[Congressional Record Volume 141, Number 135 (Friday, August 11, 1995)]
[Senate]
[Pages S12339-S12342]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     REFORMING THE MEDICAID PROGRAM

  Mr. CHAFEE. Mr. President, when the Congress returns from the August 
recess we are going to begin work in earnest on a very difficult part 
of the balanced budget effort which we are all dedicated to achieving, 
certainly on this side of the aisle.
  Mr. President, I enthusiastically support our efforts to achieve the 
balanced budget by the year 2002. It is absolutely essential that we 
get Federal spending under control.
  The 1996 budget resolution, the orders that came down from the Budget 
Committee to the Finance Committee, said that the Finance Committee 
must reduce spending within its programs by $530 billion over the next 
7 years.
  That is not a cut from existing levels, it is a reduction from where 
the 

[[Page S 12340]]
spending otherwise would have gone--$530 billion in 7 years. That is a 
monstrous task to achieve. Then the Budget Committee made some 
suggestions--not mandates, but suggestions--on how that $530 billion 
reduction in what otherwise would have been spent can be achieved.
  The Budget Committee recommended that there be a reduction in the 
rate of growth of Medicaid by $182 billion over the 7-year period. The 
remainder of the Finance Committee's objectives would be achieved by 
slowing the growth in other programs such as Medicare, AFDC, and other 
spending programs.
  Now, the resolution from the Budget Committee did not specifically 
require or call for Medicaid being transferred into a block grant. 
However, many believe that we cannot achieve these savings of the $182 
billion without converting the program into a block grant.
  Mr. President, I do not share that conclusion. I will spend a few 
minutes discussing the challenges confronting us as we attempt to 
achieve those reductions in growth.
  First, a little bit about Medicaid. What is Medicaid? Who does it 
serve? Medicaid is a means-tested entitlement program, jointly financed 
by the States and the Federal Government, based on a formula that has 
the maximum contribution by the States being 50 percent in some 
wealthier States and going down as low as 20 percent in some States 
such as Mississippi, for example.
  This is a program, financed jointly by the Federal Government and by 
the States, which is fully administered by the States.
  Federal law requires States to cover certain groups of individuals 
and to provide certain benefits to those individuals. States receive 
matching payments based on a per capita income.
  Now, not all individuals who are poor qualify for Medicaid. There is 
a belief if you are poor you get Medicaid. That is not necessarily so. 
The eligibility for Medicaid is limited to the following: Low-income 
families who receive cash assistance under programs such as AFDC; or 
children and pregnant women who do not qualify for AFDC but whose 
family incomes are at or near the poverty level.
  Now, note this is not an adult male whose earnings are at or below 
the poverty level. He is not covered under this program. It is children 
and pregnant women who do not qualify for AFDC but whose families are 
at or near the poverty level.
  Another group, the acute and long-term care costs of persons with 
disabilities--the disabled communities. In addition, certain health 
care services for the elderly.
  Now, what are these? Medicaid pays the cost of Medicare part B 
premium. This is part of Medicare. The premium normally is paid by the 
beneficiary, but in very, very low-income Medicaid beneficiaries the 
part B premium is paid by Medicaid.
  What about for that same group of people on Medicaid, those over 65 
in most instances, who have to pay the deductibles or the copayments? 
If the individual is, again, a low-income individual, elderly, Medicaid 
pays those deductibles or copayments.
  Medicaid also pays for services not covered by Medicare in some 
instances. For example, prescription drugs for our poorest senior 
citizens are paid for by Medicaid. Medicaid also pays to sustain three 
out of every four persons in nursing homes. That is a startling figure. 
Mr. President, 75 percent of the people, residents of nursing homes in 
the United States of America, are being paid for by Medicaid.
  Now, I have here, Mr. President, a chart and it looks a little busy 
but I will explain it. This is the population of the Medicare 
beneficiaries, recipients.
  Mr. President, 50 percent of the Medicaid population, those receiving 
benefits under Medicaid, are children. This shows the population 
percentage in Medicaid; this shows the expenditures for that 
population. For example, although 50 percent of Medicaid recipients are 
children, they only absorb 15 percent of the moneys spent by Medicaid.
  Or another case, adults receiving--the pregnant mother I talked 
about--adults constitute 23 percent of the population receiving 
Medicaid, but only consume 12 percent of the funds.
  This group I have just described, the pregnant mother with her 
children who are receiving AFDC or are poor--below the poverty level--
constitute 73 percent of those receiving Medicaid, but they only 
consume 27 percent of the moneys.
  The blind and disabled constitute 15 percent of the Medicaid 
population, but consume 31 percent of the money. The elderly constitute 
12 percent of the population but consume 28 percent of the money.
  The elderly and the disabled constitute 27 percent of the population, 
yet they consume 60 percent of the moneys. That is very important to 
bear in mind as we move through this little discussion.
  Now, let me return to the budget issue. Republican Governors appear 
to be advocating that Congress enact legislation to convert the 
Medicaid program to a block grant to meet the savings targets contained 
in the budget resolution. This approach has been seized upon by many 
Republicans in Congress as a panacea to our Medicaid problems. This is 
a great way to solve everything--just block grant it.
  The advocates of block grant propose that Congress repeal all Federal 
requirements with respect to eligibility, benefits, and quality 
standards. In other words, we would not have those anymore under the 
Medicaid program under a block grant.
  Moreover, the proposal frequently made by this group is that the 
Federal dollars flow out with no State contribution.
  As I previously mentioned, the program currently is partly State, 
partly Federal. In most on average the Federal share would be about 55 
percent and the State share about 45 percent. That is what we call 
maintenance of effort, that the State has to continue to contribute.
  The proposal is that we do not require that anymore. That the Federal 
Government turn over $773 billion with only one requirement over the 7-
year period. Mr. President, $773 billion of Federal money would go out 
to the States with only one requirement on the States--that these 
moneys be spent on health care for low-income citizens. It does not 
define who would be eligible. It does not define health care services. 
It does not define what the quality standards. This is a very, very, 
dramatic proposal.
  I think this approach is fraught with problems. First and foremost, I 
am concerned that States will be forced to make drastic reductions in 
services and eligibility to live within the 4 percent growth cap that 
is envisioned under the budget resolution. Under the budget resolution, 
we provide the States with money we gave them in 1994 and then we go up 
by 4 percent, realizing the Medicaid population will probably increase 
over that period.
  What I am worried about is the effect would be more Americans without 
any type of health insurance. Already in our Nation, there are about 38 
million people who are uninsured. I am very reluctant to see that pool 
of Americans without health insurance increase.
  Even more troubling is my concern that there will be an attempt to 
reduce the rate of growth in Medicaid even more than that required in 
the budget resolution. As I say, the Finance Committee has a lot of 
flexibility here. We do not have to reduce Medicaid by $182 billion. We 
can reduce it by $190 billion or $200 billion. And, unquestionably, 
there will be a tendency, when we look at the large target of savings 
that have to be achieved under Medicare, to say, ``$270 billion out of 
Medicare, that is a lot. Let us just increase the savings somewhat in 
Medicaid''--Medicare being the program for those over 65, Medicaid 
being for that group that I previously discussed, primarily low-income 
families and low-income seniors.
  If the Finance Committee adopts the budget resolution 
recommendations, Medicare growth rates are 7 percent and Medicaid 4 
percent. These already, it seems to me, are disproportional, and any 
attempts to further reduce the rate of growth in Medicaid would cause 
me great concern.
  Second, I am concerned about the complete lack of accountability, 
with no kind of strings attached to this block grant proposal. Surely 
we ought to have some guarantees that these funds will be spent for 
their intended purpose. How do we do that? That is left undescribed, so 
far.
  A third, but very real, problem is the formula. This is a huge amount 
of 

[[Page S 12341]]
money. How is it to be equitably divided among the States? We have 
wrestled with that in welfare, but that is really the minor leagues 
compared to the expenditures and problems that come up with Medicaid. 
In Medicaid, we are dealing with hundreds of billions of dollars--not 
the tens of billions of dollars that we have so struggled with in 
determining a correct formula under AFDC. I would like to touch on each 
of those matters just briefly in a little more detail.
  Living within the block grant: The budget resolution recommends the 
growth rate be brought down and leveled off at 4 percent by 1998. We 
can grow a little more in Medicaid next year, 7 percent, but by 1998 it 
has to be at 4 percent. That translates, as I said before, to a $182 
billion reduction in the rate of growth over the next 7 years.
  Under the block grant approach, each State would receive a fixed 
allocation. If there are more people eligible for Medicaid --which 
might be because of a recession or something similar--the States would 
either have to make up the difference or cut back on services and 
eligibility. The Governors who advocate the block grant assured 
Congress they would live within this absolute cap. It is true a number 
of States have begun enrolling families with children into managed 
care. That seems to be the solution that is proposed. States argue that 
they can achieve these savings by enrolling the Medicaid population 
into managed care. And, indeed, those States that have tried it have 
had some success.
  However, Mr. President, here we get back to the percentage of 
eligibles in each category compared with the spending. Yes, you can use 
managed care with the 73 percent of the Medicaid population, the 
children and adults. It is possible to enroll this population in 
managed care and achieve savings. But the trouble is, you are only 
dealing with 27 percent of the expenditures. What about managed care 
for the elderly, and those up here, who constitute 27 percent of the 
population but are consuming 60 percent of the moneys?
  The reality is that States have little or no managed care experience 
when it comes to long-term care. These folks, the elderly, this group--
they are in nursing homes, for the most part. Arizona is the only State 
which has its entire Medicaid population in managed care. Its growth 
rate over 13 years of experience averages 7 percent, not the 4 percent 
we are trying to achieve. Mr. President, 7 percent is a long ways from 
4 percent.
  What about other administrative efficiencies? Some say we can do it 
under the block grant by repealing the so-called Boren amendment, which 
is a Federal requirement that State payments to providers under 
Medicaid be ``reasonable and adequate.''
  The view is that you can repeal the Boren amendment and there will be 
tremendous savings. Yet, the Congressional Budget Office estimates that 
repeal of the Boren amendment would only yield $7 billion over this 7-
year period--about $1 billion a year.
  June O'Neill, director of CBO, in recent testimony before the House 
Commerce Committee, said the following:

       Improving the efficiency by itself almost certainly could 
     not achieve reductions in the rate of growth in the order of 
     magnitude being discussed. [She is talking about the delivery 
     of services under Medicaid.] Some combination of cutbacks in 
     eligibility, covered services or payments to providers [the 
     nursing homes, the doctors, the hospital] would be necessary.

  In testimony before the Finance Committee last month, Governor Lawton 
Chiles, our former colleague here, U.S. Senator for 12 years, now 
Governor of Florida, said under the block grant approach he would have 
no choice but to cut back on services and eligibility.
  As States are forced to ration finite resources under a block grant, 
Governors and legislators would be forced to choose among three very 
compelling groups of beneficiaries.
  Who are they? Children--here they are right here--children, the 
elderly, and the disabled. They are the groups that primarily they 
would have to choose amongst. Unfortunately, I suspect in that children 
would be the ones who would lose out.
  My second concern is the issue of accountability. As I mentioned 
earlier, block grant proponents are pressing for a ``no strings'' 
approach--give us the money and do not tell us how we are going to 
spend it. As Governor Engler of Michigan made clear in testimony before 
the House Commerce Committee:

       * * * any financing mechanism that continues a Federal 
     matching formula is not acceptable. I repeat: Not acceptable.

  In other words, they do not want this so-called maintenance of 
effort.
  I am confident that many States would use block grant funds 
appropriately. However, those who are familiar with the Medicaid 
Program need look no further than the so-called disproportionate share 
hospital program to find examples of diversion of funds, of Medicaid 
funds. I suspect the American public would be shocked to hear how many 
miles of highway have been paid for with Federal Medicaid dollars, or 
that at least one college stadium is reportedly known as the ``Medicaid 
Dome.''
  As a former Governor, I am sympathetic to the urgent pleas of the 
National Governors Association for more flexibility. Every Governor 
wants that. Most of us would agree that the Medicaid Program could be 
greatly improved by repealing some of the more complex and burdensome 
requirements. However, I find the concept of completely abandoning all 
Federal standards troubling.
  What are some of the standards that would be lost under the ``no 
strings'' approach of the block grant method?
  What are we talking about when we are talking standards? Federal 
nursing home standards, for one.
  During the 1980's, many nursing homes were warehouses for the 
elderly. Residents were left tied to their beds lying, in some 
instances, in their own filth. During the 1970's, we saw managed care 
plans in California receiving huge sums of Medicaid dollars for health 
care services they never provided. It turned out that one managed care 
plan in California had a 24-hour emergency number, and that turned out 
to be a phone booth on a street corner.
  Under current Medicaid law, physicians and other providers of health 
care services are required to be licensed and hospitals have to be 
accredited. I think these are important quality standards. Perhaps some 
States would enact their own laws to address these concerns. But when 
we are dealing with hundreds of billions of dollars and millions of 
lives, I hate to take anything for granted.
  It is perhaps because of my own experience as a Governor that I know 
the value of making Federal funds contingent upon a sizable State 
contribution.
  I just want to relate a little anecdote. When I was Governor of Rhode 
Island, I went out with our director of public works driving over a new 
interstate highway we had just built. I saw a lot of lights along the 
highway. Immediately my thought was, What are all these lights doing 
there? That has to be terribly expensive. So I turned to the director 
of the department of public works. ``What about all those lights? Why 
do you have them?'' ``Oh, do not worry. That is 90-10 money,'' meaning 
the Federal Government pays 90 cents and the State only paid 10 cents. 
So why should we worry about some unnecessary frills such as this 
abundance of lights? I found that a perfectly acceptable explanation. 
Why not take it, 90-10?
  But from that lesson, I realized that unless there is a sizable 
contribution percentagewise by the States, then there is a casualness 
in the expenditure of Federal dollars.
  My last concern deals with how we go about allocating funds among the 
States under the block grant. We had, as I mentioned before, great 
struggles on the welfare bill that we are dealing with now on the 
allocation of funds. If we adopt the formula based on current Federal 
spending on Medicaid in each State, all States would get about a 19-
percent decrease below the levels anticipated under current law. And 
reducing that rate of growth to achieve the $182 billion of savings 
would require every State to go down under its present allocation about 
19 percent from where they otherwise would be.
  What do we do with those States that are anticipating high population 
growth? There are many factors that could be taken into account. Some 
suggest that the allocation should be 

[[Page S 12342]]
based upon population. Under this scenario we would see a massive 
shifting of funding from the Northeast, from Pennsylvania, Connecticut, 
New York, and Rhode Island, a shift from those States to the South and 
to the West.
  The State of Rhode Island would see a 42-percent reduction in 
Medicaid funds from what it otherwise would have received. New York 
would see a 50-percent reduction if we use the formula based on 
population and projected population growth. Utah would see a 30-percent 
increase in Medicaid money. Oregon would receive an 11-percent 
increase. I chose Oregon, New York, Utah, and Rhode Island because all 
of those States have representation on the Finance Committee. You can 
see right away that a major battle would ensue.
  Having voiced my concern about the block grant, I would like to 
outline an alternative approach which I am currently working on to meet 
the savings targets contained in the budget resolution. Whatever we do, 
I am going to stick by those targets. As far as I am concerned nothing 
can come out of the Finance Committee wherein we do not meet our 
targets.
  But here is another way of doing it which would provide the 
additional flexibility the Governors need to make their systems more 
efficient. Two steps could go a long way--not all the way but a long 
way--toward meeting our reconciliation responsibilities with respect to 
Medicaid.
  First, a per capita cap on Federal spending for each beneficiary; x 
amount of dollars for every beneficiary. That would encourage the 
States to provide more cost-effective care, without sacrificing access 
to additional Federal funds in times of recession, as would result 
under a block grant approach.
  Second, let us reduce and redirect the so-called Federal 
disproportionate share payments going to hospitals. I am not going to 
go into a great deal of description of disproportionate share. All I 
can say is it is fraught with abuse.
  These two options that I mentioned--the per capita cap on Federal 
spending and reducing and redirecting disproportionate share payments 
to hospitals--could yield between $100 and $130 billion savings over 
the next 7 years.
  Our second objective of giving the Governors additional flexibility 
to achieve efficiency could be realized. What can we do to help the 
Governors?
  One, eliminate the requirements that States obtain Federal waivers 
before moving forward to implement managed care. Get away from this 
waiver business.
  Two, repeal the payment requirements, such as the Boren amendment and 
its so-called reasonable-cost reimbursement.
  Three, replace what is known as the Qualified Medicare Beneficiary 
[QMB] Program, which requires States to pay Medicare premiums and cost 
sharing for low-income seniors, and replace this with a more rational 
federally financed system.
  In conclusion, Mr. President, we have two choices. We can convert the 
Medicaid Program to a block grant and send out the checks, tell the 
States, ``You are on your own. Take care of health care for low income. 
That is it.'' Or, Mr. President, we can acknowledge that the Federal 
Government has a greater responsibility in this than just sending the 
checks off in the mail. In partnership with the States, I think we have 
a responsibility to provide health care services to low-income seniors, 
children and the disabled.
  The point I wish to make today is that with work and tough choices, 
we can meet our budget responsibilities without throwing this Federal-
State partnership overboard as would result in the block grant 
approach. Certainly, that will be my preference between now and 
September 22, when the authorizing committees--in this instance the 
Finance Committee--must report their reconciliation legislation.
  I intend to continue to explore ways to reform the Medicaid Program. 
In that regard, I welcome input. My tilt, as you know, is away from the 
block grant approach.
  We need help. It is a tremendous goal that is set out, not only for 
the Medicaid Program but the Medicare likewise. The Finance Committee 
has tremendous challenges before us.
  So, Mr. President, I thank you for this.
  

                          ____________________