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STATE FISCAL RELIEF: PROTECTING HEALTH 

COVERAGE IN AN ECONOMIC DOWNTURN 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

TUESDAY, JULY 22, 2008 

Serial No. 110–139 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chair 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff 

GREGG A. ROTHSCHILD, Chief Counsel 

SHARON E. DAVIS, Chief Clerk 

DAVID CAVICKE, Minority Staff Director 

(II)

(III) 

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

Vice Chair 

TOM ALLEN, Maine 

TAMMY BALDWIN, Wisconsin 

ELIOT L. ENGEL, New York 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JOHN D. DINGELL, Michigan (ex officio) 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 1 

Hon. Nathan Deal, a Representative in Congress from the State of Georgia, 

opening statement ................................................................................................ 3 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 4 

Prepared statement .......................................................................................... 6 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 10 

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 11 

Hon. Jan Schakowsky, a Representative in Congress from the State of Illinois, opening statement ....................................................................................... 12 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 13 

Hon. Darlene Hooley, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 14 

WITNESSES

Robert Tannenwald, Ph.D., Vice President and Director, New England Public 

Policy Center at the Federal Reserve Bank of Boston ...................................... 15 

Prepared statement .......................................................................................... 17 

James Frogue, State Project Director, Center for Health Transformation ......... 29 

Prepared statement .......................................................................................... 32 

Gerald W. McEntee, International President, American Federation of State, 

County, and Municipal Employees ..................................................................... 43 

Prepared statement .......................................................................................... 45 

Robert B. Helms, Ph.D., Resident Scholar, American Enterprise Institute ....... 51 

Prepared statement .......................................................................................... 53 

Heather Howard, Commissioner, New Jersey Department of Health and Senior Services ........................................................................................................... 68 

Prepared statement .......................................................................................... 70 

SUBMITTED MATERIAL

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

(1) 

STATE FISCAL RELIEF: PROTECTING HEALTH 

COVERAGE IN AN ECONOMIC DOWNTURN 

TUESDAY, JULY 22, 2008 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 2:08 p.m., in room 

2322, Rayburn House Office Building, Hon. Frank Pallone, Jr., 

(chairman of the subcommittee) presiding. 

Present: Representatives Pallone, Waxman, Baldwin, Schakowsky, Hooley, Dingell (ex officio), Deal, Murphy, and Burgess. 

Staff Present: Elana Leventhal, Robert Clark, Amy Hall, Bridgett 

Taylor, Hasan Sarsour, Brin Frazier, Lauren Bloomberg, Brandon 

Clark, Ryan Long, and Chad Grant. 

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

Mr. PALLONE. Good morning. 

The subcommittee is having a hearing today on State Fiscal Relief: Protecting Health Coverage in an Economic Downturn, and I 

will initially recognize myself for an opening statement. 

I know that the members present today made a concerted effort 

to be here as there are no votes until later this afternoon. So I do 

want to thank everyone for being present for this very important 

discussion. 

Medicaid, as you know, provides over 61 million Americans with 

access to medical care and specialized supports and services. It protects our most vulnerable populations, our poor, and our disabled. 

Unfortunately, due to converging economic factors and the ensuing, 

growing fiscal pressures, the Medicaid programs in many States 

are threatened and millions of American citizens are in danger of 

losing access to the health care coverage they desperately need. 

Already, 13 States, including my home State of New Jersey, have 

considered or implemented changes to their Medicaid program that 

affect eligibility criteria. These cuts affect not only those already on 

Medicaid but also those who will come to need it as the economy 

continues to decline. Higher unemployment rates and, therefore, 

decreases in employer-sponsored health care coverage will force 

more people to turn to Medicaid for their health care needs. 

In fact, a study conducted by the Kaiser Family Foundation 

found that increasing the national unemployment rate by 1 percentage point increases Medicaid and SCHIP enrollment by 1 milVerDate Nov 24 2008 15:46 Oct 01, 2010 Jkt 037690 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-139 SCOM1 PsN: JIMC
2 

lion. At a time when States are already struggling to balance their 

budgets, this type of change in unemployment rates would increase 

State spending by approximately $1.4 billion. 

Adding insult to injury, cuts to State Medicaid programs not only 

impact Medicaid-eligible individuals but they also adversely effect 

the health care job market. Medicaid cuts translate into health 

care job losses. Cutting Medicaid, therefore, only contributes to a 

State’s unemployment rate and a need for Medicaid services, exacerbating the worsening fiscal crisis. 

With the economy declining, it is crucial now more than ever 

that we in Congress ensure that those hardworking American families who are negatively impacted by the economic downturn have 

this safety net to protect them. 

To alleviate some fiscal pressures and to halt negative trends, I, 

along with my colleagues Mr. Dingell, Mr. King and Mr. Reynolds, 

introduced a bill to temporarily increase each State’s Federal Medical Assistance Percentage, or FMAP, during this economic downturn to ensure that States can continue to provide critical services 

instead of cutting them. 

Our legislation provides a temporary FMAP increase of 2.95 percentage points, with the condition that States do not change eligibility criteria. It also includes a hold harmless and Federal contributions for States that are slated for decline in their Federal 

contribution. In addition, the legislation provides a temporary increase of the Medicaid FMAP by 5.9 percent to the territories. 

This bill is very similar to what was passed by a Republican Congress and signed into law by President Bush in 2003 as part of the 

Jobs and Growth Tax Relief Reconciliation Act. The FMAP increase 

we provided in 2003 was a success. Studies have shown that the 

temporary increase provided the funding needed to avert or limit 

cuts to the Medicaid program, to avoid provider payment cuts, and 

to reverse any cuts States had already enacted. 

I believe it is once again the responsibility of Congress to ensure 

that Medicaid, a vital public health safety net, is protected. Medicaid is a joint Federal and State effort, and the Federal Government needs to do its part to protect the 61 million Americans who 

already rely on Medicaid to get their health care services, as well 

as the millions more who will need these services as the economy 

continues to decline and unemployment rates rise. Temporarily increasing the Federal matching payments in Medicaid is a proven 

strategy for stimulating the economy. 

I want to thank each of our witnesses for being here today to talk 

about the current fiscal situation States are facing; and I especially 

would like to welcome Heather Howard, the Commissioner of the 

New Jersey Department of Health and Senior Services. Some of 

you remember her as the Chief of Staff for Governor Corzine when 

he was a Senator. 

And, obviously, we are pleased that you all were able to come on 

relatively short notice. 

And, again, I want to thank the members who are here today, 

too. Because, as I said before, we don’t vote until 6:30. The very 

fact that they are present earlier in the day is testimony that you 

are considering this important issue. 

3 

I yield now to our ranking member, the gentleman from Georgia, 

Mr. Deal. 

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

Mr. DEAL. Thank you, Mr. Chairman. 

I want to thank you for holding this hearing on a very important 

subject that will determine the future direction of the Medicaid 

program and to consider proposals to increase the Federal Medical 

Assistance Percentage rate. 

I want to thank the witnesses who have agreed to be here this 

afternoon, all of whom have been selected for their unique perspective and their individual expertise on the issue. I appreciate the 

input that they will have and will provide today. 

The Federal Medical Assistance Percentage, or FMAP, is the formula used to determine the Federal share reimbursable to States 

each quarter. This formula is specifically constructed to allocate 

higher FMAP reimbursements to States with lower per capita incomes relative to the national average. Alternatively, States with 

higher per capita income levels receive lower FMAP reimbursement 

rates. Regardless of this formula, however, no State may be subject 

to an FMAP below 53 percent or in excess of 83 percent as defined 

by statute. 

According to the States’ own enrollment data, over 63 million 

Americans were enrolled in Medicaid in 2005, and we expect the 

program to cost the American taxpayers over $370 billion this year. 

In addition, the Congressional Budget Office’s latest budget and 

economic outlook indicated Medicaid and Medicare will be the primary determinant of the Nation’s long-term fiscal balance, noting 

that the Medicaid program alone will cost the American taxpayers 

over $5.7 trillion over the next 10 years. 

First and foremost, I am concerned about funneling an additional 

$15 billion of Federal taxpayers’ dollars into a welfare program 

without doing anything to increase the levels of innovation, accountability or efficiency in the Medicaid program. Without question, the fact that Medicaid spending continues to increase at a 

rate that is over three times the rate of inflation is unsustainable 

and will result in inadequate resources to meet our current and future obligations. 

The combination of a retiring baby boomer generation and longer 

life expectancies are clear indicators that Congress must address 

this vital issue with fundamental reforms, not merely through a 

patchwork of superficial measures that will sadly fail to fix inflated 

entitlement spending in this country. 

The current economy is no doubt having an impact on all Americans, and Congress must act responsibly to provide assistance to 

families in need. Stagnant capital markets, declining home prices, 

increasing unemployment, and the rising price of food and gasoline 

has forced families to drastically scale back on spending where possible. While saving the Medicaid program for future generations of 

beneficiaries is going to require some significant structural 

changes, there are several changes we can make now that would 

improve its financial viability. 

4 

I am certain with the collaboration of all members of this committee we can reach a bipartisan, long-term solution that addresses 

the fundamental flaws with Medicare and Medicaid and will rein 

in fraudulent and wasteful spending. Furthermore, as an openended entitlement program, States’ savings that may result from 

an FMAP increase could be used for a variety of purposes that are 

not restricted to Medicaid. 

If we are going to substantially increase FMAP reimbursement 

rates as this legislation aims to do, we, as good stewards of taxpayers’ dollars, must ensure these funds are used for the purpose 

for which they are intended. Together, we are reform this program; 

and the first step we must take is to say no to another costly, 

short-term fix while ignoring the core problem for a later day. The 

American people have waited long enough. 

I thank you for holding this hearing, and I look forward to a discussion of these vital and important issues that affect families 

across this country. 

I yield back. 

Mr. PALLONE. Thank you, Mr. Deal. 

I next recognize for an opening statement the chairman of the 

full committee, Mr. Dingell. 

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

The CHAIRMAN. Mr. Chairman, I thank you for your courtesy and 

I commend you for focusing attention on the continuing problem of 

State fiscal relief. I want to begin by expressing my appreciation 

to you and to our witnesses today for their presence, especially my 

friend, Mr. McEntee. 

Earlier in the year, Mr. Chairman, you introduced legislation, 

H.R. 5268, to provide temporary and targeted State fiscal relief 

through enhanced Federal Medicaid funding. The subcommittee 

held a number of hearings related to Medicaid and State Children’s 

Health Insurance Programs, SCHIP, during which time the issue 

of Medicaid as a vehicle for State fiscal relief was discussed. 

As the current economic downturn continues and the House begins its work on a second economic stimulus package, today’s hearing will provide a timely insight into how Medicaid can be an integral part of it. For every dollar the State spends on Medicaid, the 

Federal Government contributes between $1 and $3.17. This funding not only contains and sustains health coverage but it is critical 

for supporting jobs and wages throughout the State. 

Unfortunately, the situations that the States are confronting is 

dire. Twenty-nine States face a total fiscal budget shortfall of at 

least $49 billion in 2009. Michigan, for example, has a $472 million 

budget gap to close, nearly 5 percent of the general fund of the 

State. Nearly half of these States facing deficits have implemented 

or proposed cuts that will affect the eligibility for health insurance 

programs or access to health services. 

When the Census Bureau releases its new release in late August, 

we expect to see a rise in the number of uninsured. This in turn 

means increased pressure on State Medicaid programs. A 1 percent 

increase in unemployment, which is roughly equal to what hapVerDate Nov 24 2008 15:46 Oct 01, 2010 Jkt 037690 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-139 SCOM1 PsN: JIMC
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pened in June, 2007, to June, 2008, would translate into approximately 1.1 million new uninsured and an increase in approximately 

1 million new Medicaid and SCHIP enrollees. I would remind the 

committee that SCHIP improvements, which would have covered 

additional children, was vetoed by the administration. 

So if we want to protect existing coverage and make sure that 

the program can serve those who are affected by the downturn, an 

increased Federal commitment to Medicaid is necessary. Not only 

is the well-being of the States at stake but so also is the well-being 

of many citizens who will have no place else to turn for health care. 

In addition to helping secure health coverage, Medicaid can stimulate the economy in another way. The injection in new Federal 

dollars through Medicaid has a measurable fact on State economy, 

including generating new jobs and wages. It is also enormously 

helpful to health institutions and providers within several States, 

because without this they will confront the problem of providing 

more health care to people who cannot afford to pay it. 

For example, if the provisions of your bill, the Pallone-King bill, 

Mr. Chairman, were to take effect this October, Michigan will receive an additional $324 million in Medicaid funding, which will 

generate $539 million in additional business activity and create 

5,400 additional jobs and mean $201 million in additional wages 

just for my State. 

We know that the temporary Medicaid fiscal relief funding was 

effective in instigating the 2003 economic downturn. The Federal 

funds helps States avoid Medicaid cuts. States have already adopted a wide range of cost-containment strategies during the last economic downturn, and there are fewer policy options to reduce 

spending without significantly harming coverage or access to care. 

I look forward to hearing from today’s witnesses about the fiscal 

condition of the States and how increased Federal assistance can 

protect health coverage and stimulate the economies of several 

States. I believe that before the fall is here we will have a second 

stimulus package that will include a targeted and temporary increase in Federal assistance for Medicaid. It is very much needed. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Dingell follows:] 

6 

7 

8 

9 

10 

Mr. PALLONE. Thank you, Chairman Dingell. 

I next recognize for an opening statement the gentleman from 

Texas, Mr. Burgess. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Mr. Chairman. 

I appreciate you holding the hearing today, and I appreciate you 

not starting at 11 o’clock this morning. It is a more reasonable time 

of 2:00 in the afternoon. I think it certainly boosted attendance on 

our side. 

I think we all agree we need to take a hard look at Medicaid, 

the Medicaid funding. We will probably not all agree on where the 

solution lies. 

One of the issues before us today is whether it may be feasible 

in the near term, midterm or long term for the Federal Government to provide States with a fiscal bailout, given the state of the 

economy. The Ben Bernanke of our committee, Chairman Pallone, 

has already issued a forecast that the economy will continue to decline. I hope Wall Street wasn’t paying strict attention when you 

made that statement, but nevertheless, we will see. 

But at this juncture it is, I think, interesting to point out a couple of things. Fiscal year 2008, State revenue collections were up 

1.7 percent. A total of 29 States report that they will either meet 

or exceed their revenue projections; 20 States will fall below revenue projections. Budget stabilization funds, so-called rainy day 

funds, remain sufficient in most States. In aggregate, State balances are at around 8 percent for fiscal year 2008. It is down somewhat from the 11.5 percent of 2006 but still positive. 

The last time Congress intervened in the State budget crisis was 

2003. At that time, 40 States faced revenue collections that fell 

short of planned budget expenditures. This economy is not great, 

but I wonder if it might be premature for this committee or this 

Congress to begin thinking about a multi-billion dollar bailout for 

State Medicaid programs. Certainly, reviewing the data, it seems 

to show the relative health of State budgets isn’t nearly as dire as 

it was in 2002. While I wouldn’t advocate allowing it to become 

dire, I think keeping it in context is helpful. 

It is a little disappointing—we have a great panel, many esteemed guests in front of us. I am grateful for that, Mr. Chairman. 

But, really, it would be good if we had a representative from, say, 

the National Governors Association or National Association of 

State Budget Officers to discuss the fiscal issues that are actually 

facing the States. 

If it is the goal of this committee to address this issue this year, 

it almost seems like we will need more information than this hearing will provide to justify us moving forward. 

It is important that Mr. McEntee should note that the skyrocketing energy crisis are putting pressure on State, county, and 

city governments. That is an economic issue and economic reality 

that is already at crisis stage. We have in our power in Congress 

the ability to address this issue head on, but all we have seen out 

of Congress for this year and last year is talk, talk, talk. 

11 

Our sum total of energy policy in the past 18 months has been 

to ban the incandescent bulb. And, yes, if anyone is interested, I 

relinquished all the incandescent bulbs from my office last week 

under an order from the Speaker. I think our time would be better 

spent working on energy prices, quite frankly, and coming back to 

deal with State fiscal issues under the Medicaid system at another 

time. 

I think we are going to hear some interesting testimony today 

that perhaps adding additional money may not be the answer but 

being more frugal and more sensible about how those monies are 

allocated and really doing our job with oversight to ensure that we 

get the inefficiency and duplication out of the system. 

But, nevertheless, Mr. Chairman, an interesting topic, and I look 

forward to lively discussion this afternoon. 

Mr. PALLONE. Thank you, Mr. Burgess. 

Next I recognize for an opening statement the gentlewoman from 

Wisconsin, Ms. Baldwin. 

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

Ms. BALDWIN. Thank you, Mr. Chairman. 

Thank you for holding this important hearing and particularly 

since it is on an issue of great urgency, in my opinion. 

I also want to thank our panel of witnesses for being with us 

today. I look forward to hearing your testimony. 

As we look across the country, every State is facing serious economic difficulties. But we are here today to ensure that States are 

not forced to respond to these tough times by restricting access to 

health care to those most in need. 

In my home State of Wisconsin, people are struggling with recovery from recent floods and, as elsewhere, also with skyrocketing 

gas surprises, high food prices, plant closings, and job losses—and 

now, more than ever, the cost of health care. 

When I surveyed my constituents recently and asked them about 

the state of the economy, almost 40 percent said that their family 

finances were significantly affected by the price of prescription 

drugs, just one component of health care costs. We know from past 

experiences that during recessions and when health care costs are 

high more American workers find that they must use Medicaid as 

their safety net. The increased enrollment in Medicaid is a sign 

that the program is working, but it puts a huge strain on tight 

State budgets. 

My State is one of the 29 which Chairman Dingell just referenced, in which the government revenues are expected to fall 

short of the amount needed to support the current services that are 

offered in the next fiscal year. Since the beginning of 2008, the 

number of individuals eligible for Medicaid in the State of Wisconsin has increased by over 10 percent, especially among children, 

parents, and pregnant women. 

Unlike the Federal Government, State governments are required 

to balance their budgets, and so they must do something to address 

the shortfall in revenues in this economic downturn. And we know 

12 

that this ‘‘something’’ will likely involve cutting services, social 

services, leaving vulnerable Americans without a safety net. 

Cutting back on Medicaid coverage means that many will be unable to afford health care. It means that our most vulnerable families are at even greater risk both in terms of their health and their 

finances. 

We must do everything that we can to ensure that States can 

support continued access to health care. When our Nation faced 

economic challenges in 2003, the Federal Government stepped in 

and supported States through an increase in the Federal matching 

program for Medicaid. Because of this temporary fiscal relief, 

States were able to maintain health care services for their most 

vulnerable residents, even with that weak economy. 

Like many of my colleagues, I am proud to be a co-sponsor of the 

chairman’s bill, H.R. 5268, which provides for a temporary increase 

in the Federal Medical Assistance Percentage under the Medicaid 

program. I strongly believe this bill should become law as quickly 

as possible and join with many of my colleagues in urging our 

House leadership to include this language in the upcoming stimulus or supplemental. The health of our most vulnerable Americans 

depends upon it. 

Thank you, Chairman Pallone, for your leadership on this issue 

and for holding this hearing today. 

Mr. PALLONE. Thank you, Ms. Baldwin. 

I next recognize for an opening statement the gentlewoman from 

Illinois, Ms. Schakowsky. 

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

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. 

You continue to lead on issues of improving health care, and this 

committee is particularly well-served by your commitment to safeguard coverage for low-income children and women and persons 

with disabilities and senior citizens on Medicaid. 

Today’s hearing couldn’t be more timely. In Springfield, Illinois, 

and in State capitals all across the country legislatures are meeting 

to determine how to meet the growing need for Medicaid at a time 

when State revenues are in decline. 

In Illinois about 2.5 million people rely on Medicaid and yet we 

are facing a $1.8 billion budget gap in 2009. As a result, our State 

is delaying payment to Medicaid providers in order to contain costs 

after having frozen most rates for the past several years. This will 

only serve to reduce the number of providers willing to care for 

Medicaid beneficiaries. 

In this economic downturn, when State budgets are stretched 

thin, we can expect more cutbacks in benefits, payments, and eligibility unless we act. That is why we need to pass a temporary 

FMAP increase as soon as possible, not only to protect healthcare 

for our constituents but to help stimulate the sagging economy. 

It was mentioned already that, in 2003, States faced substantial 

economic challenges; and it was necessary to provide temporary fiscal relief as a result. A wide range of economists tell us that increased match rates of routed cuts to the Medicaid program stabilized budgets and stimulated the economy. 

13 

The situation for States is worse now than it was in 2003. Not 

only are costs of health care rising exponentially but the number 

of uninsured is up and access to the employer-based system is 

down. States are also feeling the strain of the housing crisis and 

can’t depend on property taxes to manage education costs, forcing 

States to stretch their health care dollars even further. 

Providing States with a temporary increase in Federal assistance 

for Medicaid will not only protect 61 million Medicaid recipients— 

women, children, seniors, and the disabled—but will reap positive 

economic returns for a State budget. 

So I am grateful that we are having this hearing today; and 

when I listen to my colleagues on the Democratic side of the aisle 

express compassion for the people who rely so much on Medicaid 

I am very, very proud. 

I want to respond to something that Mr. Deal said, that he was 

reluctant, essentially, to give more money to a welfare program 

that lacks proper accountability. I just have to say I wish the same 

standards were applied to private contractors in Iraq like Halliburton or KBR or Blackwater who overcharged taxpayers and put 

our soldiers in danger. Or closer to home on this subject to the 

Medicare Advantage program or Medicaid-managed care plans, and 

I could certainly go on. 

So I thank our witnesses for being here today. I would particularly like to acknowledge and thank Mr. McEntee for continuing to 

be a champion on this issue. 

And, with that, I yield back. 

Mr. PALLONE. Thank you. 

Next for an opening statement the gentleman from California, 

Mr. Waxman. 

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

Mr. WAXMAN. Thank you very much, Mr. Chairman, for calling 

this hearing and for your leadership on this important issue. I am 

pleased to join you as a co-sponsor of the legislation. 

We know the States are facing difficulties. The revenues are 

slowing down because of the downturn in the economy. The States, 

as our partners in taking care of the most vulnerable citizens, the 

most vulnerable population for health care needs, the States have 

discretion; and if they don’t have the funds, the only way they can 

exercise their discretion is by cutting back on provider reimbursement or taking a lot of people and no longer making them eligible 

for Medicaid. 

Well, that is an untenable position. We shouldn’t want that to 

happen. The States don’t want that to happen. And we have tried 

this in the past to give them an extra matching rate so that they 

can get through the responsibility to take care of Medicaid-eligible 

people during a time of recession. We know it worked last time, 

and I think we can say with confidence it will work again this time. 

So I would strongly support the legislation that you have suggested and proposed, and I hope other members will join together 

on a bipartisan basis. We shouldn’t want to see the very poor have 

the safety net yanked out from beneath them when they get sick, 

14 

and that is exactly what will happen if we don’t help the States 

meet their Medicaid responsibility and, in effect, watch them create 

a hole in that safety net. 

I want to yield back the balance of my time. I am pleased all the 

panelists are here today. I welcome all of them and look forward 

to what they have to say. And, more importantly, let’s work on a 

bipartisan basis as we did in this committee in the past, recently, 

to stop some very egregious rules from going into effect on Medicaid. We ought to help the States as we did on a bipartisan basis 

in 2003. 

Mr. PALLONE. Thank you, Mr. Waxman. 

The gentlewoman from Oregon, Ms. Hooley, is recognized for an 

opening statement. 

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

Ms. HOOLEY. Thank you, Mr. Chair; and thank you for holding 

this hearing. 

I have a very brief statement. I just want to talk a little bit 

about what is happening during our last recession in Oregon, 

which was hit quite hard. 

Oregon DHS saw their caseload for the poor and needy increase 

rapidly, way beyond expectations. I think most of us know the reason why. It was loss of jobs, resulting in unemployment, high unemployment, and shifts in the levels of population groups that form 

that client base. I think it is very clear that we are looking at the 

same circumstances today. 

This is a time that we can’t back away from helping our neediest 

and helping our poor. I think this hearing is timely. I look forward 

to the testimony, and I think we need to do everything we can to 

help our States. 

I yield back and look forward to, again, those of you testifying. 

Mr. PALLONE. Thank you. 

I think that concludes members’ opening statements. We will 

now turn to our witnesses, and we have one panel. Let me welcome 

you and introduce each of you, from my left to my right. 

Starting on my left is Dr. Robert Tannenwald, who was Vice 

President and Director of the New England Public Policy Center at 

the Federal Reserve Bank of Boston. Next is Mr. James Frogue— 

I hope I am pronouncing that properly—who is State Project Director for the Center for Health Transformation here in Washington, 

D.C. And next is Mr. Gerald—or Gerry—McEntee, who is International President for AFSCME, American Federation of State, 

County, and Municipal Employees. Thank you for being here with 

us today. And then we have Dr. Robert Helms, who is a Resident 

Scholar for the American Enterprise Institute here in Washington, 

D.C. And last but not least is our own Heather Howard, who is the 

Commissioner for the New Jersey Department of Health and Senior Services for the State of New Jersey. 

Thank you all for being here today. 

I think you know the drill. We have 5-minute opening statements. Those statements become part of the hearing record, but 

each witness may, in the discretion of the committee, submit additional statements in writing for inclusion in the record. 

15 

I will start from my left with Dr. Tannenwald. 

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

Mr. TANNENWALD. As the first witness, I am not going to say 

anything about Medicaid. I understand my role is to talk about the 

fiscal conditions of the State and— 

Mr. PALLONE. I think maybe your mike is not on. 

Mr. TANNENWALD. Sorry. 

Mr. PALLONE. Do you want to bring it closer to you. 

Mr. TANNENWALD. Sorry. This is my first congressional hearing. 

Mr. PALLONE. That is quite all right. 

Mr. TANNENWALD. I am going to talk about the fiscal conditions 

of the States and some of the factors that might be responsible for 

it. And I think I was chosen because my field is State and local 

public finance. I talk quite a bit with people from the National Governors Association and NASBO, even advise them at times, and 

they advise me. 

In a nutshell, the fiscal conditions of the States is weak. The latest official statistical snapshot of their fiscal condition was taken 

in the first quarter of 2008, three-quarters into the last fiscal year 

for most States. Fiscal year-to-date tax revenues in that quarter 

were only 2.6 percent above their year-ago level. Given sharp rises 

in the cost of delivering State and local public services, that translates into about a 3 percent revenue drop in inflation-adjusted 

terms. 

Revenue growth has been slowing with each passing quarter. The 

nationwide turmoil in housing markets, soaring energy prices and 

food prices, and falling employment have combined to hit sales tax 

collections especially hard. While income tax growth has been 

stronger, it could very well weaken soon, if history is any guide. 

Much of the variation in this tax source over the past decade has 

been driven by the stock market. The bull market that fueled robust income tax growth in recent years has given way to a bear 

market that is likely to slow or possibly even shrink income tax collections in coming quarters. And sharply falling housing prices, the 

implication of that for property tax revenues is self-evident. 

Compounding the fiscal challenges posed by current economic 

conditions are long-term trends that have eroded State tax bases 

and intensified demand for State and local services. The long-running transition from a goods to a service economy has slowed 

growth and sales tax bases since services are difficult to tax politically and administratively. Higher energy and food prices are probably here to stay for a long time, boosting State and local costs and 

syphoning dollars away from taxable sales. Intensifying competition for jobs in industry has locked State and local governments 

into a bidding war, diverting public resources from other uses. 

Tax planners have become increasingly aggressive in sheltering 

their clients from tax liabilities. Public infrastructure badly needs 

repair and modernization, and the demand for improvement and 

educational outcomes is stronger than ever. The cost of health care, 

as this committee knows too well, continues to soar. 

16 

Despite these challenges, inflation-adjusted State and local 

spending per capita has fallen during the past 5 years. But such 

simplistic indicators are not much help in judging the degree to 

which State and local governments have spent too much or too little. In making such a judgment nothing can substitute for a careful 

evaluation of the conditions confronting State and local government 

that, through no fault of their own, compel them to spend more per 

unit of service delivered, augment the array of services they must 

provide, erode their traditional tax bases and complicate tax enforcement. 

In short, State and local governments are in serious fiscal trouble, most of them, not all of them, largely not through their own 

fault; and simplistic statistics aren’t much help in resolving the 

problem. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Dr. Tannenwald. 

[The prepared statement of Mr. Tannenwald follows:] 

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Mr. PALLONE. Mr. Frogue. 

STATEMENT OF JAMES FROGUE, STATE PROJECT DIRECTOR, 

CENTER FOR HEALTH TRANSFORMATION 

Mr. FROGUE. Chairman Pallone, Ranking Member Deal and 

members of the committee, thank you for the opportunity to testify 

today. My oral and written remarks reflect solely my own views 

and not necessarily those of the Center for Health Transformation, 

its staff or members. 

This committee is considering legislation that would send an ad- ditional $15 billion to the States for Medicaid costs that they have 

incurred. There is one simple action this committee could lead that 

would be low cost and go a very long way towards improving the 

care received by 50 million plus people on Medicaid, while eliminating much of the waste, fraud and abuse that is largely responsible for States having chronic financial trouble with Medicaid in 

the first place. 

Legislation should be put forward by this committee that would 

require States to post their Medicaid patient encounter data on the 

Internet for all to see. Specifically, this is the set of claims that 

Medicaid providers send to the State for reimbursement for the 

treatment of patients. This is administratively cheap, simple and 

would have a profoundly positive impact on the quality of care delivered by Medicaid. It would dramatically increase accountability 

for how the dollars are spent. 

How many dollars the Federal Government sends each State annually is a known number. Each State’s FMAP is a known number. 

There is some very simple arithmetic that gives policymakers in 

the tax-paying public the target figure for the sum total of Medicaid claims, plus a reasonable amount for administrative overhead. 

Of course, it must be stated very clearly and emphatically up 

front that this data should only be released in the public if it is 

a patient de-identified way. Patient privacy is sacred. Fortunately, 

there are multiple safeguards. Use of the right algorithms to 

scramble patient identities is routinely successful in similar studies 

of large employer groups and other programs like Medicare. 

States already collect Medicaid patient encounter data, so 

uploading it to the Internet would require minimal costs and effort. 

This incredibly rich data set would then be open to policymakers, 

academics, clinicians and the widest possible range of people with 

expertise in medicine, pricing practices, technology, accounting, 

fraud detection and a vast array of other disciplines relevant to 

modernizing this important program. Call it ‘‘Open Source Medicaid’’. 

The data would lay bare to all whether or not people on Medicaid 

are getting the appropriate medical care. Of statistics revealed by 

patient encounter data, for example, is what percentage of women 

over 50 are getting annual mammograms? That figure should be 

100 percent. In one State, the data revealed that only 17 percent 

of women on Medicaid in this age group were getting annual mammograms. 

The same State’s data showed 4,000 people who had gotten six 

or more OxyContin prescriptions. Less than half of children were 

30 

received well child checkups. It even showed one beneficiary who 

had been at the emergency room 405 times in a 3-year span. It also 

appeared the State was overpaying for the very expensive drug 

therapy this individual was receiving, probably to the tune of hundreds of thousands of dollars. 

In another claims review in a different State, a hospital was 

found billing Medicaid for pneumonia treatments, at a rate of 80 

percent bacterial, 20 percent viral. In nature, the ratio is about the 

reverse. So the study revealed either that, A, there was a highly 

unusual and worrisome outbreak of bacterial pneumonia or, B, 

there was fraud. In either case, it is important to know right away. 

Claims data shows outliers, trends, adherence to evidence-based 

medicine, best practices, disease patterns and outbreaks, and pricing among other key points. It is theoretically impossible for any 

one State’s Medicaid administration to do a better job maximizing 

the value of this information than would the collective wisdom of 

everyone else who may view it. Hence the need to put this information in the public domain to leverage the potential of mass collaboration, also known as wikinomics. 

Medicare claims data has been given to select researchers and institutions for decades and has yielded extremely valuable information about patient quality and red flags about facilities who have 

higher costs without corresponding better health benefits. The 

Dartmouth Health Atlas is one good example. 

Transparency is apparent around Congress. You have the 

Coburn-Obama transparency bill. Even staff salaries posted on 

Legistorm. 

Medicaid has a problem with waste, fraud and abuse; and the 

people hurt the most by this are poor Americans who see their access to care eliminated. The GAO has documented this for decades. 

The most recent study was entitled, Medicaid: CMS Needs More 

Information on the Billions of Dollars Spent on Supplemental Programs. This title alone is cause for concern, not to mention the fact 

this fits a decade’s long pattern. 

A New York Times article in 2005 uncovered breathtaking 

amounts of fraud in that, the largest Medicaid program in the 

country. The former Inspector General estimated up to 40 percent 

of all Medicaid claims there in New York State are questionable. 

A single doctor in 1 year prescribed $11 million of a drug intended 

for AIDS patients most likely diverted to body builders, one Brooklyn dentist billed for 991 claims in 1 day, and of 400 million Medicaid claims paid in 2004, State investigators uncovered only 36 

cases of suspected fraud. 

The horrific levels of fraud suggested by this New York Times series was confirmed by an outside study of New York’s Medicaid 

claims that was completed in 2006 and delivered to a handful of 

officials in New York’s health department. It found that a full onequarter of New York’s Medicaid program cannot be explained. Onequarter of the $44 billion spent on New York in 2005 was $11 billion. 

Medicaid’s chronic financial problems are well-known and guaranteed to continue unabated absent real change. If Congress chooses to bail out the States as it did again—and at the very least it 

should require States to prove they’re using the dollars optimally— 

31 

the best, easiest, cheapest way to do this is to require States to 

post their Medicaid patient encounter data on the Internet for all 

to see. 

Congress should require the same for SCHIP. State officials and 

providers with nothing to hide should have no objections. 

Mr. Chairman, thank you very much. 

Mr. PALLONE. Thank you. 

[The prepared statement of Mr. Frogue follows:] 

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Mr. PALLONE. Mr. McEntee. 

STATEMENT OF GERALD W. MCENTEE, INTERNATIONAL 

PRESIDENT, AMERICAN FEDERATION OF STATE, COUNTY, 

AND MUNICIPAL EMPLOYEES 

Mr. MCENTEE. Thank you, Mr. Chairman. 

If I could make maybe three points before I get into my actual 

testimony, I guess just about a week or a week and a half ago a 

survey—massive survey came out by the Rockefeller Foundation 

and Time Magazine called the Campaign for American Workers. I 

just want to make a couple quotes. And I quote all of these—they 

sound like my language, but I quote all of these that came from 

the survey. 

‘‘After a generation of politicians telling us that government is 

the problem, the failure of that ideology is plainly evident. Americans are ready for some real solutions to bring security back into 

their lives so they can reach for big goals and achieve them. Overwhelming majorities of the public support new investments by the 

public sector to get America working again. Public works project, 

new energy efficiency measures, more access to health care, Americans favor each of these initiatives by margin of 3:1 or more. Seventy percent of Americans favor the government and employers 

providing the social safety net basics like health care and retirement.’’ 

Now they aren’t our union’s words. They are from the Rockefeller 

Foundation and Time Magazine. 

The economic problems confronting our States—and I think we 

have already heard—are growing. More than half the States are 

facing budgetary shortfalls. The deficits total at least $48 billion for 

the fiscal year, which started in July. State revenues are plummeting. Overall State tax collections have fallen to the lowest level 

in nearly 5 years. Skyrocketing energy prices and nose-diving property tax values place an additional strain on State and local budgets. Unlike the Federal Government, States must balance their 

budgets each year, requiring service cuts or tax increases, actions 

which add to the economic downward spiral. 

When the economy goes south, demand for Medicaid goes up. In 

the last year, the unemployment rate has gone up 1 percentage 

point. This level of job losses translates into 1 million new people 

in need of Medicaid and SCHIP and another 1.1 million Americans 

becoming uninsured. The rise in the unemployment rate means a 

drop in State revenues and an additional $3.4 billion in health care 

costs, and Wall Street is projecting more job losses. 

If there is one point I hope you will take away from my testimony today, it is that Medicaid matters to us all and must be protected and sustained. A short-term increase in Federal support for 

State Medicaid programs will stave off cuts, help revive our economy and I would submit it is a moral imperative as well. 

With the Medicaid program, we come together as a Nation to 

care for each other. Because of Medicaid, we make sure that economic hardship does not damage the health of our neighbors and 

family members who have no other options for health care. 

Medicaid is also the backbone of our Nation’s health care system 

and a major component of State economies. It is a significant 

44 

source of funding for hospitals and community health centers 

across our country. Medicaid also plays a crucial role in training 

the next generation of doctors. 

Faced with budget shortfalls, States are considering changes in 

eligibility and services which could directly hurt beneficiaries. Such 

harsh changes are usually considered as a last resort, but States 

are running out of options. 

In the last downturn, States already lowered or froze provider 

payments and reined in prescription drug spending. In this recession, core program cuts are more likely to be on the chopping block. 

And you have heard various examples from various representatives 

here about their States, whether it is Illinois or whether it was Oregon or whether it was Wisconsin. 

We believe that Congress must act now to pass H.R. 5268, bipartisan legislation introduced by Chairmen Pallone and Dingell and 

Representatives King and Reynolds to prevent additional cuts in 

Medicaid. We believe it is an effective way to stimulate State 

economies and protect our Nation’s health care system. 

I thank you for the opportunity to testify and would be believed 

to answer any questions when the time comes. 

I would like to make one comment now to Representative Burgess, who talked about having the NGA or State budgetary officials 

here. Maybe everybody knows this, but at least for your information, in January, the National Governors Association did send a letter asking—and this is January of 2008, did send a letter asking 

for an increase in Medicaid to address the economic pressures on 

State budgets. 

Thank you. 

[The prepared statement of Mr. McEntee follows:] 

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Mr. PALLONE. Mr. McEntee, thank you. Without objection, if you 

have a copy of that letter, I would like to enter that into the record. 

Mr. MCENTEE. Sure. 

Mr. PALLONE. So ordered. 

[The information requested was not provided at the time this 

document went to print.] 

Mr. PALLONE. I also should mention, before I forget, that we have 

a statement from Congressman Luis Fortuno that I would like to 

enter into the record without objection. 

So ordered. 

[The information requested was not provided at the time this 

document went to print.] 

Mr. PALLONE. And I do want to thank you, also, Mr. McEntee. 

I know you had to change your plans to make very special arrangements to get here today, so thank you for doing that. 

Mr. MCENTEE. Thank you. 

Mr. PALLONE. Dr. Helms. 

STATEMENT OF ROBERT B. HELMS, PH.D., RESIDENT 

SCHOLAR, AMERICAN ENTERPRISE INSTITUTE 

Mr. HELMS. Thank you, Mr. Chairman. 

Shortly before I came over here, I discovered in table 1 of my testimony some numbers had been inserted there that were slightly 

different from the ones I had intended. It doesn’t change my testimony in any way, but I would like to be able to substitute the correct numbers, if you will, later. 

Mr. PALLONE. That is in your written testimony? 

Mr. HELMS. Yes. 

Mr. PALLONE. Sure. Without objection, so ordered. 

Mr. HELMS. OK. 

The views I express here today really reflect the reasons I dissented from the recent Medicaid Commission report. I want to join 

several decades of academic think tank experts and government, 

particularly the GAO, who have been complaining about the FMAP 

as an inappropriate mechanism for distributing Medicaid and reimbursement for Medicaid. 

If you look at the history of the program, I would admit it probably served a good function of inducing the States to expand the 

program in its formative years. But I do think it has outlived its 

usefulness. This criticism of the FMAP is truly bipartisan and 

comes from all ideological points of view, and the main criticism 

that I have of the FMAP formula is that it creates two strong perverse incentives. 

When a State has the money, there is a very large incentive to 

keep expanding Medicaid, because the Federal Government is always going to pay at least 50 percent. But when the State gets into 

trouble, as I clearly agree with the other testimony that a lot of 

States are in trouble with their budgets now, when they have to 

cut back—and several governors have told me that they do this— 

the last thing they want to cut is a match program like Medicaid. 

So you have over time sort of two rachet effects going on here 

to increase the Federal expenditures for Medicaid and the State expenditures, too. But this rachet effect is really more prevalent depending upon the wealth of the State. 

52 

If you look at figure 1 in my prepared testimony—it is on page 

7—I have tried to take a per capita Medicaid expenditure. And 

what I did was I took the total Federal expenditures and divide 

them by the number of poor people at 125 percent of poverty. You 

could change that, but you still get pretty much the same distribution. You get sort of like a three times dispersion between the lowest States and the highest States. And I have arrayed these by the 

percent of the population in the State that is in poverty, and what 

you get is a negative relationship with what I would call the 

Katrina States over to the right. Basically, the poorer the State, 

the less money they get per poor person. 

The Families USA has conveniently provided the committee with 

their estimates of the additional money that would go to each 

State. So I was able to take that and also divide it by the number 

of poor people in the State and that is in figure 2. Again, you have 

a very similar distribution where the poorer the State, the less they 

get on a per capita basis. 

The other point I would like to make is your hold harmless provision that prevents the State’s FMAP from decreasing ends up protecting those States with relatively highest increases in per capita 

income. You could easily correct this. If you wrote the bill to be the 

standard of what happens to a State’s per capita income, then you 

would end up holding harmless the States who are having the most 

economic trouble, the largest declines. You can change that statement around to relative changes, and I think the logic still holds. 

So my plea is I urge the Congress, assuming that you have the 

money and you want to do this, to consider a way that would get 

around these sort of marginal effects that you get from the FMAP. 

In other words, give them a fixed cash payment and, if you can, 

figure out a better way to distribute the money so that it goes to 

the States that have the largest populations of poor and disabled. 

Thank you. 

Mr. PALLONE. Thank you, Dr. Helms. 

[The prepared statement of Mr. Helms follows:] 

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Mr. PALLONE. Ms. Howard. 

STATEMENT OF HEATHER HOWARD, COMMISSIONER, NEW 

JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES 

Ms. HOWARD. Good afternoon, Chairman Pallone and distinguished members of the committee. I am pleased to be here to discuss the importance of maintaining our health care safety net during a time of national recession. 

First, though, I would like to take the opportunity to thank you 

and the bipartisan Members of Congress for your leadership and 

hard work in enacting a moratorium on the many harmful Medicaid regulations. We appreciate very much, from a State perspective, your doing so. 

Mr. Chairman, I would like to thank you also for sponsoring H.R. 

5268, bipartisan legislation that would provide New Jersey and the 

rest of the Nation with a temporary but urgently needed increase 

of nearly 3 percent in the Federal Medical Assistance Percentage, 

or FMAP. 

Mr. Chairman, States are clearly experiencing the effects of the 

economic downturn. According to the nonbipartisan Center on 

Budget and Policy Priorities, more than half of the States are facing budget shortfalls and more are likely to have deficits in the 

coming months. 

Because most States cannot operate in a deficit, unless Congress 

intervenes enacting a temporary increase in FMAP, States my be 

forced to reduce health care services and eligibility for our most 

vulnerable. 

This bipartisan proposal can be enacted quickly, as there is 

precedent from the 2003 economic stimulus package that Congress 

enacted, and it is timely, temporary and targeted to helping the 

working families who are struggling in the failing economy. 

The decline in the national economy—and, therefore, most State 

economies—means rising unemployment, escalating Medicaid costs 

and more families in need of health care service. More employers 

will be forced to reduce or eliminate health care coverage for their 

employees, exacerbating the negative trend in employer-provided 

health insurance. 

We heard the statistics a couple of times, but I think it bears repeating. According to the Kaiser Family Foundation, nearly every 

1 percent increase in unemployment results in 1.1 million more uninsured and an additional 1 million—400,000 of them children—enrolling in Medicaid. And since Medicaid eligibility lags 6 months 

behind unemployment figures, the full impact for increasing demand for Medicaid services may not be known for some time. 

These new developments could not come at a worse time from a 

health care perspective. There are now 47 million uninsured Americans, up from 40 million just 8 years ago. Mr. Chairman, this is 

a national problem that calls for a national response from Congress, and I am grateful the committee is meeting today to discuss 

this issue. 

Earlier this year, as Mr. McEntee noted, the National Governors 

Association in a bipartisan vote strongly endorsed a temporary increase in the Federal matching rate for Medicaid along with flexible block grant funding, stating, ‘‘Such efforts were effective in the 

69 

past to stabilize the economy and maintain health care service for 

the most vulnerable populations.’’ 

I have a copy of that letter for you. 

Let me be clear. Now that a majority of States are facing significant budget shortfalls, many will be considering drastic spending 

cuts as a result. In these hard economic times, not only are States 

seeing reduced State revenues, more and more people are qualifying for need-based benefit programs, further exacerbating those 

State shortfalls. 

In response, some States have already implemented cuts to public health programs and, clearly, more will be forced to do so unless 

Congress provides this temporary relief. 

In New Jersey, as in many other States, the health care system 

is in distress. We have seen seven hospitals close in the last 18 

months, and half of those that are remaining are operating in red. 

Over 1.3 million people have no health insurance. 

New Jersey’s Medicaid program is the safety net for more than 

1 million low-income families and individuals who depend on Medicaid for vital health care service. They need our help now more 

than ever. 

And what does Medicaid mean in real terms? Medicaid covers 

nearly one-third of all child births in the State of New Jersey. It 

covers half of all HIV/AIDS treatment. It covers childhood immunizations, critical cancer screening and treatment, pharmaceuticals 

for the mentally ill, and specialized care for the blind and disabled. 

Governor Corzine has taken bold steps to address our State’s 

structural deficit, including real reductions in State spending, 

eliminating State departments, and cutting the operating budget of 

every State department. But our State’s fiscal crisis still made it 

necessary to propose significant and painful cuts to a variety of 

programs, including aid to hospitals and nursing homes. We tried 

to craft these cuts in such a way as to protect the most vulnerable, 

but as the recession worsens we may need help from the Federal 

Government to forestall worse cuts. 

And while we have shown we are willing to take steps to get our 

fiscal house in order, we and other States may not be able to maintain that critical safety net in the face of a deepening national recession. 

As has been noted, in 2003 Congress provided a temporary increase in FMAP, and according to the Kaiser Commission on Medicaid and the Uninsured, that increase was effective in averting additional Medicaid cuts and even allowed some States to reverse 

previously enacted cuts. 

The proposal before you today would provide New Jersey nearly 

$280 million in additional funding and help preserve that safety 

net. 

In sum, I would urge you to pass a temporary increase in FMAP. 

It would prevent States from having to make deep reductions in 

vital Medicaid services at the very time that more and more of our 

citizens are needing them. 

Thank you. 

[The prepared statement of Ms. Howard follows:] 

70 

STATEMENT OF HEATHER HOWARD

Good afternoon Chairman Pallone and Distinguished members of the House Energy and Commerce Health Subcommittee. 

I am pleased to be here to discuss the importance of maintaining our health care 

safety net during a time of national recession. 

First, though, I would like to take this opportunity to thank you and the many 

members of Congress for your leadership and hard work in enacting a moratorium 

on many of the harmful Medicaid regulations the Administration issued over the 

past year. Those regulations threatened critical funding for hospitals and other 

health care providers and would have impacted the care provided to the most vulnerable. I know you worked together in a bipartisan fashion to prevent the regulations from taking effect and want to commend your efforts. 

And Mr. Chairman, thank you for your sponsorship of H.R. 5268, which would 

provide New Jersey and the rest of the nation with a temporary-but urgently needed-increase of nearly 3 percent in the Federal Medical Assistance Percentage or 

FMAP. This legislation has bipartisan support and I am hopeful it will have the 

same success as the moratorium on the Medicaid regulations. 

States are clearly experiencing the effects of the economic downturn. According 

to the nonpartisan Center on Budget and Policy Priorities, more than half of the 

states are facing budget shortfalls and more are likely to have deficits in the coming 

months. 

Because most states cannot operate in a deficit, unless Congress intervenes enacting a temporary increase in FMAP, states may be forced to reduce health care services and eligibility for the most vulnerable. 

This bipartisan proposal can be enacted quickly, as there is precedent from the 

2003 economic stimulus package Congress enacted. And it is timely, temporary and 

targeted to helping the working families who are struggling in this failing economy. 

Mr. Chairman, the decline in the national economy-and therefore most state 

economies-means rising unemployment, escalating Medicaid costs and more families 

in need of health care services. More employers will be forced to reduce or eliminate 

health coverage for their employees, exacerbating the negative trend in employerprovided health insurance. According to the Kaiser Family Foundation, nationally 

every 1 percent increase in unemployment results in 1.1 million more uninsured and 

an additional 1 million—400,000 of them children—enrolling in Medicaid. 

And, since Medicaid eligibility lags 6 months behind unemployment figures, the 

full impact of increasing demand for Medicaid services may not be known for some 

time. 

These new developments could not come at a worse time from a health care perspective. There are now about 47 million uninsured Americans—up from 40 million 

in 2000. 

Mr. Chairman, this is a national problem that calls for a national response from 

Congress, and I am grateful that the committee is meeting today to discuss this critical issue. 

This year, the National Governors Association, in a bipartisan action, strongly endorsed a temporary increase in the federal matching rate for Medicaid, along with 

flexible block grant funding, stating that ‘‘such efforts were effective in the past to 

stabilize the economy and maintain health care services for the most vulnerable 

populations.’’ 

Let me be clear: a majority of states are now facing significant budget shortfalls, 

and will be considering drastic spending cuts as a result. In these hard economic 

times, not only are states seeing reduced state revenues, more people are qualifying 

for need-based benefit programs, further exacerbating state shortfalls. 

In response, some states have already implemented cuts to public health programs, and clearly more will be forced to do so as the recession worsens, unless Congress approves temporary, increased Medicaid funding. 

In New Jersey as in many other states, the health care system is in distress. 

Seven hospitals have closed in the past 18 months and half of those that remain 

are operating in the red. Approximately 1.3 million people have no health insurance. 

According to the American Hospital Association, last year 35% of urban emergency 

departments were over capacity, and 56% of urban hospitals and 64% of teaching 

hospitals had spent time on ambulance diversion status, in many cases for long 

stretches. 

New Jersey’s Medicaid program is the safety net for more than one million lowincome families and individuals—including 40,000 elderly nursing homes residents—who depend on the health care services that Medicaid provides. They need 

our help now more than ever as they struggle with spiraling fuel prices and higher 

food costs. 

71 

Medicaid pays for one-third of all births in the state of New Jersey, half of all 

HIV/AIDS treatment, childhood immunizations, critical cancer screening and treatment, pharmaceuticals for the mentally ill, and specialized care for the blind and 

disabled. 

Governor Corzine has taken bold steps to address the State’s structural deficit. 

The recently-enacted budget represents a $2.9 billion reduction in spending, $600 

million below last year’s spending level—the largest actual dollar, year-to-year reduction in state history. It also reduces the size of government by 3,000 workers 

through early retirement and attrition, cuts the operating budgets of every state department by an average of five percent, and eliminates altogether two state agencies. 

The state’s financial crisis made it necessary to propose significant and painful 

cuts to a variety of programs, including state aid to hospitals and nursing homes. 

The cuts, however, were crafted in such a way as to protect the most vulnerable. 

For example, safety net hospitals serving the greatest number of the uninsured received the smallest cut, and the nursing homes serving the highest percentage of 

Medicaid patients received a full cost of living update. 

As the recession worsens, however, we may need help from the Federal Government to forestall worse cuts. Indeed, while New Jersey has shown that it is willing 

to take strong steps to get its fiscal house in order, we and other states may not 

be able to maintain our critical safety net in the face of a deepening national recession without temporary and targeted assistance from the federal government. 

As you know, in 2003 Congress provided a temporary increase in the FMAP. According to the Kaiser Commission on Medicaid and the Uninsured, that temporary 

increase was effective in averting additional Medicaid cuts and also allowed some 

states to reverse previously enacted cuts. A similar temporary increase in the FMAP 

of 2.95 percent would mean nearly $280 million in additional funding for New Jersey today and would enable us to preserve Medicaid and other health care safety 

net programs and prevent us from having to cut vital services or reduce eligibility. 

In conclusion, if the recession continues, as expected, states may be forced to 

make additional cuts to health care services for working families. This is a critical 

time for the millions of Americans struggling with escalating health care costs. 

Therefore, I would urge you to pass a temporary increase in FMAP. It would prevent states from having to make deep reductions in vital Medicaid services and help 

us to preserve the safety net for our most vulnerable residents. 

Thank you again Mr. Chairman for this opportunity to testify. I would be happy 

to answer any questions from the members of the subcommittee. 

Mr. PALLONE. Thank you. I want to thank all of you for your 

statements and for being here today. 

We will now move to questions. I recognize myself initially for 

some questions, and I am going to start with Dr. Tannenwald. 

You did an excellent job of laying out the current economic landscape facing States and the Nation and basically said the situation 

doesn’t look very promising, which I share. Right now, Congress is 

again discussing a second economic stimulus package that would 

include additional temporary target assistance for States. And as 

you look to the horizon do you believe that this downturn is going 

to reverse course or do you for see continued economic distress? 

Mr. TANNENWALD. Let me start first by making a statement— 

Mr. PALLONE. And all of that in 1 minute. No. 

Mr. TANNENWALD. Let me start by making a statement I should 

have made initially, that my views are my own, not necessarily 

those of the Federal Reserve Bank of Boston or the Board of Governors of the Federal Reserve System. 

I don’t have privy to the internal economic forecast of the Fed, 

the Board. I am not cleared to see it. But the bulk of economic forecasters that I follow are saying that we are looking at probably, 

through the first quarter of 2009, either weak or negative economic 

growth in the Nation. When the negative quarters will hit, if at all, 

there is a lot of disagreement. 

72 

Mr. PALLONE. OK. Well, as you know, in the spring, the Democratic Congress enacted a fiscal stimulus package; and it provided 

some relief. However, even with that, more States are feeling pressures or have a declining tax base and budget troubles. Do you believe additional Federal spending targeted in the right way will be 

helpful in alleviating State pressures and pulling State economies 

out of a slump? In other words, a second stimulus package that 

might include FMAP? 

Mr. TANNENWALD. Sure, it could help. How this whole thing 

should be structured, it brings in a lot of issues. In theory, if the 

goal is to help State governments per se, the States have a vital 

role in our Federal system that suggests not targeting. But if the 

idea is to relieve fiscal stress, then the aid should be targeted at 

those who are most stressed. 

Now, in practice how to measure fiscal stress is very controversial and difficult. So then you go to the second criteria, like is the 

program up and running, where if you put the money in, you know 

it is going to get there and it is somewhat related to some sort of 

stress. 

Also, is it a program where the Federal Government has already 

expressed a vital interest in the health care for low- and moderateincome people it has. 

So all those factors should be taken into account in deciding how 

to do it. I think the last time around in the last recession there was 

a mixture of targeted and nontargeted aid, including FMAPs, 

which seemed to try to reconcile all these different concerns. 

Mr. PALLONE. Thank you. 

Now I am going to go to Heather Howard. 

In our current economic situation with rising joblessness and rising inflation, what happens to the Medicaid rolls and what has 

New Jersey’s experience been? 

And I guess the second part of this is that I know there are some 

that criticize Medicaid’s flexibility that allows the program to grow 

as need grows. But could you talk about how Medicaid functions 

as a countercyclical program and why FMAP or a Federal matching 

formula is so important? 

A lot of questions in one. 

Ms. HOWARD. Thank you. Yes. 

I will start off by saying, yes, we are very concerned about the 

effect of the downturn on our Medicaid program and what it is 

going to mean. As I mentioned, we are seeing more employers dropping coverage because they can’t afford it, and that means more 

people will be qualifying for the program. As I mentioned, Medicaid 

eligibility lags unemployment numbers, so we are going to be starting to see it. And that is why it is so important to start the stimulus soon before we have to make the cuts. 

You mentioned the fact that it is countercyclical, and I think 

what you are getting at is the fact that in a time of economic downturn when State revenues tend to decline, our State spending on 

health care needs to increase because our Medicaid rolls are increasing as more and more employees lose their jobs and more people become uninsured. 

So States are facing greater and greater constraints in terms of 

our revenues. Our only options are to raise taxes or cut spending, 

73 

which would exacerbate the downturn. And so that is why we need 

the Federal Government to step in and provide this very temporary 

and targeted assistance, so that we can prevent these very dramatic cuts that we would have to consider otherwise. 

Mr. PALLONE. Just one comment, I think it may be obvious, but 

if it isn’t, I will say it. Obviously, I think we should do a second 

stimulus package, and the question is what is in it. And I feel that 

FMAP is something, as I think Dr. Tannenwald was alluding to 

that should be included, because it does have an immediate impact, 

not only in terms of helping the States but also money that goes 

to health care and that creates jobs as well. 

But I will now defer to my ranking member, Mr. Deal. 

Mr. DEAL. Thank you. 

Ms. Howard, first of all, it is good to have you here. 

I understand that your Governor Corzine has been very supportive of some of the Medicaid flexibilities that were built in in 

the Deficit Reduction Act and that he has been a strong advocate 

for these kinds are flexible accounts. And you have used them in 

emergency room co-pays for nonemergency care, for enforceable 

nominal co-pays for certain prescription drugs and some long-term 

care insurance partnerships. 

Have all of those been a way in which you can use and make the 

money go further in a more efficient and effective manner? 

Ms. HOWARD. They are. And I want to thank you; I know you 

were very involved in the crafting of the Deficit Reduction Act. And 

as a State official now, we do look to that for tools in how to manage the growth. 

Of course, everybody is dealing with exploding growth of healthcare costs. It is not unique to government, obviously; it is true in 

the private sector as well. And the DRA has provided us with some 

of those tools, such as the long-term care partnership. 

I should clarify that they did reject them, but he did try and 

make—and try again. But we had definitely looked to the DRA for 

ways to manage the growth. 

Mr. DEAL. What is your match rate in New Jersey? 

Ms. HOWARD. Our match rate is only 50-50. We have the lowest 

match rate. 

Mr. DEAL. You are one of those rich States then? 

Ms. HOWARD. You know, I think that is technically true, but we 

really—and Congressman Pallone knows this—have a real diversity of experiences in New Jersey. We have the poorest city in the 

country, Camden. So we obviously have a high average income but 

we have real pockets of poverty and real pockets of need. 

Mr. DEAL. But you are at the lower level in terms of the match 

rate? 

Ms. HOWARD. Yes, that is right. 

Mr. DEAL. Dr. Helms, were some of those reforms that were in 

the DRA the kind of things that you are alluding to in general 

terms of being able to make the program more efficient? 

Mr. HELMS. Yes. It is one of the things from 18 months from that 

Medicare commission. We looked at a lot of things the States were 

doing, and we were pretty impressed. There were States trying out 

new things and particularly in coordinating critical care in really 

74 

expensive populations and so on. I think there is a lot of potential 

for that. 

I guess, as a general matter, one of my complaints about the 

FMAP, that the margin is that it gives not only—some States may 

use the money well, they may put it back into Medicaid. I don’t 

think there is any guarantee of that, because the FMAP is a retrospective payment. So, at the margin, there is an enormous incentive when you have decades of history of this, of people playing accounting games and coming up with anything you can do to get 

some State expenditure over into the Medicaid column, means that 

you would qualify for the matching waiver. 

So my general feeling is if States could put as much effort into 

trying to improve the care and coordinating care and those kinds 

of things, I think it would be far better for the really, truly poor 

and disabled. 

Mr. DEAL. Do you agree with the proposal of the transparency 

provisions that Mr. Frogue was talking about? Would that be something that would assist in this effort? 

Mr. HELMS. Very much so. Jim, to his credit, has been making 

this case for several years now. I think it would be an easy thing 

for the Congress to do. 

Mr. DEAL. Mr. Frogue, in that regard, the transparency that you 

suggested, could you give us an idea of how that information translates into making adjustments within the programs that actually 

will save States like New Jersey and others money in the process? 

Mr. FROGUE. Well, I think the first and most important reason 

to do it is it can help States figure out what kind of outliers there 

are. There is some really low-hanging fruit, but there is not a lot 

of waste, fraud and abuse. 

But the number one point to make is you can’t manage what you 

can’t measure. And if States aren’t doing this and measuring it already, then it is impossible to manage a program. 

So this isn’t something that should have a whole lot of partisan 

boundaries. And, again, the number one reason to do it is you will 

be able to find States where only 17 percent of women over 50 are 

getting annual mammograms when it should be 100 percent. 

Mr. DEAL. Have you looked at the issue that Dr. Helms raised 

about the current FMAP formula being disproportionately punitive 

for States with low-income individuals in terms of the dollars that 

translate per individual in those low-income States? Have you 

looked at that issue? 

Mr. FROGUE. The larger and more inefficient the State Medicaid 

program, the more money it gets under this proposal, yes. 

Mr. DEAL. And that is one of those perverse incentives I think 

that Dr. Helms was talking about. I would hope that at some point 

this subcommittee and this full committee would have an opportunity to look at some of these reforms that I think really would 

cut across political boundaries and simply do the kinds of things 

that we all acknowledge have to be done if we are going to keep 

this program solvent, not only for the Federal program, also for the 

States. 

Ms. Howard, I was a little intrigued by one comment you made. 

You said the State only has two options: to raise taxes or cut 

spending. Sometimes we are faced with those same options up 

75 

here, as well, and especially since we are in a deficit situation already. 

The third option I would suggest and one that has already been 

suggested here is to try to make the programs we have more efficient. And as I indicated in my first question, I think Governor 

Corzine is to be commended for taking advantage of the options 

that we have provided under the DRA to make the programs more 

efficient. 

And I think those are the kind of things that we ought to hopefully work toward, as we move forward with looking. This is certainly one bill, but long-term changes that all of us can agree on 

I think are out there. 

I would yield back, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Deal. 

The gentlewoman from Wisconsin is recognized for questions. 

Ms. BALDWIN. Thank you, Mr. Chairman. 

Thank you to all the witnesses for their testimony. 

I wanted to start with a couple of questions for Ms. Howard. 

You said in your testimony that your State made cuts to social 

services, but they were made in a way that protected the most vulnerable, and that those protections are somewhat threatened at 

this point. Can you elaborate a little bit so that we can know the 

strategies New Jersey was using? 

Ms. HOWARD. Sure. Thank you. Thank you for that question, 

Congresswoman. 

For example, the Governor cut over $100 million from the Charity Care Program, which is our program for reimbursing hospitals 

for uncompensated care for the sick and uninsured. So, although 

we had to take the very unfortunate step of cutting that funding, 

with the remaining funding we targeted the safety net hospitals, 

the hospitals that see the highest percentage of uninsured, and 

made sure they felt the smallest cut. So, although the pie was 

smaller, we made sure that those safety net hospitals got the most 

money. 

Another example was that, as we were unfortunately forced to 

look at cutting nursing-home funding, we made sure that the nursing homes that have the highest percentage of Medicaid occupancy, 

therefore the highest percentage of the poorest seniors, we made 

sure they got the full inflationary update that we were not able to 

provide for those nursing homes that don’t have as many of those 

high Medicaid occupancy. 

But those are the kind of tactics we are having to look at. And, 

of course, in a time of rising uninsured, the last thing you want to 

be doing is cutting funding to hospitals that are treating the uninsured. So it was very difficult choices. 

Ms. BALDWIN. Along a similar vein, in recent months, as I said 

in my opening statement, the State of Wisconsin has seen a dramatic increase in the enrollment of working parents in Medicaid, 

often a group that doesn’t typically access Medicaid except in times 

of economic duress, like we are seeing right now. 

Is that also a trend that you are experiencing in New Jersey? 

And if so, what sort of initiatives have you undertaken to enable 

your State to cover new eligibles? 

76 

Ms. HOWARD. Well, one of the reasons we had to make cuts in 

programs was anticipating—we have already anticipated growth, a 

caseload growth. And, of course, working with a lot of social services organizations, those that are really community-based, we get 

the strong feeling that we are going to see an influx of people coming in. 

As I mentioned, people have to exhaust their unemployment benefits. And you all have—and I want to commend you—provided an 

extension of unemployment benefits, which is terrific, but that just 

means that it has extended the time before people start coming to 

us to apply for Medicaid. So we fully anticipate that we are going 

to see a strong wave of people coming in. 

And, actually, I think Chairman Pallone asked about the openended nature of Medicaid. I think that is one of the benefits of having an open-ended nature of Medicaid, is we are able to accommodate an increase. If people are needing the services of the program, 

we want them to come in. And that is one of the benefits of Medicaid being an entitlement program; it gives us that flexibility. If 

our caseloads were capped, we wouldn’t be able to deal with the increase of people coming in and needing services. 

Ms. BALDWIN. Mr. McEntee, in your testimony you gave a real 

good overview of the likely short-term effects of the economic downturn that we are experiencing, such as States cutting Medicaid eligibility or reducing services. 

I am wondering if you can look out a little further and what you 

see as the long-term effects of these short-term strategies to balance budgets at the State level. 

Mr. MCENTEE. Well, I think the short-term strategies, obviously, 

are very, very necessary. But there is a long-term structural problem in regards to our States and in relationship to the Federal 

Government and our States and counties and cities and school 

boards. Not to get partisan, but with all the tax cuts that took 

place in terms of the Federal budget, the Federal Government finds 

itself in a tremendously minus state in terms of money. And I believe that all will have to come together and be corrected in some 

way for the economy to be able to move forward. 

I think that over time, once we get some short-term fixes into the 

States, they will be able to begin to handle some of their problems. 

But we have to understand that the Federal Government is like 

the battleship in this war, and that battleship has to be structured 

properly in the long run for the country to move forward. 

Ms. BALDWIN. Thank you. 

Mr. Chairman, I appreciate the time for questioning. I know that 

the hearing is focusing on State fiscal relief, but, obviously, underlying all of this is the health and well-being of our citizens. So I 

thank you again for holding this hearing. I yield back my remaining time. 

Mr. PALLONE. Thank you. 

The gentleman from Texas, Mr. Burgess? 

Mr. BURGESS. Thank you, Mr. Chairman. 

Ms. McEntee, I am not sure that I heard you correctly. Were you 

arguing that we should be working toward a balanced budget situation at the Federal level in your last statement? Or am I misconstruing what you said, that the debt load that— 

77 

Mr. MCENTEE. Working toward a balanced budget. I think a balanced budget is a good thing, but I think it will take, with the kind 

of shape that we are in now in the Federal Government, will take 

an extensive period of time and a lot of courage to do that. 

Probably some of us recall that when Clinton left, we had a tremendous surplus in terms of Federal Government, where it was not 

only balanced but we had this tremendous surplus, and then we 

find ourselves in a great deficit. 

I think of course a balanced budget is a good thing. I think that 

offsets are a good thing. But sometimes the situation cries for more 

and faster solutions, so they have to be put aside. 

Mr. BURGESS. It is my understanding, Mr. Chairman, is this offset, this bill that we have been—the Pallone bill that we have 

under discussion? 

Mr. PALLONE. Well, if the gentleman will yield? 

Mr. BURGESS. Yes, I would be happy to. 

Mr. PALLONE. What I am proposing—and I am sure you have 

heard a lot of this—is that there be a second economic stimulus 

package, which would be essentially like the first one, an emergency supplemental, and would not be offset because it is an emergency. 

Mr. BURGESS. OK. Reclaiming my time—I was afraid of that. 

Mr. Frogue, let me just ask you—you gave some very intriguing 

testimony, and I think we heard some intriguing testimony from 

Mr. Helms. But if you were—this legislation that we are considering were to increase the Federal spending of Medicaid by $15 billion over five calendar quarters. If you had the ability to construct 

this any way you wanted, how would you direct that money so it 

would have the greatest impact on the system, not just for solving 

the problems of today, but leaving a Medicaid system that was in 

less disrepair for the future? 

Mr. FROGUE. Well, first and foremost, I would always keep in 

mind that the Medicaid program is about health first and spending 

second. And if you had encountered data out there in a patient deidentified way, you could find out if people are actually getting 

healthier. That is the number one goal of this program. The spending is important, but we should always remember it is for health 

and for improving health status. 

So my proposal is the most efficient thing this committee could 

do that would require almost no cost would be to require States to 

post that data, but, at the very least, as a condition of the bailout 

or the FMAP temporary increase, that States not get the money 

unless they agree to post that data. 

Mr. BURGESS. I will just say from my own experience in the 

past—and it wasn’t with Medicaid, it was with another insurance 

company that shall remain unnamed but rhymes with ‘‘united’’— 

they sent me data. It was individual data about just the issue you 

mentioned, about only having 17 percent of patients having a mammogram under the Medicaid system. I am happy to report my percentage was much higher. But even those one or two that were 

identified to me were quite a shock. 

First, I was incensed that the insurance company would even 

have that data and collect that data and be able to report that data 

back to me. But after getting over that concept, the fact that, yes, 

78 

we have a way to actually act as another backstop so that this information could be made available to the clinician and then ultimately improves patient care and, as you so correctly point out, delivers the correct kind of care, care that costs the cheapest dollars, 

which are on the front end, as opposed to the crisis side, where the 

dollars are most expensive. 

So I really thank you for bringing that information with you 

today. I think that is terribly intriguing information. 

Now, it is my understanding that you work with a lot of States 

around. Have you seen any enthusiasm for incorporating this idea 

at the State levels? 

Mr. FROGUE. Yes. Actually, I sent the testimony around shortly 

before coming here, and I got some rather quick responses from 

half a dozen State health secretaries, who said they thought it was 

a fantastic idea. 

And States can do it unilaterally. They don’t need the Federal 

Government to demand them to do it. And some actually are beginning to do this, is my understanding. 

Mr. BURGESS. But the advantage of having the Federal Government do it, then, is because the data is collected in one way and 

one location and then can be accessed by anyone so long as the 

data is properly de-identified and aggregated? 

Mr. FROGUE. Again, properly de-identified, yes. But if you are 

going to do this package, then the lever to get the data would be: 

You get the money if you release the data; otherwise, you don’t get 

the money. 

Mr. BURGESS. Well, Mr. Helms—and, again, I was intrigued very 

much by your testimony as well. Obviously, your answer to Mr. 

Deal’s question earlier, you would see value in perhaps incorporating what you have discussed with a different way of approaching the FMAP along with this ability for States to access data 

quickly and be able to identify the outliers and what was described 

as low-hanging fruit. Is that correct? 

Mr. HELMS. Yes, if I understand your question. 

Mr. BURGESS. What I am getting at—in talking to Mr. Frogue, 

yes, we are going to pay $15 billion over five quarters, which is a 

significant, significant investment for us to make. OK, if we get the 

transparency that Mr. Frogue is talking about, perhaps we could 

also get some reform to the FMAP formula in general, which, going 

forward, would lead us to a better place ultimately with our Medicaid system. 

Mr. HELMS. Right. I have actually given some thought about— 

I couldn’t get the Medicaid commission to really deal with this, because I think it came up too late. And it is a big issue, and it is 

controversial, I admit. You know, it puts one State against another. 

But I do think, even if you look at the SCHIP allocation formula 

for SCHIP, in addition to being an add-on to the FMAP, it has 

three additional requirements about considering the number of uninsured in the State—uninsured children—the number of poor children in the State, the number of uninsured in the State, and also 

the relative cost of care in the States. I have tried to do this same 

distribution with the SCHIP money, and it is much more even. So 

that just illustrates that there are other kinds of formulas. 

79 

I guess my preference, if you could go to some kind of allocation 

system that would be based on the population that you are really 

trying to target this help to, the statistics on the number of disabled and those kinds of things probably aren’t as good, but I do 

think we could probably come up with a better allocation that 

would target the money more to where these populations of people 

are. 

Mr. PALLONE. OK. We are over, so we have to move on. Thank 

you, Mr. Burgess. 

And I recognize the gentlewoman from Illinois, Ms. Schakowsky. 

Ms. SCHAKOWSKY. Mr. Frogue, and actually Dr. Helms as well, 

I wanted to understand a little better your formulations. Are you 

suggesting that if a State is spending more per patient in Medicaid 

dollars that somehow that differential translates into an inefficiency for those States that are paying more? 

Mr. HELMS. I think there is always inefficiency. What I was trying to do, as I discuss a little bit in my written testimony, it is very 

common—the Kaiser Family Foundation does this—to take the 

Federal or the total Medicaid expenditures and divide it by the 

Medicaid enrollment. And that is useful for certain purposes, but 

it is not independent of the State’s decisions. And so you can get, 

I think, misleading comparisons. 

Ms. SCHAKOWSKY. Exactly. That is the point I wanted to make. 

And I think you were suggesting that a bit, Mr. Frogue, that Illinois may have a more generous package of benefits that the State 

legislature has decided to do. And I think that rather than have 

a downward pressure on States, if we measure efficiency in that 

way, that that would be a serious mistake, in my view. Because we 

may have better outcome, healthier poor people as a result of a 

more generous package. 

Mr. HELMS. Well, my point for trying to go with the number of 

poor people in the State from the Census Bureau is, one, it is a 

convenient statistic already produced by the Census Bureau and it 

is independent of the State’s eligibility policies. And I think it is 

an indication of the target population that this legislation was supposed to help. 

So I just use it as a way to illustrate that there are variations 

in this from State to State and the money is not necessarily flowing 

to the States that have the largest poor populations. 

Ms. SCHAKOWSKY. OK. 

Mr. McEntee, you had an attachment that talked about the effect 

of an increase in Federal Medicaid matching payments on State 

economies. And I am looking at my State of Illinois, the additional 

Federal support: $448 million. But you have that it would—additional business activity—$896 billion, almost 8,000 new jobs, et 

cetera. 

So I wondered if you would talk a little bit about what we might 

expect were we to make this investment of an additional $15 billion? 

Mr. MCENTEE. I think the attachment speaks for itself. But there 

is a multiplier effect as this kind of money would move into various 

States. And the multiplier effect is right there in the appendix and 

would more than help just the people in terms of health, although 

I agree that is what the system is all about. But right now we are 

80 

also looking at a dual effect, where it would also be a stimulus, and 

it would help as a multiplier effect in each and every State. But 

it wouldn’t be just the money that is going on, but what would happen in terms of business and everybody else. 

Ms. SCHAKOWSKY. I appreciate that, because I don’t think we 

have been looking at that end of it as much as we needed to. And 

so I appreciate this hearing. 

I wanted to ask Ms. Howard a question. 

It has been suggested that Congress should not give States in 

economic distress additional Federal matching funds to help them 

avoid Medicaid cuts without imposing additional administrative requirements. 

And, now, all of us support the notion of accountability for any 

Federal taxpayer dollars, and we all want them spent efficiently. 

But I was wondering, Commissioner, if you think Congress needs 

to impose more administrative requirements on States to achieve 

efficiency and accountability during this economic downturn? 

Ms. HOWARD. You know, I think some interesting issues have 

been raised, but I wouldn’t want debate over those issues to slow 

down a very needed stimulus. We know the beauty of this kind of 

stimulus is that you can get it out quickly, and it can help prevent 

these cuts and, it can help make sure people still have access to 

health care. And I would hate to see a debate about these issues 

bog that down. 

And I would also want to say for the record that Medicaid is actually very efficient. Its administrative costs are much lower than 

private insurance has. And so I think there is already a lot of efficiency there. 

And I agree with you that every taxpayer dollar should be spent 

efficiently, but we know this program works, we know this kind of 

stimulus has worked in the past. 

Ms. SCHAKOWSKY. Great. 

Thank you. 

Mr. PALLONE. Thank you. 

The gentleman from Texas, Mr. Murphy, is recognized for questions—oh, from Pennsylvania. I am sorry. I am focusing so much 

on Texas, because Mr. McEntee gave so many additional jobs to 

Texas that I— 

[Laughter.] 

Mr. PALLONE. Mr. Murphy from Pennsylvania? 

Mr. MURPHY. Thank you. The great State of Pennsylvania. 

Thank you so much to the panel. 

Ms. Howard, you just said Medicaid is pretty efficient. Can you 

explain that? Because this is news to me. 

Ms. HOWARD. Sure. Well, medicaid administrative costs are 5 

percent, whereas private health insurance— 

Mr. MURPHY. Does that include the cost to the States? 

Ms. HOWARD. Yes. 

Mr. MURPHY. Does that include the overhead of whomever has 

oversight into that 5 percent? 

Ms. HOWARD. Right. Right. 

Mr. MURPHY. And would this work through insurance companies 

as well? 

81 

Ms. HOWARD. The comparison is between 15 and above 15 percent for private insurance. 

Mr. MURPHY. Does it include the cost to hospitals and physicians 

for handling Medicaid and any kind of extra paperwork and bureaucracy in dealing with it? 

Ms. HOWARD. No, it wouldn’t include that. 

Mr. MURPHY. Does it include any kind of measures of inefficiency 

within the system? 

Ms. HOWARD. No. And I think those are very serious. And I think 

Mr. Frogue mentioned that list, and I think we have a lot to learn 

and a lot of work to do there. 

But the main point I was making is that we do know that Medicaid is efficient. Medicare, the percentage is actually even more efficient. So Government-run programs can be efficient. 

Mr. MURPHY. Well, let me ask you a question about that, because 

that begs how we deal with this. Because, as I am reading through 

this—for example, Dr. Helms, as I was read this, I was reading 

through the testimony, a discussion with lots of formulas. 

Do any of those formulas of how much money States get have 

any kind of measures based upon quality? 

Can you turn the microphone on, please? It is not on. 

Mr. HELMS. The ones I have used? 

Mr. MURPHY. Well, as I read all these numbers—yes, the ones 

you used. Any of them based upon any kind of quality measures? 

Mr. HELMS. No, they are not. 

Mr. MURPHY. Which is a problem. 

Mr. HELMS. I would love to get better data, and we would be able 

to use some sort of quality-adjusted expenditure. That would be 

great. 

Mr. MURPHY. I oftentimes hear—in my work in hospitals, I hear 

of all these great ideas coming from employees a lot of times. A lot 

of people say, ‘‘I have this idea of how we can save money,’’ and 

things like that. 

But when I look at things like Medicaid, is there anything built 

in the system that rewards States for reducing some of their costs? 

Or is it basically you get back a percentage of what you build? 

Mr. HELMS. Well, there are CMS programs that attempt to reward States for various—I am sure Ms. Howard could give you 

more details—but there are rewards for trying to push fraud and 

abuse. But when you think about the logic—and I have no empirical evidence that this is true—but one of the implications, I think, 

of the FMAP formula, the way it works is that if a State has a 

choice of investing anywhere in the State budget about trying to 

eliminate fraud, anything it saves from a Medicaid fraud, they 

have to share with the Federal Government. So the rate of return 

is much greater if they go after something that is not matched. 

Now, obviously, they can save some money by going after fraud 

in Medicaid or a match program. But relative, the rate of return, 

they are going to give, I think, priority to the nonmatched programs. 

Mr. MURPHY. What about in areas—let’s look at a couple of other 

areas where—is there any incentive in the funding—and I would 

ask anyone in the panel to respond to this—any incentives in MedVerDate Nov 24 2008 15:46 Oct 01, 2010 Jkt 037690 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-139 SCOM1 PsN: JIMC
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icaid funding if a State greatly reduces its nosocomial infection 

rates in hospitals? 

Ms. HELMS. I don’t hear well, so I would have to ask you, could 

you repeat that? 

Mr. MURPHY. I said, is there any incentive for States in funding 

if they greatly reduce they greatly reduce their hospital infection 

rates? It costs $50 billion now nationwide. 

Mr. HELMS. Right. I think that is one of the kinds of things that 

people could talk about incentives. But, to me, Medicaid is such a 

big program— 

Mr. MURPHY. I only have a minute left, and I really want— 

Ms. HOWARD. I think some States are starting to innovate there. 

We announced an initiative where Medicaid is no longer going to 

pay for preventible errors. So I think that is the future and— 

Mr. MURPHY. But given that—and that is a good point. And 

Pennsylvania has also initiated ‘‘never events.’’ 

Ms. HOWARD. That is right. 

Mr. MURPHY. But if they reduce that, do they get any rewards 

for actually reducing it? Because they used to bill for it. So if you 

could bill for it, you could get a percentage of that. Why stop it? 

Mr. Frogue? 

Mr. FROGUE. No. I think that is right. And I think one of the key 

points is that we have to get the data out there. Again, you can’t 

possibly manage what you can’t measure. And if the encounter 

data was out there, the patient de-identified for all to see, you 

would find these extreme outliers, including hospital infections, 

which you are to be greatly commended on for your efforts, Congressman. 

Mr. MURPHY. Well, similarly, I look at some things about disease 

management for chronic illness, the electronic prescribing, what 

that can point out, in terms of the savings that can lead to, additional staff training. Integrating mental health care for people with 

chronic illness can reduce spending as well. 

One of my feelings is, as someone said, the Government giveth 

and the Government taketh away, but the Government doesn’t innovate. And this is a great opportunity, and I think with legislation 

such as this, it says, well, we can increase some funding for the 

States, but I would sure like to see incentives for the States to take 

an opportunity to ask their hospitals, ask their physicians, ask 

their nurses, ask their janitors, ask everybody, what do you see 

that we could do to save money? And if that is the case, can it lead 

to some rewards for the States so they simply don’t give it up as 

you said, Dr. Helms. 

There may not be a real incentive. Some of these programs, they 

don’t really get to share that. They could be using the innovation 

of hundreds of thousands of employees throughout the Nation, I 

think would be helpful. 

I yield back. Thank you. 

Mr. PALLONE. Thank you, Mr. Murphy. 

I recognize the gentlewoman from Oregon, Ms. Hooley, for questions. 

Ms. HOOLEY. Thank you, Mr. Chair. I have several for all of 

them, but I will try to restrain myself a little bit. 

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Mr. McEntee, as I understand it, you talked about Federal support for Medicaid during an economic downturn has a twofold effect. One, it certainly helps those States that are trying to take 

care of their poorest in need of health care. And the second, the influx of Federal funds would spur economic activity. 

Do you want to comment further on that? 

Mr. MCENTEE. Yes. If you would look at—and we will present 

this. If you would look at, after our testimony, we put the effect of 

an increase in Federal Medicaid matching payments on State 

economies. And we talk about how much the additional Federal 

support for Medicaid would be in particular States and then the effect that it would have on generating business activity and additional jobs. 

Let me—I will look down here. I am looking for Oregon, and I 

don’t see anything. That would happen to me, wouldn’t it? 

[Laughter.] 

Mr. MCENTEE. All right. Oregon would get $128 million under 

the proposed legislation, $128 million. And it would, according to 

our statistics, generate $215 million in business activity and create 

2,100 jobs in Oregon, besides just the stimulus for Medicaid. 

Ms. HOOLEY. OK. Thank you. 

For Ms. Howard I have a question. There was a concern about 

creating new bureaucracies to get more aid out. Does increasing 

FMAP do that? And can you elaborate on how swiftly this kind of 

aid can be delivered to the needy? 

Ms. HOWARD. It did not create any new bureaucracy. It won’t require any new staff to do it. There are already systems in place. 

So it is a very efficient way to get money out. 

And in terms of how quickly it can happen, as soon as Congress 

signals that it is going to do it and as soon as Congress passes the 

legislation and the President signs it, the States then know they 

don’t need to be making these cuts, because they know the relief 

is coming. 

And as we are all struggling with our budgets in dealing with 

the influx of people applying to these programs, we would be able 

to immediately forestall cuts. 

Ms. HOOLEY. Mr. Frogue, I have a quick question for you. You 

talked about and gave some examples of fraud and abuse, and you 

talked about transparency and how that would help. 

I also can cite a couple of cases where, as we have gone after 

fraud and abuse, many times it is after the small company, the 

doctor, and where they have—I think they were innocent, I don’t 

know, but they got caught in a total nightmare. And yet we have 

some of these cases out there like the ones that you mentioned. 

How do we make sure that that little company or that doctor 

doesn’t get cut in this web where they can’t get out of it? In many 

cases, they, in fact, shouldn’t have been caught in that web in the 

first place. 

How do we differentiate, and will the transparency do something 

different than is currently happening? 

Mr. FROGUE. Thank you for that question, Congresswoman. 

Yes, absolutely, I think shining that sunlight would be tremendously helpful, and we would also be able to focus anti-fraud resources where they are most needed. Like, for example, if it is true 

84 

that $12 billion of New York’s Medicaid program is waste, fraud 

and abuse, that, by definition, affects Oregon, it affects Illinois, it 

affects New Jersey, it affects Georgia, it affects every State that 

matters, because they are using it so inefficiently. 

But I think they would be able to see some of the biggest fish, 

some of the lowest-hanging fruit, and leave alone these smaller 

companies that are rather statistically insignificant unless it is excessive. But in most cases I think it would be very large institutions, if they are two or three or four standard deviations from the 

mean on treatment, get called out. 

Ms. HOOLEY. Thank you. 

Dr. Helms, you talked about our system being punitive to lowincome States or States that have the greatest need. Do you think 

reimbursement rates for the same procedure, the same problem, 

should be the same no matter what? 

Mr. HELMS. No. And I don’t even think the concept of federalism 

was written into the Medicaid legislation originally, and I have 

never argued that the payments should be the same. I am just trying to illustrate that they are anywhere from the same. There are 

some over three times different on a per capita basis. 

And, look, you can use other denominator. If you don’t like the 

number of people at 125 percent of poverty, you could do 100 percent. I have done some of this. You can do it at 150. You still get 

the same picture. You get a little different numbers. 

Ideally, it would be nice—and I would like to do similar work on 

this myself—to be able to break down the Federal expenditures for 

different classes of populations and then compare that to the populations of the actual numbers. The trouble is that it is hard to get 

those kinds of population figures. 

So I am not arguing that payments should be the same. Basically 

the philosophy of federalism is that the Medicaid was set up to be 

a Federal assistance but to be run by the States. And, over time, 

all the Federal policy that I have ever been associated with when 

I was in the Reagan administration was to give the States as much 

flexibility as we could. 

Ms. HOOLEY. Thank you. 

Thank you, Mr. Chair. 

Mr. PALLONE. Thank you. 

And let me thank all of you. We are finished with our questions, 

and I know that we have to get on to other things, but I want to 

thank all of you for being here. I know that you went out of your 

way, in some cases, to get here, and we certainly appreciate that. 

Let me just ask unanimous consent to put in this one letter. This 

is from the National Association of Counties. They just passed a 

resolution essentially endorsing H.R. 5268, the bill that I have introduced. And I would ask, without objection, that that be included 

in the record. 

So ordered. 

[The information requested was not provided at the time this 

document went to print.] 

Mr. PALLONE. Let me also remind members that you may submit 

additional questions for the record to be answered by the witness. 

The questions should be submitted within the next 10 days. 

85 

And the clerks would then notify your offices that these questions are outstanding, for you to get back in touch with us. 

But, again, I want to thank you all. 

I know this is a very important issue. We do expect that a stimulus package is going to come forward at some point soon, and I 

would certainly like to see something like this legislation or some 

FMAP included in it. 

So thank you again. 

And, without objection, the meeting of this subcommittee is adjourned. 

[Whereupon, at 3:45 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

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