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24–247PDF 2005

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

2

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi, Vice Chairman 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. ‘‘BUTCH’’ OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, Jr., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

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) 

(1)

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 21⁄2 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 

2

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 

3

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 

4

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. 

5

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 

6

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 

7

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 

8

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 communitybased 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. 

9

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 

10

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. 

11

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 

12

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? 

13

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 21⁄2 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. 

14

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 

15

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. 

16

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 

17

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. 

18

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 

19

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 

20

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 preand postnatal care. Medicaid will ensure that victims of Hurricane 

Katrina have health care. 

21

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 

22

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. 

23

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. 

24

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 

25

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 copayment. 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. 

26

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 inhome care, assisted living facilities, and nursing homes, encourVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
27

aging 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-fordollar 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 

28

1Murtaugh, C.M., P. Kemper, and B.C. Spillman (1990). The Risk of Nursing Home Use in 

Later Life. Medical Care 28(10): 952-62. 

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 communitybased 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. 

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, 

29

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 abovethe-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 employersponsored 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 middleincome 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 servVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
30

ices, 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 in- surance 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 middleincome 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 

31

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 

32

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. 

33

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 

34

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. 

35

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 

36

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. 

37

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 uninVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
38

sured 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 subspecialists 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 

39

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 

40

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. 

41

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 middleincome 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-forprofit 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 

42

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. 

43

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. 

44

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. 

45

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 

46

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 

47

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 communitybased 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. 

48

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. 

49

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 selfcare 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 

50

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 ClintonEaton-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 

51

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 evidencebase 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 longterm 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. 

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• 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 yearold 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. 

53

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.’’ 

54

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. 

55

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 longterm care quickly outstrips most people’s personal savings. As outlined in AARP testimony before this Committee last April, we believe that options for expanded longterm 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. 

56

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. 

57

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 longterm 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 

58

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 

59

$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 monoVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
60

lithic 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 

61

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 longterm 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. 

62

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 lookback 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, 

63

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. 

64

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 mid1960’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 

65

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 

66

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 

67

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 

68

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 

69

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 yesor-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. 

70

And I also added in that that if the goal is to move people into 

private sector coverage ultimately, the private sector has higher copays, 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. 

71

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. 

72

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. 

73

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. 

74

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 mediVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
75

cation 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 

76

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 

77

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 valuVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6602 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
78

able 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. 

79

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 TerryPeterson 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 

80

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 middleincome, 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. 

81

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? 

82

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. 

83

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 

84

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 

85

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. 

86

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. 

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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 TerVerDate 0ct 09 2002 15:50 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6602 F:\DOCS\24247.TXT HCOM1 PsN: JOEP
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ry’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 

89

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 nobrainer. 

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? 

90

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 

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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 costsharing 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. 

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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 costsharing 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 

93

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 lowincome 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. 

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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 

95

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-paymore 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 

96

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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