Budget-cutting measures passed by the U.S. Senate with the help of Vice President Dick Cheney Wednesday (Dec. 21) could hit states squarely in the pocketbook just as they find themselves out of the woods of an economic slowdown.
The legislation, which still needs a final sign-off from the House before going to President Bush, makes changes to the federal-state Medicaid program designed to save the federal government $5 billion over five years - and states roughly the same amount.
The proposal would let states ask Medicaid patients to pay more of their medical bills and would raise the hurdle for seniors seeking government help to pay for nursing home care.
While saving states money on Medicaid, the measure also makes expensive changes in the federal welfare-to-work program that would further trim welfare rolls and could cost states up to $11 billion in lost federal dollars or new expenses. On top of that, the package reduces the federal share of the tab for state-run child support collection services.
Cheney cast the decisive vote in the Senate after it split 50-50 on whether to approve the budget package, which overall would save the federal government nearly $40 billion over the next five years. With House members already dismissed for the holidays, the package likely will wait for final approval when Congress convenes in January.
Governors offered mixed reviews of the congressional efforts. Governors of both parties initially lobbied for widespread Medicaid reform, because the program's costs are rapidly eating up growing chunks of state budgets.
Elements they sought ended up in the budget bill, such as the ability to impose higher co-payments and restrict eligibility for seniors. But governors also asked for tools to squeeze drug manufacturers for larger rebates on medicines purchased by Medicaid and that didn't make the final cut.
Indiana Gov. Mitch Daniels (R), a former director of President Bush's Office of Management and Budget and a former pharmaceutical executive, said, "Indiana welcomes this greater flexibiltiy, whether we decide to use it or not."
"We've succeeded in slowing Medicaid cost growth substantially this year, without these measures, but would not rule out some use of them in the future," he added.
But Iowa Gov. Tom Vilsack, a Democrat considering a presidential run in 2008, slammed the actions of the GOP-controlled Congress.
"It is unfortunate that those who are struggling to get themselves out of poverty have to pay the price for that tax cut. ... It's just wrong, in my view. It's wrong, and it shouldn't have been done," he said, according to the Quad-City Times
In Kansas, Gov. Kathleen Sebelius (D) lamented, "It seems as though every time Kansas takes a step forward, Washington goes out of its way to take two steps back." The Democratic Governors Association
registered its opposition to the budget plan before the Senate voted on the measure.
"Governors are tired of Republicans in Washington not keeping their promises to our senior citizens and children while they pass the buck on to the states," New Mexico Gov. Bill Richardson, the DGA's chairman, said in a statement
The Republican Governors Association
issued no reaction, but Republicans in Congress called the budget a way to slow federal spending and invigorate the economy.
"Without some changes, these important programs - Medicare, Medicaid, TANF (Temporary Assistance to Needy Families, or welfare) - will be driven into the ground. That some don't support these changes, well, to me, it seems they can't see the forest for the trees," U.S. Sen. Chuck Grassley (R-Iowa) told his colleagues.
Meanwhile, the National Governors Association
, the bipartisan group that spurred congressional action on Medicaid reform, declined to weigh in on whether the budget accord should be passed.
Executive director Raymond Scheppach said the NGA made its views known before House and Senate negotiators struck the deal but would not make an up-or-down recommendation.
In a Dec. 5 letter
, the governors opposed several ideas that ended up in the final budget package.
The most costly of those would be changes to the TANF program, the welfare-to-work initiative first enacted in 1996. The bill, for example, would require a greater share of recipients in each state to participate in work-related activities in order for those states to qualify for federal aid.
The Congressional Budget Office
estimated that the welfare changes could cost states $8.4 billion over five years in reduced federal assistance. But the agency cautioned that the estimate could be high, because states were more likely to make it harder for people to qualify for welfare assistance than to bolster the participation rates of the current enrollees.
During Senate debate, U.S. Sen. Jim Talent (R-Mo.) told his colleagues that the stricter standards would spur states to continue moving people off of welfare rolls and into work. Under current law, he explained, states have exceeded their goals and, therefore, aren't at risk of losing their funding.
But the left-leaning Center on Budget and Policy Priorities
, a research group focused on the concerns of the poor, argued that the savings plan also shortchanged states in paying for child care.
Citing CBO estimates, the Center's analysts said it would take $4 billion just for the feds to keep up their current level of support for child care for working families, but the agreement only includes $1 billion for that purpose.
That $3 billion shortfall, plus the $8.4 billion hit, means state could face a loss of more than $11 billion in welfare-related funding, even before considering how much more it will cost to provide child care to meet the higher work-participation requirements, Center officials said.
The package also reduces federal support for child-support collection efforts. States stand to lose $1.5 billion for their enforcement efforts, which could mean families owed child support could lose up to $2.9 billion in the next five years, according to the CBO.
For most of the year, the NGA made Medicaid reform its marquee issue.
On that front, the NGA succeeded in enacting two of its most controversial ideas: requiring patients to pay more of the costs of their services and making it harder for well-to-do seniors to give away their assets in order to qualify for government-funded nursing home care.
Much of the savings for the federal government, though, would depend on how states implement the proposed changes and how recipients, in turn, would react to the new rules.
That's because states share the cost of Medicaid with the federal government. Poorer states pay less (the feds pick up 76 percent of the tab in Mississippi), but no state pays more than 50 percent (which 10 states do). Nationally, the federal government pays 57 percent of the cost of Medicaid.
In the federal budget, Medicaid is an entitlement, meaning its costs are open-ended instead of limited to a fixed amount. So if states whittle down the services they offer - or patients decide to forego treatment rather than finding the cash for a co-payment - the federal government saves money.
But advocates for the poor point to previous experiences, especially in Oregon and Virginia, that show hikes in co-payments and premiums will leave low-income patients without health care and increase emergency room use, which is substantially more expensive than physician visits.
Paul Cotton, a senior legislative representative for the seniors' group AARP
, said the increased co-payments were "both cruel and unwise."
Even seniors not on Medicaid could see higher costs for health care, he noted, because of changes in this bill to Medicare, the national health program for seniors. Older Americans will have to pay more to see a doctor, because Congress decided to pay physicians more for their services and Medicare co-payments are based on those rates.
Although states championed Medicaid reductions, the new cuts likely will have a limited impact on easing the strain on their budgets. With Medicaid spending expected to grow nearly 9 percent a year, the new provisions are "fairly small provisions" that will help states manage but "are not going to do much," said Scheppach of the NGA.
The budget bill, S. 1932
, also includes $2 billion for health care expenses in Gulf states hit by Hurricane Katrina. It does not, however, contain House-approved cuts to the food stamp program.