an 8-
year record to base it on--is that families welcome the 
opportunity to be able to have some stake in the game and a 
sense of pride. And in addition to that, more importantly, we 
have been able to contain some of the unusual utilization when 
people go needlessly to the emergency room instead of waiting 
the next day to the clinic like I have to do on my State health 
plan.
    The fourth is creating a benefit package flexibility. This 
simply allows States to perform targeted services in a more 
effective way.
    The next proposal deals with developing comprehensive 
waiver reform. Waivers are complicated, they are often 
convoluted, they sometimes mean that rather than to expand 
services or to operate more efficiently, we spend months if not 
years trying to get permission to do something that would make, 
frankly, your budget easier, but more importantly, would 
provide care to people who have nothing right now.
    A very important area is judicial reform. And, frankly, 
this is foundation and fundamental to virtually everything else 
we are going to ask for. Right now, if we make reforms in our 
State plan, chances are we are going to get sued. We will go to 
Federal court, and two things will happen: the first thing is, 
the Department of Health and Human Services will abandon us and 
leave us to our own, not even so much as filing a Friend of the 
Court Brief; and the second thing that happens, we lose the 
lawsuit. We need some opportunity to deal with both the consent 
decree issue for States, as well as being able to make sure 
that if the Federal Government gives us permission and 
authority to do something, they at least will stick with us 
when we are sued over having done what they agreed to support.
    And then to make some reforms in the way that the 
commonwealths and territories are created. Our colleagues who 
govern the territories are at an extraordinary disadvantage 
when it comes to the Medicaid program, and some of them are 
paying now as much as 80 percent of the cost, more than any of 
us as States, are paying. And while this is not a huge 
budgetary issue, it is a critical reform issue that needs to be 
addressed for the most vulnerable citizens of that State.
    Mr. Chairman, we welcome your questions and the opportunity 
to engage in the debate with you today and the discussion, but 
we certainly come primarily with a sense of anticipation, 
excitement, and real hope that you will hear from those of us 
who administer these programs in our States and knowing that it 
is not our intention to see if we can hurt people. It is our 
intention to see what we can do to help people that we do care 
for. Thank you.
    Chairman Barton. Thank you, Governor Huckabee. Before we 
recognize Governor Warner, we have a distinguished visitor with 
us today. Congressman Brown's daughter is with us from 
Brooklyn. She is a graduate of Swarthmore College; she is a 
union organizer; she speaks fluent Spanish; she is here today 
to help her father in some discussions with some Central 
American dignitaries. If Emily would stand up and let us 
recognize her. We are always glad to have talent on the dais, 
even when it is----
    Mr. Brown. Especially when it exceeds out.
    Chairman Barton. [continuing] behind us. We want to 
recognize you, Governor Warner. We appreciate the strong work 
you have done on this issue. You, I believe, headed the 
taskforce of the Governors on this and have spent quite a bit 
of time on it. Congressman Boucher is not here to formally 
welcome you to committee, but I know that he speaks very highly 
of you. And were he here, he would tell you what a great job 
you have been doing as Governor of Virginia. So we also 
recognize you for such time as you may consume. We have set the 
clock at 10 minutes.

                  STATEMENT OF HON. MARK WARNER

    Governor Warner. Thank you, Mr. Chairman, and I will try 
not to take that full 10 minutes so that we can get into the 
question discussion. Let me also apologize for being a bit 
late. Your colleagues on the Senate side kept me a little bit 
longer with some questions. We have been doing this tag-team 
effort today. And let me start by thanking my colleague and 
partner in this effort, Mike Huckabee, although, after hearing 
Mr. Ross' comments, is it actually the case if you are from 
Hope as well and Mike Huckabee--is every Arkansas elected 
official from Hope, Arkansas----
    Chairman Barton. That was what I asked before you got here.
    Governor Warner. But Mike Huckabee has been a great 
partner, and I want to reinforce what he has already said. This 
has been a long process to get to this document. We have had, 
literally, over 35 Governors and/or their Medicaid directors 
actively engaged in putting this document together. And none of 
the other Governors--while some of the others haven't fully 
participated--no one has opted out. So we truly do have a 
bipartisan proposal before you. It is a proposal that we all 
recognize is geared at making not only Medicaid more efficient, 
but also making sure that those Americans, both on Medicaid and 
equally important, those 45 million Americans without 
healthcare and those Americans on the edge who still have some 
form of health insurance that may be on the verge of being 
dropped onto the Medicaid rolls have a more efficient system.
    Now, let me just again--Mike mentioned what he and Janet 
have done. Let me just put a little bit of my very briefly 
personal background. Before I became Governor, long before I 
was even involved in politics, one of the things I am proudest 
of, I started a healthcare foundation in Virginia back in 1992 
when there were a million Virginians without healthcare, 
public/private initiative. We have helped 600,000 Virginians 
get healthcare. Great success story. Problem is, 2005, 13 years 
later, we still have a million Virginians without healthcare. 
So grappling with this issue is something that is terribly 
important.
    Well, one of the things that I have been proudest of is 
during my tenure as Governor, we have taken our State, which 
had one of the worst records of signing up children for 
children's health insurance and aggressive changed the way we 
enlisted kids. We have actually even lowered the co-pays and 
eliminated in some case on this initiative. And now, we are up 
to 97 percent of our eligible kids being signed up and have 
recognized by Kaiser as--during the budget trough as one of the 
most effective States.
    But even with those actions I want to echo what my 
colleague has already said; Medicaid as it is currently 
structured is not sustainable over the long haul, and we must 
find ways to improve the program. In Virginia in 1990 the 
Commonwealth was spending $1 billion on Medicaid expenditures. 
Into this budget cycle we are going to be spending $5 million. 
Now, I wouldn't mind that fivefold increase if we had actually 
substantially improved coverage or improved the quality of 
care. But too many times, unfortunately, we have not improved 
coverage or substantially increased payments to providers or 
expanded services. So we believe, as Governors--and let me give 
you a couple starting points since--when we started on the 
Senate side I started with the broad overview.
    First, we believe this debate should be policy-driven and 
not budget-driven. And that has been the bipartisan consensus 
of the Governors. We strongly continue to appose caps or a 
block granting of this program. This is a Federal-State 
partnership that should continue. But we do recognize that we 
are going to need some additional efficiencies, that we are 
going to need some additional flexibility. Governor Huckabee 
went through some of the specific items.
    Again, in terms of framing the problem very briefly, 
Medicaid expenditures now--and we went back and forth with some 
of your Senate colleagues on this--combined State and Federal 
Medicaid expenditures in aggregate outpace education 
expenditures, K-12. In some States, I believe Missouri, 
Tennessee, we are looking at 30, 33 percent of total State 
expenditures being driven on Medicaid. We in Virginia are down 
still about 15 percent because we are a very, very low 
reimbursement State. But we can see the increase lines.
    And why is this happening? Well, we have seen, obviously, 
that Medicaid is increasingly serving a number of low-income, 
frail seniors, people with mental and physical disabilities. 
And this population, while it is only about 25 percent of our 
total caseload, drives about 70 percent of the costs.
    Dual eligibles, one of those cost shifts that has kind of 
taken place over years, now make up about 42 percent of total 
Medicaid spending. We have seen increase in caseloads, and we 
are proud of the fact that we have upgraded our SCHIP program 
and what Mike has done with his program covering kids in 
Arkansas. But we are also seeing a series of other cost shifts 
going. We are seeing increasing numbers of employers decide to 
no longer provide health insurance, and in some cases, actually 
encouraging their workers to go on Medicaid rolls.
    And in terms of long-term care, as Governor Huckabee 
mentioned, we cannot continue to be--with the baby-booming 
generation heading toward retirement--Medicaid cannot continue 
to be the single-largest by a manyfold factor provider of long-
term healthcare insurance for, in some cases, two-thirds of our 
senior population.
    So what we have laid out for you today is kind of a dual 
approach. And this is a starting point, let me make clear, not 
the ending point. Medicaid reform cannot be done in isolation 
as if it is some island inside the healthcare system. We have 
to look at this in an overall context. But at least in the 
short-term, not only in terms of some of the efficiency or 
reforms we are talking about, but we also think they need to be 
coupled with certain areas of reinvestment and certain other 
areas where we can prevent increasing populations from falling 
upon the Medicaid rolls. And let share with you some of those 
in fact non-Medicaid-related goals.
    First--and I know folks on both sides of the aisle talk 
about this repeatedly, but it is my hope, as somebody who has 
spent 20 years in the technology industry, that we can move 
from talk to action, that we can finally bring the power of 
information technology to our healthcare system. It is 
remarkable in 2005 that we still don't have electronic medical 
records, that we have not used the efficiencies that IT have 
brought to every other sector of our economy, to the, what, 14, 
15 percent of our economy that is made up in healthcare.
    Second, we are open to looking at what we hope would be 
Federal tax credits for employers and employees, particularly 
on the employer side for small business, to create at least 
some modified benefit package that can be available on the 
private insurance side so that folks on that margin that either 
fall in the uninsured category or are about to fall in the 
uninsured category can have some form of private health 
insurance that they can purchase. And we think we ought to be 
looking at stretching a little bit on purchasing pools and 
other tools to get the aggregate numbers we will need to 
provide health insurance for these individuals who otherwise, 
through no fault of their own, may fall upon the Medicaid 
rolls.
    And third, we must change the whole framework on the long-
term care debate. And part of that means changing the mindset 
of young folks when they start thinking about buying health 
insurance or life insurance, that they also purchase long-term 
care insurance. We would, again--I know that there is proposals 
on the House side, there are proposals on the Senate side to 
look at tax credits for incentives to purchase long-term care 
insurance. We support those.
    We are also looking at other tools so that we can both with 
carrots and sticks look at this asset transfer issue in a 
broader context. At least in Virginia, we don't know how much 
of this, in an abuse way, is going on. But we do know it is 
kind of an all-or-nothing situation where too many middle-class 
adults are finding ways to perhaps dispose of Mom and Dad's 
assets before they go into a nursing home so they can be 
eligible for Medicaid. We have got to think about it in a 
different way. One of the things we are putting forward, for 
example, is the notion of reversed mortgages, reversed 
mortgages with an ability to keep at least some equity in your 
home that could be passed on to your heirs and perhaps use some 
of that other equity that has been built up to actually provide 
in-home care or other non-nursing home type care.
    These are all tools that we think we need to move forward 
on outside of the kind of four walls of Medicaid if we are 
going to at least take a step toward making sure that this 
reform effort is really not budget-driven simply, but is 
actually policy-driven and driven at the goal of improving the 
quality of healthcare for our most vulnerable citizens. Thank 
you, Mr. Chairman.
    [The prepared statement of Hon. Mike Huckabee and Hon. Mark 
Warner follows:]

 Prepared Statement of Governor Mark R. Warner, Chairman and Governor 
      Mike Huckabee, Vice Chairman, National Governors Association

    Mr. Chairman and distinguished members of the Energy and Commerce 
Committee. Thank you for requesting that we testify today on ways to 
address the significant challenges confronting the Medicaid Program. 
Today we are releasing a preliminary policy paper that outlines the 
recommendations of the National Governors Association for Medicaid 
Reform. The recommendations represent work by eleven governors on a 
Medicaid Working Group with additional input by most governors, 
including their Medicaid Directors. These recommendations are 
preliminary in that we will continue the working group over the next 
year so that we can complete our work and provide Congress and the 
administration with further clarifications of our policy as well as our 
further recommendations. We also look forward to working with the 
Medicaid Commission and have offered Secretary Leavitt the NGA Center 
for Best Practices to assist him in the Commission's work.
    It is also important for us to stress the fact that we see today's 
release of policy recommendations as the beginning, not the end, of the 
process. We hope that both your committee and your staff will be 
willing to work closely with NGA and the working group governors as you 
develop policies to make the nation's public health insurance programs 
more efficient, accountable, and responsive. Given that this working 
group will continue, it will be able to not only provide you with more 
detail on our recommendations, but also comment on alternative 
approaches you wish to discuss.

                              THE PROBLEM

    It is difficult to overstate the impact of Medicaid on state 
budgets. It now represents about 22 percent of the average state budget 
and is a larger percentage than all elementary and secondary education. 
If you add health care spending for state employees and other programs, 
state health care spending totals about one-third of all spending, and 
is equal to spending on all education--elementary, secondary and 
higher.
    The problems of Medicaid are three fold. First is that the Medicaid 
program is increasingly serving populations with very serious and 
expensive health care needs. Low-income frail seniors, people with HIV/
AIDS, ventilator-dependent children, and other individuals with serious 
mental and physical disabilities represent only about 25 percent of the 
Medicaid population, but account for more than 70 percent of Medicaid's 
budget. The average cost of providing health care to seniors and people 
with disabilities is more than six times the cost of providing care to 
pregnant women and children. Medicaid provides expensive chronic care 
and long-term care services that are largely unavailable anywhere else 
in the health care system. Meanwhile, those who are dually eligible for 
both the Medicare and the Medicaid Program account for 42 percent of 
total Medicaid spending. Demographic trends suggest that these cost 
pressures will continue to increase.
    Second, the caseload has increased 40 percent over the last five 
years. While much of this growth has been in the relatively healthy 
populations of pregnant women, children, and families--an influx of 15 
million beneficiaries in a five year period presents a fundamental 
challenge to states.
    The caseload has been rising as the percentage of people under age 
65 covered by employer-sponsored health care is falling dramatically. 
At first this was due to declines in U.S. economy, but it has continued 
as the economy recovered because fewer of the new jobs being created 
offer health insurance. Small businesses in particular are finding it 
increasingly more difficult to afford health insurance for their 
employees. Families that are losing coverage are concentrated among 
low-income individuals primarily below 200 percent of poverty.
    The population of seniors and people with disabilities, who already 
account for 70 percent of Medicaid's $330 billion annual budget, will 
grow considerably over the next 20 years. Specifically, the over age 65 
population will grow 64 percent, by 2020 and the over age 85 population 
will grow 3.1 percent per year over the next two decades. The 
Congressional Budget Office estimates that over the next ten years, 
growth in the elderly and disabled populations will comprise 
practically all of the Medicaid caseload growth.
    However, since Medicaid is the primary safety net, unless something 
is done, the case load will continue to grow in the high single digit 
rate and perhaps even higher over the next two decades as increasing 
costs shift individuals from private coverage to Medicaid, or to the 
growing ranks of the uninsured.
    The third problem is that the consumer price index for health care 
has been increasing 2 to 3 times the average price index. Medicaid, 
like all insurers, has been faced with these rising costs. It is the 
combination of these problems--caseload growth and health inflation--
that makes Medicaid unsustainable in the short-run let alone the long-
run.

                               THE VISION

    The policies that are outlined in our paper do not represent 
comprehensive health care reform. Medicaid, however, is inextricably 
linked to the rest of our health care system and its payers. 
Consequently, the scope of our paper is wider than the existing 
Medicaid program as it focuses both on populations that may become 
Medicaid eligible as well as some underlying cost drivers in the 
overall health care system. In terms of Medicaid itself, this paper 
offers important short-term reforms that will help modernize, 
streamline, and strengthen this vital program.
    The recommendations to make Medicaid more efficient and effective 
were not developed to generate any particular budget saving number. 
Instead, they were developed as effective policies that would maintain 
or even increase health outcomes while potentially saving money for 
both the states and the federal government.
    The non-Medicaid recommendations had three goals. First, to 
increase quality and health outcomes by applying modern technology and 
accountability to our health care system. Second, to develop 
alternative, more effective policy tools that would assist individuals 
and employers to obtain and maintain private health insurance as 
opposed to having these individuals become Medicaid eligible. Third, to 
improve financing and delivery of long-term care by developing 
incentives for quality private long-term care insurance products, 
community-based care, innovative chronic care management, and 
alternative financing approaches. Specific health care policies are 
organized around four objectives:

1. Reforming Medicaid
2. Enhancing quality and containing costs in the overall health care 
        system
3. Strengthening employer-based and other forms of private health care 
        coverage
4. Slowing the growth of Medicaid long-term care

                           REFORMING MEDICAID

    The paper outlines several areas of reform which gives states 
additional flexibility to streamline their programs.
    1. Prescription Drug Improvements. The current system is flawed and 
must be replaced. A number of policy changes must be enacted that will 
help decrease costs and improve quality and efficiency of care. The 
goal of reducing both state and federal expenditures will require 
policy changes that impact all segments of the pharmaceutical 
marketplace, including (but not limited to) increased rebates from 
manufacturers, reforms to the Average Wholesale Price (AWP), policies 
that increase the use and benefit of more affordable generic drugs, and 
tiered, enforceable co-pays for beneficiaries. States must have 
additional tools to properly manage this complicated and critical 
benefit.
    2. Asset Policy. While Medicaid remains a vital source of long-term 
care coverage for many individuals who cannot receive that care 
elsewhere, there is growing concern that many individuals are utilizing 
Medicaid estate planners or other means in order to shelter or transfer 
assets and therefore qualify for Medicaid funded long-term care 
services. Medicaid reform must include changes that increase the 
penalties for inappropriate transfers, restrict the types of assets 
that can be transferred, and encourage reverse mortgages, as well as 
other policies that encourage individuals and their families to self-
finance care rather than rely on Medicaid.
    3. Cost Sharing. Medicaid's cost-sharing rules, which have not been 
updated since 1982, prevent states from utilizing market forces and 
personal responsibility to improve health care delivery. These 
provisions should be modified to make Medicaid look more like the State 
Children's Health Insurance Program (SCHIP), where states have broad 
discretion to establish (where appropriate) enforceable premiums, 
deductibles, or co-pays. As in SCHIP, there should be financial 
protections to ensure that beneficiaries would not be required to pay 
more than 5 percent of total household income (no matter how many 
family members are enrolled in Medicaid) as a critical balance to this 
proposal. For higher-income households (for example, those above 150 
percent of the federal poverty level), a 7.5 percent cap should be 
applied.
    4. Benefit Package Flexibility. Medicaid's populations are very 
diverse, ranging from relatively healthy families and children to the 
frail elderly, to individuals with serious physical and developmental 
disabilities. The types of services and supports needed by these 
populations are quite different, yet the Medicaid benefits package 
remains ``one-size-fits-all.'' Many states have found that the 
flexibility built into the SCHIP program allows for greater 
efficiencies without compromising quality of care. Extension of this 
flexibility to services for appropriate Medicaid populations would 
allow states to provide more targeted services while managing the 
program in a way that prevents sweeping cuts in the future.
    5. Comprehensive Waiver Reforms. Waiving various portions of the 
federal Medicaid statute has become the norm--rather than the 
exception--for states. Reforms are needed to increase efficiency and 
reduce costs, increase the ease with which states obtain current 
waivers, expand the ability to seek new types of changes, and change 
the federal statute to eliminate the need for many waivers altogether.
    6. Judicial Reforms. The right of states to locally manage the 
optional Medicaid categories is clearly defined in both policy and law, 
and the federal government should remove legal barriers that impede 
this fundamental management tool. Also, U.S. Department of Health and 
Human Services officials should have to stand by states when one of 
their waivers is questioned in the judicial system and should work with 
states to define for the judiciary system that any state has a 
fundamental right to make basic operating decisions about optional 
categories of the program.
    7. Commonwealths and Territories. The federal Medicaid partnership 
with U.S. commonwealths and territories has become increasingly 
unbalanced over a period of years, to the extent that some of the 
jurisdictions are financing over 80 percent of their Medicaid costs, 
and many of the Medicaid expansions such as transitional medical 
assistance are not available. The imbalance affects quality of care 
issues and creates increased financial stress. Medicaid reform needs to 
include a review of the current relationship and the development of a 
pathway that moves to a rebalancing of this partnership.
 enhancing quality and reducing costs of the overall health care system
    We must increase the efficiency, productivity and quality of the 
entire health care system and believe that states are able to tailor 
solutions unique to their cultures, institutions and health care 
markets, but large enough to experiment with system wide reform. 
Accordingly, Congress should establish a National Health Care 
Innovations Program to support the implementation of 10 to 15 state-
led, large-scale demonstrations in health care reform over a three- to 
five-year period. States would serve as the lead entity for these 
demonstrations, but they would have to partner with the private sector. 
Some of these demonstrations would be for statewide provider networks 
while others would be for networks in major metropolitan areas. Using 
information technology to control costs and raise quality would be a 
core objective of these demonstrations. The financing of these 
demonstrations should not come at the expense of Medicaid funding.
  strengthening employer based and other forms of health care coverage
    Governors recommend a federal refundable health care tax credit for 
individuals as well as an employer tax credit for small employers. 
There is also a recommendation for the federal government to fund state 
alliances or purchasing pools which in combination with individual tax 
credits and the utilization of the S-CHIP benefit package for 
additional populations should also help create more competition in the 
health care marketplace. Finally, there is a recommendation to develop 
a catastrophic care/reinsurance model to address unsustainable ``legacy 
costs.''

             SLOWING THE GROWTH OF MEDICAID LONG-TERM CARE

    The paper includes a number of recommendations on assisting 
individuals in the purchase of long-term care insurance through the use 
of federal tax deductions and credits as well as by enacting long-term 
care partnership legislation. Finally, there are recommendations to 
address home- and community-based care and chronic care management.

            STATE CONTRIBUTION TO THE MEDICARE DRUG BENEFIT

    While Medicare beneficiaries have some guarantees, that on January 
1, 2006 the Medicare program will begin in providing them with a drug 
benefit, states do not have the same guarantee that the fiscal burden 
will be lifted.
    In some states, contrary to clear congressional intent, the phased 
down state contribution (clawback) provision will actually cause states 
to spend more in Medicaid. In addition to their mandatory clawback 
payment, some states will also face increased costs from the 
administrative burdens of the new law.
    Mr. Chairman, let me again thank you for the opportunity to appear 
before you. The nation's Governors look forward to working with you 
closely to begin the process of reforming the Medicaid program. As 
currently structured it is unsustainable.
                                 ______
                                 
                            Medicaid Reform

      A PRELIMINARY REPORT FROM THE NATIONAL GOVERNORS ASSOCIATION
                             JUNE 15, 2005

    Medicaid is the nation's largest health care program, providing 
health and long term care services to 53 million low-income pregnant 
women, children, individuals with disabilities and seniors. It is a 
vital health care safety net and provides important services to those 
who can get care from no other source. Medicaid coverage has also 
played a critical role in reducing the number of the uninsured, 
currently estimated at 45 million nationwide.
    Medicaid spending, however, has increased dramatically over the 
last five years driven by a 40 percent increase in caseload and a 4.5 
percent per year increase in the health care price index, strengthening 
the impetus for reform. Comprehensive Medicaid reform must focus both 
on reforming Medicaid and on slowing both the number of low-income 
individuals and elderly becoming eligible for Medicaid. Medicaid will 
always have an important role as the health care safety net, but other 
forms of health care coverage must be strengthened to ensure Medicaid's 
financial sustainability. Enhancing the quality of care and containing 
costs are also critically important. Governors believe that Medicaid 
reform must be driven by good public policy and not by the federal 
budget process.

The Vision
    The policies that are outlined in this paper do not represent 
comprehensive health care reform. However, the scope is wider than the 
existing Medicaid program as it focuses both on populations that may 
become Medicaid eligible, as well as some of the underlying cost 
drivers in the overall health care system. In this sense it can be 
viewed as Medicaid plus health care reform. The various policies that 
are recommended are linked by a number of themes that underline this 
reform package. First, there are a number of incentives and penalties 
for individuals to take more responsibility for their health care. 
Second, moving to a more flexible benefit package for non elderly, non 
disabled Medicaid populations as well as for individuals who gain 
access through the individual health care tax credit will reduce costs 
while increasing total access. Third, the creation of state purchasing 
pools, that would use the combined leverage of public programs 
(offering a common S-CHIP-type benefit package) and individuals using 
the health care tax credit should strengthen the ability of small 
purchasers to gain more competitive rates in the health care 
marketplace. Fourth, technology and other state innovations are focused 
on reducing the long-run costs. Fifth, there are a number of policies 
designed to reduce reliance on Medicaid coverage. Finally, the paper 
includes a number of potential short-run policy changes as well as 
long-run structural changes that will improve the US health care 
system.
    Specific health care policies are organized around these five 
objectives:

1. Reforming Medicaid
2. Enhancing Quality and Reducing Costs in the Overall Health Care 
        System
3. Strengthening Employer-Based and Other Forms of Private Health Care 
        Coverage
4. Slowing the Growth of Medicaid Long-Term Care
5. State Contribution to the Medicare Drug Benefit

1. Reforming Medicaid
    Medicaid now covers 53 million Americans and the program is 
expected to spend a total of $329 billion in combined state and federal 
funds in 2005. While the Medicaid program is extremely cost effective 
compared to private sector health care, the existing program structure 
is inflexible and the benefits are not necessarily consistent with the 
needs of the various populations. This paper focuses on both short-run 
flexibilities that could help states realize incremental savings and a 
major restructuring that would be necessary to make the program 
sustainable over the long-run.

Long Term Restructuring
    Although Medicaid is the largest health care program in the nation, 
generalizations about the program are difficult to make, because it 
operates so differently in each of the states and territories. In 
addition, Medicaid is even more complicated than 56 different programs, 
because within each state, Medicaid plays a number of very distinct 
roles while serving a number of very distinct populations.
    Medicaid essentially has three major functions:

 It provides comprehensive primary and acute care coverage for 
        everyone who is eligible for the program (low income children, 
        parents, seniors, and people with disabilities);
 Some Medicaid beneficiaries also qualify for comprehensive long term 
        care services, depending on their needs; and
 Medicaid also helps finance services for people with chronic and 
        disabling conditions such as HIV/AIDS, severe mental illness, 
        and MR/DD. Each of these populations relies on Medicaid for 
        support that they cannot receive elsewhere, and Medicaid 
        restructuring must consider their unique needs and 
        circumstances.
    Although Medicaid does serve these three major roles, it also 
serves other functions such as a source of funding for uncompensated 
care in hospitals, and as a supplement to Medicare for low-income 
beneficiaries for whom it pays cost sharing and wraps around for 
various services in addition to long-term care.
    Medicaid is serving many roles in the health care system. All of 
these roles could be improved upon by a greater focus on wellness and 
health promotion as opposed to simply ``sick-care'' treatment. These 
goals can be achieved by relying more heavily on care management and 
coordination.

 For low-income, but relatively healthy individuals who rely on 
        Medicaid as a health insurance product, Medicaid should be 
        transformed into a more mainstreamed, S-CHIP type program that 
        could be coordinated with state and federal tax credits.
 For individuals with disabilities who have no other recourse than to 
        rely on Medicaid, reforms should encourage more consumer choice 
        and benefit packages that improve the quality of their care 
        where possible, but not jeopardize their stability of care.
 A new national dialogue is needed to confront the issues of an aging 
        population and the potential sources of funding for end-of-life 
        care. The easiest solution may be to incorporate long-term care 
        services into Medicare, but an alternative approach could be to 
        link long-term care funding to Social Security, or broader 
        pension reforms or other changes to solidify the link between 
        personal responsibility and end-of-life care.
    What is clear is that Medicaid can no longer be the financing 
mechanism for the nation's long-term care costs and other costs for the 
dual eligibles. Approximately six million Americans are dually eligible 
for full Medicare and Medicaid benefits, and another one million 
receive financial assistance to cover out-of-pocket costs, such as co-
payments and deductibles. These individuals represent a small portion 
of Medicaid's 53 million person caseload, and despite the fact that 
they are fully insured by Medicare, they still consume 42 percent of 
all Medicaid expenditures. Compared to other Medicare beneficiaries, 
dual eligibles are sicker, poorer, more likely to have chronic health 
conditions, and at higher risk for institutional care.
    The details of this restructuring, however, are beyond the scope of 
this paper. The nation's Governors will continue to work on this issue 
and will be providing further detail.

Short-Run Flexibilities
    A. Prescription Drug Improvements--States and the federal 
government have long suspected that Medicaid overpays for prescription 
drugs. The President's budget proposes to set federal ceilings on the 
prices that states pay for prescription drugs. The proposal would 
change the current system, whereby states purchase drugs based on the 
Average Wholesale Price (AWP). States have long been concerned that 
manufacturers have been inflating this number and that Medicaid has 
therefore been overpaying for drugs for many years. The President's 
proposal would establish a new price target for states, the Average 
Sales Price (ASP) that would be defined by law, subject to Federal 
audit, and lower than AWP. States would be allowed to reimburse 
pharmacies no more than ASP plus six percent (to account for dispensing 
fees and other costs) for all generic and brand name drugs.
    Governors believe that the burden of reducing Medicaid expenditures 
for prescription drugs will require a multi-prong approach and should 
include savings proposals that affect both drug manufacturers and 
retail pharmacists, as well as increase state utilization management 
tools that decrease inappropriate prescribing and utilization. It is 
critical that states maintain and enhance their ability to negotiate 
the best possible prices with the industry.
    There may be benefits of using ASP or other calculations as a 
reference price, because increased transparency of drug costs can serve 
to decrease total costs, especially if there is more flexibility with 
respect to dispensing fees (they should not be tied to a percentage of 
the cost of the drug dispensed, for example.)
    This proposal should be modified in several ways:

 Increasing the minimum rebates that states collect on brand name and 
        generic prescription drugs to ensure lower total costs that 
        would not solely impact pharmacists nor create disincentives to 
        provide generic drugs where appropriate. Medicaid's ``Best 
        Price'' provision should not be eliminated in exchange for 
        this;
 Requiring that ``authorized generics'' be included in the Medicaid 
        rebate calculations. An authorized generic is a brand product 
        in different packaging that some manufacturers distribute 
        through a subsidiary or third party at the same time that a 
        true generic is launched by a generic manufacturer. This 
        product is essentially a brand product at a cheaper price, but 
        it violates the Hatch-Waxman 180 day exclusivity protection for 
        generic manufacturers, and because CMS does not include these 
        products in the Medicaid rebate calculations, it results in 
        hundreds of millions of dollars in lost revenue for state 
        Medicaid programs.;
 Forcing discounts on the front end of drug purchases rather than 
        waiting an average of six months (not including dispute time) 
        to receive rebates;
 Using closed formularies to drive beneficiary utilization and 
        decrease costs similar to those that will be used by Medicare 
        Part D plans;
 Giving states additional tools such as tiered co-pay structures to 
        encourage greater utilization of generic drugs;
 Enacting stronger sanctions (including criminal penalties) for 
        companies and individuals that fail to accurately report ASP 
        (or whatever new methodology is adopted);
 Allowing states to join multi-state purchasing pools and to combine 
        Medicaid with other state-funded health care programs to 
        improve leverage; and
 Allowing managed care organizations to access Medicaid rebates 
        directly for the Medicaid populations that they serve.

B. Asset Policy--
    Asset Transfers. There is concern that many individuals are 
utilizing Medicaid estate planners in order to shelter assets and 
therefore qualify for Medicaid funded long term care services. Examples 
of such estate planning approaches include:

 Sheltering assets in trusts, annuities and other financial 
        instruments that are then deemed as ``not available to the 
        Medicaid beneficiary;''
 Converting ``countable assets'' under the law into ``exempt assets''; 
        and
 Transferring assets through joint bank accounts or other means to 
        close relatives.
    Under current law, when an individual applying for Medicaid has 
transferred assets within the three year ``look-back'' period, the 
amount of those transfers are used to calculate a period of 
ineligibility for Medicaid. This period of ineligibility is determined 
by dividing the total amount of the assets transferred by the average 
monthly cost of nursing home care in a given service area. For example, 
if an asset worth $40,000 is transferred during the look-back period 
and the average costs of nursing home care is $5,000 per month, then 
the individual would be subject to an eight-month waiting period to 
receive Medicaid eligibility. This period of ineligibility, however, 
begins on the date of the actual transfer of the asset, and by the time 
the person actually applies for Medicaid, that period has often 
expired.
    The President's budget proposes to change the rules regarding 
penalties for individuals who transfer assets in order to become 
eligible for Medicaid long term care. The proposal would begin that 
penalty period on the date that the individual enters the nursing home 
or becomes eligible for Medicaid, whichever is later.
    This approach should be encouraged and a number of other similar 
approaches should be explored around assets transfers to prevent estate 
planners from simply moving to alternate schemes. Other approaches to 
address inappropriate transfers could include:

 Increasing the look-back period from three years to five years (or 
        longer);
 Limiting the amount and types of funds that can be sheltered in an 
        annuity, trust or promissory note
    In all cases, these changes should be federal requirements, 
although there should be ability to ``opt-out'' of the federal 
guidelines if the state can prove that existing policies would meet the 
intent of the law. Furthermore, there should be some resource 
threshold, e.g., $50,000 and indexed in future years, below which 
assets transfers would be exempted, as well as policies in place to 
protect individuals with dementia or others at risk of being exploited.
    While this approach should provide some savings by preventing 
inappropriate transfers, state officials will need many more tools in 
order to fully address the growing long-term care crisis in the 
Medicaid program. Many of these other approaches are addressed in the 
long-term care section below.
    Reverse Mortgages. This is another tool that could help prevent 
individuals with considerable assets from depending upon Medicaid. 
According to the U.S. Census Bureau, 81 percent of seniors own their 
homes and 73 percent own them free and clear. This represents $1.9 
trillion in untapped home equity that is currently exempted from 
Medicaid's eligibility calculations. According to the National Council 
on Aging, 48 percent of America's 13.2 million households age 62 and 
older could get $72,128 on average from reverse mortgages, and ``in 
total, an estimated $953 billion could be available from reverse 
mortgages for immediate long term care needs and to promote aging in 
place.''
    This proposal would create an incentive and a new allowance for 
individuals to pursue reverse mortgages in order to pay for long-term 
care services (in addition to private long term care insurance, which 
is currently allowed). Any person who obtained a reverse mortgage under 
this proposal would be able to shelter $50,000 (or some other 
appropriate amount that would be indexed to inflation) in equity from 
their house without incurring penalties. Other incentives to encourage 
reverse mortgages should be contemplated. Broader use of reverse 
mortgages would be both an effective way to reserve Medicaid funding 
for those who have truly exhausted all of their other means, and a way 
to provide more consumer-directed options for seniors to choose from in 
developing their own long-term plan of care. The number of individuals 
currently on Medicaid who own their own homes is relatively small and 
this proposal would not likely affect them, so immediate savings would 
be limited. However, the major impact of this proposal would come from 
restraining the future growth of the program and in fostering a greater 
sense of personal responsibility with respect to end of life financial 
planning.
    Other similar approaches could include requiring some form of 
family contribution to the costs of long-term care. Similar methods of 
``deeming'' family income are utilized by states in their child support 
systems and might not be difficult to implement for Medicaid. In any 
case, provisions should be made to allow individuals to pass along some 
portion of their assets/resources to family members without incurring 
penalties. This would allow the balancing of both the needs of an 
ownership society with the responsibility of family to provide for the 
care of their loved ones.
    C. Cost Sharing--Current law prohibits co-payments for some 
populations; for some services like family planning and emergency care; 
restricts co-pays, where allowed, to a maximum of $3; and ultimately 
treats cost sharing as unenforceable if the beneficiary cannot or will 
not pay. These rules, which have not been updated since 1982, prevent 
Medicaid from utilizing market forces and personal responsibility to 
improve health care delivery.
    A new vision for cost-sharing should make Medicaid look more like 
S-CHIP, where states have broad discretion to establish any form of 
premium, deductible, or co-pay for all populations, for all services, 
and could make them enforceable. As in S-CHIP, financial protections to 
ensure that beneficiaries would not be required to pay more than 5% of 
total family income (no matter how many family members are in Medicaid) 
are a critical balance to this proposal. For higher-income households 
(for example, those above 150% FPL) a 7.5% cap could be applied, as 
under the current HIFA waivers.
    States would have broad latitude to waive these types of cost-
sharing for any populations or services that it determines would be 
negatively impacted by such policies. The purpose of increased cost 
sharing is not to restrict access to necessary medical care, but to 
allow individuals to contribute to the costs of their own health care 
as much as possible. These new policies would be monitored and 
evaluated heavily and if the evidence shows that increased cost-sharing 
harms appropriate access, the policies should be revised.
    D. Benefits Package Flexibility--The Medicaid program is viewed as 
the health care program for the poor, but it neither serves all poor 
people, nor are all of the beneficiaries below the federal poverty 
level. Medicaid's populations are very diverse, ranging from relatively 
healthy families and children to the frail elderly, to individuals with 
serious physical and developmental disabilities. The types of services 
and supports needed by these populations are quite different, yet the 
Medicaid benefits package remains ``one-size-fits-all.''
    Many states have found that the flexibility built into the SCHIP 
program allows for greater efficiencies without compromising quality of 
care. Extension of this flexibility to services for appropriate 
Medicaid populations would allow states to provide more targeted 
services while managing the program in a way that prevents sweeping 
cuts in the future.
    Medicaid reform should include the ability to offer a different 
level of benefits, using S-CHIP as a model, to certain Medicaid 
beneficiaries, such as those for whom Medicaid serves as a traditional 
health insurance program. This discussion extends beyond the 
traditional distinction between ``mandatory'' and ``optional'' 
populations, which are arbitrary distinctions when it comes to the need 
for health care services. This would include an improved ability to set 
benefit limits and cost sharing amounts, do employer buy-in programs, 
eliminate retroactive eligibility periods, and establish different 
benefit packages for different populations or in different parts of the 
state. Medicaid can be improved by focusing more on improving health 
outcomes rather than adhering to a sometimes-arbitrary list of benefits 
mandates (that are often the result of effective lobbying by provider 
interest groups).
    Many relatively healthy kids and families are technically 
mandatory, and many of the optional populations, such as the Medically 
Needy, are among the frailest in the program. Reform must therefore 
acknowledge that there are people served by Medicaid that need a 
comprehensive package of benefits. For more medically fragile 
populations, changes in the benefit package should be made to encourage 
more chronic care management and other services that can improve health 
outcomes and reduce costs.
    E. Comprehensive Waiver Reforms--Waiving various portions of the 
federal Medicaid statute has become the norm, rather than the exception 
for states. HHS officials routinely describe that they consider 
thousands of state waivers every year. Yet, despite all this action, 
states must still jump through significant hoops in order to make 
relatively minor changes to their Medicaid programs, and often, major 
changes are simply outside the scope of the current waiver authority. 
Reforms are needed to increase the ease with which states get current 
waivers, expand the ability to seek new types of changes, and change 
the federal statute to eliminate the need for many waivers altogether.
    The most commonly waived portions of the Medicaid statute are those 
requiring that beneficiaries have ``freedom of choice'' of provider, 
and that services be comparable, statewide, and consistent with respect 
to amount, duration, and scope.

 The federal statute should change to reflect these commonly waived 
        and antiquated provisions by allowing states to innovate in 
        these areas through the state plan amendment process.
 Similarly, 1915(b), 1915(c) and PACE waivers should be administered 
        through the state plan process, not waivers. It is critical in 
        this scenario that these waivers retain the basic protections 
        of the waiver, such as the ability to control costs and 
        utilization common to the 1915(c) waivers. The state plan 
        amendment process should include check boxes for typical waived 
        items so that States could continue to target these services on 
        the issues of comparability, statewideness, and amount, 
        duration, and scope. States would realize cost savings because 
        services would be implemented sooner and States would reduce 
        administrative costs associated with waiver development, cost 
        effectiveness/budget neutrality, reporting, and the waiver 
        amendment/renewal process.
 In addition, streamlining the waiver process for all states that 
        choose to pursue larger reforms and innovative programs would 
        be a helpful improvement.
 Allowing states to easily receive approval to try an approach already 
        tested successfully in other states would be one improvement.
 Automatically converting a waiver to a state plan after the first 
        renewal would be another, as would a consistent 5 year 
        approval/renewal period.
 Many promising innovations in Medicare/Medicaid integration or care 
        coordination are never implemented because of outdated notions 
        of siloed budget neutrality requirements. The requirement for 
        budget neutrality should be waivable at state option and the 
        statute should also allow for states to consider savings to the 
        Medicare and other federal programs when considering the impact 
        of Medicaid changes.
 States that wish to make substantial improvements to their Medicaid 
        programs may find that some portions of the statute are not 
        waivable at all. States should be allowed to apply for 
        ``superwaivers'' that envision much broader changes than can be 
        achieved under the current 1115 waiver structure. Such waivers 
        should allow states to develop effective programs that meet the 
        unique needs of their citizens.
    The State of Arizona has operated its Medicaid program, the Arizona 
Health Care Cost Containment System (AHCCCS), through a Section 1115 
waiver, since the inception of Arizona's participation in Medicaid in 
1982. There are many lessons to be learned to reduce costs from 
Arizona's experience. All Medicaid eligible persons are enrolled into 
managed care plans that AHCCCS contracts with using competitive bidding 
to maximize market forces. Market forces drive quality while holding 
down costs. Several states have demonstrated success with this model, 
and others should look to it to contain costs.
    F. Judicial Reforms--The right of states to locally manage the 
optional Medicaid categories is clearly defined in both policy and law, 
and the federal government should remove legal barriers that impede 
this fundamental management tool. To that end, Congress and HHS should 
authorize states to rightfully make basic operating decisions about 
optional categories of the program.
    Federal judicial actions have sometimes become a means by which the 
judicial branch makes decisions about Medicaid programs that should be 
left in the hands of state elected officials and competent program 
managers. If the management of the Medicaid program is being handled in 
a manner that is consistent with legislative and congressional intent, 
the court system should not become involved.
    These court actions sometimes conflict with the policy positions of 
state and local officials and go beyond addressing the specific problem 
that was the basis of the initial lawsuit. These court actions fit into 
two broad categories:

 Consent decree cases
 Court decisions based on a specific case that have an adverse affect 
        on the state Medicaid program as a whole
    These court decisions can remain in place for decades and 
institutionalize the policies of elected officials who have long since 
left office. For example: Arkansas cannot make any change in fees paid 
to physicians without going back to court to remain in compliance with 
a consent decree entered into between the state and the Arkansas 
Medical Society in 1993. These court actions also create an environment 
where state time and resources that could be spent on the greater good 
of the whole program go toward reducing the impact of the specific 
court decision.
    Federal reforms are needed to constrain the broad ability of 
judicial decrees in Medicaid cases that clearly impede state innovation 
and reform. In a time of shrinking resources and growing demand it is 
not realistic to ask states to manage these complex programs with court 
decrees overriding sound management decisions.
    These court decisions and the subsequent legal actions that follow, 
increase administrative costs and divert valuable resources that could 
be far better spent on services to clients.
    G. Commonwealths and Territories--The federal Medicaid partnership 
with U.S. commonwealths and territories has become increasingly 
unbalanced over a period of years, to the extent that some of the 
jurisdictions are financing over 80 percent of their Medicaid costs, 
and many of the Medicaid expansions such as transitional medical 
assistance are not available. The imbalance affects quality of care 
issues and creates increased financial stress. Medicaid reform needs to 
include a review of the current relationship and the development of a 
pathway that moves to a rebalancing of this partnership.

2. Enhancing Quality and Controlling Costs in the Overall Health Care 
        System
    America's current health care system is ripe for improvement and 
states are ready to take the lead in helping drive change. States are 
small enough to tailor solutions unique to their cultures, institutions 
and health care markets, but large enough to experiment with systemwide 
reform. States can also partner effectively with health care providers, 
insurers, and purchasers to lead large scale pilot projects.
    We must increase the efficiency, productivity, and quality of our 
entire health care system, which will increase the opportunities for 
reasonable coverage expansions. Like welfare reform a decade ago, 
states can play a lead role in driving this transformation through 
demonstration projects in partnership with the private sector.
    Accordingly, Congress should establish a National Health Care 
Innovations Program to support the implementation of 10 to 15 state-led 
large-scale demonstrations in health care reform over a 3-to-5-year 
period. Using information technology to control costs and raise quality 
would be a core objective of these demonstrations. States would serve 
as the lead entity for these demonstrations, but they would have to 
partner with the private sector. Some of these would be for statewide 
provider networks while others would be for networks in major 
metropolitan areas. They would focus on:

 deploying information and communications technology, including 
        interoperable electronic health records (EHRs) accessible to 
        all participating providers and patients, to improve services;
 improving quality of care, including disease prevention and 
        management, through establishment of evidence-based practices, 
        measuring outcomes, and pay-for-performance programs;
 using innovative strategies to cover many of the Americans who 
        currently lack health benefits;
 empowering consumer choice through price transparency, quality 
        reporting, and financial incentives; or
 reducing malpractice incidents and improving adjudication of 
        malpractice claims.
    Each demonstration project would be selected through competition 
and encouraged to demonstrate multiple innovations. All projects would 
need to emphasize the goal of increasing cost-effectiveness and, to the 
extent possible, improving health care quality.
    For a more comprehensive discussion on this issue, see the NGA 
white paper on health care reform demonstration programs.
    The financing of any of these solutions should not come at the 
expense of Medicaid funding.

3. Strengthening Employer-Based and Other Forms of Private Health Care 
        Coverage
    Between 2001 and 2003, the proportion of Americans under the age of 
65 covered by employer-sponsored health care dropped from 67 percent to 
63 percent. While some of this reduction could be cyclical due to the 
economic downturn, many argue that the increase is more structural, as 
the U.S. economy is becoming more service and small business oriented 
and more competitive in the ever more global marketplace. Several 
policies could assist in reducing the number of individuals losing 
health care coverage. The financing of any of these solutions should 
not come at the expense of Medicaid funding.
    A. Individual Health Care Tax Credit--A refundable tax credit could 
be developed that would be available to all low-income individuals 
below some income threshold, e.g., $3,000 for a family of four with 
incomes below $25,000, which is phased-out at income levels of $60,000. 
This credit would be a premium subsidy that could be paid directly to a 
health care plan by the U.S. Department of the Treasury. Unlike the 
trade assistance program that targets unemployed workers, eligible 
workers that could receive tax credits could have their employers 
deduct payments from wages and send them directly to the U.S. Treasury 
who would combine those funds with the tax credit, confirm eligibility, 
and forward the payment directly to the health plans.
    To increase the use of the tax credit, the federal government could 
also mandate presumptive eligibility so that individuals would have to 
opt out as opposed to opting into the system. It is critical that this 
subsidy be set at the appropriate level. If it is too low, there will 
be few individuals who could use it; and if it is too high, then it 
would be an incentive for businesses to stop providing employer-paid 
health care. It is also critical that the level have the appropriate 
relationship with any credit for small employers. The credit would be 
available for all individuals who meet the income criteria and are not 
participating in an employer-paid or public program. Individuals who 
qualify for both Medicaid and the tax credit would be able to choose 
between the two. States should also be allowed to enhance the tax 
credit. One option would be to allow states to use disproportionate 
share funds for the enhancement.
    Because this is a refundable tax credit it is reflected in the 
federal budget as an outlay as opposed to a reduction in revenues. This 
opens up the potential option for the states to apply for a waiver that 
would allow the funds to come directly to the states based on a plan 
that would maximize health care access. For example, the Michigan Third 
Share program, which has equal amounts paid by employers, employee, and 
government, could utilize these funds for the government share. Such a 
waiver option would allow individual states to tailor the funds to 
their unique labor force and health care marketplace. Such a tax credit 
also equalizes tax treatment of all individuals with regard to health 
care. This tax credit can also be designed to allow individuals to buy 
into the S-CHIP benefit or to otherwise require that the credit only be 
viable when used to purchase some basic, threshold benefit, as defined 
by the state. It is difficult to determine how many individuals would 
use a tax credit of this nature.
    B. Employer Tax Credit--A new employer tax credit would be 
developed for small firms, i.e., up to 100 workers. The employer tax 
credit would be about $200 per individual or the amount necessary to 
make the federal contribution necessary to enact this policy the same 
as that necessary to enact the individual tax credit. The policy 
rationale is to equalize the tax treatment between the individual tax 
credit and the employer-based tax credit. Unlike the Administration's 
proposal, it would not be restricted to employer contributions to 
Health Savings Accounts. The employer tax credit would be restricted to 
only workers below a given wage rate. The amount of the credit, the 
targeting, and the relationship to the individual tax credit are key in 
order to support the employer-based system, as opposed to providing 
incentives for employers to reduce coverage. Also, the state should be 
able to designate the minimum benefit package to be eligible for the 
tax credit. This credit would be reflected as a reduction in revenues 
to the federal government.
    C. State Purchasing Pools--The federal government would make grants 
to states to create state purchasing pools. In the past, states have 
experimented with purchasing pools, but most have failed because they 
were never large enough to avoid risk-selection and ended up becoming 
high risk pools that were subsidized. Specifically, there was a 
financial incentive for healthy individuals to obtain their insurance 
outside the pool. Currently, the Federal Employees Health Benefit 
Program (FEHBP) and the small firm purchasing alliance in California 
(now called Pac Advantage) are existing purchasing pools. Permitting 
states to develop an SCHIP benefit package for their non-disabled, non-
elderly Medicaid population, and including the same benefit package for 
the individual health care tax credit, should allow them to create a 
large enough pool (mostly in metropolitan areas) to negotiate effective 
rates.
    To avoid adverse risk, states should be allowed to mandate that 
both populations be part of the purchasing pool. States will need the 
discretions to design their purchasing pools. This will include health 
plan qualifications, underwriting, rating rules, and enrollment rules. 
The pool could be the mechanism for Medicaid women and children, SCHIP, 
state employees, COBRA options, and the tax credit as well as any 
private firm, particularly small business that purchases health care in 
the state. This could have the added benefit of stabilizing the 
individual and small group market. Such a large pool could also 
maximize consumer choice. The President's budget includes this 
proposal.
    D. Catastrophic Care/Reinsurance Model to Address Unsustainable 
``Legacy Costs''--Numerous employers in the U.S. have been consistent, 
reliable partners with their employees on health insurance coverage, 
yet their ability to continue providing this coverage to retirees 
(``legacy costs'''), current employees, and their families--amidst 
rising national health care costs--is becoming a distinct competitive 
disadvantage. Catastrophic care, chronic diseases, and serious 
illnesses contribute significantly to the overall cost of health care 
and should be addressed. While more attention and resources must be 
focused on wellness and disease management programs as well as best 
practices to ensure quality care, some bold options that offer uniquely 
American solutions for our American legacy cost challenges are needed. 
The following are two concepts to consider--one that is employer pools 
and another that is insurance pools. A hybrid could also be considered.
    One option is to create a reinsurance pool whereby employers and 
other payers would be reimbursed by the federal government for part of 
the cost of catastrophic medical bills of their employees. To be 
involved in this program, employers could be required to provide health 
care coverage equivalent to a benchmark plan to all of their employees 
and/or provide preventive and disease management programs to better 
manage care and improve quality and care.
    Another option to explore more fully is a national ``Healthy Mae,'' 
as Senator Frist refers to it. The senator believes that a ``Healthy 
Mae'' model, fashioned after Fannie Mae, would help insurers more 
broadly share risk, reduce administrative costs, and create a vibrant 
secondary market for health insurance just as the U.S. has done for 
home mortgages. Potentially a publicly-chartered private insurer, 
``Healthy Mae'' could help create a big secondary market for health 
insurance and would reduce the financial burden on employers when their 
workers' medical bills rise above a certain threshold. ``Healthy Mae'' 
would be designed to give buyers access to a more stable insurance 
market--which presumably would feature lower rates that could keep more 
people covered.

4. Slowing the Growth of Medicaid Long-Term Care
    Medicaid has quietly over the years become the nation's largest 
payer of long-term care services, funding approximately 50 percent of 
all long-term care spending and nearly two-thirds of all nursing home 
residents. With the anticipated demographic changes, the potential 
liability for future long-term care costs can only grow. While Medicaid 
reforms over the past twenty years have focused on improving the long-
term care benefit (eliminating the institutional bias, encouraging 
consumer-directed care, etc), new efforts need to focus on how to 
encourage personal responsibility and discourage the reliance on 
Medicaid financed long-term care. Ultimately, a new national dialogue 
is needed to confront the issues of an aging population and the 
potential sources of funding for end-of-life care.
    The following two policies could help slow the growth of elderly 
enrollment in Medicaid.
    A. Tax Credits and Deductions for Long-Term Care Insurance--
Currently, about 28 states provide deductions or tax credits for long-
term care insurance. The federal government currently allows tax 
deductions for the purchase of insurance, but only if the premium 
amounts exceed 7.5 percent of an individual's adjusted gross income. 
Only 11 percent of the population age 65 and older and 8 percent of 
those between ages 55 and 64 have a long-term care policy in effect.
    The potential impact of deductions and tax credits is very 
different, since they impact quite different income groups. The 
deduction is more effective in stimulating the purchase of long-term 
care insurance since it is more valuable to younger, higher-income 
individuals in higher tax brackets. Because these individuals may allow 
policies to lapse and because they are less likely to enroll in 
Medicaid, they do not provide the maximum possible relief to Medicaid 
per lost dollar in federal tax revenues. On the other hand, tax credits 
can be better targeted to lower-income individuals who have a higher 
probability of becoming Medicaid eligible. This will lead to more 
relief in Medicaid spending. A December 31, 2001 report by ABT 
Associates indicated that Medicaid saves $1.16 and $2.67 respectively 
in 2025 and 2050 for every dollar lost due to federal tax credits. Tax 
deductions do not break even. A combination of a significant tax 
credits, e.g., $2,000, and a small deduction, e.g., $200, might be the 
most effective in lowering Medicaid costs. States, through their 
capacity as regulators of insurance, set minimum standards and other 
guidelines for any such policy that could be obtained through the tax 
credit.
    The Treasury should also develop some mechanism so that individuals 
can receive the credit when they pay the premium to avoid the long 
delay between payment and reimbursement via annual tax submissions. Tax 
credits are particularly effective to the federal government as well as 
states due to the potential Medicaid savings. Because this credit 
focuses on the very expensive population in long-term care, potential 
Medicaid savings are significant. The federal government may also want 
to mandate that all firms who provide 401(k) and other pensions provide 
an option to convert a portion of an annuity into long-term care 
insurance. This tax credit would be reflected as a revenue reduction in 
the federal budget. As of 1998, there were $9.5 trillion in qualified 
retirement plans, some portion of which could ultimately be used for 
long term care financing.
    B. Long Term Care Partnerships--Four states (California, 
Connecticut, Indiana, and New York) have been operating promising 
partnerships between Medicaid and the long-term care insurance 
industry. Although their approaches differ, the basic concept is that 
individuals who purchase private insurance and exhaust its coverage 
would be allowed to access Medicaid and still protect some of their 
assets. There are two basic approaches that the four states utilize--
the dollar-for-dollar model and the total asset protection model. In 
the dollar-for-dollar model, beneficiaries are able to keep personal 
assets equal to the benefits paid by the private policy. In the total 
asset model, all assets are protected after a threshold for years of 
coverage has been crossed, typically three or four years. In both 
cases, Medicaid becomes the payer when the partnership policy benefits 
are exhausted. States are projected to realize savings because Medicaid 
becomes the payer of last resort, not the first.
    Federal law prohibits the expansion of these partnerships beyond 
those four states, but 17 states have passed enabling legislation 
allowing them to begin such a program should the federal prohibition be 
repealed, and several others are currently exploring that option. While 
long-term care partnerships do not promise a silver bullet for 
Medicaid's long-term care crisis, they can be a key part of the 
solution, and therefore all states should be allowed to participate.
    In addition to tax treatment and other incentives for the purchase 
of long term care insurance, there are ways to improve the delivery of 
long term care services for individuals who remain covered by Medicaid. 
Those include both increasing the focus on home and community-based 
alternatives to institutional care as well as strengthening the chronic 
care management components of both Medicare and Medicaid.
    C. Improving Access to Home and Community-Based Care. The long-term 
care policies advocated by NGA should also include reforms to the 
Medicaid program that produce better health outcomes for beneficiaries 
and result in greater efficiencies for both the federal government and 
states. Such reforms should give states more tools to encourage home 
and community-based care and could include the elimination of the 
requirement for a waiver for home and community based care as discussed 
in the section on waiver reforms and in the current NGA policy on Long 
Term Care (HHS-28).
    D. Improving Chronic Care Management. The long-term care policies 
advocated for by the Governors should include reforms that encourage 
better care for the chronically ill populations in Medicaid. Although 
this is a small population, they demand a large portion of the 
available resources. States should be rewarded for program improvements 
that produce savings for both Medicaid and Medicare, particularly 
through improved chronic care management, by sharing savings evenly 
with states in the form of enhanced FMAP on a year-to-year basis. 
States should have the authority to provide financial incentives for 
care management methods that save money and improve outcomes outside of 
the targeted case management benefit.

5. State Contribution to the Medicare Drug Benefit
    The Medicare Prescription Drug, Improvement and Modernization Act 
of 2003 (MMA) was designed to deliver a federal pharmacy benefit to 
Medicare beneficiaries. It was also designed to ease state Medicaid 
programs of their responsibility for providing pharmacy benefits to 
those eligible for both the Medicare and Medicaid programs--the dual 
eligibles.
    While Medicare beneficiaries have some guarantees that on January 
1, 2006, the Medicare program will begin providing them with a drug 
benefit, states do not have the same guarantee that their fiscal burden 
will be lifted. In some states, contrary to clear congressional intent, 
the Phased-Down State Contribution (clawback) provision will actually 
cause states to spend more in Medicaid in fact, a handful of states are 
projecting that they will never see any financial relief in 
prescription drug costs from the MMA than they would have in the 
absence of the law. In addition to their monthly clawback payments, 
states will also face increased costs from the administrative burdens 
of the new law. While state Medicaid programs operate with 
administrative costs far below those of private insurers, states have 
been forced to trim their program overhead even further in order to 
protect scarce resources for the care that their beneficiaries need. 
Tracking, calculating, and reporting clawback payments, as well as the 
other duties that resulted from the MMA, present substantial new 
administrative tasks [as well as potential costs] for Medicaid 
programs.
    Integrating Medicaid's coverage with the drug coverage provided by 
the separate prescription drug providers will be a difficult 
undertaking for states. The clawback provisions should not be a further 
financial burden on states as they work to focus on the coordination of 
care that is central to the spirit of the Medicare Modernization Act.

    Chairman Barton. We thank you, Governor. The Chair is going 
to recognize himself for the first 5 minutes of questions. 
Because we have so many members here, which is a good thing, 
the Chair is going to be fairly strict about the 5-minute rule.
    Just so that we make sure we understand the main points, I 
would like either Governor Huckabee or Governor Warner to 
summarize the main, principal recommendations of your report, 
just, you know, one, two, three, four, five. Either one of you.
    Governor Huckabee. Mr. Chairman, the first one is dealing 
with the prescription drug improvements primarily to make the 
system more transparent. The current system is based on an idea 
of average wholesale price. It really is built on acquisition 
cost plus a dispensing fee; then, there is a rebate that is 
given back to the States, which States negotiate. The whole 
issue of an average wholesale price is a complete misnomer. It 
is neither average nor wholesale. It is a complete fabrication. 
No one knows what the real drug costs are, and there is no real 
capacity or authority of the States to negotiate best price. 
Our State attempted to that, got sued, and lost. That is one of 
the issues----
    Chairman Barton. I hate to stop a Governor in mid-sentence, 
but my time is limited. So your first recommendation is just to 
change the drug pricing system----
    Governor Huckabee. Yes.
    Chairman Barton. [continuing] do you have a specific 
recommendation or just that it needs to be changed?
    Governor Huckabee. Well, no, sir, it is in the full context 
of what we have given in the 13-page document that----
    Governor Warner. Let me just add on this very briefly on 
the drug pricing issue, and it is obviously enormously complex. 
We feel that some of the initial proposals, particularly that 
came from the Administration, disproportionately put the issue 
of the savings coming out of the hides mostly of local 
pharmacists. We think it ought to be--if there are going to be 
savings it ought to be borne by not only the pharmacists in 
terms of the dispensing fee, but it also ought to be dealt with 
a little bit by Pharma.
    We ought to also look at stronger policies to incent 
generic use. We ought to look as well, for example, one of the 
things the Governors are concerned about, and well, this backs 
into the Medicare drug benefit, and I know that folks don't 
want to revisit that, but we have States like Virginia that, 
through our use of a preferred drug list, have negotiated, for 
example, $35 million worth of savings. We have negotiated a 
better price than we are going to be able to have under the new 
drug benefit. And with the ``clawback'' provision, we are going 
to not get those benefits.
    Chairman Barton. Right. Well, I agree with that. In fact I 
have asked that the Pharmacy Association to come up with a 
drug-pricing plan that they are supposed to give to me in the 
next 2 weeks. So No. 1 is drug pricing. What is your second 
general recommendation?
    Governor Huckabee. Let me skip down to the issue of 
judicial reform because without it, none of these others 
probably will work anyway because we will be tied up in court 
trying to get them dealt with. We would ask that Congress and 
the Health and Human Services authorize the States statutorily 
to make some basic operating decisions about components of the 
program. We need that authority in statutory law because right 
now, every time we try to make any type of changes, whether it 
is done through an 11.15 waiver or whatever, we end up getting 
sued. We are in a protracted court battle, we lose, and what 
could have been a modest cost can become an extraordinary cost. 
We are looking for assistance in that and also a reform to the 
idea of consent decrees, which sometimes can last as long as 20 
years and four Governors and administrations down the road.
    Chairman Barton. Okay.
    Governor Warner. We are looking as well--I mean, we raised 
the issue, for example, on asset transfer both looking at 
tightening rules on asset transfers in terms of look-backs, for 
example, but also balancing that with an approach on reversible 
mortgages that would allow some equity being passed on and tax 
incentives, tax credits to look at the purchase of long-term 
care. We see those as a coupling, for example.
    Chairman Barton. Okay.
    Governor Huckabee. We would mention the cost-sharing rules. 
Once again, it is not in order to deny benefits to people, but 
so that people could be empowered and have some sense of 
personal responsibility in the benefits that they receive. 
Again, a limitation with a capitation on how much they would 
actually have to spend.
    Chairman Barton. So cost-sharing means some sort of an 
increased co-pay?
    Governor Huckabee. Right.
    Chairman Barton. Okay. That is four. Are those the main 
ones?
    Governor Warner. No, I think we have also looked at a 
modified benefit package. Now, again, we recognize that if 
inappropriately implemented, this could--particularly for 
mandatory populations--cause enormous concern. But what we have 
seen with--I think the benefit, for example, of some of the 
SCHIP programs, if we can find a modified benefit package that 
could be applied in a quasi-Medicaid role, particularly to some 
folks who are on the verge of falling onto Medicaid, we could 
substantially move the ball forward. But we need some 
flexibility there.
    Chairman Barton. Okay. My time is about to expire, so I 
have got one final question. What sort of mechanism do you want 
to establish with this committee as we move toward legislating 
on this in September? How do we communicate with the Governors? 
Through you two or is a there a taskforce or----
    Governor Warner. We have a taskforce, Mr. Chairman. We 
would ask that you communicate through us and then our staff 
who has worked very diligently. We have not only NGA staff, but 
a whole group of Medicaid directors who will be happy to work 
with your and your staff. Again, what we are, as--particularly, 
the Medicaid directors, these are the folks on the frontline 
have to implement whatever policy change you bring about. They 
are critically important to this process, and I think it would 
be a great value to you as you put together your legislation.
    Chairman Barton. And my final question, does the National 
Governors Association support Federal legislation this year on 
Medicaid?
    Governor Huckabee. Yes, sir.
    Governor Warner. We recognize that at least in terms of the 
budget reconciliation, you have gotten numbers out there, 
although some of your Senate colleagues were indicating that 
they thought that not all of those dollars needed to 
necessarily come from the Medicaid program----
    Chairman Barton. I am not asking a specific number, but 
Governor Huckabee said you do. Governor Warner----
    Governor Huckabee. We look forward--we recognize we are 
going to have to see some changes in the Medicaid program----
    Chairman Barton. I take that as a yes?
    Governor Huckabee. Yes, sir.
    Chairman Barton. Okay. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Governor Huckabee, 
thank you. Governor Warner, thank you for joining us. Governor 
Warner, when you became Governor of Virginia, you took over an 
SCHIP program that simply wasn't working very well. Virginia 
had at that point premiums of $15 per child up to $45 per 
family per month on SCHIP recipients. Those premiums seemed to, 
from your later actions--it was believed those premiums cost 
thousands of kids to lose coverage. When you took office you 
eliminated the premiums; you referenced earlier that was one of 
your proudest accomplishments since more children were covered. 
So I think this--in my mind it shows two things; one, that 
cost-sharing, even on relatively higher-income people in SCHIP 
quickly cause people to fall into the ranks of the uninsured; 
and second, because of the changes you made on the other end if 
you will, simplifying eligibility, reducing co-pays, you were 
successful in getting a lot more needy children in the program. 
I think you recognized that cost-sharing by your actions could 
be a barrier to participation. Given that experience, I wonder 
why you are now lending your support to a policy of cost-
sharing for children even below the poverty level. This is the 
group we most want to reach. This is also the group that costs 
the States the least to cover than any other. I don't think 
anyone blames children because they don't cost much typically--
blames children for the budget problems of Medicaid. Explain to 
me why, in light of your experience and your policy changes and 
your success in Virginia, explain to me why you are supporting 
this policy.
    Governor Warner. Let me try to explain that. First of all, 
we found a program that was clearly not working in Virginia. We 
made not only the changes in terms of co-pays, but I think more 
important, the changes in terms of co-pays were some of the 
regulatory changes we made in terms of the administrative 
burden that a family had to go through in terms of signing up 
for our famous program, our SCHIP program, or our Medicaid 
circumstance. It was not a problem of co-pays, I don't think, 
driving people away; it was a problem of we had such 
administrative hurdles to get folks signed up in the first 
place, we thought they needed to be signed up. We have done 
that; 97 percent of the kids have signed up.
    I think looking at the co-pay issue, for example, the fact 
that on certain Medicaid populations we are looking at $1 to $3 
maximum co-pay that hasn't changed since the early 1980's. I 
believe even a Congressional study has seen that moving those 
slightly up to the $3 to $5 range or in that parameter makes 
some sense. I am open to that. I am also open to some modified 
co-payment scale if there is, for example, a misallocation, a 
mis-utilization of how people access the healthcare system. You 
know, I have seen the different studies out there. I can tell 
you in Virginia I am not sure we know how much misuse of, for 
example, the emergency room is. We have made some changes 
there. For example, we don't reimburse if folks go into the 
emergency room and the hospital determines it is not an 
emergency room warranted visit. We only reimburse them at a 
doctor office level as opposed to an ER visit. These kind of 
tools, which I think help diminish any potential misuse of the 
system are terribly important.
    I also think the notion of some minimal increase in co-pay, 
particularly in that $1 to $3 range that has been not changed, 
to my understanding, since the early 1980's bears 
consideration.
    Mr. Brown. So why did you eliminate the $15 up to $45 per 
family----
    Governor Warner. What we eliminated at the front end was we 
wanted to make it as easy as possible for children in Virginia 
to sign up for our SCHIP program, and we were very successful 
with doing that.
    Mr. Brown. I appreciate the other things you did, but now 
you are saying that that premium you eliminated, and now you 
are saying well, maybe that premium wasn't a particular 
barrier----
    Governor Warner. Well, I would say that most of our finding 
was that the premiums were not potentially as much of a 
barrier, and I am not saying I am ready to re-implement those 
premiums. I am saying that when you have got, for example, in 
some procedures a $1 to a $3 level maximum co-pay that hasn't 
changed since the early 1980's that some moderate readjustment 
of that ought to be on the table. Yes, sir, I do.
    Mr. Brown. I think that we all agree about some of the 
administrative burdens on families and we need to help States 
eliminate such burdens, but report after report after report 
shows that cost-sharing does in fact deter enrollment. Oregon 
implemented a plan of $6 to $20 cost-sharing, the premium 
significantly less than Virginia, more than the $1 to $3, and 
nearly 50,000 people lost coverage. I mean I admire what you 
have done in Virginia and how you have made that program work 
better. I just think that that kind of premium that some people 
in this committee suggest can in fact deter children from 
enrolling.
    Governor Warner. But you are taking one subset of a host of 
programs that are underneath the umbrella of Medicaid. From 
this Governor's standpoint, I would like to have the 
flexibility to look at some areas where we could look at 
potential increase in co-payments. I am also very anxious to 
look at other areas where in terms of inappropriate utilization 
of the healthcare system, there could be a higher co-pay if you 
inappropriately utilize. Now, again, I think--and you may have 
better studies than I, but I spend an awful lot of time on 
this--you know, there is a lot of smoke around what level of 
inappropriate utilization goes on in our healthcare system. I 
don't know. I would like to find out. But if it is out there, I 
would like to squeeze it out of the system so, again, those 
dollars can be redirected to expanding coverage for those folks 
who really need it.
    Mr. Brown. One more comment, Mr. Chairman, if I could. I 
did choose one subset, as you say, Governor, but the subset is 
maybe the single least expensive part of Medicaid. And I would 
like perhaps both of you to submit to us which cases you think 
we should have premiums and what they should be. I don't 
believe--if your report could be a little more specific, your 
recommendations. Thank you very much. Thanks.
    Mr. Deal [presiding]. Governor Warner, welcome. You didn't 
get to hear some of the opening comments, and perhaps we can 
debunk some of the comments that some of my colleagues on your 
side of the aisle----
    Governor Warner. I can take the recording home and listen 
to it----
    Mr. Deal. Okay. One of those is that you are picking on the 
most vulnerable. We have heard some of that in the response to 
Mr. Brown's questions about co-pays. But has the experience 
been that in waivers that have been granted to States that you 
have in fact been able to expand coverage rather than subject 
those who are the most vulnerable to any kind of criticism or 
elimination from participation? Would you comment on that?
    Governor Huckabee. Mr. Chairman, I would be happy to. It is 
exactly the waivers that have given us the ability to put a 
safety net under people who didn't have it. That is one of the 
concerns that as Governors we have about Medicaid. It provides 
extraordinary coverage for a few, but it provides nothing for 
many. And if we had the flexibility to put that net under more 
people rather than to put an extraordinary net, maybe more net 
than is even needed under some, then that would be a great 
improvement on the system. That is exactly what we did in our 
State. When I became Governor one of the most impassions pleas 
I heard early on was all the uninsured kids. We created a 
program called KIDS FIRST. Congressman Ross helped us do that 
as a member of the State legislature. When we did that what we 
found was with small co-pays--we didn't even have a premium, 
just very minimal co-pays--but it added over the years some 
280,000 kids into insured coverage who had nothing before. 
Their benefit package matched that of what State employees had. 
And it has made a dramatic difference. And here is what we 
found: people utilized the services that they needed, but they 
didn't over-utilize. They were responsible with it, and they 
appreciated it. And it saved the lives of a lot of children and 
it has made it possible so that a single mom's greatest 
nightmare was not that her son was going to break his arm on 
the playground and she wouldn't have the ability to make the 
rent payment next month because that safety net was there.
    We are not asking for the ability to hurt people. We are 
asking for the capacity to make it so that this program, a good 
program, can be run more efficiently in the same way that any 
person administrating a benefits package would hope to do.
    Governor Warner. Mr. Chairman, let me just add again, since 
we are staying on the children's program, what we found in 
Virginia was with the wavier, we were suddenly able to no 
longer have this administrative nightmare of two doors. If you 
didn't go through the right--if you had one level of 
eligibility, you went through the Medicaid door; if you had 
another level of eligibility, you went the SCHIP door. And what 
we were finding are these families don't remain fluid. Some 
months they may be qualifying for Medicaid; some months they 
may be qualifying for our SCHIP program. They were, in effect, 
being thrown off the rolls because we didn't have the 
administrative flexibility to make sure there was only one 
door. Now, in my mind that was a huge mistake. And the fact 
that we have now--Kaiser Foundation is recognized as having one 
of the highest sign-up rates of any State in the country 
because we have had some of that administrative flexibility. I 
think kids are better served.
    Mr. Deal. As my time is expiring as well, let me just tell 
you how much I appreciate the work that your association has 
done and your staff has done. There has been, in opening 
comments, the intimation at least that the reason we are here 
today is driven by the Federal budget numbers. Am I not correct 
that the Governors Association undertook what has now led to 
your recommendations far before we ever knew what the budget 
numbers at the Federal level were going to be? And would you 
briefly outline for us when this all started and the degree of 
participation that you have had from the various Governors in 
this effort?
    Governor Huckabee. Congressman, I have been Governor since 
July 1996, and I can tell you Medicaid discussion has been on 
the table every time two or more of us get together. Over the 
past year we have become very focused on it to a degree of 
actually creating the taskforce long before the Federal budget 
numbers ever came about. What we did hope for, frankly, was 
that we would have policy first, then budget numbers. Frankly, 
we wanted to establish that there would be the social agenda, 
what it was we were trying to accomplish. Then, look at the 
program that would best accomplish it, and then, see what it 
would cost. The fact that we are being driven more by budget is 
not our decision necessarily, but we bring you not so much the 
numbers; that is, we feel, something Congress has to grapple 
with. We are bringing you ideas that we believe will improve 
the system. CBL will have to score the numbers and determine 
exactly what it is, although we think that there are 
efficiencies--I am not going to use the word savings; I think 
that is the wrong word--efficiencies to be had by better 
expenditures of monies. But the fact is, under the current 
system this program is unsustainable for the State level. We 
can't print money like you do, and that is why we come with a 
sense of real crisis with the Medicaid program.
    Governor Warner. And I would simply add to what Governor 
Huckabee has said we have also laid before you ideas of 
reinvestment. That is why this is a policy-driven document and 
not--and we have been very clear from the outset. We started 
last fall with the working group that this was going to be 
policy-driven. It was the message we continued to try to bring 
up to you; it should not be budget-driven. We have looked at 
ways where yes, we may be able to find some savings, but also 
ways where we think there needs to be reinvestment, or the 
problem is going to be worse in the coming years.
    Mr. Deal. I commend you and the efforts of your group. I 
think what you have done is historic. I now recognize Mr. 
Waxman for questions.
    Mr. Waxman. Thank you, Mr. Chairman. Governor Warner, I 
have read some of your past statements where you have spoken 
out eloquently about the responsibility of the Federal 
Government to bear the State, Federal responsibilities for 
making sure that all Americans have access to healthcare. And I 
am puzzled by why your reform proposal that the Governors 
Association is bringing forward to us today is so timid in 
suggesting that the Federal Government has a responsibility to 
do more. You have said nothing about picking up the cost of 
dual eligibles. You have not suggested adjustments in the 
matching rate to help counteract the effect on the Medicaid 
rolls and State budgets with unemployment increases. You 
haven't asked that we eliminate the 2-year waiting period 
before Medicaid covers the disabled. You have a very timid 
statement about the clawback problem in the drug benefit. You 
haven't noted the problems resulting from the decline in the 
matching rate. So you are ready to ask for co-payments from 
poor children, yet you are not willing to come here and say 
that the Federal Government ought to stand together with the 
States to meet more of its obligation.
    Governor Warner. Well, Congressman----
    Mr. Waxman. Can you explain that to me?
    Governor Warner. Well, I would be happy to. First of all, I 
would be happy to share with you--and we will have staff do 
that later today--the position that NGA has maintained over the 
years on dual eligibles. We think this is one of the cost 
shifts that has taken place, never was legislated----
    Mr. Waxman. Is that part of the proposal for the National 
Governors----
    Governor Warner. We continue to----
    Mr. Waxman. [continuing] Association on Medicaid?
    Governor Warner. We have never revoked or moved away from 
our proposal that the question of dual eligibles needs to be on 
the table, that it is what is driving--as my statistics 
earlier--40 percent of our cost are related to dual eligibles, 
something that broke the Federal-State compact that was with--
--
    Mr. Waxman. Governor Huckabee, is it your understanding 
also----
    Governor Warner. Let me just go ahead and finish the two 
other points that you asked us to address.
    Mr. Waxman. Please do, but I have a limited time and some I 
would ask----
    Governor Warner. One----
    Mr. Waxman. [continuing] that I have 5 minutes to do in----
    Governor Warner. All right.
    Mr. Waxman. [continuing] put the time in.
    Governor Warner. If there was an issue on FMAP, we were 
appreciative of the effort a couple years back, but if you want 
to reopen that, that would be, again, welcome. And the 
question----
    Mr. Waxman. Governor, I am going to have to interrupt you--
--
    Governor Warner. Is it a question of the clock----
    Mr. Waxman. No, I am going to interrupt you because it is 
my time. I am looking at a proposal of the National Governors 
Association that was submitted to us. I don't see these in this 
proposal. If they are long-standing proposals by the National 
Governors Association, then we ought to take that into 
consideration as well. And I am pleased to hear, and I gather, 
Governor Huckabee, you stand with him in saying that those are 
also proposals that you would back for us to take advantage of?
    Governor Huckabee. Absolutely. Those are long-standing 
proposals, Congressman. I think that what we would want to 
emphasize today, these are the proposals that have the 
unanimous consent of all the Governors. There are a lot of 
things that individual Governors would strongly urge, but this 
is a group of proposals that has bipartisan, unanimous----
    Mr. Waxman. Right.
    Governor Huckabee. [continuing] support, and that is why we 
are presenting these. Not everything needs to be done, but at 
least----
    Mr. Waxman. Some of the others may not have unanimous 
support?
    Governor Huckabee. No, I think they have the complete 
support of the NGA, it is just that----
    Mr. Waxman. Governor Warner----
    Governor Huckabee. [continuing] they are not new.
    Mr. Waxman. Excuse me. Governor Warner, you have shelled 
out for us an ideal for healthcare that the States can buy a 
package that is less than a comprehensive package of insurance 
in order to make ends meet. In one State we know that the 
Governor proposed that the outpatient care be covered, but not 
the inpatient care. States would be allowed to do that. You 
suggested that tax credits ought to be available so parts of 
insurance coverage could be available to other people as well. 
Is your vision of the future for healthcare in this county that 
people go out and buy policies to cover just a few of things 
that might be needed, but not to be protected from the overall 
healthcare costs of hospitalization or whatever the future may 
need? First question. Second question, you said this is not a 
policy-driven proposal. Why aren't the Governors saying to us 
if you can reduce the cost for prescription drugs, you ought to 
be able to reinvest that money back into Medicaid? Instead, the 
proposal we have is if you can reduce and we can reduce with 
you the cost of the Medicaid program either in prescription 
drugs or narrowing the benefits or making the elderly have to 
pay more, get reverse mortgage, et cetera, we are putting that 
money back into the Federal Treasury. $10 billion is what our 
goal is so that we can put it back into the Treasury to pay for 
other priorities like tax cuts for billionaires. It is hard for 
me to believe that this isn't budget-driven when we don't 
really provide for the money that is saved to be reinvested in 
the program. So I would like you to address those----
    Governor Warner. Well, first----
    Mr. Waxman. [continuing] two questions.
    Governor Warner. [continuing] of all, I would say that we 
actually have put in very strongly this is a policy-driven--I 
think you got it reversed--this is a policy-driven document, 
not a budget-driven document, No. 1----
    Mr. Waxman. No, I beg to differ. I think you have got it 
reversed, Governor.
    Governor Warner. Well, this is not the format of the 
Nation's Governors in terms of laying this out. No. 2, we have 
also put in place incentives that we think need to be in place 
to insure that people don't fall onto the Medicaid rolls. No. 
3, whether it is long-term care insurance, whether it is other 
tax credits to provide some level of a private sector product 
that can be purchased. No. 3, I come back to your initial 
question, Congressman Waxman. I want to make sure that every 
Virginian and every American has the best healthcare possible. 
What I am looking at right now in a State of 7.4 million people 
after a fivefold increase in Medicaid spending, after a 
healthcare foundation that has done more--that I am proud to 
have started--done more to take care of the needs of the 
uninsured than any healthcare foundation I have seen around the 
country. I am looking 10 years later still at a million 
Virginians without healthcare.
    Chairman Barton. Gentleman----
    Governor Warner. One of the things we have got to grapple 
with is how folks don't--as Governor Huckabee said--fall off 
that cliff into no coverage at all. And we think----
    Chairman Barton. The gentleman's time----
    Governor Warner. [continuing] we have laid out some----
    Chairman Barton. [continuing] has expired. I understand the 
frustration because we all want to ask a lot more questions and 
we will--I assume, Governors, that you will take questions in 
writing for the record? Because I am sure a lot of members--5 
minutes is very insufficient. The Chair is going to recognize 
out of order Mr. Norwood of Georgia for one question to Mr. 
Huckabee because I understand that Mr. Huckabee has to leave 
and Mr. Norwood had a specific question for Governor Huckabee.
    Mr. Norwood. Well, it is really a point of clarification. 
My question is basically if we were to write the National 
Governors Association, who do we write and whose point of view 
do we get back? Do we get back Governor Huckabee's? Do we get 
back the National Governors Association point of view? Because 
if you are speaking with one voice, you have a very powerful 
voice in my opinion. But if I am going to get today one answer 
from Governor Huckabee and a different answer from Governor 
Warner, then I get confused a little bit. And I am not going to 
be able to ask Governor Huckabee questions, so are you unified 
in your position on Medicaid and can we expect an answer back 
from the National Governors Association? Because I am going to 
send you a bunch of questions because I won't get to ask them.
    Governor Huckabee. Congressman, I think that is what we 
bring to the table today is complete unity among the Governors, 
Democrat, Republican, north, south, east, west, male, female. 
It is an unusual situation that we have worked hard to achieve. 
And if you talk to the National Governors Association, you are 
going to get a very strong, unified voice. That is why we are 
limiting our discussion to the things upon which we agree, not 
to the things for which we could not yet find agreement, but we 
are still working toward it. There are many issues yet that we 
want to resolve. We have not gotten there. But we have gotten 
this far. And these are the issues that we can come to you with 
and say that from the left and from the right, Governors across 
America have not only accepted, but agreed upon and endorse and 
support and ask for your partnership in making them happen.
    Mr. Norwood. Mr. Chairman, I thank you for that. I can tell 
you I will be very supportive if you are unified, and I think 
this committee will be too.
    Chairman Barton. Governor Huckabee, do you have to leave 
now or can you stay a little bit longer.
    Governor Huckabee. Congressman--Mr. Chairman, I am afraid I 
do have to leave. I am----
    Chairman Barton. Congressman is fine. I am a Congressman.
    Governor Huckabee. But I do have to preside with another 
NGA meeting this afternoon, but you are in good hands, and he 
speaks with the voice of unity and authority for the National 
Governors Association.
    Chairman Barton. We appreciate your attendance and we look 
forward to working with you.
    Governor Huckabee. Thank you, Congressman.
    Chairman Barton. Chair would now recognize Mr. Bilirakis of 
Florida for questions.
    Mr. Bilirakis. Thank you, Mr. Chairman. I think we are 
all--or most of us in any case are grateful to these people for 
all their hard work over a period of months and years. Governor 
Warner, we are agreed, I suppose, that Medicaid's original 
mission or their current mission is to provide basic healthcare 
to those who can least afford it. Isn't that correct?
    Governor Warner. Yes, sir.
    Mr. Bilirakis. Okay. In the written testimony--and you have 
said it so many times here; I am not sure how many people were 
listening--that your recommendations make Medicaid more 
efficient and effective, were not developed to generate any 
particular budget-saving number. You said they were policy-
driven as against budget-driven, that this all started long 
before we started with this budget reconciliation. It is 
unfortunate, to be perfectly honest with you, I know we had a 
taskforce here on this committee working on discussing Medicaid 
reforms and meetings and that sort of thing in the last 
Congress. We didn't have budget reconciliation or $10 billion 
or anything of that nature that was budget-driven. And people 
on this committee refuse to believe that, what are you going to 
do? But you said that instead they were developed to maintain 
or even increase health outcomes while potentially saving money 
through efficiencies for the States and the Federal Government. 
So the bottom line is that we don't change the original 
mission, which is providing basic healthcare to those who can 
least afford it. But as a result of efficiencies and some 
flexibility and some of the things that you have requested that 
we make that plus. By plus meaning you have indicated increase 
health outcomes, possibly add additional people to the rolls. 
Is that correct?
    Governor Warner. What we are talking about is if we can 
find savings, if we can make this system more efficient, that 
if we can end up, again, through some of the tools we have 
used, for example, incentives on long-term care, find ways to 
have folks not fall or wait later in life until they fall on 
the rolls of Medicaid, that improves the health outcome of that 
individual and our country at all and obviously our States in 
terms of serving the people that need it.
    Mr. Bilirakis. And in addition to the efficiencies and 
whatnot, you hope to reach that same result by focusing more 
on--using the words of your report--wellness and health 
promotion, as opposed to simply sick care treatment. Isn't that 
correct?
    Governor Warner. That falls clearly into the category of 
overall healthcare reform, which has to be----
    Mr. Bilirakis. Yes.
    Governor Warner. [continuing] we have laid out first steps 
here, but getting into preventive care and wellness care, 
absolutely critical. It has not been the direct focus of this 
piece.
    Mr. Bilirakis. Your executive committee consists of nine 
Governors. I believe----
    Governor Warner. Eleven Governors were participating in the 
working group; over 35 Governors have either themselves been 
involved or their Medicaid director has been involved. The 
other roughly 15 Governors, there has not been a single 
Governor that has said hold on here; I am opting out of this. 
So you do have back to Congressman Norwood's position. And 
there has been back and forth. You have the Nation's Governors 
coming before you with ideas that they have reached consensus 
on.
    Mr. Bilirakis. So all of these Governors, Republicans and 
Democrats basically agree on this concept and reaching the 
result that I have already indicated, which is basically hold 
the line to the basic mission originally and add to it through 
wellness and possibly treating additional beneficiaries and 
that sort of thing. Now, would that breakdown have been how 
close in terms of Republicans versus Democrats?
    Governor Warner. Well, sir, the thing is Medicaid is not a 
single program. There are 50 separate Medicaid programs.
    Mr. Bilirakis. Yes.
    Governor Warner. They vary dramatically. What you find 
mostly where the disagreement would come along would not be 
based on Republican versus Democrat; it would be based on what 
level of reimbursement levels you were able to provide within 
your respective States.
    Mr. Bilirakis. Yes. Up here, as you have already heard, it 
is----
    Governor Warner. We may be the last----
    Mr. Bilirakis. [continuing] Republican versus Democrat.
    Governor Warner. [continuing] bipartisan game in town.
    Mr. Bilirakis. Yes, amen to that. Well, I just find it hard 
to understand why, you know, everybody here doesn't sort of 
agree that you have tried awfully hard to do this on a policy-
driven, non-partisan type of a basis without hurting current 
beneficiaries and with the idea of adding additional ones and 
additional health outcomes, as well as, of course, wellness 
preventative care. It amazes me, but that is the way life is up 
here unfortunately. Thank you very much, Governor Warner, for 
all your hard work. Thank you, Mr. Chairman.
    Chairman Barton. Thank the gentleman. The gentleman from 
Massachusetts, Mr. Markey, is recognized for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much. Welcome, 
Governor.
    Governor Warner. Thank you.
    Mr. Markey. Mr. Governor, we have 34 million Americans who 
live in poverty in America. 14 million children live in poverty 
in America. 13 million Americans live in abject poverty. That 
is half of the poverty rate. In other words, rather than 
$19,000, it is $9,500. Abject poverty. So under this proposal 
the Governors will have the ability to raise the fees for these 
poorest people. Now, I don't know what the incentive would be 
to raise the fees for the poorest people other than to pay for 
the tax cuts that the Republicans want for the wealthiest 
people in our society. In other words, the tax break for them 
comes from a tax increase, a fee increase for those people 
living in abject poverty, $9,500 a year for a family of four 
and for the 13 or 14 million children who live in poverty in 
our country. So that is a budget decision. Because it doesn't 
seem to make any sense to me that you would want to raise the 
fees on the people--the children living in poverty. They 
already are the worst-treated citizens in our country. So isn't 
it really a budget-driven decision that you are making since 
you would never want to increase the fees for those people. And 
it is really not a policy decision because there really is no 
policy justification for increasing the fees for the poorest 
people.
    Governor Warner. Let me first of all say that, you know, in 
Virginia we actually--and some of you actually may have read 
about it--we put together a bipartisan coalition a year ago to 
deal with our tax code, to deal straight up with paying for 
what Virginians wanted in terms of level of service.
    Mr. Markey. Has Governor Huckabee done that too?
    Governor Warner. Governor Huckabee has done it as well. 
Many Governors in both parties have stepped up and dealt with 
their States' finances.
    Mr. Markey. So, again----
    Governor Warner. Let me----
    Mr. Markey. [continuing] let me just say have you all 
agreed that you are not going to raise the fees for the 
poorest----
    Governor Warner. Congressman, what we have said is--matter 
of fact, Congressman Brown raised the point earlier--when we in 
Virginia tried to actually expand our children's health 
initiative, we actually cut back on co-payments so we could 
expand the program along with some of the administrative 
changes we have made. But to somehow say that the co-payment 
issue that in some areas has not moved from $1 to $3 since the 
early 1980's should somehow remain sacrosanct forever, 
respectively, I disagree. I think we need to look at that tool. 
We need to look----
    Mr. Markey. But you do--again, Governor, you do understand 
that the only reason you would have to consider it is that the 
Republicans are going to cut----
    Governor Warner. Actually----
    Mr. Markey. [continuing] $10 billion, and it is actually 
going to be more than that as the years go on, that this is 
just this year's installment on that because of the huge tax 
breaks for the wealthy. So in other words, if I can ask you 
this, would you, rather than have the tax break and rather than 
being here talking about your policy recommendations in the 
context of their tax break that requires this $10 billion cut, 
would you prefer there be no cuts in Medicaid from the Federal 
Government and they reduce the tax break by the $10 billion 
that is being required to be cut out of Medicaid? Would you 
prefer not to have that tax break?
    Governor Warner. Congressman, we would prefer not to see 
substantial cuts in Medicaid. That has been----
    Mr. Markey. No, but will you----
    Governor Warner. Let me----
    Mr. Markey. No, I understand, but it is important for us 
from the Governors' perspectives----
    Governor Warner. And I would like to give you that 
Governors' perspective, and the Governors' perspective is we 
want to minimize the cuts in Medicaid. What we also----
    Mr. Markey. But there is no need for cuts in Medicaid if--
--
    Governor Warner. Sir, let me just say that we spend for 
every dollar, at least in Virginia, you put forward, we match 
it dollar for dollar. Now, if you are going to suddenly say we 
are going to take and pay 100 cents on the dollar in terms of 
all Medicaid costs, have at it. But in Virginia we have seen 
our State Medicaid costs go from $1 billion to $5 billion in 
the last 15 years. I make the choice because we don't have the 
luxury of not balancing a budget. Our numbers have to add up at 
the end of the year, and we have to make----
    Mr. Markey. No, but I----
    Governor Warner. [continuing] decisions each year, and 
Medicaid is the largest single increase in our----
    Mr. Markey. But do you think, Governor, that we should be 
talking about increasing Federal aid for Medicaid from a 
Federal level rather than decreasing Federal aid for Medicaid 
to you to minimize these difficult choices that you have to 
make to actually increase the fees for the children in abject 
poverty. That is the decision you are being forced to make, and 
you are making it----
    Governor Warner. No, what we are making is the statement--
you are saying that----
    Mr. Markey. I am asking whether or not you would want--do 
you want Congress not to give the tax break that requires the 
cuts in Medicaid that forces even more difficult decisions upon 
you and the other Governors? Do you oppose those tax breaks?
    Governor Warner. No, we put forward the position that said 
we would oppose--we were not looking, clearly, at any Medicaid 
cuts. You came up with a $10 billion number. Our hope is that 
you will find some ways to spread that out amongst other 
programs or other areas. But we also, irrespective--let me make 
clear, though--irrespective of your current budget debate, 
Medicaid, as it is currently structured, is not sustainable 
over the long haul.
    Mr. Markey. Well, let me----
    Chairman Barton. The gentleman----
    Governor Warner. From a State's standpoint----
    Mr. Markey. You have----
    Chairman Barton. The gentleman's time has expired. I know 
it is frustrating, but it has expired. We now go to Mr. Upton 
for 5 minutes.
    Mr. Upton. Thank you. Thank you, Mr. Chairman. I applaud 
you and Chairman Deal for hosting this hearing. And, Governor 
Warner, I want to say thank you, as well, for your fine work 
with the Governors Association.
    I know that our delegation sat down with our Governor a 
couple months ago, I guess, and we pledged to work in a 
bipartisan basis with Governor Granholm to try and make sense 
out of program that clearly today is not working. And you all 
made the very distinct point that doing nothing is not an 
option because it is simply not sustainable. And the 
demographics show that. The increase in the ages above 64 years 
old, and, again, for those growing over 80 years old, those 
percentages, the increase that are demanding Medicaid services, 
it clearly is not working today.
    And I also thought that the Tennessee Governor's statement 
on Saturday as part of the response to the President's radio 
address was pretty much right on message. And he talked about 
the work that he has been a part of with regard to the 
Governors' plan that you all presented to us this morning. And 
I would agree strongly with the judicial reforms that you 
talked about. I might just ask my chairman does that mean we 
have to get the Judiciary Committee involved in our process as 
part of reconciliation, Mr. Barton, and do we have to get the 
Judiciary Committee to be involved, or can we just steal their 
turf and do it on our own?
    Chairman Barton. Well, we will try to steal their turf----
    Mr. Upton. All right----
    Chairman Barton. [continuing] on our own but----
    Mr. Upton. [continuing] that is good to me----
    Chairman Barton. But if they need to be involved, they will 
be.
    Mr. Upton. The question that I have for you, Governor 
Warner, what else can we do to create better personal 
responsibility for those demanding Medicaid? You talked a 
little bit about a small increase in the co-pay, something that 
has not gone up in more than 20 years. Are there some 
incentives that we can do to decrease smoking, better diet 
plans, a number of things that we might want to think about for 
preventative healthcare that you all took a look at as part of 
your report?
    Governor Warner. Absolutely. All of those are tools that we 
have to use. I mean I have got communities in Virginia where 20 
percent of the kids in junior high are obese and Type II 
diabetes candidates. It is a ticking time bomb. I had Medicaid 
expenditures of $400 million a year that are directly related 
to even non-alcohol and drug, but other lifestyle-related 
disease, Type II diabetes, hypertension. There has got to be a 
preventative aspect of this, and we have started somewhat, but 
we need to do more, and I think that is probably the case in 
every State.
    Mr. Upton. You know, one of the things as it relates to 
Michigan, last year is an example--this is in my opening 
statement I submitted for the record--Michigan's Medicaid 
program financed 40,000 births, 40 percent of the total number 
of births in the State. Is that about right for Virginia as 
well?
    Governor Warner. We are about that number, and one of the 
things we did recently--and, again, this is the kind of 
investment we think that needs to be part of--investment to 
save over the long haul--we recently, in this past year, 
expanded the quality of care to our prenatal care and actually 
raised to I believe 175 percent of the poverty level covering 
expectant mothers.
    Mr. Upton. You talked a little bit in your statement about 
expanding purchasing pools. We have had an issue in the 
Congress here the last couple of years to do that for small 
businesses called AHP, Associated Health Plans, and it is my 
understanding that we are likely going to have that legislation 
up on the House floor perhaps as early again as next month. Is 
that something that you all took a look at?
    Governor Warner. We did not take a look at AHPs 
specifically. I am not going to weigh in on those. I do think 
we all know that the lack of success sometimes that takes place 
with the purchasing pools is the adverse selection that takes 
place as younger firms or folks with younger employees opt out, 
and you have got to find ways to incent and even potentially 
mandate the ability to get the numbers together so that you can 
drive your insurance cost down.
    Mr. Upton. Our Governor shared her frustration with our 
delegation with a lack of the asset forfeiture items that a 
number of Governors have. Should we penalize those States that 
don't have a workable plan in that regard?
    Governor Warner. Are you talking about asset transfer here 
in terms of----
    Mr. Upton. Right.
    Governor Warner. [continuing] seniors? What we have tried 
to put together--and it is trying to strike a balance here--
because I don't think any of--I can only speak for Virginia--I 
am not sure any of us know how much of inappropriate asset 
transfer is going on. But what we do have is a system, whether 
we like it or not, I believe, that encourages people to gain 
the system with it. Again----
    Mr. Upton. Let----
    Governor Warner. [continuing] let me just finish. And what 
we have tried to say here is while there needs to be perhaps 
stricter look-backs and other tools, we have to couple that 
with other incentives to purchase long-term care insurance, 
allows people to maintain some equity to their house to pass 
on, the reverse mortgage ideas and others. We need a series of 
both incentives and, yes, penalties to make sure that we are 
fair about dealing with folks as they go into long-term care 
situations.
    Mr. Upton. Thank you. My time is expired.
    Chairman Barton. Gentleman from Illinois, Mr. Rush, is 
recognized.
    Mr. Rush. Thank you, Mr. Chairman. Governor, thank you so 
much for your questions. I am going to ask you a series of 
questions, and hopefully, you will be able to answer them all. 
And I am going to ask them in their entirety before you answer. 
I would appreciate it if you would concur with me.
    I want to ask you more about the asset transfers that will 
restrict access to nursing home care. And I understand that 
research indicates that even before the 1993 Omnibus 
Reconciliation Act extended the look-back for transfers of 
assets to trust to 60 months, the establishment of trusts by 
people who could have used them to avoid Medicaid spend-down 
was extremely rare. Indeed, most trusts are established by the 
wealthy, and I think you will agree, to avoid paying taxes. And 
my first question is can you tell me why it is okay for wealthy 
people to give their entire estate to their children when they 
die while somehow it becomes a problem that people who need 
nursing home care, most of whom have very little wealth, can't 
keep anything? It seems to me that the Medicaid spend-down may 
possibly be the last estate tax left standing. In your 
testimony you stated that Medicaid reform could include changes 
that restrict the types of assets that are being transferred 
and increase penalties for inappropriate transfers. Can you be 
more specific and outline to this committee which assets that 
are being transferred that need more restrictions? And then 
also, as I understand it, older people can shift from being 
healthy to needing long-term care in a very short period of 
time following a stroke or fall, for example. And I know that 
many grandparents want to help their children and their 
grandchildren with purchasing their first home or getting a 
college education and the like. Do Governors support a policy 
that will go after grandparents who, without any awareness that 
a nursing home was in their future, pay for part of their 
children's college education? Do the Governors support a policy 
that would allow the State to go after a grandchild in college? 
Or do Governors support a policy that will allow the State to 
go after parents struggling to save for their own retirement if 
their own mother or father needed nursing home care but was 
unable to pay? So could you answer those questions?
    Governor Warner. I would be happy to, sir. First of all, 
what we are looking at is trying to ensure that seniors have a 
better quality of long-term care. We are looking at, in terms 
of the issue of wealthy versus non-wealthy, I think if there is 
misuse or inappropriate use of the system, it obviously needs 
to be applied fairly, equally. But I come back to the basic 
point, what I believe we have right now is a system that 
basically is all or nothing.
    Mr. Rush. Governor, is there a profile of someone who is 
abusing the system? Is there a profile that currently exists 
now? Who abuses the system?
    Governor Warner. Congressman, what I am concerned about is 
the fact of how I deal in a State where increasing numbers of 
seniors don't have virtually any options. Their only option is 
to spend all the way down before they go into a nursing home 
facility, or in some cases if they have the right counsel, can 
figure out a way to have any financial responsibility. We are 
trying to strike a balance here. And I believe that not trying 
to strike a balance, to simply continue to allow what seems to 
be a mini-growth industry in itself of ways to--and I think it 
is disproportionately used actually by more wealthy 
individuals, candidly, because they have the more sophisticated 
legal counsel and accountants and others who allow this to 
happen. In the long run, again, continues to diminish the 
resources we have available at the Federal level or the State 
level to provide the kind of quality long-term care that we 
need.
    Now, asset transfer alone isn't going to solve the problem. 
It has got to be coupled, as I said, with significant 
incentives to encourage people to purchase long-term care 
insurance. I mean we have a problem that is not going to go 
away with the baby-boomer generation heading toward retirement. 
In my State 65 percent of the people in nursing homes, they are 
on Medicaid. With a trajectory of a cost increase that is not 
going to diminish, we have to find a way to grapple with this 
issue.
    Chairman Barton. The gentleman's----
    Mr. Rush. I can understand your problem, and I understand 
your point, but I just don't see where they are going to be 
able to afford it, even long-term----
    Governor Warner. Well, that is why we are saying that if 
you can find a way so that folks--particularly in terms of 
their house--can preserve a piece of that equity so they don't 
have to totally dispose of it. And what the right number is, I 
am not sure. But there ought to be some way to preserve that so 
you can absolutely find that way to pass on some--you have 
worked all your life, and your largest asset is your house and 
you want to pass something on to your kids, you ought to be 
able to have that. But what we have got right now is, in 
effect, an all or nothing.
    Chairman Barton. The gentleman's time has expired. The 
gentlelady from New Mexico, Mrs. Wilson.
    Ms. Wilson. Thank you, Mr. Chairman. And, Governor, thank 
you for being here and thank you for your leadership on this 
issue. I think it is a tremendous contribution to the body of 
work that has been done on Medicaid.
    My colleague from Massachusetts who was here briefly before 
talked about budgets for Medicaid. And I think we need to be 
clear about this. Over the next 5 years under the Federal 
budget we are going to increase Medicaid spending by $215 
billion. That is a 7.1 percent annual increase over the next 5 
years. We have got Tennessee dis-enrolling 300,000 people on 
Medicaid, the Governor of Alabama having real declines in 
Medicaid spending this next year, every State in the Nation 
struggling to meet the needs of their people because, as you 
mentioned and Governor Huckabee did as well, you don't print 
the money. Can Virginia sustain a 7.1 percent annualized growth 
rate in Medicaid?
    Governor Warner. That is, again, one of the reasons why we 
have said we have got to deal with this issue now. It is going 
to get exponentially worse over the next decade with the aging 
population, with increasing populations who are at a young age 
now. For example, just the obesity-related issue on Type II 
diabetes, we have got to get a handle on it. Now, that does not 
mean--and what I find somewhat frustrating is this--it is all 
or nothing, or somehow it is all about cuts or it is all about 
somehow being against the people who are in need. What we have 
tried to strike is a good faith effort to find ways to make the 
system more sustainable over the long haul, reinvest in areas 
where we can hopefully have folks not fall upon the Medicaid 
rolls over the long-term, either through long-term care 
insurance, through purchasing of some level of healthcare 
insurance in a modified benefit package. Because, again, your 
basic question is in most States it is much more than a 7 
percent increase. You can't sustain it.
    Ms. Wilson. Thank you. And I really appreciate your focus 
on letting policy drive the budget here. I know you have got to 
come up with a budget that balances. But one of the things that 
frustrates me about Medicaid is that we don't look at whether 
it improves anybody's health. And it wasn't set up to improve 
anybody's health. It was set up to pay the bills. And I wonder 
if in Virginia you have looked at or whether the NGA has looked 
at what is the health status of people who depend upon 
Medicaid, and how does that compare to folks who have private 
health plans, or, more broadly, the population?
    Governor Warner. Well, we have started to look at how we 
can better manage toward healthier outcomes. I mean we have 
some preventative care programs we have put in place. You know, 
arguably, some folks who we move to, you know--HMO-modeled 
Medicaid in some areas as well that at least arguably are 
making the case that they are managing toward a better health 
outcome. I think you also have to recognize, though, that to 
take a Medicaid population that by definition is 
disproportionately poor and has other chronic problems that may 
not--you know, to compare that apples to apples with a middle-
class population that is buying traditional health insurance 
and a large corporate structure, that is not a fair comparison.
    Ms. Wilson. No, and I don't think it is either, but I think 
we do need to look at the apples to apples comparison, because 
I am not sure it is there. And in particular, with respect to 
that and the efforts you are making on trying to shift toward 
prevention and the management of chronic disease and getting a 
hold on obesity and so forth, are you awarded at all from the 
Federal Government in terms of reimbursement rates or anything 
for improving----
    Governor Warner. No, we don't----
    Ms. Wilson. [continuing] the health----
    Governor Warner. [continuing] have an incentive system that 
encourages good behavior on the basis of the States.
    Ms. Wilson. So from your State's Medicaid director, there 
is no help at all from the Federal Government if you show 
results?
    Governor Warner. To my knowledge, and I am glad I am here, 
we have no incentive reimbursement level that encourages the 
States to take on these initiatives. And, again, let us be 
candid with each other. Part of the problem is we are going to 
have to have a willingness and a dedication from you guys on 
the Congressional side and us on the Governors' side to make 
long-term investments in this type of preventive care. You 
cannot turn on the preventive care program day one and see 
results in 6 months. And when you have got the very real 
choices that we have to make about what level of care in terms 
of just dealing with the acute population, it is a balancing 
act. My hope would be, we would be able to move toward that 
preventive chronic disease management, these kind of 
investments, but we are going to need to kind of lock arms on 
this and be willing to acknowledge that the results are not 
going to happen overnight.
    Ms. Wilson. Governor, thank you, and I look forward to 
continuing to work with you.
    Chairman Barton. We expect a series of votes in the next 15 
to 20 minutes. We are going to get as many questions in, as 
many members in, and we will come back. What is your schedule?
    Governor Warner. I actually am going to use the same excuse 
that Mike Huckabee used a few moments ago. You know, in about 
another 15 or 20 minutes I am going to need to move on. I have 
got another session up here on the Hill.
    Chairman Barton. We have about an hour's worth of 
questions. Any way we could.
    Governor Warner. Let us compromise at a half-hour.
    Chairman Barton. All right. Mr. Stupak.
    Mr. Stupak. Thank you. And, Governor, thank you for being 
here. The issue really isn't--as Ms. Wilson indicated, we are 
putting more money into Medicaid--we are putting enough money 
in to meet the needs of the clientele we are trying to serve. 
So even though we may be putting more money in the next couple 
years, it is not meeting the needs we see. In my State of 
Michigan we see a 30 percent increase, and yet Jennifer 
Granholm has been able to keep our increase cost for Medicaid 
at 1.5 percent. So we do have to get smarter on the way we do 
that. On top of not meeting the needs, we are also expected to 
come up with $14.7 billion over the next 5 years. That is what 
we have been instructed by the Budget Committee to make $14.7 
billion cuts over the next 5 years. So my concern, and I am 
sure you weren't here for my opening, but I highlight a point 
in Michigan--in fact yesterday, the Michigan legislature did a 
couple of things. It goes to flexibility and I want to ask you 
a little bit about it. The State Senate voted to make some 
Medicaid patients pay a $5-per-month premium. The budget also 
calls for a $10 co-pay for brand name drugs where there is a 
generic equivalent and a $25 co-pay for non-emergency room 
visits. The House bill would eliminate 43,000 people on 
Medicaid recipients in Michigan including all 19- and 20-year-
olds and relatives who raise family members--Medicaid eligible 
children. It sounds like there is a lot of flexibility in the 
Medicaid program already, but I am hearing the Governors saying 
we need more flexibility. In what way?
    Governor Warner. In terms of--and I can't speak to the 
Michigan-specific situation; perhaps you have already gone 
through the waiver process to grant you that flexibility--but I 
can assure you that to----
    Mr. Stupak. So that is unusual amongst the States?
    Governor Warner. To get an answer out of CMS on a timely 
basis to get a waiver through continues to be an issue.
    Mr. Stupak. So you want to move the waiver----
    Governor Warner. We want----
    Mr. Stupak. [continuing] provision quicker.
    Governor Warner. [continuing] to look at the waiver 
situation on a quicker basis, we want to encourage greater use 
of generics, we want to look, as I indicated, on the whole drug 
pricing issue in a much more aggressive way than has been done 
so far. I didn't get a chance to, but I would like to retake 
issue with one of your colleague's earlier comments. We very 
specifically raise the unfairness of the Federal Medicare drug 
benefit that actually penalizes States----
    Mr. Stupak. Correct.
    Governor Warner. [continuing] on the clawback who have, 
subsequent to 2003, done a better job of negotiating drug 
prices than the Federal Government. That doesn't make any 
sense.
    Mr. Stupak. I was going to ask you that. That was one of my 
questions. Your proposal mentioned the clawback provisions of 
the Medicare Modernization Act that requires States to begin 
making payments to the Federal Government in 2006 in exchange 
for Medicare-covering prescription drugs for dual eligibles. So 
what is the true cost of a clawback to a State like yours?
    Governor Warner. It varies by State. With the loss of our 
renegotiated prices that we received from our PDL with the 
administrative costs that are being put upon the system where 
there is no transition help put in, we see it pretty much as a 
negative, at least in the short run. And I think, again, it 
will vary by State. Some States will do all right; some States 
will not. But it seems strange that an issue that is supposed 
to help in the long haul deal with pharma costs actually 
increasing the costs in many cases.
    Mr. Stupak. Sure. Can some of these problems with the 
clawback--I mean Michigan is one that really kept their rates 
really low for prescription drugs. Is there anything we can do 
other than Congressional action that could relieve you from 
that clawback provisions in there?
    Governor Warner. We have heard talk that there may be some 
ability to invest some in the administrative transition. We 
have seen--the short answer is I don't know. My hope would be 
that those States who have negotiated a better price over the 
last 2 years, if you move the cut time from 2003 up to 2005----
    Mr. Stupak. Sure.
    Governor Warner. [continuing] that would at least allow us 
to implement the deals that we have negotiated. Again, I have 
spent----
    Mr. Stupak. Right, because you----
    Governor Warner. [continuing] 3 years in----
    Mr. Stupak. [continuing] have been penalized----
    Governor Warner. [continuing] government; I have spent 20 
years in business. If I have got a good deal that I have 
already cut, it seems a shame to take that deal away from us.
    Mr. Stupak. Absolutely. You did a good deal and you are 
being penalized underneath a Medicare bill. Let me ask you 
about--and I want to get into this a little bit--the cost-
sharing proposal. There has been a lot of talk--in fact 
Governor Huckabee mentioned about when the program started cost 
was only this much and gas was 24 cents and things like that, 
but the cost that is being paid here by the recipients, it is 5 
percent of the service, and the service certainly has gone up. 
I mean with the service in 1982, that is the provision we use, 
1982. You say they haven't gone up since then. But certainly, 
the cost of hospitalization from 1982 is different from 2005, 
so those costs have also gone up for the recipients.
    So if the Governors' proposal is a cost-sharing--would 
allow greater cost-sharing similar to what we have in CHIPS, I 
am concerned if the proposal for Medicaid is being similar to 
what is allowed in CHIPS, in reality your proposal appears to 
be much more onerous than the CHIPS requirements. Because 
children below 100 percent, of course, are not in CHIPS, and 
you said earlier there are more people below the poverty line. 
And for those in CHIPS with income between 100 and 150 percent 
of the poverty line, cost-sharing is limited to nominal 
amounts. So it appears to me that if you retain all of these 
protections from SCHIP, for example, would impoverish seniors--
because you were just talking about that with Mr. Rush--in 
nursing homes. Would they be exempted from these new cost-
sharing requirements?
    Governor Warner. What we are saying is----
    Chairman Barton. This is the gentleman's last question, and 
then we are going to go to Mr. Norwood.
    Governor Warner. [continuing] and, again, the issue here, 
remember Medicaid populations vary in our State----
    Mr. Stupak. Sure.
    Governor Warner. [continuing] we are very, very strict in 
terms of our eligibility requirements. Other States are 
Medicaid eligible up to 300 percent of poverty. We are saying 
that there ought to be some flexibility there. Now, you ought 
to have the caps, particularly for those 100 percent and below 
no more than 5 percent of their total income. There needs to 
be--what I have looked at, again, are some of these $1 to $3 
levels. You alone have--or Congress or one of the Congressional 
entities has done their own study. If you simply bump those 
from $3 to $5, there are some savings. Do I think you are going 
to find enormous savings here? No. If we can simply partially 
dispel the notion that there is gross over-utilization, I think 
by having slightly higher co-pays, that is a step in the right 
direction as well.
    Mr. Stupak. Okay.
    Governor Warner. We don't know at this point. There are 
lots of studies on both sides. But I don't think you are going 
to see a lot of Governors go out, particularly in some of our 
most meaty populations, those 100 or 150 percent and below in 
poverty and suddenly put in SCHIP-type $15 or $25 co-pays.
    Mr. Stupak. Well, I just want to say----
    Chairman Barton. All right----
    Mr. Stupak. [continuing] like----
    Chairman Barton. [continuing] all right.
    Mr. Stupak. [continuing] Oregon, 50 percent increase drop 
and people dropped out once they raised the premiums----
    Chairman Barton. The gentleman's time has expired. We are 
going to go to----
    Mr. Stupak. Thank you, Mr. Chairman.
    Chairman Barton. [continuing] Mr. Norwood. We are going to 
give him 4 minutes because he did get to ask a question of 
Governor Huckabee.
    Mr. Norwood. I also passed over my opening statement too.
    Chairman Barton. Well, a lot of other people did. Four 
minutes.
    Mr. Norwood. Governor, thank you sincerely for your work 
you are doing. It is a pleasure to see adults at work trying to 
solve a policy problem rather than getting it so political. And 
I hope this committee can do the same thing.
    I have two questions so I will try to get them both 
answered if I can. I was wondering what the NGA proposes to do 
in respect to taking people off Medicaid that really shouldn't 
be there? Specifically, I refer to illegal aliens, but I also 
refer to the millionaires that were on the program who have 
done away with all their assets perhaps legally, perhaps not. 
This would restore the program to, I think, its original 
design, to serve as a safety net for people, citizens in this 
country who are most vulnerable. I know that you had problems 
in your State of Virginia. We have had problems in our State of 
Georgia. The strain of illegal aliens on your public 
infrastructure, as well as your criminal justice system.
    Now, I am concerned that we don't know the resources that 
we are expending on this particular segment of the population. 
We have limited resources, obviously, and we have no idea of 
the level of Medicaid dollars being used to benefit illegal 
aliens at the State level. Or do you have an idea in your State 
what it is costing you?
    Governor Warner. Well, sir, we already have a policy to not 
provide Medicaid benefits to undocumented persons, and the 
legislature moved forward on that, even broadened that this 
year. In terms of the question, again, Congressman Rush is not 
here, one of the things that I don't think we know is--
Congressman Rush asked for that giving the prototype of someone 
who is misusing the asset transfer; well, I don't know if the 
millionaires out there are doing that. But if they are out 
there doing that when I am seeing poor seniors not being able 
to get the kind of long-term care they need, we ought to put a 
stop to that. And what we are simply saying is that has to be 
on the table as we look at this. And, again, I keep coming back 
to it is not an either/or. It is yes, looking at asset 
transfers, but coupling that with incentives to purchase long-
term care insurance, an ability to recognize that folks, 
particularly modern-income folks ought to be able to pass on 
some assets to their kids, and trying to do this in a more 
ration process than we have done so far.
    Mr. Norwood. Well, you can go through nursing homes and 
figure this thing out just a little bit. And I don't know about 
your State. It is illegal to put illegal aliens on Medicaid, 
but you got to ask the question, I hope you are doing that in 
Virginia?
    Governor Warner. We are doing that.
    Mr. Norwood. We are not doing that real well in some 
places. Now, one last question. How would the Governors' 
proposals work to give us some comfort or some assurance that 
core benefits, those preventive care benefits--and I admit 
dental is one of them that is important to me--they have a huge 
impact on health and well-being, and basically, many times are 
cost-effective. How do we assure ourselves that we won't--or 
does your program keep from eliminating those because of the 
budgetary crisis?
    Governor Warner. Congressman, those are the issues we face 
every day because it oftentimes does not break down to 
eliminating the benefit. It turns into a situation where the 
reimbursement level may be so low that the provider decides to 
opt out. That was an issue that we ran into recently in 
Virginia where we were losing so many of our OB-GYN's in rural 
communities. So, again, I would love to paint all this as black 
and white, but what we are trying to say is we want to put in 
place a system that encourages preventive care, we want to find 
efficiencies, but at the same time, we have got to recognize 
that right now, with the increasing populations, a lot of it 
driven by long-term care costs, we are not able to do all the 
preventive activities because we have got to deal so much with 
just dealing with acute care.
    Chairman Barton. Gentleman's time has expired. The 
gentleman from Florida, Mr. Davis, 5 minutes.
    Mr. Davis. Governor, good to see you again. I certainly 
applaud your leadership on this issue, in particular, on 
education issues, and you certainly aren't afraid to stick your 
head out of the foxhole here because you get shot at when you 
do.
    I think what is going to advance this conversation is going 
to be a more specific understanding as to how this newly gained 
discretion could be used, or in the minds of some people, 
abused. I would like to ask you about a specific example that 
is taking place in my home State of Florida. I understand it 
may be taking place in your State and others. And it is a 
limitation on the ability of physicians to prescribe 
psychotropic drugs to people with mental health issues. Florida 
has adopted a policy, which is being described as a ``fail-
first'' policy where a physician has to prescribe the least 
costly alternative, and only if and when that fails can the 
physician then move on to something that may be more medically 
appropriate. I would like to ask you if this is something that 
you are aware of? Is it happening in Virginia or something 
similar to it? Is it taking place in the other States besides 
my State?
    Governor Warner. I am vaguely familiar with what is 
happening in Florida, and I know kind of pushing the edge of 
the envelope on a series of Medicaid-related issues in Florida. 
And this is an area above my pay grade in terms of the 
technical definition of which drugs are in or out. But when we 
dealt with out PDL list, we did not include these drugs on our 
PDL list, and we have left that flexibility with the docs.
    Mr. Davis. Are there any other States----
    Governor Warner. And I am not sure if there are any other 
States. We could try to find out and get back to you on that.
    Mr. Davis. Would you care to express an observation or 
opinion as to the merits of the type of approach I have 
described where the physician is forced to prescribe something 
least costly and it has to fail before something that might be 
more medically appropriate could be prescribed?
    Governor Warner. Well, we chose not to go that route in 
Virginia based on our Medicaid folks, my Health and Human 
Services secretary, and working with the drug industry. So we 
chose not to pursue that and that is the way we are going to 
stay in Virginia. But let me say there may--because a case was 
made the medical necessity and the differentiation between 
drugs in this category, psychiatric drugs were so important 
that you couldn't substitute. On the other hand, there are 
areas where we can----
    Mr. Davis. Right.
    Governor Warner. [continuing] increase generic use. There 
are other areas, and I mean not to leave--just so that I make 
sure that I can at least get shot at by everybody in the whole 
universe, you know, we also have got to look at generics as 
well as we see drugs rotate off of the brand name list, now, we 
have got to be careful the drugs don't move from a $1 down to 
80 cents and suddenly they get called generic and we haven't 
really realized the full benefits. I mean----
    Mr. Davis. Right.
    Governor Warner. [continuing] Canada, for example, has been 
very out there on defining generics. Everybody has got to come 
to the table on this issue on drug pricing.
    Mr. Davis. I agree with you generally. I want to cite you 
this specific example, which, obviously, you are not prepared 
to defend today--as an example of what is some of the concern 
here. It is not clear to me how many State could defend taking 
such a position of ``fail-first'' for psychotropic drugs. As 
Florida and many States have worked very hard to 
deinstitutionalize our mental health patients and try to keep 
them healthy, as well as the entire community healthy, and this 
type of Medicaid approach has been adopted.
    I would also like to ask you in what little time I have 
left if there has been any discussions you have been involved 
in or the NGA has been involved in in terms of how much benefit 
there is to be achieved in further nursing home diversion, more 
emphasis in terms of Medicaid coverage of home healthcare, 
adult daycare, alternatives to institutional settings that 
might not only improve the quality of life for our seniors and 
disabled, but actually be a more cost-effective use of 
Medicaid.
    Governor Warner. I sure have--actually with Governor 
Kempthorne on a commission that is chaired by former Senator 
Kerry and former Speaker Gingrich looking at this issue. And I 
can just give you my personal view, and I think I speak for 
most Governors is we strongly urge at looking at these 
alternatives. Matter of fact, one of the things we have 
included in our plan is incentives to encourage more home-based 
care, more adult daycare, alternatives to nursing home care. 
And honestly, having sat down with some of the folks in the 
nursing home industry, I think they would not be opposed to 
that appropriate continuum of care if, again, we match it with 
the type of approach that we make the mindset in this country 
that when you buy life insurance, health insurance, you also 
got to go ahead and buy long-term care insurance.
    Mr. Davis. Right. Has there been any discussion----
    Chairman Barton. Let this be the last question.
    Mr. Davis. [continuing] about the States collectively 
engaging in regional compacts to pool their purchasing power to 
negotiate discounts in the pharmaceutical industry, and are 
there Federal obstacles to your doing so? And if you don't have 
time to fully answer that, I would certainly like to hear the 
answer----
    Governor Warner. Well, the short answer is yes, there are 
obstacles, particularly driven by the fact that we can't even 
get the benefits that we have already negotiated with the new 
Medicare direct benefit coming along. And then second, in terms 
of purchasing pools, we think they ought to be expanded, but 
you have got to have some ability to manage the adverse 
selection where the younger employees or the firms with the 
younger employees opt out.
    Chairman Barton. The gentleman's time has expired. The 
gentleman from Michigan, Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman. Thank you, Governor. 
Thanks for taking a little extra time today. And as you can see 
by the tone of the questions, it is going to be a difficult 
decision for all of us to get there, and we appreciate your 
leadership. To have all the Governors come together and say we 
need more flexibility in a system that has 1,500 waivers, I 
mean this is a system that has not worked well for the States. 
And to have the courage to stand up and say give us the 
flexibility that we need and we will put a product out there 
that takes care of the disabled, that takes care of the needy 
elderly, that takes care of the needy populations in America is 
pretty exciting. And it is going to take that kind of 
leadership to get, I think, through this committee. And your 
help in that is going to be very, very important.
    I want to talk about a couple of things. HSA is a great 
example. That is an innovation that is working in the 
marketplace. We have seen about 40 percent of the over a 
million people who have signed up for these things never had 
access to healthcare before. Pretty powerful thing. You have 
called, in the NGA's recommendation, a national Healthcare 
Innovations Program where you would go out in 10 to 15 large 
demonstration projects. Can you just talk a little bit about 
how you envision--what the kind of things you would like to see 
that tackle?
    Governor Warner. Well, let me give you my particular bias 
as somebody who spent 20 years in the technology industry 
before I transferred to this interesting business. The fact 
that we don't have the power of IT in the largest sector of our 
economy, that we have not used information technology to bring 
any kind of efficiency should be an embarrassment to all of us. 
The fact that we don't have electronic medical records and that 
we have not--to bring a true electronic medical record to the 
table on a State or regional basis, we have got to have 
resources, but also some ability to change the behavior folks 
that--whether it is providers and others, whether they have got 
legacy systems or the fact that they just don't want to change 
how they operate, we have got to change. And that will require 
not only the State, that will require the Feds; that will 
require hospitals, insurers, Pharma, local doc providers to 
come to the table. We need to move past talking about this, 
which we have been talking about for 10 years and actually 
start making it happen.
    Now, there are some demonstration projects; there have 
been--I can point to a system in Central Virginia, our VCU 
Health System has gone a long way, but it is still a closed 
system. We have got to make it on a much broader basis. That 
would be a prime example.
    I think purchasing pools is another example where we are 
going to have to let some folks, a la welfare reform, try 
things. I know there will be some consternation about mandatory 
purchasing pools where if you try to include various groups 
inside, you can't opt out. So that we can get the aggregate 
numbers we need to try to be able to purchase the level of 
healthcare that is provided from both the--you know, and you 
might be combining Medicaid populations with currently 
privately covered populations. But we ought to try that. Again, 
from both sides where we have been so far is we can't be afraid 
to shake this system up because, again, I come back to some of 
the questions I have heard from some of the members. There is 
no Governor--because we are the first folks people turn to if 
there is a healthcare--there is no Governor that doesn't want 
to increase the quality of healthcare for the most vulnerable 
of our citizens.
    Mr. Rogers. So----
    Governor Warner. But we have to be able to recognize that 
even if we defer this debate for a year or two, it is not going 
away, and let us go ahead and sit down together and try to work 
through it.
    Mr. Rogers. And that is a very good point. You are not 
going to let those people fall through the cracks. You are 
going to do everything that you can, and I believe you. And the 
Governors came out and said they are going to establish 
enforceable premiums, deductibles, and co-pays. You are not 
doing that to exclude people from the system, are you? Do you 
want to have a co-pay that excludes somebody from participating 
or are you trying to say that people need to participate in the 
healthcare delivery system in America? We need to apply 
consumerism so that everybody is invested in the solution. That 
is the way I understood----
    Governor Warner. We need to understand that there is a 
sense of personal responsibility, but we also have to recognize 
there are many people on Medicaid who are so poor that they 
have extraordinarily limited resources. And that is why, 
again----
    Mr. Rogers. But if we gave the----
    Governor Warner. [continuing] I am taking the notion----
    Mr. Rogers. [continuing] State the flexibility, you could 
make that determination of what that ought to look like. But in 
some cases you would recommend that somebody should pay a co-
payment, even if it is a nominal fee. Is that correct? That is 
the way I understand this----
    Governor Warner. That is what we are looking at, but 
recognizing that there needs to be some caps, because there 
are--I think there is also going to be--let me be clear here. 
One of the things I think this would move toward, I think it 
would dispel the notion that this is somehow to save your 
Medicaid; this is not. There will be some perhaps marginal 
savings here. And if we can do that and dispel the notion a 
little bit that there is great abuse going on, let us have at 
it.
    Chairman Barton. The gentleman's time----
    Governor Warner. But----
    Chairman Barton. [continuing] has expired.
    Governor Warner. [continuing] it is not a silver bullet.
    Chairman Barton. The gentleman's time has expired. The 
distinguished ranking member of the full committee, Mr. Dingell 
of Michigan, is recognized for 5 minutes.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy. 
Welcome, Governor. I am pleased that you are here with us. 
Governor, a series of questions. You noted that the Governors 
11 in number and others had an input. Were representatives of 
children's groups included in the development of the proposal?
    Governor Warner. Congressman, we worked with our Governors, 
we worked with our Medicaid directors----
    Mr. Dingell. Yes, but Governor, with all respect, time is 
very limited. Were representatives of the children's groups 
included in the development of----
    Governor Warner. No, that is why this was the National 
Governors Proposal.
    Mr. Dingell. Now, were representatives of the disability 
community or seniors groups included in the development of the 
proposal?
    Governor Warner. Well, I guess what I would take some issue 
with is saying that somehow Governors and/or Medicaid----
    Mr. Dingell. Governor, this----
    Governor Warner. Can I answer your question?
    Mr. Dingell. [continuing] is a search for fact, and I am 
just asking a yes or no. And I say so with all respect, but I 
have 4 minutes remaining and----
    Governor Warner. Right. The----
    Mr. Dingell. [continuing] I have a lot of questions----
    Governor Warner. [continuing] answer is this is the 
National Governors--the people who were involved in this 
proposal were the National Governors----
    Mr. Dingell. Okay.
    Governor Warner. [continuing] Nation's Governors, their 
Medicaid directors, and their health----
    Mr. Dingell. So, then, I assume the answer is no?
    Governor Warner. I have said who was----
    Mr. Dingell. Okay.
    Governor Warner. [continuing] involved.
    Mr. Dingell. Now, were representatives of the physicians 
groups, nursing groups, hospital groups, representatives of 
nursing homes included in the development of the program?
    Governor Warner. The Nation's Governors, the Medicaid 
directors, and their health advisors were involved in this.
    Mr. Dingell. And so you are having to tell me again that 
the answer is no?
    Governor Warner. No.
    Mr. Dingell. Now, I have some other questions here, 
Governor. And, again, I apologize for being so brusque because 
I have great respect for you, but I have got to get certain 
questions and the answers in the 3 minutes and 22 seconds 
remaining. Your proposal has been called tiered benefits. And 
then it has had other names applied to it. I want to know if 
this proposal will provide beneficiaries with the flexibility 
in a way which is intended to save the States money, or is it 
intended to accomplish other purposes?
    Governor Warner. No, what we are geared at is recognizing 
that we have to meet, at least in my State, 50 cents of every 
dollar that is spent in Medicaid to make sure that we can yes, 
save resources, but also our proposal is to encourage 
reinvestment in areas such as Federal tax credits for long-term 
care, for purchasing of health insurance for those folks so 
they won't fall onto the Medicaid rolls.
    Mr. Dingell. Now, the Medicaid law requires that payments 
must be made only for medically necessary treatments. The only 
way I can figure that you would save money, then, is by taking 
away benefits who currently need and are using them. Am I 
incorrect in that assumption?
    Governor Warner. Well, no, what I think there remains a 
question, and I can tell you how we addressed it in Virginia. 
Is there inappropriate use? If you have a, you know, the 
classically cited example of the head cold that shows up at the 
emergency room four times in the same month. I don't think that 
happens enormous amounts of time, but if it does happen, I need 
a tool to make sure that we prevent that from happening----
    Mr. Dingell. Now, I assume----
    Governor Warner. [continuing] and don't reimburse----
    Mr. Dingell. [continuing] that you have----
    Governor Warner. [continuing] our hospitals at the----
    Mr. Dingell. I assume that under existing law you may 
address that problem, may you not?
    Governor Warner. We may----
    Mr. Dingell. Is there anything----
    Governor Warner. [continuing] address it----
    Mr. Dingell. [continuing] inhibiting you----
    Governor Warner. We may address it, but if there was a way 
that allowed us a differential co-pay on the fourth visit to 
the emergency room, that is a tool I would like to see.
    Mr. Dingell. Under existing law you have the capacity to 
address fraud, waste, abuse, misuse of the system by 
beneficiaries, do you not?
    Governor Warner. I don't believe we have all the tools that 
would make this system----
    Mr. Dingell. I am going to----
    Governor Warner. [continuing] the best possible----
    Mr. Dingell. [continuing] submit a letter to you, Governor, 
because the points you are making are very good and I want to 
find out about that particular question. Does the NGA proposal 
allow States to cut nursing home benefits to people with 
incomes below $7,000 a year?
    Governor Warner. That is not our intent. That is not my 
intent.
    Mr. Dingell. Does the NGA proposal allow States to cut 
medically necessary services needed by children and families 
whose income is under $12,000 a year?
    Governor Warner. That is not our intent. That is not my 
intent.
    Mr. Dingell. Okay----
    Governor Warner. Matter of fact, we have taken--let me just 
again--you missed the earlier part of my presentation. And 
matter of fact, Virginia has dramatically expanded its children 
health program and been recognized by Kaiser as one of the most 
successful in the country.
    Mr. Dingell. Governor, don't take my comments as being 
critical or hostile. They are simply a quest for facts. Does 
the NGA proposal allow States to cut pregnancy-related services 
to pregnant woman?
    Governor Warner. In Virginia we actually expanded that 
coverage this year.
    Mr. Dingell. I would note that in Virginia, a Medicaid 
beneficiary living in Alexandria, Virginia, with two children 
can only have $384 a month in income to still qualify for the 
program. In Arkansas, a person with two children on welfare, 
TANF, would have no more than $204 a month in income to still 
qualify. Is there any way you can----
    Chairman Barton. This will have to be the gentleman's----
    Mr. Dingell. [continuing] at those levels, Governor?
    Chairman Barton. This will be the gentleman's last 
question.
    Mr. Dingell. I thank you, Mr. Chairman. Governor, you have 
my apologies if I have offended you.
    Governor Warner. I just wanted to try to give factual 
answers to your questions.
    Chairman Barton. Do you want to answer his last question?
    Governor Warner. No, in both of those cases, again, earlier 
we cited the fact that in Virginia what we did, particularly 
for expansion of our SCHIP program was we cut back on any co-
payments so we could expand our program.
    Chairman Barton. Gentleman from Oregon, Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman. Governor, 
thank you and thank you to your colleague who has had to leave 
for excellent work in this effort. I want to follow up on the 
issue of co-pays that my colleague from Michigan raised. We 
wrestled with this when I was in the Oregon legislature and we 
were implementing the Oregon Health Plan and talked about the 
idea of co-pays. And one of the issues that came up was a 
concern about collectability of them. Have you all looked at 
that? Because even----
    Governor Warner. Yes.
    Mr. Walden. [continuing] if it is $2 or $3, we were hearing 
testimony that said docs, others are going to end up eating it 
because they are just not----
    Governor Warner. Right.
    Mr. Walden. [continuing] going to get paid. Do you have a 
mechanism you are kicking around?
    Governor Warner. We are still trying to sort through that 
because it was and is an issue.
    Mr. Walden. Okay. All right. We also heard testimony in 
those days, and this was quite a while back, that co-pays might 
help in the sense of trying in some way to get people to 
actually keep their appointments. Some of the medical community 
found that some Medicaid patients would make appointments and 
not keep them at a higher rate than others. Have you found that 
to be the case?
    Governor Warner. That has been our experience as well.
    Mr. Walden. And are you looking from----
    Governor Warner. But whether the co-pay----
    Mr. Walden. Yes, I don't know if----
    Governor Warner. [continuing] system has changed that 
behavior in keeping appointments, I can't speak to that. I 
don't know.
    Mr. Walden. Is your----
    Governor Warner. But it is one of the things we ought to 
find out.
    Mr. Walden. Well, that is what I wondered. Is your 
taskforce looking at that as an issue that the----
    Governor Warner. We have not at the gubernatorial level. I 
think the Medicaid directors have discussed this. But at the 
gubernatorial level we haven't drilled down to that level.
    Mr. Walden. Okay, because that was an issue we kept hearing 
about too, and, you know, I am one of them who says just 
because a law has been on the books 40 years doesn't make it 
untouchable. We should use the latest in technology; we should 
think outside the box and say how do we make this the best 
possible system given the budget constraints we are given?
    One of the other issues that comes up is the Federal law 
EMTALA that requires emergency rooms, hospitals----
    Governor Warner. Right.
    Mr. Walden. [continuing] you go in there, you get care. And 
there has been some talk, some ideas kicked around about giving 
some relief there to say if you are not truly an emergency 
case, the ER room should have the ability to refer you, then, 
perhaps to a public clinic or elsewhere. Have you all looked at 
the implications of that law and policy?
    Governor Warner. You are asking me not only to stick my 
head out but get it chopped off three different ways but----
    Mr. Walden. That is why it is so nice you are there and I--
--
    Governor Warner. No, we have not looked at that 
specifically, but let me tell you what we have done. We have 
said that if a hospital provides, as they should, provides that 
care and it was an inappropriate use, for example, of the ER, 
that we will only reimburse at a doctor visit rate rather than 
an ER visit rate. And so we have incented--and, again, this is 
something that a lot of States haven't done yet. The hospitals 
are trying to put in place now, you know----
    Mr. Walden. But can that----
    Governor Warner. [continuing] a better screening process so 
the person still gets care----
    Mr. Walden. Right.
    Governor Warner. [continuing] but we have shifted some of 
the burden over to the hospitals to try to----
    Mr. Walden. Well, that is why I wondered----
    Governor Warner. [continuing] push them toward the clinic 
as opposed to the ER.
    Mr. Walden. And help me on this one. Do they have the 
authority under Federal law to make that move----
    Governor Warner. No, I don't----
    Mr. Walden. [continuing] to push that----
    Governor Warner. One, I don't know the answer. Two, I 
think----
    Mr. Walden. Okay.
    Governor Warner. [continuing] they do not. But three, what 
we have simply used is our----
    Mr. Walden. Well, yes, you just push the cost onto----
    Governor Warner. Right.
    Mr. Walden. [continuing] them, but as a bigger picture is 
that a law. Okay. One we probably should take a look at. I 
don't know whether it is you or Governor Huckabee talked about 
the issue we have looked at in the Oversight and Investigations 
Subcommittee on AWP versus ASP, average wholesale----
    Governor Warner. Right, right.
    Mr. Walden. [continuing] price versus average sales price. 
We have found some extraordinary disparities, and really what 
appears to be, and I am sure there are those that can educate 
me on a different manner, but perverse incentive when a drug 
goes generic to actually keep the price high to maintain market 
share. Have you found that?
    Governor Warner. I can't speak to that specifically, but I 
am concerned about this notion of as drugs fall into that 
generic category that the fact that they are sometimes--they 
have kept prices artificially high, which is not fair or right. 
We are starting to look at other countries, what Canada has 
done and others, about trying to----
    Mr. Walden. You might want to go----
    Governor Warner. [continuing] better to find generics.
    Mr. Walden. I know you have lots of time and nothing to 
read, but you might want to get the transcripts from some of 
our hearings on this issue. It was pretty phenomenal, people 
testifying under oath what happens in that system.
    Governor Warner. Mr. Chairman, I will listen to everybody's 
opening comments first on that transcript before I----
    Chairman Barton. Yes, sir.
    Governor Warner. [continuing] listen to that.
    Mr. Walden. Yes, cut right to the witnesses, believe me. 
The final issue, given your experience in community healthcare, 
I am curious about--we have held some oversight hearings on the 
expansion of the federally qualified healthcare facilities. I 
have seen them firsthand in my district, incredible work they 
are doing. Do you see this community health center concept as a 
reliever and an effective and affordable reliever that may 
actually hold down cost of Medicaid?
    Governor Warner. I think it is one of the tools. We have 
got I think 41 community healthcare centers. We also have the 
largest number of free clinics of any State in the country. 
And, again, one of the things that goes back to why I am 
pushing part of this process and pushing reforms that some may 
say, you know, oh, my gosh, you know, how are you willing to 
even consider these? Because I see the 1 million Virginians who 
don't have anything who access healthcare on an episodic basis 
through free clinics who have no permanent medical home at all, 
and they are the ones who are really getting stuck by our 
system and, you know, to again say that, you know, we are not 
willing to at least look at how we can fix Medicaid. And 
somehow we are going to put off the greater problem, the 45 
million plus Americans who don't have any healthcare coverage 
at all for another day just isn't fair or right. And we can----
    Chairman Barton. Gentleman's time has----
    Governor Warner. [continuing] do this at the same time 
expand some level of are, that is in the best interest of 
this----
    Chairman Barton. Gentleman's time has expired. The 
Gentlelady from California, Ms. Capps.
    Governor Warner. I am going to have to make this the last--
--
    Chairman Barton. Well, if you could do one more on each 
side, Ms. Capps and the long-suffering Dr. Burgess. Do two 
more? They both have been here the whole time.
    Ms. Capps. Thank you, Mr. Chairman. Thank you, Mr. 
Governor, for your testimony. I listened very carefully to it. 
And there is an elephant in this room, no partisan pun 
intended, which you referenced with respect to pharmaceutical 
costs, but exploding costs of healthcare are the bottom line 
across the board everywhere. For example, the growth in the 
cost of premiums for private insurance programs has risen 12 
percent per year, twice as fast as the growth of increased 
costs for Medicaid as one example. And I hope there is a chart 
that is going to be lifted up so that you can see it.
    [Chart]
    Ms. Capps. There is a version for you.
    Governor Warner. With my eyes, that is about a perfect 
range----
    Ms. Capps. Is that a good range for you? I would like to 
focus on with your time as a percentage of income, Medicaid 
beneficiaries out-of-pocket medical expenses, as you can see, 
are substantially larger than those with private insurance. 
And, for example, in 2002 poor adult Medicaid beneficiaries' 
incomes under $797 a month spent 2.4 percent o their incomes on 
medical expenses. Privately insured adults with incomes over 
twice the poverty levels, incomes more than $1,595 a month 
spent less than 1 percent. And this proposal about co-pays and 
increasing the out-of-pocket costs for Medicaid beneficiaries 
could be categorized as nothing more than a tax on the poor for 
being sick or trying to stay healthy. Many of those Medicaid 
beneficiaries have extending circumstances that make it tougher 
for them to stay healthy, labor work, repetitive motion, and 
those with disabilities, it goes on and on. It seems to me that 
what we are considering is increasing taxes on those who can 
least afford it when they are sick. And this is, you know, 
something that you are proposing. I want to ask, given that the 
poor are already paying much more out of pocket for their care 
on average than affluent families, you know, how will they 
manage to do this? They don't get a discount at the tax pump, 
low-income families don't get a discount when they buy school 
clothes for their kids or a discount at the grocery store or a 
discount on their rent. And we have seen difficulty this year 
with gasoline prices, heating, fuel costs, housing costs, how 
can we expect that they are going to be able to pay?
    And my real topic that I want you to address in addition to 
those concerns of mine, we have, as part of our crisis, an 
exploding number of people without health insurance as people 
become unemployed, as more and more employers are eliminating 
health insurance because they can't afford it, small businesses 
and others. Now, you are making the case and your association 
that your desire for flexibility is to keep more people 
insured. I would like to hear how you propose to do that.
    Governor Warner. Great. Well, first of all, you know, 
someone who has, you know, spent enormous amounts of time 
trying to make sure--going back to our Children's Health 
Initiative--that we----
    Ms. Capps. Yes.
    Governor Warner. [continuing] sign up more kids, I have 
seen these studies. I have seen other studies as well that have 
the opposite result. I do know this on just kind of a baseline; 
Congress set as a co-pay level $1 to $3 in the early 1980's. I 
think some being willing to give some flexibility to have some 
marginal increase to that, $3 to $5, $3 to $6 is what I believe 
your own study looked at. I am willing to have that on the 
table. Let me assure you, we have, unfortunately, many parts in 
Virginia still where folks are struggling every day to get by. 
But what I also feel very strongly about is that what you were 
asking me to when I have to match 50 cents on every dollar and 
I have got make--you know, again, I come back to my point I 
made earlier--I have got to make a budget balance----
    Ms. Capps. All right.
    Governor Warner. [continuing] and another editorial 
comment, we have dealt with taxes in a way to make sure that--
--
    Ms. Capps. Yes.
    Governor Warner. [continuing] we can pay our bills----
    Ms. Capps. Let me ask you one more----
    Governor Warner. No, please----
    Ms. Capps. [continuing] question.
    Governor Warner. [continuing] let me finish here. And I 
feel that same level of concern for somebody who makes $50 over 
the Medicaid eligibility line who has nothing.
    Ms. Capps. I so much----
    Governor Warner. And that is----
    Ms. Capps. [continuing] agree----
    Governor Warner. [continuing] exactly why I am saying, you 
know, I have changed on this. It may not be a perfect on the 
employer/employee tax credit to at least have them purchase 
some level of a----
    Ms. Capps. I hear you.
    Governor Warner. [continuing] modified benefit package that 
may look like an SCHIP package. I think it----
    Chairman Barton. I want to----
    Governor Warner. [continuing] makes sense----
    Ms. Capps. I----
    Governor Warner. [continuing] when we try----
    Chairman Barton. The gentlelady's time has expired and we 
still have five members that haven't asked questions. And the 
Governor is only going to let one more go. I am going to ask 
Dr. Burgess--I am going to recognize him, but I would hope that 
he would at least allow Mr. Engel to ask one question, because 
Mr. Engel was here at the gavel and has waited the whole time, 
and it is not probably going to have a chance to have his own 
time. So I am going to recognize--okay, the gentleman yields 
his first 2\1/2\ minutes to Mr. Engel. Two and a half minutes.
    Mr. Engel. Thank you. I will speak very fast. Welcome, 
Governor. It is nice seeing you hear rather than on a plane. 
And I have been listening to your testimony, and no wonder 
people think you are a rising star. I just want to quickly say 
that the Medicaid discussion, there is no denying that 
budgetary numbers are playing a major role, and I think what 
you have heard from many of us, particularly on this side of 
the aisle is that we feel the priorities are misdirected in 
this Congress, that if we didn't have these huge tax cuts for 
wealthy people there would be more money to share for the 
Medicaid program with the States.
    I would like to just say two things and then ask you to 
comment in some--and I thank my colleague, Mr. Burgess, for 
yielding to me. What bothers me is there are a million people 
living with HIV/AIDS. New York is one of the epicenters of that 
unfortunately. If we are going to say that under current 
Medicaid standards the beneficiary could be charged up to $3 
per prescription, in the case of an individual that might be 
taking multiple drugs might be $45 a month, it really would 
impact very, very negatively on these people. I am wondering if 
you could talk about that.
    And also, Governor Huckabee had mentioned the changing of 
the ability to have redress in the courts, and that bothers me 
because if you take a State like California, the State wasn't 
screening kids for lead poisoning and people went to court and 
changed that. The AIDS epidemic, Missouri refused to provide 
coverage for AIDS drugs; they went to court and lost. If you 
take that away, I am afraid that we are going to have a lot of 
problems. So if you can comment to anything I have said, I 
would appreciate it.
    Governor Warner. I appreciate your comments and very 
briefly, at some level you have to hope and expect the 
Governors are going to bear some level of responsibility and 
not, you know, put someone who has AIDS and be able to have 
them so restrict their drugs they can't get the therapy they 
need. There has to be, again, some balance here. I think that 
most Governors have not, you know, when we have been granted 
flexibility in the past have not abused it. There are 
exceptions, but I think for the most part they will do the 
right thing.
    I think in terms of--we have tried to draw very, very 
narrowly the question on judicial reform. And I understand your 
concern. There was a number of us that were concerned on some 
of the consent decree.
    Chairman Barton. Dr. Burgess----
    Mr. Engel. Thank you.
    Chairman Barton. [continuing] last 3 minutes.
    Mr. Burgess. Governor, thank you very much for being with 
us today. It has really been a fascinating discussion that we 
have had. Quickly, what have you done in Virginia to keep 
employers from dropping out of the private insurance when you 
have expanded coverage in your SCHIP and your Medicaid program? 
You said you brought 95 percent of children into the fold, and 
we have a problem back in Texas with some employers dropping 
out of the insurance coverage when that happens.
    Governor Warner. Well, again, we have relatively low 
eligibility standards again, so that it is not--we are serving 
children that we think desperately need it. I think you raise a 
bigger question, which is if you are going to provide some 
incentive, and what we propose, for example, a tax credit that 
might go toward small businesses or might even go toward 
employees to be able to purchase some form of private health 
insurance, how do we not turn that into an incentive for 
employers to drop coverage? And if you asked me 2 years ago I 
would have said, and that is the reason why I don't support 
that tax credit approach. What I am saying 2 years later with 
what I see of this taking place anyway, with what I see with 
increasing caseloads, with what I see with these increasing 
costs, we have got to try to find a way to sort through to not 
tip the balance so the people actually no longer provide the 
health insurance. But for those who are on the edge, there 
ought to be an employer contribution, but somehow craft 
something to try at least in the middle. That is not a very 
good answer, not very articulate, but I hope you know what I 
am----
    Mr. Burgess. I do, and in fact at the risk of 
oversimplifying, I see three populations on the Medicaid 
system, the truly medically destitute, medically frail who are 
going to need the big----
    Governor Warner. Full boat.
    Mr. Burgess. [continuing] safety net that Mr. Huckabee was 
talking about. And then you have got, of course, the long-term 
care issue that does have to be dealt with. And in between you 
have got the patients that I used to see in my medical 
practice, basically pregnant moms who need help paying for 
insurance. And they don't need the same kind of safety net that 
the medically frail and indigent need. So I certainly welcome 
your concept, whether we call it vouchers, premium support, or 
tax credits, I am absolutely in favor of that, and I would like 
to see us be able to expand that and offer the whole panoply, 
HMO, PPO, EPO, HSAs, whatever, to that segment of the 
population and let them choose what best fits their needs.
    Finally, in the last few seconds I have, I couldn't help 
but think as I watched both of you up here, we are seeing a 
preview of the debates of 2008, and I hope you do remember that 
you are the last bipartisan game in town, and we will keep the 
tone as great as we have seen it this morning. It was truly 
something to watch, both of you together. Thank you.
    Governor Warner. Thank you.
    Chairman Barton. We have five pending votes on the floor. 
We are going to adjourn the hearing. Unfortunately, Mr. Ross 
and Ms. Myrick and Mr. Shimkus aren't going to be able to ask 
verbal questions, but they will be given the opportunity on the 
written record.
    We want to thank you, Governor. We will be working with 
your taskforce and the Governors Association. This committee is 
a bipartisan committee, and we intend to report a bipartisan 
Medicaid reconciliation package sometime this fall. This 
hearing is adjourned.
    Governor Warner. Thank you, Mr. Chairman.
    [Whereupon, at 2 p.m., the committee was adjourned.]
    [Additional material submitted for the record follows:]
  Prepared Statement of Governor Anibal Acevedo-Vila, Commonwealth of 
                              Puerto Rico
   Medicaid Reform: The National Governors Association's Bipartisan 
                                Roadmap
        The federal Medicaid partnership with U.S. commonwealths and 
        territories has become increasingly unbalanced over a period of 
        years . . . The imbalance affects quality of care issues and 
        creates increased financial stress. Medicaid reform needs to 
        include a review of the current relationship and the 
        development of a pathway that moves to a rebalancing of this 
        partnership.

                            National Governor's Association
                                            Policy Position
                              EC-16. Medicaid Reform Policy

    The National Governors Association Policy Position EC-16 recognizes 
the imbalance that has developed over a period of years in regard to 
the Federal Medicaid partnership, the Commonwealth of Puerto Rico and 
the U.S. territories.
    I would like to take this opportunity to add my support to the NGA 
policy and to put forward interim steps that begin to address this 
imbalance.
    In 1968, three years after the start of the Medicaid program, 
Congress established a $20 million limit on the level of federal 
Medicaid that would be available to the Commonwealth of Puerto Rico. At 
that time Federal Medicaid costs, nationally, totaled $1.1 billion. The 
Commonwealth matching assistance percentage (FMAP) continued at the 50 
percent level; however, the Federal cap meant that there was no 
reimbursement for expenses to Puerto Rico once the Commonwealth 
expended $40 million. From time to time, Congress has raised the cap, 
but has never reviewed the cap in terms of healthcare or fiscal policy.
    Currently, the Commonwealth of Puerto Rico's effective FMAP rate 
approximates 18 percent. If the 1968 cap had been authorized to grow at 
the same rate as Medicaid grew nationally, Federal support for Medicaid 
in Puerto Rico would now approximate $1.7 billion, as opposed to the 
current Federal support of $219 million. In the states, federal 
Medicaid support approximates $330 per month per participant as 
compared to federal support in Puerto Rico of about $20 per month per 
participant. If Puerto Rico's 1968 Medicaid cap had increased as the 
Medicaid program increased, nationally, the average monthly Federal 
contribution would be about $173 per participant, still a fraction of 
average Federal support.
    These are the challenges the Commonwealth's healthcare community 
confronts while operating in an economy where the cost of living is no 
less than many metropolitan areas in the states, and all of the Federal 
regulatory requirements governing healthcare facilities and providers 
are the same in Puerto Rico as they are in the states.
    As Congress moves forward with its review of Medicaid, I would urge 
that the Committees consider adhering to four principles in terms of 
addressing Medicaid in Puerto Rico:

1. It is in the interest of both the Federal Government and the 
        Commonwealth that the existing healthcare gap between the 
        Island and the states does not grow any greater, and that 
        measures need to be taken to narrow this gap.
2. Federally mandated expenses resulting from Federal consent decrees 
        and U.S. Justice Department enforcement actions should be 
        reimbursed outside of the cap.
3. Critical healthcare needs, particularly for children, persons with 
        disabilities and the frail elderly, need to be considered as 
        strategic healthcare investments, with the Federal contribution 
        coming outside of the cap.
4. The Federal investment in Puerto Rico's healthcare must be 
        safeguarded and efforts and initiatives, particularly in 
        technology, that can safeguard the Federal investment and make 
        the healthcare system more productive should be encouraged and 
        supported.
    In addressing the first principle of not allowing the healthcare 
gap between the Island and the states to grow any further, I believe 
that there are three actions which the Committee can take this year 
that would be meaningful in starting to address the current imbalance:
    1. Family Opportunity Act (FOA) (HR1443, S183). The FOA, as 
drafted, effectively precludes Puerto Rico from participating, as the 
cap on Medicaid reimbursement will prevent any Federal participation. 
If Congress enacts FOA this year, it is essential that Puerto Rico be 
permitted to participate in this program and the New Freedoms 
Initiatives must be placed outside of the cap, so that families and 
children with disabilities in Puerto Rico are not left behind.
    2. Transitional Medical Assistance (TMA). The Congress requires 
Puerto Rico to meet all of the same work standards of the Temporary 
Assistance to Needy Families (TANF), but the Commonwealth is not 
authorized to participate in TMA. TMA is recognized as one of the most 
critical elements in the success of moving families from welfare to 
work. When Congress reauthorizes TANF and TMA, it is essential that 
Puerto Rico be authorized to participate in and receive reimbursements 
for TMA so that it is in a stronger position to meet its TANF 
obligations.
    3. Adjustment Factor. From 1998 to 2003, Federal support for 
Medicaid increased nationally 65 percent while Federal support for 
Medicaid in Puerto Rico increased 30 percent. The disparity in the 
growth rate is an issue that must be addressed this year, because each 
year that it is delayed, there is increasing pressures on the 
Commonwealth's healthcare system and fiscal strength. I urge the 
Committee to amend the provisions related to the annual adjustment for 
the Puerto Rico's Medicaid cap so that the adjustment is no less than 
the percentage increase in the national Medicaid program. This can be 
an important step in addressing the overall healthcare gap. It will 
also be consistent with actions Congress took in regard to the Medicare 
Modernization Act where the annual adjustment to the Commonwealth's 
block grant is based upon the annual growth of Medicare Part D.
    These three steps start to lay the foundation to address the 
current imbalance. By including Puerto Rico in the two authorizations 
and adopting an adjustment policy that reflects changes in the program 
nationally, Congress will put into practice the principle of not 
permitting the imbalance of the Commonwealth/Federal Medicaid 
partnership.
    I urge the Committee to consider these proposals as you move 
forward with budget reconciliation and I am certainly available to work 
with the Committee to find solutions which start to realign the current 
imbalance of the Commonwealth Medicaid partnership with the Federal 
government.
    When Congress considers long term comprehensive Medicaid reform, I 
urge the Committee to examine the issues I raised previously, 
including:
    1. Impact of Consent Decrees. The Commonwealth is under two consent 
decrees initiated by the US Justice Department requiring the 
expenditure of funds that are eligible for Medicaid reimbursement, but 
not eligible for a Federal match in Puerto Rico. My fellow Governors 
are concerned about the impact of the consent decrees since they are 
required to pay between 20 and 50 percent of their costs (Federal 
Medicaid financing the balance). I am particularly concerned as the 
Commonwealth is not authorized to receive any additional reimbursements 
for eligible Medicaid costs resulting from the enforcement action of 
the U.S. Justice Department, and is required to absorb 100 percent of 
the costs.
    2. Critical Needs. Critical healthcare needs, particularly for 
children, persons with disabilities and the frail elderly must be 
assessed with consideration given to possible support for strategic 
healthcare needs investments and should be viewed in the context of 
Medicaid reform to insure that these vulnerable populations are 
adequately served. One simple way to begin to take care of these 
critical needs and to begin to narrow the existing gap would be a new 
policy that would place the Federal contribution of Medicaid coverage 
outside of the existing cap for every child born after a date certain. 
This way, we begin to take care of our children first, and we tackle 
the existing gap in a slow, but steady fashion.
    3. Safeguards and Technology. The Federal investment in Puerto 
Rico's healthcare must be safeguarded. Efforts and initiatives needed 
to protect that investment and make it more productive should be 
encouraged and supported. While technology development has been 
encouraged in the states with as much as 90 percent reimbursements for 
improvements, the Commonwealth has not been authorized to receive 
similar support. The President's initiative on ``interoperable health 
information technology infrastructure'' is an opportunity to make great 
strides in the quality and productivity of the Commonwealth's 
healthcare system, that can pay dividends to both the Federal 
government and Puerto Rico, provided the Commonwealth is authorized to 
access Medicaid funding for the development of these systems, in a 
manner similar to the states.
    As Congress moves forward with comprehensive Medicaid reform, I 
encourage the Committee to follow the guidance of the NGA policy where 
it recommends that Medicaid reform ``needs to include a review of the 
current relationship and the development of a pathway that moves to a 
rebalancing of this partnership.'' The cap established in 1968 is 
grounded in neither healthcare nor economic policy. The result is an 
effective FMAP for Puerto Rico of approximately 18 percent, a rate that 
could not be sustained in any jurisdiction.
    The Commonwealth of Puerto Rico has a long history and strong 
commitment to providing comprehensive healthcare in its communities, 
and that commitment is not going to change. However, meeting that goal 
and fulfilling the Federal statutory requirements such as Early and 
Periodic Screening, Diagnosis and Treatment (ESPDT), and Health 
Insurance Portability and Protection Act (HIPPA), Federal Court rulings 
such as Olmstead and Cedar Rapids, and meeting the Federal regulatory 
requirements of Health Resources and Services Administration and the 
Center for Medicare and Medicaid Services without a more balanced 
Federal partnership creates inordinate financial pressure that has an 
impact on the type of healthcare provided.
    As the Committee moves forward with budget reconciliation I would 
urge establishment of the principle that the current Commonwealth/
Federal Medicaid partnership should not develop any further imbalance, 
and that this goal can be accomplished by enacting the three proposals 
I have outlined. Secondly, in terms of comprehensive long term Medicaid 
reform I urge the Committee to examine the current Commonwealth/Federal 
Medicaid partnership with the objective of establishing a more balanced 
partnership, particularly in light of the healthcare needs, consent 
decrees and opportunities for technological advances.
    Working together, sharing ideas, examining the effects of current 
policy, I believe that we can establish a pathway to rebalancing the 
Commonwealth/Federal partnership, a pathway that makes economic sense 
for both the Federal government and the Commonwealth.
                                 ______
                                 
Prepared Statement of Barbara Kennelly, President National Committee to 
                 Preserve Social Security and Medicare

    Mr. Chairman and Members of the Committee: Chairman Barton, Ranking 
Member Dingell, and members of the Committee, I appreciate your 
leadership in holding this hearing on the future of Medicaid--a program 
of vital interest to our nation's seniors.
    Over the next few months, Congress will be considering a number of 
changes to Medicaid, likely involving substantial cuts to the program. 
On behalf of the 4.6 million members and supporters of the National 
Committee to Preserve Social Security and Medicare, I strongly urge you 
to oppose cuts to the Medicaid program.
    For the past forty years, the Medicaid program has played a crucial 
role in our country's health care system by providing public health 
insurance for low-income Americans. The program protects those that are 
among the most medically and economically vulnerable--children, adults, 
disabled individuals, and seniors--who do not have access to or cannot 
afford private health insurance. According to the Congressional Budget 
Office, in 2005 Medicaid will provide health coverage to 58.5 million 
people (including 5.4 million senior citizens and 9.2 million disabled 
individuals) 1.
---------------------------------------------------------------------------
    \1\ Congressional Budget Office. ``Fact Sheet for CBO's March 2005 
Baseline: Medicaid and the State Children's Health Insurance Program''. 
Washington, D.C.: March 2005.
---------------------------------------------------------------------------
    Older Americans benefit from an array of important services 
provided by Medicaid, such as: hospitalization, physician services, 
long-term care, prescription drugs, clinic services, prosthetic 
devices, hearings aids, and dental care. While seniors represent only 9 
percent of Medicaid's enrollees, they receive over a quarter of 
Medicaid's expenditures. Seniors receive a larger share of Medicaid's 
expenditures because they require more frequent and expensive medical 
attention. The Kaiser Family Foundation estimates that in 2003 the 
Medicaid program spent almost $13,000 per senior.2
---------------------------------------------------------------------------
    \2\ Kaiser Commission on Medicaid and the Uninsured. ``The Medicaid 
Program at a Glance.'' The Henry J. Kaiser Family Foundation. 
Washington, D.C.: January 2005.
---------------------------------------------------------------------------
    Senior citizens also benefit from Medicaid because of its leading 
role in our nation's long-term care system. The program's spending 
accounts for 43% of our nation's total spending on long-term care. For 
example, Medicaid provides vital financing for nursing homes, which 
rely on the program for about half of their total funding. Further, 
nearly 60 percent of all nursing home residents receive Medicaid. The 
fiscal year 2006 budget resolution passed by Congress targets the 
Medicaid program for billions of dollars in reconciled cuts over the 
next five years. The National Committee strongly opposes any cuts or 
funding caps to the Medicaid program. Cutting the program or imposing 
caps on federal payments to the states would disproportionately hurt 
seniors by ending coverage for millions of beneficiaries and/or 
shifting rising health care costs on to state governments that are 
already struggling to meet the needs of an aging population.
    It is impossible to make meaningful reforms to the Medicaid program 
without examining the flaws in our nation's health care system. The 
growth in Medicaid spending is symptomatic of the larger problems with 
health care, such as: growing health care costs, skyrocketing prices of 
prescription drugs, declining employer-sponsored health care coverage, 
and the increasing number of the uninsured. Despite these daunting 
facts, Medicaid's overall growth rate is significantly lower than that 
of private health insurance premiums (6.9 percent for Medicaid versus 
12.6 percent for private insurance premiums) 3.
---------------------------------------------------------------------------
    \3\ These figures refer to the average growth rate per enrollee for 
acute care from FY2000-2003. For additional information, see John 
Holahan and Arunabh's article ``Understanding The Recent Growth In 
Medicaid Spending, 2000-2003'' from the January 26, 2005 edition of 
Health Affairs.
---------------------------------------------------------------------------
    About twenty-two percent of National Committee member households 
have incomes below $15,000 per year and many are eligible for Medicaid 
benefits. Our members know that the program's financing structure has 
proven highly successful in responding to difficult economic times 
because it guarantees coverage to all those who are eligible. 
Therefore, we believe it is essential to preserve the current structure 
of the Medicaid program.
    Thank you for giving me this opportunity to discuss Medicaid and to 
share the National Committee's views on the program before this 
Committee. As always, I look forward to working with you on the host of 
issues impacting America's seniors.

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