```

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

 
        MEDICAID: EMPOWERING BENEFICIARIES ON THE ROAD TO REFORM

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

                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 8, 2005

                               __________

                           Serial No. 109-49

                               __________

      Printed for the use of the Committee on Energy and Commerce

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

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
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                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

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

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

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

                                  (ii)

  

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Alexander, David, President, DeVos Children's Hospital.......    35
    Gardner, Jim, CEO, Northeast Georgia Health System...........    41
    Keating, Frank, President and CEO, American Council of Life 
      Insurers...................................................    26
    Matthews, Merrill, Executive Director, Council for Affordable 
      Health Insurance...........................................    56
    Parrella, David, Director, Medical Care Administration, 
      Department of Social Services..............................    30
    Sheehan, Bob, Executive Director, Community Mental Health 
      Authority of Clinton-Eaton-Ingham Counties, Lansing, 
      Michigan...................................................    45
    Thames, Thomas, Member, Board of Directors, AARP.............    50

                                 (iii)

  

        MEDICAID: EMPOWERING BENEFICIARIES ON THE ROAD TO REFORM

                              ----------                              

                      THURSDAY, SEPTEMBER 8, 2005

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Bilirakis, Upton, 
Stearns, Gillmor, Deal, Whitfield, Norwood, Shimkus, Wilson, 
Shadegg, Bass, Pitts, Walden, Terry, Ferguson, Rogers, Otter, 
Sullivan, Murphy, Burgess, Blackburn, Dingell, Waxman, Markey, 
Pallone, Brown, Rush, Eshoo, Stupak, Engel, Wynn, Green, 
Strickland, DeGette, Capps, Doyle, Allen, Schakowsky, Solis, 
Baldwin, and Ross.
    Staff present: Chuck Clapton, chief counsel, Health 
Subcommittee; David Rosenfeld, majority counsel; Jeanne 
Haggerty, majority counsel; Brandon Clark, policy coordinator; 
and Chad Grant, legislative clerk.
    Chairman Barton. Let me make an announcement about process 
this morning.
    Yesterday's hearing on the energy situation in Katrina I 
thought showed our committee in a very positive light. We had a 
good discussion; 45 of the 57 members participated.
    Our opening statements yesterday took 2\1/2\ hours, so that 
by the time we got to the second panel it was myself and I 
think Mr. Stupak was here for part of it and Mr. Rush came in. 
I am going to ask that the rank in file members try to 
eliminate your opening statement to 1 minute, but I am not 
going to enforce it. If somebody feels strongly enough that you 
want to talk 2 or 3 minutes, that is fine; but we have a 
distinguished panel here, a lot of witnesses that the minority 
wanted, and we want to hear from them and then have some 
questions, and so I would encourage members to be judicious in 
our opening statements and try to do it within 1 minute, but we 
are not going to insist that it be a 1-minute statement.
    All right. The Chair recognizes himself for an opening 
statement.
    I want to thank our witnesses for their testimonies.
    Unlike the devastation recently caused by Hurricane 
Katrina, the crisis facing Medicaid is a man-made disaster, it 
is a result of a program that, established with the best of 
intentions, remains tied to the bureaucratic rules and 
requirements that were first established back in 1965, over 40 
years ago. In those intervening years, the health care industry 
has fundamentally changed, but Medicaid has not.
    Medicaid was originally established to provide a safety net 
for the poorest of the poor and the most vulnerable members of 
our society. It is now one of the largest providers of health 
services in the Nation, covering a growing percentage of 
working Americans. These expansions are placing enormous 
financial pressure on the States and are causing the Medicaid 
safety net to begin to fray and unravel. This endangers the 
very people that Medicaid was originally intended to protect 
and highlights the primary need we need to reform Medicaid.
    State Governors have recognized the need to create a 21st 
century Medicaid. That is why a bipartisan group of Governors 
led by Republican Governor Huckaby and Democratic Governor 
Warner have been working for months to develop a plan to 
strengthen and improve Medicaid. Their plan recommends several 
common sense reforms, including allowing States to charge basic 
copays to higher income beneficiaries, reducing Medicaid 
overpayment for drugs and making it more difficult for wealthy 
seniors to shift or hide assets in order to qualify for 
Medicaid coverage for nursing home services. These are 
thoughtful policies that will strengthen and improve the 
Medicaid program.
    I hope that in the next few weeks the Energy and Commerce 
Committee will mark up legislation that is similar to many of 
the Governors' bipartisan reformed proposals. These proposals 
will begin to build a Medicaid program for the 21st century 
that empowers Medicaid beneficiaries, increases their access to 
health care, and improves the quality of care that they 
actually receive.
    Some critics are going to challenge the premise that 
Medicaid can be improved, or that we can achieve some modest 
savings from reforming the modern program. They are going to 
argue that any change hurts the poor. They ignore, however, how 
the system is already hurting the poor. Between 2002 and 2005, 
38 of the 50 States have reduced eligibility, 34 States have 
reduced benefits. This year hundreds of thousands of 
beneficiaries are losing Medicaid eligibility and facing 
reduced benefits; that is under the current system. Their 
safety net is rotting away as we stand by and watch.
    Whether Medicaid changes is no longer in question, the 
question is, how will we begin to transfer this program so that 
we continue to help the neediest of the needy in our country, 
are we going to stand by and allow it to literally rot away?
    Some critics are also going to attempt to use the 
devastation caused by Hurricane Katrina as a justification to 
block Medicaid reform. They are going to argue that we cannot 
impose new burdens on Medicaid beneficiaries at a time when 
many have lost everything. I have great sympathy for the 
victims of Hurricane Katrina, but the arguments about using 
that to block Medicaid are patently false. Evacuees from 
Hurricane Katrina will not be put in jeopardy because of these 
reform proposals. Let's say that again, evacuees from Hurricane 
Katrina are not going to be hurt. We are going to do everything 
we can to help the victims of Hurricane Katrina. If we need to 
be specific in any pending legislation or new legislation, we 
will do that, but the reforms we are talking about are long 
term, they will help the very States that are trying to deal 
with Katrina. We are going to work with the Governors in the 
affected States and the Governors of the States surrounding the 
affected States that are taking care of the victims of 
Hurricane Katrina.
    Creating a Medicaid program for the 21st century is not 
just about saving money, it is about preserving the basic 
safety net that protects our Nation's poor. If we cannot reform 
Medicaid, we are going to put those very beneficiaries at grave 
risk.
    So I hope that we have a good hearing today. In fact I know 
we are going to have a good hearing, and I look forward to 
listening to the witnesses and, more importantly, listening to 
the questions and comments of the members of this committee.
    [The prepared statement of Hon. Joe Barton follows:]

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

    Good Morning. Let me first thank our witnesses for their testimony, 
which will provide valuable perspectives on the crisis facing Medicaid.
    Unlike the devastation recently caused by Hurricane Katrina, the 
crisis facing Medicaid is a man made disaster. It is the result of a 
program that, while established with the best of intentions, remains 
tied to the bureaucratic rules and requirements that were first 
established in 1965. Over the intervening 40 years, health care in this 
country has fundamentally changed, but Medicaid has failed to keep up.
    Medicaid was originally established to provide a safety net for the 
poorest and most vulnerable members of society. It has since grown into 
one of the largest providers of health care services in the nation, 
covering a growing percentage of working Americans. These expansions 
are placing enormous financial pressure on the states, and are causing 
the Medicaid safety net to begin to fray and unravel. This endangers 
the very persons that Medicaid was originally intended to protect, and 
highlights why we need to reform Medicaid.
    State governors have recognized the need to create a 21st Century 
Medicaid program and respond to the threats to beneficiaries' access to 
care. That is why a bipartisan group of governors, led by Governors 
Hucakbee and Warner has been working for months to develop a plan to 
strengthen and improve Medicaid. Their plan recommends several common 
sense reforms, including allowing states to charge basic co-pays to 
higher income beneficiaries, reducing Medicaid overpayments for drugs 
and making it more difficult for wealthy seniors to shift or hide 
assets in order to qualify for Medicaid coverage of nursing home 
services.
    These are thoughtful policies that will strengthen and improve the 
Medicaid program. I expect that, within the next few weeks, the Energy 
& Commerce Committee will mark up legislation that is very similar to 
many of the Governors' bipartisan proposals. These proposals will begin 
to build a Medicaid program for the 21st Century that will empower 
Medicaid beneficiaries, increase their access to healthcare and improve 
the quality of care they receive.
    Nevertheless, some critics continue to challenge the premise that 
Medicaid can be improved or that we can achieve modest savings from 
reforming the program. They argue any change to the system will hurt 
the poor. They conveniently ignore, however, how the system is already 
hurting the poor. Between 2002 and 2005, 38 states reduced eligibility; 
and 34 states reduced benefits. This year, hundreds of thousands of 
beneficiaries are losing Medicaid eligibility or facing reduced 
benefits. Their safety net is rotting away, as we stand by and watch. 
Whether Medicaid changes is no longer in question--the only question 
now is whether we will begin to transform this program or stand-by and 
allow it to implode.
    Some critics may also attempt to use the devastation caused by 
Hurricane Katrina as a justification to block Medicaid reform. They 
will argue that we cannot impose new burdens on Medicaid beneficiaries 
at a time when many have lost everything. These arguments are patently 
false. Evacuees from Hurricane Katrina will not be put in any jeopardy 
because of these reform proposals. Let me repeat, so that everybody 
hears me--evacuees from Hurricane Katrina would not be hurt! Also, 
these reforms will help the very States that are trying to deal with 
Katrina. We will also work directly with Governor Barbour and the other 
governors over the next few weeks to provide them with immediate 
assistance so that they can continue to meet the health care needs of 
all of the victims of Hurricane Katrina.
    Creating a Medicaid program for the 21st Century is about much more 
than savings--it is also about preserving the healthcare safety net 
that protects the nation's poor. If we cannot make reform Medicaid, we 
will put the beneficiaries who depend on the program at grave risk. 
Doing nothing is simply not an option.

    Chairman Barton. With that, I recognize my very 
distinguished ranking member, Mr. Dingell, for an opening 
statement.
    Mr. Dingell. Mr. Chairman, first of all, we on this side 
thank you for your cooperation to us in preparing this hearing. 
The issues before us today we think are of exquisite importance 
to this country, and especially to those in most desperate 
need, a matter of which is highlighted by the events which we 
see going on in the Gulf States following Katrina.
    Today, Mr. Chairman, we are going to hear from people who 
are directly and negatively affected by the cuts proposed. We 
have heard from Governors Warner and Huckabee about the 
National Governors' proposal. We know that significant parts of 
this proposal would shift costs that are already shared by the 
Federal and State governments onto the backs of families 
struggling to make ends meet.
    I hope that some of what we are hearing today from those 
representing infants and children, individuals living with 
disabilities, the elderly, will give Congress pause about 
cutting Medicaid at this time. This is a program that provides 
health insurance for more than 50 million Americans. Coverage 
under Medicaid and State Children's Health Insurance Program, 
CHIP, rose from 12 percent in 2003 to 12.9 percent in 2004. 
These increases helped offset the reduction of private 
employers sponsored insurance and kept the percentage of 
uninsured Americans, including children, from rising in 2004.
    Some of the proposals brought forward by the Governors and 
by the Bush administration will have serious consequences for 
the health of seniors. One, it will evict poor and elderly from 
nursing homes or deny them admission when they need care. Two, 
new cost sharing burdens on the poorest of the poor will 
result. These will result in higher medical costs to everyone 
later on. Three, it will reduce benefits for children that will 
affect their ability to grow and develop properly. Four, 
uncompensated care for providers, many of whom are forced to 
absorb the unpaid cost of their care of term patients, will 
find themselves in a worst situation than they are today.
    The proposed cuts to Medicaid are unwise to say the least. 
They are couched in terms of flexibility to allow States to 
more effectively manage their programs, but it is really 
flexibility to design State Medicaid programs in a way that 
would cause many needy families already struggling to meet ends 
to loose their only health care coverage.
    We all know of the unprecedented disaster that struck our 
gulf coast, we know the magnitude of the damage, and we know 
how it is going to take us a long time to restore lives and 
property, those who are affected, to anything close to normal, 
but we do not know how the greatest health care needs will be 
met if we make the cuts suggested here.
    Health care coverage is absolutely imperative to those 
families trying to get their lives back together. At this time, 
we should not be cutting Medicaid but shoring it up and getting 
States the Federal assistance they will need to care for a huge 
influx of hurricane survivors. Medicaid is one of our Nation's 
critical safety nets. It has been there to serve those in need 
in disasters in the past, and it must be there for those who 
will need it now, and that includes not only persons who are 
going to have health problems, but the health care system, the 
providers, and also the Governors and the States.
    I want to welcome today's witnesses, who bring a human face 
to Medicaid, a program that protects tens of millions of our 
most vulnerable citizens, including those near the end of their 
lives, and those just beginning their lives, and those most 
helpless in confronting the hideous costs which they have.
    I thank you again, Mr. Chairman, for recognizing me, and I 
thank you also for your cooperation in bringing this hearing 
about. Thank you, and I yield back the balance of my time.
    Chairman Barton. Pleasure to work with you, Congressman 
Dingell, on these issues.
    We are going to recognize the subcommittee chairman, Mr. 
Nathan Deal of Georgia, for 3 minutes.
    Mr. Deal. Thank you, Mr. Chairman, and I thank you for your 
opening statement.
    I want to express appreciation to the continued follow up 
that we have had from our first hearing in which we heard from 
the National Governors' Association and have continued to work 
with their staff on a bipartisan basis as we have tried to 
develop legislation that conforms to the request that the 
Governors have made on a unanimous basis across this country 
saying that Medicaid is a system that is broken and needs to be 
reformed, and that as partners with us in this Federal program 
that they are requesting that we make changes in order to keep 
the program alive and service the needs of the constituents of 
the various States.
    Mr. Chairman, I will not use all of my time, but I did want 
to use a portion of it to welcome one of the members of the 
panel, my good friend Mr. Gardner from my hometown of 
Gainesville, Georgia. Jim is the President and CEO of the 
Northeast Georgia Health System, which is one of the largest 
health care providers in our State; in fact it is the largest 
Medicaid OB and ER provider in northeast Georgia.
    Jim comes to his position from the home State of one of our 
colleagues, Ms. Cuban, in Wyoming, where he had been the CEO of 
the Wyoming Medical Center, which is the largest health care 
provider in that State, before coming to our State of Georgia.
    Jim was educated at University of Virginia, and also has a 
Master's in health care administration from the Medical College 
of Virginia. He has been in this business for some 21 years. He 
has served in a variety of capacities across our country, both 
in the for profit, the not for profit and the not for profit 
faith-based hospital settings, so he comes to us with a wide 
breadth of knowledge and understanding.
    In his current capacity as CEO of the hospital in my area, 
he has 3,200 full-time employees, a $400 million net operating 
revenue, and is one of the pioneers in a free-standing not for 
profit health care system in our State. So I am pleased to have 
Jim Gardner as a member of this panel.
    And I would also like to say to the other members of our 
panel, thank you all for coming. We recognize that you make 
sacrifices to appear before our committee. We thank you for 
your insights and your perspectives.
    We will certainly hear differences of opinion today, but 
that is not unusual to any of you as you have served in your 
various capacities in the health care system of our country, 
and we thank you for your presence.
    With that, Mr. Chairman, I yield back.
    Chairman Barton. We thank the gentleman and we welcome his 
constituent, Mr. Gardner. I know a Jim Gardner in Texas, he is 
from my hometown. He is a banker, a very successful banker.
    Mr. Deal. He served in many hospitals in your State, Mr. 
Chairman, as a CEO.
    Chairman Barton. We are now going to recognize the ranking 
member of the Health Subcommittee, the distinguished Mr. 
Sherrod Brown of Ohio, for 3 minutes.
    Mr. Brown. Thank you, Mr. Chairman.
    Hurricane Katrina, as we know, is a wakeup call. If we heed 
today's hearing we will unite our committee behind a common 
goal, not divide it across party lines.
    Katrina put a human face on hardship. It reminded us that 
there are Americans who work hard and play by the rules and pay 
their taxes, but are still hanging on by a thread. It reminded 
us how easily that thread can break, and in the clearest terms 
possible it communicated the value of both the tangible and 
intangible of government assistance.
    Working together, members of the committee can engage our 
fellow public servants in a Medicaid reform initiative that 
this time will be an effort to reform policymakers, not policy. 
Our Nation's leaders must stop blaming the poor for needing the 
same health care we do; helping them secure it isn't an 
extravagance, it is an expression of American values. Health 
care is expensive. No one on this committee has figured out a 
good way to contain costs without medical progress. Our 
Nation's leaders must stop pretending that taking health care 
away from the poor solves that dilemma. They must stop 
pretending that the poor take advantage of Medicaid as if 
enrollees look for excuses to visit the doctor. The Nation's 
leaders must stop pretending that taking health care away from 
the poor won't hurt them. It is a convenient theory, it is also 
false.
    Hurricane Katrina forced this Nation, at least for a while, 
to see the world through the eyes of Americans living in 
poverty. It is a grim reminder that Americans from all walks of 
life can be financially independent 1 day and in desperate 
straits the next day. A natural disaster, a catastrophic 
illness, a stock market crash, an aging parent, a sick child, 
that is all it takes. Katrina reminds us of when Americans 
witness human suffering they do everything in their power to 
alleviate it.
    Medicaid is the Nation's insurer of last resort. Medicaid 
serves people who have no resources of their own. In Louisiana, 
Mississippi and Alabama we have seen what that kind of poverty 
looks like. Some policymakers propose saving money by 
increasing the cost sharing burden on Medicaid enrollees, 
people who already ration every dollar they have to cover basic 
necessities. This committee should dismiss any proposal that 
robs from the poor to give to the poor. We should dismiss any 
proposal that cuts Medicaid when the need for it has never been 
greater. That doesn't mean we shouldn't do anything. We must 
ensure that Medicaid is available to hurricane victims, we 
should federally finance 100 percent of hurricane-related 
Medicaid spending. It can be effectively deployed to help the 
victims recover their health and rebuild their lives if the 
Federal Government invests in that priority. And we can and 
should reduce fraud, waste and abuse from Medicaid. Any dollar 
saved should be reinvested to protect existing coverage and 
reach more people in need.
    Hurricane Katrina indeed was a wakeup call, we should heed 
it. Americans help those in need, we don't make scapegoats of 
them.
    Thank you, Mr. Chairman.
    Chairman Barton. Thank you. We are now going to do the rest 
of the opening statements. You are going to have an option of 
no statement, which gives you 1 extra minute in the question 
period, 1 minute or 3 minutes. So you get your choice of 
deferring and getting an extra minute, taking a minute now or 
taking a 3-minute now. I am going on start with Mr. Bilirakis. 
What is your preference?
    Mr. Bilirakis. I am going to waive my opening statement, 
but I want to welcome the panel, particularly my fellow 
Floridian, Dr. Thomas Thames. Welcome, sir. And I waive opening 
statement.
    Chairman Barton. Mr. Upton, did you wish to----
    Mr. Upton. Hopefully I will take less than a minute for an 
opening statement.
    I appreciate your leadership and the work of Mr. Deal and 
others. We have had a lot of hearings on Medicaid and we have 
heard complaints both here and in our district about the way 
the system works. Frankly, I don't think there are a lot of us 
here who think that doing nothing is the right option. We have 
heard from beneficiaries, providers, our Governors. This is a 
partnership program that Governors have the lead on, and I for 
one am not focused on cutting Medicaid, I am instead putting 
policy over the budget process. We need a policy to work and we 
need to listen to our Governors. We know that this program is 
increasing by about three times over inflation, hundreds of 
billions of dollars over the next couple of years, but our 
focus should be on reform and working with the Governors to 
continue to let them have the lead, Republican and Democratic 
Governors, by the way, to make this program have some sense.
    I yield back my 6 seconds.
    Chairman Barton. What is Mr. Waxman's pleasure? Three 
minutes, 1 minute or defer?
    Mr. Waxman. I will take 1 minute with an option to 3, and I 
want to know if I can get a 3-minute addition if I waive my 
opening statement?
    Chairman Barton. No. It doesn't come with fries either.
    Mr. Waxman. I will take 3 minutes.
    Mr. Chairman and my colleagues, welcome all the witnesses 
that are here today. I fear that what you all have to say--and 
even the fact of a hurricane displacing the health care needs 
of thousands of Americans will not make much difference if this 
committee is intent to making a $10 million cut in the Medicaid 
program. I think it is unthinkable. This is a partnership 
program between the States and the Federal Government, but it 
is not for their benefit, it is for the benefit of the very 
vulnerable poor in America. And they are going to be bearing 
the brunt of these proposals.
    And what is the best example of that? The money that may be 
saved through so-called reform is not going to be reinvested in 
Medicaid, it is going to be deducted from the Federal share of 
the Medicaid program. While the health care needs of people 
whose lives were ravaged by Hurricane Katrina will be great, 
the demand of the health care system across the country will be 
high. These people are scattered throughout the Nation. States 
are going to be called upon to help pay for their Medicaid 
needs. We ought to be doing something to help those States and 
those people.
    It brings into stark relief a point that we made over and 
over again in the Medicaid debate. The program is a critical 
one, not just to the victims of Katrina, but for very, very 
poor people, 54 million vulnerable Americans. And it is truly a 
matter of life or death for people who depend on it. It is a 
program that is there to respond to these unforeseen disasters. 
It needs more Federal support. Any savings that result in 
sensible reforms ought to be turned back to the program in the 
form of increased support, not just simply deducted from it.
    Most of the so-called reforms that this committee is 
intending to enact are bad for the beneficiaries who depend on 
Medicaid. Let's be crystal clear about that. People who have 
nothing are going to be asked to pay more in copayments or lose 
their necessary services if they cannot. People who are 
disabled or frail or old, maybe even suffering from Alzheimer's 
or other chronic conditions, will have barriers put in their 
way if they need home and community-based services or nursing 
home care. If they inadvertently transferred assets, they may 
find someone to pay the bill, unlikely, they may not even be 
able to find a nursing home that will take them if they fall 
into this big chasm that we are creating for them.
    These policies have one point in common, make the poor 
person pay, that is not what we should be doing here. Cutting 
Medicaid, and especially in the face of the tragedy caused by 
Hurricane Katrina, is simply not right. I look forward to the 
testimony, and I hope some of you will say something that might 
penetrate those who have a proposal that I think is already 
heading down the tracks.
    Chairman Barton. I thank the gentleman.
    Mr. Norwood, 1 minute, 3-minute or defer?
    Mr. Norwood. Mr. Chairman, I will also pass, but I do want 
to welcome Jim Gardner, who is from Georgia and has a great 
deal of health care facilities in my district. Welcome, Jim.
    Chairman Barton. Mrs. Wilson.
    Mrs. Wilson. Thank you, Mr. Chairman, I will give an 
opening statement.
    Chairman Barton. One or three?
    Mrs. Wilson. Three, sir.
    Chairman Barton. The gentlelady is recognized.
    Mrs. Wilson. Thank you, Mr. Chairman.
    I wanted to commend Chairman Deal for all the work that he 
has done on Medicaid and beginning to identify some of the 
changes that need to be made in order to improve Medicaid.
    I believe that Medicaid is desperately in need of reform 
because it doesn't improve the health status of those who 
depend upon it. It doesn't work very well for people who really 
need it, but I am concerned that we are moving forward within 
artificial constraints, particularly driven by budget time 
lines. I believe that the context in which we operate here has 
changed profoundly over the last 10 days, and I believe that 
reconciliation should be postponed.
    More broadly, I think we need policy to drive the budget, 
and I believe that this committee has the capacity to identify 
big ideas and move them forward.
    We have seen three of the States most dependent on Medicaid 
who now have lost all of their State assets from match. We have 
seen a million people displaced to other States, and I would 
like to insert into the record a letter from my Governor 
describing a conference, teleconference with States affected by 
Medicaid where States are asked to either bill Louisiana and 
Mississippi or to apply for a waiver for people who pretty 
easily passed the asset test and should be covered under 
presumptive eligibility, and I would ask unanimous consent to 
enter that into the record.
    This is a system that is not responsive to the people who 
need it most, and it needs to be reformed, but I am not sure we 
are on the track to effectively do that, and we need to focus 
on the health status of those who need it most.
    I yield the balance of my time.
    Chairman Barton. The gentlelady yield backs.
    Mr. Markey.
    Mr. Markey. Three minutes, please.
    Chairman Barton. The gentleman is recognized.
    Mr. Markey. Today, a white hot spotlight is shining on what 
could be a very black mark on this Congress, the enforcement of 
budget cuts against the poor while money continues to be 
shoveled out the door to the richest fat cats and the biggest 
corporations in the form of tax cuts, subsidies, royalty relief 
and other gems of tax avoidance and greed, and that was before 
the hurricane hit. Now the question is squarely on the table, 
is this Republican Congress going to stay the course on cuts to 
the least fortunate Americans, to those whom disaster, health 
emergencies and poverty have brought low?
    Fundamentally this is a moral question, not a budget 
question. If the budget mattered to this Congress, the tax cuts 
would have been canceled after 9/11 but they weren't. They 
should have been canceled after the administration decided to 
start a war, but they were not. Now the safety net is down for 
all to see and billions more are needed to rebuild the gulf 
coast and yet here we are engaged in the process of deciding 
how many more poor or near poor families should be asked to pay 
more so that changes don't have to be made in tax cuts for the 
rich.
    As we consider a cut of $10 billion in Medicaid, it is to 
go to ensure that 53 percent of the benefits of these capital 
gains and dividend tax breaks go to people who make more than 
$1 million a year. That is just morally wrong at this time. 
Forty percent of all babies in our country are born on 
Medicaid, two-thirds of all people in nursing homes are on 
Medicaid, 90 percent of all HIV children are on Medicaid. Half 
of all mental health in our country are on Medicaid. If we have 
some savings that we might be able to get from reform, it 
should go back into those poor people, those people with health 
problems. All of the blind and the disabled in America are on 
Medicaid. And this Congress, this Republican Congress is 
talking about a tax cut for people who make over $1 million a 
year out of the savings from the money that can be taken from 
these people at this time in our country.
    We just learned from the U.S. Census that 1 million more 
Americans fell into poverty in the year 2004. We now know that 
37 million Americans are in poverty. We know that infant 
mortality rate rose last year for the first time since 1958, 
that in some cities in America the infant mortality rate is 
higher than some cities in India. This is no time to be cutting 
Medicaid, this is no time to give a tax break of $10 billion to 
the people who are making more than a million a year out of the 
money that should be used for these Americans who are most in 
need. This is a moral decision, not a budget decision.
    Chairman Barton. We thank the gentleman. I am sure he knows 
this, but we do have jurisdiction over health care policy in 
this committee, we don't over tax policy. I am sure he knows 
that.
    Mr. Stearns.
    Mr. Stearns. Mr. Chairman, thank you very much, and thank 
you for----
    Chairman Barton. One or three?
    Mr. Stearns. I am going to take three--for holding this 
hearing, and I want to also compliment my colleague, Mr. Deal, 
for his thorough preparation and work on this.
    Listening to my colleague from Massachusetts, you would 
think tax cuts caused Hurricane Katrina. In fact, tax cuts 
might have created every problem we have in this country 
because every time he starts out in any hearing it is always 
the tax cuts and helping the rich, and there is really a total 
separation and divorce from this.
    I think my colleagues all of us realize that all we are 
doing here is slowing the growth. We are proposing a 1 percent 
slowing the rate of growth. We are not removing any safety net, 
contrary to what the gentleman from Massachusetts is talking 
about. In fact, in the State of Florida we are going to be able 
to provide under this kind of program services that children do 
not have, and in Florida right now the reimbursement is so low 
in my hometown of Ocala, Florida, if a child on Medicaid gets 
an ear infection there is no ear, nose and throat specialist 
who could treat this child because they don't want to be 
involved.
    So we have a tremendous opportunity, my colleagues, at this 
time to take a fresh look at Medicaid. It doesn't hurt to have 
a fresh look at this program. This is about how we can make 
things better, a life enhancing program for beneficiaries. And 
I am especially excited that the Governors are asking for the 
waiver program.
    Now these are the Governors of the United States. They see 
some merit in this.
    There is one particular area that I have championed called 
a cash and counseling. For years, working with Florida's 
Governor Jeb Bush in one of the three pioneer States on this, 
it instills flexibility and choice to fragile seniors and 
disabled children. And the Robert Wood Johnson Foundation 
analysis of it reveals it is quite successful. So we have not 
only a proposal here but we have cases where the Robert Wood 
Johnson Foundation said it has been very successful.
    So we must examine Medicare, Medicaid, including giving 
flexibility for each State, because of its unique need and 
better patient outcomes. This thinking results in the 
successful transformation of welfare from an entitlement--that 
everybody uses that word since the 1960's--to an assistance 
program, and it is something that we want to work to try to 
improve the effectiveness.
    And finally, I am encouraged, as I mentioned earlier, that 
Governors like Jeb Bush in Florida have discussed beneficiary 
behavior, and this could change how this health care delivery 
system is delivered if we allow them to actually--their 
behavior is brought into play with choice.
    So these are opportunities today with Medicaid coverage. 
This very small vast savings could be reaped just by a 1 
percent cut, and I think the quality of life, which is the most 
important thing, can be vastly improved.
    So I look forward to discussing this bill and hearing our 
witnesses, and I thank you, Mr. Chairman.
    Chairman Barton. The gentleman's time is expired.
    Mr. Pallone, one, three or defer?
    Mr. Pallone. Mr. Chairman, I will take three, but I will 
try not to use it all.
    Let me say I am just amazed by the Republican spin machine, 
it is still hard at work, as evidenced by the title of today's 
hearing, Medicaid: Empowering Beneficiaries on the Road to 
Reform. And I would like to know how Medicaid beneficiaries are 
going to be empowered by Republican plans to slash $10 billion 
from the program in which they rely on to access health 
insurance. And I don't think there should be any mistake about 
it, Republican efforts to reform Medicaid would only create new 
barriers to care and leave millions of Americans worse off, 
including many of our sickest and poorest citizens.
    In my opinion, it is unconscionable at a time when 
survivors of Hurricane Katrina and millions of other Americans 
are most in need of government assistance, Republicans still 
remain steadfast from what I can see in their efforts to get 
rid of public safety net programs like Medicaid and at the same 
time providing $70 billion in additional tax cuts, mostly to 
the wealthy and to corporate interests.
    I heard what the gentlelady from Mexico said about 
reconciliation, I know Mrs. Capps has a letter that she is 
circulating saying that we should just forget about this $10 
billion cut. As far as I am concerned, if the Republicans were 
to tell us today that we are going to get rid of 
reconciliation, we are not going to make this $10 billion cut, 
I would feel better about what is going on here, but I don't 
think that is what is going on here. I think they still want to 
proceed with it for the most part and slash Medicaid, and the 
bottom line is that Medicaid, if you--particularly if you gave 
it more money or if you had 100 percent Federal pay so that the 
States didn't have to put up any of their own dollars at this 
point would be a lot more successful and could be expanded to 
people of higher incomes or maybe cover everybody in the 
country, and we would be a lot better off. We don't need to 
make it more difficult for people to access Medicaid either 
because providers won't get an adequate reimbursement or 
because we are going to have some assets test or have higher 
copays.
    Everything that I see that is being done in the name of 
reform is going to make it more difficult for people to get 
Medicaid, and that is what is really going on here, cuts in the 
Medicaid program, other ways of trying to cut back and make it 
more difficult for people to access Medicaid.
    I urge my colleagues, what really needs to be done here 
today is to simply abandon their efforts to cut Medicaid, get 
rid of this $10 billion reconciliation and instead focus on how 
we can ensure that our most vulnerable citizens have continued 
access to Medicaid and other vital health insurance programs. 
And this is particularly important now in the advent of 
Hurricane Katrina, with all these people that--a lot of people 
who maybe even had health care before and are not going to have 
it now. We should be providing health care to anybody who is a 
survivor of the hurricane for the next year or 18 months 
totally free in my opinion. I mean, this is--what the 
Republicans are suggesting is not a reform, but just a way to 
try to kill Medicaid. That is what is going on here. Let's not 
kid ourselves.
    Thank you, Mr. Chairman.
    Chairman Barton. Did the gentleman yield back?
    Mr. Pallone. Yes.
    Chairman Barton. Mr. Gillmor.
    Mr. Gillmor. I will waive, Mr. Chairman.
    Chairman Barton. Mr. Gillmor gets an additional minute.
    Mr. Whitfield.
    Mr. Whitfield. I will waive.
    Chairman Barton. He gets an additional minute.
    Mr. Pitts.
    Mr. Pitts. I will waive.
    Chairman Barton. He gets an additional minute.
    Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman. I will just try and 
take a minute here.
    I have listened to a lot of this debate, I have been 
involved in this sort of debate when I was in the State 
legislature in the late 1980's, early 1990's, trying to expand 
the scope of Medicaid to cover those most in need by trying to 
get the most efficient use of the dollars. And I have heard a 
lot of rhetoric so far from my colleagues and friends from the 
other side, but let's face it, Medicaid today, as I understand 
it, requires that one of the drugs be available is for Ed, 
requires that one of the drugs be available for hair loss. Now 
do you really think that is the most sufficient use of Medicaid 
dollars?
    The Oversight and Investigation Subcommittee of this very 
committee investigated what I believe is an enormous ripoff in 
the drug purchasing. We found examples that obviously my 
colleagues have ignored of upwards of 5000 percent inflated 
costs in what Medicaid sales versus the actual sales price of 
the drug, that is the kind of reform that needs to take place 
so that the taxpayers' dollars are properly spent to take care 
of those most in need.
    Chairman Barton. We thank the gentleman.
    Ms. Eshoo.
    Ms. Eshoo. Mr. Chairman, 1 minute. Thank you for 
cooperating with Mr. Dingell in terms of this hearing, and 
welcome to the witnesses.
    I have spoken out at the beginning of every one of the 
hearings on these cuts to Medicaid, I don't support them.
    I just want to say today two things. In terms of abuse of 
the system, I stand ready to work with any of my Republican 
colleagues where the system is abused. My colleague just 
described some of these things, and I don't support that, and 
the reason I don't and the reason I would join with others to 
do something about abuse is because I have so much respect for 
the program. This program takes care of the poorest of the 
poor, but it also has an additional layer to it, and that is 
that it now covers the working poor in our country.
    We are, I think, on very, very tender ground these days. 
The American people are watching TV and saying what has 
happened to the soul of our Nation? What we do in this 
committee is not disconnected from that. We have to 
differentiate where there is abuse and where we are going to 
subject people to being abused by some of these massive cuts 
that are scheduled. It is not the time, it is not the case, we 
can do better. This is not Republican or Democrat, this is 
about standing up and being the kind of American that the 
American people are really looking for now. They are 
disappointed, they are let down, they are aghast at what has 
happened in our country.
    So, Mr. Chairman, I hope that all together, all of us, the 
Republicans, will stand up to their leadership and say don't do 
this thing, this is not what we are about. We have to find the 
soul of the Nation in the Congress. It is out there with the 
American people. We have got to find it here and act on it. 
Thank you.
    Chairman Barton. We now know that a California 1 minute is 
about 2\1/2\ minutes.
    Ms. Eshoo. Take it out of the rest of my time, Mr. 
Chairman.
    Chairman Barton. I am teasing.
    Let's see, on our side, Mr. Sullivan.
    Mr. Sullivan. I waive.
    Chairman Barton. Mr. Murphy.
    Mr. Murphy. I waive.
    Chairman Barton. We are out of Republicans. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman, I will try to keep it 
under 3 minutes.
    Mr. Chairman, I urge the committee to abandon the 
misguided, irresponsible cuts to Medicaid that we are supposed 
to make in the name of reform. This is not the time to be 
cutting services, dropping beneficiaries and raising costs for 
those most in need.
    We cannot continue with plans to slash Medicaid by $10 
billion, especially in the wake of Hurricane Katrina. Over 
700,000 victims of Katrina have fanned out across the country, 
without jobs, without homes, and many without health insurance. 
These displaced Americans are more likely to be older, with 
lower incomes and in the most need of medical assistance. We 
need to give these victims and the States that are taking them 
in a helping hand.
    In my State of Michigan, and many other States, Medicaid 
rolls are already at record levels, not because people are 
irresponsible or because they want a free ride, Medicaid rolls 
are at a record levels because the economy is stagnant, health 
care costs continue to skyrocket, and employers are dropping 
their health insurance.
    This week the Congressional Budget Office estimates that 
the Nation will lose over 400,000 jobs because of Hurricane 
Katrina. We don't know how long these displaced Americans will 
need help or how long the States will need help. While 
supplemental efforts to address the Hurricane Katrina victims' 
health needs are important, Congress will undermine these 
efforts if we fail to properly compensate the health care 
system which Americans depend upon.
    Katrina highlights what the so-called reforms over the last 
several years have accomplished, an American society segregated 
by class, by income, by health care, and segregated by race. We 
have a chance to reverse this trend in America by abandoning 
these Medicaid cuts and to make a real commitment to all 
Americans, to the States and the millions of our constituents 
who depend on Medicaid.
    And with that, Mr. Chairman, I will yield back my 1 minute.
    Chairman Barton. Mr. Stupak, did you yield back?
    Dr. Burgess, did you wish to make an opening statement?
    Mr. Burgess. Mr. Chairman, in the interest of time I will 
waive and insert my insightful statement for the record. I did 
want to welcome Dr. Matthews from Metroplex to our hearing, and 
am very glad to see him here today.
    Chairman Barton. We thank you.
    Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. And I will be as brief 
as possible.
    Chairman Barton. Is that 1 minute or 3 minutes?
    Mr. Green. I will do the 3 minutes.
    Chairman Barton. Okay, the brief 3 minutes.
    Mr. Green. I want to thank you for holding this hearing on 
the impact of the Medicaid reform on beneficiaries. It is 
fitting that we are holding this hearing in the aftermath of 
Hurricane Katrina, which brought home the reality faced every 
day by low income Americans. Many Katrina survivors remained in 
their homes simply because they did not have the resources to 
purchase gas or the bus fare necessary to leave town.
    The Katrina survivors, the low income, the disabled, the 
children, the seniors are the face of the Medicaid program and 
should give us tremendous pause as we work on this legislation 
to cut $10 billion from the very program that gives them their 
only source of health insurance. Many of us feared that we 
would have to go down this road without the benefit of hearing 
from Medicaid beneficiaries. While we all want to help our 
States with their fiscal troubles, we cannot deny that 
beneficiaries are the most affected by the changes in the 
Medicaid program.
    We must not lose sight of the fact that we are forced to 
craft a bill to fit within arbitrary budget figures, and what 
concerns me, Mr. Chairman, is knowing what is happening in our 
home State of Texas now. We have a lot of Medicaid 
beneficiaries from Louisiana who have come, and the States 
don't have the flexibility now. Maybe we need to have some 
flexibility, but I would hope that we can empower the Federal 
Government to help our local States, and I introduced 
legislation last night to do that for the immediate need.
    I guess the worry we have is that States that are taking 
people from Louisiana, Mississippi or Alabama--I will give you 
an example. In Texas we have 150,000 people at least, and I am 
sure other States, Arkansas and our neighboring States have 
people too. If the States have to come up with that Medicaid 
match for these new, even maybe temporary residents, then that 
is going to cause even more problems if we are looking at 
cutting $10 billion elsewhere.
    So, Mr. Chairman, that is why I am glad to have this 
hearing, and hopefully we will judiciously look at not only $10 
billion but how we have to do that. That will make it easier 
for the folks who are the beneficiaries of this.
    Thank you.
    Chairman Barton. We thank the gentleman.
    Ms. DeGette.
    Ms. DeGette. I will take 3 minutes, Mr. Chairman.
    Chairman Barton. The gentlelady is recognized.
    Ms. DeGette. Mr. Chairman, we all know that Medicaid costs 
are increasing at an unsustainable rate. That is not to be 
denied. Medicaid is now the single largest health program in 
the country, and in the States Medicaid spending has surpassed 
education spending, previously the largest annual State 
expenditure. But that doesn't mean we should just have a meat 
axe approach into what we do about it at the Federal level, 
because at the same time Medicaid spending is going up our 
country faces numerous challenges to health care access. The 
number of uninsured is increasing, the current jobless economic 
recovery has meant more people without employer-based health 
insurance and employers are just shifting costs to employees or 
dropping health insurance benefits altogether. So as a result, 
people are turning to Medicaid as a last resort and, as we have 
heard from everybody here, the recent hurricane is going to 
cause even more of a burden on this system.
    So now we shouldn't just be cutting Medicaid simply for the 
sake of cutting Medicaid. As we determine how to reduce or 
control overall Medicaid spending, we shouldn't be asking the 
beneficiaries to shoulder more of the cost because frankly 
doing so would be the equivalent of a tax on the poor. I think 
it would be a tragedy if the capital gains tax cuts for the 
rich would also be included in the same budget reconciliation 
instructions, and so therefore parents would be deferring 
necessary medical care for their children. That is just wrong, 
as some of my colleagues have said. And I think that we can 
look sensibly at this and say, instead of across the board cuts 
or caps on spending, we can be more creative.
    Denver Health in my district, for example, could save as 
much as $5.6 million annually if they just allowed Medicaid 
recipients to get their prescription drugs from public health 
providers that purchase drugs at public health prices, which is 
the lowest price offered by pharmacies. There is no problem to 
the beneficiaries there, but yet we are saving money in the 
system.
    In 1965, Mr. Chairman, Medicaid was created to ensure that 
those most in need have access to health care services. It is 
our duty to make sure that Medicaid's legacy of providing 
health care to the poor continues and that it is not turned 
into a cash cow for misguided tax cuts.
    Now I have got 30 seconds left, so let me just say, it is 
not enough of an explanation to say this committee does not 
have jurisdiction over tax policy because we are the U.S. 
Congress, and it is our job to figure out how we spend our 
money and how we get our revenue in as Congress. And we 
shouldn't be putting tax cuts on the program for the very 
wealthiest in this country and at the same time cutting medical 
care benefits for the poor. It is not only immoral, it also 
will cost more money in the long run.
    I yield back.
    Chairman Barton. I thank the gentlelady.
    Mrs. Capps. One minute, 3 minutes or----
    Mrs. Capps. Two minutes. Where does that put me?
    Chairman Barton. You might as well take three.
    Mrs. Capps. I am teasing. I thank you, Mr. Chairman.
    Sometime during this month this committee is scheduled to 
take up a budget reconciliation package that fundamentally 
changes Medicaid by implementing a savings of $10 billion. 
These are cuts. They were wrong before Hurricane Katrina, they 
are more so now. In fact, the aftermath of Katrina shines a 
bright light on why they are wrong.
    One of the changes that would be proposed is to ask the 
poor to pay more out of their pockets for their Medicaid. It is 
clear this is a patently absurd thing to ask of Medicaid 
beneficiaries, especially when you think of those who lost 
everything in the recent events. Louisiana, Mississippi, 
Alabama, Texas and other States are going to see their Medicaid 
rolls expand to deal with victims. Their State budgets are 
going to be stretched even thinner by the recovery effort.
    Mr. Chairman, you just promised that victims of Hurricane 
Katrina will not be harmed by these cuts, but I ask for how 
long. If Medicaid itself is restructured by our actions, many 
of these victims would eventually be denied coverage. Many were 
Medicaid beneficiaries before the hurricane, many have 
permanent disabilities. As Gene Green from Houston has stated 
over and over again, many will be permanently displaced. So how 
will they be identified as hurricane related?
    And what about all the people in other parts of the country 
who are destitute but were not harmed by a natural disaster? 
Don't they deserve the same protection as well?
    I am circulating right now a letter to Speaker Hastert 
urging him to abandon these cuts. This letter already, in just 
2 days, has the support of nearly a hundred Members of 
Congress. Now is the time for the Federal Government to put 
more money, to change the match into Medicaid, to assist these 
States at this time and the people they are caring for, not 
less.
    I yield back the balance of my time.
    Chairman Barton. I thank the gentlelady.
    Mr. Doyle.
    Mr. Doyle. I will choose door No. 1.
    Chairman Barton. One minute.
    Mr. Doyle. Mr. Chairman, the Medicaid program is already 
incapable of caring for the populations it was designed to 
serve. If modernizing Medicare can generate savings, then I 
think we ought to put those savings right back into the 
program.
    I understand that on average Medicaid represents about 22 
percent of the States' budget, and I know the States are 
struggling, but we can't forget that Medicaid serves as a 
safety net for our most vulnerable members of society and these 
people are struggling, too.
    Now, some of the provisions in the NGA plan make sense and 
they are borne out of fiscal realities, but much of the NGA 
plan submitted to this committee will not lead to improved 
health care for Medicaid beneficiaries. That is because it is 
not designed to do that. It is just an effort to control 
spending. However, simply shifting additional costs on the 
beneficiaries and allowing States to cut back on benefits is 
nothing more than rationing care, and rationing care can lead 
to some very costly consequences.
    The problems Medicaid has experienced are indicative of a 
broken health care system. The solution to a broken system is 
not to penalize the most vulnerable members of society. This 
committee should strive to do better than that.
    Mr. Chairman, I yield back.
    Chairman Barton. We thank the gentleman.
    Mr. Allen.
    Mr. Allen. Three minutes, Mr. Chairman.
    Chairman Barton. The gentleman is recognized.
    Mr. Allen. Mr. Chairman, I usually thank you for holding a 
hearing, but this time I do find it hard to believe that we are 
having this hearing today to consider $10 billion in cuts to 
Medicaid. Survivors of Hurricane Katrina are now scattered 
across the country and in need of significantly more Medicaid 
resources than they did before.
    Any cut to Medicaid will have a significant impact on 
States. Maine will lose $76 million over 5 years, and for my 
State that is a lot of money. Fifteen States, including Maine, 
are scheduled to have more than a 1 percent decline in their 
Federal matching rate beginning October 29th.
    Cutting Medicaid will unravel an already fraying health 
safety net, jeopardizing support for hospitals, clinics, 
doctors and health plans that serve low income people. Cutting 
Medicaid will increase the number of uninsured, which is 
already nearing 46 million people. Sick people cost more when 
they are uninsured and receiving care in emergency rooms than 
when they are covered by Medicaid. Cutting Medicaid will set 
back the quality of nursing homes. Cutting Medicaid will put 
children, who make up nearly half of all Medicaid 
beneficiaries, at risk.
    This administration and this Congress have given enormous 
tax cuts to the wealthiest Americans over the past few years to 
the long-term detriment of the financial prospects of this 
country. Now, the 2005 reconciliation process includes $70 
billion more in new tax cuts, including dividends and capital 
gains, $70 billion in new tax cuts that is to be offset by $35 
billion in spending reductions, including spending reductions 
in Medicaid.
    Republicans say, as some did earlier, the gentleman from 
Florida, that there is no connection between revenues coming in 
and the expenditures we make here. Well, there isn't a 
businessman or woman in America who believes that about their 
business. The fact is these are connected. It is not just the 
same Federal budget, it is the same reconciliation process.
    So what we are doing is we are doing $70 billion in tax 
cuts without a prospect of filibuster in the Senate, and we are 
doing $35 billion, including this $10 billion of reduction in 
Medicaid. If that isn't robbing from the poor to give to the 
rich I don't know what is.
    Medicaid, like every program, should be subject to 
oversight and reform, but this entire reconciliation process, 
including the $10 billion from proposed cuts from Medicaid, 
should be set aside and reconsidered in light of Hurricane 
Katrina and its aftermath.
    And with that, Mr. Chairman, I yield back.
    Chairman Barton. I thank the gentleman. Before we recognize 
Ms. Schakowsky, I just want to make an announcement. I am a 
little bit puzzled if there are members on the minority side 
that did not want the hearing done today. We had this hearing 
set in August and we have negotiated extensively with Mr. 
Dingell and the minority staff to make sure we had a good 
panel, and we did it at a time that was timely, that was not at 
midnight or something like that. If I wanted to be political I 
would have canceled the hearing, you know. The fact is I think 
this committee needs to be an activist committee, and I think 
we need to get these issues before the public, and I think they 
need to be presented in a fair and open fashion. And the 
easiest thing in the world to do is say, oh, my gosh, we have 
got a hurricane, everybody is upset, let's don't move forward 
and at least get the issue debated.
    Mr. Allen. Mr. Chairman, I hear what you are saying, and I 
understand the need for a hearing. What I would say is it is 
frustrating on our side that the context in which this is being 
held and the context of the debate is driven by decisions that 
were made weeks and months ago, and some of us believe it is 
time for a complete reevaluation.
    Chairman Barton. We are not saying that we can't 
reevaluate, but if you don't do a hearing you don't do 
anything, okay?
    Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. First, I want to 
apologize to the witnesses, I am going to take 3 minutes, but 
you know, Democrats often are so thoroughly excluded from the 
process of a very important decisionmaking that very often all 
we really have is our voice and I want to take that 
opportunity.
    And Mr. Chairman, if we were having a hearing, for example, 
on Mrs. Wilson's proposal that we postpone, at the very least, 
reconciliation or the letter that Representative Capps wrote 
that we reconsider the total budget reconciliation package, not 
only in light of what has happened but in light of the poverty 
that it has exposed, that would be one thing, but clearly--so 
let me just also take issue, Mr. Chairman, with what you said, 
that Hurricane Katrina is very different from this Medicaid 
issue. You know, that was an act of nature, Hurricane Katrina, 
but human decisions, decisions by this administration to, for 
example, defund the building up of levees, often the contempt 
for the public sector that I think has been demonstrated 
leading up to this hurricane disaster made it into a man-made 
disaster. Americans watched with shock and shame, not shock and 
awe at the complete failure, the dysfunction of this government 
in responding to this situation, and the President said no one 
could anticipate a breach in the levees. Well, that wasn't true 
because it was predictable and predicted.
    Just as a cut in Medicaid of $10 billion, let us be clear 
and let us get the word to the President that that will cause 
people to die just as surely as people have been dying in the 
aftermath of Hurricane Katrina. People will die if we cut $10 
billion from Medicaid.
    I want to associate myself with the remarks of my 
colleague, Mr. Markey, who said this isn't just a budget 
decision. This is a moral decision. This does get to the heart 
and soul of who we are as Americans and what our priorities 
are.
    Are they moving ahead with the $70 billion in tax cuts and 
making permanent the repeal of the estate tax for the 
wealthiest, the wealthiest of Americans? Or are we going to 
consider what Hurricane Katrina revealed? Not just the poor in 
Louisiana and Mississippi and Alabama, but that there are poor 
people in every city around our country, in my city of Chicago, 
every rural area in this country, that are suffering because 
they can't now afford the health care that they need. We need 
to be expanding Medicaid, not cutting Medicaid when we look at 
those Census numbers and 1.1 million people fell out of the 
middle class into poverty and the number of uninsureds have 
increased.
    So it is shameful if we are here today to talk about more 
cuts in Medicaid. Let us improve it, let us not cut it. Thank 
you, Mr. Chairman.
    Chairman Barton. We thank the gentlelady. I just want to 
point out that we have had six meetings with the Governors' 
representatives. The minority staff, from my understanding, 
have been involved in all six of those meetings. As we began to 
put the legislative proposal together, we have offered to 
include the minority staff in those discussions; they have 
deferred so far to participate. But we have tried to have an 
open process throughout the process.
    The gentlelady from California, Ms. Solis.
    Ms. Solis. Thank you. Three minutes, please.
    Chairman Barton. The gentlelady is recognized.
    Ms. Solis. Thank you, Mr. Chairman. And I applaud you for 
having this hearing.
    Unlike the $52 billion supplemental aid package that we are 
going to be approving today, no Democrats have had an 
opportunity to see that. And I feel very, very bad because we 
are talking about Medicaid cuts here. Why are we not talking 
about at this time what we need to do to help those States that 
are going to be recipients of these Medicaid patients and 
reducing the matching aid that is going to be required that has 
not been dealt with yet? And I understand that it is not in the 
supplemental. Shame on us for not doing that right now when the 
public is awaiting action by this Congress that is not acting 
in a manner I think that is responsible.
    Medicaid is a very important program in my district. A 
number of people there live and die by the fact that they get 
their medicines, that they are able to get their dialysis, that 
they are able to get their assistance that they need. Racial 
minorities are highly, highly impacted by the fact that 
Medicaid is available for them. It is their only safety net. 
Look at Katrina, look at the victims there. Most of the people 
that were affected have no form of health care. What are we 
sending a message to them right now, telling them that they are 
not going to be eligible for aid because it is not going to 
come? And we are making those decisions right now. And I think 
it is a bad time for us right now to talk about reform in a 
manner that is deceiving to the public. When we talk about 
reform, we are talking about increasing caps, we are increasing 
costs for low-income people, for working families who have no 
other measure of safety net. The gaping hole is increasing 
every single day. And it is true, poverty is increasing in my 
district alone. We have a high number of people who are 
chronically unemployed. We are not doing anything to address 
that, either.
    Medicaid, as I said, is very important. But it is also 
important for our care providers, our health care facilities, 
our centers of health, our doctors. We have minority doctors 
who are refusing to now see these types of patients because the 
reimbursement rates are so low. Why are we not addressing that 
chronic form of immediacy that needs to be addressed and we 
have been talking about for many years?
    I do want to thank the chairman for having this hearing, 
because unlike other Members of Congress, we don't have this 
kind of debate openly and often. And I hope that people will 
understand that we need to hear from them, the public, because 
I don't believe that we should be moving in a direction to 
somehow reduce services particularly to the most vulnerable, 
our children. A large number of Medicaid patients in my 
district happen to be young children, under the age of 6, who 
have no voice at this table today.
    I yield back the balance of my time.
    Chairman Barton. We thank the gentlelady.
    Mrs. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. Three minutes, 
please.
    Chairman Barton. Three minutes.
    Ms. Baldwin. Thank you, Mr. Chairman, for holding this 
hearing that highlights a very important perspective: The voice 
of Medicaid's 52 million beneficiaries. In light of our 
anticipated debate on reconciliation, I think it is important 
to keep in mind what Medicaid is. Medicaid is the program that 
keeps millions of Americans from joining the ranks of our 
Nation's 45.8 million uninsured. Medicaid provides millions of 
families with security from having to face bankruptcy due to 
health bills that exceed their capacity to repay. Medicaid 
ensures that one third of our Nation's newborns have pre- and 
postnatal care. Medicaid will ensure that victims of Hurricane 
Katrina have health care.
    In short, Medicaid does what it was created to do: Medicaid 
is our country's health insurance safety net program that 
catches people when they fall out of our increasingly 
dysfunctional health care system.
    Given the importance of Medicaid for so many millions of 
Americans, I look forward to our discussion about the 
beneficiary perspective on Medicaid. And I am particularly 
interested in discussing the effect of proposals that would 
increase cost sharing for beneficiaries. We know from numerous 
studies that even seemingly small cost sharing increases can 
have a profoundly negative effect on beneficiary health, and I 
look forward to hearing from our witnesses addressing this 
particular point. Again, thank you, Mr. Chairman. I yield back.
    Chairman Barton. The gentlelady yields back. I thank the 
gentlelady. Does Mr. Shadegg wish to make an opening statement?
    Mr. Shadegg. Mr. Chairman, I will make a brief opening 
statement.
    Chairman Barton. Do you want 1 minute?
    Mr. Shadegg. One minute is ample.
    Chairman Barton. One minute.
    Mr. Shadegg. Mr. Chairman, I just want to commend you for 
holding this hearing. I think it is very important. I think we 
are very much aware of the problems that confront the Medicaid 
system. The Governors' report and the bipartisan support for 
reforming the system I think call upon us to take action. My 
State, Arizona, I think, has done a great job in Medicaid. We 
sought an exemption early on. We have tried to provide better 
services in a different model than is used across the Nation, 
and I think it is important that we look at the successes that 
Arizona has had.
    At the end of the day, the important issue here is 
providing the benefits that people need. And, quite frankly, I 
think the current system in most of the Nation is not doing 
that. It is certainly not doing that at a reasonable cost. And 
I think it is our duty to try to improve the system for those 
for whom it is intended to benefit and for whom it is indeed a 
lifeline. With that, Mr. Chairman, I yield back.
    Chairman Barton. I thank the gentleman.
    Mr. Ross.
    Mr. Ross. Thank you, Mr. Chairman. One minute? Three 
minutes? If you are last, you get 4?
    Chairman Barton. No. You could defer and get an extra 
minute in questions.
    Mr. Ross. Yes.
    Chairman Barton. Just a thought. So, do you want 1 minute 
or 3 minutes?
    Mr. Ross. I think I will take the 3 minutes.
    Chairman Barton. All right.
    Mr. Ross. And the statement I was going to read, I am not 
going to read, and I just want to make some comments after 
sitting here and listening to a lot of things that have been 
said this morning. I mean, Mr. Chairman, we are talking about 
$10 billion worth of cuts to Medicaid. In the same budget, we 
are talking about $106 billion in tax cuts. And those tax cuts 
will not be debated in this committee, but they will be debated 
in this Congress; and the last time I checked, we are all 
members of the 109th Congress. So it is about priorities.
    A lot of talk these days about faith. Some people talk it, 
some try to do something about it. As we go through this debate 
affecting the poorest among us, I hope all of us will pause for 
a minute and think about Matthew 25:40: I tell you the truth. 
Whatever you did for one of the least of these brothers of 
mine, you did for me.
    Let me tell you about my America. Half of the children in 
Arkansas are on Medicaid. Eight out of ten seniors in the 
nursing homes in Arkansas are on Medicaid. One in five people 
in my home State of Arkansas are on Medicaid. And now we have 
60,000--the number could be larger, we are still trying to 
figure it out. But we have at least 60,000 of our neighbors 
from Louisiana and Mississippi and New Orleans now in Arkansas, 
and many are in desperate need of Medicaid.
    Now, the gentleman from Oregon talked about the erectile 
dysfunctional drug and how it is covered by Medicaid. I don't 
know where the gentleman got his information from, but I can 
tell you, my wife and I own a small-town family pharmacy, and 
in Arkansas, Medicaid does not pay for erectile dysfunctional 
ads. Perhaps the gentleman from Oregon was confused, because 
the Medicare drug bill that he voted for does cover erectile 
dysfunctional ads but Medicaid in Arkansas does not.
    In terms of the hair loss drug, I am still trying to get an 
answer to that. But I can tell you this. My wife and I own a 
pharmacy, and never once has Medicaid paid for a hair loss drug 
at our pharmacy. So let us get our facts straight as we debate 
these issues, because we are talking about people's lives. We 
are talking about $10 billion in cuts--in cuts, to Medicaid.
    Medicaid is a health insurance plan for the poor, the 
disabled, and the elderly. In my business and from my home 
State, I see a lot of poor people, and never once has someone 
walked up to me and said, I like being poor. And, as I 
mentioned, my wife and I own a family pharmacy; we see a lot of 
sick people, a lot of sick people, but never once has someone 
walked through our doors and said, you know, I just love being 
sick. And when you talk about cutting Medicaid $10 billion, it 
is like we are going to wake up tomorrow and people are going 
to quit being sick or quit being poor. This is more about 
shifting more of the expense to the States. We saw it happen 
with the end of Federal revenue sharing in the early 1980's. 
And poor States like Arkansas simply cannot afford to take on 
any more of the burden. This is about shifting burden to the 
States. It is about turning our backs to these----
    Chairman Barton. The gentleman's time has expired.
    Mr. Ross. Mr. Chairman, I believe that is wrong. Thank you.
    Chairman Barton. Well, the gentleman's time has still 
expired. Mr. Rogers.
    Mr. Rogers. I am going to yield, Mr. Chairman. I just want 
to welcome somebody I have known for years who is a friend and 
just a great advocate for those who are in need of mental 
health services and certainly a compassionate health care 
professional, Bob Sheehan from Michigan. So welcome, sir, and 
thank you for coming.
    Chairman Barton. Mr. Engel.
    Mr. Engel. Thank you, Mr. Chairman. I will take the 3 
minutes. And I want to, at the outset, thank you for holding 
this hearing and thank you for the way you have conducted this 
committee as Chair, giving everybody a chance to speak. That is 
not true in many other committees. So we do appreciate it.
    A lot of my colleagues have spoken about tax cuts, and I 
want to speak about it as well because I think it is important 
to keep hitting this issue time and time and time again.
    Today's Congress Daily on the front page says: ``in 
Katrina's wake, Republicans delay but won't abandon tax cut 
agenda.'' On the third page it says: Senate House Dems unhappy 
with GOP hurricane probe because, again, the Democrats are 
being excluded and left out.
    When Democrats complain that we feel we have been 
marginalized, very often from the majority we get back: Well, 
when you guys controlled the House for 40 years, you 
marginalized Republicans. You know, my mother, who bless her 
soul, is 85 years old, always had a saying, and that is, two 
wrongs don't make a right. And I would say that. We need to 
come together in a bipartisan fashion when it comes to talking 
about Katrina and investigating why there was such a slow 
response.
    And that is why in yesterday's hearing I called for a 
bipartisan commission very similar to the 9/11 Commission, 
because I think that is the kind of commitment we need to have. 
And today we are talking about Medicaid cuts. And I think it is 
especially callous to talk about it in light of Hurricane 
Katrina. And being a New Yorker, a lot of people talk about 
September 11th. You know, we in New York feel it. It is a hole 
in my heart every time I go by and don't see the Twin Towers in 
our skyscrape. It is a hole in my heart when I think of all my 
constituents who are buried because they were killed at the 
World Trade Center.
    And I think one of the things we can learn from Hurricane 
Katrina is that it demonstrates how unwise our proposed $10 
billion cuts to the Medicaid program are. So many people have 
lost their jobs. It is clear more than ever how much our 
citizens need Medicaid to be responsive in times of crisis. And 
I want to talk about September 11th, because Medicaid did just 
that for New York after September 11th through the united 
collaboration and efforts through our delegation.
    And, again, in a bipartisan fashion, the mayor's office, 
Governor's office, and CMS, over 350,000 New Yorkers enrolled 
in the temporary disaster relief Medicaid program. And with 
widespread damage to New York City's Medicaid computer systems 
and hundreds of thousands New Yorkers in need, New York made 
the choice not to let technology and backlog affect offering 
desperately needed health care assistance. And we should do the 
same thing for Katrina. The success of the disaster relief 
Medicaid was due to health officials' use of a vastly 
simplified expedited application process. People simply had to 
attest to the truth of information on the one page form, and 
decisions for coverage were made by Medicaid caseworkers on the 
same day of application. Beneficiaries received coverage for 4 
months, and were able to use this time to obtain the necessary 
documentation to be enrolled in the standard Medicaid program, 
if necessary.
    So I think that we should do this again for Katrina. We 
have to remember the compassion that disaster relief Medicaid 
offered to the people of New York, and States that are hosting 
Katrina victims should receive 100 percent FMAP match Medicaid 
coverage for these individuals. I thank you, Mr. Chairman.
    Chairman Barton. We thank you, Mr. Engel.
    We have two votes. We are going to hear from Mr. Murphy for 
1 minute, and then we are going to recess until after the 
second vote, and when we come back, we will hear from our 
panel. So, for the last word, Mr. Murphy for 1 minute.
    Mr. Murphy. Thank you, Mr. Chairman. I was going to defer 
before and submit my comments for the record, which I will 
still do, but listening to the other comments here, I have some 
thoughts.
    Only couple of us on this committee have served in 
hospitals and have treated patients on Medicaid, and I don't 
think there is anybody on this committee that does not have 
compassion for anybody who has been poor because many of us 
have come from families of low economic means as well. But what 
we have to keep in mind is the Federal Government is the 
largest purchaser of health care, some 45 percent of mandatory 
spending goes to health care in the Federal Government. This is 
an opportunity for us to change the discussion from who is 
paying to what we are paying for.
    One quick example. In Pennsylvania, the data suggests that 
the average hospital charge for medical assistance patients 
without an infection is about $20,000 for an average length of 
stay for 4 days. The average hospital charge for patience with 
an infection is $125,000, average stay of 15 days.
    There are things we can do to help hospitals and doctors do 
a better job, and I am looking forward to ways that we can 
review this to give States the authority to help make some of 
these improvements in health care happen. Thank you, Mr. 
Chairman.
    Chairman Barton. We thank you. That is all the opening 
statements. All members that are not present we can insert 
their written statement in the record. That closes the opening 
statements.
    [Additional statements submitted for the record follow:]

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

    Thank you, Mr. Chairman for holding this important and timely 
hearing. I am glad to see reform plans put forth by the National 
Governors Association as well as savings recommendations produced by 
the bipartisan Medicaid Commission, and look forward to hearing from 
the well-balanced panel of witnesses regarding the potential impacts of 
these recent reform proposals from the perspective of our nation's 
Medicaid beneficiaries.
    As I mentioned before, in my home state of Ohio, despite 
recognizing the reality of a broken system and enacting a number 
aggressive cost containment and budget strategies, Medicaid 
expenditures are increasing at twice the rate of growth of state 
revenues, amounting to a total $10.5 billion. This figure represents 
over 40% of the state's general revenue fund spending and is larger 
than Ohio's entire state budget in 1987.
    With a generation of baby boomers growing older, life expectancy on 
the rise, a shrinking labor force, and smaller family units, the demand 
for long-term care is likely to increase, producing an even further 
strain on our nation's Medicaid program. Absent future demographic 
realities, there is no question that Medicaid is in dire need of 
transformation now.
    With the evolution of Medicaid over the years, reform ideas have 
come and passed, or simply been swept under the rug. We must take hold 
of today's circumstances and remain committed with our governors and 
stakeholders alike to transforming our system into one of personal 
responsibility, quality, and efficiency, for our citizens that need it 
the most.
    Again, I thank the Chairman and yield back the remainder of my 
time.
                                 ______
                                 
Prepared Statement of Hon. Edolphus Towns, a Representative in Congress 
                       from the State of New York

    Thank you Mr. Chairman and members of the committee for holding 
this important hearing. I also want to thank the panel for coming to 
share their views on one of the most important issues facing our Nation 
today.
    Medicaid is our Nation's largest insurance program and a critical 
safety net for more than 50 million individuals each year. Children and 
families make up the majority of the Medicaid program. However, 
medicaid also provides essential public health services for disabled 
individuals and low income seniors, including long-term care.
    While program improvements are needed, it is imperative that 
congress base these improvements on sound health policies that will 
empower Medicaid beneficiaries. Of particular concern is the effect of 
the proposed increases in cost-sharing. For the poor, increasing cost-
sharing is not a sound policy. Many, especially some in my district, 
depend on life sustaining medicines that are inaccessible without 
Federal support. And increasing cost-sharing is a barrier to those with 
chronic illnesses who tend to get sick frequently.
    Likewise, enforcing cost-sharing and raising the total amount 
higher than what is allowed in State Children's Health Insurance 
(SCHIP) program is of concern.
    Presently providers cannot turn away patients if they are unable to 
pay their co-payment. Making cost-sharing enforceable is immoral 
because it forces providers to deny care to the poor. Also, overall 
health care costs will significantly escalate as a result of the poor 
seeking continuous health care for chronic conditions from emergency 
rooms instead.
    Last but not least, SCHIP was designed to help families whose 
incomes are slightly above medicaid-income levels. Increasing total 
cost-sharing charges more than what is allowed by SCHIP will injustly 
burden these families. Likewise, requiring cost-sharing for millions of 
children, including disabled children, who are slightly above 100 
percent of poverty will injustly burden families and penalize innocent 
children. Under current law, all children are exempt from cost-sharing 
because congress wanted to encourage and ensure that children got 
needed services.
    As Members of Congress, let us make sure that children, the 
disabled and elderly have essential health services via Medicaid. Thank 
you.

    Chairman Barton. We are going to recess now; we have two 
pending votes, a 15 and a 5. My expectation is we will 
reconvene at noon. So we are in recess until noon after these 
two votes.
    [Brief recess.]
    Mr. Deal [presiding]. We will call the hearing back to 
order. Thank you for your indulgence while we voted. We are 
operating under some time constraints for some of the 
witnesses, and Governor Keating is one of those. He is first on 
the panel; we are going to let him continue to be first on the 
panel, and he may have to leave--for members of the committee--
may have to leave before the questioning is completed, but we 
understand that, and we thank you for being here. And we are 
pleased to introduce Governor Keating as the President and CEO 
of the American Council of Life Insurers, the former Governor 
of the State of Oklahoma. We are pleased to have him as our 
first witness. I will go down the list and introduce the 
witnesses at this point.
    Mr. Parrella, who is the director of the Medical Care 
Administration Department of Social Services of Hartford, 
Connecticut.
    Dr. Alexander, who is the president of DeVos Children's 
Hospital in Grand Rapids, Michigan.
    And Mr. Jim Gardner, who I have already previously 
introduced who is the CEO of Northeast Georgia Medical 
Services.
    We have Mr. Sheehan, who is the executive director of the 
Community Mental Health Authority of Clinton-Eaton-Ingham 
Counties in Lansing, Michigan.
    And is it Dr. Thames, is that the correct pronunciation? 
Dr. Thomas Thames is a member of the board of directors and 
representing AARP.
    And Mr. Merrill Matthews, who is executive director of The 
Council for Affordable Health Insurance in Alexandria, 
Virginia.
    Gentlemen, we are pleased to have you on our panel. And, 
Governor Keating, we will start with you.

   STATEMENTS OF FRANK KEATING, PRESIDENT AND CEO, AMERICAN 
  COUNCIL OF LIFE INSURERS; DAVID PARRELLA, DIRECTOR, MEDICAL 
   CARE ADMINISTRATION, DEPARTMENT OF SOCIAL SERVICES; DAVID 
 ALEXANDER, PRESIDENT, DEVOS CHILDREN'S HOSPITAL; JIM GARDNER, 
 CEO, NORTHEAST GEORGIA HEALTH SYSTEM; BOB SHEEHAN, EXECUTIVE 
 DIRECTOR, COMMUNITY MENTAL HEALTH AUTHORITY OF CLINTON-EATON-
  INGHAM COUNTIES, LANSING, MICHIGAN; THOMAS THAMES, MEMBER, 
   BOARD OF DIRECTORS, AARP; AND MERRILL MATTHEWS, EXECUTIVE 
       DIRECTOR, COUNCIL FOR AFFORDABLE HEALTH INSURANCE

    Mr. Keating. Thank you, Mr. Deal, ladies and gentlemen of 
the committee. I appreciate the opportunity to speak on behalf 
of the American Life Insurance Industry. ACLI member companies 
provide 81 percent----
    Mr. Deal. Your microphone.
    Mr. Keating. Thank you, Mr. Chairman. I have a formal 
statement for the record, if that would be acceptable. And my 
brief remarks will focus on private long-term care insurance 
and its contribution to the cost challenge and the service 
challenge in the debate over Medicaid.
    As the president of the American Council of Life Insurance, 
our organization represents 356 life companies. Our member 
companies provide 81 percent of the long-term care insurance in 
the United States. We appreciate Chairman Barton's drawing 
attention to this issue, and we are pleased to discuss with the 
committee the role that private long-term care insurance 
provides in helping to assure private retirement security for 
millions of middle income families.
    One of the greatest risks, Mr. Deal, and Chairman Barton 
and others, to asset loss and retirement is unanticipated long-
term care expenses. The risks of meeting nursing home care also 
are substantial. Over half of the women in our country, nearly 
one third of the men 65 years of age and older, will stay in a 
nursing home sometime during their lifetime. According to a 
2005 study, the annual cost of a nursing home stay currently is 
almost $70,000 a year. This increased by 6 percent in the last 
year alone.
    Long-term care products which are provided in the private 
marketplace are very different than they used to be. The market 
has evolved from one that offered primarily nursing home plans 
early on to one that offers flexible care options and numerous 
consumer protections. Most policies allow customers to choose 
between in-home care, assisted living facilities, and nursing 
homes, encouraging the individual and their families to 
customize the care needs of each individual.
    Plans today are guaranteed renewable, and that is extremely 
significant. They have a 30-day free look period; they offer 
inflation protection; they cover the plague of Alzheimer's 
disease, have a waiver of premium provision, and offer 
unlimited benefit periods. Benefits are paid when a person 
needs helps with two or more activities of daily living or is 
cognitively impaired. Industry data shows that between 1994 and 
1997, the average issue age for private long-term care policies 
was over 67, and today's average age is 58.
    Increasingly, States are tackling the costs of long-term 
care and are exploring ways to partner with the private 
insurance industry to alleviate a continuously growing Medicaid 
burden. One such way is through partnerships for long-term 
care, a pilot program developed by the Robert Wood Johnson 
Foundation in connection with the State governments and the 
support of our private insurance industry. The partnerships 
allow consumers to purchase a long-term care policy whose 
benefits must be fully utilized prior to qualifying for 
Medicaid. When that is exhausted, individuals may apply for 
Medicaid as they would have without the private insurance. 
Because they utilize their insurance coverage under the 
partnership, they can protect the level of assets as defined in 
their State's program, which, of course, provides additional 
money for a child or a grandchild who has special care needs or 
some other relative in a nursing home.
    Partnerships have taken two forms. The dollar-for-dollar 
model allows people to buy a policy that protects a specified 
amount of assets, that is, how much they have paid out of 
pocket, and the total asset model provides protection for 100 
percent of assets once they exhaust their private insurance 
coverage. The partnership program is currently operational in 
four States: California, Connecticut, Indiana, and New York. 
More than 225,000 long-term care insurance partnership policies 
have been purchased in those States, and remarkably fewer than 
100 of those policyholders have exhausted they policies and 
accessed Medicaid. The partnership benefits consumers, 
Medicaid, and private insurers.
    Congressman Deal, as you know, in addition 18 States have 
passed legislation that would implement a partnership once the 
1993 restrictions are withdrawn or waived.
    Now, our organization, ACLI, believes that the simplified 
approach in House bill H.R. 3511, sponsored by Representatives 
Burgess and co-sponsored by Representatives Johnson, Peterson, 
Pomeroy and Jindal, is the most appropriate approach for 
expansion of a long-term care partnership program. H.R. 3511 
provides partnership eligibility for any State approved tax 
qualified long-term care policy. The bill's provisions also 
include State reciprocity, dollar-for-dollar asset protection, 
uniform simplified and reporting to a single repository, and 
agent training, and consumer education, all of which are 
extremely important and encouraged in the purchase of those 
policies.
    By the year 2030, and I know members of the committee know 
this. But by the year 2030, Medicaid's nursing home 
expenditures could reach $134 billion a year. That is up 360 
percent over 2000 levels. ACLI's research previously reported 
in Can Aging Baby Boomers Avoid the Nursing Home in March 2000 
indicates that by paying policyholders nursing home costs, and 
by keeping policy holders out of nursing homes by paying for 
home and community-based services, private long-term care 
insurance could reduce Medicaid's institutional care 
expenditures by $40 billion a year or about 30 percent.
    In addition, the same ACLI study found that wider purchase 
of long-term care insurance could increase general tax revenues 
by $8 billion a year because of the number of family caregivers 
who would now be able to remain at work. Today, according to a 
recent study by the National Alliance of Caregiving, 6 percent 
of caregivers quit work to care for an older person; nearly 10 
percent have to cut back their work schedules; 17 percent take 
leaves of absence; and 4 percent turn down promotions because 
of their caregiving responsibilities.
    All of these, Mr. Chairman, members of the committee, are 
extremely important. We would be grateful for the open mind, 
the consideration of the committee and the Congress as they 
debate this and other issues. Thank you, Mr. Chairman.
    [The prepared statement of Frank Keating follows:]

   Prepared Statement of Frank Keating, President and CEO, American 
                        Council of Life Insurers

    My name is Frank Keating and I am President and CEO of the American 
Council of Life Insurers (ACLI), a Washington, D.C.-based trade 
association whose 356 member companies account for 80 percent of the 
life insurance industry's total assets in the United States. ACLI 
member companies offer life insurance; annuities; pensions, including 
401(k)s; long-term care insurance; disability income insurance; 
reinsurance; and other retirement and financial protection products. 
ACLI member companies also provide 81 percent of the long-term care 
insurance coverage in the United States.
    ACLI is delighted that the Committee is addressing an important 
issue facing this nation--long-term care. We applaud Chairman Barton 
for drawing attention to this matter, and we are pleased to discuss 
with the Committee the role that private long-term care insurance plays 
in helping to provide retirement security for millions of middle-income 
families.
    One of the greatest risks to asset loss in retirement is 
unanticipated long-term care expenses. The risks of needing nursing 
home care also are substantial. Over half of women and nearly one-third 
of men 65 and older will stay in a nursing home sometime during their 
lifetime.1 According to the 2005 Genworth Financial 2005 
Cost of Care Study, the annual cost of a nursing home stay currently is 
almost $70,000. This increased by 6% in the past year alone. The cost 
of Long Term Care services can quickly erode a hard-earned retirement 
nest egg.
---------------------------------------------------------------------------
    \1\ Murtaugh, C.M., P. Kemper, and B.C. Spillman (1990). The Risk 
of Nursing Home Use in Later Life. Medical Care 28(10): 952-62.
---------------------------------------------------------------------------
             current financing for long-term care services
Long-Term Care Insurance
    The long-term care insurance market is growing in both the 
individual and group segments. Long-term care insurance products 
continue to adapt to give policyholders more choices and flexibility at 
the time of claim. For instance, the market has evolved from one that 
offered primarily nursing home-only plans early on, to one that offers 
flexible care options and numerous consumer protections today. Most 
policies allow customers to choose between in-home care, assisted 
living facilities and nursing homes, encouraging the individual and 
their families to customize his or her care needs. In addition, 
policies offer the services of a care coordinator at the time of claim 
to help craft a plan of care and identify local care providers.
    Plans today are guaranteed renewable, have a 30-day ``free look'' 
period, offer inflation protection, cover Alzheimer's disease, have a 
waiver of premium provision, and offer unlimited benefit periods. 
Benefits are paid when a person needs help with two or more activities 
of daily living or is cognitively impaired.
    Industry data shows that between 1994 and 1997 the average issue 
age for private long-term care policies was over 67 and today's average 
issue age currently stands at 58 years of age.

Long-Term Care Partnerships
    Increasingly, states are tackling the costs of long-term care and 
are exploring ways to partner with the private insurance industry to 
alleviate a continuously growing Medicaid burden. One such way is 
through the Partnerships for Long-Term Care, a pilot program developed 
by the Robert Wood Johnson Foundation in conjunction with state 
governments and the support of the private insurance industry.
    The Partnerships allow consumers to purchase a long-term care 
policy whose benefits must be fully utilized prior to qualifying for 
Medicaid. When that coverage is exhausted, individuals may apply for 
Medicaid, as they would have without the private insurance. Because 
they utilized their insurance coverage under the Partnership, they can 
protect the level of assets as defined in their state's program.
    Partnerships have taken the form of two models. The dollar-for-
dollar model allows people to buy a policy that protects a specified 
amount of assets. The total asset model provides protection for 100 
percent of assets once they exhaust their private insurance coverage.
    The Partnership program is currently operational in four states: 
California, Connecticut, Indiana and New York. More than 225,000 long-
term care insurance Partnership policies have been purchased in those 
states, and fewer than 100 policyholders have exhausted their policies 
and accessed Medicaid. The Partnership benefits consumers, Medicaid, 
and private insurers.
    In 1993, shortly after the Partnership pilots began, Congress 
suspended expansion of the Partnership to any additional states. The 
pilots were stopped due to concerns that a publicly funded program such 
as Medicaid would endorse private insurance programs. Others were 
concerned that the Partnership might increase Medicaid spending. 
However, as Medicaid costs increase, Congressional representatives from 
non-Partnership states have become interested in implementing 
Partnership programs. In addition, 18 states have passed legislation 
that would implement a Partnership once the 1993 restrictions are 
withdrawn or waived. The long-term care insurance industry is 
interested in expanding the Partnership beyond the four pilot states 
and is actively engaged in a public policy dialogue that is intended to 
utilize the lessons learned from those four Programs.
    ACLI believes that the simplified uniform approach in House Bill HR 
3511, sponsored by Representative Burgess and cosponsored by 
Representatives Johnson, Peterson, Pomeroy and Jindal is the most 
appropriate approach for expansion of the long-term care Partnership 
Program. HR 3511 provides Partnership eligibility for any state 
approved tax-qualified long-term care policy. The bill's provisions 
also include state reciprocity; dollar for dollar asset protection; 
uniform, simplified annual reporting to a single repository and agent 
training and consumer education, all of which can play an important 
role in encouraging the purchase of long-term care insurance and help 
provide important savings to Medicaid. We thank Mr. Burgess and the 
members of this Committee for their support.

Incentives to Encourage Individuals to Buy Long-Term Care Insurance
    ACLI also supports legislation that provides individuals with a 
phased-in above-the-line federal income tax deduction for the eligible 
portion of the premiums they pay to purchase long-term care insurance. 
The long-term care policies eligible for the deduction are subject to 
broad consumer protections. In addition, ACLI supports measure to 
permit long-term care insurance policies to be offered under employer-
sponsored cafeteria plans and flexible spending accounts.
    Expansion of the Partnerships, along with these important tax 
incentives, will go a long way toward encouraging the purchase of long-
term care insurance by middle-income Americans. Moreover, encouraging 
people to plan for their own long term care needs will reduce the 
burden on the Medicaid system. Individuals will have the ability to pay 
privately and have the choice of a variety of services and care 
settings.
    While the financial benefits to individual policyholders are 
obvious, the benefits to government--and future taxpayers--of wider 
purchase of private long-term care insurance are substantial. By the 
year 2030, Medicaid's nursing home expenditures could reach $134 
billion a year--up 360 percent over 2000 levels. ACLI's research, 
previously reported in ``Can Aging Baby Boomers Avoid the Nursing 
Home,'' March 2000, indicates that by paying policyholders' nursing 
home costs--and by keeping policyholders out of nursing homes by paying 
for home- and community-based services, private long-term care 
insurance could reduce Medicaid's institutional care expenditures by 
$40 billion a year, or about 30 percent.
    In addition, the same ACLI study found that wider purchase of long-
term care insurance could increase general tax revenues by $8 billion 
per year, because of the number of family caregivers who would remain 
at work. Today, according to a recent study by the National Alliance 
for Caregiving, 6 percent of caregivers quit work to care for an older 
person; nearly 10 percent have to cut back their work schedules; 17 
percent take leaves of absence, and 4 percent turn down promotions 
because of their care giving responsibilities.
    In conclusion, ACLI believes that protection and coverage for long-
term care is critical to the economic security and peace of mind of all 
American families. Private long-term care insurance is an important 
part of the solution for tomorrow's uncertain future. As more than 77 
million baby boomers approach retirement, the rapidly aging workforce, 
together with more employees caring for elderly parents, heighten the 
importance of long-term care planning as a workplace issue. As 
Americans enter the 21st century, living longer than ever before, their 
lives can be made more secure knowing that long-term care insurance can 
provide choices, help assure quality care, and protect their hard-
earned savings when they need assistance in the future. We also believe 
that the costs to Medicaid--and therefore to tomorrow's taxpayers--will 
be extraordinary as the baby boom generation moves into retirement, 
unless middle-income workers are encouraged to purchase private 
insurance now to provide for their own eventual long-term care needs. 
Education, options, incentives and the efficient use of both public and 
private resources are critical to our nation's ability to finance long-
term care in the decades ahead.
    Again, the ACLI looks forward to working with this Committee to 
help Americans protect themselves against the risk of long-term care 
needs.

    Mr. Deal. Thank you, Governor. And I will say to the panel 
members, I think you have been told, we try to keep your 
comments to 5 minutes. We will be tolerant as much as possible, 
but thank you very much for your cooperation in that. Mr. 
Parrella.

                  STATEMENT OF DAVID PARRELLA

    Mr. Parrella. Thank you, Congressman Deal, and members of 
the committee.
    Here is my short list of what needs to be on the table in 
terms of future reform and Medicaid: Continue the expansion of 
managed care. Like it or not, this is where most of us now 
receive our care. Despite fondness of the golden age of fee for 
service, anyone who is objective about the improvements in 
access and quality of care purchased from accountable networks 
will have to conclude that managed care works for Medicaid 
populations.
    No. 2. Remove the Federal barriers to innovative management 
of the dual eligibles. Forty-five percent of all Medicaid 
expenditures are for recipients enrolled in another 
comprehensive Federal health care program known as Medicare. 
The current system fails to reward the States for innovative 
strategies like disease management or managed care that 
ultimately benefit the Medicare budget. This makes no sense 
from either a State or Federal perspective, especially with the 
impending retirement of the baby boom generation. States should 
be able to count Medicare savings toward the cost effectiveness 
calculations of the waiver applications that would impact the 
cost of care for this very high cost population.
    No. 3. Expand State flexibility on benefit design and cost 
sharing for populations above the poverty level. You cannot 
convince families to take an interest the cost of their care 
unless they share in it, however marginal that contribution 
might be. Clients like the rest of us should have an economic 
stake in maintaining their wellness. Penalty-free inappropriate 
use of the emergency room does no one any good. Pharmacy 
utilization should be based on need, not advertising. And 
premiums for expansion populations are a small contribution 
when measured against the value of the benefit that is 
conferred. In Connecticut, our recent history of parents 
eligible for our HUSKY program with household incomes between 
100 and 150 percent of the poverty level on the program, off 
the program, back on the program with a monthly premium 
demonstrates that it is better to offer working families 
coverage with higher cost sharing than no coverage at all.
    No. 4. Restrict asset transfers. It is morally wrong to 
impose cost sharing and other cost containment measures on the 
poor when people of means can utilize trusts or broken policy 
on the penalty period for inappropriate asset transfers to 
qualify for Medicaid when they need long-term care. Connecticut 
submitted a waiver that would start the penalty period at the 
point of entry into a long-term care facility rather than when 
the inappropriate transfer actually occurred, in some cases, 
years prior to the fact.
    In Connecticut and other waiver States, we are waiting to 
see what will transpire at the Federal level since this is such 
a significant change in how eligibility for States is 
calculated for long-term care. Connecticut is one of four 
States that are currently allowed to grant asset protection to 
people who insure themselves against the cost of long-term care 
under our long-term care insurance partnership. This authority 
should be granted to other States either under a waiver or 
estate plan amendment option to encourage individuals to ensure 
themselves against such an eventuality.
    No. 5. Maximize third-party resources through premium 
assistance. It is incomprehensible why we choose to ignore the 
ability to share the cost of providing health care for our 
working families with employers. Failing to do so ignores the 
potential third-party resource and drives up the cost and 
caseloads in the public program. A State policy to assist 
families with payroll deduction for employer-sponsored 
insurance with a State option for a full Medicaid wrap-around 
would allow access to new provider networks and reduce costs.
    No. 6. Pay pharmacists as service providers. Drug pricing 
is one of the most contentious areas in our budget. We have 
consistently tried to reduce the material cost of the drug and 
the dispensing fee paid to the pharmacist as a way of 
controlling costs.
    I think that in the future we should consider paying higher 
handling charges to the pharmacists provided that the amount 
paid for the ingredients in a prescription reflects the actual 
average sales price for manufacturers and distributors for the 
drugs with full transparency on pricing provided to Federal 
auditors.
    No. 7. Pay providers for performance. Physicians should be 
paid to provide treatments that follow evidence-based practice 
in a cost effective manner. Good quality care is usually less 
expensive.
    Finally, I would say to those who oppose any Medicaid 
reform, we will never reach anything like full coverage in this 
country with the current Medicaid program as our only option. 
The benefit is too rich and the costs are too high.
    Reserve traditional Medicaid for populations below the 
poverty level, but reform must include some or all of these 
measures if we are to achieve success. And that success 
benefits all of us. As the recent hurricane experience 
demonstrates, public health does not distinguish amongst 
populations by payer. We all breathe the same air, we all drink 
the same water. Our bodies are subject to infection by the same 
microorganisms. The children who are on Medicaid are defending 
us today in Iraq, and their brothers and sisters will care for 
us as we age. The program is vital to our national interest and 
deserves our best efforts to sustain it in the years to come. 
Thank you.
    [The prepared statement of David Parrella follows:]

     Prepared Statement of David Parrella, Director, Medical Care 
       Administration, Connecticut Department of Social Services

    Before I turn to the issues surrounding Medicaid Reform, it would 
be useful to take a moment to consider the characteristics of the 
Medicaid program as it stands today. Started in 1965 as a program to 
provide health benefits to the welfare population, today less than 25% 
of the recipients on Medicaid receive cash assistance. By providing 
health coverage to 38 million children and parents in low income 
working families, Medicaid and its sister program, SCHIP, has played a 
vital role as the health insurance safety net in an economic 
environment where more and more Americans are being priced out of 
health insurance in the private market. Despite these recent 
expansions, a staggering 45 million Americans today have no health 
insurance.
    These numbers are important in today's debate. Medicaid is asked to 
do many things. It is the insurer of last resort for poor and working 
families. It is the mainstay of persons with disabilities struggling to 
live in the least restrictive environment. It is, in effect, our 
national long term insurance program, not only for the poor but for the 
middle class and the affluent who divest themselves of assets when 
nursing home costs are looming in their near future. And yet all of 
these populations are held to the same standards for coverage, the same 
limits on cost sharing, and the same benefit packages in the absence of 
specific federal waiver authority. For a program this large and this 
diverse, greater flexibility to define eligibility, benefits and cost-
sharing for those populations with household incomes above the poverty 
level is necessary in order for Medicaid to participate in broader 
health care reform.
    We should take pride in what Medicaid has accomplished while 
incurring an administrative cost ratio that would be the envy of any 
private insurer. Indeed, the recent articles about Medicaid fraud are 
stark evidence that higher administrative costs would be well justified 
as a means of rooting out fraud and insuring that tax dollars go to the 
purposes for which they were intended.
    It is the relationship of Medicaid to the uninsured that is the 
strongest rationale in my mind for reform. Between 2000 and 2005 the 
national Medicaid caseload increased by an astounding 40%. Medicaid now 
provides benefits to 53 million people at a cost of over $350 billion a 
year. It is the ultimate recipient of bad selection, the largest payer 
of long-term care, and the last alternative for families that lose 
private health insurance.
    Reform strategies work. Between 2000 and 2003 states pushed ahead 
with at times unpopular measures such as mandatory enrollment in 
managed care, pharmacy prior authorization, and preferred drug lists. 
During that period of unprecedented enrollment growth, Medicaid acute 
care costs increased by only 6.9% annually. The rates for employer-
sponsored insurance increased by 12.6% through the same period. You 
cannot look at those figures and fail to understand that Medicaid has 
absorbed the abandonment of family coverage for low-income workers from 
the private sector, and that Medicaid has needed all the tools in the 
cost containment toolbox to enable it to do so.
    We are only a few years away from a demographic tsunami that will 
send millions of baby-boomers like me into the public programs for 
long-term care benefits. Many in my generation still believe that new 
pharmaceuticals will keep them young. They won't, but they will cost a 
fortune. Many of my peers believe that Medicare and retirement benefits 
will secure them against long-term care costs in their golden years of 
assisted living bliss. The more likely outcome is a semi-private room 
in a skilled nursing facility with Medicaid picking up the tab. In a 
program where 50% of all expenditures currently go for institutional 
long-term care, this demographic prospect is scary. Left unchanged it 
will set up a political tension between our children and ourselves that 
will test the bounds of their affection for us as they see their own 
retirements forestalled and their FICA deductions from their paychecks 
increased.
    Most importantly to me, this competition for resources from an 
aging population will inhibit further efforts by the states to address 
the problem of the uninsured. We are lucky in Connecticut. We live in 
one of the richest states in the country. We have an abundance of 
medical providers compared to states in rural and frontier areas. 
Despite the vicissitudes of the budget battles over the past decade, we 
still offer broad coverage for the poor that goes beyond what Medicaid 
is willing or able to match with federal dollars. Our state-funded SAGA 
medical program provides comprehensive coverage to over 30,000 single 
adults who do not meet the categorical requirements for Medicaid, 
despite their very low income. Our ConnPACE program provides state 
funded assistance for the cost of prescription drugs to over 50,000 
senior citizens. Our SCHIP program provides coverage to uninsured 
children up to 300% of the federal poverty level with a buy-in for 
parents with household incomes above that. Medicaid covers children and 
pregnant women with household incomes up to 185% of the federal poverty 
limit without an asset test and parents up to 150%. We have a Breast 
and Cervical Cancer program that serves all uninsured women who are 
unfortunate to have either of those diagnoses, regardless of their 
income level. We have a medically needy program that through the 
bewildering process of spend-down does provide coverage to thousands of 
disabled adults and nursing home patients. As we sit here today, these 
programs together serve nearly half-a-million of our neighbors. One out 
of every ten residents of our state receives assistance through the 
HUSKY program for families and children. One quarter of all the births 
in the state each year are funded by that same program. Seventeen 
thousand seniors receive home care as an alternative to institutional 
care under our federal waivers. Two-thirds of all the patients in 
nursing home beds right now are supported by Medicaid. We are currently 
working to expand coverage for children with special health care needs, 
to provide more alternatives in the community for persons with 
cognitive disabilities, to expand access to mental health services for 
children, and to provide family planning services to all uninsured 
women with incomes below 185% of poverty.
    We can do these things in Connecticut because we have the 
resources, despite the fact that we receive the minimum federal match 
rate of 50% on our Medicaid expenditures. Just like every other state, 
we struggle with budget priorities every year, balancing the growth in 
the percentage of the General Fund that goes to the Medicaid program 
against other priorities like education and public safety. This year 
Connecticut, like a growing list of other states, will spend more on 
Medicaid than it does on education, a first for our state. We continue 
to do these things in the face of a Medicaid regulatory environment 
that makes it all but impossible to implement many of the cost 
containment strategies that are currently employed by the private 
sector in providing care to comparable populations.
    But don't assume that same situation pertains in other states. Many 
states simply have no option to increase revenues and no further state 
expenditures to capture under a Medicaid claim, regardless of the 
federal match rate. As you watch the implementation of Medicare Part D, 
its is the poor states that will feel most acutely the impact of 
clawback payments to the federal government on their dual eligible 
population with no off-setting savings on the pharmacy costs of state 
retirees or on a State Pharmacy Assistance Program like ConnPACE, 
either of which would have been historically unaffordable. States in 
the hurricane devastated areas in the Gulf face nearly insurmountable 
difficulties in providing medical care to the survivors in the midst of 
an economic and environmental catastrophe. The Centers for Medicare and 
Medicaid Services should immediately set aside any thought of special 
waivers for presumptive eligibility for the host states that are 
receiving refugees from the storm ravaged areas and authorize 100% 
federal reimbursement for the cost of providing immediate temporary 
Medicaid assistance to our displaced fellow countrymen and women.
    Medicaid reform is a moral imperative that demands that reasonable 
measures be taken now to allow the states the time and resources to 
respond to the challenges of an aging population, a growing number of 
uninsured, and unprecedented, unanticipated events like 911 and 
Hurricane Katrina and the attendant economic dislocation.
    Here is my short list of what needs to be on the table in terms of 
future Reform:
    1. Continue the expansion of managed care--Like it or not, this is 
where most of us now receive our care. Despite nostalgic fondness for 
the golden age of fee-for-service, anyone who is objective about the 
improvements in access and quality of care purchased from accountable 
networks will have to conclude that managed care works for Medicaid 
populations.
    2. Remove the federal barriers to the innovative management of the 
dual eligibles--45% of all Medicaid expenditures are for recipients 
enrolled in another comprehensive federal health care program known as 
Medicare. The current system fails to reward the states for innovative 
strategies like disease management or managed care that ultimately 
benefit the Medicare budget. This makes no sense from either a state or 
a federal perspective, especially with the impending retirement of the 
baby boom generation. States should be able to count Medicare savings 
towards their cost effectiveness calculations for their waiver 
applications that would impact the cost of care for this very high cost 
population.
    3. Expand state flexibility on benefit design and cost sharing for 
populations above the poverty level--You cannot convince families to 
take an interest in the cost of their care unless they share in it, 
however marginal that contribution might be. Clients, like the rest of 
us, should have an economic stake in maintaining wellness. Penalty-free 
inappropriate use of the emergency room does no one any good. 
Pharmaceutical utilization should be based on need, not advertising. 
And premiums for expansion populations are a small contribution when 
measured against the value of the benefit that is conferred. In 
Connecticut, the recent history of parents eligible for our HUSKY 
program with household incomes between 100 and 150% of the poverty 
level--on the program, off the program, back on the program with a 
monthly premium--demonstrates that it is better to offer working 
families coverage with higher cost sharing, than no coverage at all. 
Preserve the existing limits on Medicaid cost sharing for populations 
with household incomes below the poverty level, but give states the 
option of making them enforceable. Give states the option of imposing 
greater cost-sharing, including things like tiered co-payments for 
prescription drugs, for populations above the poverty level. Make it 
affordable for states to assist the working poor with coverage that is 
comparable to the coverage that is available to their peers through 
their place of work.
    4. Restrict Asset Transfers--It is morally wrong to impose cost 
sharing and other cost containment measures on the poor when people of 
means can utilize trusts or a broken policy on the penalty period for 
inappropriate asset transfers to qualify for Medicaid when they need 
long-term care. Connecticut submitted a waiver that would start the 
penalty period at the point of entry into a long-term care facility, 
rather then when the inappropriate transfer actually occurred, in some 
cases years prior to the fact. This measure alone has been scored by 
the Congressional Budget Office as having the potential to save $1.4 
billion nationally over the next five years. In Connecticut and in the 
other waiver states we are waiting to see what will transpire at the 
federal level, since this is such a significant change in how 
eligibility for long-term care is calculated. Connecticut is one of 
four states that are currently allowed to grant asset protection to 
people who insure themselves against the cost of long-term care under 
our Long Term Care Insurance Partnership. This authority should be 
granted to other states either under a waiver authority or a State Plan 
Amendment option to encourage individuals to insure themselves against 
such an eventuality. Grant tax incentives or other inducements if 
necessary. But we must change the mindset that long-term care under 
Medicaid is a middle-class entitlement that people have no 
responsibility to insure against.
    5. Maximize Third Party Resources through Premium Assistance--It is 
incomprehensible why we choose to ignore the ability to share the costs 
of providing health care for our working families with employers. 
Failing to do so ignores a potential third party resource and drives up 
the costs and caseloads in the public programs. A state policy to 
assist families with the payroll deduction for employer-sponsored 
insurance with the state option for a full Medicaid wraparound would 
allow access to new provider networks and reduce costs significantly. 
The federal government should make it a priority to simplify the steps 
necessary to partner with the private sector to provide coverage.
    6. Pay Pharmacists as Service Providers--Drug pricing is one of the 
most contentious areas in the Medicaid budget. We have consistently 
tried to reduce the material cost of the drug and the dispensing fee 
paid to the pharmacist as a way of controlling costs. I think that in 
the future we should consider paying higher handling charges to the 
pharmacists provided that the amount paid for the ingredients in a 
prescription reflects the actual average sales price from manufacturers 
and distributors for the drugs with full transparency on pricing 
provided to federal auditors. We need the pharmacists as partners in 
the management of a complex benefit that now includes prior 
authorization, generic substitution, and consultation with a preferred 
drug list. The costs of the transaction for materials between the 
manufacturer and the pharmacist should not drive Medicaid costs.
    7. Pay providers for performance--Physicians should be paid to 
provide treatments that follow evidence-based practice in a cost 
effective manner. Good quality care is usually less expensive.
    Finally, I would say to those who oppose any Medicaid reform on 
principle, we will never reach anything like full coverage in this 
country with the current Medicaid model as the only option. The benefit 
is too rich and the costs are too high. Reserve traditional Medicaid 
for a population below the poverty level. But Reform must include some 
or all of these measures if we are to achieve success in a viable, 
sustainable Medicaid program.
    That success benefits us all. As the recent hurricane experience 
demonstrates, public health does not distinguish amongst populations by 
payer. We all breathe the same air. We all drink the same water. Our 
bodies are subject to infection by the same microorganisms. The 
children of Medicaid are defending us today in Iraq and Afghanistan. 
Their brothers and sisters will care for us as we age. The program is 
vital to our national interest and deserves our best efforts to sustain 
it in the years to come.
    All of us who care about Medicaid must not be enemies, but friends. 
Our disagreements may divide us on methods, but they should never 
divide us on principle. Surely with a common commitment to improving 
the health of the least fortunate of our neighbors we can discover, as 
Lincoln said, the better angels of our nature.
    Thank you, I would be happy to answer any questions that you may 
have.

    Mr. Deal. Thank you.
    Dr. Alexander.

                  STATEMENT OF DAVID ALEXANDER

    Mr. Alexander. Thank you, Congressman Deal, and members of 
the committee for the opportunity to testify today. I am the 
president of DeVos Children's Hospital in Grand Rapids, 
Michigan. We are Michigan's second largest provider of Medicaid 
services to children and part of Spectrum Health which is the 
largest employer in West Michigan. I am also a pediatrician.
    In my remarks today, I want to underscore three points. 
First, Medicaid affects all children, because it is the 
financial backbone of children's health care.
    Second, I urge Congress to exercise caution in assessing 
proposals to achieve Medicaid savings through cost sharing and 
benefit flexibility for children who today are exempt from cost 
sharing, and guarantee coverage for medically necessary care.
    Third, I recommend reforms in Medicaid that address the 
unique challenges children and their providers face including 
enrollment, quality improvement, and access.
    I want to begin by explaining why changes in Federal 
Medicaid policy have the potential to affect all children, not 
only children from low income families. Medicaid is by far the 
Nation's largest payor of children's health care. It pays for 
the health care of 26 million children, more than half of all 
Medicaid recipients. One in four children is covered by 
Medicaid. Medicaid pays for on average half of the patient care 
provided at a Children's Hospital.
    I also want to emphasize the fact that children offer 
little opportunity for Medicaid savings. Fortunately, most 
children are healthy. As a consequence, children account for 
only 22 percent of Medicaid spending. Medicaid per capita 
spending for children is comparable to costs under private 
insurance despite the fact that Medicaid serves many more 
children with disabilities and special health care needs.
    Given these facts, children's hospitals urge Congress to 
exercise caution in considering proposals to achieve savings 
through cost sharing or benefit flexibility. Cost sharing has 
been demonstrated to reduce utilization of care, but that said, 
it doesn't only reduce frivolous care, it reduces needed care 
as well including the primary and preventive care that children 
need. A good example of this is in asthma, which is the most 
common reason children are seen for emergency care and their 
most common hospital admitting diagnosis.
    Preventive care for children with asthma includes regular 
office visits. Additionally, there is clear evidence that early 
intervention with acute asthma attacks is critical to 
preventing more costly care including hospitalization.
    Cost sharing has the potential to create barriers for 
children's access to care, resulting in sicker children, more 
costly care, and increased cost shifting to providers. I 
respectfully ask you to continue the Federal exemption of 
children from cost sharing under Medicaid.
    In addition, we ask Congress to retain Medicaid's promise 
of medically necessary care for children. Federal Medicaid law 
ensures children receive comprehensive benefits including 
medically necessary care. Fortunately, again, most children do 
not need to use the full benefits that Medicaid promises; but 
when a child is sick or disabled or injured, which can happen 
in the blink of an eye, Medicaid's benefits can make the 
difference between growing up to be a productive adult or not 
growing up at all.
    Now I want to turn to three reforms that would benefit 
children. First, we need to enroll all Medicaid eligible 
children. Two thirds of uninsured children are already eligible 
but unenrolled in Medicaid or SCHIP. That is why President Bush 
and others have made improved enrollment one of their 
priorities. Congress should act on these proposals.
    Second, there are no Federal Medicaid quality standards for 
children. Congress needs to make the same investment in quality 
and performance measures for children that is being made for 
adults and the elderly under Medicare.
    Third, independent children's hospitals are excluded from 
an important source of savings for hospitals serving a 
disproportionate share of low income patients, the 340B drug 
discount program. Children's hospitals are excluded only 
because they are exempt from the Medicare Perspective Payment 
System even though they are among the most significant safety 
net hospitals in this country. Congress should remove this 
barrier.
    I want to take a moment to speak to two points related to 
Hurricane Katrina and its impact on children. First, very sick 
children need care that is often available only on a 
regionalized basis in children's hospitals. Last week, 
Children's Hospital in Houston, Little Rock, Birmingham, Miami, 
and Kansas City sent evacuation teams to New Orleans. Dozens of 
the sickest children were evacuated using their own transport 
and medical teams. These hospitals were able to act quickly and 
effectively, even under extraordinary conditions, because they 
are experts in caring for children.
    Returning to the specific subject of this hearing. Medicaid 
is extremely important to these and all children's hospitals. 
They were able to help last week because they are strong, 
experienced institutions. But they are also vulnerable. All of 
them devote 40 percent or more of their care to Medicaid 
patients. The future of Medicaid can profoundly affect our 
ability to meet the needs of the sickest children no matter 
what their circumstances.
    In conclusion, as you pursue the development of Medicaid 
legislation, please keep in mind that your decisions will 
affect health care for every child, including yours and mine. 
Thank you.
    [The prepared statement of David Alexander follows:]

  Prepared Statement of David Alexander, President, DeVos Children's 
                                Hospital

    Chairman Barton, Ranking Member Dingell and distinguished members 
of the Committee, my name is David Alexander and I am the president of 
DeVos Children's Hospital in Grand Rapids, MI, and a pediatrician. I 
appreciate the opportunity to testify before you today on behalf of my 
hospital and the National Association of Children's Hospitals on the 
critical role Medicaid plays for children and children's hospitals.
    DeVos Children's Hospital is a tertiary referral center for 37 
counties in Western Michigan and an established leader dedicated to 
improving the health and lives of children and families. We receive 
nearly 7,000 inpatient admissions and provide more than 100,000 
outpatient visits and nearly 30,000 emergency department visits 
annually. We are a vital resource for our communities and our region, 
providing care to every child who comes to us, regardless of ability to 
pay. We are part of Spectrum Health, the largest employer in West 
Michigan. We are also affiliated with 17 other hospital providers 
across western and northern Michigan from St. Josephs to Cheboygan in a 
``Partners in Childrens' Health Network.''
    Founded in 1995, N.A.C.H. is the public policy affiliate of the 
National Association of Children's Hospitals and Related Institutions 
(NACHRI). N.A.C.H. represents more than 130 children's hospitals 
nationwide, including independent acute care children's hospitals, 
children's hospitals within larger hospitals, and children's specialty 
and rehabilitation hospitals. N.A.C.H. assists them in fulfilling their 
missions of clinical care, education, research, and advocacy devoted to 
children's unique health needs.
    In my testimony, I would like to underscore three points.
    1. Medicaid affects health care for all children. Children are more 
than half of Medicaid recipients, yet account for only 22% of Medicaid 
spending, including children with disabilities. Medicaid reforms that 
seek to find savings in the area of children's coverage, whether by 
reducing benefits or imposing cost sharing, can put children and their 
providers at risk. When Medicaid support for children tightens, it can 
have such a large financial impact on children's providers that it can 
affect their ability to deliver a wide range of services needed by all 
their patients, not only those covered by Medicaid. Children's 
hospitals urge Congress to retain children's guarantee of medically 
necessary care and children's exemption from cost sharing under 
Medicaid.
    2. Medicaid is the financial backbone of children's hospitals and 
children's health care. The nation's children's hospitals welcome 
Congress' interest in taking a serious look at how to sustain, 
strengthen, and modernize Medicaid. Children's hospitals, and the 
children and families we serve, rely upon a strong, stable Medicaid 
program because it is a vital partner in health care for all children, 
rich and poor alike. One in four children relies on Medicaid for health 
coverage. Medicaid on average represents more than 30% of a 
pediatrician's payments and 50% of a children's hospital's revenues. In 
many states, the proportions are much higher.
    3. Children's hospitals support reforms that address the unique and 
very real challenges children face in Medicaid today. The most 
significant challenge facing Medicaid coverage for children is not out-
of-control spending or too rich benefit packages that are inappropriate 
to their needs. Instead, the real challenges are barriers to enrollment 
for eligible children, a dearth of pediatric quality and performance 
measures, and the absence of adequate payment, much less any reward or 
incentives for efficiency, for children's health care providers. A 
Medicaid program that can recognize and reward quality and efficiency 
can mean better care and lower costs.
Medicaid Is a Vital Partner in Health Care For All Children
    Both directly and indirectly, Medicaid has become a vital partner 
in the provision of health care for all children. Medicaid not only 
covers 26 million children, along with the State Children's Health 
Insurance Program (SCHIP) it also protects children from the loss of 
health insurance plaguing a growing number of adults. According to the 
U.S. Census Bureau, it is because of Medicaid and SCHIP that the number 
and proportion of children who are uninsured has not increased at a 
time when employer-sponsored health insurance has been declining and 
the number of all uninsured people has continued to grow. Children's 
hospitals support federal incentives to deter loss of private coverage, 
but we believe Medicaid and SCHIP's safety net coverage for children 
should be maintained and strengthened.
    More than half of Medicaid's enrollees, 50.5 percent, are children. 
Children under one year of age are 3.8 percent of Medicaid enrollees, 
children ages 1-5 are 16.5 percent of enrollees, and children ages 6-18 
are 30.2 percent of enrollees. Fifty percent of children receiving 
Medicaid or SCHIP live at or below the federal poverty level.
    At any point in time, Medicaid pays for the health care of one in 
four children, nearly one in three children with special health care 
needs, and one in three infants in the U.S. In some of the nation's 
poorer states, Medicaid pays for the health care of nearly one in three 
children and one in two infants.
    With Medicaid financing health care for such a large number of the 
nation's children, it is surprising to many that expenditures on 
children's health services are not driving the growth in Medicaid 
spending. Children, including children with disabilities, account for 
only 22% of all Medicaid spending. On average, Medicaid spends $1,388 
per non-disabled child, compared to $1,790 per non-elderly, non-
disabled adult, $11,408 per disabled individual, and $10,694 per 
elderly adult per year, as of FY 2002. Annual per capita spending for 
all children, including children with disabilities, is $1,773, compared 
to $4,891 for all non-elderly adults, including those with 
disabilities.
    The low Medicaid cost per child reflects the fact that children are 
generally healthier than adults. It also reflects the fact that in the 
last decade, the major strategy used by states to control Medicaid 
spending has been capitated managed care plans. Children have led the 
managed care revolution in both public and private insurance, with the 
majority of all children assisted by Medicaid now enrolled in managed 
care but only the minority of adults and the elderly.
    Taken together, these facts mean two things. First, because it 
finances such a large proportion of children's health care, over time 
Medicaid literally can affect access to health care for all children. 
Second, because children account for such a small proportion of 
Medicaid spending, there is little opportunity to achieve substantial 
Medicaid savings from children's health care.
Medicaid Is the Financial Backbone of Children's Hospital Services
    In the U.S., children's hospitals are indispensable to children's 
health care, because pediatric health care services, particularly 
specialty care, are concentrated in relatively few institutions.

 Children's hospitals are the major providers of both pediatric 
        inpatient and outpatient services. Less than 5% of all 
        hospitals, children's hospitals provide more than 40% of all 
        hospital care for children, and more than 80% of hospital care 
        required by children with serious illnesses, such as cancer or 
        heart disease. Children's hospitals perform 98% of pediatric 
        organ replacements.
 Despite representing such a small proportion of all hospitals, 
        children's hospitals train the majority of the nation's 
        pediatricians, virtually all of its pediatric sub-specialists 
        and the large majority of pediatric research scientists.
 Children's hospitals house the nation's leading pediatric biomedical 
        and health services research centers. More than a third of all 
        of the National Institutes of Health's pediatric research 
        funding supports research in children's hospitals or their 
        affiliated medical school pediatric departments.
 Children's hospitals are the major safety net providers for children. 
        They are often doctor, clinic, dentist and hospital for low-
        income children. Children's hospitals work hand in glove with 
        community health centers in providing staff and taking 
        referrals for children needing specialty care. They are the 
        frontlines of support for child abuse prevention and treatment, 
        as well as public health and injury prevention advocacy for 
        children.
    Although almost all are private institutions, children's hospitals 
depend on Medicaid financing to serve all children, as well as children 
from low-income families, because Medicaid plays an extraordinarily 
large role in their financing. On average, children's hospitals devote 
about 50% of their patient care to children assisted by Medicaid. It is 
not unusual for a children's hospital to devote 60%, 70%, or more of 
their care to children assisted by Medicaid. At DeVos Children's, 41% 
of our patients are covered by Medicaid. We are the second largest 
provider of Medicaid services to children in Michigan.
    Medicaid is characterized as a state/federal partnership, but a key 
partner is missing from that characterization: safety net providers, 
such as children's hospitals, that provide the majority of care to 
Medicaid beneficiaries.
    Medicaid depends on safety net hospitals such as children's 
hospitals to remain true to our missions: to provide the highest 
quality care to all children who come through our doors, regardless of 
ability to pay. The nation's children's hospitals will always strive to 
hold steadfast to our missions, but low Medicaid reimbursements have 
increasingly made it more difficult.
    Since 2001, children's hospitals, along with pediatricians, have 
struggled annually to avoid state Medicaid provider reimbursement cuts, 
as almost every state has adopted repeated, annual reductions in its 
Medicaid budget. In Michigan, where the state economy continues to 
struggle, the state Medicaid program has been cut more than $540 
million since 1998, and is now underfunded by $1 billion.
    Medicaid also falls short of paying the cost of the care required 
for the children it covers. On average, Medicaid reimburses 73% of the 
cost of patient care provided by a children's hospital. Even with 
disproportionate share hospital (DSH) payments, a children's hospital 
is reimbursed for, on average, only about 80% of costs. For outpatient 
primary and specialty care, as well as physician care, the picture is 
even worse.
    Taken together, these facts mean that Medicaid plays such a large 
role in the financing of children's hospitals that any changes in 
Medicaid potentially could affect the financial ability of the 
hospitals to serve all children, because we cannot reduce services for 
only poor children in order to absorb Medicaid losses. Our hospitals 
must absorb Medicaid losses in their clinical, training, research and 
community programs by increasing waiting times for services, closing 
the financially weakest services, delaying expansion of new services, 
curtailing training programs at a time of growing pediatric 
subspecialist shortages, or curbing the development of research 
enterprises. Such actions affect access to health care for all children 
in our communities.

Children's Hospitals Recommend Retaining Medicaid's Unique Benefits for 
        Children and Federal Exemption From Cost Sharing Benefits
    Calls for increased state flexibility to provide different benefit 
packages across populations promise little in real savings from 
children's health care and do not reflect the reality of children's 
health care needs. By and large, children are very small consumers of 
health care. Nationwide, 95% of children account for only about 6% of 
personal health care spending. In Medicaid, children represent more 
than 50 percent of enrollees but account for only 22 percent of 
spending.
    Although most children are healthy, a child can become seriously 
ill in the blink of an eye. That is why all children need the full 
scope of Medicaid's Early and Periodic Screening, Diagnostic and 
Treatment (EPSDT) benefit, including its federal guarantee of medically 
necessary care for children. EPSDT was designed to meet children's 
unique health care needs, particularly children with disabilities who 
are disproportionately represented in Medicaid.
    Congress should retain the EPSDT benefit package for Medicaid 
eligible children and should not permit it to be waived. At a minimum, 
EPSDT should be retained for all mandatory eligible children, all 
children with family incomes below 150% of poverty, and all eligible 
children with disabilities, including optionally eligible children with 
disabilities, such as ``Katie Beckett'' children and children in foster 
care.

Cost Sharing
    Congress should retain Medicaid's exemption of children from cost 
sharing. Research has demonstrated that cost-sharing can discourage 
health care utilization, with adverse impact on health status. Imposing 
cost sharing on children is unlikely to prevent what is often deemed 
``inappropriate'' or excessive use of medical services. It could, 
however, prevent parents from seeking care at the right time and in the 
right setting, resulting in a sicker child and more expensive care.
    At a minimum, new cost sharing obligations should not be imposed on 
children with family incomes below 150% of poverty. All eligible 
children with disabilities, including optionally eligible children with 
disabilities such as ``Katie Beckett'' children, and children in foster 
care, should also be exempt from cost sharing obligations.
    For children with incomes above 150% of poverty, cost sharing 
obligations should be no greater than what is permitted by SCHIP. Such 
cost sharing should be limited to co-payments and deductibles; it 
should not include insurance premiums, which, if unpaid, would leave a 
child uninsured.
    Additionally, parents' failure to pay cost-sharing obligations 
should not prevent children from receiving the care they need, nor 
should it prevent providers from being reimbursed for the services. As 
President Bush said in his first inaugural address, ``Children at risk 
are not at fault.''

Children's Hospitals' Recommendations for Modernizing Medicaid for 
        Children
    The real challenges facing children in Medicaid are unfulfilled 
enrollment, the dearth of pediatric quality and performance measures 
and a lack of federal Medicaid investment in their development, and the 
absence of any reward for quality and performance in pediatric care.
    To address these challenges, children's hospitals recommend reforms 
that would:

1. Dramatically improve enrollment of millions of eligible but 
        unenrolled children in public insurance programs.
2. Make a meaningful investment in the development and evaluation of 
        pediatric quality and performance measures.
3. Give Medicare Prospective Payment System (PPS)-exempt children's 
        hospitals the ability to participate in the 340(B) drug 
        discount program if they meet the same eligibility criteria as 
        other disproportionate share hospitals (DSH).

Enroll All Eligible Children
    Two-thirds of the nation's uninsured children are eligible but not 
enrolled in Medicaid or SCHIP. If all eligible children were enrolled, 
the nation would have virtually eliminated the problem of uninsured 
children--and the health risks that accompany it.
    President Bush, as well as leaders in both parties in Congress, 
supports proposals that would help states to enroll all eligible 
children in Medicaid and SCHIP. Last September President Bush said, 
``America's children must also have a healthy start in life--we will 
lead an aggressive effort to enroll millions of poor children who are 
eligible but not signed up for the government's health insurance 
programs. We will not allow a lack of attention or information to stand 
between these children and the health care they need.''
    Children's hospitals recommend both financial and administrative 
reforms to promote effective enrollment and retention. For example, 
``express lane'' enrollment using a single, simplified application form 
for multiple public assistance programs, such as the school lunch 
program, and procedures that allow for enrollment of children by mail 
or through the Internet, would reduce barriers to children' enrollment. 
Such proposals are included in S. 1563, the ``ABCs for Children's 
Health Act of 2005.''

Make a Federal Investment in High Quality, Safe and Efficient Care for 
        Children
    Although it is the nation's single largest payer of children's 
health care, the federal Medicaid program has done little to invest in 
pediatric quality and performance measures. There is a serious dearth 
of pediatric quality and performance measures for children's health 
care, because private payers are investing primarily in the development 
of measures for adult care and the federal government is investing 
primarily in the development of measures for the health care of 
Medicare recipients. Most states do not have the resources, much less a 
sufficiently large population of children, for the development and 
testing of effective pediatric measures.
    Advance Pediatric Quality Measures. Children's hospitals recommend 
a top to bottom federal commitment to improving the safety, efficiency 
and effectiveness of health care services to children just as it is 
already doing for adults in Medicare. Such a commitment should result 
in better outcomes and reduce costs in hospitals.
    This was the premise of a Robert Wood Johnson Foundation grant 
program called Pursuing Perfection. One of its grantees, Cincinnati 
Children's Hospital Medical Center, made a significant investment in 
capital and commitment to a number of initiatives from more efficient 
use of facilities to electronic medical records and outcomes reviews. 
The hospital won a national award for its progress in quality and cost 
effective change. But when the hospital turned to the federal 
government to seek a broader application of its findings, it found 
there was no where to go to focus on children's unique needs.
    Development, testing and application of pediatric quality and 
performance measures cannot be accomplished on a state by state basis. 
Federally funded demonstration projects, with shared risk-adjusted 
measures appropriate to children, can advance current efforts and 
transfer the results across children's hospitals nationwide.
    Improve Access. Emergency room (ER) use continues to rise. For non-
emergent care, this is inefficient and costly for hospitals and payers 
and it doesn't provide children with the best care. Texas Children's 
Hospital, through its subsidiary, Texas Children's Pediatric 
Associates, has a program to provide primary care pediatric practices 
in medically underserved communities where families often turned to ERs 
for primary care. This program, Project Medical Home, currently serves 
children in three communities, regardless of their ability to pay. 
Other children's hospitals have similar projects. Giving children and 
their families a consistent pediatrician or ``medical home'', with 
extended hours and 24-hour phone availability, can reduce non-emergent 
ER use, deliver more efficient care and reduce hospital admissions. 
These models of care are not organizationally complex or bureaucratic. 
A federal investment is needed to replicate such innovations.
    Promote Disease Management. More than half of the children served 
by children's hospitals have chronic conditions. Many children's 
hospitals have programs to provide disease management for at least some 
of these children. These programs are often difficult to sustain or to 
expand to meet the number of children who could be served, because 
disease management itself is often not covered by Medicaid and because 
outpatient and physician payments are, in general, very low. While 
studies at individual institutions have shown the cost effectiveness of 
disease management as well as the improved health of the children 
served, studies of a larger scope, across institutions, with more 
evidence-based measurement are needed. Effective disease management can 
help stabilize medical conditions, improve functional outcomes, prevent 
or minimize acute exacerbations of chronic conditions, and reduce 
adverse health outcomes and avoidable hospitalizations.
    In sum, the children's hospitals recommend:

 A 4-year program to develop, report and evaluate national quality and 
        performance measures for children's hospital services. The 
        federal government is making an investment in quality and 
        performance measures for seniors and adults in Medicare, 
        working with hospital groups. It is time to do the same for 
        children and Medicaid, working with children's hospitals and 
        others with expertise in pediatric hospital measures. It will 
        enable states and providers to have the national measures and 
        process they need to move forward.
 A CMS Medicaid Demonstration Program: Transforming the Delivery of 
        Children's Health Care. There are currently no avenues to fund 
        multi-state demos or promising approaches in providing better, 
        safer, more efficient and effective care for children. 
        Demonstration project areas should include: Project Medical 
        Home--children's hospitals' community based clinics for 
        medically underserved populations, models integrating health IT 
        and quality for children's hospital care, transforming the 
        delivery of children's hospital care--more efficient and 
        effective care means better care at less cost, and care 
        management for children with chronic conditions.

Permit Children's Hospitals to Participate in the Medicaid Drug 
        Discount Program.
    Children's hospitals also recommend that Congress amend Section 
340(B) of the Public Health Service Act to permit independent 
children's hospitals to qualify for drug purchasing discounts if they 
meet the criteria for the other participating DSH hospitals, with the 
exception that they be Medicare PPS hospitals. Independent children's 
hospitals are exempt from Medicare PPS.

Conclusion: Work on Medicaid as If It Matters to All Children
    Medicaid faces many challenges today in large part because of its 
success in helping the nation address so many different challenges that 
our health care system otherwise is not designed to handle: the long-
term care needs of millions of middle and low-income Americans, the 
chronic health care needs of adults and children with serious 
disabilities, basic and catastrophic health care needs of low-income 
senior citizens, and the basic and catastrophic health care needs of 
millions of low and middle-income children.
    As Congress focuses on the fiscal future of Medicaid, we urge you 
to act as if your decisions will have the potential to affect, directly 
or indirectly, every child in this country, including our own children 
and grandchildren.

    Mr. Deal. Thank you.
    Mr. Gardner.

                    STATEMENT OF JIM GARDNER

    Mr. Gardner. Thank you. Mr. Chairman, members of the 
committee, I am honored to be with you today. My name is Jim 
Gardner, and I am the chief executive officer at Northeast 
Georgia Medical Center and Health System in Gainesville, 
Georgia, about an hour north of Atlanta. Our hospital is a 557 
bed regional not-for-profit community hospital serving well 
over a half million individuals in northeast Georgia. Our 
emergency room treats close to 100,000 patients a year and is 
the third busiest in the State of Georgia. I was asked to share 
with this committee the perspectives of a real-life community 
hospital working hard to survive in this country.
    We are facing considerable challenges, dealing with 
increases in the number of uninsured parents and potential 
reductions in government funding for Medicaid. I am not sure I 
can do that assignment justice in our short time together, but 
I would like to offer a few thoughts for your consideration.
    Let me begin with Medicaid. I deeply respect the pressure 
you and your counterparts at the State level are under to 
reduce the unsustainable rate of growth in the Medicaid 
program. In Georgia, Medicaid enrollment has risen more than 50 
percent in 5 years, and Georgia hospitals are paid 13 percent 
less than the actual cost of care for each and every Medicaid 
patient that we treat. In combination with rising private 
insurance premiums and illegal immigration rates, Georgia is 
already living health care's perfect storm. This same is being 
played out all over the country and respectfully demands a 
bipartisan action plan to redesign what has evolved into a 
flawed Medicaid program that threatens not only hospitals and 
other providers, but also the communities and the people you 
represent. Without fundamental reform of the Medicaid program 
that includes measures to protect providers, especially 
nonprofit safety net community hospitals like Northeast Georgia 
Medical Center from bearing the burden of such reforms, I am 
confident the rapidly escalating costs of the inefficient 
program will force States to cut more people from the Medicaid 
rolls. This will increase the number of the uninsured and 
further weaken the health status of communities across the 
Nation which will drive costs even higher and force hospitals 
to implement severe cost reduction to stay solvent.
    In the current system, patients all too frequently access 
health care in the emergency room, which I am sure all of you 
know is the single most expensive setting to provide medical 
care. In our community, a typical visit to the doctor's office 
costs about $74, but the cost in the ER is more than three and 
a half times that amount. Due to Federal EMTALA regulations, 
however, my hospital has no choice but to service the community 
safety net. In 2004, our health system treated over 20,000 
uninsured emergency room patients at a cost of $6.9 million. In 
the last 5 years, our combined bad debt, indigent care, and 
charity care has more than doubled hospital-wide from $16.6 
million in 2000 to more that $35 million this year. To 
reinforce this point, I stress, these are my costs, not 
charges.
    A full 29 percent of the patients to the ER in 2004 were 
nonemergent and seeking basic health care for common maladies 
like ear infections and the flu. Just extrapolating our 
numbers, that is roughly 29,000 patients and $5.6 million 
needlessly wasted in just one ER. That is $5.6 million would 
have purchased an additional 75,000 physician office visits at 
their price. With proper incentives, 104,000 patients could 
have been provided care in Gainesville instead of just the 
29,000 with no cost increase to the system or our State. Right 
now there just aren't incentives for patients to seek care in 
the proper setting. Just show up in any hospital ER, and, by 
law, you have the right to be seen even if you never pay. That 
is simply not a sustainable model.
    Current EMTALA regulations also compound inadequate 
Medicaid reimbursement rates even as providers seek to create 
greater local ownership of issues and cost effective treatment 
options. In our local community, public and private interests 
have formed an innovative health access initiative project. The 
objective of this initiative is to redirect unfunded patients 
to settings other than hospital emergency rooms. This is no 
magic bullet, but it has improved the situation in our region. 
Although I have seen some limited success, its true potential 
will not be realized until EMTALA is reconsidered and enhanced 
legal protection is afforded providers in the ER setting, who 
are prudently redirecting patients to the proper level of care.
    At present, hospitals are precluded from redirecting 
patients to other more appropriate sources of care, assuming 
they exist, prior to a screening exam. This exam must include 
any and all diagnostic tests to complete the screening, so by 
the time we are done with the evaluation phase, all that is 
left are the medications.
    Prescription drug costs are another huge irritant to 
Medicaid cost escalation and ER utilization rates. I can't give 
this committee an exact number, but can say with confidence 
many Medicaid and the uninsured patients become ER frequent 
fliers because they can't afford to fill their prescriptions. 
It is simply easier and more practical in the current 
environment to return to the hospital. Again, fundamental 
change is required.
    Immigration trends in our region and country are also 
significantly impacting the growth of Medicaid and the cost of 
caring for the uninsured. In 2000, a local health study known 
as Healthy Hall, found 11 percent of our population to be 
uninsured, which in 2005 equates to 18,000 individuals. In that 
same survey, 33 percent of Latinos self-reported being 
uninsured.
    Latinos in our local community are predicted to double from 
19 percent of the population in 2000 to 38 percent by 2009. 
Reform of both Medicaid and immigration must be entwined, from 
my perspective, if large community hospital providers like 
Northeast Georgia Medical Center are to survive, especially 
when financial viability is largely a function of geography, 
not management talent or innovative community.
    Let me explain the implications of our broken system. In 
relative terms, Northeast Georgia is one of the more 
financially stable hospitals in Georgia, and yet this year we 
are losing money on operations. Year to date, we have a 
negative operating margin. These past several years have seen a 
continued deterioration of that margin. Our hospital also 
frequently operates at or beyond capacity, especially in 
critical high-volume Medicaid dependent services like 
obstetrics where we expect to deliver close to 3,800 babies in 
2005, most than 56 percent of whom are Medicaid. Absent 
dramatic changes, including significant staff reductions, our 
health system will not be able to generate the projected $340 
million in capital required over the next 5 years to maintain 
and expand an aging infrastructure.
    This past week my hospital was forced to eliminate 231 
full-time jobs, and I am worried that that number will only 
increase over time in the current environment.
    In closing, we all share a common interest in affordable 
health care serving those in our community. I know that 
Medicaid reform is complex and calls for systemic change that 
doesn't make an already tenuous situation any worse. I live and 
breathe the reality of your decisions every day and have been 
forced to make some very difficult management choices in the 
wake of a system that today just does not incentivize rational 
patient care. At the same time, I appreciate the work of the 
committee and its members, and know how seriously you approach 
the challenge before us. Thank you.
    [The prepared statement of Jim Gardner follows:]

 Prepared Statement of Jim Gardner, Chief Executive Officer, Northeast 
                      Georgia Health System, Inc.

    Mr. Chairman, Members of the Committee, I'm honored to be with you 
today. My name is Jim Gardner and I am chief executive officer at 
Northeast Georgia Medical Center and Health System in Gainesville, 
Georgia, about an hour north of Atlanta. Our hospital is a 557-bed 
regional, not-for-profit community hospital serving well over a half-
million people in northeast Georgia. Our emergency room treats close to 
100,000 patients a year and is the third busiest in the state of 
Georgia.
    My congressman, Chairman Nathan Deal, asked me to share with this 
committee the perspectives of a real-life community hospital working 
hard to survive in this country. We are facing considerable 
challenges--dealing with increases in the number of uninsured patients 
and potential reductions in government funding for Medicaid. I'm not 
sure I can do that assignment justice in our short time together, but I 
would like to offer a few thoughts for your consideration.
    Let me begin with Medicaid. I deeply respect the pressure you and 
your counterparts at the state level are under to reduce the 
unsustainable rate of growth in the Medicaid program. In Georgia, 
Medicaid enrollment has risen more than 50% in five years and Georgia 
hospitals are paid 13% less than the actual cost of care for each and 
every Medicaid patient we treat. In combination with rising private 
insurance premiums (partly due to ``cost shifting'') and illegal 
immigration rates, Georgia's already living healthcare's ``Perfect 
Storm''. This same scenario is being played out all over the country 
and respectfully demands a bipartisan action plan to redesign what has 
evolved into a flawed Medicaid program that threatens not only 
hospitals and other providers, but also the communities and the people 
you represent.
    Without fundamental reform of the Medicaid Program, that includes 
measures to protect providers, especially non-profit ``safety net'' 
community hospitals like Northeast Georgia Medical Center, from bearing 
the burden of such reform, I am confident that rapidly escalating costs 
of this inefficient program will force states to cut more people from 
Medicaid rolls. This will increase the number of uninsured and further 
weaken the health status of communities across the nation which will 
drive costs even higher, and force hospitals to implement severe cost 
reductions to stay solvent.
    In the current system, patients all too frequently access 
healthcare in the emergency room, which I'm sure all of you know is the 
single most expensive setting to provide medical care. In our 
community, a typical visit to the doctor's office costs about $74--but 
the cost in the ER is more than three and one-half (3.5x) times that 
amount. Due to federal EMTALA regulations, however, my hospital has no 
choice but to serve as the community ``safety net''. In 2004 our health 
system treated over 20,000 uninsured emergency room patients at a cost 
of $6.9 million. In the last five years our combined bad debt, indigent 
care and charity care cost has more than doubled hospital-wide, from 
$16.6 million in 2000 to more than $35 million this year. To reinforce 
this point--I stress these are my costs--not charges.
    A full 29% of the patients presenting to the ER in 2004 were non-
emergent, and seeking basic healthcare for common maladies like ear 
infections and the flu. Just extrapolating our numbers, that's roughly 
29,000 patients and $5.6m dollars needlessly wasted in one ER. That 
$5.6m would buy an additional 75,000 physician office visits. With 
proper incentives 104,000 patient visits could have been provided in 
Gainesville instead of just 29,000 with no cost increase to our state. 
Right now, there just aren't incentives for patients to seek care in 
the proper setting. Just show up in any hospital ER, and by law they 
have to see you every time--even if you never pay. That's not a 
sustainable model.
    Current EMTALA regulations also compound inadequate Medicaid 
reimbursement rates even as providers seek to create greater local 
ownership of issues and cost effective treatment options. In our local 
county, public and private interests have formed an innovative Health 
Access Initiative project. The objective of the initiative is to 
redirect unfunded patients to settings other than the hospital 
emergency room. This is no magic bullet but it has improved the 
situation in our region. Although we've seen some limited success, its 
true potential will not be realized until EMTALA is reconsidered, and 
enhanced legal protection is afforded providers in the ER setting who 
are prudently redirecting patients to the proper level of care. At 
present, Hospitals are precluded from redirecting patients to other 
more appropriate sources of care, assuming they exist, prior to a 
screening exam. This exam must include any and all diagnostic tests to 
complete the screening--so by the time we're done with the evaluation 
phase, all that remains is the writing of any prescriptions which might 
be indicated.
    Prescription drug costs are another huge irritant to Medicaid cost 
escalation and ER utilization rates. I can't give this committee an 
exact number, but can say with confidence many Medicaid and uninsured 
patients become hospital ER ``frequent flyers'' because they can't 
afford to fill their prescriptions. It's simply easier and more 
practical in the current environment to return to the hospital. Again, 
fundamental change is required.
    Immigration trends in our region and county are also significantly 
impacting the growth of Medicaid and the cost of caring for the 
uninsured. In 2003 a local health study, known as ``Healthy Hall'', 
found 11% of our popoulation to be uninsured, which in 2005 equates to 
18,000 individuals. In the same survey, 33% of Latinos self reported 
being uninsured. Latinos in our local county are predicted to double 
from 19% of the population in 2000 to 38% by 2009. Reform of both 
Medicaid and immigration must be inextricably entwined from my 
perspective if large hospital providers like Northeast Georgia Medical 
Center are to survive, especially when financial viability is largely a 
function of geography, not management talent, or innovative community 
program development.
    Let me explain the implications of our broken system. In relative 
terms, Northeast Georgia Medical Center is one of the more financially 
stable hospitals in Georgia, and yet this year we are losing money on 
operations. Year-to-date, we are running a (negative) ``0.2 percent 
operating margin, and even with investment income our total margin will 
be less than 3 percent. In the last few years we have seen our total 
margin steadily deteriorate from 5.1% percent in 2002 to 2.9% percent 
so far in 2005.
    Our hospital also frequently operates at, or beyond, capacity 
especially in critical high volume Medicaid dependent services like 
Obstetrics (Where we expect to deliver close to 3,800 babies in 2005--
more than 56% Medicaid). Absent dramatic changes, including significant 
staff reductions, our health system will not be able to generate the 
projected $340 million in capital required over the next five years to 
maintain and expand an aging infrasturcture. This past week my hospital 
was forced to eliminate 231 full-time jobs and I'm worried that number 
will only increase over time in the current environment.
    In closing, we all share a common interest in affordable healthcare 
for those in our communities. Medicaid reform is complex, and calls for 
systemic change that doesn't make an already tenuous situation any 
worse. I live and breathe the reality of your decisions every day, and 
have been forced to make some very difficult management choices in the 
wake of a system that today just does not incentivize rational patient 
care. At the same time I appreciate the work of the Committee and its 
Members, and know how seriously you approach the challenge before us. 
Thank you.

    Mr. Deal. Thank you.
    Mr. Sheehan.

                    STATEMENT OF BOB SHEEHAN

    Mr. Sheehan. Good afternoon, Congressman Deal, and members 
of the committee. I am the chief executive officer of Community 
Mental Health Authority of Clinton-Eaton-Ingham Counties in 
Lansing, Michigan. Each year, the CMH provides a comprehensive 
range of services to over 6,000 adults and children with mental 
illness throughout our three-county area. Central to our 
mission in providing services is the precept that anyone 
experiencing mental illness should have access to those 
services right in their home community.
    The National Council for Community Behavioral Care is the 
national voice of organizations that share that philosophy. 
National Council members provide safety net mental health care 
to over 5.9 million people across the U.S. My comments today 
reflect the concerns of the National Council and the providers 
it represents. We applaud your efforts to examine the Medicaid 
program, things that can be done to modify and to empower 
beneficiaries to fully participate in the process of obtaining 
health and wellness.
    However, as you consider the ways in which the Medicaid 
program can be empowered, I also urge you to take a considered 
approach to Medicaid reform. It is important that first we do 
know harm when we change the program.
    Unfortunately, I must report that a number of recent reform 
proposals would bring disastrous consequences to people with 
mental illnesses and others who depend on the Medicaid program. 
Specifically, these proposals include increasing cost-sharing 
requirements for beneficiaries, reducing access to medications, 
and sharp restrictions on services such as rehabilitation and 
targeted case management all are crucial in meeting the health 
care needs of vulnerable populations.
    Much of the negative impact of these proposals would fall 
on populations for whom Medicaid plays a special role and as 
people who need mental health care. According to the Substance 
Abuse and Mental Health Services Administration, Medicaid is 
the top payer for mental health services in the United States.
    The first reform proposal I would like to address increases 
the cost-sharing requirements for Medicaid beneficiaries as a 
means of saving the program money. The organizations advancing 
these proposals suggest the effects on access to health care 
would be minimal. However, a recent study of the Oregon health 
plan, a prominent State Medicaid reform initiative, found that 
44 percent of plan enrollees lost Medicaid coverage within 6 
months after premiums and co-pays were increased.
    An earlier study conducted by the Kaiser Commission on 
Medicaid and the Uninsured found that nearly half of the 
beneficiaries reported not filling prescriptions due to cost, 
and over a third reported unmet mental health care needs. Cost 
sharing policies simply appear to fail because of extremely low 
income of Medicaid beneficiaries.
    On many occasions, when mental health consumers in Michigan 
have lost access to regular psychiatric treatment or 
medications, they have lost their jobs, lost their housing, 
lost custody of children, and sometimes their lives. In 
addition, this loss of regular care drives up overall costs in 
the health care system as these consumers seek more expensive 
emergency and hospital-based care.
    A second set of proposals would limit access to 
medications. Serious brain disorders are complex and costly 
conditions affecting a substantial portion of Medicaid 
beneficiaries. For many with serious mental illnesses, access 
to the right pharmacological treatment in a timely manner is 
key to clinical stability. Beneficiaries experience significant 
risk when care is limited or significantly delayed through 
mechanisms such as prior authorization, step therapy, and 
restricted formularies. For example, most psychiatric 
medications are not clinically interchangeable, even if they 
are classified in the same therapeutic category. These 
medications work differently on each patient based on a 
multitude of factors, including age, gender, and race. Only the 
patient's physician in close interaction with the patient is 
qualified to determine which medications are effective for a 
patient's mental health treatment.
    We have seen in our work in Michigan that patients who were 
not provided appropriate access to medications or were treated 
with the wrong therapeutic agent end up using much more costly 
health care treatments, including hospitalization, and, again, 
emergency room visits.
    I would like to close by alerting you a proposal that would 
decimate the U.S. Public mental health system.
    On August 5, the Secretary of the Department of Health and 
Human Services sent a model of legislation language to the 
Speaker of the House that would severely restrict Medicaid 
funding for case management and rehabilitation services. 
Ironically, these threatened services lie at the center of our 
Nation's community-based approach to treating mental illnesses.
    It is these very services that are focused on empowering 
Medicaid beneficiaries by supporting them in self-care 
activities that significantly improve their lives and reduce 
the cost--the use of costly hospital-based care. In fact, the 
President's new freedom commission, in its final report, 
actually calls for expanded use of case management in 
rehabilitation service under Medicaid that would enable more 
Americans with psychiatric disabilities to reach the goal of 
living full lives in their community.
    I urge you to preserve case management and rehabilitation 
services and preserve the full range of services and medication 
needed by all Medicaid beneficiaries. To achieve true Medicaid 
reform, Congress should look to the increased use of service 
that empower consumers to pursue wellness. For example, we have 
only begun to use disease management programs in mental health, 
but the data arising from States such as Missouri, Idaho, and 
Utah shows that patient care can be improved while reducing 
overall health care costs.
    Mr. Chairman and Congressman Deal and distinguished 
committee members, it is this kind of systemic change that 
should be the focus of your Medicaid reform efforts, not 
policies that would limit access to life-saving services and 
medications. Thank you.
    [The prepared statement of Bob Sheehan follows:]

  Prepared Statement of Robert Sheehan, Executive Director, Community 
 Mental Health Authority of Clinton-Eaton-Ingham Counties on Behalf of 
        the National Council for Community Behavioral Healthcare

                              INTRODUCTION

    Good morning, Chairman Barton and members of the committee. My name 
is Robert Sheehan, and I am the Chief Executive Officer of the 
Community Mental Health Authority of Clinton-Eaton-Ingham Counties. 
Each year, the CMH Authority provides a comprehensive range of services 
to adults and children with mental illnesses and substance abuse 
problems throughout a three-county area in Michigan. Central to our 
mission in providing services is the community mental health precept 
that anyone experiencing mental illness should have access to all the 
services they need, right in their own community, regardless of their 
ability to pay.
    The National Council for Community Behavioral Healthcare is the 
national voice of organizations that share this philosophy. National 
Council members provide safety net mental health and substance abuse 
services to 5.9 million people in 1,200 communities across the United 
States. My comments today reflect the concerns of the National Council 
and the providers it represents.
    On behalf of the CMH Authority of Clinton-Eaton-Ingham and the 
National Council, I applaud your efforts to examine how the Medicaid 
program can be modified to empower beneficiaries to fully participate 
in the process of attaining health and wellness.

                 THREATS TO ESSENTIAL MEDICAID COVERAGE

    However, as you consider today the ways in which the Medicaid 
program can be improved, I also urge you to take a considered approach 
to Medicaid reform. It is important that first we do no harm as we 
change this program.
    Unfortunately, I must report that a number of reform proposals that 
have arisen recently would bring disastrous consequences to people with 
mental illnesses and others who depend on the Medicaid program. Most of 
these proposals have been issued by national organizations as Congress 
has engaged in a fast track process of defining Medicaid cuts for 
budget reconciliation legislation.
    Specifically, these harmful proposals include increasing co-payment 
and cost-sharing requirements for beneficiaries, reducing access to 
medications, and sharp restrictions on services such as rehabilitation 
and targeted case management that are crucial in meeting the healthcare 
needs of vulnerable populations such as people with severe mental 
illness.
    Much of the negative impact of these proposals would fall on 
vulnerable populations for whom Medicaid plays a special role. As you 
are aware, Medicaid plays a particularly important role in providing 
mental health care, an area much of my testimony will focus on. 
According to the Substance Abuse and Mental Health Services 
Administration, Medicaid is the top payer for mental health services in 
the United States, and it also provides more than half of the funding 
for public mental health services.

            INCREASING BENEFICIARY COST-SHARING AND CO-PAYS

    As you consider ways of reforming Medicaid to reduce program costs, 
it is important to consider the impact of these changes on the health 
of beneficiaries as well as additional costs the program may bear if 
beneficiaries are unable to access the services and medications they 
need.
    Studies of one of the most prominent Medicaid reform initiatives, 
the Oregon Health Plan Standard (OHP), have unfortunately found that 
beneficiary cost sharing has resulted in reduced access to services. 
One study, published last month in Health Affairs, found that 44 
percent of Oregon Health Plan enrollees lost Medicaid coverage within 
six months after premiums and co-payments were increased. Earlier 
research, conducted by the Kaiser Commission on Medicaid and the 
Uninsured, found that beneficiaries reported a number of unmet health 
needs. For example, ``nearly half reported not filling prescriptions 
due to cost, and over a third reported unmet mental healthcare needs.''
    Many of the healthcare access difficulties that arise from 
increased premiums and co-pays can be understood by examining the 
difficulties Medicaid beneficiaries face in making decisions about how 
they spend their limited incomes.
    For example, consider the situation of people with psychiatric 
disabilities that depend on Medicaid. Many of these people are unable 
to work, and depend on SSI for their income. Nationally, monthly SSI 
cash benefits in most states averages less than $600. For individuals 
with severe mental illnesses residing in supportive housing, board and 
care homes or other congregate living arrangements, most of their cash 
benefits are spent on their housing expenditures, and their disposable 
income consists of a minimal personal allowance that can be as low as 
$20 per week. Considering that people with severe mental illness often 
depend on 10 or more psychotropic medications, even a co-pay as low as 
$3 would become a substantial impediment to medications that are 
crucial to their health.
    I can speak from personal experience about the tragic results of 
disrupting access to mental health care. On many occasions, when mental 
health consumers treated by the CMH Authority of Clinton-Eaton-Ingham 
have lost access to regular psychiatric treatment or medications, they 
have lost their jobs, housing, and sometimes their lives. In addition, 
this loss of regular care drives up overall costs in the healthcare 
system, as these consumer use more emergency and hospital-based 
services.
    Many of these proposals to increase beneficiary cost-sharing will 
significantly reduce access to care, resulting in poor health outcomes 
and driving up healthcare costs.

       REDUCING ACCESS TO MEDICATIONS FOR VULNERABLE POPULATIONS

    Other proposals that would limit access in order to achieve savings 
are also likely to have the unintended consequences of creating 
negative health outcomes and increasing costs. Again, I will focus on 
how these consequences are likely to be seen in the delivery of mental 
health services to people with severe mental illnesses.
    Serious brain disorders are complex and costly conditions affecting 
a substantial portion of Medicaid beneficiaries. For any individual 
suffering from a serious mental illness, access to the right treatment 
in a timely manner is the key to clinical stability and the reduced 
overall cost of their health care. There are significant risks, both 
physically and financially, when care is limited or significantly 
delayed through mechanisms such as prior authorization, step therapy, 
and generic substitution.
    There are numerous reasons why it is inadvisable to limit access to 
medications for patients with mental illness. For example, most 
psychotropic medications are not clinically interchangeable, even if 
they are classified in the same therapeutic category. These medications 
each work differently in each patient based on a multitude of factors, 
including age, sex and race. Only the patient's physician, in close 
interaction with the patient, is qualified to determine which 
medications are appropriate and tolerable for a patient's mental health 
treatment.
    We have seen in our work in Michigan that patients who are not 
provided appropriate access to medications or who are treated with the 
wrong therapeutic agent end up using more costly health care 
intervention treatments including inpatient hospitalization, emergency 
room visits and intensive case management services. These patients will 
also be less adherent to prescribed medications in the future which 
again exacerbates the situation personally and financially.
threats to case management and rehabilitation services in mental health
    I turn now to a proposal that would affect two Medicaid services 
that play important roles in mental health. On August 5th, the 
Secretary of the Department of Health and Human Services sent model 
legislation to the Speaker of the House that would severely restrict 
Medicaid funding for case management and rehabilitation services. This 
proposal reflects a policy trend at the Centers for Medicare and 
Medicaid Services, a trend of increasing restrictions for these types 
of services. Unfortunately, this full implementation of this policy 
would decimate the US public mental health system.
    Ironically, these threatened services--case management and 
rehabilitation--lie at the center of our nation's community-based 
approach to treating mental illnesses. It is these very services that 
are focused on engaging Medicaid beneficiaries in self-care activities 
that effectively improve clinical outcomes and reduce the use of costly 
hospital-based care.
    This proposal to sharply restrict Medicaid funding for case 
management and rehabilitation services is surprising in light of HHS's 
leadership in promoting community-based, empowering health services for 
people with disabilities. This leadership was prominently displayed in 
the President's New Freedom Commission on Mental Health, which focused 
the nation's attention on promising approaches to address the nation's 
unmet mental health needs.
    In its final report, the President's Commission established 
recovery from the disabling aspects of mental illness as the goal of 
the U.S. mental health system, and it specifically calls for the 
expanded use of case management and rehabilitation services under 
Medicaid to enable more Americans with serious mental illnesses to 
reach this goal.
    The Commission's call to expand the use of these programs in mental 
health reflects the healthcare industry's growing recognition of the 
importance of consumer empowerment in improving outcomes and saving 
money. Recognition of the value of teaching consumers how to manage 
their illnesses is reflected in the industry's widespread use of 
disease management programs, and the recent enactment of the Patient 
Navigator Act underscores the importance of providing consumers help in 
navigating the healthcare system.
    I'd like to focus now on how case management and rehabilitation 
services empower mental health consumers.
    Looking first at case management, at the Community Mental Health 
Authority of Clinton-Eaton-Ingham Counties, we provide one of the most 
prevalent models of this program, a type of case management called 
Assertive Community Treatment or ACT. While the effectiveness of ACT in 
improving clinical outcomes and quality of life is well supported by 
rigorous medical studies, I can speak most directly about the 
difference it makes in the lives of people with severe mental illness 
who live in the communities of central Michigan.
    We provides ACT case management services to over 1,800 people with 
serious illnesses such as schizophrenia and bipolar disorder. Like all 
forms of case management, our ACT teams teach illness management skills 
and link people with psychiatric disabilities to a full range of needed 
healthcare, rehabilitative, and social services. Furthermore, these 
teams teach consumers about their illnesses and how to best use 
medications and a range of supports to regain an optimal level of 
functioning. Should CMS's proposed restrictions apply to the CMH 
Authority of Clinton-Eaton-Ingham today, we anticipate that we would 
lose funding for this program altogether.
    Looking briefly at rehabilitation services, there is consensus 
throughout the mental health field that these services are important in 
achieving good clinical outcomes and restoring functioning. The 
Substance Abuse and Mental Health Services Administration is actively 
promoting these services as part of its evidence-based practices 
program--reflecting the strong evidence base for these programs in the 
literature.
    Given the recognized value of these programs, it is simply ironic 
that HHS's proposal would result in a catastrophic loss of funding for 
these programs.

    THE ALTERNATIVE: EXPANDING SERVICES THAT EMPOWER MENTAL HEALTH 
                               CONSUMERS

    In closing, I urge you to preserve and support services such as 
case management and rehabilitation that focus squarely on developing 
the skills of mental health consumers so they can participate in their 
treatment, experience recovery from psychiatric disability, and live 
full lives in their communities.
    In addition to expanding access to these programs, Congress should 
look to the increased use of other services that empower consumers to 
pursue wellness. We have only begun to use disease management programs 
in mental health--but the data arising from states such as Missouri 
show that patient care can be improved while reducing healthcare costs. 
Mr. Chairman and distinguished committee members, it is this kind of 
systemic change that should be the focus of your Medicaid reform 
efforts.

    Mr. Deal. Thank you.
    Dr. Thames.

                   STATEMENT OF THOMAS THAMES

    Mr. Thames. Mr. Chairman, members of the committee, I am 
Byron Thames. I am a member of the board of directors of AARP. 
And I want to thank you for inviting AARP to testify on the 
need to strengthen Medicaid, a critical safety net for millions 
of our members and their families. One in six Americans now 
relies on Medicaid. Enrollment growth due to declining 
employer-based coverage, along with inflation throughout the 
health care system, is straining Medicaid as never before. For 
AARP, strengthening our Nation's health care safety net is a 
priority. There are steps that Congress can take to relieve 
some of the strain within the Medicaid itself. For example, 
significant savings can be achieved in drug spending, and a 
broader range of long-term care options can be developed. 
However, efforts to produce savings simply by shifting cost or 
denying necessary care will harm vulnerable people and not hold 
down overall health care spending. AARP is opposed to reforms 
that would do that. For example, we believe that efforts to 
prevent improper asset transfers should be properly focused on 
fraud, not the natural actions of typical middle class 
families.
    Changing the penalty date for Medicaid eligibility and 
extending the current look-back period would deny needed 
coverage to individuals who simply helped family members or 
contributed to charities with no intention of gaming the 
system. Indeed, instead, State-based loopholes that allow 
abuses to occur should be closed. Options for long-term care 
financing should not include changing the protected status of 
the American home. Increases in cost sharing could create 
serious financial burdens for beneficiaries. Strong protections 
are necessary to help the most vulnerable.
    Increased flexibility and management should not include 
funding caps as they inevitably lead to denials of necessary 
care. Increased flexibility requires an open, thorough, and 
fair process at both the State and Federal level for public 
input to ensure that changes do not cause harmful cost shifts 
or care denials. More importantly, it isn't enough to focus on 
Medicaid alone. Medicaid's problems are rooted in the lack of 
affordable coverage for both acute and especially long-term 
care, and they are compounded by the spiraling inflation as we 
pay higher prices for new treatments without any evidence that 
they are better than less costly alternatives.
    The problem isn't Medicaid. The problem is health care. 
AARP stands ready to work with Members of the Congress to 
strengthen this critical health care program and to address the 
larger health care system's shortcomings that are putting so 
much strain on this critical safety net.
    I will be happy to answer questions at the appropriate 
time, Mr. Chairman.
    [The prepared statement of Thomas Thames follows:]

    Prepared Statement of Thomas ``Byron'' Thames, AARP Board Member

    Mr. Chairman and members of the Committee, my name is Byron Thames. 
I am a physician and a member of AARP's Board of Directors. Thank you 
for inviting AARP to testify on the need to strengthen Medicaid--a 
critical safety net for millions of our members and their families.
    One in six Americans now relies on Medicaid--as declining income, 
reductions in the number of persons covered by employer health 
insurance and severely limited long term care options leave few 
alternative coverage sources. Enrollment growth, along with inflation 
throughout the health care system, is straining Medicaid as never 
before.
    Clearly, some change is needed to alleviate the pressure on 
Medicaid and to make the program as effective as possible. But changes 
should be based on sound policies rather than an arbitrary budget 
target. We believe that $10 billion in Medicaid spending cuts could 
create serious barriers to care for beneficiaries.
    For AARP, strengthening our nation's health care safety net is a 
priority, and we believe there are steps that Congress can take to 
relieve some of the strain within Medicaid itself.

 Significant savings can be achieved in drug spending through more 
        accurate payments to pharmacies, greater rebates from 
        manufacturers, the use of evidence-base formularies, and state 
        purchasing pools.
 A broader range of long-term care options can be developed. Expanded 
        home and community-based services--preferred by many older 
        Americans ``can be more efficient in many cases than nursing 
        homes. Stronger consumer protections, such as ensuring premium 
        stability, can make long-term care insurance policies more 
        attractive to consumers. And outside of the reconciliation 
        process, innovative financing methods--like enabling people to 
        voluntarily use home equity for long-term care services--can be 
        tested.
    However, efforts to produce savings within Medicaid simply by 
shifting costs or denying necessary care will not hold down overall 
healthcare spending and will harm vulnerable populations.

 Efforts to prevent improper asset transfers should be properly 
        focused on fraud, not the natural actions of typical middle 
        class families. Changing the penalty date for Medicaid 
        eligibility and extending the current look-back period to five 
        years would deny needed coverage to individuals who simply 
        helped family members or contributed to charities with no 
        intention of gaming the system. These changes may result in 
        severe hardship. Instead, state-based loopholes that allow 
        abuses to occur should be closed.
 Options for long term care financing should not include changing the 
        protected status of the American home.
 Increases in cost-sharing could create serious financial burdens for 
        beneficiaries. Strong protections are necessary to help the 
        most vulnerable.
 Increased ``flexibility'' in management should not include funding 
        caps as they inevitably lead to denials of necessary care. 
        Increased flexibility requires an open, thorough, and fair 
        process for public input and ongoing assessment to ensure that 
        changes do not cause harmful cost shifts or care denials.
    Most importantly--it isn't enough to focus on Medicaid alone. Many 
of the problems facing the program are rooted in the lack of affordable 
coverage options outside Medicaid for both acute and especially long 
term care. The Census Bureau last week reported that fewer people 
received health care coverage from their employer in 2004--down to 59.8 
percent from 60.4 percent in 2003--while the percentage covered by 
government health insurance programs rose from 26.6 percent to 27.2 
percent. The number of Americans enrolled in Medicaid increased from 
12.4 percent in 2003 to 12.9--percent in 2004.
    Compounding the problem is spiraling inflation as we pay higher 
prices for new treatments without any direct comparative evidence that 
these treatments are better than less costly alternatives. According to 
many analysts, these rising costs are why more employers are dropping 
health coverage for workers, who in turn are seeking health coverage 
from Medicaid and other public programs.
    Medicaid, despite its rising cost, still covers only three out of 
every five Americans under age 65 below the poverty line. An AARP 
survey this spring found that four out of five Americans oppose cutting 
Medicaid to reduce the federal debt, and a majority of respondents say 
their state does not have enough money for this vital program.

                        AVOIDING HARMFUL CHANGES

    AARP objects to some of the proposed Medicaid changes now being 
considered by Congress because they could result in cost shifts or 
denial of necessary care, rather than true increases in efficiency.
Preventing Improper Asset Transfers
    There are legitimate concerns that some people who can afford long 
term care transfer assets to appear poor so Medicaid will pay for 
nursing home care. It clearly was not the intent of Congress that 
Medicaid be used this way, but with so few viable long term care 
options, estate planning attorneys have found many ways to do so 
legally. Loopholes in state laws--which vary from state to state--allow 
such abuses to occur. These state loopholes, including certain 
annuities and self-canceling installment notes, should be identified 
and closed.
    However, some proposed changes now under consideration would hurt 
innocent people by denying them necessary coverage because of transfers 
that were in no way intended to game the system. These include:

 Changing the penalty date to deny coverage when people really need 
        it. The current penalty date starts at the point a person makes 
        an asset transfer. The penalty period lasts for as long as care 
        could have been paid for by the amount transferred. For 
        example, an individual who transfers assets equal to the cost 
        of one year of care is ineligible for Medicaid coverage for one 
        year from the date of the transfer. However, if the transfer 
        occurred more than one year before applying for Medicaid, the 
        penalty period is over and the individual is not denied 
        coverage. The proposed change would start the penalty at the 
        time of application for Medicaid, so if a person transfers 
        enough to pay for one year of care at any time in the look-back 
        period, the person would still be denied coverage for one year 
        from the date of application, regardless of the need for 
        coverage and lack of other financing options.
 Extending the ``look-back'' period for asset transfers beyond the 
        current 3-year window to 5 years or more. Any asset transfer 
        for less than fair market value, such as tithing to a church, 
        donating to a charity and helping a grandchild pay college 
        tuition, would be considered improper and result in denial of 
        coverage, again regardless of the need for coverage and lack of 
        other financing options.
    Consider how these penalty date and look-back changes might affect 
a 66 year-old grandmother in good health who helps with her 
grandchild's tuition. Four years later, she has an unexpected stroke 
and requires nursing home care. Mounting health care bills force her to 
liquidate all her remaining assets. When those assets are exhausted, 
she applies for Medicaid but is denied because she helped her 
grandchild with college costs. She cannot go home, and has no way to 
pay for the care she needs.
    Despite that kind of harm that would result, changing the look-back 
and penalty periods would do nothing to close real loopholes.
    These changes would, instead, punish middle-income people for being 
caring parents and generous to their community. We should not deny 
needed coverage because someone tried to do the right thing in giving 
to a family member or charity long before an unexpected health care 
crisis consumed their resources and required nursing home care.
    These changes are also unpopular with the American people. The 
survey we conducted earlier this year found that 75 percent of those 
surveyed oppose extending the look-back period. That is because the 
public knows that many people end up relying on Medicaid, not because 
they try to game the system, but because there are so few other 
affordable options for funding long term care. AARP believes it would 
be wrong to deny coverage to innocent people who need it when so little 
has been done to provide other affordable options for financing long 
term care.

Required Use of Home Equity/Reverse Mortgages
    Some recent proposals have suggested that the protected status of 
the home be removed for Medicaid eligibility. These proposals would 
require older homeowners to use their home equity, such as by taking 
out reverse mortgages, before becoming eligible for Medicaid benefits. 
While using home equity to finance long term care may be a good option 
for some people, AARP strongly opposes proposals to require older 
homeowners to use their home equity to pay for long-term care or 
medical expenses in order to be eligible for Medicaid.
    Home ownership is part of the American dream, a source of pride and 
economic security for most older people. Americans should not be forced 
to forfeit their homes to secure the care they need. Further, 
exhausting home equity could jeopardize the spousal impoverishment 
protections in current law and leave the community spouse--who may also 
need care one day--more vulnerable.
    Reverse mortgages are costly, and mandating reverse mortgages would 
do nothing to reduce the high costs of these loans. These costs can 
amount to a very high percentage of the equity potentially available, 
especially for older homeowners with modest home values who are most 
likely to need Medicaid.
    AARP believes that any use of home equity or reverse mortgages 
should be voluntary, should focus on reducing reverse mortgage costs, 
and be done on a demonstration basis to measure the effects before 
launching major changes.

Increased Cost-Sharing
    We have serious concerns about proposals to make very poor people 
pay premiums and higher copays for the health care they need. Several 
studies demonstrate that imposing even moderately higher cost sharing 
on people with very low incomes results in them not getting needed 
care. They end up needing more expensive health care services, such as 
preventable emergency room visits and hospitalizations. There are no 
real savings in the long run but there exists potential for harm in the 
process. Because many beneficiaries require multiple health care 
services, even small increases in cost sharing requirements can very 
quickly add up to create significant barriers to necessary care. Any 
change that allowed states to increase cost sharing would need to limit 
the total amount beneficiaries would be expected to pay. Most 
importantly, the current Medicaid policy of not denying care to someone 
who cannot pay should be maintained for those who can demonstrate 
genuine hardship.

Increased Flexibility
    A number of reform proposals have been described as mechanisms to 
increase program ``flexibility''--a word that is very appealing and 
even more ambiguous. Some proposals labeled as ``flexibility'' are 
clearly harmful because they would inevitably lead to cost shifting and 
denial of necessary care.
    These include any proposals that would place caps on federal 
funding to states through block grants, per capita caps, or some other 
type of allotment. AARP is unequivocally opposed to such proposals.
    Other ``flexibility'' proposals may--if done right--improve program 
efficiency, for example by tailoring benefits to the needs of specific 
patient populations without denying coverage for medically necessary 
services. AARP therefore believes any proposals for increased 
flexibility need to be carefully, individually, and openly evaluated to 
determine whether they are likely to lead to true increased efficiency, 
or merely result in cost shifts and denial of care. Thus, any proposals 
for increased flexibility need to include meaningful opportunity for 
public review and input at both the federal and state level. It is 
essential that all stakeholders be allowed to review and comment on 
proposed policy changes, and that there be thorough and objective 
analysis of whether the changes could compromise beneficiaries' access 
to appropriate care. This is a serious concern, as current avenues for 
flexibility within the program lack adequate openness, or ``sunshine.''
    Large-scale program changes are now allowed through a waiver 
process that is a cumbersome black box, with details negotiated behind 
closed doors between only state and federal officials. Some states have 
recently enacted laws, with strong support from AARP, requiring public 
hearings and other legislative review of waiver proposals before they 
can be enacted. However, in many states, only the most cursory attempt 
is made to adhere to requirements for public input.
    There are even fewer opportunities for meaningful public input on 
smaller scale changes made through the state plan amendment process. 
Federal regulations merely require that a state publish notice of such 
changes before they are enacted along with an address to which comments 
may be sent. However, a state can enact such changes in as little as 
one day after publishing them and there is no requirement that 
submitted comments be acknowledged or addressed, often rendering the 
comment process virtually meaningless.
    AARP urges Congress to require meaningful opportunities for public 
input--including hearings and written responses to stakeholder 
comments--before permitting policy changes that might be allowed under 
the rubric of ``flexibility.''

                  RELIEVING PRESSURES WITHIN MEDICAID

    AARP supports steps that can be taken now to relieve some of the 
financial pressures on Medicaid in ways that make the program more 
effective. That is a critical distinction because, as discussed above, 
many proposals for reducing Medicaid expenditures would merely result 
in cost shifting and denial of care--not true efficiencies--and not 
really save money in the long run.
Overpayments for Drugs
    The greatest potential area of increased efficiency is in payments 
for prescription drugs. AARP believes the following steps should be 
taken:

 Accurate Reimbursement to Pharmacies--Most state Medicaid programs 
        now reimburse pharmacies based on the average wholesale price 
        (AWP), a highly inaccurate and inflated measure of what 
        pharmacists actually pay to obtain drugs. AARP believes 
        Congress should require states to use a more accurate measure 
        that is based on actual audited information on the cost to 
        acquire drugs, such as average sales price (ASP) or average 
        manufacturer price (AMP). In order to ensure fair margins for 
        pharmacists, payments based on such a measure should include an 
        adequate dispensing fee that fully covers legitimate overhead 
        costs involved in filling each prescription.
 Increased Rebates from Manufacturers--Drug manufacturers are required 
        to give rebates to states for Medicaid drug purchases, but 
        studies by the HHS Inspector General indicate that the rebates 
        paid by manufacturers are often much less than what is 
        required. AARP believes the minimum rebate amount should be 
        increased and steps taken to ensure full compliance with rebate 
        requirements.
 Evidence-based Formularies--Some states are providing preferred 
        coverage for certain drugs in each therapeutic class based on 
        scientific evidence of effectiveness. If a drug is more 
        expensive but not more effective than other drugs in its class, 
        then it is covered only when a treating physician demonstrates 
        that it is medically necessary for an individual patient. This 
        yields significant savings by increasing use of the most 
        appropriate drug--often a generic or other low-cost drug--while 
        maintaining a safety valve for the small number of patients who 
        truly need more expensive alternatives. States should be given 
        strong incentives to use evidence-based formularies.
      Perhaps the most important step Congress can take to help states 
        increase use of evidence-based formularies is to increase 
        funding for ``comparative effectiveness'' research. This is 
        needed to fill significant gaps in scientific evidence on which 
        drugs are the most effective. Comparative effectiveness 
        research can show whether a more expensive drug produces better 
        outcomes and therefore is worth the cost, and when a less 
        costly drug is as or more effective. The Medicare Modernization 
        Act included authorization for comparative effectiveness 
        research coordinated by the Agency for Healthcare Research and 
        Quality (AHRQ) but to date the appropriations have fallen well 
        below the authorized level.

 Purchasing Pools--Some states have joined together to negotiate 
        collectively on behalf of all their Medicaid beneficiaries for 
        increased manufacturer rebates, which can yield savings because 
        the states are collectively negotiating for a larger number of 
        consumers. States should be encouraged to participate in these 
        pools and to add additional groups for whom they buy drugs, 
        such as state employees and prison inmates, to further increase 
        negotiating leverage.

Ending the ``Institutional Bias''
    Another potential area for increased efficiency is in providing 
more access to home and community based care as an alternative to 
nursing homes for long term care. AARP members strongly prefer to 
remain in their own homes. In many cases care provided in the home or 
community-based settings can help delay the need for more costly 
institutional services.
    Medicaid, however, has an ``institutional bias,'' that requires 
states to cover unlimited nursing home services when people qualify for 
them but makes home and community-based services optional. When home 
and community-based services are provided through federal ``waivers,'' 
there are sometimes long waiting lists of people with legitimate needs 
who are denied coverage because the waivers cap funding. AARP supports 
efforts, such as the administration's New Freedom Initiative, to 
address this bias, and we urge Congress to make such changes a priority 
in any Medicaid reform package.

                   AFFORDABLE LONG-TERM CARE OPTIONS

    AARP believes that another way to alleviate some of the current 
pressure on Medicaid is to provide more options for financing long-term 
care needs. We hear from our members every day who are trying to do the 
right thing--balancing the demands of work and family and balancing 
their personal finances--while worrying about their future retirement 
income and how to pay for long-term care.
    Unfortunately, there is no comprehensive public system of long-term 
care available to most Americans. Long-term care insurance is limited 
and generally expensive. Medicare covers very little long-term care, 
and Medicaid requires impoverishment before it will help--an all-too-
often reality as paying out of pocket for long-term care quickly 
outstrips most people's personal savings. As outlined in AARP testimony 
before this Committee last April, we believe that options for expanded 
long-term care coverage could include:

 Reverse Mortgages: These allow people to voluntarily tap into the 
        equity in their homes to fund a variety of options, including 
        those that can keep people out of institutions and in their 
        homes where they prefer to stay.
 Long term care Insurance: Currently long-term care insurance pays for 
        only about 11 percent of all long-term care costs. Standards 
        and protections for long-term care policies could encourage 
        more consumers to buy such policies. For example, automatic 
        compound inflation protection is needed to ensure that the 
        value of the insurance benefits does not erode over time. And 
        premium rate stabilization is needed to protect consumers from 
        unreasonable rate increases that could make their policies 
        unaffordable.
 Long Term Care Partnerships: These programs, which now operate in 
        four states, are intended to promote long term care insurance 
        by allowing purchasers to protect a certain amount of their 
        assets and become eligible for Medicaid when the insurance 
        benefit expires. While it is difficult to determine yet whether 
        these programs have helped reduce reliance on Medicaid, they 
        might offer another option for financing long-term care if 
        several improvements could be made. These include:
     Protecting Medicaid for low-income people if Partnerships 
            increase Medicaid expenditures for those with significant 
            assets.
     Mandating consumer protections and clear disclosure of current 
            Medicaid income criteria and the state's right to change 
            them.
     Guaranteeing the types of care (particularly home- and community-
            based services) that the state would provide under 
            Medicaid.
     Requiring that states monitor nursing home admissions to ensure 
            that equal access is available to everyone, regardless of 
            source of payments.

                               CONCLUSION

    Millions of Americans rely on Medicaid's safety net. While some 
change is needed to make the program as effective as possible, we 
should reject those changes that simply shift costs or deny needed care 
to vulnerable populations.
    AARP stands ready to work with Members of Congress on both sides of 
the aisle to enact policy changes that will strengthen this critical 
health care program for our most vulnerable citizens and to address the 
larger health care system shortcomings that are putting so much strain 
on this critical safety net.

    Mr. Deal. Thank you.
    Mr. Matthews.

                 STATEMENT OF MERRILL MATTHEWS

    Mr. Matthews. Thank you, Mr. Chairman. I am Merrill 
Matthews, director of the Council for Affordable Health 
Insurance. It has been around since 1992; it is located in 
Alexandria, Virginia.
    I want to commend you on your leadership and the committee 
for beginning this dialog. My comments are going to focus 
primarily on State leadership for creating an environment of 
flexibility that will allow States to take on a leadership role 
in Medicaid reform.
    What the U.S. needs today is a Tommy Thompson for Medicaid. 
And there are surely several Governors who could fill that role 
if the Federal Government gives them the opportunity. Welfare 
reform--Tommy Thompson for a decade worked on welfare reform in 
the State. He found some formulas that worked. Other Governors 
were watching what he was doing, they began to do what he was 
doing and build on his experience. Welfare reform became one of 
the more successful policies at the State level, and in 1996 
Congress passed legislation implementing it at the Federal 
level. It has been very successful from both the State and 
Federal Government. It is important to note that Governors, 
both Republicans and Democrats, were involved in welfare 
reform. Ideology was not driving their efforts, pragmatism was. 
They were looking for a way to get an effective welfare system 
that worked but also saved money. Now the Governors are calling 
for more flexibility and restructuring Medicaid. Some may want 
to tweak the program, others may be looking at a grander 
overhaul. But we won't know what works best until Congress 
gives them the flexibility they need.
    I think we can learn some lessons from the welfare reform, 
and I would like to point out three of them.
    No. 1. Provide enough flexibility to match the program to 
the population. States have different populations. They vary 
significantly, their job base varies significantly. In 
addition, Medicaid has a wide ranging population. Medicaid is 
three separate programs basically rolled into one. You have got 
your low income families that use it for health insurance, you 
have got people on long-term care, and then you have got your 
disabled populations. Reforms that work well for one set of 
population may not work well for the other. Increased 
flexibilities allow the States to assess these populations and 
their health care providers and devise a plan that maximizes 
their resources.
    No. 2. Benefits should mirror the private sector as much as 
possible to ease the transition. The goal of welfare reform was 
to move people from welfare to work. And, as a result, they 
tried to create a work environment there for people so that 
when they moved off of welfare they had already started that 
work process. We need to--we should not forget that Medicaid is 
also a welfare program, and the goal should not be to enroll 
more people in Medicaid but to help those who need help get the 
care they need, but also transition those who can into private 
sector coverage. Medicaid does not look like private insurance. 
And if somebody is moving to work and going to be moving into 
the job-based environment perhaps with employer-provided health 
insurance, they are going to get a sticker shock when they move 
into that situation because Medicaid is different.
    Smoothing that transition by allowing Medicaid to offer 
higher co-pays for those who have higher incomes, those who are 
moving into work simply makes sense. Most of our--virtually all 
of our means-tested programs have some type of sliding scale in 
there, and what I think we should allow is some type of sliding 
scale in co-payments, maybe in premiums, not for the most 
vulnerable populations, but for those who are at least in the 
higher incomes of Medicaid.
    No. 3. Reward good behavior. Economic incentives matter, 
and we are talking about economic behavior here. Medicaid 
creates a policy problem in that it insulates people from their 
decisions. The private sector tends not to do that. Auto 
insurance, for instance, if you are a bad driver and you have 
tickets or wrecks, you pay higher premiums.
    Medicaid doesn't send that kind of economic message. Take 
what happens with long-term care. States are reeling under the 
cost of long-term care. Several of them would like some kind of 
freedom or flexibility to do something different.
    There is the partnership program I think Mr. Burgess is the 
sponsor of. Mr. Terry has sponsored legislation at the Federal 
level to give people the ability to use IRAs or tax credits to 
pay for long-term insurance. States would also like to have 
some flexibility to move people into long-term care and to get 
them off of gaming the system. It is not everybody who does 
that, but some do.
    Which one of these proposals work best? I don't know, but 
that is what the laboratory of the States is for.
    Can the States do a good job of reforming Medicaid? They 
did a good job of reforming welfare. I expect there is concern 
that some people are going to be hurt by this, but I believe 
that the States, led by the Governors, can be successful with 
welfare reform again, this time with Medicaid.
    To conclude, the Medicaid program is 40 years old. It has 
helped millions of Americans get the health care they need but 
couldn't afford, but it is too monolithic and rigid to adapt to 
the changes of a consumer-driven health care system and 
increased plan flexibility that is transforming the employer 
coverage in the insurance industry.
    Medicaid is an anachronism today. Congress has the power to 
change that, and it should. Mr. Chairman, we need a Tommy 
Thompson from Medicaid. I hope the committee will provide the 
States with enough flexibility so that one can emerge.
    Thank you.
    [The prepared statement of Merrill Matthews follows:]

     Prepared Statement of Merrill Matthews, Director, Council for 
                      Affordable Health Insurance

    Good morning Mr. Chairman and members of the Committee. I am 
pleased to be here, and I want to thank the Chairman and the Committee 
for calling this very important hearing today on ``Medicaid: Empowering 
Beneficiaries on the Road to Reform.''
    I am Merrill Matthews, Ph.D., director of the Council for 
Affordable Health Insurance (CAHI), which is located in Alexandria, 
Virginia. CAHI is a research and advocacy association of insurance 
carriers active in the individual, small group, Health Savings Account 
and senior markets. CAHI's membership includes health insurance 
companies, small businesses, physicians, actuaries and insurance 
brokers. Since 1992, CAHI has been an advocate for market-oriented 
solutions to the problems in America's health care system.
    Mr. Chairman, the Medicaid program is growing at unsustainable 
rates, and has been for more than a decade. The country needs 
leadership both at the state and federal levels to find a way to 
transform the program so that it can continue to be the safety net the 
country wants and needs, provide quality care in a timely fashion and 
yet remain affordable. I commend you for your leadership in beginning 
this dialogue at the federal level. However, comments today focus on 
the need for state leadership, and for creating an environment of 
flexibility that will allow the states to take on that leadership role.
    Welfare Reform as a Model for Medicaid Reform. What the U.S. needs 
today is a Tommy Thompson for Medicaid. There are surely several 
governors who could fill that role, if the federal government gives 
them the opportunity.
    When Tommy Thompson was governor of Wisconsin, he experimented with 
welfare reform for a decade. While his actions were initially 
criticized by people concerned that he would hurt the poor, his efforts 
to move the welfare population into productive jobs proved to be so 
successful that states around the country followed and built on his 
lead. And in 1996, Congress passed and President Clinton signed a 
federal version of welfare reform that incorporated Gov. Thompson's 
principles and experience.
    Welfare reform has been one of the more successful legislative 
efforts undertaken by Congress and state governments; and it is 
important to note that governors, both Democrats and Republicans, were 
leading the reform efforts. They were the ones experimenting with 
welfare to find out what worked. Ideology wasn't driving their efforts; 
pragmatism was. They wanted a well-functioning welfare system that 
provided help to those who needed it most, but also helped the able-
bodied find a job. Welfare needed to be a safety net, not a hammock.
    Now the governors are calling for more flexibility in restructuring 
Medicaid. Some may only want to tweak the program; others may want more 
significant reforms. But we won't know what works best until Congress 
gives them the flexibility they need.
    What We Can Learn from Welfare Reform. Welfare reform did not 
emerge in a vacuum. Like Medicaid today, states were seeing their 
welfare rolls and budgets grow. And there was a widespread perception 
that while some people needed and depended on their welfare benefits, 
others had the ability to hold down a job and move off the rolls.
    As states moved forward with welfare reform, several principles 
emerged. Some of these principles can and should be applied to Medicaid 
reform.
    (1) Provide enough flexibility to match the program to the 
population. Populations can differ significantly from state to state. 
Some have higher education levels than others. Some have a good 
manufacturing base while others have a stronger agricultural or 
service-sector presence. Some have significant immigrant populations 
while others don't. States are more able than the federal government to 
know their populations and assess their needs.
    In addition, the Medicaid population differs significantly. 
Medicaid is really three distinct programs rolled into one.

 There are seniors who rely on Medicaid for long term care coverage;
 Millions of low-income, working-age families use Medicaid as their 
        basic insurance coverage; and,
 There are the disabled, often with chronic illnesses, who can't work.
    One of the benefits of federal programs is that they tend to 
provide uniformity and continuity. However, federal programs can also 
hamper efforts to take into consideration unique needs. Reforms that 
work well for one of these populations may not work for the others. 
Increased flexibility allows the states to assess their populations and 
their health care providers and devise a plan that maximizes their 
resources.
    (2) Benefits should mirror the private sector as much as possible 
to ease the transition. The goal of welfare reform was to move people 
from welfare to work. In order to facilitate that transformation, it 
became very important to get welfare recipients into the work 
environment.
    We should not forget that Medicaid is a welfare program. The goal 
should not be to enroll more people in Medicaid, but to help those who 
need health care coverage now while smoothing the transition from 
Medicaid to private sector coverage for those who can take that step.
    However, one of the problems we face in Medicaid reform is sticker 
shock. Once a person moves from Medicaid to employer-provided coverage, 
they may find their co-pays are significantly more than they were under 
Medicaid (e.g., increasing from $3 to $10 or $15). And they may be 
required to pay part of their premium, either for themselves or their 
families.
    No one wants to impose significant cost sharing on the poorest and 
most vulnerable Medicaid populations. But different states have 
different eligibility requirements for Medicaid. Some states are more 
generous than others. And some Medicaid beneficiaries have more means 
than others. To address these variations, states should have the 
ability to adjust co-pays and other out-of-pocket expenses by requiring 
more from some than they do others.
    Such a policy would have two benefits.

 It would help prepare some of the Medicaid population for the day 
        they move to an employer who offers health insurance coverage.
 Second, it would make more money available for the poorest 
        recipients.
    States might also want to consider creating new options for working 
families using Medicaid as an insurance policy. State welfare 
departments try to help beneficiaries transition to work. One way to do 
that is to let Medicaid coverage look more like private coverage or an 
employer's policy. States may want to use Medicaid funds to help 
employers hiring people on or coming off welfare. Or they may want to 
provide subsidies so that Medicaid beneficiaries can buy their own 
policies. Or they may want to allow them into the state employees' 
plan. There are several possibilities, but we simply don't know which--
if any--of these options work.
    Make no mistake, this policy recommendation isn't about ``cutting'' 
benefits; it's about maximizing benefits with the limited funds that 
are available. This recommendation simply recognizes that there should 
be a sliding scale in Medicaid as there is in most means-tested 
programs. And states should have the flexibility to set that scale.
    (3) Reward good behavior. My third and final principle has to do 
with rewarding good behavior. Economic incentives matter. The policy 
problem created by Medicaid--and, indeed, any type of third-party 
coverage--is that it mitigates bad decisions. If Medicaid recipients 
live unhealthy lifestyles--being obese, for example--the Medicaid 
program insulates them from some of the adverse economic impact. They 
may see the doctor more, but they don't necessarily bear a greater 
financial burden.
    Notice that this is not how other insurance, such as auto 
insurance, works. If you have a bad driving record, you pay higher 
premiums. Those higher premiums encourage better driving habits.
    Medicaid, by contrast, often sends the wrong economic message. Take 
long term care, for example. We know that there is a cottage industry 
of elder care attorneys who help middle- and upper-middle-income 
families find ways to hide their assets in order to qualify for 
Medicaid long term care coverage in nursing homes. Medicaid should be 
for the poor, but many non-poor families are able to access the program 
for nursing home care, imposing a huge financial strain on the states.
    Several states want to try to change these incentives by providing 
tax breaks for the purchase of long term care insurance, being more 
aggressive in their estate recovery efforts or by creating long term 
care partnership programs that create a safe harbor for those who have 
bought private long term care insurance but exhaust their benefits.
    Which one of these approaches would work best? I don't know. That 
is where the laboratory of the states comes in. They should have the 
freedom to experiment and find the best incentives that balance long 
term care coverage for those who need it while encouraging those with 
means to take responsibility for their future health care needs.
    Of course, not all health care problems are self-inflicted, but 
some are. One of the newest private-sector trends is that insurers and 
employers are looking for ways to adjust their health insurance plans 
to encourage good behavior by rewarding it. They can do that because 
they have the flexibility to do so. States might try to do the same 
thing, but their hands are often tied.
    Can the States Do a Good Job Reforming Medicaid? I expect there is 
concern about whether the states have the ability to find new and 
innovative solutions that get more and better care from their limited 
Medicaid budgets. There were similar questions raised about welfare 
reform.
    But governors knew then that there was a lot at stake--including 
their jobs. They shared information, they looked at what worked and 
what didn't, they crafted welfare reform plans that took into 
consideration their populations and what could pass their legislatures. 
And the vast majority of them made significant progress.
    I believe the states, led by the governors, can be successful with 
welfare reform again--this time with Medicaid. They have indicated that 
they want to do it, and they will be held accountable both at the state 
and national levels if they fail.
    Conclusion. The Medicaid program is 40 years old. It has helped 
millions of Americans get the health care they needed but couldn't 
afford. But it is too monolithic and rigid to adapt to changes such as 
consumer-driven care and increased plan flexibility that are 
transforming employer coverage and the insurance industry. Congress has 
the power to change that, and it should.
    Mr. Chairman, we need a Tommy Thompson for Medicaid. I hope this 
Committee will provide the states with enough flexibility so that one 
can emerge.

    Mr. Deal. Mr. Chairman, would you like to resume the chair?
    Chairman Barton. I will ask 5 minutes of questions, but you 
are doing a great job.
    Mr. Deal. Well, I will recognize you for your questions 
then.
    Chairman Barton. Thank you, Mr. Chairman.
    I want to ask Mr. Thames, I know AARP has got great 
credibility and I know you all are opposed to current proposals 
that the Governors have put forward with us that we are working 
on, but does AARP at least agree that, under the current 
system, tens of thousands if not hundreds of thousands of 
Medicaid recipients are going to be discarded from the program 
if we do nothing?
    Mr. Thames. Yes, sir. We understand that a lot of people 
are going to have problems. We are not suggesting that this 
Congress do nothing with Medicaid. I hope in my remarks I 
indicated to you that I believe there are things that can be 
done, and we don't disagree with all of the proposals in the 
National Governors Association. What we are concerned is that 
the safety net that is in place for Medicaid is not eroded from 
the people who sincerely need it and who qualify for it.
    Chairman Barton. Well, I hope--I had to step out of the 
room, and I missed some of the testimony of this panel. I have 
skimmed it and looked at the highlights of all of it, though--
that everybody understands that if we decide as a Congress to 
not do anything on Medicaid this year for the hurricane or the 
difficulty of making some of these decisions, if the Governors 
are being truthful with us, next year tens of thousands to 
hundreds of thousands of people that currently get health care 
coverage under Medicaid are not going to get it. That is a 
fact. It is not an opinion; it is a fact.
    So I believe that this Congress can take care of the 
Katrina victims and do long-term Medicaid reform. I may be 
wrong about that, but I believe we can do it.
    I think the Governors' outline that we have put forward--we 
haven't fleshed it out in exact legislative language, and I 
have had discussions today with some of my friends on the 
minority side that we may yet do something on a bipartisan 
basis, but the general outlines of the proposal, that, No. 1, 
we need to reform the way we do prescription drug benefits--you 
may disagree with the specifics of the Governors' proposal, but 
since more and more health care is prescription drug based I 
would think that that should be a part of the component.
    Since two-thirds of all Medicaid spending is for long-term 
health care, some sort of reform in the way we look at assets 
should be a part of the reform. And since there are many, many 
more people in the Medicaid system than the very old and the 
very poor, some sort of a copayment option that the Governors 
can implement, if they wish, should be a part of the reform 
package.
    Now we can disagree over specifics, and that is what honest 
debate is all about, but when I hear from my Lieutenant 
Governor and my Speaker of the House from Texas and my 
Governor, and they tell me that Medicaid is the largest 
component of their State budget, the largest component--and if 
you add the Federal share for Medicaid and the State share for 
Medicaid in Texas, it is approaching $80 billion a year, and 
that is almost--in fact, it may be more than the State of Texas 
spends at the State level on every other thing. I don't think 
we can sit here and say we are just not going to do anything.
    So, again--I want to direct this to my AARP 
representative--what would you do if you were me to try to get 
our senior citizens that have assets to use some of those 
assets to take care of their long-term health care? What would 
you do? If you don't like the proposal that is on the table, 
what would your proposal be?
    Mr. Thames. Mr. Chairman, let me make a few points that we 
believe would be very helpful.
    First of all, sooner or later Congress has to look at 
affordable coverage for everybody. I indicated--and you 
probably missed in my remarks--that this is putting a stress on 
Medicaid. Now we are not going to solve that here this morning, 
I understand that.
    But, second, we need to put some more money into what was 
authorized for comparative effectiveness studies so that we 
know that the treatments we are paying for in Medicaid and 
everywhere else in medical care, that we are picking the most 
cost-effective treatments that actually are effective and not 
just paying for the newest thing that is up on the TV.
    And, third, we need to make some changes in Medicaid to 
increase its efficiency. We can lower the cost and get better 
drug prices. You know, we can get a better rebate. We can do 
other things in allowing the----
    Chairman Barton. We have got that. You may disagree with 
the way we are doing it on the prescription drug program, but 
we have that. But you didn't answer my question.
    Mr. Thames. I am sorry.
    Chairman Barton. I am told that two-thirds of the Medicaid 
expenses go for long-term health care while two-thirds of the 
population are under the age of 20 that are Medicaid eligible. 
So we are putting two-thirds of the spending into our senior 
citizens for long-term health care while two-thirds of the 
Medicaid eligible are women and children under 20. And when the 
Governors go to start making these--State legislatures make 
these difficult choices, you know, in most States they are 
choosing to uncover the younger people.
    If it is true--and I think it is true that two-thirds of 
what we are spending on Medicare is for long-term health care--
why can't we do something to reform and enforce a real asset 
test so that seniors that have assets use some of those assets 
to pay for their long-term health care costs? If AARP doesn't 
like what is in the Governors' proposal, do you at least agree 
that that is some area that we should look at to reform?
    Mr. Thames. Yes, sir. I believe that is an area to look at 
to reform. I believe that my colleagues that are working in 
this field every day would agree with you that there are things 
that we can look at there and the assets and that we actually 
feel that most Americans want to pay for their health care, but 
we also believe--at some portion of their health care--and we 
also believe they want to stay in their homes.
    Chairman Barton. I want them to stay in their homes. I 
would rather them be in their home than in a nursing home or an 
assisted living facility. And I understand sometimes they have 
to be. Sometimes you have to. I am not opposed to that. But the 
segment of our society that now has the most assets is our 
senior citizen population, and while AARP doesn't condone it 
and doesn't--there are seminars where you go to learn how to 
hide assets so that you become Medicaid eligible for long-term 
health care. That is wrong. That is wrong.
    Mr. Thames. We don't disagree that people with high assets 
should pay for their health care and to pay for it as long as 
they possibly can, but we don't disagree either--we can't agree 
that whatever legal loopholes that are there for people to use 
are going to be used. And we don't--if they are not the right 
things to be done, then you have to close those loopholes, just 
as we believe the fraud that is being committed ought to be--
those loopholes ought to be closed, and just as we feel that 
preventive medicine will keep people living longer and 
healthier and out of nursing homes.
    Chairman Barton. Which is a good thing, not a bad thing.
    Mr. Thames. Exactly. And better medications and being able 
to take their medicines correctly keep them from having the 
complications that also lead to them being in the nursing home. 
So all of those things have to be done.
    I can't give you a simple answer of saying we are going to 
say everybody who makes $500,000 a year is going to be paying 
for all their medical care, but I would be very surprised if 
the people who make a lot of money are the people who are 
ending up on Medicaid. The people who have a lot of assets, I 
don't believe most of those folks are the Medicaid folks.
    Chairman Barton. Well, my time has expired. I appreciate 
AARP for being here; and I thank you, chairman, for your 
discretion in letting me go over.
    Mr. Deal. Mr. Waxman is recognized for 5 minutes.
    Mr. Waxman. Thank you, Mr. Chairman.
    I want to follow up on the discussion that was brought up 
by Mr. Barton. No one can condone the idea of somebody 
transferring assets, hundreds and thousands of dollars, and 
then having the public pay through a welfare poor people's 
program for their Medicaid. So the Congress dealt with that 
issue, and we set up a 3-year look-back period. If you transfer 
your assets in 3 years before you go to a nursing home, you 
count the amount of the assets and you say, well, we are going 
to keep you from having the Medicaid program pay for the 
nursing home cost based on the amount of assets you transferred 
and the period of time in which you transferred it. Now there 
is a proposal before us that would go to a 5-year look-back 
period. I just want to talk about that in a practical manner.
    You can have an elderly woman with a modest sum of money--
let's understand they have to have less than $2,000 in assets 
before they would be eligible for Medicaid, but let's assume 
they have a little bit more than that. And this 80-year-old 
woman has saved her whole live life and has $25,000.
    Her daughter, who has no health insurance, gets sick and 
loses her job, not unusual. Maybe she was living in New 
Orleans. She gets sick, and she needs costly medical care. She 
can't pay her bills, and the mother comes and helps her, also 
not unusual in this country. We want people to help each other.
    Now, 4 years later, the mother has a stroke--unpredictable 
event. She didn't think she was going to go to a nursing home, 
didn't think she was going to go on Medicaid--and she has to go 
to a nursing home. She has technically transferred her assets, 
and now if we go back and look 5 years back and then start 
saying, as of that time, she is not eligible, but she needs to 
go to a nursing home, do you think a nursing home will take 
her? She can't pay for the nursing home. Her daughter doesn't 
have the ability nor the obligation to pay her back. She is not 
eligible for Medicaid. Who is going to pay for her nursing home 
costs, and what nursing home would take her in under those 
circumstances?
    Mr. Thames. Mr. Waxman, you are entirely correct. We are 
concerned about extending the period from 3 years to 5 years 
since you are going to see more and more of those events happen 
in people's lives. Where they make legitimate gifts or help 
their family or put a kid through college to help pay for it 
and then suddenly have a catastrophic event in their own health 
care and they lose their assets, our feeling is they shouldn't 
be penalized for not gaming the system and not attempting to 
illegally transfer assets.
    Mr. Waxman. Now there is no real way to measure whether it 
was an innocent-enough transfer or intentional, because we 
don't look at intent. We simply look at the fact that there is 
a transfer.
    Let's say a nursing home lets her in. What kind of quality 
of care is going to be available in that nursing home if they 
have a lot of people for whom they are not going to be paid? 
She is in the nursing home. They can't dump her. That is why 
they won't take her, probably. But let's say she can afford to 
pay for a month or 2. What will happen to the quality of care 
in that nursing home if they have uncompensated patients they 
have to care for?
    Mr. Thames. Obviously, the quality of care is going to 
suffer. Ultimately, the nursing home is not going to survive if 
it has enough of those people that don't pay; and it goes out 
of business.
    Mr. Waxman. Two-thirds of Medicaid expenditures go for 
nursing homes, but I think most of the people in nursing homes 
who are on Medicaid didn't go to the nursing home and get on 
Medicaid. They went to the nursing home and paid for 
themselves, and when they spent away their money to less than 
$2,000, that is when they got on Medicaid, am I right?
    Mr. Thames. That is right.
    Mr. Waxman. So I think the theory sounds right when you say 
why should we let people transfer huge amounts of money, a 
seminar for wealthy people. It is troubling. And if they want 
to anticipate in 5 years they are going to possibly need 
Medicare, well, then maybe we have to go back 6 years or 10 
years. But once you do these things to try to plug up the 
loophole you are going to sweep up a lot of innocent Americans 
who worked hard all their lives, put away a little bit of money 
for themselves, and when they get hit by a stroke or some other 
catastrophic kind of problem, they are going to need full-time 
custodial care, we either leave them destitute, we will make 
the nursing home absorb the cost, or I don't think what we do 
with people, and I don't think it is sensible or fair.
    Another question I have for Dr. Alexander. The Governor's 
Association is asking for flexibility in two areas of Medicaid 
that would essentially allow States to discriminate against 
people from one part of the State to another. Can you medically 
think of any reason why a person with diabetes in one part of 
the State should get care and someone with diabetes who is 
otherwise eligible, they are poor enough and all that, they are 
on Medicaid, what sense would that flexibility have from a 
medical point of view that you can see?
    Mr. Alexander. I guess the simple answer is I can't think 
of a medical reason why people in one part of the State would 
need or deserve a different standard of care than people in a 
different part of the State.
    Mr. Waxman. I don't want to abuse the extra time I am 
getting, but I want to say one thing, when Medicaid was adopted 
it was to say no American anywhere who is poor enough will be 
denied health care; all Americans would have access to health 
care. We would have the program run with the State, but it is a 
Federal/State partnership, and we want all Americans to be 
treated fairly. Well, the program has become more and more 
States have flexibility through options, but if we are going to 
even give a State the option to be so flexible they can deny 
care to somebody in one part of a State for a disease and not 
in another part, that just seems to me backing away from the 
original premise that this program is going to be there for the 
very poor and vulnerable who need the protections.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Deal. I recognize Mr. Bilirakis for 6 minutes.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    Dr. Thames, do you know to what degree AARP was invited in 
the process here in terms of your staff meeting with 
congressional staff on the crafting of these ideas? I mean, we 
don't have a piece of legislation yet, as I understand it, but 
the concept is one--do you know to what degree?
    Mr. Thames. That our staff was involved with your folks?
    Mr. Bilirakis. Yes. In other words, they are invited for 
input.
    Mr. Thames. Yes, sir. I believe they have been meeting and 
giving input from AARP on all of the material that the 
committee is reviewing and looking at. I know that there was no 
bill to be given because, having testified on other health care 
issues in the past, if there is a bill, I get a complete copy 
of the bill so that I can study it before I am here, sir.
    Mr. Bilirakis. Well, we, too, but we don't have a bill.
    Doctor, you are a medical doctor. You have basically 
experienced it all, I think, at very level and with every 
person. Do you feel that the States care--and this is all about 
caring. It is all about caring, I think, of the creation, as 
Mr. Waxman has said, back in the mid-1960's of the safety net 
for the poor of our people. So we are talking about caring, 
caring for the poor of our people and caring for retention of a 
safety net and keeping it from losing it, keeping from losing 
it, if you will. Do you feel that the State authorities have 
just as much heart as we have up here in Washington, DC, as far 
as caring for their people?
    Mr. Thames. Yes, sir. I believe that it is supposed to have 
been and has been a Federal/State partnership, and I believe 
the States and the Governors in the States and the other State 
legislatures have a heart and feel that it is of concern to 
them that poor people should be covered for health care.
    Mr. Bilirakis. Okay. So you don't find any fault--I mean, 
there may be specifics, but you don't find any fault in general 
with the concept of flexibility, giving the States flexibility 
in view of the fact that they know their people and are closer 
to their people than we up here are.
    Mr. Thames. We agree that flexibility has some advantages, 
and as long as flexibility is looked at and does not include 
caps, funding caps which lead to denial of necessary services 
in our opinion for the people who can least afford them, then 
we think flexible options ought to be looked at, and some 
flexibility ought to be available for them. And I don't 
disagree with the testimony given earlier that States in some 
ways are going to be demonstration projects, although we also 
mentioned in the material given to you folks some demonstration 
projects, particularly for long-term care.
    Mr. Bilirakis. All right. Doctor, getting to the discussion 
on assets transfers--it has taken up an awful lot of the time, 
obviously--when I was in law school back in the early 1960's 
there wasn't a particular course for elder law, if you will, or 
things of that nature. There certainly weren't any seminars 
taking place. There weren't any continuing legal education 
seminars taking place giving lawyers credit, certain hours 
credit for teaching people or showing people how they should 
get rid of their assets. There weren't, as far as I know, any 
seminars for non-lawyers basically asking wealthy people, if 
you will, or certainly if not wealthy, close to it, coming in 
and teaching them how to get rid of their assets.
    Now you mentioned health care for those who sincerely need 
it--your exact words, and those were good words. So a person 
who goes in to see an attorney, who attends--and I think Mr. 
Waxman basically alluded to this, too. He finds that troubling, 
and I am very happy to hear him say that. I think we are all 
troubled, are we not? Should we not be troubled with the fact 
that people actually go to these seminars specifically to find 
a way to transfer their assets to their children and to others?
    The situation that Mr. Waxman brought up, anybody with a 
heart would certainly agree with him there that this type of 
thing should not apply as far as that particular lady is 
concerned. And maybe if he is concerned that the legislation as 
it might be crafted would apply that particular situation, I 
think we ought to take another look at it. Because I don't 
think that is the intent here, but the intent is the assets 
transfer. There are statutes in the Social Security Act--I can 
read them here--would--basically, there wouldn't be any penalty 
if the advocate can show the assets were transferred for a 
nonMedicaid purpose, et cetera, et cetera.
    So you would agree that there should be some legislation 
regarding asset transfer. Because is it not fraud? Is it really 
not fraud? I mean, is that too harsh of a word, that a person 
who actually might have a net worth of a half a million dollars 
or something of that nature would find a way to transfer it in 
order to go to the taxpayers for their care in the future?
    Mr. Thames. We certainly would agree that willful hiding of 
assets and moving those, which is fraud, is illegal. It is 
illegal under the present Medicaid Act for them to do that, or 
at least it is a penalty phase if they do that.
    What we are concerned about is the example I think that Mr. 
Waxman gave, so that people who are making an honest 
contribution not be penalized when that is done. I understand 
the difficulty in determining it, but I don't think it is too 
difficult if you look at the total amount of money, and it is a 
very large amount of money, and it got moved suddenly to 
something else to determine that is hiding your assets.
    Mr. Bilirakis. With that kind of an attitude then on the 
part of AARP, they would be willing to be helpful to shore up, 
if you will, or tighten definitions or whatever it might take 
to really get to what we are trying to get to.
    Mr. Thames. Yes, sir, I believe we would be very willing to 
work with the committee on that.
    Mr. Bilirakis. Thank you.
    Thank you, Mr. Chairman.
    Mr. Deal. Thank you.
    Mr. Dingell, you are recognized.
    Mr. Dingell. Mr. Chairman, thank you. I appreciate your 
courtesy.
    Mr. Parrella, welcome to the committee. I appreciate your 
assistance here. I have a couple of questions for you.
    As I understand it, the State of Connecticut authorized a 
waiver to CMS requesting permission to charge premiums with 
incomes as low as 50 percent of the poverty line, and that is 
an income of $636 a month for a family of three. But I found 
that the State legislature subsequently repealed the 
authorization because they found that, amongst other things, 
86,000 children and parents would have lost coverage, is that 
correct?
    Mr. Parrella. The State of Connecticut never submitted that 
waiver to CMS. There was never a waiver submission to CMS.
    Mr. Dingell. Why was that? They found it was bad policy, 
hurt people or what?
    Mr. Parrella. It was as you said. Any waiver that would 
have had premiums assessed for clients at that income was found 
to be undesirable by our legislature.
    Mr. Dingell. The legislature authorized it and then 
repealed it, right?
    Mr. Parrella. They never authorized it. We never applied--
we never got to the point of our seeking waiver authority from 
our legislature.
    Mr. Dingell. Now, the State of Connecticut also submitted 
and withdrew a Medicare waiver request that CMS implement a 
policy that would make it more difficult for low-income seniors 
to qualify for nursing home care, such as increasing the look-
back period when doing the Medicaid eligibility determination 
and changing the date a penalty applies when the transferred 
asset was made, but the State also withdrew this waiver, isn't 
that so?
    Mr. Parrella. The State did withdraw the waiver application 
from CMS.
    Mr. Dingell. I just would observe here, Mr. Chairman, that 
it rather appears to me that we have before us a situation 
where we are finding that some of these flexibilities have been 
tried and found wanting; and I am sure there would be many 
others that we could find where States have considered these 
and then found that they imposed hardships on the people that 
we are trying to help with Medicaid, which are the folk who 
have the least in the way of resources and means and the 
greatest needs to be addressed in terms of health care.
    Mr. Parrella, thank you.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Deal. Thank you, Mr. Dingell.
    Mr. Parrella, let me follow up on with that. It is my 
understanding that the reason that the asset transfer waiver 
request was withdrawn was because your State, like all 49 State 
Governors, thought that the proposal to deal with asset 
transfers proposed by the National Governors Association was a 
better and more appropriate proposal, is that correct?
    Mr. Parrella. That is correct, sir.
    Mr. Deal. And that is the proposal, by the way, that we are 
operating off of.
    Let me go back to the illustration Mr. Waxman used about 
the lady who made legitimate transfers and then later on found 
that she needed Medicaid for nursing home care. Isn't it true 
that the current law already provides for hardship exemptions 
for individuals in that category and that States can grant 
waivers for those kinds of situations?
    Mr. Parrella. That is true.
    Mr. Deal. And did your State look at that situation with 
regard to a proposal for those kind of waivers to even expand 
them?
    Mr. Parrella. Yes, we did. We actually did pass legislation 
in our State legislature that would have codified hardship 
exemptions that would have applied even in the application of 
the asset transfer rules.
    Mr. Deal. Okay. With regard to the concern that Dr. 
Alexander expressed--and I think all of us have concern that we 
not do anything to hurt children, the most vulnerable 
population, isn't it true? Well, if we had a proposal that 
would exclude all mandated covered children from any co-pays, 
do you think that that would go to a large way to addressing 
those concerns?
    Mr. Parrella. I believe that it would. As I understood it, 
in our conversations with our colleagues and the Medicaid 
directors and the National Governors' Association, we are 
really focused on changing the cost-sharing rules as they apply 
to optional populations to expansion populations that are above 
the Federal poverty level and Federal minimums.
    Mr. Deal. And Dr. Alexander, if we did exclude those 
mandated children populations from any co-pay, wouldn't that be 
a large portion of the concerns that you expressed?
    Mr. Alexander. It would be a large portion. I would 
probably differ in that 100 percent of the Federal poverty 
level was probably not enough.
    Mr. Deal. What about 133 percent?
    Mr. Alexander. I think 150 percent might be a more 
appropriate level to look.
    Mr. Deal. Dr. Thames, let me go back to another aspect of 
the AARP proposal that concerns me. We have talked about asset 
transfers, and I think all of us recognize that if somebody is 
deliberately trying to game the system, we ought to try to do 
something to prevent that. That is what the Governors have 
said; and that is what we, hopefully, will try to do.
    Let me talk about another portion of what you object to, 
and that is the equity in a home. Let's suppose that someone 
has a home that is worth $5 million in equity in that home, but 
otherwise qualifies to be Medicaid eligible and to have the 
taxpayers pay for their nursing home care. That $5 million home 
is probably going to have considerable accessories by way of 
pictures on the wall, furnishings, et cetera which would also 
be excluded. Do you think that is a fair situation or do you 
think we ought to try to do something to encourage those kind 
of population groups to use reverse mortgages to draw down some 
of that equity and keep the taxpayer from having to pay for 
their care?
    Mr. Thames. Well, the example you give is difficult to 
refute, except to say if a person has a $5 million home, his 
assets are down to $2,000, how is he going to pay the taxes and 
keep the home?
    Mr. Deal. Because another member of his family is 
volunteering to pay it for him.
    Mr. Thames. I guess that is one way that it could be done.
    Mr. Deal. What would be a fair asset in a home that should 
be allowed to be retained without putting a situation to 
encourage people to do reverse mortgages?
    Mr. Thames. I don't think we have set that level in 
discussions that I am aware of from the board, from AARP, but I 
will tell you that, in looking at this, we have looked at what 
we do in American values, and we tell people to try to save 
money, to buy a home, to send their children to college and try 
to have enough money to take care of themselves when they 
retire.
    Mr. Deal. We all agree with that. And those people 
struggling to pay their taxes also are trying to do that very 
thing, and they should not be taken advantage of someone who is 
trying to game the system.
    My time is running, let me get to my hometown witness that 
I feel obligated that I need to get him involved in this 
discussion.
    Jim, you are the director of our local hospital. You 
alluded to the fact that we have a private, through the medical 
association, over a hundred doctors volunteering their services 
free of charge to those who want to access it. Do you think 
that if we had some provision that would say that if you have 
got an offsite facility that is free of charge or a very low 
charge that that would help alleviate some of the problems that 
you are seeing for nonemergency presentations in the ER?
    Mr. Gardner. Again, Mr. Chairman, 29 percent of the folks 
that come through our emergency room are not emergency. We are 
very fortunate to have a public/private relationship that is 
working very hard to create alternative treatment sites.
    If there were changes in legislation, both in terms of 
professional liability as well as some of the transfer rules 
that would give hospitals a little bit of flexibility, we do 
believe--and as part of that, how that came to be, you know the 
hospital is also investing in that. We are a not-for-profit 
health care system. But, at the same time, in trying to create 
these partnerships we are actually helping to provide seed 
money that, in combination with other funds from our community, 
have helped to create this health access initiative.
    It has been very, very successful, but I dare say that if 
there were a system where additional funds could be available 
for demonstration projects, we certainly would like to have the 
opportunity to do that with you and others that would be 
interested in that. I think it could have a profound impact on 
the numbers of patients that are seen in the emergency room. 
The lack of continuity of care and helping to hook this 
vulnerable population up with a physician that would see them 
on a regular basis and taking care of chronic illnesses and 
managing their drugs with them would be a huge benefit versus 
the episodic care that is hit or miss right now that comes 
through even the very best emergency rooms like ours.
    Mr. Deal. Thank you.
    Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman.
    Now, Mr. Matthews, in the interest of time I am going to 
pose yes-or-no questions, and I would appreciate if you would 
try to limit your response accordingly.
    Since Medicaid beneficiaries are poor, your goal in 
supporting higher cost sharing cannot be to increase the 
financial burden on them, I assume. They are barely making it 
paying for food, for heating, for cooling, if they are in hot 
weather, and transportation costs. I am guessing you can 
afford, as we can up here, to pay 5 percent of your income on 
health care. Medicaid beneficiaries surely can't.
    That leaves the only reason for this over utilization of 
health care. I am assuming that your premise is that Medicaid 
beneficiaries overutilize health care, and cost sharing will 
defer that. Since seeking medically necessary care does not 
qualify as over utilization, the goal must be then to reduce 
medically unnecessary care.
    Here is my first question, if you would answer yes or no. 
Are you accusing States of illegally providing medically 
unnecessary care?
    Mr. Matthews. No.
    Mr. Brown. Then what--okay. Then give me something more 
than yes or no. If you say no, I don't know--I call back my 
yes-or-no request. Why do you think they could afford to pay 
this? I will ask that.
    Mr. Matthews. What I tried to say is that the Medicaid 
populations vary from State to State. Some have higher incomes, 
and States have expanded income eligibilities for some 
populations. Is it reasonable to allow the States to consider 
expanding co-pays for some of those populations, not the 
poorest? And my answer to that is yes. What is the right co-
pay? I am not taking a position on that. I believe it is $3 
right now. Is that $5? Is it $10 on prescription drugs?
    Mr. Brown. You are contending it should be something. 
Should it be some co-pay at 150 percent of poverty, 200 percent 
of poverty? Where do you want to begin the co-pays?
    Mr. Matthews. They are already spending $3 now. My comment 
is that it is reasonable to give the States the flexibility to 
expand that if some of the States choose to see what works for 
them.
    And I also added in that that if the goal is to move people 
into private sector coverage ultimately, the private sector has 
higher co-pays, so someone who has a higher eligibility 
threshold in Medicaid, if that person is required to pay a 
higher co-pay or something of that nature, that actually gives 
them a little bit more of a look forward to what they would be 
experiencing----
    Mr. Brown. Why do you want to co-pay? Do you want the co-
pay because you think there is overutilization? Do you want the 
co-pay because it means a little revenue to the system? Do you 
want the co-pay as punitive toward the poor? Why do you want 
co-pay?
    Mr. Matthews. Given the limited budget that States, by 
increasing the co-pays to higher income--and I realize that we 
are talking about poor people generally, but higher-income 
Medicaid recipients, you can make more money available to the 
lower-income people and perhaps expand the----
    Mr. Brown. So you would want that money put back into the 
Medicare system?
    Mr. Matthews. Yes.
    Mr. Brown. Not used to balance the budget that my friends 
on the other side of the aisle only seem to want to balance 
when it is time to cut programs like Medicaid.
    Mr. Matthews. I am not addressing the budget issue. I am 
just simply saying, from the State perspective, a State might 
say, if we raise a co-pay here, we can take some of that money 
and expand coverage here or reduce a co-pay for some lower-
income people.
    Mr. Brown. Rand Health Experiment indicated that higher 
cost sharing will harm Medicaid beneficiaries. Can you provide 
evidence to the committee otherwise?
    Mr. Matthews. I did not provide evidence. The original Rand 
experiment looked back from the 1970's and 1980's, looked at 
higher co-pays and did not find from that an adverse result on 
health. That was working in private health insurance. That was 
not dealing with Medicaid.
    Mr. Brown. My understanding is they did, but we can talk 
about that. Should patients or doctors determine whether health 
care is medically necessary?
    Mr. Matthews. I think the answer is doctors.
    Mr. Brown. Dr. Thames, real quick--I have just 50 seconds 
left--I want to clarify some of the answers you gave to my 
friend, Chairman Bilirakis. Does AARP support moving the look-
back period from 3 years to 5 years?
    Mr. Thames. Absolutely not.
    Mr. Brown. Does AARP support the change in the penalty 
period? Would that harm poor individuals who need long-term 
care?
    Mr. Thames. We do not support the change in the penalty 
period, and that would definitely harm poor people.
    Mr. Brown. And the last question, briefly, is the real 
problem State-based loopholes that people are using now?
    Mr. Thames. There are some State-based loopholes, and we 
believe they should be tightened up. I am not sure that we 
would say in any means that that is a real major factor in 
Medicaid.
    Mr. Brown. Thank you; and thank you, Mr. Matthews. Thank 
you, Mr. Chairman.
    Mr. Deal. Thank you.
    Dr. Norwood is recognized for 6 minutes.
    Mr. Norwood. Thank you very much, Mr. Chairman.
    Mr. Parrella , just real quick, what percent of 
Connecticut's budget is Medicaid?
    Mr. Parrella. The budget in the State right now, it is 
running about 25 to 26 percent of the overall budget.
    Mr. Norwood. No wonder you were looking for ways to try to 
cut back. Well, we have the same problem in the State of 
Georgia, and the chairman mentioned the same thing in Texas, is 
this thing is getting to the point where it is unsustainable. 
We just cannot continue doing this. I hope AARP is hearing 
that, Dr. Thames; and I hope that, rather than being against 
everything we are talking about in long-term care, you better 
come up with some solutions or you are going to have fewer 
patients receiving Medicaid across the country. It isn't any 
harder than that. Two-thirds of this cost here is in long-term 
care, and if we don't come up with a solution a lot of people 
are going to suffer, and being against things doesn't get it 
done.
    Mr. Gardner, we appreciate you being here. I was astounded 
at one of your remarks that Northeast Georgia Medical is the 
third largest ER in the State of Georgia.
    Mr. Gardner. Yes, sir.
    Mr. Norwood. Who is two?
    Mr. Gardner. It is Grady in Atlanta, and then there is 
another system in Marietta. I am blanking.
    Mr. Norwood. In and around Atlanta and you are three. Well, 
I am from Augusta. We have a pretty good hospital center down 
there, too. And Augusta is bigger than the Gainesville area. 
Why are you No. 3?
    Mr. Gardner. Well, Northeast Georgia serves as a feeder 
system really for all of north Georgia. Just looking at the 
confluence of the mountains and roads and houses, Gainesville 
is kind of the trap or the stop in terms of how all the roads 
work. So we see a large number of patients from all over the 
north part of Georgia.
    By the way, the No. 2 is the Kennestone health care system 
in Marietta.
    Mr. Norwood. Well, we see a lot of patients all over the 
middle and the southern part of Georgia in Augusta. I mean, 
something else has got to be going on up there for you to be 
No. 3, it seems to me.
    Mr. Gardner. Well, I think a lot of it has to do with the 
lack of other options. The hospital--again, in our situation, 
we are the safety net. We have a shortage of physicians--we 
have a significant shortage of physicians that accept Medicaid 
increasingly in our communities. You know, physicians would 
rather give their services away for free than put up with----
    Mr. Norwood. It is a lot easier. I have been there and done 
that.
    Mr. Gardner [continuing]. Than actually having to submit a 
bill. That is certainly an issue. So those, in combination, 
create the high volume in the emergency----
    Mr. Norwood. I am glad you mentioned that factor about so 
many of your caregivers simply aren't involved in Medicaid 
because it is much cheaper to just treat the patient and not be 
paying all the time and effort it takes to do it 
administratively.
    I have been saying for 11 years up here that Medicaid, 
Medicare pays our providers, physicians and dentists and 
hospitals somewhere around cost, but you are telling me today 
now that I am out of line, that now it is 13 percent less than 
cost. And I believe you, but I am just amazed.
    Mr. Gardner. There are numbers to back that up. It is 13 
percent across the State of Georgia. At our particular 
facility, Northeast Georgia, it is actually 17 percent is what 
the loss is per patient. So the math is pretty staggering.
    Mr. Norwood. I hope Members of Congress will listen to 
that, because this will be an access problem except that you 
have so many great physicians up there trying to donate their 
free time to get this done.
    In your testimony you said that 29 percent of the patients 
presenting to your ER in your hospital were seeking non-
emergency care for common maladies like ear infections and flu. 
First of all, tell me what that 29 percent means. Who is that?
    Mr. Gardner. That 29 percent, if you look at--again, our 
clinicians, looking at the kind of patients that we see in the 
emergency room, they can very carefully--again, based on data--
separate out what is traditionally considered by physicians to 
be emergency care versus routine or non-emergency care.
    Mr. Norwood. But is it Medicare patients or the general 
population?
    Mr. Gardner. If you look at the general population in 
total, it is 29 percent. That is actually a very conservative 
number. If you look at hospitals across the State of Georgia--
and Augusta may be one--those numbers can be as high as 60 
percent.
    Mr. Norwood. Yes, I am aware; and I know that you are 
correct.
    Real quickly, because I have got one other important 
question, give me a conservative estimate--I presume this is 
that 29 percent conservative--how much money your hospital 
loses because of this improper utilization. Real quick.
    Mr. Gardner. If you look in total, it was about $6.6 
million last year, but the greater opportunity is it cost $266 
to see them in an emergency room, it cost $74 dollars or less 
to see them in a physician's office. If you look at that $192 
difference, you can imagine how much care could be added to the 
system without increasing any costs if we can get these 
patients into the right setting.
    Mr. Norwood. My district is all around Gainesville, so I 
have a good clue about what is going on up there. But in your 
testimony you made a statement that I admit it definitely 
caught my eye. You stated that reform of both Medicaid and 
immigration must be intertwined if your hospital is to survive. 
Now I cannot agree with that more. That said, how have the 
immigration policies of our country impacted our area and the 
care that you provide from your hospitals all around my 
district?
    Mr. Gardner. Well, the last thing I would do is to sit here 
and claim to be an immigration expert. Kind of like the budget, 
that is for folks that are above my pay grade. As I live and 
work in Gainesville, what we are watching is a fundamental 
change in the demographics of our community, and a lot of it 
has to do with our economy. It is based on agriculture. We are 
a large poultry producer.
    Mr. Norwood. So you see a lot of illegal immigrants in your 
hospital? I know you do.
    Mr. Gardner. Absolutely. Every day we have situations where 
we literally have watched one person leave the emergency room, 
hand their insurance card with their name to the next person 
that is outside.
    Mr. Norwood. Some of us in Georgia believe that the cost of 
the Medicaid program alone, because of illegal immigrants, is 
around a billion dollars a year. Now my complaint is that 
billion dollars ought to be used for U.S. Citizens, not having 
to cut back their programs that they are on in Medicaid, but 
quit wasting money on Medicaid, and I hope this will be part of 
our reform, too.
    Thank you, Mr. Chairman. I appreciate going over a second.
    Mr. Deal. Thank you.
    Mr. Stupak is recognized for 5 minutes.
    Mr. Stupak. Thank you.
    First, let me thank Mr. Sheehan and Mr. Alexander for 
coming here today. They are both from Michigan, and I 
appreciate the work that you do day in and day out trying to 
provide quality health care to people in the State of Michigan.
    Let me just go back to Mr. Gardner for a minute. You just 
said that you saw people hand their Medicaid card to the next 
person in line.
    Mr. Gardner. We have instances where we know that the same 
Medicaid card has been used by multiple family members.
    Mr. Stupak. Okay. I thought you said in your answer you 
witnessed it. Because I was going to ask you what did you do 
about it.
    Mr. Gardner. I am talking just anecdotally. I don't live in 
the emergency room.
    Mr. Stupak. I hoped you didn't. But I just found it 
surprising that these so-called stories, but then when you 
press people they don't know anything about it.
    Mr. Gardner. I am not trying to impress anyone. There are 
definitely cards being used by multiple family members, and we 
have repeated instances of it.
    Mr. Stupak. Well, I hope we crack down on that.
    Let me ask Mr. Sheehan and Mr. Alexander a question or two. 
Because recently in the State of Michigan in the budget 
process--and I didn't think much about this until what happened 
in the budget process, the Upper Peninsula of Michigan got 
severely cut in their universities and some other institutions 
we had up there in the budget rules. We are a small part of 
Michigan, a vast geographic area, small voter population; and 
in the Governors' proposal, National Governors' Association 
proposal it says that the States should be allowed to pick and 
choose who they serve and which parts of the State they may 
offer benefits.
    So I am a little concerned with this geographic waiver, 
since I live in a very rural area and we see where the Michigan 
legislature has made cuts which impacted the Upper Peninsula, I 
could actually now envision a scenario where Medicaid services 
would not be offered in the Upper Peninsula of Michigan because 
it is too expensive because of a large geographic area for a 
small amount of people.
    Would you care to comment on that, Mr. Sheehan or Dr. 
Alexander?
    Mr. Sheehan. You are talking about the waiver of State-
wideness Medicare? That concerns us. Currently, State wideness 
is a good protection to say we will base our Medicare plan on 
clinical necessity, which is pretty ubiquitous across the 
State, and a strong entitlement program. The lack of State 
wideness then allows it to become a political process. And it 
is not only the UP in Michigan, who might not have the 
political power, but consumers I serve, adults who are mentally 
ill. When you look at the political spectrum, we are down 
toward the bottom in terms of power.
    The concern that I would have is much more politically 
attractive Medicaid groups would receive services either 
geographically or because of their other needs. So it is a real 
concern. States currently have waivers, 1950(b) and (c) waivers 
States can apply for. The advantage of those waivers is Federal 
protections remain on Statewideness in comparability, and I 
think those are probably better ways to go.
    Mr. Stupak. Dr. Alexander.
    Mr. Alexander. Congressman Stupak, we are privileged to 
serve many of the children from your district, especially those 
with special needs at our hospital; and, as I referenced 
before, I can't imagine a clinical scenario where we can 
justify regional allocation of benefits. It just doesn't make 
any sense.
    Mr. Stupak. Okay. Mr. Sheehan, you mentioned about the 
mental health aspect of the people you represent. Being a 
former law enforcement officer, I am also concerned about the 
impact that Medicaid cuts would have on our correction system. 
It seems like the folks who need some help in the area of 
mental health, they don't get it, we find them in our county 
jails and State prisons. So we are just shifting the problem 
somewhere else and clogging up the criminal justice system. And 
I say that respectfully because they have no place else to go 
and they do things to get the help they need. Have you 
experienced that?
    Mr. Sheehan. We have. The mental health system is a unique 
system, that if you don't treat it early part of the costs end 
up in the mental health system in terms of--in patient care. 
But most of those costs get externalized someplace else: 
correction system, homeless shelters, physical health, the ERs. 
That is a unique factor--schools, for example. That is a unique 
factor if you don't treat the mental health conditions of the 
kids or adults early.
    I think what happens in mental health is maybe, unlike some 
physical health conditions, the deterioration of a patient is 
pretty rapid. If they lose access to case management or 
therapies or psychiatry or the drugs they need, decompensation 
happens pretty quick. It doesn't take months. So they end up in 
a jail or in a homeless shelter or they lose their home or they 
drop out of school very quickly, and that is a concern that we 
have.
    Mr. Stupak. In your testimony, Mr. Sheehan, you talk about 
the harm done by increasing co-payment and cost-sharing 
requirements for beneficiaries, reducing access to medications 
and implementing sharp reductions on services. Can you please 
share with the committee a story or two from your own 
experience just now devastating the so-called small changes to 
co-payments and medication availability can be on a clientele 
that you represent? And, Dr. Alexander, if you to want add to 
it, please do.
    With that, my time would be up, but if you would both 
answer that for me I would appreciate it.
    Mr. Sheehan. I think I can. If you don't mind, let me talk 
about the principles behind it. I think that is critical, and 
they were alluded to a second ago.
    Cost sharing makes senses from two premises. One is the 
behavior you are trying to change is a health care behavior 
that is not appropriate. Somebody is seeking mental health care 
that is not appropriate. In the mental health world, with folks 
who are seriously mentally ill, the opposite is true. You can't 
get folks to come into treatment and stay with it. The 
treatment for mental health, to stay healthy and to keep taking 
your medications aren't easy, so you don't see over utilization 
of mental health. We don't run a boutique in mental health care 
where Prozac is used to make us feel better. Where that may 
happen in America, it doesn't happen in the Medicaid population 
that we serve. That is the premise No. 1, which is false. I 
don't think there is misuse of psychiatry and case management 
therapies, or in-patient use, for that matter.
    The second premise is that the patient has assets or 
dollars they should be using to help pay for their health care. 
Most of the Medicare recipients we serve are severely disabled, 
they are on SSI, their average SSI payment is $600 a month. 
Virtually their entire check goes for shelter, and so the 
amount of money that they have to contribute to their health 
care is virtually minimal.
    What we see in Michigan then is when people then are forced 
to pay for their health care, in Michigan, for example, the co-
pay for psychiatry and psychiatric medications just went up. 
People stop taking their medications. The side effect on 
medications--it can be up to six or seven medications a month. 
The side effects of those medications are substantial. Trying 
to get people to stay on medications so their clinical 
stability is strong is hard enough. That $30 or $40 a month in 
co-pay is putting people off the edge, and they stop taking it. 
And I have got to tell you, when they stop taking it, they 
don't start showing up more, they show up less. We spend all 
our time with our case managers trying to find them. These are 
people that are marginalized already. They have behaviors that 
most people find bizarre and stigmatize. So then we find them 
in jail, as you mentioned, or we find them in a homeless 
shelter.
    Mr. Deal. The gentleman's time is expired.
    Mr. Shimkus is recognized for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. Thanks for calling 
this hearing.
    My district is southern Illinois. It is mostly 30 rural 
counties. And what we see, based on the current Medicaid 
system, is doctors and providers opting out of taking Medicare 
patients. The system is not working. We are seeing less care 
under the current system. So reform should be providing more 
care, and I would just encourage people to come to my district, 
and I can put them into contact with all of the providers and 
the doctors.
    I would like to, at this time--we do have an expert in the 
dental field, and that is--because there is one community that 
is going to have a clinic, and they are very excited because 
they are going to have a dental clinic, a community health 
care. It will be the first time in southeastern Illinois that 
Medicaid recipients are going to get dental care, and there is 
already a 3-month waiting list.
    The system is not providing dental care. Dr. Norwood, can 
you talk to us about some of the problems in providing dental 
care to Medicaid recipients?
    Mr. Norwood. Well, just for the panel's benefit, I 
practiced dentistry for 30 years; and years ago we did a lot of 
Medicaid, not because necessarily it was very profitable to do 
but because we sort of felt like that was what we needed to do 
in order to help people out. But over the years it got to the 
point that they paid so little--I mean, it wasn't even close to 
what your cost was--and then it was so difficult and expensive 
to even file for that little bit that we stopped seeing 
Medicaid patients in terms of filing with the State. We did 
continue to see them and alleviate pain and suffering and 
infection and that was all and didn't charge anybody because it 
was just too costly to mess with the State with their 
regulations and everything.
    But it is important--and I thank you for asking me this. 
But it is important that Medicaid have basic dental plans in it 
to take care of pain and infection and suffering.
    Mr. Shimkus. I want to thank my colleague, because a lot of 
us are not experts in a lot of these fields. We learn over the 
years. Some actually practice in the field, and they have had 
the firsthand experience.
    In Missouri--I represent the metro St. Louis area, and I 
have been watching the Governor of Missouri trying to handle 
the excessive costs of an exploding Medicaid system. What are 
States doing now to address their cost? Can someone answer? Do 
we know what States are doing right now to address Medicaid 
reform? Mr. Parrella?
    Mr. Parrella. Well, I think, Congressman, there is a wide 
range of things that States are doing. States are doing a lot 
of issues related to prescription drugs, for example, where a 
lot of States, including my own, have moved to a preferred drug 
list where we are seeking supplemental rebates from 
pharmaceutical manufactures to have a system that includes 
prior authorization for certain prescription drugs. We exclude 
psych meds, and we exclude HIV medications. That is protected 
classes. But we have a preferred list so that we can get a 
reduced price for----
    Mr. Shimkus. Your testimony says Medicaid reform is a moral 
imperative. How so?
    Mr. Parrella. Medicaid covers--whatever the number is these 
days--53 million people. There is 47 million people in this 
country with no insurance at all. A lot of them are just as 
poor as Medicaid clients, but they don't meet the same 
categorical eligibility requirements. Some of them are single 
adults, for example, who are just as poor as the adults that 
are taking care of children who are eligible for Medicaid. If 
we don't have reform in terms of how Medicaid provides benefits 
to its current population, how will we ever have the 
resources--speaking of those other folks who are currently 
without care, that, to me, is the moral imperative.
    Mr. Shimkus. Well, as I have been watching the State of 
Missouri unfold on some of their issues, they have had to take 
off the roll a hundred thousand beneficiaries, and those are 
based upon the optional benefits that they initially extended. 
So it is just like any other debate on entitlements. If we 
don't reform the system, the system itself will then ration the 
delivery to the lowest denominator. And what reform is trying 
to say is how do we make the system work for everything? How do 
we give the flexibility and how do we bring coverage?
    I had a question for Mr. Matthews--my time is getting close 
to out--what will happen if Congress fails to address 
Medicaid's challenges soon?
    Mr. Matthews. I think what you will see is more States will 
begin to reduce benefits in eligible populations and you will 
see fewer people getting Medicaid. And the better approach is 
to find a way to get those people covered by giving the States 
the flexibility to adjust those benefits.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Mr. Deal. Mr. Rush is recognized for 5 minutes.
    Mr. Rush. I waived my opening statement.
    Mr. Deal. We are in the questioning phase. Did you waive 
your opening statement?
    Mr. Rush. I sure did.
    Mr. Deal. All right, we will give you 6 minutes.
    Mr. Rush. Thank you, Mr. Chairman.
    In all these hearings that we have conducted on Medicaid, I 
have made my position quite clear. I do not believe that 
beneficiaries should bear any burden whatsoever when 
reforming--so-called reforming Medicaid. The program serves the 
most vulnerable and needy populations in our society: the poor, 
the disabled, children and the elderly. This program is already 
underfunded, and as the poverty rates in this country continue 
to grow really at an appalling rate, the need for Medicaid 
continues to grow also. In my mind, we ought to be discussing 
how we are going to substantially increase funding for this 
vital safety net program, not how we want to cut the funding.
    Having said that, I want to address the whole notion of 
cost sharing and the need to promote personal responsibility; 
and I would like this panel to take a stab at defining what 
personal responsibility really means. This has often been a co-
phrase for a very pejorative characterization of the conduct of 
poor people. Back in the 1960's it was used to depict images of 
so-called ``welfare queens'', and since some of that is going 
on right here, can the panelists, at least three of you all, 
give me an idea of what you mean by a personal responsibility? 
Start with Mr. Parrella.
    Mr. Parrella. I can take a stab at that, Congressman.
    One of the things that has been talked about today is use 
of health care services through the emergency room. Now as I 
think my colleague from north Georgia has testified to, folks 
go to the emergency room because they don't have access to 
providers in the community.
    It is hard to be in a situation where you are blaming a 
victim in that case for saying, Well, you are using the system 
inappropriately. They have nowhere else to go. Congress and the 
government has provided funds to federally qualified health 
centers around the country as an alternative to emergency room 
use. Those are a valuable asset. I think where in that context 
comes an issue of personal responsibility is that if a client 
has access to a primary care physician, that access has been 
required but they do not use the system appropriately, they 
continue to use the emergency room despite the fact that they 
have available to them a community doctor. And in some cases 
they don't, but let us say that do, then that is an issue I 
believe of personal responsibility in terms of using a service 
which could be purchased by a State government for $75 as 
opposed to a service that is going to cost the government $225.
    Again, I want to be very careful that I don't want to 
characterize clients as being always in a situation where they 
are the cause of the abuse. There are certainly situations 
where access for Medicaid clients, no matter where you are in 
this country, can be difficult simply because, as we have heard 
in the context of dental care, there are just a lot of 
providers who are not making themselves available. But if there 
is access available to secure networks of primary care 
providers, clients need to understand that they too have some 
responsibility to use those services appropriately.
    Mr. Matthews. Congressman, I will take a stab at that. I 
did not use the term personal responsibility in my testimony, 
but let me give you an--because I think for most Medicaid 
recipients personal responsibility does not become involved. 
But for some populations in Medicaid, it does, and I think that 
is true for some of the long-term care recipients.
    I will give you an example. My director of research and 
policy who lives in Minnesota recently wrote an op-ed that was 
published in the Minneapolis Star Tribune on what her family is 
doing. Her family is from New England. She was getting ready to 
make a journey from Minnesota back to New England for the 
family because her grandmother, who has assets, they want her 
to go on Medicaid long-term care, go in the nursing home under 
Medicaid. So they had set an appointment with an eldercare 
attorney. She would be traveling back to New England. The 
family was going to meet with the eldercare attorney and find 
out how to hide grandma's assets so that she could go qualify 
for Medicaid. She wrote the op-ed. Lots of response there in 
Minnesota because--she called it The Medicaid Game. She was the 
dissenter in the family in doing this.
    But the point was that the grandmother has assets and at 
one time did not take personal responsibility to buy a long-
term care insurance policy or set enough money aside to make 
sure she was going to cover herself in the nursing home and was 
going on Medicaid.
    Mr. Rush. Okay. Thank you.
    Mr. Parrella, let me just ask you, before we move on to the 
next. What specifically in this bill addresses the concerns 
that you had about getting, utilizing available medical 
services and then using the emergency room? Is there anything 
in the bill that addresses this specifically?
    Mr. Parrella. There is nothing specifically in the bill, 
Congressman. I mean, the closest analogy that I would draw 
would be, in my plan as a State employee in my State, if I do 
that, if I use the emergency room inappropriately as opposed to 
using my primary care physician--my normal copay for an office 
visit is $10. It is a very generous policy. We have very good 
coverage.
    Mr. Rush. But isn't it a fact, though, that this bill 
actually discourages screenings that might prevent going into 
the emergency rooms, such as the early and periodic screening, 
diagnosis and treatment for children?
    Mr. Parrella. I haven't seen the text of the bill. But 
certainly in the context of discussion with the National 
Governors Association, we would support continuing protections 
for EPSDT services and for children and mandatory coverage 
groups as being exempt from that kind of cost sharing.
    Mr. Rush. Thank you.
    Mr. Deal. Thank you.
    Mr. Terry is recognized for 6 minutes.
    Mr. Terry. Thank you, Mr. Chairman.
    This question, I have one general question that I wanted to 
ask Governor Keating and Dr. Thames and Mr. Matthews. So the 
rest of you can just hang back here. But I really believe that, 
when we look at modernizing Medicare, we have to look at it 
holistically. And one of the areas that, as the chairman, full 
committee chairman, brought up, Chairman Barton, is that two-
thirds of the dollars are spent on long-term health care, with 
providing services to our seniors.
    Now, if we are going to tackle the problem of reforming, I 
think we need to look at ways that we can encourage more middle 
class to purchase long-term health care policies so they don't 
have to engage in this shell game of moving assets around, 
dispensing of assets early in order to make themselves eligible 
for Medicaid when it comes time to move into a skilled nursing 
facility. So I think we need to focus on that. There are three 
bills. Governor Keating mentioned only one. There are actually 
three bills out there that I think all of them can work well as 
parts of a greater whole here to give people greater 
flexibility and encouraging--you have the bill that H.R. 3511, 
the Governor mentioned, but you also have the above the line 
tax deduction proposed by Congresswoman Nancy Johnson. You 
have, as Mr. Matthews kindly mentioned, the Terry-Peterson bill 
that allows tax-free and penalty-free withdrawals from your 
retirement accounts, be it a 401K, an IRA. And I just call that 
asset protection.
    The hope here is that by tying the long-term health care in 
to some benefit like your pension or your retirement accounts 
funded partially between the employer and the employee, that a 
long-term health care benefit or policy becomes intertwined 
within that. If we can do that, I really believe that we can 
save the Medicare system a great deal of dollars. And, frankly, 
the long-term health care policies provide a great deal of 
flexibility. It was either Mr. Matthews or Governor Keating 
that mentioned a lot of--no. It was Dr. Thames that mentioned 
that a lot of seniors want to stay home. Under Medicaid, you 
don't have a choice. They won't pay for the home nursing care 
that is a heck of a lot cheaper. And I have had several seniors 
tell me they didn't want to, after a hospital stay, do 30 days 
in a skilled nursing facility; they wanted to do what their 
private payer paid for earlier in life, and that is a visiting 
nurse. A long-term health care policy pays for that visiting 
nurse to come in a couple times a day and maybe change some 
tubes or some feeding bags or something. Do you, Dr. Thames, 
have an opinion on whether we should be more aggressive in this 
Congress and encouraging and providing incentives? And Mr. 
Matthews and Dr. Thames, do you have any statistical evidence 
of how much this could cost Medicare by moving more people, 
especially the middle-income, lower-middle-income, into long-
term health care policies?
    Mr. Thames. I am going to answer, if I could, your second 
question first. I will have my colleagues and the people that 
at AARP see if we have some figures for you on cost savings and 
what the costs are. We may have that material, possibly John 
Rother in our policy institute. I am not at the moment able to 
give you those off the top of my head. Within 24 hours, we can 
tell you whether we have those figures.
    Mr. Terry. I think that would be very helpful to this 
committee.
    Mr. Thames. But, second, I appreciate the opportunity that 
you give me to talk for a minute about long-term care, because 
AARP does support some things about long-term care, and one of 
those is something you brought up. We do believe that 
improvements that make long-term care insurance more 
affordable, you know, that there is a bill that has been 
supported by AARP that would give some tax credits for people 
who buy long-term care insurance. So that is one thing that we 
are positive for in doing that.
    But in addition to that, we have looked at the long-term 
care partnerships and whether or not there are ways to expand 
those out of the four States that presently do those and look 
and still keep the consumer protections detailed in the written 
statements so that they are going to be protected and continue 
to be protected. We don't want to lose the consumer protections 
in doing that.
    And, third, we think we ought to look at options for ways 
that people can use their equity in their home without losing 
their homes. That is, use some of the equity in their homes, 
for the people who have homes of whatever value that may be 
great, but where the remaining partner, if they are married and 
one person is there, does not lose the ability to stay in that 
home as long as they live so that they are not denied the home 
if the other person that is in the nursing home uses up those 
assets. And there are ways in looking at doing that, and there 
are ways in looking at reducing the costs of those home equity 
conversion policies. And particularly for low-income people, 
perhaps the insurance premium at the beginning could be reduced 
or decreased for those that are truly in poverty levels.
    Mr. Terry. Just before Mr. Matthews answers, would you go 
back to AARP and ask them to take a look at H.R. 976, too?
    Mr. Thames. Absolutely, sir. You can be sure we will.
    Mr. Terry. I would appreciate that.
    Mr. Matthews. Mr. Terry, we have not done an assessment of 
the economic impact on Medicaid that, if you were to expand 
that, that is something that we may want to take a look at. I 
can say, though, the problem--if the problem is bad now, it 
will be significantly worse in the near future because of the 
aging population. We have to address the issue now because we 
are facing an explosion in seniors going on Medicaid.
    Mr. Terry. Thank you.
    Mr. Deal. Thank you.
    Ms. DeGette is recognized for 5 minutes.
    Ms. DeGette. Thank you, Mr. Chairman.
    I was doing some calculations about the NGA proposal, and 
it looks to me like cost sharing could be required under the 
NGA proposal from those above 150 percent of the poverty level 
to an amount as high as 7.5 percent of total household income. 
So if you do a calculation for a family of four at 165 percent 
of the Federal poverty level that made $32,000 a year, my 
statistics show that they could be required to pay up to $2,400 
in cost sharing under this proposal. And I have got a couple 
questions about that. First of all, I was going to ask you, Mr. 
Sheehan, is that for people who have mental health issues in 
their family? $2,400 seems to me an amount that you could 
actually get up to pretty quickly with some of the drugs and 
some of the medical care that you need. Would that be accurate?
    Mr. Sheehan. Yeah. It depends how big the cost-sharing 
proportions were, how the copays were structured.
    Ms. DeGette. I mean, if they had to pay $2,400 in copays, 
and they had an income of $32,000, do you think that would make 
some people with mental health issues, as you were discussing 
earlier, forego medical treatment?
    Mr. Sheehan. It would. I mean, again, it is important to 
parallel that against the behavior you are trying to stop. If 
they had to pay that because they were inappropriately using an 
ER----
    Ms. DeGette. Right. I understand. But--such as copays. I am 
not talking about----
    Mr. Sheehan. I think it is important to know what the 
contrast is. No, if people are behaving themselves and they are 
seeking appropriate care, if they end up with a bill like that, 
they won't be seeking appropriate--I can tell you that now.
    Ms. DeGette. I was thinking about--I am the co-chair of the 
Diabetes Caucus in Congress, and I was thinking about costs for 
diabetics. And I worry about the same thing. Dr. Thames, I see 
you shaking your head. A lot of seniors who are diabetic may 
not seek the right medication or the level of treatment that 
they need. Would you agree with that?
    Mr. Thames. Absolutely. And the kind of preventive care 
that they need and the frequency of visits to look for poor 
circulation in the extremities and the eye changes that occur 
early and the other things that make diabetes and kidney 
failure and finding it early.
    Ms. DeGette. Which could not only help them healthwise, but 
could save a lot of money in the long run. Correct?
    Mr. Thames. Absolutely.
    Ms. DeGette. Now, Mr. Parrella, what do the States have to 
say about those kind of caps? I mean, that seems like a lot of 
money for a family of four making $32,000 a year to have to pay 
in copays, especially people with chronic health problems.
    Mr. Parrella. Well, again, I think that the perspective 
from our State and from a lot of States is not necessarily to 
push cost sharing to the max. It is not intended to hurt 
people.
    Ms. DeGette. Well, I know it is not. But that is part of 
the proposal. Isn't it?
    Mr. Parrella. No. Well----
    Ms. DeGette. It is part of the proposal. Isn't it?
    Mr. Parrella. I think that the concept behind cost sharing 
from a State perspective is that, if we are faced with a 
situation where we can choose to continue to cover a population 
above 150 percent poverty with a monthly premium--it is not 
always copays.
    Ms. DeGette. Well, answer my question. It is part of the 
proposal. Right?
    Mr. Parrella. It is part of cost-sharing part of the 
proposal.
    Ms. DeGette. And the other thing is, what you are saying 
is, you are basically saying we don't have enough resources so 
we are going to have to impose this on the beneficiaries. You 
are trying to be able to cover as many people as you can--
right?--with limited resources.
    Mr. Parrella. True.
    Ms. DeGette. I want to ask a couple of other questions. Dr. 
Alexander, I just wanted to ask you, I know that the children's 
hospitals have been working across the country with the victims 
of Hurricane Katrina. And I think you would agree with me, the 
survivors are going to be scattered around the country and 
create demands on all different States. Correct?
    Mr. Alexander. Yes, absolutely.
    Ms. DeGette. What is NACHRI's position on extending 
Medicaid with 100 percent Federal assistance to people who have 
survived Hurricane Katrina?
    Mr. Alexander. The children's hospitals think that that is 
essential as one of the steps that needs to be taken to get 
through this crisis.
    Ms. DeGette. My second question, my follow-up question is, 
with respect to this entire hearing, here we are against the 
backdrop of this devastating hurricane talking about how we are 
going to cut $10 billion. Do you think that what we should be 
doing right now is trying to figure out how to cut $10 billion 
mainly in beneficiary copays and other ways? Or should we be 
trying to figure out a way to shore up and improve Medicaid so 
we can use it more efficiently and it can cover more people?
    Mr. Alexander. I think what the current situation points 
out is how fragile the safety net is. And as I referenced in my 
statement, we were able to respond, the children's hospital 
community was able to respond because we have institutions that 
are strong despite the fact that they care for a huge number of 
Medicaid patients as part of what they do every day. But that 
strength is always on the edge. And that safety net is clearly 
vulnerable to these sorts of cuts.
    Ms. DeGette. And just one last question.
    Mr. Parrella, given your druthers, you really wouldn't want 
to favor cutting $10 billion right now, either, given what is 
going on; would you?
    Mr. Parrella. Given my druthers, I would never want to see 
the Medicaid program damaged in any way. I mean, I worked at 
Medicaid for 20 years; it's been my career. So if there can be 
reforms that can allow the Medicaid program to invest its 
dollars more effectively to purchase care for its clientele in 
a more favorable way, we are in favor of that.
    Ms. DeGette. Thank you very much.
    Mr. Deal. Dr. Burgess is recognized for 6 minutes.
    Mr. Burgess. Thank you, Mr. Chairman.
    And I thank the panel for having such patience to stay with 
us today. Mr. Rush, who has already left, talked about 
increasing funding rather than any type of reform for the 
program. Now, we are here having this hearing today because of 
the recommendations of the National Governors Association. And 
my recollection was, we were told that these were the unanimous 
recommendations of 35 Governors of this country, Democrat and 
Republican alike. Every Governor who has come in and testified 
before this committee has started off with the word 
unsustainable. And that has certainly gotten my attention.
    I guess, Mr. Parrella, if I could ask this question of you. 
We are talking not about any particular number, but we are 
talking about transformation of a system that is not always 
working at peak performance. Could we agree on that?
    Mr. Parrella. I would agree.
    Mr. Burgess. If it were to be a question of increasing 
funding, you alluded a minute ago to, that Connecticut is 
spending, what did you say, what percentage of your budget?
    Mr. Parrella. 26 percent.
    Mr. Burgess. 26 percent. What percentage would you be 
willing to go to of your State budget to increase the funding 
for Medicaid?
    Mr. Parrella. Well, those decisions are definitely made 
above my pay grade, Congressman.
    Mr. Burgess. The point is that we are already spending an 
incredible amount of money. And every Governor, whether they 
have a D or an R by their name, came in this committee and said 
unsustainable, the first word out of their mouth. Or, I guess 
in Texas that would be the first three words out of their 
mouth. But the first word out of their mouths was: 
Unsustainable.
    Dr. Thames, I am a member of AARP, and I pay my dues and I 
am happy to do it. You have been advertising rather heavily, or 
your organization, my organization has been advertising rather 
heavily in my market about lobbying against any reduction in 
funding for Medicaid. The question came out of a study I guess 
or a poll that you said four to five Americans opposed cutting 
Medicaid to reduce the Federal debt. Do we know what question 
was asked? And do we think we would get a different response if 
we asked: Do you oppose strengthening and improving Medicaid so 
that the program does not collapse?
    Mr. Thames. I will answer your question by saying the polls 
that are done for AARP are done by experts in polling and 
supposed to take that kind of--so that we get--I mean, like 
Gallup polls and Roper and others that are supposed to take the 
prejudice out of the question. We don't make up our own 
questions in our polling in order to get an answer that we 
would like to get back. We want to know--because we represent 
over 35 million people, we want to be sure that the information 
that we are getting is based on the consensus, at least the 
largest percentage of our members, so that----
    Mr. Burgess. Good enough. Because my time is short. Let us 
move to long-term care. And Mr. Terry alluded to three bills 
that are before the Congress now. In so many ways--and we can 
argue about the parameters and the dollar amounts, but in so 
many ways, people my age have been anesthetized to the need to 
provide long-term care coverage for their family. People who 
can afford. I am not talking about the poorest of the poor; I 
am talking about the people in the middle class who could 
perhaps afford a policy. We don't even think about it; I didn't 
think about it when I was 50 years of age and joined AARP. And 
my mother said you ought to also think about long-term care 
insurance because you won't be able to get it when you are my 
age. And I appreciate that advice, I took that advice. I would 
have bought that policy without a tax deduction. There was no 
tax deduction; there still is none. I would have bought that 
policy without any asset protection. But I guess my question to 
you is this, and we have heard a lot of stuff today about tax 
cuts for the wealthy: Would it be okay to give a tax deduction 
or a tax credit for the purchase of long-term care insurance or 
allow someone to protect assets under one of the partnership 
programs, like that great bill, 3511, that Dr. Matthews 
referenced? Would it be okay to do that simply to remove that 
veil of anesthesia from the population to let people know that 
this is a good idea to purchase long-term-care insurance at age 
50, at the same age that you sign up for AARP, to prevent some 
of the problems that we are talking about today? Because I 
think Dr. Matthews is exactly right; the problem may be bad 
today, but it is going to be awful tomorrow.
    Mr. Thames. No question that any incentives that we can 
give to get the middle class and people who can afford to buy 
long-term care--providing they are insurable. Remember that 
underwriting may take some of those people out of the market 
for long-term care, and they can't be insured. But for those 
that can, any of those kind of incentives would not only be 
worthwhile to get them to do it, it would be cost effective.
    Mr. Burgess. I agree. So AARP would not be opposed to that 
type of tax cut?
    Mr. Thames. That is correct, sir.
    Mr. Burgess. Finally, Dr. Matthews, I will just ask you the 
question: Why do you think some people, some Members of 
Congress don't trust their own State Governors to ensure to do 
what is necessary to salvage the Medicaid system?
    Mr. Matthews. It is a very good question, because I suspect 
there will be some Members of Congress who may run for Governor 
at some time in the future.
    Mr. Burgess. About half of them are right now, I think.
    Mr. Matthews. And may want that flexibility when they get 
there. You know, it is true that if you give the States the 
freedom to do this, some States are going to do a very good 
job, some States may not do as good a job. That is what the 
laboratory of democracy is about and how you find out what 
actually works, and why I alluded to Tommy Thompson is finding 
a plan that worked amidst many of the Governors. And, once we 
found out, everybody wanted to move in that direction.
    Mr. Burgess. Thank you, Mr. Chairman.
    Mr. Deal. Mrs. Capps is recognized for 5 minutes.
    Mrs. Capps. Thank you, Mr. Chairman.
    And I am going to shift to a different, to the other end of 
the age spectrum and give away the fact I suppose that I came 
to Congress following a tenure of being a school nurse in my 
school district and working with young children became a very 
big believer in early periodic screening, detection, and 
treatment, and see it as one of the hallmarks of Medicaid that 
now has been in my State emulated for the general population of 
young people as a--and a very worthwhile thing.
    And I wanted to--when you were speaking, Dr. Alexander, I 
thought to myself, well, I wish he had 10 minutes or 15 to go 
into some of these issues. And I will probably sound like I am 
handing you that. But I want to focus some of your thoughts, if 
you would, to extrapolate on one of the things that I believe 
in but I want to hear you explain a little more fully is how 
Medicaid serves all children, not just the beneficiaries. I 
gave away one little piece of it that it is a program that can 
be modeled. But also, I think one of the challenges you and I 
will have is convincing my colleagues that the benefits' 
flexibility has some downsides when it comes to this, to the 
age group that you are an expert on. If you would do that. And 
then if you could do it in the light--well, maybe I will wait 
until a follow-up. But I want to focus on the effects of 
Katrina, and I want to ask Mr. Sheehan a little bit about the 
impact of that disaster on children.
    Mr. Alexander. Well, let me first talk to the issue of why 
Medicaid is something that affects all children. Medicaid is 
the single largest funder of children's health care in the 
United States today. Once again, if you are an average 
pediatrician in the United States today, a third of your 
patient care comes from children covered by Medicaid. If you 
are a children's hospital like the one that I work at, half of 
our care on average is provided to children under Medicaid. So 
if you--you know, we can't develop programs and services 
exclusively for the non-Medicaid population.
    Another reality of children's health care is that, to 
maintain these programs and services, we need to be able to 
serve all children because we need the volume to maintain these 
critically important programs. So we can't develop a bone 
marrow transplant program for non-Medicaid patients. You know, 
the average children's hospital in the United States today that 
does kidney transplants does 10 a year. You can't do those for 
one population of children and not for the other.
    So, very clearly, the single largest source of funding for 
children's health care can't be touched without it touching our 
ability to impact care to everybody.
    One of the things that people have asked about is, what 
happens if funding for Medicaid is cut, as a Children's 
Hospital administrator? And, you know, I think there are some 
realities. I think, to the extent that we can, some of those 
cuts are going to get passed on to the private sector in terms 
of higher charges to people who have commercial insurance. And 
that is not something that we do lightly. But there are limits 
to the degree that we can do that, and at that point, we have 
to start to look at, can we afford to either continue to 
provide the services that we are providing today or buy the 
next piece of technology that comes along. And, you know, 
particularly services like dentistry and mental health and 
behavioral medicine are a huge risk under those sorts of 
circumstances.
    In terms of your question about benefit flexibility, you 
know, I think that there is potential for a very slippery slope 
here. And the EPSDT benefit package, the reality is, is that, 
as I mentioned, fortunately most children are healthy and do 
not need to take advantage of that full benefit package, just 
like you and I don't hopefully need to take the full advantage 
of the benefits that are afforded to us through our insurance 
plan. That said, when those benefits are needed, we need to 
have them there.
    Mrs. Capps. I appreciate that. Just in the half minute that 
is left, Mr. Sheehan, maybe I will ask you to briefly tell us 
some of the impacts that you see on children, many of whom, 
those impacted by the hurricane, are Medicaid beneficiaries, on 
the trauma that they have been a part of and how it will impact 
their lives.
    Mr. Sheehan. It will impact it immediately, but then it 
will be sort of a slow-timing effect. You will see it 6 months 
out and a couple years out. Some of the stories we are hearing, 
even in Michigan, kids have come to Michigan from Louisiana. 
They are pretty tragic stories. I mean, loss of parents, loss 
of friends, to be blunt, dead bodies next to you as a kid. We 
are going to see that happen over the next several months. A 
lot of the folks, as you know, who were hurt most severely by 
Katrina were poor folks, Medicare recipients, I mean, either 
soon to be or currently Medicare recipients. So I think we are 
going to see that. I think we have to get ready for that sort 
of catastrophic almost secondary packet of money, to be blunt, 
that will take care of those kids' housing and clothing but as 
well as their mental health care.
    Mr. Deal. Ms. Blackburn is recognized for 5 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    And thank you to each of you for your time and for being 
here. I think that I am like a lot of members of this 
committee: What we want to be certain we do is look at 
preserving access to health care for our citizens, and being 
certain that we do that as good stewards and in a way that our 
emphasis is on the quality of care.
    And having served in a State legislature, having been in 
the State Senate in Tennessee, I appreciate the problems that 
the States have. I appreciate the Governors and am very 
grateful for their willingness to work with us and say, how do 
we go about looking at health care in the 21st century and 
being certain that we approach this wisely?
    Dr. Alexander, I want to start with you to follow up on 
something Ms. Capps was saying about the children's programs. 
You referenced the Texas children's hospital effort in your 
testimony. I want to go back to that, where you talk about the 
project medical home and the 24-hour hotline and the extended 
hours with the pediatricians. Your hospital in Michigan, are 
you implementing this program?
    Mr. Alexander. Certainly not to the same degree as has been 
done in Texas Children's Hospital. We are one of--our hospital 
employees, one of the few groups of primary care pediatricians 
in west Michigan who have committed their practice to providing 
primary care to children covered by Medicaid.
    Mrs. Blackburn. And you said that this program was neither 
organizationally complex nor bureaucratic.
    Mr. Alexander. No, it should not be.
    Mrs. Blackburn. Okay. So do you know of other hospitals, 
other children's hospitals or trauma centers that have 
implemented a program similar to this?
    Mr. Alexander. I think there are many children's hospitals, 
although it has not been organized under a branded program. I 
think many children's hospitals have identified the need to 
create medical home for people out in the community.
    Mrs. Blackburn. And are moving to that model?
    Mr. Alexander. And are moving to that. You know, there has 
been a lot of conversation about frivolous use of care. I don't 
think any parent thinks that taking their child to the doctor 
is a fun time and something that they would do frivolously. And 
I think that when parents bring their child to an emergency 
department, it is not because they have nothing else to do, it 
is because they don't have any other way to get the care. So if 
we can provide medical homes for children, they clearly will be 
utilized.
    Mrs. Blackburn. And you are talking about specifically 
increasing the education component. And I have great 
appreciation for that.
    I want to move to Mr. Matthews and Dr. Thames, if we can. I 
was going to direct this question to Mr. Keating and to you 
also, Mr. Matthews. And since he is not here, I will put it to 
you. We keep hearing and several of you have mentioned that 
there were limited options for long-term care when it comes to 
policies, when it comes to types of policies, when it comes to 
options, for people to access as they look for long-term care. 
And so that leaves Medicaid as the only option, the best 
option. And I would like to hear from you why you think that is 
the case. And Dr. Thames, as you answer that, Dr. Burgess was 
talking about being a member of AARP, I am not nor is my 
husband. It is something I have chosen not to do when I turned 
50 and got your invitation to join. But I do have a long-term 
care policy. So if you talk about these severely limited 
options, what are you all doing to offer, to work with 
companies to offer programs to maybe incentivize? And what 
should be done there in addition to tax, looking at the 
governmental--and you talk about some of the tax consequences, 
some of the legislation that has been referenced here today. 
But what do you look at on the private industry side and say, 
this is a way to incentivize this? This is a way to get the 
costs down? You know, homeowners get a discount if your auto 
insurance is also with you. So I would like each of you to 
answer that and talk a little bit about that availability of a 
product and an increase of options, and then what you all would 
do to support that. Mr. Matthews first.
    Mr. Matthews. It is a good question. I think that there is 
a general perception out there, Dr. Burgess alluded to it, that 
the government is going to step in and take care of you if you 
need nursing home care. And that perception is not unfounded, 
because there are ways for people, even middle- and upper-
middle-income people, to qualify for long-term care under 
Medicaid. Because there is that perception there, people do not 
plan for nursing home care like they do life insurance, setting 
assets aside for retirement so that they have income and so 
forth. And what we are encouraging is our policies that would 
make that thinking part of the person, of the working-age 
person. So that, for instance, under Congressman Terry's bill, 
being able to use your 401K or IRA, it is a qualified 
distribution, to pay your long-term care premiums with your 
401K or IRA; you are using tax deferred--previously tax-
deferred money for that. That puts it into the working-age 
person's thinking of, here is an option for me to cover for 
myself so that I can take--going back to another term--personal 
responsibility and set these assets, make these assets 
available if I need nursing home care when I hit retirement. We 
simply don't make that part of the financial planning process 
for many Americans now, and we need to.
    Mr. Thames. Let me just briefly.
    Mrs. Blackburn. Very briefly. I am over time.
    Mr. Thames. Tell you what we are doing in AARP. First, we 
do have a commercial insurance carrier that underwrites and 
sells to our members at a reasonable rate with some things that 
are not in the regular policies for long-term care. That is the 
oversight that AARP offers to its members. And we are in the 
process of developing a financial center. And one of the things 
we do now is counsel people about the need for long-term care 
as long as they meet the underwriting, if they don't have 
underwriting things that throw them out. Because many people do 
not plan for it, they don't think they can afford it. And, 
unless there is some way like Mr. Terry's bill or tax credits, 
we are still going to have problems. And many people just don't 
want to accept the fact that they might ever have to go into a 
nursing home. But with good planning and good advice and 
financial centers and the other products that we offer--and 
when we offer life insurance, we try to talk to people about 
their need for long-term care insurance.
    Mrs. Blackburn. Thank you very much. Yield back.
    Mr. Deal. Thank you. Mr. Doyle, you are recognized for 5 
minutes.
    Mr. Doyle. Mr. Chairman, I didn't speak 3 minutes, I only 
spoke 1 minute. Does that give me like a 30-second bonus or 
something?
    Mr. Deal. We do not distinguish.
    Mr. Doyle. Thank you, Mr. Chairman.
    This is a tough problem. And you hear a lot of our members 
say this is a program that is not sustainable. The reason it is 
not sustainable is we are creating a bunch more poor people in 
this country. When you look at the National Governors 
Association report, they say the primary driver of their 
increased spending is that the program enrollment has gone up 
33 percent in the last 4 years. So we understand that the 
program is costing a lot more money, but we need to understand 
why it is costing a lot more money, too. When you look at what 
Medicaid has been spending per person, between 2000 and 2003, 
Medicaid has only increased at 6.9 percent per year compared to 
private insurance which has gone up 12.6 percent per year. So I 
think we all need to understand that we are seeing the middle 
class eroded in this country. And many people that used to be 
part of the vibrant middle class--and you know, I was listening 
to that, $5 million home and spend it on your assets. Boy, my 
wife would like to figure out how to do that, Nathan. But where 
I come from, you could count on one hand the number of houses 
in the community--I am born and raised and lived all my life--
that sell for over $100,000 a year. I mean, I have got four 
children; three of my boys are now homeowners. They are 29, 25 
and 23. They paid $61,000, $53,000, and my youngest son just 
bought a house for $35,8 which he closes on this September.
    The vast majority of the people that I represent, they live 
paycheck to paycheck. The idea that they could buy a long-term 
care policy, that is a joke. That is just not reality for the 
vast amount of people growing up in parts--you know, I 
represent Pittsburgh and the steel mill towns around Pittsburgh 
where there used to be a vibrant middle class where there is no 
longer one. And just many Americans just don't have the 
disposable income after they pay their rent and buy their food 
to even consider some of these things that we are talking 
about.
    You know, this comes during the same week before Katrina 
hit that this Congress was about to consider repealing the 
estate tax on the richest 20,000 people in America at a cost of 
$1.5 billion a week. So when we talk about priorities here in 
the Federal budget, and when we talk about reform, you know, 
reform is a very interesting word. When we talk about tax 
reform, it is tax reform if your taxes go down. If your taxes 
go up, people don't think that is reform. We look at reform in 
the health care system. If you are one of these people who are 
having their benefits cut or if you are increasing their copay, 
they probably don't consider that reform of the Medicaid 
system, either. I understand what is going on in the States. In 
Pennsylvania, this is a big part of our budget, too. I mean, 
Governors are trying to get more money from the Feds, and they 
are looking for ways to reduce their costs. I mean, that is 
what is going on. But we also have to understand that there is 
a very vulnerable population of people that are being affected 
by this, some of the most vulnerable in our society. And when I 
think about the mentally ill, you know, you talk about personal 
responsibility, that isn't a concept some of our people that 
are mentally ill even have a grasp of in terms of their health 
care.
    So I guess, you know, you wonder, should the goal of 
Medicaid be to keep people healthy, or is the goal of the 
program just to give them as much health care as we can afford 
to do? I mean, that is the fundamental question, and we have to 
answer as Americans. And when we look at our Federal budget, 
you know, for me, it is an easy ask. You know, do I want to 
exempt the last 20,000 richest families in America from estate 
taxes at a cost of $2.5 billion a week? Or would I rather shift 
that money down to some of the most vulnerable Americans, many 
of which I have the privilege of representing in the United 
States Congress? For me, it is a no-brainer.
    Now, I have a couple questions, and I am getting down to a 
minute. I didn't mean to talk that long. But the cost-sharing 
requirements. Many are arguing that what this is going to do is 
lead to reduced payments for providers, because a lot of States 
may deduct the copay amount from the physician payment even if 
the physicians aren't getting paid. And so has anybody here 
estimated? Maybe, Jim, you could tell us what the impact of co-
payments would have on providers that serve a large portion of 
low-income families where they are actually not getting paid 
but they are cutting that away from the payment. It seems to me 
that we should at least hold harmless providers that aren't 
receiving these payments. Does anybody have any comment on the 
impact of that?
    Mr. Gardner. Relative to what I do in terms of hospital 
work, it would be difficult for me to try to estimate that for 
you.
    Mr. Doyle. It just seems that, in many of the areas that I 
serve and many of the lowest-income areas, where these 
doctors--I mean, they are not paying, but yet that is being 
deducted from their payments. I think we need to look at that.
    I guess, in closing, and I see my time is up already: You 
just wonder, is it really fair to put cost-sharing requirements 
on children regardless of what their income level? I mean, the 
thing that they are guilty of is they are growing up in a poor 
family. I just think in America it is unconscionable that we 
would ever put cost sharing on children. Maybe, Dr. Alexander, 
you can comment, and I will yield back my time.
    Mr. Alexander. Just one quick comment in the interest of 
time. I think the concept, just like the mentally ill, personal 
responsibility for a 2-year-old is an interesting concept. I 
think it is important to remember that the working poor who 
make up the majority of Medicaid are already cost sharing, 
because to take their child to the doctor, they are taking time 
off from what is usually an hourly wage place of employment. So 
there already is some cost sharing. And, you know, I think--
there is a quote that comes from President Bush's first 
inaugural address that said: Children at risk are not at fault. 
And I think that is something that we have to remember as we 
have this conversation.
    Mr. Deal. Ms. Baldwin, I am afraid you got bumped again.
    Mr. Strickland, you are recognized for 5 minutes.
    Mr. Strickland. Mr. Chairman, would you please recognize my 
colleague next?
    Mr. Deal. Ms. Baldwin, you are recognized.
    Mr. Strickland. Thank you.
    Ms. Baldwin. Thank you, Mr. Chairman.
    And thank you, Mr. Strickland, for that courtesy.
    I am actually interested in continuing this exploration of 
cost sharing, and I have a couple of specific questions that I 
will get to shortly, including the proposal in the NGA document 
that takes cost sharing and makes it enforceable. And 
presumably, enforceability would mean denying care to those who 
are unable to share in the cost.
    I am also very interested in the debate we have had back 
and forth about what the consequences are of cost sharing. Cost 
sharing is intended to influence behavior. I was reading an 
article that was published in the New Yorker that touches on 
this in various spots. And it tackles this presumption that, if 
health care is paid for, that people will just seek it out. Do 
people really like to go to the doctor? If they have an option 
between checking in the hospital and playing a round of golf, 
if they are healthy, they are probably going to play the round 
of golf.
    There have been extensive studies, and I would be 
interested to know whether you refute those studies or not, but 
that while there has been some debate earlier about cost 
sharing leading to lower utilization of emergency rooms and 
fewer hospital in-patient admissions, because people who have 
to cost share, they may not only cut out frivolous treatment, 
which is something I am sure we would all desire, but cut out 
very needed health care which would lead to higher emergency 
room utilization and higher hospital input admissions. And I 
think The Commonwealth Fund study that was cited in this recent 
article said basically something that I agree with, that cost 
sharing is a blunt instrument. And it is not going to be 
something that will modify the behavior with precisely the same 
effects that Members of Congress want.
    But before I use up all my time I just want to put us back 
in the frame of mind of thinking about who the people are that 
we are talking about. I appreciated Mr. Sheehan's example of a 
person struggling with mental illness on SSI receiving an 
average of $600 a month. Let us look at an example of somebody, 
a family much more affluent than that, a family at the Federal 
poverty level in my hometown of Madison, Wisconsin. Let us even 
put them a little bit above that. A family of four, poverty 
level is $19,350 a year. So let us put them at $20,000 just to 
round off the numbers. That is a monthly income of $1,666. Rent 
in Madison for a modest two-bedroom apartment is $600. Food for 
a family of four, roughly $500. Transportation--and given the 
gas prices, I can tell you this is a conservative estimate--
$150 a month. Child care, $500 a month, another conservative 
estimate. And with these expenses, the family's entire monthly 
budget has just been depleted. The family has no money left 
over for necessities like telephone or other utilities. And 
heat, by the way, in Wisconsin is mandatory, you have to have 
it. School supplies, household items, clothing. And, trust me, 
again, in Wisconsin, you need a coat, a hat and boots and 
mittens in the winter. This family who would most likely be 
enrolled in Wisconsin's Medicaid program would have no money 
left to afford the cost of the health care. So when we talk 
about increasing cost sharing, even if it is a few dollars to 
the rest of us, it is something very significant to this 
family.
    And so while it is rather a rhetorical question, perhaps, 
the first question I ask is, where are these families going to 
get the money? But then the second and third specifically, if 
we make the cost-sharing provisions enforceable, and a family 
truly cannot pay, are doctors going to refuse care? Are doctors 
going to cover that care? What is going to happen if we make 
these provisions enforceable? And last, given as recent as a 
2004 study of our neighboring State of Minnesota's Medicaid 
recipients that resulted in higher ER utilization and more 
hospital admissions for higher copays and a number of other 
studies with similar results, why do you think this is going to 
work and alter the behavior in the way that you would like? I 
will open it to--Dr. Alexander, I don't know if you want to 
take a first kick at this.
    Mr. Alexander. I would certainly hope, based on your 
definition of enforceability, that that would not be something 
that this committee would consider. Our Children's Hospital and 
the Nation's children's hospitals are not going to turn away 
children who need care because mom or dad does not have a $3 
copay. And if that means that we are not going to get paid 
anything for that care, we will have to make accommodations of 
the sort that I referenced before. And, once again, those 
accommodations are going to affect every child that we serve, 
not just the low-income children that are impacted by Medicaid.
    Mr. Deal. The gentlelady's time has expired.
    Mr. Strickland for 5 minutes.
    Mr. Strickland. Thank you, Mr. Chairman.
    I am sitting here, and I was listening in the back room. 
You know, the answer seems so simple: We ought to put adequate 
resources into Medicaid to meet the need. And given what is 
happening in our country with the increasing need within our 
States, for this Congress to consider the kind of significant 
cuts in Medicaid, I think it is immoral. You know, some people 
think morality involves what you do with your genitalia. I 
think morality involves what you do with your resources and how 
you choose to utilize those resources. I think we are engaged 
in an immoral practice. But that is where we are.
    Mr. Sheehan, Dr. Matthews advocates for increasing cost 
sharing because, and I am quoting, ``it would help prepare some 
of the Medicaid population for the day they move to an employer 
who offers health insurance coverage,'' close quote. Now, it 
seems to me that we should not base cost sharing off of 
potential future ability to pay. It is like saying to people 
that they should pay taxes based upon their future potential 
for earnings. I may be a billionaire 1 day, but I don't think 
today I should pay the same amount in taxes as Bill Gates.
    Now, in 2002, higher-income adults with private insurance 
spent on average, and I have a chart here, .7 percent of their 
income on out-of-pocket medical expenses: .7 percent. That was 
up from .6 percent in 1997. So from 1997 to 2002, it went 
from.6 percent to .7 percent for those in the higher-income 
range with private insurance. Poor and nondisabled adults on 
Medicaid spent 2.4 percent. That was up from 1.9 percent in 
1997. And disabled adults on Medicaid spent on average 5.6 
percent of their income on health care costs, up from 4.4 
percent. Those on Medicaid already are paying more out of 
pocket for their health care than their counterparts in private 
insurance. So, Mr. Sheehan, this is my question to you. It 
already seems that individuals with disabilities on Medicaid 
are paying more than their fair share out of pocket. Won't the 
cost-sharing changes proposed by the Governors and others fall 
disproportionately on the disabled, the chronically ill, and 
others who, because of their medical conditions, are high users 
of care?
    Mr. Sheehan. Two parts of the answer. The answer is, first, 
yes, it will. The disabled use a lot more care per person 
because their disabilities are so high, and their incomes are 
no higher. So you are right; the proportion of their income 
spent on health care will be much higher.
    The second point is an important one. We don't prepare 
people for private insurance by increasing what I would call 
the worst parts of private insurance; we get them private 
insurance. And you get private insurance in America by getting 
a job, to be blunt. So the way you move into private insurance 
is you have something called economic development. And when you 
don't, you don't make Medicaid look as onerous as private 
insurance without the income that goes with private insurance. 
Private insurance comes when I have a job. I have a job, so I 
have private insurance. Those two are inseparable, and they 
have to be. So my ability to pay that copay or the premium 
sharing is because I am employed. And I may even debate with my 
employer either individually or collectively if I am in a union 
about how much that is. But to get somebody ready for private 
insurance in the Medicaid way isn't the way to go, I don't 
think. And I hate running counter to a panelist whom I respect, 
so let me just say that.
    Mr. Strickland. Thank you. And I have a second question for 
you, sir, quickly. Cost-saving methodologies like fail first, 
mandatory therapeutic substitution and closed formularies, 
these are proposals that I think could in the long run have 
very harmful effects. Would you just--I have got about a minute 
left. Would you speak to the effects of those practices?
    Mr. Sheehan. David pointed out in Connecticut and Michigan, 
too, some drug classes have been exempt from it because some 
drug classes, in our case psychotropics, mental health drugs, 
there aren't therapeutic equivalents, or they are only 
determined by the physician and the patient. I think it can be 
done, but you have got to be very, very careful in building 
formularies or fail first. In the mental health world, fail 
first has been dropped in most States because the fail isn't, I 
felt bad today. The fail is, you end up in the hospital or 
losing my----
    Mr. Strickland. Having a psychotic breakdown.
    Mr. Sheehan. Exactly. Right. And so I think most States 
have said fail first doesn't work there. I really can't speak 
to the other drug classes. Psychotropics are really a problem.
    Mr. Strickland. I want to thank you.
    Thank you, Mr. Chairman. I yield back.
    Mr. Deal. Thank you.
    Mr. Engel, you are recognized for 5 minutes.
    Mr. Engel. Thank you, Mr. Chairman.
    I want to talk about people who have multiple illnesses. 
The effort behind many of these initiatives is supposedly to 
save money. But, from my vantage point, the increasing cost 
sharing of prescription drugs and care could have devastating 
consequences to people who have many different illnesses and to 
health care in general and cost the States and local 
governments for delayed care. It is not uncommon to expect a 
Medicaid beneficiary to have more than one illness and need 
multiple drugs for each. For instance, a low-income person with 
AIDS who also has Hepatitis C and needs treatment for mental 
illness as well. Most AIDS patients have a minimum of three to 
five medications. There are lots of other things: Hepatitis C, 
people who take multiple drugs. All of these illnesses require 
stable regular care, and failure to take drugs for mental 
illness may mean that the individual is unable to manage their 
HIV and Hepatitis C treatment.
    And so I would like to--you know, the problem is with a 
minimum of 10 drugs to take, not to mention the cost of health 
care treatment and the cost of living; increased cost sharing 
for prescription drugs for Medicaid beneficiaries would be in 
many instances financially prohibitive. So I would like to ask 
Mr. Sheehan to comment on whether this seems like good policy. 
And the same with Mr. Parrella who stated that--I am quoting 
you, sir--that you cannot convince families to take an interest 
in the cost of their care unless they share in it. Because, in 
my mind, this patient on a personal level is very aware of both 
the time and the expense of their care. So I wonder if Mr. 
Sheehan first and then Mr. Parrella.
    Mr. Sheehan. The patients who are mentally ill, the term we 
used before a minute ago is personal responsibility. It is a 
great one. Personal responsibility for the mentally ill 
actually means seeking health care. It is an interesting thing, 
I mean, because you want them to use more of it, actually. We 
want them to see a psychiatrist or a case manager and 
therapist. If there is a cost sharing there, it actually makes 
me less personally responsible because the burden I have to do 
to pursue that. It is a really different world if we perceive 
folks as being health care wasters; personal responsibility is 
to stop doing that. In the mental health world, that is not 
what we perceive our folks to be, and that is not what we see.
    Mr. Engel. Mr. Parrella.
    Mr. Parrella. We believe that there is a place for cost 
sharing for higher-income populations to cover the Medicaid, 
not the SSI, mandatory coverage groups. But as you go up the 
income scale in terms of who you are choosing to cover in your 
Medicaid population, there is a role for cost sharing and 
allowing the States to have the sustainability to expand their 
programs.
    We have a prescription drug benefit in Medicaid right now 
for people that are called dual eligibles. Those people do not 
have enforceable copays right now. That program is going to 
come to an end in January with the implementation of Medicare 
Part D. When they go into the Medicare Part D program, they 
will have copays, and those copays will be enforceable. That is 
not a State decision. State decision to look at copays was to 
use those copays as a way of financing care for some of our 
higher-income Medicaid covered individuals. With what is going 
to happen in Part D, those copays will be made enforceable for 
your dual eligible clients, who are among your sickest and 
among your poorest individuals. So--and I understand why that 
is done, because that was done as part of a cost equation in 
terms of being able to provide that benefit. States are looking 
at the same cost equation in terms of their Medicaid programs.
    Mr. Engel. Let me just say, and in fact, one of the 
questions I wanted to get to is that I really believe very 
strongly that increased cost sharing for prescription drugs for 
some of these Medicaid beneficiaries would just be financially 
prohibitive. And I think it is one of the big flaws of this 
cost cutting that we are trying to do, squeezing more out of 
Medicaid.
    Let me ask Dr. Alexander this question. The National 
Governors Association is asking for so-called flexibility in 
two areas of Medicaid that I think would essentially allow 
States to discriminate against individuals in their States. 
They would like to provide coverage in only certain parts of 
the State and also be allowed to give more benefits to some 
than others. I can see how this could become a political 
football at the State level. But, medically, can you tell me if 
there is any reason that a person with a certain disease in one 
part of a State wouldn't need the same benefits for their 
health condition as someone else in the State? For example, is 
there any medical reason someone with diabetes in a rural area 
wouldn't need the same medical treatment as someone with 
diabetes in an urban area? Or is there any medical reason why 
one type of person with a disability or debilitating disease 
who needs prescription medicines should get coverage for 
prescription drugs and another person with the same disability 
or disease who needed medication should not? Say, for example, 
a child with AIDS?
    Mr. Parrella. There would be no clinical reason why there 
should be a different set of benefits based on geography.
    Mr. Engel. I couldn't agree with you more. Thank you.
    Thank you, Mr. Chairman.
    Mr. Deal. Mr. Markey is recognized for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman.
    First of all, let us just define this whole program for 
what it is. We are talking about wealthier poor people. We are 
not talking about wealthier people; we are talking about 
wealthier poor people will pay more. So it is the Governors 
that put together a poor-people-pay-more program. So it is the 
Governors looking at the poor people saying it is the poor 
people pay more program, so that we can have tax breaks for the 
wealthiest. So that is what the Governors have decided that 
they are going to co-partner with Congress and the President on 
achieving.
    Now, I think it was a shock to people to know that 100,000 
people in New Orleans did not have automobiles to escape that 
flood. It was kind of a shock to people. Shock to Americans. 
Well, those people are living in cities all across America. I 
think it was a shock to people to know that 50 percent of all 
children in Louisiana live in poverty. But that is why this 
last week has been in a way such a revelation, because we all 
are forced to drive up and down those streets night after 
night, day after day and see this other America, see these 
other people.
    Now, we come here with an underlying false premise as well. 
That is that a lot of people I think are under the impression 
that poor people don't pay for their medical benefits, that 
they are exempt. And now we are just going to make them pay a 
little bit because they don't have any skin in the game the way 
wealthy people do. Of course, it would be a shock to people to 
know that poor people are not exempt, that poor people already 
have to pay, and that they pay a higher percentage of their 
income than we pay of our income for medical benefits. But we 
are going to increase how much we ask them to pay under the 
Governors' poor-people-pay-more program.
    In fact, right now, under existing law poor adults on 
Medicaid pay out-of-pocket medical expenses of 2.4 percent of 
their income. Under current law, disabled Medicaid 
beneficiaries pay out-of-pocket for their medical expenses 5.6 
percent of their family income already. Under this bill, a 
family living at $13,000 a year--that is not even $300 a week--
will have to pay $650 for their medical benefits. A family of 
$16,000 a year, a family of two, will have to pay $800 of that 
money that they have just for their medical care.
    Now, in order to justify a tax cut for the wealthiest does 
it really make any sense that we are going to put the burden on 
those faces that are looking at us on the screen for the last 9 
days and will continue to look at us for at least the next 
month? Can we not have the capacity to respond to human 
suffering when we see it? Can we not finally realize that there 
are people who live in our country who need this money more 
than the wealthiest need it at this time? Must we cobble 
together in this committee a tax break that--this committee 
says it is not in charge of tax policy. All we are going to do 
is package $10 billion worth of Medicaid cuts and send it over 
the Ways and Means Committee, and then they will determine who 
gets the breaks. Are we not better than that as a society? Do 
we not have more compassion? You know, if you kick this 
Congress in the heart, you break your toe. Especially at this 
time. We have learned something in the last 8 or 10 days. 
Haven't we, America? Haven't we learned that we have this group 
of people who need this help? And even the liberals and 
conservatives on this panel agree that, if people are forced to 
pay more, then they will have less medical care because they 
won't go as often. But we also know that socioeconomic status 
is the greatest predictor of health and well-being throughout 
your life. So all we are really saying is they are going to get 
less medical care, and, as a result, later on in their life, 
greater medical problems will show up. Prevention is what this 
is all about. Giving them the care when they are young when 
they need it, those faces that we have all seen. You help them 
now, they will be healthier, they will live longer. You take 
the care away because you are making them decide, am I going to 
give the $800 over to more medical care, or am I going to buy 
more food? Am I going to try to live in a little bit better 
place for my family? How obscene is it that these are the 
people who the Governors poor people pay more program are going 
to be forced to suffer? And even if you can find savings in 
some part of this program, shouldn't the money go into the 1.1 
million more Americans who have fallen into poverty in the last 
year? Shouldn't it go into a program that will be set aside for 
all the additional elderly who are heading toward nursing 
homes? Health is the first wealth, not tax breaks. Health is 
the first wealth. And we have an obligation on this committee 
to ensure that the money is going to be there. By packaging 
this $10 billion out of this committee and giving it to the 
wealthiest, the committee is ensuring the money will never be 
there for the other needs of people even if the reforms are 
justified. The savings should go to the poorest in our society, 
not to the wealthiest. I thank the chairman for his indulgence.
    Mr. Deal. I thank the gentleman.
    Gentlemen, this will conclude the hearing. I thank you all 
of you for your patience and sticking with us. I would like to 
recognize someone who has been in the audience, and that is 
Matt Salo, who is the director of Health and Human Services 
Committee of the National Governors Association, who has been 
working as liaison. We appreciate your efforts.
    Our previous hearing in which the National Governors 
Association presented this to us was led by the then chairman, 
the Democratic Governor of Virginia, Governor Warner. His 
comment at one point was that he believed the National 
Governors Association was the only bipartisan act in town. 
Unfortunately, gentlemen, you may have been forced to come to 
that same conclusion as a result of today's hearing. But your 
patience, your participation, and your input is greatly 
appreciated by all the members of this committee. Thank you 
very much. This hearing is adjourned.
    [Whereupon, at 3:04 p.m., the committee was adjourned.]

                                 
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