[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
STATE FISCAL RELIEF: PROTECTING HEALTH COVERAGE IN AN ECONOMIC DOWNTURN

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                         TUESDAY, JULY 22, 2008

                               __________

                           Serial No. 110-139


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

    JOHN D. DINGELL, Michigan,       JOE BARTON, Texas
             Chairman                    Ranking Member
HENRY A. WAXMAN, California          RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts      FRED UPTON, Michigan
RICK BOUCHER, Virginia               CLIFF STEARNS, Florida
EDOLPHUS TOWNS, New York             NATHAN DEAL, Georgia
FRANK PALLONE, Jr., New Jersey       ED WHITFIELD, Kentucky
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 SHADEGG, Arizona
ELIOT L. ENGEL, New York             CHARLES W. ``CHIP'' PICKERING, 
GENE GREEN, Texas                        Mississippi
DIANA DeGETTE, Colorado              VITO FOSSELLA, New York
    Vice Chair                       ROY BLUNT, Missouri
LOIS CAPPS, California               STEVE BUYER, Indiana
MIKE DOYLE, Pennsylvania             GEORGE RADANOVICH, California
JANE HARMAN, California              JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MARY BONO MACK, 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             SUE WILKINS MYRICK, North Carolina
MIKE ROSS, Arkansas                  JOHN SULLIVAN, Oklahoma
DARLENE HOOLEY, Oregon               TIM MURPHY, Pennsylvania
ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah                   MARSHA BLACKBURN, Tennessee        
G.K. BUTTERFIELD, North Carolina     
CHARLIE MELANCON, Louisiana          
JOHN BARROW, Georgia                 
DORIS O. MATSUI, California          
                                     
                                     
_________________________________________________________________

                           Professional Staff

 Dennis B. Fitzgibbons, Chief of 
               Staff
Gregg A. Rothschild, Chief Counsel
   Sharon E. Davis, Chief Clerk
  David Cavicke, Minority Staff 
             Director

                                  (ii)
                         Subcommittee on Health

                FRANK PALLONE, Jr., New Jersey, Chairman
HENRY A. WAXMAN, California          NATHAN DEAL, Georgia,
EDOLPHUS TOWNS, New York                 Ranking Member
BART GORDON, Tennessee               RALPH M. HALL, Texas
ANNA G. ESHOO, California            BARBARA CUBIN, Wyoming
GENE GREEN, Texas                    HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado              JOHN B. SHADEGG, Arizona
LOIS CAPPS, California               STEVE BUYER, Indiana
    Vice Chair                       JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
ELIOT L. ENGEL, New York             SUE WILKINS MYRICK, North Carolina
JAN SCHAKOWSKY, Illinois             JOHN SULLIVAN, Oklahoma
HILDA L. SOLIS, California           TIM MURPHY, Pennsylvania
MIKE ROSS, Arkansas                  MICHAEL C. BURGESS, Texas
DARLENE HOOLEY, Oregon               MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          JOE BARTON, Texas (ex officio)
JIM MATHESON, Utah
JOHN D. DINGELL, Michigan (ex 
    officio)
  


                             C O N T E N T S

                              ----------                              
                                                                   Page
 Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     1
 Hon. Nathan Deal, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     3
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     4
    Prepared statement...........................................     6
 Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................    10
Hon. Tammy Baldwin, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    11
 Hon. Jan Schakowsky, a Representative in Congress from the State 
  of Illinois, opening statement.................................    12
 Hon. Henry A. Waxman, a Representative in Congress from the 
  State of California, opening statement.........................    13
 Hon. Darlene Hooley, a Representative in Congress from the State 
  of Oregon, opening statement...................................    14

                               Witnesses

Robert Tannenwald, Ph.D., Vice President and Director, New 
  England Public Policy Center at the Federal Reserve Bank of 
  Boston.........................................................    15
    Prepared statement...........................................    17
James Frogue, State Project Director, Center for Health 
  Transformation.................................................    29
    Prepared statement...........................................    32
Gerald W. McEntee, International President, American Federation 
  of State, County, and Municipal Employees......................    43
    Prepared statement...........................................    45
Robert B. Helms, Ph.D., Resident Scholar, American Enterprise 
  Institute......................................................    51
    Prepared statement...........................................    53
Heather Howard, Commissioner, New Jersey Department of Health and 
  Senior Services................................................    68
    Prepared statement...........................................    70

                           Submitted Material

American Academy of Pediatrics, statement for the record.........    86
.................................................................


STATE FISCAL RELIEF: PROTECTING HEALTH COVERAGE IN AN ECONOMIC DOWNTURN

                              ----------                              


                         TUESDAY, JULY 22, 2008

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:08 p.m., in 
room 2322, Rayburn House Office Building, Hon. Frank Pallone, 
Jr., (chairman of the subcommittee) presiding.
    Present: Representatives Pallone, Waxman, Baldwin, 
Schakowsky, Hooley, Dingell (ex officio), Deal, Murphy, and 
Burgess.
    Staff Present: Elana Leventhal, Robert Clark, Amy Hall, 
Bridgett Taylor, Hasan Sarsour, Brin Frazier, Lauren Bloomberg, 
Brandon Clark, Ryan Long, and Chad Grant.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Good morning.
    The subcommittee is having a hearing today on State Fiscal 
Relief: Protecting Health Coverage in an Economic Downturn, and 
I will initially recognize myself for an opening statement.
    I know that the members present today made a concerted 
effort to be here as there are no votes until later this 
afternoon. So I do want to thank everyone for being present for 
this very important discussion.
    Medicaid, as you know, provides over 61 million Americans 
with access to medical care and specialized supports and 
services. It protects our most vulnerable populations, our 
poor, and our disabled. Unfortunately, due to converging 
economic factors and the ensuing, growing fiscal pressures, the 
Medicaid programs in many States are threatened and millions of 
American citizens are in danger of losing access to the health 
care coverage they desperately need.
    Already, 13 States, including my home State of New Jersey, 
have considered or implemented changes to their Medicaid 
program that affect eligibility criteria. These cuts affect not 
only those already on Medicaid but also those who will come to 
need it as the economy continues to decline. Higher 
unemployment rates and, therefore, decreases in employer-
sponsored health care coverage will force more people to turn 
to Medicaid for their health care needs.
    In fact, a study conducted by the Kaiser Family Foundation 
found that increasing the national unemployment rate by 1 
percentage point increases Medicaid and SCHIP enrollment by 1 
million. At a time when States are already struggling to 
balance their budgets, this type of change in unemployment 
rates would increase State spending by approximately $1.4 
billion.
    Adding insult to injury, cuts to State Medicaid programs 
not only impact Medicaid-eligible individuals but they also 
adversely effect the health care job market. Medicaid cuts 
translate into health care job losses. Cutting Medicaid, 
therefore, only contributes to a State's unemployment rate and 
a need for Medicaid services, exacerbating the worsening fiscal 
crisis.
    With the economy declining, it is crucial now more than 
ever that we in Congress ensure that those hardworking American 
families who are negatively impacted by the economic downturn 
have this safety net to protect them.
    To alleviate some fiscal pressures and to halt negative 
trends, I, along with my colleagues Mr. Dingell, Mr. King and 
Mr. Reynolds, introduced a bill to temporarily increase each 
State's Federal Medical Assistance Percentage, or FMAP, during 
this economic downturn to ensure that States can continue to 
provide critical services instead of cutting them.
    Our legislation provides a temporary FMAP increase of 2.95 
percentage points, with the condition that States do not change 
eligibility criteria. It also includes a hold harmless and 
Federal contributions for States that are slated for decline in 
their Federal contribution. In addition, the legislation 
provides a temporary increase of the Medicaid FMAP by 5.9 
percent to the territories.
    This bill is very similar to what was passed by a 
Republican Congress and signed into law by President Bush in 
2003 as part of the Jobs and Growth Tax Relief Reconciliation 
Act. The FMAP increase we provided in 2003 was a success. 
Studies have shown that the temporary increase provided the 
funding needed to avert or limit cuts to the Medicaid program, 
to avoid provider payment cuts, and to reverse any cuts States 
had already enacted.
    I believe it is once again the responsibility of Congress 
to ensure that Medicaid, a vital public health safety net, is 
protected. Medicaid is a joint Federal and State effort, and 
the Federal Government needs to do its part to protect the 61 
million Americans who already rely on Medicaid to get their 
health care services, as well as the millions more who will 
need these services as the economy continues to decline and 
unemployment rates rise. Temporarily increasing the Federal 
matching payments in Medicaid is a proven strategy for 
stimulating the economy.
    I want to thank each of our witnesses for being here today 
to talk about the current fiscal situation States are facing; 
and I especially would like to welcome Heather Howard, the 
Commissioner of the New Jersey Department of Health and Senior 
Services. Some of you remember her as the Chief of Staff for 
Governor Corzine when he was a Senator.
    And, obviously, we are pleased that you all were able to 
come on relatively short notice.
    And, again, I want to thank the members who are here today, 
too. Because, as I said before, we don't vote until 6:30. The 
very fact that they are present earlier in the day is testimony 
that you are considering this important issue.
    I yield now to our ranking member, the gentleman from 
Georgia, Mr. Deal.

  OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Deal. Thank you, Mr. Chairman.
    I want to thank you for holding this hearing on a very 
important subject that will determine the future direction of 
the Medicaid program and to consider proposals to increase the 
Federal Medical Assistance Percentage rate.
    I want to thank the witnesses who have agreed to be here 
this afternoon, all of whom have been selected for their unique 
perspective and their individual expertise on the issue. I 
appreciate the input that they will have and will provide 
today.
    The Federal Medical Assistance Percentage, or FMAP, is the 
formula used to determine the Federal share reimbursable to 
States each quarter. This formula is specifically constructed 
to allocate higher FMAP reimbursements to States with lower per 
capita incomes relative to the national average. Alternatively, 
States with higher per capita income levels receive lower FMAP 
reimbursement rates. Regardless of this formula, however, no 
State may be subject to an FMAP below 53 percent or in excess 
of 83 percent as defined by statute.
    According to the States' own enrollment data, over 63 
million Americans were enrolled in Medicaid in 2005, and we 
expect the program to cost the American taxpayers over $370 
billion this year. In addition, the Congressional Budget 
Office's latest budget and economic outlook indicated Medicaid 
and Medicare will be the primary determinant of the Nation's 
long-term fiscal balance, noting that the Medicaid program 
alone will cost the American taxpayers over $5.7 trillion over 
the next 10 years.
    First and foremost, I am concerned about funneling an 
additional $15 billion of Federal taxpayers' dollars into a 
welfare program without doing anything to increase the levels 
of innovation, accountability or efficiency in the Medicaid 
program. Without question, the fact that Medicaid spending 
continues to increase at a rate that is over three times the 
rate of inflation is unsustainable and will result in 
inadequate resources to meet our current and future 
obligations.
    The combination of a retiring baby boomer generation and 
longer life expectancies are clear indicators that Congress 
must address this vital issue with fundamental reforms, not 
merely through a patchwork of superficial measures that will 
sadly fail to fix inflated entitlement spending in this 
country.
    The current economy is no doubt having an impact on all 
Americans, and Congress must act responsibly to provide 
assistance to families in need. Stagnant capital markets, 
declining home prices, increasing unemployment, and the rising 
price of food and gasoline has forced families to drastically 
scale back on spending where possible. While saving the 
Medicaid program for future generations of beneficiaries is 
going to require some significant structural changes, there are 
several changes we can make now that would improve its 
financial viability.
    I am certain with the collaboration of all members of this 
committee we can reach a bipartisan, long-term solution that 
addresses the fundamental flaws with Medicare and Medicaid and 
will rein in fraudulent and wasteful spending. Furthermore, as 
an open-ended entitlement program, States' savings that may 
result from an FMAP increase could be used for a variety of 
purposes that are not restricted to Medicaid.
    If we are going to substantially increase FMAP 
reimbursement rates as this legislation aims to do, we, as good 
stewards of taxpayers' dollars, must ensure these funds are 
used for the purpose for which they are intended. Together, we 
are reform this program; and the first step we must take is to 
say no to another costly, short-term fix while ignoring the 
core problem for a later day. The American people have waited 
long enough.
    I thank you for holding this hearing, and I look forward to 
a discussion of these vital and important issues that affect 
families across this country.
    I yield back.
    Mr. Pallone. Thank you, Mr. Deal.
    I next recognize for an opening statement the chairman of 
the full committee, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    The Chairman. Mr. Chairman, I thank you for your courtesy 
and I commend you for focusing attention on the continuing 
problem of State fiscal relief. I want to begin by expressing 
my appreciation to you and to our witnesses today for their 
presence, especially my friend, Mr. McEntee.
    Earlier in the year, Mr. Chairman, you introduced 
legislation, H.R. 5268, to provide temporary and targeted State 
fiscal relief through enhanced Federal Medicaid funding. The 
subcommittee held a number of hearings related to Medicaid and 
State Children's Health Insurance Programs, SCHIP, during which 
time the issue of Medicaid as a vehicle for State fiscal relief 
was discussed.
    As the current economic downturn continues and the House 
begins its work on a second economic stimulus package, today's 
hearing will provide a timely insight into how Medicaid can be 
an integral part of it. For every dollar the State spends on 
Medicaid, the Federal Government contributes between $1 and 
$3.17. This funding not only contains and sustains health 
coverage but it is critical for supporting jobs and wages 
throughout the State.
    Unfortunately, the situations that the States are 
confronting is dire. Twenty-nine States face a total fiscal 
budget shortfall of at least $49 billion in 2009. Michigan, for 
example, has a $472 million budget gap to close, nearly 5 
percent of the general fund of the State. Nearly half of these 
States facing deficits have implemented or proposed cuts that 
will affect the eligibility for health insurance programs or 
access to health services.
    When the Census Bureau releases its new release in late 
August, we expect to see a rise in the number of uninsured. 
This in turn means increased pressure on State Medicaid 
programs. A 1 percent increase in unemployment, which is 
roughly equal to what happened in June, 2007, to June, 2008, 
would translate into approximately 1.1 million new uninsured 
and an increase in approximately 1 million new Medicaid and 
SCHIP enrollees. I would remind the committee that SCHIP 
improvements, which would have covered additional children, was 
vetoed by the administration.
    So if we want to protect existing coverage and make sure 
that the program can serve those who are affected by the 
downturn, an increased Federal commitment to Medicaid is 
necessary. Not only is the well-being of the States at stake 
but so also is the well-being of many citizens who will have no 
place else to turn for health care.
    In addition to helping secure health coverage, Medicaid can 
stimulate the economy in another way. The injection in new 
Federal dollars through Medicaid has a measurable fact on State 
economy, including generating new jobs and wages. It is also 
enormously helpful to health institutions and providers within 
several States, because without this they will confront the 
problem of providing more health care to people who cannot 
afford to pay it.
    For example, if the provisions of your bill, the Pallone-
King bill, Mr. Chairman, were to take effect this October, 
Michigan will receive an additional $324 million in Medicaid 
funding, which will generate $539 million in additional 
business activity and create 5,400 additional jobs and mean 
$201 million in additional wages just for my State.
    We know that the temporary Medicaid fiscal relief funding 
was effective in instigating the 2003 economic downturn. The 
Federal funds helps States avoid Medicaid cuts. States have 
already adopted a wide range of cost-containment strategies 
during the last economic downturn, and there are fewer policy 
options to reduce spending without significantly harming 
coverage or access to care.
    I look forward to hearing from today's witnesses about the 
fiscal condition of the States and how increased Federal 
assistance can protect health coverage and stimulate the 
economies of several States. I believe that before the fall is 
here we will have a second stimulus package that will include a 
targeted and temporary increase in Federal assistance for 
Medicaid. It is very much needed.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Dingell follows:]

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    Mr. Pallone. Thank you, Chairman Dingell.
    I next recognize for an opening statement the gentleman 
from Texas, Mr. Burgess.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman.
    I appreciate you holding the hearing today, and I 
appreciate you not starting at 11 o'clock this morning. It is a 
more reasonable time of 2:00 in the afternoon. I think it 
certainly boosted attendance on our side.
    I think we all agree we need to take a hard look at 
Medicaid, the Medicaid funding. We will probably not all agree 
on where the solution lies.
    One of the issues before us today is whether it may be 
feasible in the near term, midterm or long term for the Federal 
Government to provide States with a fiscal bailout, given the 
state of the economy. The Ben Bernanke of our committee, 
Chairman Pallone, has already issued a forecast that the 
economy will continue to decline. I hope Wall Street wasn't 
paying strict attention when you made that statement, but 
nevertheless, we will see.
    But at this juncture it is, I think, interesting to point 
out a couple of things. Fiscal year 2008, State revenue 
collections were up 1.7 percent. A total of 29 States report 
that they will either meet or exceed their revenue projections; 
20 States will fall below revenue projections. Budget 
stabilization funds, so-called rainy day funds, remain 
sufficient in most States. In aggregate, State balances are at 
around 8 percent for fiscal year 2008. It is down somewhat from 
the 11.5 percent of 2006 but still positive.
    The last time Congress intervened in the State budget 
crisis was 2003. At that time, 40 States faced revenue 
collections that fell short of planned budget expenditures. 
This economy is not great, but I wonder if it might be 
premature for this committee or this Congress to begin thinking 
about a multi-billion dollar bailout for State Medicaid 
programs. Certainly, reviewing the data, it seems to show the 
relative health of State budgets isn't nearly as dire as it was 
in 2002. While I wouldn't advocate allowing it to become dire, 
I think keeping it in context is helpful.
    It is a little disappointing--we have a great panel, many 
esteemed guests in front of us. I am grateful for that, Mr. 
Chairman. But, really, it would be good if we had a 
representative from, say, the National Governors Association or 
National Association of State Budget Officers to discuss the 
fiscal issues that are actually facing the States.
    If it is the goal of this committee to address this issue 
this year, it almost seems like we will need more information 
than this hearing will provide to justify us moving forward.
    It is important that Mr. McEntee should note that the 
skyrocketing energy crisis are putting pressure on State, 
county, and city governments. That is an economic issue and 
economic reality that is already at crisis stage. We have in 
our power in Congress the ability to address this issue head 
on, but all we have seen out of Congress for this year and last 
year is talk, talk, talk.
    Our sum total of energy policy in the past 18 months has 
been to ban the incandescent bulb. And, yes, if anyone is 
interested, I relinquished all the incandescent bulbs from my 
office last week under an order from the Speaker. I think our 
time would be better spent working on energy prices, quite 
frankly, and coming back to deal with State fiscal issues under 
the Medicaid system at another time.
    I think we are going to hear some interesting testimony 
today that perhaps adding additional money may not be the 
answer but being more frugal and more sensible about how those 
monies are allocated and really doing our job with oversight to 
ensure that we get the inefficiency and duplication out of the 
system.
    But, nevertheless, Mr. Chairman, an interesting topic, and 
I look forward to lively discussion this afternoon.
    Mr. Pallone. Thank you, Mr. Burgess.
    Next I recognize for an opening statement the gentlewoman 
from Wisconsin, Ms. Baldwin.

 OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Ms. Baldwin. Thank you, Mr. Chairman.
    Thank you for holding this important hearing and 
particularly since it is on an issue of great urgency, in my 
opinion.
    I also want to thank our panel of witnesses for being with 
us today. I look forward to hearing your testimony.
    As we look across the country, every State is facing 
serious economic difficulties. But we are here today to ensure 
that States are not forced to respond to these tough times by 
restricting access to health care to those most in need.
    In my home State of Wisconsin, people are struggling with 
recovery from recent floods and, as elsewhere, also with 
skyrocketing gas surprises, high food prices, plant closings, 
and job losses--and now, more than ever, the cost of health 
care.
    When I surveyed my constituents recently and asked them 
about the state of the economy, almost 40 percent said that 
their family finances were significantly affected by the price 
of prescription drugs, just one component of health care costs. 
We know from past experiences that during recessions and when 
health care costs are high more American workers find that they 
must use Medicaid as their safety net. The increased enrollment 
in Medicaid is a sign that the program is working, but it puts 
a huge strain on tight State budgets.
    My State is one of the 29 which Chairman Dingell just 
referenced, in which the government revenues are expected to 
fall short of the amount needed to support the current services 
that are offered in the next fiscal year. Since the beginning 
of 2008, the number of individuals eligible for Medicaid in the 
State of Wisconsin has increased by over 10 percent, especially 
among children, parents, and pregnant women.
    Unlike the Federal Government, State governments are 
required to balance their budgets, and so they must do 
something to address the shortfall in revenues in this economic 
downturn. And we know that this ``something'' will likely 
involve cutting services, social services, leaving vulnerable 
Americans without a safety net.
    Cutting back on Medicaid coverage means that many will be 
unable to afford health care. It means that our most vulnerable 
families are at even greater risk both in terms of their health 
and their finances.
    We must do everything that we can to ensure that States can 
support continued access to health care. When our Nation faced 
economic challenges in 2003, the Federal Government stepped in 
and supported States through an increase in the Federal 
matching program for Medicaid. Because of this temporary fiscal 
relief, States were able to maintain health care services for 
their most vulnerable residents, even with that weak economy.
    Like many of my colleagues, I am proud to be a co-sponsor 
of the chairman's bill, H.R. 5268, which provides for a 
temporary increase in the Federal Medical Assistance Percentage 
under the Medicaid program. I strongly believe this bill should 
become law as quickly as possible and join with many of my 
colleagues in urging our House leadership to include this 
language in the upcoming stimulus or supplemental. The health 
of our most vulnerable Americans depends upon it.
    Thank you, Chairman Pallone, for your leadership on this 
issue and for holding this hearing today.
    Mr. Pallone. Thank you, Ms. Baldwin.
    I next recognize for an opening statement the gentlewoman 
from Illinois, Ms. Schakowsky.

 OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman.
    You continue to lead on issues of improving health care, 
and this committee is particularly well-served by your 
commitment to safeguard coverage for low-income children and 
women and persons with disabilities and senior citizens on 
Medicaid.
    Today's hearing couldn't be more timely. In Springfield, 
Illinois, and in State capitals all across the country 
legislatures are meeting to determine how to meet the growing 
need for Medicaid at a time when State revenues are in decline.
    In Illinois about 2.5 million people rely on Medicaid and 
yet we are facing a $1.8 billion budget gap in 2009. As a 
result, our State is delaying payment to Medicaid providers in 
order to contain costs after having frozen most rates for the 
past several years. This will only serve to reduce the number 
of providers willing to care for Medicaid beneficiaries.
    In this economic downturn, when State budgets are stretched 
thin, we can expect more cutbacks in benefits, payments, and 
eligibility unless we act. That is why we need to pass a 
temporary FMAP increase as soon as possible, not only to 
protect healthcare for our constituents but to help stimulate 
the sagging economy.
    It was mentioned already that, in 2003, States faced 
substantial economic challenges; and it was necessary to 
provide temporary fiscal relief as a result. A wide range of 
economists tell us that increased match rates of routed cuts to 
the Medicaid program stabilized budgets and stimulated the 
economy.
    The situation for States is worse now than it was in 2003. 
Not only are costs of health care rising exponentially but the 
number of uninsured is up and access to the employer-based 
system is down. States are also feeling the strain of the 
housing crisis and can't depend on property taxes to manage 
education costs, forcing States to stretch their health care 
dollars even further.
    Providing States with a temporary increase in Federal 
assistance for Medicaid will not only protect 61 million 
Medicaid recipients--women, children, seniors, and the 
disabled--but will reap positive economic returns for a State 
budget.
    So I am grateful that we are having this hearing today; and 
when I listen to my colleagues on the Democratic side of the 
aisle express compassion for the people who rely so much on 
Medicaid I am very, very proud.
    I want to respond to something that Mr. Deal said, that he 
was reluctant, essentially, to give more money to a welfare 
program that lacks proper accountability. I just have to say I 
wish the same standards were applied to private contractors in 
Iraq like Halliburton or KBR or Blackwater who overcharged 
taxpayers and put our soldiers in danger. Or closer to home on 
this subject to the Medicare Advantage program or Medicaid-
managed care plans, and I could certainly go on.
    So I thank our witnesses for being here today. I would 
particularly like to acknowledge and thank Mr. McEntee for 
continuing to be a champion on this issue.
    And, with that, I yield back.
    Mr. Pallone. Thank you.
    Next for an opening statement the gentleman from 
California, Mr. Waxman.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman, for calling 
this hearing and for your leadership on this important issue. I 
am pleased to join you as a co-sponsor of the legislation.
    We know the States are facing difficulties. The revenues 
are slowing down because of the downturn in the economy. The 
States, as our partners in taking care of the most vulnerable 
citizens, the most vulnerable population for health care needs, 
the States have discretion; and if they don't have the funds, 
the only way they can exercise their discretion is by cutting 
back on provider reimbursement or taking a lot of people and no 
longer making them eligible for Medicaid.
    Well, that is an untenable position. We shouldn't want that 
to happen. The States don't want that to happen. And we have 
tried this in the past to give them an extra matching rate so 
that they can get through the responsibility to take care of 
Medicaid-eligible people during a time of recession. We know it 
worked last time, and I think we can say with confidence it 
will work again this time.
    So I would strongly support the legislation that you have 
suggested and proposed, and I hope other members will join 
together on a bipartisan basis. We shouldn't want to see the 
very poor have the safety net yanked out from beneath them when 
they get sick, and that is exactly what will happen if we don't 
help the States meet their Medicaid responsibility and, in 
effect, watch them create a hole in that safety net.
    I want to yield back the balance of my time. I am pleased 
all the panelists are here today. I welcome all of them and 
look forward to what they have to say. And, more importantly, 
let's work on a bipartisan basis as we did in this committee in 
the past, recently, to stop some very egregious rules from 
going into effect on Medicaid. We ought to help the States as 
we did on a bipartisan basis in 2003.
    Mr. Pallone. Thank you, Mr. Waxman.
    The gentlewoman from Oregon, Ms. Hooley, is recognized for 
an opening statement.

 OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Ms. Hooley. Thank you, Mr. Chair; and thank you for holding 
this hearing.
    I have a very brief statement. I just want to talk a little 
bit about what is happening during our last recession in 
Oregon, which was hit quite hard.
    Oregon DHS saw their caseload for the poor and needy 
increase rapidly, way beyond expectations. I think most of us 
know the reason why. It was loss of jobs, resulting in 
unemployment, high unemployment, and shifts in the levels of 
population groups that form that client base. I think it is 
very clear that we are looking at the same circumstances today.
    This is a time that we can't back away from helping our 
neediest and helping our poor. I think this hearing is timely. 
I look forward to the testimony, and I think we need to do 
everything we can to help our States.
    I yield back and look forward to, again, those of you 
testifying.
    Mr. Pallone. Thank you.
    I think that concludes members' opening statements. We will 
now turn to our witnesses, and we have one panel. Let me 
welcome you and introduce each of you, from my left to my 
right.
    Starting on my left is Dr. Robert Tannenwald, who was Vice 
President and Director of the New England Public Policy Center 
at the Federal Reserve Bank of Boston. Next is Mr. James 
Frogue--I hope I am pronouncing that properly--who is State 
Project Director for the Center for Health Transformation here 
in Washington, D.C. And next is Mr. Gerald--or Gerry--McEntee, 
who is International President for AFSCME, American Federation 
of State, County, and Municipal Employees. Thank you for being 
here with us today. And then we have Dr. Robert Helms, who is a 
Resident Scholar for the American Enterprise Institute here in 
Washington, D.C. And last but not least is our own Heather 
Howard, who is the Commissioner for the New Jersey Department 
of Health and Senior Services for the State of New Jersey.
    Thank you all for being here today.
    I think you know the drill. We have 5-minute opening 
statements. Those statements become part of the hearing record, 
but each witness may, in the discretion of the committee, 
submit additional statements in writing for inclusion in the 
record.
    I will start from my left with Dr. Tannenwald.

   STATEMENT OF ROBERT TANNENWALD, PH.D., VICE PRESIDENT AND 
   DIRECTOR, NEW ENGLAND PUBLIC POLICY CENTER AT THE FEDERAL 
                     RESERVE BANK OF BOSTON

    Mr. Tannenwald. As the first witness, I am not going to say 
anything about Medicaid. I understand my role is to talk about 
the fiscal conditions of the State and--
    Mr. Pallone. I think maybe your mike is not on.
    Mr. Tannenwald. Sorry.
    Mr. Pallone. Do you want to bring it closer to you.
    Mr. Tannenwald. Sorry. This is my first congressional 
hearing.
    Mr. Pallone. That is quite all right.
    Mr. Tannenwald. I am going to talk about the fiscal 
conditions of the States and some of the factors that might be 
responsible for it. And I think I was chosen because my field 
is State and local public finance. I talk quite a bit with 
people from the National Governors Association and NASBO, even 
advise them at times, and they advise me.
    In a nutshell, the fiscal conditions of the States is weak. 
The latest official statistical snapshot of their fiscal 
condition was taken in the first quarter of 2008, three-
quarters into the last fiscal year for most States. Fiscal 
year-to-date tax revenues in that quarter were only 2.6 percent 
above their year-ago level. Given sharp rises in the cost of 
delivering State and local public services, that translates 
into about a 3 percent revenue drop in inflation-adjusted 
terms.
    Revenue growth has been slowing with each passing quarter. 
The nationwide turmoil in housing markets, soaring energy 
prices and food prices, and falling employment have combined to 
hit sales tax collections especially hard. While income tax 
growth has been stronger, it could very well weaken soon, if 
history is any guide.
    Much of the variation in this tax source over the past 
decade has been driven by the stock market. The bull market 
that fueled robust income tax growth in recent years has given 
way to a bear market that is likely to slow or possibly even 
shrink income tax collections in coming quarters. And sharply 
falling housing prices, the implication of that for property 
tax revenues is self-evident.
    Compounding the fiscal challenges posed by current economic 
conditions are long-term trends that have eroded State tax 
bases and intensified demand for State and local services. The 
long-running transition from a goods to a service economy has 
slowed growth and sales tax bases since services are difficult 
to tax politically and administratively. Higher energy and food 
prices are probably here to stay for a long time, boosting 
State and local costs and syphoning dollars away from taxable 
sales. Intensifying competition for jobs in industry has locked 
State and local governments into a bidding war, diverting 
public resources from other uses.
    Tax planners have become increasingly aggressive in 
sheltering their clients from tax liabilities. Public 
infrastructure badly needs repair and modernization, and the 
demand for improvement and educational outcomes is stronger 
than ever. The cost of health care, as this committee knows too 
well, continues to soar.
    Despite these challenges, inflation-adjusted State and 
local spending per capita has fallen during the past 5 years. 
But such simplistic indicators are not much help in judging the 
degree to which State and local governments have spent too much 
or too little. In making such a judgment nothing can substitute 
for a careful evaluation of the conditions confronting State 
and local government that, through no fault of their own, 
compel them to spend more per unit of service delivered, 
augment the array of services they must provide, erode their 
traditional tax bases and complicate tax enforcement.
    In short, State and local governments are in serious fiscal 
trouble, most of them, not all of them, largely not through 
their own fault; and simplistic statistics aren't much help in 
resolving the problem.
    Thank you, Mr. Chairman.
    Mr. Pallone. Thank you, Dr. Tannenwald.
    [The prepared statement of Mr. Tannenwald follows:]

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    Mr. Pallone. Mr. Frogue.

 STATEMENT OF JAMES FROGUE, STATE PROJECT DIRECTOR, CENTER FOR 
                     HEALTH TRANSFORMATION

    Mr. Frogue. Chairman Pallone, Ranking Member Deal and 
members of the committee, thank you for the opportunity to 
testify today. My oral and written remarks reflect solely my 
own views and not necessarily those of the Center for Health 
Transformation, its staff or members.
    This committee is considering legislation that would send 
an additional $15 billion to the States for Medicaid costs that 
they have incurred. There is one simple action this committee 
could lead that would be low cost and go a very long way 
towards improving the care received by 50 million plus people 
on Medicaid, while eliminating much of the waste, fraud and 
abuse that is largely responsible for States having chronic 
financial trouble with Medicaid in the first place.
    Legislation should be put forward by this committee that 
would require States to post their Medicaid patient encounter 
data on the Internet for all to see. Specifically, this is the 
set of claims that Medicaid providers send to the State for 
reimbursement for the treatment of patients. This is 
administratively cheap, simple and would have a profoundly 
positive impact on the quality of care delivered by Medicaid. 
It would dramatically increase accountability for how the 
dollars are spent.
    How many dollars the Federal Government sends each State 
annually is a known number. Each State's FMAP is a known 
number. There is some very simple arithmetic that gives 
policymakers in the tax-paying public the target figure for the 
sum total of Medicaid claims, plus a reasonable amount for 
administrative overhead.
    Of course, it must be stated very clearly and emphatically 
up front that this data should only be released in the public 
if it is a patient de-identified way. Patient privacy is 
sacred. Fortunately, there are multiple safeguards. Use of the 
right algorithms to scramble patient identities is routinely 
successful in similar studies of large employer groups and 
other programs like Medicare.
    States already collect Medicaid patient encounter data, so 
uploading it to the Internet would require minimal costs and 
effort. This incredibly rich data set would then be open to 
policymakers, academics, clinicians and the widest possible 
range of people with expertise in medicine, pricing practices, 
technology, accounting, fraud detection and a vast array of 
other disciplines relevant to modernizing this important 
program. Call it ``Open Source Medicaid''.
    The data would lay bare to all whether or not people on 
Medicaid are getting the appropriate medical care. Of 
statistics revealed by patient encounter data, for example, is 
what percentage of women over 50 are getting annual mammograms? 
That figure should be 100 percent. In one State, the data 
revealed that only 17 percent of women on Medicaid in this age 
group were getting annual mammograms.
    The same State's data showed 4,000 people who had gotten 
six or more OxyContin prescriptions. Less than half of children 
were received well child checkups. It even showed one 
beneficiary who had been at the emergency room 405 times in a 
3-year span. It also appeared the State was overpaying for the 
very expensive drug therapy this individual was receiving, 
probably to the tune of hundreds of thousands of dollars.
    In another claims review in a different State, a hospital 
was found billing Medicaid for pneumonia treatments, at a rate 
of 80 percent bacterial, 20 percent viral. In nature, the ratio 
is about the reverse. So the study revealed either that, A, 
there was a highly unusual and worrisome outbreak of bacterial 
pneumonia or, B, there was fraud. In either case, it is 
important to know right away.
    Claims data shows outliers, trends, adherence to evidence-
based medicine, best practices, disease patterns and outbreaks, 
and pricing among other key points. It is theoretically 
impossible for any one State's Medicaid administration to do a 
better job maximizing the value of this information than would 
the collective wisdom of everyone else who may view it. Hence 
the need to put this information in the public domain to 
leverage the potential of mass collaboration, also known as 
wikinomics.
    Medicare claims data has been given to select researchers 
and institutions for decades and has yielded extremely valuable 
information about patient quality and red flags about 
facilities who have higher costs without corresponding better 
health benefits. The Dartmouth Health Atlas is one good 
example.
    Transparency is apparent around Congress. You have the 
Coburn-Obama transparency bill. Even staff salaries posted on 
Legistorm.
    Medicaid has a problem with waste, fraud and abuse; and the 
people hurt the most by this are poor Americans who see their 
access to care eliminated. The GAO has documented this for 
decades. The most recent study was entitled, Medicaid: CMS 
Needs More Information on the Billions of Dollars Spent on 
Supplemental Programs. This title alone is cause for concern, 
not to mention the fact this fits a decade's long pattern.
    A New York Times article in 2005 uncovered breathtaking 
amounts of fraud in that, the largest Medicaid program in the 
country. The former Inspector General estimated up to 40 
percent of all Medicaid claims there in New York State are 
questionable. A single doctor in 1 year prescribed $11 million 
of a drug intended for AIDS patients most likely diverted to 
body builders, one Brooklyn dentist billed for 991 claims in 1 
day, and of 400 million Medicaid claims paid in 2004, State 
investigators uncovered only 36 cases of suspected fraud.
    The horrific levels of fraud suggested by this New York 
Times series was confirmed by an outside study of New York's 
Medicaid claims that was completed in 2006 and delivered to a 
handful of officials in New York's health department. It found 
that a full one-quarter of New York's Medicaid program cannot 
be explained. One-quarter of the $44 billion spent on New York 
in 2005 was $11 billion.
    Medicaid's chronic financial problems are well-known and 
guaranteed to continue unabated absent real change. If Congress 
chooses to bail out the States as it did again--and at the very 
least it should require States to prove they're using the 
dollars optimally--the best, easiest, cheapest way to do this 
is to require States to post their Medicaid patient encounter 
data on the Internet for all to see.
    Congress should require the same for SCHIP. State officials 
and providers with nothing to hide should have no objections.
    Mr. Chairman, thank you very much.
    Mr. Pallone. Thank you.
    [The prepared statement of Mr. Frogue follows:]

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    Mr. Pallone. Mr. McEntee.

   STATEMENT OF GERALD W. MCENTEE, INTERNATIONAL PRESIDENT, 
 AMERICAN FEDERATION OF STATE, COUNTY, AND MUNICIPAL EMPLOYEES

    Mr. McEntee. Thank you, Mr. Chairman.
    If I could make maybe three points before I get into my 
actual testimony, I guess just about a week or a week and a 
half ago a survey--massive survey came out by the Rockefeller 
Foundation and Time Magazine called the Campaign for American 
Workers. I just want to make a couple quotes. And I quote all 
of these--they sound like my language, but I quote all of these 
that came from the survey.
    ``After a generation of politicians telling us that 
government is the problem, the failure of that ideology is 
plainly evident. Americans are ready for some real solutions to 
bring security back into their lives so they can reach for big 
goals and achieve them. Overwhelming majorities of the public 
support new investments by the public sector to get America 
working again. Public works project, new energy efficiency 
measures, more access to health care, Americans favor each of 
these initiatives by margin of 3:1 or more. Seventy percent of 
Americans favor the government and employers providing the 
social safety net basics like health care and retirement.''
    Now they aren't our union's words. They are from the 
Rockefeller Foundation and Time Magazine.
    The economic problems confronting our States--and I think 
we have already heard--are growing. More than half the States 
are facing budgetary shortfalls. The deficits total at least 
$48 billion for the fiscal year, which started in July. State 
revenues are plummeting. Overall State tax collections have 
fallen to the lowest level in nearly 5 years. Skyrocketing 
energy prices and nose-diving property tax values place an 
additional strain on State and local budgets. Unlike the 
Federal Government, States must balance their budgets each 
year, requiring service cuts or tax increases, actions which 
add to the economic downward spiral.
    When the economy goes south, demand for Medicaid goes up. 
In the last year, the unemployment rate has gone up 1 
percentage point. This level of job losses translates into 1 
million new people in need of Medicaid and SCHIP and another 
1.1 million Americans becoming uninsured. The rise in the 
unemployment rate means a drop in State revenues and an 
additional $3.4 billion in health care costs, and Wall Street 
is projecting more job losses.
    If there is one point I hope you will take away from my 
testimony today, it is that Medicaid matters to us all and must 
be protected and sustained. A short-term increase in Federal 
support for State Medicaid programs will stave off cuts, help 
revive our economy and I would submit it is a moral imperative 
as well.
    With the Medicaid program, we come together as a Nation to 
care for each other. Because of Medicaid, we make sure that 
economic hardship does not damage the health of our neighbors 
and family members who have no other options for health care.
    Medicaid is also the backbone of our Nation's health care 
system and a major component of State economies. It is a 
significant source of funding for hospitals and community 
health centers across our country. Medicaid also plays a 
crucial role in training the next generation of doctors.
    Faced with budget shortfalls, States are considering 
changes in eligibility and services which could directly hurt 
beneficiaries. Such harsh changes are usually considered as a 
last resort, but States are running out of options.
    In the last downturn, States already lowered or froze 
provider payments and reined in prescription drug spending. In 
this recession, core program cuts are more likely to be on the 
chopping block. And you have heard various examples from 
various representatives here about their States, whether it is 
Illinois or whether it was Oregon or whether it was Wisconsin.
    We believe that Congress must act now to pass H.R. 5268, 
bipartisan legislation introduced by Chairmen Pallone and 
Dingell and Representatives King and Reynolds to prevent 
additional cuts in Medicaid. We believe it is an effective way 
to stimulate State economies and protect our Nation's health 
care system.
    I thank you for the opportunity to testify and would be 
believed to answer any questions when the time comes.
    I would like to make one comment now to Representative 
Burgess, who talked about having the NGA or State budgetary 
officials here. Maybe everybody knows this, but at least for 
your information, in January, the National Governors 
Association did send a letter asking--and this is January of 
2008, did send a letter asking for an increase in Medicaid to 
address the economic pressures on State budgets.
    Thank you.
    [The prepared statement of Mr. McEntee follows:]

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    Mr. Pallone. Mr. McEntee, thank you. Without objection, if 
you have a copy of that letter, I would like to enter that into 
the record.
    Mr. McEntee. Sure.
    Mr. Pallone. So ordered.
    [The information requested was not provided at the time 
this document went to print.]
    Mr. Pallone. I also should mention, before I forget, that 
we have a statement from Congressman Luis Fortuno that I would 
like to enter into the record without objection.
    So ordered.
    [The information requested was not provided at the time 
this document went to print.]
    Mr. Pallone. And I do want to thank you, also, Mr. McEntee. 
I know you had to change your plans to make very special 
arrangements to get here today, so thank you for doing that.
    Mr. McEntee. Thank you.
    Mr. Pallone. Dr. Helms.

STATEMENT OF ROBERT B. HELMS, PH.D., RESIDENT SCHOLAR, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Helms. Thank you, Mr. Chairman.
    Shortly before I came over here, I discovered in table 1 of 
my testimony some numbers had been inserted there that were 
slightly different from the ones I had intended. It doesn't 
change my testimony in any way, but I would like to be able to 
substitute the correct numbers, if you will, later.
    Mr. Pallone. That is in your written testimony?
    Mr. Helms. Yes.
    Mr. Pallone. Sure. Without objection, so ordered.
    Mr. Helms. OK.
    The views I express here today really reflect the reasons I 
dissented from the recent Medicaid Commission report. I want to 
join several decades of academic think tank experts and 
government, particularly the GAO, who have been complaining 
about the FMAP as an inappropriate mechanism for distributing 
Medicaid and reimbursement for Medicaid.
    If you look at the history of the program, I would admit it 
probably served a good function of inducing the States to 
expand the program in its formative years. But I do think it 
has outlived its usefulness. This criticism of the FMAP is 
truly bipartisan and comes from all ideological points of view, 
and the main criticism that I have of the FMAP formula is that 
it creates two strong perverse incentives.
    When a State has the money, there is a very large incentive 
to keep expanding Medicaid, because the Federal Government is 
always going to pay at least 50 percent. But when the State 
gets into trouble, as I clearly agree with the other testimony 
that a lot of States are in trouble with their budgets now, 
when they have to cut back--and several governors have told me 
that they do this--the last thing they want to cut is a match 
program like Medicaid.
    So you have over time sort of two rachet effects going on 
here to increase the Federal expenditures for Medicaid and the 
State expenditures, too. But this rachet effect is really more 
prevalent depending upon the wealth of the State.
    If you look at figure 1 in my prepared testimony--it is on 
page 7--I have tried to take a per capita Medicaid expenditure. 
And what I did was I took the total Federal expenditures and 
divide them by the number of poor people at 125 percent of 
poverty. You could change that, but you still get pretty much 
the same distribution. You get sort of like a three times 
dispersion between the lowest States and the highest States. 
And I have arrayed these by the percent of the population in 
the State that is in poverty, and what you get is a negative 
relationship with what I would call the Katrina States over to 
the right. Basically, the poorer the State, the less money they 
get per poor person.
    The Families USA has conveniently provided the committee 
with their estimates of the additional money that would go to 
each State. So I was able to take that and also divide it by 
the number of poor people in the State and that is in figure 2. 
Again, you have a very similar distribution where the poorer 
the State, the less they get on a per capita basis.
    The other point I would like to make is your hold harmless 
provision that prevents the State's FMAP from decreasing ends 
up protecting those States with relatively highest increases in 
per capita income. You could easily correct this. If you wrote 
the bill to be the standard of what happens to a State's per 
capita income, then you would end up holding harmless the 
States who are having the most economic trouble, the largest 
declines. You can change that statement around to relative 
changes, and I think the logic still holds.
    So my plea is I urge the Congress, assuming that you have 
the money and you want to do this, to consider a way that would 
get around these sort of marginal effects that you get from the 
FMAP. In other words, give them a fixed cash payment and, if 
you can, figure out a better way to distribute the money so 
that it goes to the States that have the largest populations of 
poor and disabled.
    Thank you.
    Mr. Pallone. Thank you, Dr. Helms.
    [The prepared statement of Mr. Helms follows:]

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    Mr. Pallone. Ms. Howard.

     STATEMENT OF HEATHER HOWARD, COMMISSIONER, NEW JERSEY 
            DEPARTMENT OF HEALTH AND SENIOR SERVICES

    Ms. Howard. Good afternoon, Chairman Pallone and 
distinguished members of the committee. I am pleased to be here 
to discuss the importance of maintaining our health care safety 
net during a time of national recession.
    First, though, I would like to take the opportunity to 
thank you and the bipartisan Members of Congress for your 
leadership and hard work in enacting a moratorium on the many 
harmful Medicaid regulations. We appreciate very much, from a 
State perspective, your doing so.
    Mr. Chairman, I would like to thank you also for sponsoring 
H.R. 5268, bipartisan legislation that would provide New Jersey 
and the rest of the Nation with a temporary but urgently needed 
increase of nearly 3 percent in the Federal Medical Assistance 
Percentage, or FMAP.
    Mr. Chairman, States are clearly experiencing the effects 
of the economic downturn. According to the nonbipartisan Center 
on Budget and Policy Priorities, more than half of the States 
are facing budget shortfalls and more are likely to have 
deficits in the coming months.
    Because most States cannot operate in a deficit, unless 
Congress intervenes enacting a temporary increase in FMAP, 
States my be forced to reduce health care services and 
eligibility for our most vulnerable.
    This bipartisan proposal can be enacted quickly, as there 
is precedent from the 2003 economic stimulus package that 
Congress enacted, and it is timely, temporary and targeted to 
helping the working families who are struggling in the failing 
economy.
    The decline in the national economy--and, therefore, most 
State economies--means rising unemployment, escalating Medicaid 
costs and more families in need of health care service. More 
employers will be forced to reduce or eliminate health care 
coverage for their employees, exacerbating the negative trend 
in employer-provided health insurance.
    We heard the statistics a couple of times, but I think it 
bears repeating. According to the Kaiser Family Foundation, 
nearly every 1 percent increase in unemployment results in 1.1 
million more uninsured and an additional 1 million--400,000 of 
them children--enrolling in Medicaid. And since Medicaid 
eligibility lags 6 months behind unemployment figures, the full 
impact for increasing demand for Medicaid services may not be 
known for some time.
    These new developments could not come at a worse time from 
a health care perspective. There are now 47 million uninsured 
Americans, up from 40 million just 8 years ago. Mr. Chairman, 
this is a national problem that calls for a national response 
from Congress, and I am grateful the committee is meeting today 
to discuss this issue.
    Earlier this year, as Mr. McEntee noted, the National 
Governors Association in a bipartisan vote strongly endorsed a 
temporary increase in the Federal matching rate for Medicaid 
along with flexible block grant funding, stating, ``Such 
efforts were effective in the past to stabilize the economy and 
maintain health care service for the most vulnerable 
populations.''
    I have a copy of that letter for you.
    Let me be clear. Now that a majority of States are facing 
significant budget shortfalls, many will be considering drastic 
spending cuts as a result. In these hard economic times, not 
only are States seeing reduced State revenues, more and more 
people are qualifying for need-based benefit programs, further 
exacerbating those State shortfalls.
    In response, some States have already implemented cuts to 
public health programs and, clearly, more will be forced to do 
so unless Congress provides this temporary relief.
    In New Jersey, as in many other States, the health care 
system is in distress. We have seen seven hospitals close in 
the last 18 months, and half of those that are remaining are 
operating in red. Over 1.3 million people have no health 
insurance.
    New Jersey's Medicaid program is the safety net for more 
than 1 million low-income families and individuals who depend 
on Medicaid for vital health care service. They need our help 
now more than ever.
    And what does Medicaid mean in real terms? Medicaid covers 
nearly one-third of all child births in the State of New 
Jersey. It covers half of all HIV/AIDS treatment. It covers 
childhood immunizations, critical cancer screening and 
treatment, pharmaceuticals for the mentally ill, and 
specialized care for the blind and disabled.
    Governor Corzine has taken bold steps to address our 
State's structural deficit, including real reductions in State 
spending, eliminating State departments, and cutting the 
operating budget of every State department. But our State's 
fiscal crisis still made it necessary to propose significant 
and painful cuts to a variety of programs, including aid to 
hospitals and nursing homes. We tried to craft these cuts in 
such a way as to protect the most vulnerable, but as the 
recession worsens we may need help from the Federal Government 
to forestall worse cuts.
    And while we have shown we are willing to take steps to get 
our fiscal house in order, we and other States may not be able 
to maintain that critical safety net in the face of a deepening 
national recession.
    As has been noted, in 2003 Congress provided a temporary 
increase in FMAP, and according to the Kaiser Commission on 
Medicaid and the Uninsured, that increase was effective in 
averting additional Medicaid cuts and even allowed some States 
to reverse previously enacted cuts.
    The proposal before you today would provide New Jersey 
nearly $280 million in additional funding and help preserve 
that safety net.
    In sum, I would urge you to pass a temporary increase in 
FMAP. It would prevent States from having to make deep 
reductions in vital Medicaid services at the very time that 
more and more of our citizens are needing them.
    Thank you.
    [The prepared statement of Ms. Howard follows:]

                      Statement of Heather Howard

    Good afternoon Chairman Pallone and Distinguished members 
of the House Energy and Commerce Health Subcommittee.
    I am pleased to be here to discuss the importance of 
maintaining our health care safety net during a time of 
national recession.
    First, though, I would like to take this opportunity to 
thank you and the many members of Congress for your leadership 
and hard work in enacting a moratorium on many of the harmful 
Medicaid regulations the Administration issued over the past 
year. Those regulations threatened critical funding for 
hospitals and other health care providers and would have 
impacted the care provided to the most vulnerable. I know you 
worked together in a bipartisan fashion to prevent the 
regulations from taking effect and want to commend your 
efforts.
    And Mr. Chairman, thank you for your sponsorship of H.R. 
5268, which would provide New Jersey and the rest of the nation 
with a temporary-but urgently needed-increase of nearly 3 
percent in the Federal Medical Assistance Percentage or FMAP. 
This legislation has bipartisan support and I am hopeful it 
will have the same success as the moratorium on the Medicaid 
regulations.
    States are clearly experiencing the effects of the economic 
downturn. According to the nonpartisan Center on Budget and 
Policy Priorities, more than half of the states are facing 
budget shortfalls and more are likely to have deficits in the 
coming months.
    Because most states cannot operate in a deficit, unless 
Congress intervenes enacting a temporary increase in FMAP, 
states may be forced to reduce health care services and 
eligibility for the most vulnerable.
    This bipartisan proposal can be enacted quickly, as there 
is precedent from the 2003 economic stimulus package Congress 
enacted. And it is timely, temporary and targeted to helping 
the working families who are struggling in this failing 
economy.
    Mr. Chairman, the decline in the national economy-and 
therefore most state economies-means rising unemployment, 
escalating Medicaid costs and more families in need of health 
care services. More employers will be forced to reduce or 
eliminate health coverage for their employees, exacerbating the 
negative trend in employer-provided health insurance. According 
to the Kaiser Family Foundation, nationally every 1 percent 
increase in unemployment results in 1.1 million more uninsured 
and an additional 1 million--400,000 of them children--
enrolling in Medicaid.
    And, since Medicaid eligibility lags 6 months behind 
unemployment figures, the full impact of increasing demand for 
Medicaid services may not be known for some time.
    These new developments could not come at a worse time from 
a health care perspective. There are now about 47 million 
uninsured Americans--up from 40 million in 2000.
    Mr. Chairman, this is a national problem that calls for a 
national response from Congress, and I am grateful that the 
committee is meeting today to discuss this critical issue.
    This year, the National Governors Association, in a 
bipartisan action, strongly endorsed a temporary increase in 
the federal matching rate for Medicaid, along with flexible 
block grant funding, stating that ``such efforts were effective 
in the past to stabilize the economy and maintain health care 
services for the most vulnerable populations.''
    Let me be clear: a majority of states are now facing 
significant budget shortfalls, and will be considering drastic 
spending cuts as a result. In these hard economic times, not 
only are states seeing reduced state revenues, more people are 
qualifying for need-based benefit programs, further 
exacerbating state shortfalls.
    In response, some states have already implemented cuts to 
public health programs, and clearly more will be forced to do 
so as the recession worsens, unless Congress approves 
temporary, increased Medicaid funding.
    In New Jersey as in many other states, the health care 
system is in distress. Seven hospitals have closed in the past 
18 months and half of those that remain are operating in the 
red. Approximately 1.3 million people have no health insurance. 
According to the American Hospital Association, last year 35% 
of urban emergency departments were over capacity, and 56% of 
urban hospitals and 64% of teaching hospitals had spent time on 
ambulance diversion status, in many cases for long stretches.
    New Jersey's Medicaid program is the safety net for more 
than one million low-income families and individuals--including 
40,000 elderly nursing homes residents--who depend on the 
health care services that Medicaid provides. They need our help 
now more than ever as they struggle with spiraling fuel prices 
and higher food costs.
    Medicaid pays for one-third of all births in the state of 
New Jersey, half of all HIV/AIDS treatment, childhood 
immunizations, critical cancer screening and treatment, 
pharmaceuticals for the mentally ill, and specialized care for 
the blind and disabled.
    Governor Corzine has taken bold steps to address the 
State's structural deficit. The recently-enacted budget 
represents a $2.9 billion reduction in spending, $600 million 
below last year's spending level--the largest actual dollar, 
year-to-year reduction in state history. It also reduces the 
size of government by 3,000 workers through early retirement 
and attrition, cuts the operating budgets of every state 
department by an average of five percent, and eliminates 
altogether two state agencies.
    The state's financial crisis made it necessary to propose 
significant and painful cuts to a variety of programs, 
including state aid to hospitals and nursing homes. The cuts, 
however, were crafted in such a way as to protect the most 
vulnerable. For example, safety net hospitals serving the 
greatest number of the uninsured received the smallest cut, and 
the nursing homes serving the highest percentage of Medicaid 
patients received a full cost of living update.
    As the recession worsens, however, we may need help from 
the Federal Government to forestall worse cuts. Indeed, while 
New Jersey has shown that it is willing to take strong steps to 
get its fiscal house in order, we and other states may not be 
able to maintain our critical safety net in the face of a 
deepening national recession without temporary and targeted 
assistance from the federal government.
    As you know, in 2003 Congress provided a temporary increase 
in the FMAP. According to the Kaiser Commission on Medicaid and 
the Uninsured, that temporary increase was effective in 
averting additional Medicaid cuts and also allowed some states 
to reverse previously enacted cuts. A similar temporary 
increase in the FMAP of 2.95 percent would mean nearly $280 
million in additional funding for New Jersey today and would 
enable us to preserve Medicaid and other health care safety net 
programs and prevent us from having to cut vital services or 
reduce eligibility.
    In conclusion, if the recession continues, as expected, 
states may be forced to make additional cuts to health care 
services for working families. This is a critical time for the 
millions of Americans struggling with escalating health care 
costs.
    Therefore, I would urge you to pass a temporary increase in 
FMAP. It would prevent states from having to make deep 
reductions in vital Medicaid services and help us to preserve 
the safety net for our most vulnerable residents.
    Thank you again Mr. Chairman for this opportunity to 
testify. I would be happy to answer any questions from the 
members of the subcommittee.
                              ----------                              

    Mr. Pallone. Thank you. I want to thank all of you for your 
statements and for being here today.
    We will now move to questions. I recognize myself initially 
for some questions, and I am going to start with Dr. 
Tannenwald.
    You did an excellent job of laying out the current economic 
landscape facing States and the Nation and basically said the 
situation doesn't look very promising, which I share. Right 
now, Congress is again discussing a second economic stimulus 
package that would include additional temporary target 
assistance for States. And as you look to the horizon do you 
believe that this downturn is going to reverse course or do you 
for see continued economic distress?
    Mr. Tannenwald. Let me start first by making a statement--
    Mr. Pallone. And all of that in 1 minute. No.
    Mr. Tannenwald. Let me start by making a statement I should 
have made initially, that my views are my own, not necessarily 
those of the Federal Reserve Bank of Boston or the Board of 
Governors of the Federal Reserve System.
    I don't have privy to the internal economic forecast of the 
Fed, the Board. I am not cleared to see it. But the bulk of 
economic forecasters that I follow are saying that we are 
looking at probably, through the first quarter of 2009, either 
weak or negative economic growth in the Nation. When the 
negative quarters will hit, if at all, there is a lot of 
disagreement.
    Mr. Pallone. OK. Well, as you know, in the spring, the 
Democratic Congress enacted a fiscal stimulus package; and it 
provided some relief. However, even with that, more States are 
feeling pressures or have a declining tax base and budget 
troubles. Do you believe additional Federal spending targeted 
in the right way will be helpful in alleviating State pressures 
and pulling State economies out of a slump? In other words, a 
second stimulus package that might include FMAP?
    Mr. Tannenwald. Sure, it could help. How this whole thing 
should be structured, it brings in a lot of issues. In theory, 
if the goal is to help State governments per se, the States 
have a vital role in our Federal system that suggests not 
targeting. But if the idea is to relieve fiscal stress, then 
the aid should be targeted at those who are most stressed.
    Now, in practice how to measure fiscal stress is very 
controversial and difficult. So then you go to the second 
criteria, like is the program up and running, where if you put 
the money in, you know it is going to get there and it is 
somewhat related to some sort of stress.
    Also, is it a program where the Federal Government has 
already expressed a vital interest in the health care for low- 
and moderate-income people it has.
    So all those factors should be taken into account in 
deciding how to do it. I think the last time around in the last 
recession there was a mixture of targeted and nontargeted aid, 
including FMAPs, which seemed to try to reconcile all these 
different concerns.
    Mr. Pallone. Thank you.
    Now I am going to go to Heather Howard.
    In our current economic situation with rising joblessness 
and rising inflation, what happens to the Medicaid rolls and 
what has New Jersey's experience been?
    And I guess the second part of this is that I know there 
are some that criticize Medicaid's flexibility that allows the 
program to grow as need grows. But could you talk about how 
Medicaid functions as a countercyclical program and why FMAP or 
a Federal matching formula is so important?
    A lot of questions in one.
    Ms. Howard. Thank you. Yes.
    I will start off by saying, yes, we are very concerned 
about the effect of the downturn on our Medicaid program and 
what it is going to mean. As I mentioned, we are seeing more 
employers dropping coverage because they can't afford it, and 
that means more people will be qualifying for the program. As I 
mentioned, Medicaid eligibility lags unemployment numbers, so 
we are going to be starting to see it. And that is why it is so 
important to start the stimulus soon before we have to make the 
cuts.
    You mentioned the fact that it is countercyclical, and I 
think what you are getting at is the fact that in a time of 
economic downturn when State revenues tend to decline, our 
State spending on health care needs to increase because our 
Medicaid rolls are increasing as more and more employees lose 
their jobs and more people become uninsured.
    So States are facing greater and greater constraints in 
terms of our revenues. Our only options are to raise taxes or 
cut spending, which would exacerbate the downturn. And so that 
is why we need the Federal Government to step in and provide 
this very temporary and targeted assistance, so that we can 
prevent these very dramatic cuts that we would have to consider 
otherwise.
    Mr. Pallone. Just one comment, I think it may be obvious, 
but if it isn't, I will say it. Obviously, I think we should do 
a second stimulus package, and the question is what is in it. 
And I feel that FMAP is something, as I think Dr. Tannenwald 
was alluding to that should be included, because it does have 
an immediate impact, not only in terms of helping the States 
but also money that goes to health care and that creates jobs 
as well.
    But I will now defer to my ranking member, Mr. Deal.
    Mr. Deal. Thank you.
    Ms. Howard, first of all, it is good to have you here.
    I understand that your Governor Corzine has been very 
supportive of some of the Medicaid flexibilities that were 
built in in the Deficit Reduction Act and that he has been a 
strong advocate for these kinds are flexible accounts. And you 
have used them in emergency room co-pays for nonemergency care, 
for enforceable nominal co-pays for certain prescription drugs 
and some long-term care insurance partnerships.
    Have all of those been a way in which you can use and make 
the money go further in a more efficient and effective manner?
    Ms. Howard. They are. And I want to thank you; I know you 
were very involved in the crafting of the Deficit Reduction 
Act. And as a State official now, we do look to that for tools 
in how to manage the growth.
    Of course, everybody is dealing with exploding growth of 
health-care costs. It is not unique to government, obviously; 
it is true in the private sector as well. And the DRA has 
provided us with some of those tools, such as the long-term 
care partnership.
    I should clarify that they did reject them, but he did try 
and make--and try again. But we had definitely looked to the 
DRA for ways to manage the growth.
    Mr. Deal. What is your match rate in New Jersey?
    Ms. Howard. Our match rate is only 50-50. We have the 
lowest match rate.
    Mr. Deal. You are one of those rich States then?
    Ms. Howard. You know, I think that is technically true, but 
we really--and Congressman Pallone knows this--have a real 
diversity of experiences in New Jersey. We have the poorest 
city in the country, Camden. So we obviously have a high 
average income but we have real pockets of poverty and real 
pockets of need.
    Mr. Deal. But you are at the lower level in terms of the 
match rate?
    Ms. Howard. Yes, that is right.
    Mr. Deal. Dr. Helms, were some of those reforms that were 
in the DRA the kind of things that you are alluding to in 
general terms of being able to make the program more efficient?
    Mr. Helms. Yes. It is one of the things from 18 months from 
that Medicare commission. We looked at a lot of things the 
States were doing, and we were pretty impressed. There were 
States trying out new things and particularly in coordinating 
critical care in really expensive populations and so on. I 
think there is a lot of potential for that.
    I guess, as a general matter, one of my complaints about 
the FMAP, that the margin is that it gives not only--some 
States may use the money well, they may put it back into 
Medicaid. I don't think there is any guarantee of that, because 
the FMAP is a retrospective payment. So, at the margin, there 
is an enormous incentive when you have decades of history of 
this, of people playing accounting games and coming up with 
anything you can do to get some State expenditure over into the 
Medicaid column, means that you would qualify for the matching 
waiver.
    So my general feeling is if States could put as much effort 
into trying to improve the care and coordinating care and those 
kinds of things, I think it would be far better for the really, 
truly poor and disabled.
    Mr. Deal. Do you agree with the proposal of the 
transparency provisions that Mr. Frogue was talking about? 
Would that be something that would assist in this effort?
    Mr. Helms. Very much so. Jim, to his credit, has been 
making this case for several years now. I think it would be an 
easy thing for the Congress to do.
    Mr. Deal. Mr. Frogue, in that regard, the transparency that 
you suggested, could you give us an idea of how that 
information translates into making adjustments within the 
programs that actually will save States like New Jersey and 
others money in the process?
    Mr. Frogue. Well, I think the first and most important 
reason to do it is it can help States figure out what kind of 
outliers there are. There is some really low-hanging fruit, but 
there is not a lot of waste, fraud and abuse.
    But the number one point to make is you can't manage what 
you can't measure. And if States aren't doing this and 
measuring it already, then it is impossible to manage a 
program.
    So this isn't something that should have a whole lot of 
partisan boundaries. And, again, the number one reason to do it 
is you will be able to find States where only 17 percent of 
women over 50 are getting annual mammograms when it should be 
100 percent.
    Mr. Deal. Have you looked at the issue that Dr. Helms 
raised about the current FMAP formula being disproportionately 
punitive for States with low-income individuals in terms of the 
dollars that translate per individual in those low-income 
States? Have you looked at that issue?
    Mr. Frogue. The larger and more inefficient the State 
Medicaid program, the more money it gets under this proposal, 
yes.
    Mr. Deal. And that is one of those perverse incentives I 
think that Dr. Helms was talking about. I would hope that at 
some point this subcommittee and this full committee would have 
an opportunity to look at some of these reforms that I think 
really would cut across political boundaries and simply do the 
kinds of things that we all acknowledge have to be done if we 
are going to keep this program solvent, not only for the 
Federal program, also for the States.
    Ms. Howard, I was a little intrigued by one comment you 
made. You said the State only has two options: to raise taxes 
or cut spending. Sometimes we are faced with those same options 
up here, as well, and especially since we are in a deficit 
situation already.
    The third option I would suggest and one that has already 
been suggested here is to try to make the programs we have more 
efficient. And as I indicated in my first question, I think 
Governor Corzine is to be commended for taking advantage of the 
options that we have provided under the DRA to make the 
programs more efficient.
    And I think those are the kind of things that we ought to 
hopefully work toward, as we move forward with looking. This is 
certainly one bill, but long-term changes that all of us can 
agree on I think are out there.
    I would yield back, Mr. Chairman.
    Mr. Pallone. Thank you, Mr. Deal.
    The gentlewoman from Wisconsin is recognized for questions.
    Ms. Baldwin. Thank you, Mr. Chairman.
    Thank you to all the witnesses for their testimony.
    I wanted to start with a couple of questions for Ms. 
Howard.
    You said in your testimony that your State made cuts to 
social services, but they were made in a way that protected the 
most vulnerable, and that those protections are somewhat 
threatened at this point. Can you elaborate a little bit so 
that we can know the strategies New Jersey was using?
    Ms. Howard. Sure. Thank you. Thank you for that question, 
Congresswoman.
    For example, the Governor cut over $100 million from the 
Charity Care Program, which is our program for reimbursing 
hospitals for uncompensated care for the sick and uninsured. 
So, although we had to take the very unfortunate step of 
cutting that funding, with the remaining funding we targeted 
the safety net hospitals, the hospitals that see the highest 
percentage of uninsured, and made sure they felt the smallest 
cut. So, although the pie was smaller, we made sure that those 
safety net hospitals got the most money.
    Another example was that, as we were unfortunately forced 
to look at cutting nursing-home funding, we made sure that the 
nursing homes that have the highest percentage of Medicaid 
occupancy, therefore the highest percentage of the poorest 
seniors, we made sure they got the full inflationary update 
that we were not able to provide for those nursing homes that 
don't have as many of those high Medicaid occupancy.
    But those are the kind of tactics we are having to look at. 
And, of course, in a time of rising uninsured, the last thing 
you want to be doing is cutting funding to hospitals that are 
treating the uninsured. So it was very difficult choices.
    Ms. Baldwin. Along a similar vein, in recent months, as I 
said in my opening statement, the State of Wisconsin has seen a 
dramatic increase in the enrollment of working parents in 
Medicaid, often a group that doesn't typically access Medicaid 
except in times of economic duress, like we are seeing right 
now.
    Is that also a trend that you are experiencing in New 
Jersey? And if so, what sort of initiatives have you undertaken 
to enable your State to cover new eligibles?
    Ms. Howard. Well, one of the reasons we had to make cuts in 
programs was anticipating--we have already anticipated growth, 
a caseload growth. And, of course, working with a lot of social 
services organizations, those that are really community-based, 
we get the strong feeling that we are going to see an influx of 
people coming in.
    As I mentioned, people have to exhaust their unemployment 
benefits. And you all have--and I want to commend you--provided 
an extension of unemployment benefits, which is terrific, but 
that just means that it has extended the time before people 
start coming to us to apply for Medicaid. So we fully 
anticipate that we are going to see a strong wave of people 
coming in.
    And, actually, I think Chairman Pallone asked about the 
open-ended nature of Medicaid. I think that is one of the 
benefits of having an open-ended nature of Medicaid, is we are 
able to accommodate an increase. If people are needing the 
services of the program, we want them to come in. And that is 
one of the benefits of Medicaid being an entitlement program; 
it gives us that flexibility. If our caseloads were capped, we 
wouldn't be able to deal with the increase of people coming in 
and needing services.
    Ms. Baldwin. Mr. McEntee, in your testimony you gave a real 
good overview of the likely short-term effects of the economic 
downturn that we are experiencing, such as States cutting 
Medicaid eligibility or reducing services.
    I am wondering if you can look out a little further and 
what you see as the long-term effects of these short-term 
strategies to balance budgets at the State level.
    Mr. McEntee. Well, I think the short-term strategies, 
obviously, are very, very necessary. But there is a long-term 
structural problem in regards to our States and in relationship 
to the Federal Government and our States and counties and 
cities and school boards. Not to get partisan, but with all the 
tax cuts that took place in terms of the Federal budget, the 
Federal Government finds itself in a tremendously minus state 
in terms of money. And I believe that all will have to come 
together and be corrected in some way for the economy to be 
able to move forward.
    I think that over time, once we get some short-term fixes 
into the States, they will be able to begin to handle some of 
their problems. But we have to understand that the Federal 
Government is like the battleship in this war, and that 
battleship has to be structured properly in the long run for 
the country to move forward.
    Ms. Baldwin. Thank you.
    Mr. Chairman, I appreciate the time for questioning. I know 
that the hearing is focusing on State fiscal relief, but, 
obviously, underlying all of this is the health and well-being 
of our citizens. So I thank you again for holding this hearing. 
I yield back my remaining time.
    Mr. Pallone. Thank you.
    The gentleman from Texas, Mr. Burgess?
    Mr. Burgess. Thank you, Mr. Chairman.
    Ms. McEntee, I am not sure that I heard you correctly. Were 
you arguing that we should be working toward a balanced budget 
situation at the Federal level in your last statement? Or am I 
misconstruing what you said, that the debt load that--
    Mr. McEntee. Working toward a balanced budget. I think a 
balanced budget is a good thing, but I think it will take, with 
the kind of shape that we are in now in the Federal Government, 
will take an extensive period of time and a lot of courage to 
do that.
    Probably some of us recall that when Clinton left, we had a 
tremendous surplus in terms of Federal Government, where it was 
not only balanced but we had this tremendous surplus, and then 
we find ourselves in a great deficit.
    I think of course a balanced budget is a good thing. I 
think that offsets are a good thing. But sometimes the 
situation cries for more and faster solutions, so they have to 
be put aside.
    Mr. Burgess. It is my understanding, Mr. Chairman, is this 
offset, this bill that we have been--the Pallone bill that we 
have under discussion?
    Mr. Pallone. Well, if the gentleman will yield?
    Mr. Burgess. Yes, I would be happy to.
    Mr. Pallone. What I am proposing--and I am sure you have 
heard a lot of this--is that there be a second economic 
stimulus package, which would be essentially like the first 
one, an emergency supplemental, and would not be offset because 
it is an emergency.
    Mr. Burgess. OK. Reclaiming my time--I was afraid of that.
    Mr. Frogue, let me just ask you--you gave some very 
intriguing testimony, and I think we heard some intriguing 
testimony from Mr. Helms. But if you were--this legislation 
that we are considering were to increase the Federal spending 
of Medicaid by $15 billion over five calendar quarters. If you 
had the ability to construct this any way you wanted, how would 
you direct that money so it would have the greatest impact on 
the system, not just for solving the problems of today, but 
leaving a Medicaid system that was in less disrepair for the 
future?
    Mr. Frogue. Well, first and foremost, I would always keep 
in mind that the Medicaid program is about health first and 
spending second. And if you had encountered data out there in a 
patient de-identified way, you could find out if people are 
actually getting healthier. That is the number one goal of this 
program. The spending is important, but we should always 
remember it is for health and for improving health status.
    So my proposal is the most efficient thing this committee 
could do that would require almost no cost would be to require 
States to post that data, but, at the very least, as a 
condition of the bailout or the FMAP temporary increase, that 
States not get the money unless they agree to post that data.
    Mr. Burgess. I will just say from my own experience in the 
past--and it wasn't with Medicaid, it was with another 
insurance company that shall remain unnamed but rhymes with 
``united''--they sent me data. It was individual data about 
just the issue you mentioned, about only having 17 percent of 
patients having a mammogram under the Medicaid system. I am 
happy to report my percentage was much higher. But even those 
one or two that were identified to me were quite a shock.
    First, I was incensed that the insurance company would even 
have that data and collect that data and be able to report that 
data back to me. But after getting over that concept, the fact 
that, yes, we have a way to actually act as another backstop so 
that this information could be made available to the clinician 
and then ultimately improves patient care and, as you so 
correctly point out, delivers the correct kind of care, care 
that costs the cheapest dollars, which are on the front end, as 
opposed to the crisis side, where the dollars are most 
expensive.
    So I really thank you for bringing that information with 
you today. I think that is terribly intriguing information.
    Now, it is my understanding that you work with a lot of 
States around. Have you seen any enthusiasm for incorporating 
this idea at the State levels?
    Mr. Frogue. Yes. Actually, I sent the testimony around 
shortly before coming here, and I got some rather quick 
responses from half a dozen State health secretaries, who said 
they thought it was a fantastic idea.
    And States can do it unilaterally. They don't need the 
Federal Government to demand them to do it. And some actually 
are beginning to do this, is my understanding.
    Mr. Burgess. But the advantage of having the Federal 
Government do it, then, is because the data is collected in one 
way and one location and then can be accessed by anyone so long 
as the data is properly de-identified and aggregated?
    Mr. Frogue. Again, properly de-identified, yes. But if you 
are going to do this package, then the lever to get the data 
would be: You get the money if you release the data; otherwise, 
you don't get the money.
    Mr. Burgess. Well, Mr. Helms--and, again, I was intrigued 
very much by your testimony as well. Obviously, your answer to 
Mr. Deal's question earlier, you would see value in perhaps 
incorporating what you have discussed with a different way of 
approaching the FMAP along with this ability for States to 
access data quickly and be able to identify the outliers and 
what was described as low-hanging fruit. Is that correct?
    Mr. Helms. Yes, if I understand your question.
    Mr. Burgess. What I am getting at--in talking to Mr. 
Frogue, yes, we are going to pay $15 billion over five 
quarters, which is a significant, significant investment for us 
to make. OK, if we get the transparency that Mr. Frogue is 
talking about, perhaps we could also get some reform to the 
FMAP formula in general, which, going forward, would lead us to 
a better place ultimately with our Medicaid system.
    Mr. Helms. Right. I have actually given some thought 
about--I couldn't get the Medicaid commission to really deal 
with this, because I think it came up too late. And it is a big 
issue, and it is controversial, I admit. You know, it puts one 
State against another.
    But I do think, even if you look at the SCHIP allocation 
formula for SCHIP, in addition to being an add-on to the FMAP, 
it has three additional requirements about considering the 
number of uninsured in the State--uninsured children--the 
number of poor children in the State, the number of uninsured 
in the State, and also the relative cost of care in the States. 
I have tried to do this same distribution with the SCHIP money, 
and it is much more even. So that just illustrates that there 
are other kinds of formulas.
    I guess my preference, if you could go to some kind of 
allocation system that would be based on the population that 
you are really trying to target this help to, the statistics on 
the number of disabled and those kinds of things probably 
aren't as good, but I do think we could probably come up with a 
better allocation that would target the money more to where 
these populations of people are.
    Mr. Pallone. OK. We are over, so we have to move on. Thank 
you, Mr. Burgess.
    And I recognize the gentlewoman from Illinois, Ms. 
Schakowsky.
    Ms. Schakowsky. Mr. Frogue, and actually Dr. Helms as well, 
I wanted to understand a little better your formulations. Are 
you suggesting that if a State is spending more per patient in 
Medicaid dollars that somehow that differential translates into 
an inefficiency for those States that are paying more?
    Mr. Helms. I think there is always inefficiency. What I was 
trying to do, as I discuss a little bit in my written 
testimony, it is very common--the Kaiser Family Foundation does 
this--to take the Federal or the total Medicaid expenditures 
and divide it by the Medicaid enrollment. And that is useful 
for certain purposes, but it is not independent of the State's 
decisions. And so you can get, I think, misleading comparisons.
    Ms. Schakowsky. Exactly. That is the point I wanted to 
make.
    And I think you were suggesting that a bit, Mr. Frogue, 
that Illinois may have a more generous package of benefits that 
the State legislature has decided to do. And I think that 
rather than have a downward pressure on States, if we measure 
efficiency in that way, that that would be a serious mistake, 
in my view. Because we may have better outcome, healthier poor 
people as a result of a more generous package.
    Mr. Helms. Well, my point for trying to go with the number 
of poor people in the State from the Census Bureau is, one, it 
is a convenient statistic already produced by the Census Bureau 
and it is independent of the State's eligibility policies. And 
I think it is an indication of the target population that this 
legislation was supposed to help.
    So I just use it as a way to illustrate that there are 
variations in this from State to State and the money is not 
necessarily flowing to the States that have the largest poor 
populations.
    Ms. Schakowsky. OK.
    Mr. McEntee, you had an attachment that talked about the 
effect of an increase in Federal Medicaid matching payments on 
State economies. And I am looking at my State of Illinois, the 
additional Federal support: $448 million. But you have that it 
would--additional business activity--$896 billion, almost 8,000 
new jobs, et cetera.
    So I wondered if you would talk a little bit about what we 
might expect were we to make this investment of an additional 
$15 billion?
    Mr. McEntee. I think the attachment speaks for itself. But 
there is a multiplier effect as this kind of money would move 
into various States. And the multiplier effect is right there 
in the appendix and would more than help just the people in 
terms of health, although I agree that is what the system is 
all about. But right now we are also looking at a dual effect, 
where it would also be a stimulus, and it would help as a 
multiplier effect in each and every State. But it wouldn't be 
just the money that is going on, but what would happen in terms 
of business and everybody else.
    Ms. Schakowsky. I appreciate that, because I don't think we 
have been looking at that end of it as much as we needed to. 
And so I appreciate this hearing.
    I wanted to ask Ms. Howard a question.
    It has been suggested that Congress should not give States 
in economic distress additional Federal matching funds to help 
them avoid Medicaid cuts without imposing additional 
administrative requirements.
    And, now, all of us support the notion of accountability 
for any Federal taxpayer dollars, and we all want them spent 
efficiently. But I was wondering, Commissioner, if you think 
Congress needs to impose more administrative requirements on 
States to achieve efficiency and accountability during this 
economic downturn?
    Ms. Howard. You know, I think some interesting issues have 
been raised, but I wouldn't want debate over those issues to 
slow down a very needed stimulus. We know the beauty of this 
kind of stimulus is that you can get it out quickly, and it can 
help prevent these cuts and, it can help make sure people still 
have access to health care. And I would hate to see a debate 
about these issues bog that down.
    And I would also want to say for the record that Medicaid 
is actually very efficient. Its administrative costs are much 
lower than private insurance has. And so I think there is 
already a lot of efficiency there.
    And I agree with you that every taxpayer dollar should be 
spent efficiently, but we know this program works, we know this 
kind of stimulus has worked in the past.
    Ms. Schakowsky. Great.
    Thank you.
    Mr. Pallone. Thank you.
    The gentleman from Texas, Mr. Murphy, is recognized for 
questions--oh, from Pennsylvania. I am sorry. I am focusing so 
much on Texas, because Mr. McEntee gave so many additional jobs 
to Texas that I--
    [Laughter.]
    Mr. Pallone. Mr. Murphy from Pennsylvania?
    Mr. Murphy. Thank you. The great State of Pennsylvania.
    Thank you so much to the panel.
    Ms. Howard, you just said Medicaid is pretty efficient. Can 
you explain that? Because this is news to me.
    Ms. Howard. Sure. Well, medicaid administrative costs are 5 
percent, whereas private health insurance--
    Mr. Murphy. Does that include the cost to the States?
    Ms. Howard. Yes.
    Mr. Murphy. Does that include the overhead of whomever has 
oversight into that 5 percent?
    Ms. Howard. Right. Right.
    Mr. Murphy. And would this work through insurance companies 
as well?
    Ms. Howard. The comparison is between 15 and above 15 
percent for private insurance.
    Mr. Murphy. Does it include the cost to hospitals and 
physicians for handling Medicaid and any kind of extra 
paperwork and bureaucracy in dealing with it?
    Ms. Howard. No, it wouldn't include that.
    Mr. Murphy. Does it include any kind of measures of 
inefficiency within the system?
    Ms. Howard. No. And I think those are very serious. And I 
think Mr. Frogue mentioned that list, and I think we have a lot 
to learn and a lot of work to do there.
    But the main point I was making is that we do know that 
Medicaid is efficient. Medicare, the percentage is actually 
even more efficient. So Government-run programs can be 
efficient.
    Mr. Murphy. Well, let me ask you a question about that, 
because that begs how we deal with this. Because, as I am 
reading through this--for example, Dr. Helms, as I was read 
this, I was reading through the testimony, a discussion with 
lots of formulas.
    Do any of those formulas of how much money States get have 
any kind of measures based upon quality?
    Can you turn the microphone on, please? It is not on.
    Mr. Helms. The ones I have used?
    Mr. Murphy. Well, as I read all these numbers--yes, the 
ones you used. Any of them based upon any kind of quality 
measures?
    Mr. Helms. No, they are not.
    Mr. Murphy. Which is a problem.
    Mr. Helms. I would love to get better data, and we would be 
able to use some sort of quality-adjusted expenditure. That 
would be great.
    Mr. Murphy. I oftentimes hear--in my work in hospitals, I 
hear of all these great ideas coming from employees a lot of 
times. A lot of people say, ``I have this idea of how we can 
save money,'' and things like that.
    But when I look at things like Medicaid, is there anything 
built in the system that rewards States for reducing some of 
their costs? Or is it basically you get back a percentage of 
what you build?
    Mr. Helms. Well, there are CMS programs that attempt to 
reward States for various--I am sure Ms. Howard could give you 
more details--but there are rewards for trying to push fraud 
and abuse. But when you think about the logic--and I have no 
empirical evidence that this is true--but one of the 
implications, I think, of the FMAP formula, the way it works is 
that if a State has a choice of investing anywhere in the State 
budget about trying to eliminate fraud, anything it saves from 
a Medicaid fraud, they have to share with the Federal 
Government. So the rate of return is much greater if they go 
after something that is not matched.
    Now, obviously, they can save some money by going after 
fraud in Medicaid or a match program. But relative, the rate of 
return, they are going to give, I think, priority to the 
nonmatched programs.
    Mr. Murphy. What about in areas--let's look at a couple of 
other areas where--is there any incentive in the funding--and I 
would ask anyone in the panel to respond to this--any 
incentives in Medicaid funding if a State greatly reduces its 
nosocomial infection rates in hospitals?
    Ms. Helms. I don't hear well, so I would have to ask you, 
could you repeat that?
    Mr. Murphy. I said, is there any incentive for States in 
funding if they greatly reduce they greatly reduce their 
hospital infection rates? It costs $50 billion now nationwide.
    Mr. Helms. Right. I think that is one of the kinds of 
things that people could talk about incentives. But, to me, 
Medicaid is such a big program--
    Mr. Murphy. I only have a minute left, and I really want--
    Ms. Howard. I think some States are starting to innovate 
there. We announced an initiative where Medicaid is no longer 
going to pay for preventible errors. So I think that is the 
future and--
    Mr. Murphy. But given that--and that is a good point. And 
Pennsylvania has also initiated ``never events.''
    Ms. Howard. That is right.
    Mr. Murphy. But if they reduce that, do they get any 
rewards for actually reducing it? Because they used to bill for 
it. So if you could bill for it, you could get a percentage of 
that. Why stop it?
    Mr. Frogue?
    Mr. Frogue. No. I think that is right. And I think one of 
the key points is that we have to get the data out there. 
Again, you can't possibly manage what you can't measure. And if 
the encounter data was out there, the patient de-identified for 
all to see, you would find these extreme outliers, including 
hospital infections, which you are to be greatly commended on 
for your efforts, Congressman.
    Mr. Murphy. Well, similarly, I look at some things about 
disease management for chronic illness, the electronic 
prescribing, what that can point out, in terms of the savings 
that can lead to, additional staff training. Integrating mental 
health care for people with chronic illness can reduce spending 
as well.
    One of my feelings is, as someone said, the Government 
giveth and the Government taketh away, but the Government 
doesn't innovate. And this is a great opportunity, and I think 
with legislation such as this, it says, well, we can increase 
some funding for the States, but I would sure like to see 
incentives for the States to take an opportunity to ask their 
hospitals, ask their physicians, ask their nurses, ask their 
janitors, ask everybody, what do you see that we could do to 
save money? And if that is the case, can it lead to some 
rewards for the States so they simply don't give it up as you 
said, Dr. Helms.
    There may not be a real incentive. Some of these programs, 
they don't really get to share that. They could be using the 
innovation of hundreds of thousands of employees throughout the 
Nation, I think would be helpful.
    I yield back. Thank you.
    Mr. Pallone. Thank you, Mr. Murphy.
    I recognize the gentlewoman from Oregon, Ms. Hooley, for 
questions.
    Ms. Hooley. Thank you, Mr. Chair. I have several for all of 
them, but I will try to restrain myself a little bit.
    Mr. McEntee, as I understand it, you talked about Federal 
support for Medicaid during an economic downturn has a twofold 
effect. One, it certainly helps those States that are trying to 
take care of their poorest in need of health care. And the 
second, the influx of Federal funds would spur economic 
activity.
    Do you want to comment further on that?
    Mr. McEntee. Yes. If you would look at--and we will present 
this. If you would look at, after our testimony, we put the 
effect of an increase in Federal Medicaid matching payments on 
State economies. And we talk about how much the additional 
Federal support for Medicaid would be in particular States and 
then the effect that it would have on generating business 
activity and additional jobs.
    Let me--I will look down here. I am looking for Oregon, and 
I don't see anything. That would happen to me, wouldn't it?
    [Laughter.]
    Mr. McEntee. All right. Oregon would get $128 million under 
the proposed legislation, $128 million. And it would, according 
to our statistics, generate $215 million in business activity 
and create 2,100 jobs in Oregon, besides just the stimulus for 
Medicaid.
    Ms. Hooley. OK. Thank you.
    For Ms. Howard I have a question. There was a concern about 
creating new bureaucracies to get more aid out. Does increasing 
FMAP do that? And can you elaborate on how swiftly this kind of 
aid can be delivered to the needy?
    Ms. Howard. It did not create any new bureaucracy. It won't 
require any new staff to do it. There are already systems in 
place. So it is a very efficient way to get money out.
    And in terms of how quickly it can happen, as soon as 
Congress signals that it is going to do it and as soon as 
Congress passes the legislation and the President signs it, the 
States then know they don't need to be making these cuts, 
because they know the relief is coming.
    And as we are all struggling with our budgets in dealing 
with the influx of people applying to these programs, we would 
be able to immediately forestall cuts.
    Ms. Hooley. Mr. Frogue, I have a quick question for you. 
You talked about and gave some examples of fraud and abuse, and 
you talked about transparency and how that would help.
    I also can cite a couple of cases where, as we have gone 
after fraud and abuse, many times it is after the small 
company, the doctor, and where they have--I think they were 
innocent, I don't know, but they got caught in a total 
nightmare. And yet we have some of these cases out there like 
the ones that you mentioned.
    How do we make sure that that little company or that doctor 
doesn't get cut in this web where they can't get out of it? In 
many cases, they, in fact, shouldn't have been caught in that 
web in the first place.
    How do we differentiate, and will the transparency do 
something different than is currently happening?
    Mr. Frogue. Thank you for that question, Congresswoman.
    Yes, absolutely, I think shining that sunlight would be 
tremendously helpful, and we would also be able to focus anti-
fraud resources where they are most needed. Like, for example, 
if it is true that $12 billion of New York's Medicaid program 
is waste, fraud and abuse, that, by definition, affects Oregon, 
it affects Illinois, it affects New Jersey, it affects Georgia, 
it affects every State that matters, because they are using it 
so inefficiently.
    But I think they would be able to see some of the biggest 
fish, some of the lowest-hanging fruit, and leave alone these 
smaller companies that are rather statistically insignificant 
unless it is excessive. But in most cases I think it would be 
very large institutions, if they are two or three or four 
standard deviations from the mean on treatment, get called out.
    Ms. Hooley. Thank you.
    Dr. Helms, you talked about our system being punitive to 
low-income States or States that have the greatest need. Do you 
think reimbursement rates for the same procedure, the same 
problem, should be the same no matter what?
    Mr. Helms. No. And I don't even think the concept of 
federalism was written into the Medicaid legislation 
originally, and I have never argued that the payments should be 
the same. I am just trying to illustrate that they are anywhere 
from the same. There are some over three times different on a 
per capita basis.
    And, look, you can use other denominator. If you don't like 
the number of people at 125 percent of poverty, you could do 
100 percent. I have done some of this. You can do it at 150. 
You still get the same picture. You get a little different 
numbers.
    Ideally, it would be nice--and I would like to do similar 
work on this myself--to be able to break down the Federal 
expenditures for different classes of populations and then 
compare that to the populations of the actual numbers. The 
trouble is that it is hard to get those kinds of population 
figures.
    So I am not arguing that payments should be the same. 
Basically the philosophy of federalism is that the Medicaid was 
set up to be a Federal assistance but to be run by the States. 
And, over time, all the Federal policy that I have ever been 
associated with when I was in the Reagan administration was to 
give the States as much flexibility as we could.
    Ms. Hooley. Thank you.
    Thank you, Mr. Chair.
    Mr. Pallone. Thank you.
    And let me thank all of you. We are finished with our 
questions, and I know that we have to get on to other things, 
but I want to thank all of you for being here. I know that you 
went out of your way, in some cases, to get here, and we 
certainly appreciate that.
    Let me just ask unanimous consent to put in this one 
letter. This is from the National Association of Counties. They 
just passed a resolution essentially endorsing H.R. 5268, the 
bill that I have introduced. And I would ask, without 
objection, that that be included in the record.
    So ordered.
    [The information requested was not provided at the time 
this document went to print.]
    Mr. Pallone. Let me also remind members that you may submit 
additional questions for the record to be answered by the 
witness. The questions should be submitted within the next 10 
days.
    And the clerks would then notify your offices that these 
questions are outstanding, for you to get back in touch with 
us.
    But, again, I want to thank you all.
    I know this is a very important issue. We do expect that a 
stimulus package is going to come forward at some point soon, 
and I would certainly like to see something like this 
legislation or some FMAP included in it.
    So thank you again.
    And, without objection, the meeting of this subcommittee is 
adjourned.
    [Whereupon, at 3:45 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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