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22–983PDF 2005

MEDICAID REFORM: THE NATIONAL GOVERNORS

ASSOCIATION’S BIPARTISAN ROADMAP

HEARING

BEFORE THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 15, 2005

Serial No. 109–22

Printed for the use of the Committee on Energy and Commerce

(

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

2

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

Vice Chairman

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

ROY BLUNT, Missouri

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

C.L. ‘‘BUTCH’’ OTTER, Idaho

SUE MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

TOM ALLEN, Maine

JIM DAVIS, Florida

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

BUD ALBRIGHT, Staff Director

DAVID CAVICKE, Deputy Staff Director and General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

(II)

C O N T E N T S

Page

Testimony of:

Huckabee, Hon. Mike, Governor, State of Arkansas; and Hon. Mark Warner, Governor, State of Virginia .................................................................. 21

Material submitted for the record by:

Acevedo-Vila ́, Hon. Anibal, Governor, Commonwealth of Pueto Rico, prepared statement of ........................................................................................ 74

Barton, Hon. Joe, letter dated July 5, 2005, to Gov. Mark R. Warner,

enclosing questions from committee members, and responses to same ... 78

Kennelly, Barbara, President, National Committee to Preserve Social

Security and Medicare, prepared statement of .......................................... 76

(III)

(1)

MEDICAID REFORM: THE NATIONAL GOVERNORS ASSOCIATION’S BIPARTISAN ROADMAP

WEDNESDAY, JUNE 15, 2005

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The committee met, pursuant to notice, at 11:07 a.m., in room

2123 of the Rayburn House Office Building, Hon. Joe Barton

(chairman) presiding.

Members present: Representatives Barton, Bilirakis, Upton,

Stearns, Gillmor, Deal, Whitfield, Norwood, Cubin, Shimkus, Wilson, Shadegg, Pickering, Buyer, Radanovich, Bass, Bono, Walden,

Ferguson, Rogers, Otter, Myrick, Murphy, Burgess, Blackburn,

Dingell, Waxman, Markey, Brown, Rush, Eshoo, Stupak, Engel,

Wynn, Green, Strickland, DeGette, Capps, Allen, Davis,

Schakowsky, Solis, Baldwin, and Ross.

Also present: Representative Gingrey.

Staff present: Chuck Clapton, chief health counsel; David

Rosenfeld, majority counsel; Jeanne Haggerty, majority professional staff; Brandon Clark, health policy coordinator; Eugenia Edwards, legislative clerk; Bridgett Taylor, minority professional

staff; Amy Hall, minority professional staff; and Turney Hall, research assistant.

Chairman BARTON. The committee will come to order. Our witnesses today, Governor Warner and Governor Huckabee, are testifying in the other body and are going to be joining us shortly. So

in the interim we are going to begin our opening statements. And,

according to the rule we adopted at the beginning of this Congress,

since this is a full committee hearing and we have two Governors,

Mr. Dingell and I will each be recognized for 5 minutes to give our

opening statements. Then, every other member who wishes to be

recognized will be recognized for 1 minute to give their statement.

And hopefully, by the time that happens, the Governors will be

here and then we will go to their testimony and then our usual 5

minutes of questions per member, alternating between the minority

and the majority. Any questions about that, anybody?

Mr. DINGELL. No questions, Mr. Chairman.

Chairman BARTON. Okay. So the Chair would recognize himself

for an opening statement.

Good morning. Even though our two Governors, Governor Warner and Governor Huckabee are not here yet, we do want to appreciate their agreeing to testify before us on this important hearing.

2

We understand that there is the making of a bipartisan agreement

amongst the Governors about what might be done to reform Medicaid. Under the aegis of the National Governors Association, today’s witnesses have played a central role in bringing both Republican and Democrat Governors together to develop and support

these innovative concepts for Medicaid reform. The Governors are

before us today because Medicaid is in crisis. We have reached a

point where there are just not enough taxes or taxpayer money to

keep Medicaid going as we know it today.

Most States now spend more on Medicaid than they do on

schools or anything else for that matter. Analysts predict in as few

as 20 years, Medicaid will consume between 80 to 100 percent of

all State budget dollars. That is an amazing statement. Without reform, Medicaid eventually will bankrupt every State in the Nation.

The only alternative is the eventual collapse of the Medicaid program.

Here is a thought that comes from somebody that I probably

wouldn’t agree with too much. He is John Adams Hurson, a Maryland State legislator who is president of the National Conference

of State Legislatures. Let me read to you what Mr. Hurson says.

‘‘I am a Democrat, a liberal Democrat, but we can’t sustain the current Medicaid program. It is fiscal madness. It doesn’t guarantee

good care, and it is a budget-buster. We need to install a greater

sense of personal responsibility so that people understand that this

care is not free.’’ I couldn’t agree more.

The proposals that we will hear about this morning reflect the

bipartisan views of the Nation’s Governors. Governors know their

State’s programs and beneficiaries, what they can afford and what

levels of benefits and services are most appropriate for those most

vulnerable in their State populations. Governors have to struggle

every day with Medicaid financing and service delivery. Governors

also see the flaws in the current program. They seem to understand how many middle-class seniors hide their assets through creative accounting techniques so that they can get Medicaid to pay

for nursing home care. They see how Medicaid pays too much for

some prescription drugs. They also know how Medicaid’s co-payment policies with rates that are frozen at 1983 levels, discourage

beneficiaries from taking responsibility for their own healthcare decisions.

This knowledge has helped to shape many of our Governors’ reform proposals. This will not stop critics from challenging these reforms, and that is the purpose of today’s hearing, to hear their reforms and then have a review of them. Some will say that any

change to the system they love will hurt the poor. Critics conveniently ignore the fact that the system is already changing as States

try to avoid ruin. Between 2002 and 2005 all States reduced provider rates and implemented drug cost controls. Thirty-eight States

have reduced eligibility, and 34 States have reduced benefits. This

year hundreds of thousands of beneficiaries will lose Medicaid eligibility or face reduced benefits in States like Tennessee, Missouri,

and Mississippi.

I think that it is time to do something because doing nothing

hurts Medicaid patients every day. I, personally, would like to reform and save Medicaid. The Federal budget does need some help.

3

The State budgets desperately need help. Medicaid beneficiaries

need help. I applaud our Governors and generally support the reforms that they are bringing before us. Medicaid is clearly in need

of reform.

This committee is tasked by Congress in the budget resolution to

reduce the growth of Federal spending. It is my job as chairman

to try to help the committee come up with a bipartisan agreement

that will do the very best that we can to meet that target. And as

I said, I hope that we can do it in a bipartisan fashion.

Just as important, though, is the importance of simply saving

Medicaid. The exercise that we discuss today is about much more

than reconciliation; it is also about preserving the healthcare safety

net that protects the Nation’s poor. If we cannot make Medicaid

more affordable to States and to the Federal Government, we will

have to put the beneficiaries who depend on the program at grave

risk.

I look forward to today’s hearing. It is an important hearing. I

might also say that this isn’t the only hearing that we are going

to do. This is the first of many hearings that we are going to have

this summer as we move toward a Medicaid reform package in the

fall.

[The prepared statement of Hon. Joe Barton follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Good Morning. Let me begin by thanking Governors Warner and Huckabee, for

appearing before the Committee today. We appreciate their willingness to testify

about a new bipartisan agreement to reform Medicaid that has recently been developed by the National Governors Association. Today’s witnesses played a central role

in bringing Republican and Democratic governors together to develop and support

these innovative concepts for Medicaid reform.

The Governors are here today because Medicaid is in crisis. We have reached a

point where there just are not enough taxes or taxpayers to keep Medicaid going.

States now spend more on Medicaid than they do on schools, or anything else, for

that matter. Analysts predict that in as few as 20 years, Medicaid will consume 80

to 100 percent of all state dollars. Without reform, Medicaid eventually will bankrupt every state in the nation. The only alternative is the eventual collapse of the

Medicaid program.

Here’s a thought that comes from someone I probably wouldn’t agree with much.

He’s John Adams Hurson, a Maryland state legislator who is president of the National Conference of State Legislatures. Let me read you what Mr. Hurson says: ’’I

am a Democrat, a liberal Democrat, but we can’t sustain the current Medicaid program. It’s fiscal madness. It doesn’t guarantee good care, and it’s a budget buster.

We need to instill a greater sense of personal responsibility so people understand

that this care is not free.’’ I couldn’t agree more.

The proposals we will hear about this morning reflect the bipartisan views of the

nation’s Governors. Governors know their state’s programs and beneficiaries, what

they can afford and what levels of benefits and services are most appropriate for

these vulnerable populations. Governors must struggle every day with Medicaid financing and service-delivery.

Governors also see the flaws in the current program. They seem to understand

how many middle class seniors hide their assets through creative accounting techniques so they can get Medicaid to pay for nursing home care. They see how Medicaid pays too much for some prescription drugs. They also know how Medicaid’s copayment policies, with rates still frozen at their 1983 levels, discourage beneficiaries

from taking responsibility for their health care decisions.

This knowledge helped shape many of the Governors’ reform proposals. This will

not stop critics from challenging these reforms. Some will say that any change to

the system they love will hurt the poor. The critics conveniently ignore the fact that

the system is already changing as states try to avoid ruin. Between 2002 and 2005,

all states reduced provider rates and implemented drug cost controls; 38 states reduced eligibility; and 34 states reduced benefits. This year, hundreds of thousands

4

of beneficiaries will lose Medicaid eligibility or face reduced benefits in states like

Tennessee, Missouri, and Mississippi.

We must do something because doing nothing hurts Medicaid patients every day.

I want to save Medicaid. The Federal budget needs our help. The State budgets

need our help. Medicaid beneficiaries need our help. I applaud the Governors and

generally support the reforms they are bringing us. Medicaid is clearly in need of

reform.

This Committee is tasked by Congress, in the budget resolution, to reduce the

growth of Federal spending. We’re going to do our best to meet that target, and I

hope we can do it in a bipartisan matter. Just as important, though, is the importance of simply saving Medicaid. The exercise we discuss today is about much more

than reconciliation—it is also about preserving the healthcare safety net that protects the nation’s poor. If we cannot make Medicaid more affordable to States and

the Federal government, we will have put the beneficiaries who depend on the program at grave risk.There are serious challenges facing Medicaid today and the program is clearly at a crossroads. We need to look for innovative, bipartisan solutions

for the problems facing Medicaid in order to strengthen and improve the program.

Medicaid beneficiaries deserve nothing less. So do America’s taxpayers.

Chairman BARTON. With that, I would——

Mr. RUSH. Mr. Chairman? Mr. Chairman? Down at this end.

Chairman BARTON. Mr. Rush.

Mr. RUSH. Mr. Chairman, I would like just to speak out of order

just for a moment. Since the last time the full committee has met

we have had a death among our family. The chief of staff for Congressman Towns passed suddenly last week, and I would just ask

that you would join me in a moment of prayer for her and her family and for our family because she was a fixture around this committee and around all of us. Brenda was loved by everybody. Brenda Pillors.

Chairman BARTON. I am honored to do that, and I think Mr. Dingell was going to speak to that too in his opening statement. But

would we all just have a moment of silence, and those that believe

in prayer, a moment of prayer. Amen. With that I would recognize

the distinguished ranking member, Mr. Dingell.

Mr. DINGELL. Mr. Chairman, I thank you for the recognition, and

I thank you also for holding this hearing on a very important, a

very valuable question. I ask that I also be permitted to insert into

the record a brief comment about Brenda Pillors, who was much

loved on this side of the aisle and in the committee generally. She

was chief of staff to our good friend, Mr. Towns, and she was quite

a force for good within the Congress. She will be missed.

Chairman BARTON. Without objection.

Mr. DINGELL. Thank you, Mr. Chairman. As I said, Mr. Chairman, I thank you for this hearing. It is a very important question,

and I welcome Governors Warner and Huckabee to us and thank

them for their testimony today. We are interested in hearing about

their Working Groups Preliminary Proposal to change Medicaid

and how these changes will help them and other Governors with

regard to fiscal problems. We have heard for a number of months

the concerns of the States regarding their budgets and how much

of each budget is consumed by Medicaid. These appear to be very

legitimate concerns. I want the Governors to know that I am sympathetic to the financial bite that they face, but that we do need

to have a perspective on one very important question; and that is

how do we fix their problem within the broader healthcare system

and yet take care of those for whom the Medicaid program is designed to be helpful?

5

Congress has tried to eliminate the problems or at least to alleviate this situation many times, including a major victory in June

2003 when we were able to provide the States with $10 billion to

assist them through the economic downturn by temporarily boosting the Federal Medicaid funding. But now we are going in the opposite direction. Congress is looking to cut $10 billion from the Federal budget, keeping in mind that cutting $10 billion in Federal

funding for these programs equals a $17.5 billion cut overall to

Medicaid recipients because of the shared State-Federal financing

of the program. That is a significant number.

The National Governors Association has come out strongly

against the cost shift by the Federal Government that would place

a still-greater financial burden on the States. This is a very legitimate concern. I wholeheartedly agree with the Governors and

would support giving the States $10 billion rather than taking it

away. I believe that to be a more justifiable course. But we must

also take care not to cost-shift the burden from the States to the

backs of the poor and those who have the least capacity to address

the problems that would occasion. Unfortunately, I am afraid that

much of the NGA proposal will do just that: shift cost to the poorest and to the most vulnerable citizens who depend on this program and who have no hope of help elsewhere.

It appears that in the name of personal responsibility, the NGA

proposal will make it much more difficult for children and pregnant

woman to get needed services. Do we really need to set policies

that will make it more difficult for a child diagnosed with diabetes

to get insulin? Or to care of the problems of a pregnant woman who

is desperate, alone, and destitute? In the end, we as a Nation will

pay the financial and social costs of any complications that would

result from such children being so treating.

The proposed cost-sharing increases and the benefit changes will

result in many going with no services at all. I understand the NGA

proposal would eliminate the Medicaid requirement that low-income children who are screened and diagnosed with health problems get the treatment they need. That would be a little bit like

a case I saw when I went to a hospital and they told me, Dingell,

there is good news here; women are going to be able to be tested

for breast cancer. I said that is wonderful. Yes, they said, but there

is a real problem; they are not going to be able to get the treatment

because that is not in the program. The cost-sharing increases and

benefit changes will probably, then, result in no services for many

at all. I understand the concerns of the Governor, but we must inquire why are we turning our backs on people who have the greatest need?

Equally troubling is the proposal to take away from senior citizens, individuals with disabilities, pregnant woman, and children

the ability to enforce their rights to promised benefits, which serves

as a backstop to guarantee that they get the services they need. We

should not kid ourselves. As I learned in the good Jesuit teachers’

philosophy, rights without a remedy are no rights at all.

I understand this is a preliminary agreement between a group of

Governors, which meant concessions were no doubt made on both

sides. I am, however, curious; how many senior, how many people

with disabilities, how many pregnant woman, how many children

6

were included in these negotiations? And what was done about the

concerns that they expressed if they were heard? And where will

these folks be when the leadership in this House decides that those

health services will get cut while doling out tax cuts to the most

fortunate amongst us. It is a sad day when the budget of the

United States, as submitted by the Republican leadership, will require folks like the witnesses before us today to figure out how to

hurt the people the least, rather than to help them the most.

Before I yield back, Mr. Chairman, I would like your attention

because I have a question that the minority would very much like

to ask you and our good friends on the majority side. I want to express the concern of the members on this side that we are not hearing today from those who would be most hurt by these proposals.

I note that our colleagues in the other body are hearing today from

experts on the perspectives of beneficiaries of providers. My question to you, Mr. Chairman, is will the committee be holding full

and adequate hearings to obtain the testimony from beneficiaries

and providers on those proposals before we go forward with $10 billion in cuts to those who are going to get the cuts?

Chairman BARTON. The gentleman yield?

Mr. DINGELL. I yield to my good friend, of course.

Chairman BARTON. Today’s witnesses are the Governors, but we

are going to have a number of hearings. We always do. We will

work with you and other interested members to make sure that we

have a broad range of witnesses so that the issue is fully vetted

before we move to a legislative solution.

Mr. DINGELL. That comment does you great credit, Mr. Chairman, and I thank you. I understand you to be telling me that we

will then be hearing from representatives of the——

Chairman BARTON. We will——

Mr. DINGELL. [continuing] children, representatives of pregnant

women, and others who are going to be affected by——

Chairman BARTON. I think we have established comity and trust,

not just on this issue, but on all the issues. I am not aware that

we have had a problem this year on any specific issue on shortchanging the witness list. But this is an important issue, and as

you pointed in your opening statement, there are many, many important principles in play here, and this committee will not move

legislatively without creating a full record where all interested parties are a part of.

Mr. DINGELL. Mr. Chairman, if I may continue on my time, your

record as chairman has been one of fairness and decency, and I

want to express my appreciation to you for that. I have great hopes

that we will see those superb tendencies at play here and that we

will be able to get a record that will enable us to look at the concerns of everybody who is going to be affected by these matters.

And with those remarks, Mr. Chairman, with great respect, I

thank you.

Chairman BARTON. The last thing, Mr. Dingell, before we yield

to Mr. Deal, as you know, because the reconciliation process, we

will have a timetable to legislate sometime most probably in September. So we will do our fact-finding hearings this month and in

July. There might be one final generic hearing in early September,

7

but we would move to a legislative markup sometime in September.

Mr. DINGELL. Thank you, Mr. Chairman.

Chairman BARTON. Okay. The distinguished subcommittee chairman, Mr. Deal of Georgia, is recognized for 1 minute.

Mr. DEAL. Thank you, Mr. Chairman. First of all, I want to

thank the National Governors Association and the two Governors

that we will hear from in just a few minutes, but also the staffs

of that organization and the staffs of the individual Governors who

have worked very hard on coming up with a bipartisan solution to

this issue of Medicaid reform. And I also want to thank the staffs

here on our committee who have been working in conjunction with

them.

There are two things that I think need to be said about this.

First of all is that this is, as we will hear from the Governors, a

policy-driven debate. Certainly, finances play a part. At the Governors’ level it is now consuming, for their part of Medicaid, more

than they are spending on elementary and secondary education

and continues to grow. This year it is costing a cumulative $300

billion, and is projected over the next 10 years to be $4.5 trillion

in cost. But policy is what we will hear from the Governors in

terms of policy changes, the kind of changes that I think all of us

acknowledge need to be addressed.

I want to thank them for doing this on a bipartisan basis. I think

the fact that they have done that is a challenge to us to deal with

this issue likewise, on a bipartisan basis. Thank you, Mr. Chairman.

Chairman BARTON. Thank the gentleman. The Chair would recognize Mr. Brown, the ranking member of the Health Subcommittee, for 1 minute.

Mr. BROWN. Thank you, Mr. Chairman. I first ask unanimous

consent to enter into the record statements from the consortium of

America’s dental providers, as well as the National Association of

Community Health Centers.

Chairman BARTON. Without objection, so ordered.

[The material follows:]

June 14, 2005

The Honorable NATHAN DEAL

Chairman

Energy and Commerce Subcommittee on Health

United States House of Representatives

Washington, DC 20515

DEAR MR. CHAIRMAN: We write as organizations committed to equitable access to

dental care with a broad range of experience in directly providing care and in working to ensure that dental care is available to Medicaid beneficiaries. To that end,

we have attached these principles for dental Medicaid reform to assist you as you

work to improve efficiencies in Medicaid.

As the Surgeon General highlighted in his 2000 report, Oral Health In America,

oral health is an essential component of overall health. The report further states

that dental disease is the single most chronic condition among children in America.

Dental disease has also been linked in recent studies to other diseases such as cardiovascular disease and pre-term, low birth-weight babies.

Failure to treat dental problems can have serious human consequences and impose economic burdens on our health care system as people seek care in more expensive circumstances. Routine primary dental care saves money: When primary dental

services are unavailable, families will often wait and seek care for their loved ones

in hospital emergency rooms--where they may receive a temporary pain fix that

8

1See CMS Guide to Children’s Dental Care in Medicaid. October 2004. http://

www.cms.hhs.gov/oralhealth/. The Guide was developed for the use of state Medicaid agencies,

dental and other health care providers, and national, state and local policy makers involved in

organizing and managing oral health care for children under Medicaid’s Early and Periodic

Screening, Diagnostic and Treatment (EPSDT) service.

masks the worsening problem or emergency care that can cost as much as 10 times

more than regular care in a dental office.

Lack of access to dental care has affected our national military readiness, with

the Department of Defense reporting that 4 in 10 recruits have dental problems severe enough to preclude their immediate deployment.—

While Medicaid is a major source of oral health care, enrollment in Medicaid does

not ensure receipt of oral health care services. Less than one percent of state Medicaid budgets are allocated to preventive oral health care. Only 7 states provide

adult Medicaid dental benefits and only 20% of Medicaid-eligible children receive

any type of dental care. A 2000 survey of state Medicaid program administrators

found that 95% of respondents reported an access problem for lower-income children

in need of dental care. Dental costs for children who receive preventive dental services early in life are 50% lower than costs for children who receive care after years

of neglect.

Despite these problems, Medicaid has been innovative and has been a successful

laboratory in some states for dental programs and policies that increase access to

dental care for low-income and vulnerable populations. We stand ready to work with

Congress in providing those best practice models as you seek to improve the Medicaid dental program.

Millions of low-income children and adults postpone needed dental care until

health emergencies result from uncovered and untreated dental care. Your committee has the means for correcting the bias in Medicaid that favors expensive

treatment in emergency rooms. We look forward to working with you and your committee in improving efficiencies in Medicaid by assuring regular access to routine

and preventive oral health care.

Sincerely,

ACADEMY OF GENERAL DENTISTRY; ALLIANCE OF THE AMERICAN DENTAL

ASSOCIATION; AMERICAN ACADEMY OF ORAL & MAXILLOFACIAL PATHOLOGY;

AMERICAN ACADEMY OF PEDIATRIC DENTISTRY; AMERICAN ACADEMY OF

PERIODONTOLOGY; AMERICAN ASSOCIATION OF DENTAL EDITORS; AMERICAN

ASSOCIATION FOR DENTAL RESEARCH; AMERICAN ASSOCIATION OF ORAL AND

MAXILLOFACIAL SURGEONS; AMERICAN ASSOCIATION OF PUBLIC HEALTH

DENTISTRY; AMERICAN ASSOCIATION OF WOMEN DENTISTS; AMERICAN DENTAL

ASSOCIATION; AMERICAN DENTAL EDUCATION ASSOCIATION; AMERICAN DENTAL

HYGIENISTS’ ASSOCIATION; AMERICAN STUDENT DENTAL ASSOCIATION;

ASSOCIATION OF STATE AND TERRITORIAL DENTAL DIRECTORS; CHILDREN’S

DENTAL HEALTH PROJECT; DENTAL TRADE ALLIANCE; THE HISPANIC DENTAL

ASSOCIATION; AND THE PIERRE FAUCHARD ACADEMY.

(Note: A complete list of organizations that are supporting the statement of dental

Medicaid reform principles will be forthcoming as other groups continue to sign on.)

Attachment

DENTAL MEDICAID REFORM CORE PRINCIPLES & POLICIES

Given that Medicaid beneficiaries are more likely to access care than similarly situated uninsured; Given that the dental services children and adults receive in Medicaid are cost-effective; Given that dental disease is the single most common chronic

disease of children; Given that parents consistently cite dental as the number one

unmet health need of their children; Given that poor oral health can affect a child’s

ability to learn and an adult’s ability to obtain a job due to appearance; Given that

untreated oral disease complicates medical conditions like diabetes and heart disease and may be associated with pre-term low-birth weight babies; Given that oral

disease can jeopardize the health of Medicaid-eligible elderly and the disabled, affecting the health and well being of those living in nursing homes; Given that preventive and routine dental services save overall health care dollars by avoiding costly visits to the emergency room, the dental community agrees to the following principles and recommended policies:

Preserve the Federal Guarantee of Medicaid Coverage, Services and Consumer Protections

• Maintain a federal requirement for dental services for EPSDT Medicaid-eligible

children 1, and extend medically necessary coverage to adults.

9

2See Healthy People 2010—Oral Health Goals and Objectives. http://www.healthypeople.gov/

document/html/volume2/21oral.htm.

• Ensure that preventive dental benefits are excluded from cost-sharing requirements.

Preserve the Federal Financing Role in Medicaid

• Maintain the current federal-state financing arrangement within Medicaid and reject proposals to establish caps on payments to states. • Update the federal matching formula to address changes in state economics, and

provide an enhanced match for dental services to ensure a state is able to adequately cover these services for Medicaid populations. • Allow for flexibility within states without diminishing the existing federal-state

partnership, which includes federal requirements and/or incentives to enhance

program effectiveness.

Assure and Maintain Access to Care Through Adequate Provider Participation

• Provide incentives to states to adopt Medicaid models that mirror programs dental providers work with in the private sector, improve access for beneficiaries

and facilitate providers’ active participation in the Medicaid program. • Ensure that dental providers receive fair and market-based compensation for

services provided and that compensation is not decreased by cost-sharing requirements. • Consider utilizing the private market to provide additional dental coverage options to higher-income Medicaid beneficiaries or populations not currently covered by the Medicaid program (e.g., optional dental health savings accounts),

and ensure that any private insurance models offered to Medicaid beneficiaries

provide comprehensive dental benefits. • Maintain equal access provision in federal law to ensure that beneficiaries within

Medicaid have access to dental services in the same way as beneficiaries in the

private sector.2

• Support dental targeted case management programs that utilize Medicaid funds

to capitalize on disease management.

Use the Medicaid Waiver Process to Foster Improvements and Innovation, Not to

Eliminate Federal Protections or Reduce Benefits

• Ensure that medical necessity criteria does not restrict or eliminate coverage for

oral health/dental care that meets professional standards and is clinically appropriate, as determined by a dentist.

Improve the Integrity of Medicaid

• Eliminate fraud and abuse within the program and ensure necessary oversight to

determine adequate access to care is provided to beneficiaries. • Ensure that the financing of the Medicaid program is sound and responds to market demands and state economic needs.

Recognize the Interdependence of Medicaid and the Public Health System

• Facilitate public-private partnerships that improve access for individuals who access oral health care through a safety-net provider. Such a partnership may result in private contracts between safety-net clinics and dental providers and

academic dental institution clinics. • Facilitate the establishment of school-linked programs. • Encourage programs that value prevention and disease management (to reduce

disease burden), are science and evidence-based and invest in strategies with

strong potential for long-term savings through preventive care.

Mr. BROWN. Thank you, Mr. Chairman. I have concerns about

NGA’s proposal, as Mr. Dingell does, but at least they didn’t set up

a kangaroo court Medicaid commission that puts life-saving insurance on trial as if Medicaid is an evildoer. The NGA would cut

costs in two ways: by reducing the price of healthcare and by reducing access to it. There is evidence that healthcare prices can

come down with no ill effects. Drug makers earn three times the

profit of other Fortune 500 industries. Drug prices, for instance,

can come down.

There is not evidence that we can reduce Medicaid access without doing harm. Medicaid enrollees can’t afford private health inVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
10

surance or higher-cost sharing. RAND’s Health Insurance Experiment found that low-income Americans forsake essential care when

cost-sharing is increased. Kaiser Family Foundation found that

Medicaid beneficiaries already spend more of their income on

healthcare than the rest of us do. Medicaid only covers medically

necessary care. States can use prior authorization in case management to make sure of it. It is a myth that Medicaid enrollees receive more care than their counterparts in privately insured plans.

They don’t.

Medicaid is expensive because our demographics are shifting, because private insurance is eroding and——

Chairman BARTON. The gentleman——

Mr. BROWN. [continuing] because healthcare——

Chairman BARTON. The gentleman needs to sum up.

Mr. BROWN. I will. Thank you, Mr. Chairman. Let’s not pretend

that taking healthcare services away from vulnerable Americans is

an ethical way to reduce a budget or to cover more people.

Chairman BARTON. Thank the gentleman. The gentleman from

Florida, Mr. Bilirakis, is recognized.

Mr. BILIRAKIS. Thank you, Mr. Chairman. I have a brief written

statement to be made a part of the record and waive an oral statement.

Chairman BARTON. The gentleman yields back. The distinguished gentleman from California, Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman. First of all, this hearing is prompted by a budget reconciliation, and I want to point out

that budgets are moral documents. They reflect the values of our

Nation, the priorities of our people, who wins and who loses. And

I think we are required all of us to ask on a bipartisan basis what

happens to the poor and the most vulnerable, especially the Nation’s poorest children.

Today we are going to hear from the Governors. They have a

very real perspective about the Medicaid program because so much

of the costs of this program are dumped on them, rather than absorbed by the Federal Government. I think we ought to make sure

that the changes we make in the name of reform are simply not

shifting cost to others, particularly those least able to bear them.

We should be sure that we are not putting barriers in the way of

participation in Medicaid by the very people we are trying to reach

and not to make changes that add to the numbers of uninsured in

this country, rather than reduce the numbers of uninsured in this

Nation.

We have a budget that I think is immoral. It gives tax breaks

to billionaires, and yet calls for billions of dollars to be cut out of

the program for the very poorest for their healthcare. Let us not

go along with the priorities of that budget. Let us do what is necessary to make a healthcare program for the poor in this Nation

really work.

Chairman BARTON. We thank the gentleman. Does the distinguished Subcommittee Chairman of Telecommunications, Mr.

Upton, wish to make an opening statement?

Mr. UPTON. Waive.

Chairman BARTON. Waive. Does Mr. Stearns wish to make an

opening statement?

11

Mr. STEARNS. Yes, I do.

Chairman BARTON. Mr. Stearns is recognized.

Mr. STEARNS. Thank you. Thank you, Mr. Chairman. I think we

can have a bipartisan discussion on this. I think all of us remember

the same type of thing was in play with welfare, and we were able

to come together, both the House and the Senate and, finally, the

President.

No one said it better than the Tennessee Governor, Phil

Bredesen, who delivered the National Democratic address last Saturday when he said, ‘‘No. 1, everybody pays something,’’—talking

about his Medicaid plan and its reform—‘‘imagine shopping at a

store where nothing has a price tag and you never get a bill. All

of us know you spend a lot more than you do now. But this is exactly how Medicaid works today. Until there is a little economic

tension, until everyone has a little skin in the game, the system

will continue to be inefficient.’’ And I commend him for his statement, and I think that is appropriate for all of us to realize, that

we need to reform Medicaid and make the people who are involved

to also participate. Thank you, Mr. Chairman.

Chairman BARTON. And we thank the gentleman. Mr. Markey of

Massachusetts.

Mr. MARKEY. Thank you. The Republicans want to cut taxes $106 billion in this year’s budget. That is why we are here—the

$106 billion tax cut. This is proportionately skewed toward the

wealthiest. And so the price that has to be paid is, amongst other

things, $10 billion cut out of Medicaid to pay for the tax breaks for

the wealthiest. One-third of all babies born in the United States

today are on Medicaid. One-third of all babies. Two-thirds of all

people in nursing homes are on Medicaid. Doesn’t it make sense for

the Republicans first to figure out what are our obligations to those

babies and those seniors; then what is left over is a tax cut? But

no. They decide that first they give the tax breaks to the wealthiest

in the country clubs who have benefited the most, and then let us

figure out how much we cut those babies and how much we cut

Grandma in the nursing home. And that is what we are doing here

today.

This is not about reform, ladies and gentleman. This is about the

Republicans paying for the tax break this year that they want to

give to the wealthiest and taking the money away from those most

in need in our society.

Chairman BARTON. Does Mr. Gillmor wish to make an opening

statement?

Mr. GILLMOR. Thank you, Mr. Chairman. I have a statement I

would like to enter into the record. But let me just make one brief

comment on the really and detrimental effect growing Medicaid

costs are having in Ohio. Despite efforts at cost containment, budget strategies, Medicaid expenditures in Ohio are increasing at twice

the rate of State revenues. They now amount to more than $10 billion. And to put that in perspective, that is 40 percent of the entire

budget of Ohio, and it is the reason that you are having cuts in

schools and in other areas of State government. And in fact that

number is larger than Ohio’s entire State budget in 1987. So I

think it makes the case that there is reform needed. And I yield

back.

12

[The prepared statement of Hon. Paul Gillmor follows:]

PREPARED STATEMENT OF HON. PAUL E. GILLMOR, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OHIO

Thank you, Mr. Chairman for holding this important hearing. Furthermore, I welcome Governors Huckabee and Warner, and applaud the National Governors Association’s initiative in bringing a bipartisan Medicaid reform roadmap before us for

public consumption.

With a generation of baby boomers growing older, life expectancy on the rise, a

shrinking labor force, and smaller family units, the demand for long-term care is

likely to increase, producing an even further strain on our nation’s Medicaid program. Absent future demographic realities, there no question that Medicaid is in

dire need of transformation now.

Today, it is safe to say that a majority of states are experiencing skyrocketing

Medicaid costs coupled with declining revenues. In my home state of Ohio, despite

recognizing the reality of a broken system and enacting a number aggressive cost

containment and budget strategies, Medicaid expenditures are increasing at twice

the rate of growth of state revenues, amounting to a total $10.5 billion. This figure

represents over 40% of the state’s general revenue fund spending and is larger than

Ohio’s entire state budget in 1987.

In response, the Ohio Commission to Reform Medicaid was formulated in December 2003, and earlier this January, they released their recommendations. As we

speak, the Ohio state legislature is hard at work, making great strides to adopt the

Commission’s recommendations in an effort to again, root out Medicaid inefficiencies

and stunt its growth.

With the evolution of Medicaid over the years, reform ideas have come and

passed, or simply been swept under the rug. We must take hold of today’s circumstances and remain committed with our governors to transforming our system

into one of personal responsibility, quality, and efficiency, for our citizens that need

it the most.

I look forward to the governors’ testimony, again thank the Chairman, and yield

back the remainder of my time.

Chairman BARTON. Gentleman from Chicago, Mr. Rush, wish to

make an opening statement?

Mr. RUSH. Thank you, Mr. Chairman. Mr. Chairman, just as I

did at the last Medicaid hearing back in April, I really must voice

my disappointment with the premise of this hearing. I simply don’t

believe that Medicaid is in any need of reform, not when there are

far more egregious examples of programs and policies that are in

need of reform, and at the same time that don’t disproportionately

impact our most vulnerable populations.

It has been rather telling that this Congress’s zeal for reform is

always reserved for matters that affect poor and working people

and never for the waste and abuse generated by the most privileged ranks of our society. Having said that, this committee is burdened with the unfortunate task of coming up with $10 billion in

savings in the Medicaid program.

And given this reality, I want to emphasize that it is my ardent

position that absolutely none of the $10 billion in savings should

come from Medicaid beneficiaries themselves. If we are going to

squeeze savings out of the program, then the burden should fall entirely on those parties and those interests that are best able to absorb these costs. Medicaid beneficiaries are some of the most vulnerable and needy populations in our country and thus, by definition, they are the least——

Chairman BARTON. The gentleman needs to——

Mr. RUSH. [continuing] able to bear the costs of these so-called

Medicaid reforms. And I yield back the balance of my time.

13

Chairman BARTON. We thank the gentleman. Does Mr. Shimkus

wish to make an opening statement?

Mr. SHIMKUS. I will pass.

Chairman BARTON. Does Mrs. Wilson wish to make an opening

statement?

Ms. WILSON. Yes, Mr. Chairman. Thank you, Mr. Chairman, and

thank you for holding this hearing. Over the last 4 years, every

State in the Nation has cut eligibility, benefits, or payment rates—

or all three—in Medicaid. And in general, the Federal Government

has done very little to help the States with those difficult decisions.

Yet the Governors have continued to get the beans to the barbecue.

They have got to balance their budget, provide services, make

tough decisions. And we have seen plenty of examples of where our

failure to help them has cost them dearly.

Medicaid is set up to pay claims. It is not set up to improve anyone’s health, and it is ripe for reform. It is now the largest

healthcare program in the country, and it is one of the most complicated programs that we have in the Federal Government.

I appreciate the Governors being here today, and I also appreciate their efforts to develop bipartisan ideas to improve the health

status of those who depend upon Medicaid, because that is what

this debate is about. And the health status of people who are eligible for Medicaid is much lower than it is for the population as a

whole. We should start asking why and start taking action to fix

it. And I yield the balance of my time.

Chairman BARTON. We have one of our Governors here. Governor, welcome. We are in the process of opening statements, so we

are going to continue that. And at the end of our opening statements, hopefully, Governor Warner will be here and we will be able

to hear from you. The gentlelady from California, Mrs. Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman, and good morning to everyone. On the issue of Medicaid, my entire public service has

been—and previous to my service in the Congress was to strengthen it, to find ways to be smart in order to save dollars, afford people access to a much higher level of quality of care. In the county

that I worked in we achieved that. We are still doing that. It became a model for the Nation.

Now, here in the halls of the Congress, I think that this whole

debate really needs to be placed in the context of both a moral

audit of our budget and our priorities, as well as a values audit.

We are going to talk about all the things that need to be done in

order to come up with this $10 billion. Let me remind my colleagues—and this is not left, right, or center; it is a fact of our

budget—we are spending a half a billion dollars a day in Iraq as

we walk up and down the halls in the Congress. This is being driven by over a trillion dollars in tax cuts——

Chairman BARTON. The gentlelady needs to——

Ms. ESHOO. [continuing] where there has been room made—I am

not going to stay for the rest of it, Mr. Chairman, because I am not

going to support the $10 billion cut. And the reason I am saying

it is because we have, I believe, a moral deficit. If we are for——

Chairman BARTON. The gentlelady is 30 seconds over her time.

Ms. ESHOO. If we are for correcting this and looking for smart

ways to take care of people, I will be a part of it. But I think there

14

is a real moral deficit in the Congress and in the budget, and I

think it is an outrage.

Chairman BARTON. Okay. Does the gentleman from Georgia, Mr.

Norwood, wish to make an opening statement?

Mr. NORWOOD. Thank you, Mr. Chairman. I will waive my opening statement.

Chairman BARTON. Okay, the gentleman from New Jersey.

Mr. FERGUSON. I do, Mr. Chairman.

Chairman BARTON. The gentleman is recognized.

Mr. FERGUSON. Mr. Chairman, thank you for holding this hearing, and I will continue the committee’s work toward reforming

Medicaid. It has been said many times in this committee and elsewhere, Medicaid is broken, it is hemorrhaging money, it is simply

unsustainable in its current form, and, quite frankly, it is not serving those it was designed to serve in the first place.

Governor Mark Warner said this past April, ‘‘Medicaid at 53 million Americans is going to bankrupt all of the States, and indirectly, then, lead to further deficit problems at the Federal level

and over the next decade.’’ Our Governors recognize, Governor

Warner recognizes that Medicaid is broken. It needs to be fixed. I

look forward to their recommendations and their insights into what

we can do to help make this program more efficient and more effective.

Over the next 10 years Medicaid is slated to cost $4.5 trillion. It

is already surpassing elementary and secondary education in most

State budgets. And I will say, Mr. Chairman, that the problems

that we face in Medicaid and the needs that we have to reform

Medicaid have little to do with tax cuts; they have little to do with

tax relief. It has everything to do with the fact that it is a government program that is simply not serving those it is meant to serve.

And those one-third of babies born today who are on Medicaid, the

two-thirds of those in nursing homes today who are on Medicaid,

it is simply not serving their needs. That is why this program——

Chairman BARTON. Gentleman’s——

Mr. FERGUSON. [continuing] needs to be reformed.

Chairman BARTON. [continuing] time has expired.

The gentleman from Michigan, Mr. Stupak.

Mr. STUPAK. Thank you, Mr. Chairman. I ask that my whole

statement be made a part of the record.

Chairman BARTON. Without objection.

Mr. STUPAK. I just think the highlight in my State of Michigan,

Medicaid accounts for 25 percent of the State’s budget. The trouble

in Michigan is an economy that is struggling to cope with a wave

of manufacturing jobs being shipped overseas. Under Governor

Jennifer Granholm growth in Medicaid spending has been held at

a mere 1.5 percent per year, even though the Medicaid rolls have

grown by 30 percent. That is evidence to me that Medicaid is flexible, and that Governor Granholm has done a great job of meeting

this challenge.

The proposal we are going to hear today from the Governors calls

for more flexibility in setting premiums, co-pays, and benefits offered. I think we need to look very carefully at the consequences

of these options. When Oregon increased its premiums, its rolls

dropped by 50 percent. That is an alarming statistic. With an aging

15

population and a weak economy, this is not the time to cut the

safety net out from a population in need. So I hope we look very

carefully at these proposals today. And with that, I will yield back

my remaining 4 seconds.

Chairman BARTON. We thank the gentleman from Michigan.

Gentlelady from California, Mrs. Bono, wish to make an opening

statement?

Ms. BONO. Thank you, Mr. Chairman. I will waive.

Chairman BARTON. Does the gentleman from Oregon wish to

make an opening statement?

Mr. WALDEN. Thank you, Mr. Chairman, I do.

Chairman BARTON. Gentleman is recognized.

Mr. WALDEN. When I served in the Oregon legislature, I worked

closely for a number of sessions on the creation of the Oregon

Health Plan, an effort to expand Medicaid coverage to those who

didn’t have it by providing more preventive care and reaching out

and trying to get the most use of the money so we could cover the

most people. When we talk about this being a moral decision, I

think it is.

And, Mr. Chairman, your Oversight and Investigation Subcommittee has held numerous hearings on Medicaid issues, and

clearly, there are areas that require our involvement to reform

Medicaid. In some cases we found, for example, that Medicaid paid

up to $5,336 for a drug that only costs a pharmacy $88 to acquire.

That is a waste of $5,200 on one drug. Now, that is probably the

worst example we found, but overall, we found that pharmacies’ acquisition cost for generic drugs would be an average of nearly 66

percent below the average wholesale price. So, Mr. Chairman, I

think there is room here, especially when Medicaid is still paying

for drugs like Viagra for convicted sex offenders, to improve both

the moral and fiscal standing of Medicaid. With that I return the

balance of my time and ask that my full statement be entered into

the record.

Chairman BARTON. Without objection, so ordered.

Does Mr. Engel wish to make an opening statement?

Mr. ENGEL. Yes, thank you, Mr. Chairman. Slashing funding to

Medicaid is not a viable solution to greater budgetary problems.

Just 2 years ago we gave States an additional $10 billion and desperately needed FMAP funding. And this year we have been instructed in Energy and Commerce to cut Medicaid by $10 billion

at a time when our citizens need it most. Medicaid was intended

to be elastic to respond to our changing populations in time of

need. Parts of the NGA proposal worry me because it advocates

raising premiums, deductibles, and co-payments, which could clearly make healthcare services unaffordable and out of reach for the

Medicaid program’s low-income population.

NGA calls it personal responsibility. But what about the low-income mother trying to care for her family by stretching her budget

to cover housing, electricity, food, clothing, and now, increased costsharing and co-payments for medical care. I can assure you, these

mothers are as familiar with personality responsibility and

strapped budgets as any Governor in our Nation. I want to add my

voice to those who say that the fact of the matter that tax cuts are

a priority for this Congress and this Administration makes all the

16

other funding unavailable. And the root of the problem with Medicaid are the tax cuts, as is the root of the problem—all the other

programs that we don’t have enough money to adequately fund. So

I thank you, Mr. Chairman. I look forward to hearing our witnesses.

Chairman BARTON. We thank the gentleman. The gentleman

from Idaho wish to make an opening statement? Gentleman from

California, Mr. Radanovich, wish to make an opening statement?

Mr. RADANOVICH. Thanks, Mr. Chairman. I waive.

Chairman BARTON. The gentleman from Texas, Dr. Burgess.

Mr. BURGESS. Mr. Chairman, in the interest of time, I will submit my statement for the record.

Chairman BARTON. All right. The gentlelady from North Carolina, Ms. Myrick.

Ms. MYRICK. No, I waive my time.

Chairman BARTON. Gentleman from Pennsylvania, Mr. Murphy.

Mr. MURPHY. Mr. Chairman, I will submit my whole statement

for the record, but briefly, I just want to add that——

Chairman BARTON. The gentleman is recognized.

Mr. MURPHY. Thank you, sir. That with regard to this discussion,

I am pleased that you are holding this hearing and the Governors

are testifying, particularly because we need to change this discussion from who is paying to what we are paying for. What is incredible in America, our dirty little secret, is the amount of money we

waste. And this has nothing to do with compassion. If we really

want to talk about compassion, let us talk about what we waste.

Every year in America from medical errors, every day in America,

the number of deaths that occur is equivalent to a 747 flight going

down. That is how bad it is. And a lot of these things are things

Medicaid continues to pay for. If we have real compassion for our

citizens, which we do, and I applaud the Governors for taking lead

on it, let us stop the errors that are wasting money, that are causing deaths, that are causing more hospitalizations and more harm,

and let us get down to the business of showing real compassion and

fixing this for America. Thank you, Mr. Chairman.

Chairman BARTON. Okay. Gentleman from Maryland, Mr. Wynn,

wish to make an opening statement?

Mr. WYNN. Thank you, Mr. Chairman. I will waive at this time.

Chairman BARTON. Gentleman from Texas, Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman, and I appreciate your

holding the hearing on Medicaid reform and, again, having the

Governors here, because Governors certainly have a large stake in

Medicaid reform and deserve a seat at the table. Without a voice

today are the folks who undeniably have the single largest stake

in the Medicaid reform, and they are the beneficiaries. The beneficiary who would be most affected by the National Governors Association roadmap, particularly its benefit-targeting and cost-sharing

proposals.

Medicaid was designed to provide healthcare to the most vulnerable populations that cannot afford healthcare, and frankly, do not

have the means to share this cost. Faced with limited means and

the cost-sharing requirements proposed by the NGA, Medicaid

beneficiaries will likely avoid seeking necessary healthcare. The result would be poorer health outcomes, increased ER utilization, and

17

increased uncompensated care that would drive up health costs for

all Americans.

In my State of Texas, the cost of treating the uninsured has caused the family insurance premiums to increase by $1,500 in

2005. And make no mistake, Medicaid is the health insurer of last

resort in our country, and if the NGA’s Proposal takes away that

safety net, then that population will go to our emergency rooms

and continue to have uncompensated care. Mr. Chairman, I would

like to have my full statement placed in the record.

Chairman BARTON. Without objection, so ordered.

Gentleman from Ohio, Mr. Strickland.

Mr. STRICKLAND. Mr. Chairman, Medicaid serves over 50 million

low-income individuals per year, and that number continues to increase but at no fault of Medicaid, which actually provides services

more cost-effectively than the private sector. The burden on Medicaid is increasing because people are losing their jobs, and therefore, their employer-sponsored health insurance. The burden on

Medicaid is increasing because our population is getting older, and

the elderly need long-term care. It would be an injustice not to put

the Medicaid debate into a meaningful context.

We are searching for $10 billion of savings in a program that

serves the poorest, and spending one-half billion dollars a day in

Iraq with no end in sight. We should search our hearts as we make

these decisions. We sit here with salaries of more than $150,000 a

year. We have healthcare subsidized by the American taxpayer,

and we are taking healthcare from the most vulnerable among us.

It is a moral issue. Jesus said, ‘‘As often as you have done it unto

the least of these, you have done it unto me.’’ I yield back.

Chairman BARTON. The gentleman’s time has expired. The

Gentlelady from California, Mrs. Capps.

Ms. CAPPS. Thank you, Mr. Chairman, and welcome, Mr. Governor. Today we will hear proposals to change Medicaid. The advocates of these proposals will describe them as ways to improve

Medicaid and expand its benefits. I heard this from the Budget

Committee Chairman as well. Ultimately, the goal is to reduce

costs. Reducing costs is a laudable goal, but only so long as it does

not hurt the beneficiaries of the program. There are only two significant ways to cut costs in Medicaid: one is to kick people out of

the program; the other is to eliminate covered benefits, which are

already limited to services medically necessary. Medicaid beneficiaries are 28 million poor children, 16 million poor working parents, 6 million elderly and dying and disabled. They can’t afford to

pay more for healthcare. That is why they are on Medicaid. These

approaches will add to the ranks of the uninsured. It will increase

the amount of uncompensated care. Both are going to cost us a lot

more in the long run. I yield back.

Chairman BARTON. Gentleman from Mississippi wish to make an

opening statement? Okay. Gentleman from Maine, Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman. I note that page one of

the report of the Governors recognizes that the Medicaid program

is extremely cost-effective compared to private sector healthcare.

We are at an historic crossroads. Just 2 years ago Congress approved a $10 billion FMAP increase. Now, we are facing a $10 billion cut to Medicaid, even as the number of uninsured in our counVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
18

try has risen to 45 million. Cutting Medicaid would have a devastating impact on the most vulnerable in our society. It will unravel an already fraying health safety net jeopardizing support for

providers like hospitals, clinics, doctors, and health plans that

serve low-income people. With Medicaid funding half the Nation’s

nursing home care, cutting or block granting the program would

jeopardize the quality of care provided to seniors and people with

disabilities in the Nation’s nursing homes. Maine will lose $76 million over 5 years if this $10 billion cut takes place. We need a better plan, and I hope you can help. Thank you.

Chairman BARTON. The gentlelady from Illinois, Ms.

Schakowsky.

Ms. SCHAKOWSKY. Let us at least be honest today. This is not

about money and it is not about reform. It is about priorities. And

in this richest Nation in the history of the world, poor people, the

most vulnerable people, are clearly not a priority for the Republican majority. We are not forced to make these cuts. We are doing

it at the same time as we are giving billions of dollars in tax

breaks to the wealthiest. In fact a trillion dollars in tax breaks to

the 52,000 richest families in this country by eliminating the inheritance tax, while we are asking more of those who are already paying more out of their income for healthcare than we who are sitting

right here. That is the reform—that we are going to ask these most

vulnerable of Americans to pay more for healthcare than they do

already. If we want to talk about reform, let us talk about provider

abuse, or let us talk about waste. But what we are really talking

about today in large part is taking money out of the pockets of persons with disabilities, low-income children, and pregnant women.

This is wrong. I think we should start over and come up with a

real plan for reform for Medicaid that provides our poor people

what they need. Thank you.

Chairman BARTON. We thank the gentlelady. Does the distinguished whip of the committee, Mr. Shadegg, wish to make an

opening statement?

Mr. SHADEGG. I waive.

Chairman BARTON. The gentlelady from California, Ms. Solis.

Ms. SOLIS. Thank you, Mr. Chairman, yes. I would like to commend you for having this hearing this afternoon, but I am also disturbed, because as you know, Medicaid provides healthcare coverage for over 50 million individuals currently. And 24 million of

those are children. In fact one in three Latino children receives

healthcare through Medicaid.

While plenty of Americans live without health insurance, programs like Medicaid are often the only means and only source of

protection for families and children. Medicaid is so vital for many

Americans and especially Latinos, fastest growing population, 9

million Latinos receiving healthcare through Medicaid.

We have all heard from our States about their cutbacks that they

are proposing in their budgets. The impacts will be devastating on

Medicaid, especially in the State of California. And at a time when

States are seeing rising rates of Medicaid enrollment for children,

we are proposing here to cut back. I think that is the wrong, wrong

solution, and we need to come back at the table, organize, and

make sure that we are more inclusive, and that we realistically

19

allow for States like California that have been able to meet unmet

needs in a way that is very innovative, that we should really look

at that and use that perhaps as a model. Yield back the balance

of my time.

Chairman BARTON. The gentlelady yields back the balance of

time. Chair comments that her outfit is the most photogenic yet on

the monitor. That pink looks very good on television. I wouldn’t

recommend it. Does the gentlelady from Tennessee wish to make

an opening statement?

Ms. BLACKBURN. Thank you, Mr. Chairman. Yes, I do, and I

want to thank you for holding this important hearing. I also want

to thank you for inviting my neighbors from Virginia and Arkansas, who are well aware of the many issues surrounding Tennessee.

It is a decade-long Medicaid transformation, which is an expanded

delivery system known at TennCare. And we have heard some

about it this morning. And as you know, Tennessee is in the process of reducing our TennCare rolls by over 323,000 individuals.

This program is based on unattainable expectations, poor cost estimates, and it has proven to be too much for our State’s budget to

bear. It is now over one-third of our State’s $26 billion budget. As

I speak, the TennCare Bureau is mailing letters to enrollees

throughout Tennessee notifying them of the dis-enrollment process.

Having come from the State Senate in Tennessee to this position,

I have all too familiar a working knowledge of the program.

I thank the chairman for addressing the issue before States are

forced to take some of the same steps as Tennessee. I also appreciate the work of the Budget Committee and the resulting Budget

Reconciliation Agreement that has brought the issue to the forefront. Without addressing needed reforms, the future of Medicaid

is ominous. As Governor Warner mentioned earlier this year, and

I quote him, ‘‘What is happening in Tennessee is a precursor to

what is going to happen in every State in the country. It is just

a matter of when.’’

Chairman BARTON. The gentlelady’s time has expired.

Ms. BLACKBURN. Thank you, Mr. Chairman.

Chairman BARTON. The gentlelady from Wisconsin, Ms. Baldwin.

Ms. BALDWIN. Thank you, Mr. Chairman. I welcome today’s opportunity to talk about Medicaid. And against the backdrop of continuous and repeated criticisms of the program, some of which are

unfounded, I think it is important that we take a moment to focus

on what Medicaid actually is. Medicaid is a last resort that prevents millions of Americans from joining the ranks of the uninsured. It is a safety net.

I also think it is important for us to remember that Medicaid

truly serves a very low-income population. The current Federal

poverty level for a family of four is $19,350 a year. This is not a

population that has additional resources to be able to afford increased co-payments or other cost-sharing mechanisms. I can imagine nothing worse than having to decide between the health of your

sick child or food for your family.

Last, thank you, Mr. Chairman, for your earlier commitment to

holding additional hearings on this topic that include the perspective of the beneficiaries.

20

Chairman BARTON. Does the gentleman from Michigan, Mr. Rogers, wish to make an opening statement? Okay. We are going to

recognize Mr. Ross and give him additional time if he wishes to formally introduce his Governor to the committee.

Mr. ROSS. Thank you, Mr. Chairman. I would like to take this

opportunity to thank the National Governors Association, the

chairman-elect of the National Governors Association, Governor

Mike Huckabee, from my own home State of Arkansas for being

here with us today. Some people know this, some don’t, but actually, not only are we from the same State, we are from the same

hometown of Hope, Arkansas, both graduates of——

Chairman BARTON. Is everybody from Arkansas——

Mr. ROSS. [continuing] Hope High School.

Chairman BARTON. [continuing] from Hope, Arkansas.

Mr. ROSS. Well, there is about 10,000 of us, Mr. Chairman. Both

graduates of Hope High School, although he graduated a few years

before I did. We both worked at the same radio station growing up,

and all I can figure out is while I was drinking from the water

fountain by the library, he was drinking from the water fountain

on the south side of the building because I am a ‘‘D’’ and he is an

‘‘R’’, but we do get along quite well, and I welcome him to the committee here today. When he finishes this term as Governor, he will

be the longest-serving Governor at the current time in the Nation.

And I had the privilege to get to know him when he was our lieutenant Governor and presided over the State Senate where I served

for 10 years.

I would like to take this opportunity not only to welcome Governor Huckabee here today but to point out to this committee that

Medicaid program is absolutely crucial to our home State of Arkansas. Recent numbers show that there are 717,000 Medicaid cases

in our State. And, Mr. Chairman, to put that in perspective, that

is one in five people in Arkansas that receive Medicaid. Over half

the children in Arkansas are on Medicaid or have received Medicaid services in the last year, and close to 80 percent of Arkansas

nursing home residents are paid for by Medicaid. I believe it is crucial that any changes or reforms to this program do not come at

the expense of the necessary benefits that these individuals currently rely on. Any changes, any changes whatsoever that have the

potential to shift these beneficiaries out of the program will only

add to the number of uninsured and result in increased illnesses

and higher healthcare cost.

And with that, Mr. Chairman, I want to thank you for giving me

the opportunity today to introduce my Governor from my hometown of Hope, Arkansas, Governor Mike Huckabee.

Chairman BARTON. We see no other member who is a member

of the committee present. The Chair is going to conclude the opening statements. The Chair would recognize Dr. Gingrey of Georgia

who is not a member of the committee, but has asked to sit in and

observe the hearing. He is not going to be allowed to ask questions,

but we are appreciative of his presence.

We do want to welcome both of our Governors. We have Governor Huckabee of the great State of Arkansas and Governor Warner of the great State of Virginia. We are going to recognize GovVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
21

ernor Huckabee first since he was here first, and then Governor

Warner.

I will say about Hope, Arkansas—I had a car break down in

Hope, Arkansas on Bill Clinton Drive. I kid you not. And I went

to the convenience store, and the lady that ran the convenience

store took me to the auto parts store to pick up the part for the

car and watched me try to fix it for 15 minutes and told me to get

out of the way and she would fix it for me. And she did. And I told

her that I was a Republican, and she said she didn’t care. It was

obvious that I didn’t know what to do with my hands and she could

make it happen. That is a true story on Bill Clinton Drive in Hope,

Arkansas.

Now, Governor Huckabee, we do recognize you, sir. We are going

to recognize you for such time as you may consume, which we hope

will be less than 10 minutes. We are going to set the clock for 10

minutes. After we hear your testimony, we will recognize Governor

Warner; then we will start the questions. We understand that you,

Governor Huckabee, have to leave by 12:45. So welcome to the Energy and Commerce Committee. Your statement is in the record in

its entirety, and we recognize you to comment on it. You have to

push the little button to turn the microphone on. No, it is right on

your microphone there.

Governor HUCKABEE. There we go.

Chairman BARTON. All right.

STATEMENTS OF HON. MIKE HUCKABEE, GOVERNOR, STATE

OF ARKANSAS; AND HON. MARK WARNER, GOVERNOR,

STATE OF VIRGINIA

Governor HUCKABEE. Maybe I need that lady that fixed your car

to come turn this microphone on, Mr. Chairman. Mr. Chairman,

thank you very much. And let me say a word of thanks to my

friend, Congressman Ross from Arkansas. He and I do get along

quite well, and it is a pleasure to work with him on issues there.

From some of the comments it seems like Governor Warner and I

and Congressman Ross and I get along a lot better than some of

you guys do. Let me just say that.

But we are here today to present some proposals from some of

the National Governors Association that really do represent not an

ending point, but a beginning point, for how we can improve the

quality of healthcare to the neediest citizens. We are not here to

see if we can make it more difficult for people to get healthcare.

We are not here to see if we can cut people off the rolls. We are

not here to see if we can hurt people. Let me assure you, the last

thing on earth any Governor wants to do is to hurt the people he

has been elected to serve.

My wife and I participated in an activity for over two, almost 3

years where every single month we would go into the home and

have dinner with a family who was on Medicaid. Why did we do

that? Because we wanted to sit down and actually see and talk to

them and ask them what problems do you have with the program?

How would you fix it? How could you improve it? It was one of the

most enriching experiences of our lives. The truth is, as a kid growing up, I wasn’t many dollars away from being a person who would

have been on Medicaid. The only reason I wasn’t is because my

22

parents were too proud to have accepted it. They would have wanted to pay something in in order to access it.

Medicaid program is a great program. We are not here to criticize it. We are here to improve it. The fact is, it is a 40-year-old

program. Next month will mark its 40th anniversary. For 40 years

it has been a safety net, but a lot has changed in 40 years. 40 years

ago the No. 1 song on the Billboard charts was the Beatles song

‘‘Help’’, probably a good anthem for today because that is why we

are here, help. The top three television programs in America were

‘‘I Love Lucy’’, ‘‘Hazel’’, and ‘‘Bewitched’’. The average family income was $5,900. A loaf of bread cost 21 cents. A gallon of gas cost

24 cents. A new Chevrolet cost $2,350.

A lot has changed. Today, we are trying to run an MP3 health

program on a 45 RPM standard. And we need to make some

changes. We are here to present to you some changes that have

come as a result of meticulous, tedious, and often very delicate

work of 50 Governors, in particular, some 10 Governors who have

worked very diligently on a taskforce, both Republicans and Democrats. What is remarkable about our proposals is that these discussions are not simply the consensus or even the work of a majority;

they are the work of the unanimous consent of both Democrat and

Republican Governors representing the full ideological spectrum,

but all of whom share this common conviction: while we all want

to continue helping the people of our States, we all recognize that

the program, as it is currently designed, as it is currently administered, is unsustainable. We simply are asking for the opportunity

to improve it, to reform it, to make it better.

There are 43 million Americans who don’t have any coverage

whatsoever. They are off the cliff. We want to make sure that with

some reforms that we are presenting today, that it might be possible to better utilize the resources that you have and that we have

so that rather than see how many people we can uncover, we can

find creative ways to cover actually more people.

My colleague, Governor Warner, who has been an outstanding

leader not only of the National Governors Association, but also of

this effort, will be addressing some of the larger, broad-based concerns in a moment. But let me mention seven specific areas that

I am going to touch upon ever so briefly that we are going to ask

you to give us the opportunity to administrate.

Now, I would like to remind you that a few years ago there was

a real concern when Governors brought welfare reform proposals to

Congress. The attitude was this will be a race to the bottom. It will

be a disaster if we give Governors that flexibility. Although people

will be poorer than they have ever been, they will be just ruined.

But the proof is that after having implemented those flexibilities

in the very kind of programs we are asking you to give us with

Medicaid reform, more people are at work and fewer are on welfare, and we have actually improved a system that was a hopeless

nightmare for so many, many Americans. We ask you to give us

that same consideration, recognizing that there are clear divides

here in Congress.

But let me say emphatically we are not divided among the Governors. This is not simply a proposal that has strong majority presence among Governors and tepid acceptance on the part of the miVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
23

nority. This has unanimous support and strong support of all the

Governors of all the States. That has not been an easy task to get

us to that same place, and in part because Medicaid is not a program; it is 50 separate programs. And if there is one important

message to get across to everyone across America is that it is not

a one-size-fits-all. Every State plan is unique and different to that

particular State. Even the reimbursements rates vary from State

to State. And the components of what we consider to be the optional programs vary. That is why the reforms are delicate and difficult to come to. But these we have presented.

First, changing the prescription drug aspect by making the program more transparent and insuring that whatever reforms we

have are not at the expense of the local pharmacist, who, in many

cases, is the only point of service health provider in rural communities. All stakeholders in the prescription drug pharmacy issue

should have a stake in helping to reform it, including the pharmaceutical companies, as well as the pharmacist and the State government. But the system is hopelessly and irreparably broken because it is non-transparent and is a system of gaining in the pricing structure that makes it impossible to appropriately administer.

Give us the tools that any CEO managing a healthcare program

would ask for, to better price those prescription drugs. That is what

we ask for. We don’t ask for you to give us the ability to cut people

off, but to manage the resources so that people are getting the

drugs they need at a price that makes sense.

Second, changes in the asset policy. There is a growing concern

that many people are able, particularly those with great wealth because they can hire the best accountants and attorneys to shift

their assets, to spin down and divest themselves so that they can

become Medicaid eligible for long-term care. There needs to be reforms in that.

A third thing, modifying Medicaid’s cost-sharing rules. I realize

this is a sticky wicket for many. But let me assure you that many

of our States have some serious evidence-based background in having some co-payment based on some services. We were able to actually reduce the number of uninsured children by more than 39 percent and lead the Nation, as a State of Arkansas, by expanding

coverage to children but by having a very modest co-pay. We are

not asking for families to have an undue burden. The burden would

not exceed more than 5 percent of family income. What we have

found—and, again, we have an 8-year record to base it on—is that

families welcome the opportunity to be able to have some stake in

the game and a sense of pride. And in addition to that, more importantly, we have been able to contain some of the unusual utilization when people go needlessly to the emergency room instead of

waiting the next day to the clinic like I have to do on my State

health plan.

The fourth is creating a benefit package flexibility. This simply

allows States to perform targeted services in a more effective way.

The next proposal deals with developing comprehensive waiver

reform. Waivers are complicated, they are often convoluted, they

sometimes mean that rather than to expand services or to operate

more efficiently, we spend months if not years trying to get permission to do something that would make, frankly, your budget easier,

24

but more importantly, would provide care to people who have nothing right now.

A very important area is judicial reform. And, frankly, this is

foundation and fundamental to virtually everything else we are

going to ask for. Right now, if we make reforms in our State plan,

chances are we are going to get sued. We will go to Federal court,

and two things will happen: the first thing is, the Department of

Health and Human Services will abandon us and leave us to our

own, not even so much as filing a Friend of the Court Brief; and

the second thing that happens, we lose the lawsuit. We need some

opportunity to deal with both the consent decree issue for States,

as well as being able to make sure that if the Federal Government

gives us permission and authority to do something, they at least

will stick with us when we are sued over having done what they

agreed to support.

And then to make some reforms in the way that the commonwealths and territories are created. Our colleagues who govern the

territories are at an extraordinary disadvantage when it comes to

the Medicaid program, and some of them are paying now as much

as 80 percent of the cost, more than any of us as States, are paying. And while this is not a huge budgetary issue, it is a critical

reform issue that needs to be addressed for the most vulnerable

citizens of that State.

Mr. Chairman, we welcome your questions and the opportunity

to engage in the debate with you today and the discussion, but we

certainly come primarily with a sense of anticipation, excitement,

and real hope that you will hear from those of us who administer

these programs in our States and knowing that it is not our intention to see if we can hurt people. It is our intention to see what

we can do to help people that we do care for. Thank you.

Chairman BARTON. Thank you, Governor Huckabee. Before we

recognize Governor Warner, we have a distinguished visitor with

us today. Congressman Brown’s daughter is with us from Brooklyn.

She is a graduate of Swarthmore College; she is a union organizer;

she speaks fluent Spanish; she is here today to help her father in

some discussions with some Central American dignitaries. If Emily

would stand up and let us recognize her. We are always glad to

have talent on the dais, even when it is——

Mr. BROWN. Especially when it exceeds out.

Chairman BARTON. [continuing] behind us. We want to recognize

you, Governor Warner. We appreciate the strong work you have

done on this issue. You, I believe, headed the taskforce of the Governors on this and have spent quite a bit of time on it. Congressman Boucher is not here to formally welcome you to committee, but

I know that he speaks very highly of you. And were he here, he

would tell you what a great job you have been doing as Governor

of Virginia. So we also recognize you for such time as you may consume. We have set the clock at 10 minutes.

STATEMENT OF HON. MARK WARNER

Governor WARNER. Thank you, Mr. Chairman, and I will try not

to take that full 10 minutes so that we can get into the question

discussion. Let me also apologize for being a bit late. Your colleagues on the Senate side kept me a little bit longer with some

25

questions. We have been doing this tag-team effort today. And let

me start by thanking my colleague and partner in this effort, Mike

Huckabee, although, after hearing Mr. Ross’ comments, is it actually the case if you are from Hope as well and Mike Huckabee—

is every Arkansas elected official from Hope, Arkansas——

Chairman BARTON. That was what I asked before you got here.

Governor WARNER. But Mike Huckabee has been a great partner,

and I want to reinforce what he has already said. This has been

a long process to get to this document. We have had, literally, over

35 Governors and/or their Medicaid directors actively engaged in

putting this document together. And none of the other Governors—

while some of the others haven’t fully participated—no one has

opted out. So we truly do have a bipartisan proposal before you. It

is a proposal that we all recognize is geared at making not only

Medicaid more efficient, but also making sure that those Americans, both on Medicaid and equally important, those 45 million

Americans without healthcare and those Americans on the edge

who still have some form of health insurance that may be on the

verge of being dropped onto the Medicaid rolls have a more efficient system.

Now, let me just again—Mike mentioned what he and Janet

have done. Let me just put a little bit of my very briefly personal

background. Before I became Governor, long before I was even involved in politics, one of the things I am proudest of, I started a

healthcare foundation in Virginia back in 1992 when there were a

million Virginians without healthcare, public/private initiative. We

have helped 600,000 Virginians get healthcare. Great success story.

Problem is, 2005, 13 years later, we still have a million Virginians

without healthcare. So grappling with this issue is something that

is terribly important.

Well, one of the things that I have been proudest of is during my

tenure as Governor, we have taken our State, which had one of the

worst records of signing up children for children’s health insurance

and aggressive changed the way we enlisted kids. We have actually

even lowered the co-pays and eliminated in some case on this initiative. And now, we are up to 97 percent of our eligible kids being

signed up and have recognized by Kaiser as—during the budget

trough as one of the most effective States.

But even with those actions I want to echo what my colleague

has already said; Medicaid as it is currently structured is not sustainable over the long haul, and we must find ways to improve the

program. In Virginia in 1990 the Commonwealth was spending $1

billion on Medicaid expenditures. Into this budget cycle we are

going to be spending $5 million. Now, I wouldn’t mind that fivefold

increase if we had actually substantially improved coverage or improved the quality of care. But too many times, unfortunately, we

have not improved coverage or substantially increased payments to

providers or expanded services. So we believe, as Governors—and

let me give you a couple starting points since—when we started on

the Senate side I started with the broad overview.

First, we believe this debate should be policy-driven and not

budget-driven. And that has been the bipartisan consensus of the

Governors. We strongly continue to appose caps or a block granting

of this program. This is a Federal-State partnership that should

26

continue. But we do recognize that we are going to need some additional efficiencies, that we are going to need some additional flexibility. Governor Huckabee went through some of the specific items.

Again, in terms of framing the problem very briefly, Medicaid expenditures now—and we went back and forth with some of your

Senate colleagues on this—combined State and Federal Medicaid

expenditures in aggregate outpace education expenditures, K-12. In

some States, I believe Missouri, Tennessee, we are looking at 30,

33 percent of total State expenditures being driven on Medicaid.

We in Virginia are down still about 15 percent because we are a

very, very low reimbursement State. But we can see the increase

lines.

And why is this happening? Well, we have seen, obviously, that

Medicaid is increasingly serving a number of low-income, frail seniors, people with mental and physical disabilities. And this population, while it is only about 25 percent of our total caseload, drives

about 70 percent of the costs.

Dual eligibles, one of those cost shifts that has kind of taken

place over years, now make up about 42 percent of total Medicaid

spending. We have seen increase in caseloads, and we are proud of

the fact that we have upgraded our SCHIP program and what

Mike has done with his program covering kids in Arkansas. But we

are also seeing a series of other cost shifts going. We are seeing increasing numbers of employers decide to no longer provide health

insurance, and in some cases, actually encouraging their workers

to go on Medicaid rolls.

And in terms of long-term care, as Governor Huckabee mentioned, we cannot continue to be—with the baby-booming generation heading toward retirement—Medicaid cannot continue to be

the single-largest by a manyfold factor provider of long-term

healthcare insurance for, in some cases, two-thirds of our senior

population.

So what we have laid out for you today is kind of a dual approach. And this is a starting point, let me make clear, not the ending point. Medicaid reform cannot be done in isolation as if it is

some island inside the healthcare system. We have to look at this

in an overall context. But at least in the short-term, not only in

terms of some of the efficiency or reforms we are talking about, but

we also think they need to be coupled with certain areas of reinvestment and certain other areas where we can prevent increasing

populations from falling upon the Medicaid rolls. And let share

with you some of those in fact non-Medicaid-related goals.

First—and I know folks on both sides of the aisle talk about this

repeatedly, but it is my hope, as somebody who has spent 20 years

in the technology industry, that we can move from talk to action,

that we can finally bring the power of information technology to

our healthcare system. It is remarkable in 2005 that we still don’t

have electronic medical records, that we have not used the efficiencies that IT have brought to every other sector of our economy,

to the, what, 14, 15 percent of our economy that is made up in

healthcare.

Second, we are open to looking at what we hope would be Federal tax credits for employers and employees, particularly on the

employer side for small business, to create at least some modified

27

benefit package that can be available on the private insurance side

so that folks on that margin that either fall in the uninsured category or are about to fall in the uninsured category can have some

form of private health insurance that they can purchase. And we

think we ought to be looking at stretching a little bit on purchasing

pools and other tools to get the aggregate numbers we will need to

provide health insurance for these individuals who otherwise,

through no fault of their own, may fall upon the Medicaid rolls.

And third, we must change the whole framework on the longterm care debate. And part of that means changing the mindset of

young folks when they start thinking about buying health insurance or life insurance, that they also purchase long-term care insurance. We would, again—I know that there is proposals on the

House side, there are proposals on the Senate side to look at tax

credits for incentives to purchase long-term care insurance. We

support those.

We are also looking at other tools so that we can both with carrots and sticks look at this asset transfer issue in a broader context. At least in Virginia, we don’t know how much of this, in an

abuse way, is going on. But we do know it is kind of an all-or-nothing situation where too many middle-class adults are finding ways

to perhaps dispose of Mom and Dad’s assets before they go into a

nursing home so they can be eligible for Medicaid. We have got to

think about it in a different way. One of the things we are putting

forward, for example, is the notion of reversed mortgages, reversed

mortgages with an ability to keep at least some equity in your

home that could be passed on to your heirs and perhaps use some

of that other equity that has been built up to actually provide inhome care or other non-nursing home type care.

These are all tools that we think we need to move forward on

outside of the kind of four walls of Medicaid if we are going to at

least take a step toward making sure that this reform effort is really not budget-driven simply, but is actually policy-driven and driven at the goal of improving the quality of healthcare for our most

vulnerable citizens. Thank you, Mr. Chairman.

[The prepared statement of Hon. Mike Huckabee and Hon. Mark

Warner follows:]

PREPARED STATEMENT OF GOVERNOR MARK R. WARNER, CHAIRMAN AND GOVERNOR

MIKE HUCKABEE, VICE CHAIRMAN, NATIONAL GOVERNORS ASSOCIATION

Mr. Chairman and distinguished members of the Energy and Commerce Committee. Thank you for requesting that we testify today on ways to address the significant challenges confronting the Medicaid Program. Today we are releasing a preliminary policy paper that outlines the recommendations of the National Governors

Association for Medicaid Reform. The recommendations represent work by eleven

governors on a Medicaid Working Group with additional input by most governors,

including their Medicaid Directors. These recommendations are preliminary in that

we will continue the working group over the next year so that we can complete our

work and provide Congress and the administration with further clarifications of our

policy as well as our further recommendations. We also look forward to working

with the Medicaid Commission and have offered Secretary Leavitt the NGA Center

for Best Practices to assist him in the Commission’s work.

It is also important for us to stress the fact that we see today’s release of policy

recommendations as the beginning, not the end, of the process. We hope that both

your committee and your staff will be willing to work closely with NGA and the

working group governors as you develop policies to make the nation’s public health

insurance programs more efficient, accountable, and responsive. Given that this

working group will continue, it will be able to not only provide you with more detail

28

on our recommendations, but also comment on alternative approaches you wish to

discuss.

THE PROBLEM

It is difficult to overstate the impact of Medicaid on state budgets. It now represents about 22 percent of the average state budget and is a larger percentage than

all elementary and secondary education. If you add health care spending for state

employees and other programs, state health care spending totals about one-third of

all spending, and is equal to spending on all education—elementary, secondary and

higher.

The problems of Medicaid are three fold. First is that the Medicaid program is

increasingly serving populations with very serious and expensive health care needs.

Low-income frail seniors, people with HIV/AIDS, ventilator-dependent children, and

other individuals with serious mental and physical disabilities represent only about

25 percent of the Medicaid population, but account for more than 70 percent of Medicaid’s budget. The average cost of providing health care to seniors and people with

disabilities is more than six times the cost of providing care to pregnant women and

children. Medicaid provides expensive chronic care and long-term care services that

are largely unavailable anywhere else in the health care system. Meanwhile, those

who are dually eligible for both the Medicare and the Medicaid Program account for

42 percent of total Medicaid spending. Demographic trends suggest that these cost

pressures will continue to increase.

Second, the caseload has increased 40 percent over the last five years. While

much of this growth has been in the relatively healthy populations of pregnant

women, children, and families—an influx of 15 million beneficiaries in a five year

period presents a fundamental challenge to states.

The caseload has been rising as the percentage of people under age 65 covered

by employer-sponsored health care is falling dramatically. At first this was due to

declines in U.S. economy, but it has continued as the economy recovered because

fewer of the new jobs being created offer health insurance. Small businesses in particular are finding it increasingly more difficult to afford health insurance for their

employees. Families that are losing coverage are concentrated among low-income individuals primarily below 200 percent of poverty.

The population of seniors and people with disabilities, who already account for 70

percent of Medicaid’s $330 billion annual budget, will grow considerably over the

next 20 years. Specifically, the over age 65 population will grow 64 percent, by 2020

and the over age 85 population will grow 3.1 percent per year over the next two

decades. The Congressional Budget Office estimates that over the next ten years,

growth in the elderly and disabled populations will comprise practically all of the

Medicaid caseload growth.

However, since Medicaid is the primary safety net, unless something is done, the

case load will continue to grow in the high single digit rate and perhaps even higher

over the next two decades as increasing costs shift individuals from private coverage

to Medicaid, or to the growing ranks of the uninsured.

The third problem is that the consumer price index for health care has been increasing 2 to 3 times the average price index. Medicaid, like all insurers, has been

faced with these rising costs. It is the combination of these problems—caseload

growth and health inflation—that makes Medicaid unsustainable in the short-run

let alone the long-run.

THE VISION

The policies that are outlined in our paper do not represent comprehensive health

care reform. Medicaid, however, is inextricably linked to the rest of our health care

system and its payers. Consequently, the scope of our paper is wider than the existing Medicaid program as it focuses both on populations that may become Medicaid

eligible as well as some underlying cost drivers in the overall health care system.

In terms of Medicaid itself, this paper offers important short-term reforms that will

help modernize, streamline, and strengthen this vital program.

The recommendations to make Medicaid more efficient and effective were not developed to generate any particular budget saving number. Instead, they were developed as effective policies that would maintain or even increase health outcomes

while potentially saving money for both the states and the federal government.

The non-Medicaid recommendations had three goals. First, to increase quality and

health outcomes by applying modern technology and accountability to our health

care system. Second, to develop alternative, more effective policy tools that would

assist individuals and employers to obtain and maintain private health insurance

as opposed to having these individuals become Medicaid eligible. Third, to improve

29

financing and delivery of long-term care by developing incentives for quality private

long-term care insurance products, community-based care, innovative chronic care

management, and alternative financing approaches. Specific health care policies are

organized around four objectives:

1. Reforming Medicaid

2. Enhancing quality and containing costs in the overall health care system

3. Strengthening employer-based and other forms of private health care coverage

4. Slowing the growth of Medicaid long-term care

REFORMING MEDICAID

The paper outlines several areas of reform which gives states additional flexibility

to streamline their programs.

1. Prescription Drug Improvements. The current system is flawed and must

be replaced. A number of policy changes must be enacted that will help decrease

costs and improve quality and efficiency of care. The goal of reducing both state and

federal expenditures will require policy changes that impact all segments of the

pharmaceutical marketplace, including (but not limited to) increased rebates from

manufacturers, reforms to the Average Wholesale Price (AWP), policies that increase the use and benefit of more affordable generic drugs, and tiered, enforceable

co-pays for beneficiaries. States must have additional tools to properly manage this

complicated and critical benefit.

2. Asset Policy. While Medicaid remains a vital source of long-term care coverage

for many individuals who cannot receive that care elsewhere, there is growing concern that many individuals are utilizing Medicaid estate planners or other means

in order to shelter or transfer assets and therefore qualify for Medicaid funded longterm care services. Medicaid reform must include changes that increase the penalties for inappropriate transfers, restrict the types of assets that can be transferred, and encourage reverse mortgages, as well as other policies that encourage

individuals and their families to self-finance care rather than rely on Medicaid.

3. Cost Sharing. Medicaid’s cost-sharing rules, which have not been updated

since 1982, prevent states from utilizing market forces and personal responsibility

to improve health care delivery. These provisions should be modified to make Medicaid look more like the State Children’s Health Insurance Program (SCHIP), where

states have broad discretion to establish (where appropriate) enforceable premiums,

deductibles, or co-pays. As in SCHIP, there should be financial protections to ensure

that beneficiaries would not be required to pay more than 5 percent of total household income (no matter how many family members are enrolled in Medicaid) as a

critical balance to this proposal. For higher-income households (for example, those

above 150 percent of the federal poverty level), a 7.5 percent cap should be applied.

4. Benefit Package Flexibility. Medicaid’s populations are very diverse, ranging

from relatively healthy families and children to the frail elderly, to individuals with

serious physical and developmental disabilities. The types of services and supports

needed by these populations are quite different, yet the Medicaid benefits package

remains ‘‘one-size-fits-all.’’ Many states have found that the flexibility built into the

SCHIP program allows for greater efficiencies without compromising quality of care.

Extension of this flexibility to services for appropriate Medicaid populations would

allow states to provide more targeted services while managing the program in a way

that prevents sweeping cuts in the future.

5. Comprehensive Waiver Reforms. Waiving various portions of the federal

Medicaid statute has become the norm—rather than the exception—for states. Reforms are needed to increase efficiency and reduce costs, increase the ease with

which states obtain current waivers, expand the ability to seek new types of

changes, and change the federal statute to eliminate the need for many waivers altogether.

6. Judicial Reforms. The right of states to locally manage the optional Medicaid

categories is clearly defined in both policy and law, and the federal government

should remove legal barriers that impede this fundamental management tool. Also,

U.S. Department of Health and Human Services officials should have to stand by

states when one of their waivers is questioned in the judicial system and should

work with states to define for the judiciary system that any state has a fundamental

right to make basic operating decisions about optional categories of the program.

7. Commonwealths and Territories. The federal Medicaid partnership with

U.S. commonwealths and territories has become increasingly unbalanced over a period of years, to the extent that some of the jurisdictions are financing over 80 percent of their Medicaid costs, and many of the Medicaid expansions such as transitional medical assistance are not available. The imbalance affects quality of care

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view of the current relationship and the development of a pathway that moves to

a rebalancing of this partnership.

ENHANCING QUALITY AND REDUCING COSTS OF THE OVERALL HEALTH CARE SYSTEM

We must increase the efficiency, productivity and quality of the entire health care

system and believe that states are able to tailor solutions unique to their cultures,

institutions and health care markets, but large enough to experiment with system

wide reform. Accordingly, Congress should establish a National Health Care Innovations Program to support the implementation of 10 to 15 state-led, large-scale demonstrations in health care reform over a three- to five-year period. States would

serve as the lead entity for these demonstrations, but they would have to partner

with the private sector. Some of these demonstrations would be for statewide provider networks while others would be for networks in major metropolitan areas.

Using information technology to control costs and raise quality would be a core objective of these demonstrations. The financing of these demonstrations should not

come at the expense of Medicaid funding.

STRENGTHENING EMPLOYER BASED AND OTHER FORMS OF HEALTH CARE COVERAGE

Governors recommend a federal refundable health care tax credit for individuals

as well as an employer tax credit for small employers. There is also a recommendation for the federal government to fund state alliances or purchasing pools which

in combination with individual tax credits and the utilization of the S-CHIP benefit

package for additional populations should also help create more competition in the

health care marketplace. Finally, there is a recommendation to develop a catastrophic care/reinsurance model to address unsustainable ‘‘legacy costs.’’

SLOWING THE GROWTH OF MEDICAID LONG-TERM CARE

The paper includes a number of recommendations on assisting individuals in the

purchase of long-term care insurance through the use of federal tax deductions and

credits as well as by enacting long-term care partnership legislation. Finally, there

are recommendations to address home- and community-based care and chronic care

management.

STATE CONTRIBUTION TO THE MEDICARE DRUG BENEFIT

While Medicare beneficiaries have some guarantees, that on January 1, 2006 the

Medicare program will begin in providing them with a drug benefit, states do not

have the same guarantee that the fiscal burden will be lifted.

In some states, contrary to clear congressional intent, the phased down state contribution (clawback) provision will actually cause states to spend more in Medicaid.

In addition to their mandatory clawback payment, some states will also face increased costs from the administrative burdens of the new law.

Mr. Chairman, let me again thank you for the opportunity to appear before you.

The nation’s Governors look forward to working with you closely to begin the process of reforming the Medicaid program. As currently structured it is unsustainable.

MEDICAID REFORM

A PRELIMINARY REPORT FROM THE NATIONAL GOVERNORS ASSOCIATION

June 15, 2005

Medicaid is the nation’s largest health care program, providing health and long

term care services to 53 million low-income pregnant women, children, individuals

with disabilities and seniors. It is a vital health care safety net and provides important services to those who can get care from no other source. Medicaid coverage has

also played a critical role in reducing the number of the uninsured, currently estimated at 45 million nationwide.

Medicaid spending, however, has increased dramatically over the last five years

driven by a 40 percent increase in caseload and a 4.5 percent per year increase in

the health care price index, strengthening the impetus for reform. Comprehensive

Medicaid reform must focus both on reforming Medicaid and on slowing both the

number of low-income individuals and elderly becoming eligible for Medicaid. Medicaid will always have an important role as the health care safety net, but other

forms of health care coverage must be strengthened to ensure Medicaid’s financial

sustainability. Enhancing the quality of care and containing costs are also critically

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important. Governors believe that Medicaid reform must be driven by good public

policy and not by the federal budget process.

The Vision

The policies that are outlined in this paper do not represent comprehensive health

care reform. However, the scope is wider than the existing Medicaid program as it

focuses both on populations that may become Medicaid eligible, as well as some of

the underlying cost drivers in the overall health care system. In this sense it can

be viewed as Medicaid plus health care reform. The various policies that are recommended are linked by a number of themes that underline this reform package.

First, there are a number of incentives and penalties for individuals to take more

responsibility for their health care. Second, moving to a more flexible benefit package for non elderly, non disabled Medicaid populations as well as for individuals

who gain access through the individual health care tax credit will reduce costs while

increasing total access. Third, the creation of state purchasing pools, that would use

the combined leverage of public programs (offering a common S-CHIP-type benefit

package) and individuals using the health care tax credit should strengthen the

ability of small purchasers to gain more competitive rates in the health care marketplace. Fourth, technology and other state innovations are focused on reducing the

long-run costs. Fifth, there are a number of policies designed to reduce reliance on

Medicaid coverage. Finally, the paper includes a number of potential short-run policy changes as well as long-run structural changes that will improve the US health

care system.

Specific health care policies are organized around these five objectives:

1. Reforming Medicaid

2. Enhancing Quality and Reducing Costs in the Overall Health Care System

3. Strengthening Employer-Based and Other Forms of Private Health Care Coverage

4. Slowing the Growth of Medicaid Long-Term Care

5. State Contribution to the Medicare Drug Benefit

1. Reforming Medicaid

Medicaid now covers 53 million Americans and the program is expected to spend

a total of $329 billion in combined state and federal funds in 2005. While the Medicaid program is extremely cost effective compared to private sector health care, the

existing program structure is inflexible and the benefits are not necessarily consistent with the needs of the various populations. This paper focuses on both shortrun flexibilities that could help states realize incremental savings and a major restructuring that would be necessary to make the program sustainable over the longrun.

Long Term Restructuring

Although Medicaid is the largest health care program in the nation, generalizations about the program are difficult to make, because it operates so differently in

each of the states and territories. In addition, Medicaid is even more complicated

than 56 different programs, because within each state, Medicaid plays a number of

very distinct roles while serving a number of very distinct populations.

Medicaid essentially has three major functions:

• It provides comprehensive primary and acute care coverage for everyone who is

eligible for the program (low income children, parents, seniors, and people with

disabilities);

• Some Medicaid beneficiaries also qualify for comprehensive long term care services, depending on their needs; and

• Medicaid also helps finance services for people with chronic and disabling conditions such as HIV/AIDS, severe mental illness, and MR/DD. Each of these populations relies on Medicaid for support that they cannot receive elsewhere, and

Medicaid restructuring must consider their unique needs and circumstances.

Although Medicaid does serve these three major roles, it also serves other functions such as a source of funding for uncompensated care in hospitals, and as a supplement to Medicare for low-income beneficiaries for whom it pays cost sharing and

wraps around for various services in addition to long-term care.

Medicaid is serving many roles in the health care system. All of these roles could

be improved upon by a greater focus on wellness and health promotion as opposed

to simply ‘‘sick-care’’ treatment. These goals can be achieved by relying more heavily

on care management and coordination.

• For low-income, but relatively healthy individuals who rely on Medicaid as a

health insurance product, Medicaid should be transformed into a more

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mainstreamed, S-CHIP type program that could be coordinated with state and

federal tax credits.

• For individuals with disabilities who have no other recourse than to rely on Medicaid, reforms should encourage more consumer choice and benefit packages

that improve the quality of their care where possible, but not jeopardize their

stability of care.

• A new national dialogue is needed to confront the issues of an aging population

and the potential sources of funding for end-of-life care. The easiest solution

may be to incorporate long-term care services into Medicare, but an alternative

approach could be to link long-term care funding to Social Security, or broader

pension reforms or other changes to solidify the link between personal responsibility and end-of-life care.

What is clear is that Medicaid can no longer be the financing mechanism for the

nation’s long-term care costs and other costs for the dual eligibles. Approximately

six million Americans are dually eligible for full Medicare and Medicaid benefits,

and another one million receive financial assistance to cover out-of-pocket costs,

such as co-payments and deductibles. These individuals represent a small portion

of Medicaid’s 53 million person caseload, and despite the fact that they are fully insured by Medicare, they still consume 42 percent of all Medicaid expenditures. Compared to other Medicare beneficiaries, dual eligibles are sicker, poorer, more likely

to have chronic health conditions, and at higher risk for institutional care.

The details of this restructuring, however, are beyond the scope of this paper. The

nation’s Governors will continue to work on this issue and will be providing further

detail.

Short-Run Flexibilities

A. Prescription Drug Improvements—States and the federal government have long

suspected that Medicaid overpays for prescription drugs. The President’s budget

proposes to set federal ceilings on the prices that states pay for prescription drugs.

The proposal would change the current system, whereby states purchase drugs

based on the Average Wholesale Price (AWP). States have long been concerned that

manufacturers have been inflating this number and that Medicaid has therefore

been overpaying for drugs for many years. The President’s proposal would establish

a new price target for states, the Average Sales Price (ASP) that would be defined

by law, subject to Federal audit, and lower than AWP. States would be allowed to

reimburse pharmacies no more than ASP plus six percent (to account for dispensing

fees and other costs) for all generic and brand name drugs.

Governors believe that the burden of reducing Medicaid expenditures for prescription drugs will require a multi-prong approach and should include savings proposals

that affect both drug manufacturers and retail pharmacists, as well as increase state

utilization management tools that decrease inappropriate prescribing and utilization.

It is critical that states maintain and enhance their ability to negotiate the best possible prices with the industry.

There may be benefits of using ASP or other calculations as a reference price, because increased transparency of drug costs can serve to decrease total costs, especially

if there is more flexibility with respect to dispensing fees (they should not be tied to

a percentage of the cost of the drug dispensed, for example.)

This proposal should be modified in several ways:

• Increasing the minimum rebates that states collect on brand name and generic prescription drugs to ensure lower total costs that would not solely impact pharmacists nor create disincentives to provide generic drugs where appropriate.

Medicaid’s ‘‘Best Price’’ provision should not be eliminated in exchange for this;

• Requiring that ‘‘authorized generics’’ be included in the Medicaid rebate calculations. An authorized generic is a brand product in different packaging that some

manufacturers distribute through a subsidiary or third party at the same time

that a true generic is launched by a generic manufacturer. This product is essentially a brand product at a cheaper price, but it violates the Hatch-Waxman 180

day exclusivity protection for generic manufacturers, and because CMS does not

include these products in the Medicaid rebate calculations, it results in hundreds

of millions of dollars in lost revenue for state Medicaid programs.;

• Forcing discounts on the front end of drug purchases rather than waiting an average of six months (not including dispute time) to receive rebates;

• Using closed formularies to drive beneficiary utilization and decrease costs similar

to those that will be used by Medicare Part D plans;

• Giving states additional tools such as tiered co-pay structures to encourage greater

utilization of generic drugs;

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• Enacting stronger sanctions (including criminal penalties) for companies and individuals that fail to accurately report ASP (or whatever new methodology is

adopted); • Allowing states to join multi-state purchasing pools and to combine Medicaid with

other state-funded health care programs to improve leverage; and • Allowing managed care organizations to access Medicaid rebates directly for the

Medicaid populations that they serve.

B. Asset Policy—

Asset Transfers. There is concern that many individuals are utilizing Medicaid estate planners in order to shelter assets and therefore qualify for Medicaid funded

long term care services. Examples of such estate planning approaches include:

• Sheltering assets in trusts, annuities and other financial instruments that are

then deemed as ‘‘not available to the Medicaid beneficiary;’’ • Converting ‘‘countable assets’’ under the law into ‘‘exempt assets’’; and • Transferring assets through joint bank accounts or other means to close relatives.

Under current law, when an individual applying for Medicaid has transferred assets within the three year ‘‘look-back’’ period, the amount of those transfers are used

to calculate a period of ineligibility for Medicaid. This period of ineligibility is determined by dividing the total amount of the assets transferred by the average monthly

cost of nursing home care in a given service area. For example, if an asset worth

$40,000 is transferred during the look-back period and the average costs of nursing

home care is $5,000 per month, then the individual would be subject to an eightmonth waiting period to receive Medicaid eligibility. This period of ineligibility, however, begins on the date of the actual transfer of the asset, and by the time the person actually applies for Medicaid, that period has often expired.

The President’s budget proposes to change the rules regarding penalties for individuals who transfer assets in order to become eligible for Medicaid long term care.

The proposal would begin that penalty period on the date that the individual enters

the nursing home or becomes eligible for Medicaid, whichever is later.

This approach should be encouraged and a number of other similar approaches

should be explored around assets transfers to prevent estate planners from simply

moving to alternate schemes. Other approaches to address inappropriate transfers

could include:

• Increasing the look-back period from three years to five years (or longer); • Limiting the amount and types of funds that can be sheltered in an annuity, trust

or promissory note

In all cases, these changes should be federal requirements, although there should

be ability to ‘‘opt-out’’ of the federal guidelines if the state can prove that existing

policies would meet the intent of the law. Furthermore, there should be some resource

threshold, e.g., $50,000 and indexed in future years, below which assets transfers

would be exempted, as well as policies in place to protect individuals with dementia

or others at risk of being exploited.

While this approach should provide some savings by preventing inappropriate

transfers, state officials will need many more tools in order to fully address the growing long-term care crisis in the Medicaid program. Many of these other approaches

are addressed in the long-term care section below.

Reverse Mortgages. This is another tool that could help prevent individuals with

considerable assets from depending upon Medicaid. According to the U.S. Census

Bureau, 81 percent of seniors own their homes and 73 percent own them free and

clear. This represents $1.9 trillion in untapped home equity that is currently exempted from Medicaid’s eligibility calculations. According to the National Council on

Aging, 48 percent of America’s 13.2 million households age 62 and older could get

$72,128 on average from reverse mortgages, and ‘‘in total, an estimated $953 billion

could be available from reverse mortgages for immediate long term care needs and

to promote aging in place.’’

This proposal would create an incentive and a new allowance for individuals to

pursue reverse mortgages in order to pay for long-term care services (in addition to

private long term care insurance, which is currently allowed). Any person who obtained a reverse mortgage under this proposal would be able to shelter $50,000 (or

some other appropriate amount that would be indexed to inflation) in equity from

their house without incurring penalties. Other incentives to encourage reverse mortgages should be contemplated. Broader use of reverse mortgages would be both an

effective way to reserve Medicaid funding for those who have truly exhausted all of

their other means, and a way to provide more consumer-directed options for seniors

to choose from in developing their own long-term plan of care. The number of individuals currently on Medicaid who own their own homes is relatively small and this

proposal would not likely affect them, so immediate savings would be limited. HowVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 22983.TXT HCOM1 PsN: HCOM1
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ever, the major impact of this proposal would come from restraining the future

growth of the program and in fostering a greater sense of personal responsibility with

respect to end of life financial planning.

Other similar approaches could include requiring some form of family contribution

to the costs of long-term care. Similar methods of ‘‘deeming’’ family income are utilized by states in their child support systems and might not be difficult to implement

for Medicaid. In any case, provisions should be made to allow individuals to pass

along some portion of their assets/resources to family members without incurring

penalties. This would allow the balancing of both the needs of an ownership society

with the responsibility of family to provide for the care of their loved ones.

C. Cost Sharing—Current law prohibits co-payments for some populations; for

some services like family planning and emergency care; restricts co-pays, where allowed, to a maximum of $3; and ultimately treats cost sharing as unenforceable if

the beneficiary cannot or will not pay. These rules, which have not been updated

since 1982, prevent Medicaid from utilizing market forces and personal responsibility to improve health care delivery.

A new vision for cost-sharing should make Medicaid look more like S-CHIP, where

states have broad discretion to establish any form of premium, deductible, or co-pay

for all populations, for all services, and could make them enforceable. As in S-CHIP,

financial protections to ensure that beneficiaries would not be required to pay more

than 5% of total family income (no matter how many family members are in Medicaid) are a critical balance to this proposal. For higher-income households (for example, those above 150% FPL) a 7.5% cap could be applied, as under the current

HIFA waivers.

States would have broad latitude to waive these types of cost-sharing for any populations or services that it determines would be negatively impacted by such policies.

The purpose of increased cost sharing is not to restrict access to necessary medical

care, but to allow individuals to contribute to the costs of their own health care as

much as possible. These new policies would be monitored and evaluated heavily and

if the evidence shows that increased cost-sharing harms appropriate access, the policies should be revised.

D. Benefits Package Flexibility—The Medicaid program is viewed as the health

care program for the poor, but it neither serves all poor people, nor are all of the

beneficiaries below the federal poverty level. Medicaid’s populations are very diverse, ranging from relatively healthy families and children to the frail elderly, to

individuals with serious physical and developmental disabilities. The types of services and supports needed by these populations are quite different, yet the Medicaid

benefits package remains ‘‘one-size-fits-all.’’

Many states have found that the flexibility built into the SCHIP program allows

for greater efficiencies without compromising quality of care. Extension of this flexibility to services for appropriate Medicaid populations would allow states to provide

more targeted services while managing the program in a way that prevents sweeping cuts in the future.

Medicaid reform should include the ability to offer a different level of benefits,

using S-CHIP as a model, to certain Medicaid beneficiaries, such as those for whom

Medicaid serves as a traditional health insurance program. This discussion extends

beyond the traditional distinction between ‘‘mandatory’’ and ‘‘optional’’ populations,

which are arbitrary distinctions when it comes to the need for health care services.

This would include an improved ability to set benefit limits and cost sharing

amounts, do employer buy-in programs, eliminate retroactive eligibility periods, and

establish different benefit packages for different populations or in different parts of

the state. Medicaid can be improved by focusing more on improving health outcomes

rather than adhering to a sometimes-arbitrary list of benefits mandates (that are

often the result of effective lobbying by provider interest groups).

Many relatively healthy kids and families are technically mandatory, and many

of the optional populations, such as the Medically Needy, are among the frailest in

the program. Reform must therefore acknowledge that there are people served by

Medicaid that need a comprehensive package of benefits. For more medically fragile

populations, changes in the benefit package should be made to encourage more chronic care management and other services that can improve health outcomes and reduce

costs.

E. Comprehensive Waiver Reforms—Waiving various portions of the federal Medicaid statute has become the norm, rather than the exception for states. HHS officials routinely describe that they consider thousands of state waivers every year.

Yet, despite all this action, states must still jump through significant hoops in order

to make relatively minor changes to their Medicaid programs, and often, major

changes are simply outside the scope of the current waiver authority. Reforms are

needed to increase the ease with which states get current waivers, expand the ability

35

to seek new types of changes, and change the federal statute to eliminate the need

for many waivers altogether.

The most commonly waived portions of the Medicaid statute are those requiring

that beneficiaries have ‘‘freedom of choice’’ of provider, and that services be comparable, statewide, and consistent with respect to amount, duration, and scope.

• The federal statute should change to reflect these commonly waived and antiquated

provisions by allowing states to innovate in these areas through the state plan

amendment process.

• Similarly, 1915(b), 1915(c) and PACE waivers should be administered through the

state plan process, not waivers. It is critical in this scenario that these waivers

retain the basic protections of the waiver, such as the ability to control costs and

utilization common to the 1915(c) waivers. The state plan amendment process

should include check boxes for typical waived items so that States could continue

to target these services on the issues of comparability, statewideness, and

amount, duration, and scope. States would realize cost savings because services

would be implemented sooner and States would reduce administrative costs associated with waiver development, cost effectiveness/budget neutrality, reporting,

and the waiver amendment/renewal process.

• In addition, streamlining the waiver process for all states that choose to pursue

larger reforms and innovative programs would be a helpful improvement.

• Allowing states to easily receive approval to try an approach already tested successfully in other states would be one improvement.

• Automatically converting a waiver to a state plan after the first renewal would be

another, as would a consistent 5 year approval/renewal period.

• Many promising innovations in Medicare/Medicaid integration or care coordination are never implemented because of outdated notions of siloed budget neutrality requirements. The requirement for budget neutrality should be waivable

at state option and the statute should also allow for states to consider savings

to the Medicare and other federal programs when considering the impact of Medicaid changes.

• States that wish to make substantial improvements to their Medicaid programs

may find that some portions of the statute are not waivable at all. States should

be allowed to apply for ‘‘superwaivers’’ that envision much broader changes than

can be achieved under the current 1115 waiver structure. Such waivers should

allow states to develop effective programs that meet the unique needs of their citizens.

The State of Arizona has operated its Medicaid program, the Arizona Health Care

Cost Containment System (AHCCCS), through a Section 1115 waiver, since the inception of Arizona’s participation in Medicaid in 1982. There are many lessons to

be learned to reduce costs from Arizona’s experience. All Medicaid eligible persons

are enrolled into managed care plans that AHCCCS contracts with using competitive bidding to maximize market forces. Market forces drive quality while holding

down costs. Several states have demonstrated success with this model, and others

should look to it to contain costs.

F. Judicial Reforms—The right of states to locally manage the optional Medicaid

categories is clearly defined in both policy and law, and the federal government

should remove legal barriers that impede this fundamental management tool. To

that end, Congress and HHS should authorize states to rightfully make basic operating decisions about optional categories of the program.

Federal judicial actions have sometimes become a means by which the judicial

branch makes decisions about Medicaid programs that should be left in the hands

of state elected officials and competent program managers. If the management of

the Medicaid program is being handled in a manner that is consistent with legislative and congressional intent, the court system should not become involved.

These court actions sometimes conflict with the policy positions of state and local

officials and go beyond addressing the specific problem that was the basis of the initial lawsuit. These court actions fit into two broad categories:

• Consent decree cases

• Court decisions based on a specific case that have an adverse affect on the state

Medicaid program as a whole

These court decisions can remain in place for decades and institutionalize the policies of elected officials who have long since left office. For example: Arkansas cannot

make any change in fees paid to physicians without going back to court to remain

in compliance with a consent decree entered into between the state and the Arkansas Medical Society in 1993. These court actions also create an environment where

state time and resources that could be spent on the greater good of the whole program go toward reducing the impact of the specific court decision.

36

Federal reforms are needed to constrain the broad ability of judicial decrees in

Medicaid cases that clearly impede state innovation and reform. In a time of shrinking resources and growing demand it is not realistic to ask states to manage these

complex programs with court decrees overriding sound management decisions.

These court decisions and the subsequent legal actions that follow, increase administrative costs and divert valuable resources that could be far better spent on

services to clients.

G. Commonwealths and Territories—The federal Medicaid partnership with U.S.

commonwealths and territories has become increasingly unbalanced over a period

of years, to the extent that some of the jurisdictions are financing over 80 percent

of their Medicaid costs, and many of the Medicaid expansions such as transitional

medical assistance are not available. The imbalance affects quality of care issues

and creates increased financial stress. Medicaid reform needs to include a review

of the current relationship and the development of a pathway that moves to a rebalancing of this partnership.

2. Enhancing Quality and Controlling Costs in the Overall Health Care System

America’s current health care system is ripe for improvement and states are ready

to take the lead in helping drive change. States are small enough to tailor solutions

unique to their cultures, institutions and health care markets, but large enough to

experiment with systemwide reform. States can also partner effectively with health

care providers, insurers, and purchasers to lead large scale pilot projects.

We must increase the efficiency, productivity, and quality of our entire health care

system, which will increase the opportunities for reasonable coverage expansions.

Like welfare reform a decade ago, states can play a lead role in driving this transformation through demonstration projects in partnership with the private sector.

Accordingly, Congress should establish a National Health Care Innovations Program to support the implementation of 10 to 15 state-led large-scale demonstrations

in health care reform over a 3-to-5-year period. Using information technology to control costs and raise quality would be a core objective of these demonstrations. States

would serve as the lead entity for these demonstrations, but they would have to

partner with the private sector. Some of these would be for statewide provider networks while others would be for networks in major metropolitan areas. They would

focus on:

• deploying information and communications technology, including interoperable

electronic health records (EHRs) accessible to all participating providers and patients, to improve services;

• improving quality of care, including disease prevention and management, through

establishment of evidence-based practices, measuring outcomes, and pay-forperformance programs;

• using innovative strategies to cover many of the Americans who currently lack

health benefits;

• empowering consumer choice through price transparency, quality reporting, and

financial incentives; or

• reducing malpractice incidents and improving adjudication of malpractice claims.

Each demonstration project would be selected through competition and encouraged to demonstrate multiple innovations. All projects would need to emphasize the

goal of increasing cost-effectiveness and, to the extent possible, improving health

care quality.

For a more comprehensive discussion on this issue, see the NGA white paper on

health care reform demonstration programs.

The financing of any of these solutions should not come at the expense of Medicaid funding.

3. Strengthening Employer-Based and Other Forms of Private Health Care

Coverage

Between 2001 and 2003, the proportion of Americans under the age of 65 covered

by employer-sponsored health care dropped from 67 percent to 63 percent. While

some of this reduction could be cyclical due to the economic downturn, many argue

that the increase is more structural, as the U.S. economy is becoming more service

and small business oriented and more competitive in the ever more global marketplace. Several policies could assist in reducing the number of individuals losing

health care coverage. The financing of any of these solutions should not come at the

expense of Medicaid funding.

A. Individual Health Care Tax Credit—A refundable tax credit could be developed

that would be available to all low-income individuals below some income threshold,

e.g., $3,000 for a family of four with incomes below $25,000, which is phased-out

37

at income levels of $60,000. This credit would be a premium subsidy that could be

paid directly to a health care plan by the U.S. Department of the Treasury. Unlike

the trade assistance program that targets unemployed workers, eligible workers

that could receive tax credits could have their employers deduct payments from

wages and send them directly to the U.S. Treasury who would combine those funds

with the tax credit, confirm eligibility, and forward the payment directly to the

health plans.

To increase the use of the tax credit, the federal government could also mandate

presumptive eligibility so that individuals would have to opt out as opposed to opting into the system. It is critical that this subsidy be set at the appropriate level.

If it is too low, there will be few individuals who could use it; and if it is too high,

then it would be an incentive for businesses to stop providing employer-paid health

care. It is also critical that the level have the appropriate relationship with any

credit for small employers. The credit would be available for all individuals who

meet the income criteria and are not participating in an employer-paid or public

program. Individuals who qualify for both Medicaid and the tax credit would be able

to choose between the two. States should also be allowed to enhance the tax credit.

One option would be to allow states to use disproportionate share funds for the enhancement.

Because this is a refundable tax credit it is reflected in the federal budget as an

outlay as opposed to a reduction in revenues. This opens up the potential option for

the states to apply for a waiver that would allow the funds to come directly to the

states based on a plan that would maximize health care access. For example, the

Michigan Third Share program, which has equal amounts paid by employers, employee, and government, could utilize these funds for the government share. Such

a waiver option would allow individual states to tailor the funds to their unique

labor force and health care marketplace. Such a tax credit also equalizes tax treatment of all individuals with regard to health care. This tax credit can also be designed to allow individuals to buy into the S-CHIP benefit or to otherwise require

that the credit only be viable when used to purchase some basic, threshold benefit,

as defined by the state. It is difficult to determine how many individuals would use

a tax credit of this nature.

B. Employer Tax Credit—A new employer tax credit would be developed for small firms, i.e., up to 100 workers. The employer tax credit would be about $200 per individual or the amount necessary to make the federal contribution necessary to enact

this policy the same as that necessary to enact the individual tax credit. The policy

rationale is to equalize the tax treatment between the individual tax credit and the

employer-based tax credit. Unlike the Administration’s proposal, it would not be restricted to employer contributions to Health Savings Accounts. The employer tax

credit would be restricted to only workers below a given wage rate. The amount of

the credit, the targeting, and the relationship to the individual tax credit are key

in order to support the employer-based system, as opposed to providing incentives

for employers to reduce coverage. Also, the state should be able to designate the

minimum benefit package to be eligible for the tax credit. This credit would be reflected as a reduction in revenues to the federal government.

C. State Purchasing Pools—The federal government would make grants to states

to create state purchasing pools. In the past, states have experimented with purchasing pools, but most have failed because they were never large enough to avoid

risk-selection and ended up becoming high risk pools that were subsidized. Specifically, there was a financial incentive for healthy individuals to obtain their insurance outside the pool. Currently, the Federal Employees Health Benefit Program

(FEHBP) and the small firm purchasing alliance in California (now called Pac Advantage) are existing purchasing pools. Permitting states to develop an SCHIP benefit package for their non-disabled, non-elderly Medicaid population, and including

the same benefit package for the individual health care tax credit, should allow

them to create a large enough pool (mostly in metropolitan areas) to negotiate effective rates.

To avoid adverse risk, states should be allowed to mandate that both populations

be part of the purchasing pool. States will need the discretions to design their purchasing pools. This will include health plan qualifications, underwriting, rating

rules, and enrollment rules. The pool could be the mechanism for Medicaid women

and children, SCHIP, state employees, COBRA options, and the tax credit as well

as any private firm, particularly small business that purchases health care in the

state. This could have the added benefit of stabilizing the individual and small

group market. Such a large pool could also maximize consumer choice. The President’s budget includes this proposal.

D. Catastrophic Care/Reinsurance Model to Address Unsustainable ‘‘Legacy

Costs’’—Numerous employers in the U.S. have been consistent, reliable partners

38

with their employees on health insurance coverage, yet their ability to continue providing this coverage to retirees (‘‘legacy costs’’’), current employees, and their families—amidst rising national health care costs—is becoming a distinct competitive

disadvantage. Catastrophic care, chronic diseases, and serious illnesses contribute

significantly to the overall cost of health care and should be addressed. While more

attention and resources must be focused on wellness and disease management programs as well as best practices to ensure quality care, some bold options that offer

uniquely American solutions for our American legacy cost challenges are needed.

The following are two concepts to consider—one that is employer pools and another

that is insurance pools. A hybrid could also be considered.

One option is to create a reinsurance pool whereby employers and other payers

would be reimbursed by the federal government for part of the cost of catastrophic

medical bills of their employees. To be involved in this program, employers could

be required to provide health care coverage equivalent to a benchmark plan to all

of their employees and/or provide preventive and disease management programs to

better manage care and improve quality and care.

Another option to explore more fully is a national ‘‘Healthy Mae,’’ as Senator Frist

refers to it. The senator believes that a ‘‘Healthy Mae’’ model, fashioned after

Fannie Mae, would help insurers more broadly share risk, reduce administrative

costs, and create a vibrant secondary market for health insurance just as the U.S.

has done for home mortgages. Potentially a publicly-chartered private insurer,

‘‘Healthy Mae’’ could help create a big secondary market for health insurance and

would reduce the financial burden on employers when their workers’ medical bills

rise above a certain threshold. ‘‘Healthy Mae’’ would be designed to give buyers access to a more stable insurance market—which presumably would feature lower

rates that could keep more people covered.

4. Slowing the Growth of Medicaid Long-Term Care

Medicaid has quietly over the years become the nation’s largest payer of long-term

care services, funding approximately 50 percent of all long-term care spending and

nearly two-thirds of all nursing home residents. With the anticipated demographic

changes, the potential liability for future long-term care costs can only grow. While

Medicaid reforms over the past twenty years have focused on improving the longterm care benefit (eliminating the institutional bias, encouraging consumer-directed

care, etc), new efforts need to focus on how to encourage personal responsibility and

discourage the reliance on Medicaid financed long-term care. Ultimately, a new national dialogue is needed to confront the issues of an aging population and the potential sources of funding for end-of-life care.

The following two policies could help slow the growth of elderly enrollment in

Medicaid.

A. Tax Credits and Deductions for Long-Term Care Insurance—Currently, about

28 states provide deductions or tax credits for long-term care insurance. The federal

government currently allows tax deductions for the purchase of insurance, but only

if the premium amounts exceed 7.5 percent of an individual’s adjusted gross income.

Only 11 percent of the population age 65 and older and 8 percent of those between

ages 55 and 64 have a long-term care policy in effect.

The potential impact of deductions and tax credits is very different, since they impact quite different income groups. The deduction is more effective in stimulating

the purchase of long-term care insurance since it is more valuable to younger, higher-income individuals in higher tax brackets. Because these individuals may allow

policies to lapse and because they are less likely to enroll in Medicaid, they do not

provide the maximum possible relief to Medicaid per lost dollar in federal tax revenues. On the other hand, tax credits can be better targeted to lower-income individuals who have a higher probability of becoming Medicaid eligible. This will lead to

more relief in Medicaid spending. A December 31, 2001 report by ABT Associates

indicated that Medicaid saves $1.16 and $2.67 respectively in 2025 and 2050 for

every dollar lost due to federal tax credits. Tax deductions do not break even. A

combination of a significant tax credits, e.g., $2,000, and a small deduction, e.g.,

$200, might be the most effective in lowering Medicaid costs. States, through their

capacity as regulators of insurance, set minimum standards and other guidelines for

any such policy that could be obtained through the tax credit.

The Treasury should also develop some mechanism so that individuals can receive

the credit when they pay the premium to avoid the long delay between payment and

reimbursement via annual tax submissions. Tax credits are particularly effective to

the federal government as well as states due to the potential Medicaid savings. Because this credit focuses on the very expensive population in long-term care, potential Medicaid savings are significant. The federal government may also want to

mandate that all firms who provide 401(k) and other pensions provide an option to

39

convert a portion of an annuity into long-term care insurance. This tax credit would

be reflected as a revenue reduction in the federal budget. As of 1998, there were

$9.5 trillion in qualified retirement plans, some portion of which could ultimately

be used for long term care financing.

B. Long Term Care Partnerships—Four states (California, Connecticut, Indiana,

and New York) have been operating promising partnerships between Medicaid and

the long-term care insurance industry. Although their approaches differ, the basic

concept is that individuals who purchase private insurance and exhaust its coverage

would be allowed to access Medicaid and still protect some of their assets. There

are two basic approaches that the four states utilize—the dollar-for-dollar model and

the total asset protection model. In the dollar-for-dollar model, beneficiaries are able

to keep personal assets equal to the benefits paid by the private policy. In the total

asset model, all assets are protected after a threshold for years of coverage has been

crossed, typically three or four years. In both cases, Medicaid becomes the payer

when the partnership policy benefits are exhausted. States are projected to realize

savings because Medicaid becomes the payer of last resort, not the first.

Federal law prohibits the expansion of these partnerships beyond those four

states, but 17 states have passed enabling legislation allowing them to begin such

a program should the federal prohibition be repealed, and several others are currently exploring that option. While long-term care partnerships do not promise a silver bullet for Medicaid’s long-term care crisis, they can be a key part of the solution,

and therefore all states should be allowed to participate.

In addition to tax treatment and other incentives for the purchase of long term

care insurance, there are ways to improve the delivery of long term care services

for individuals who remain covered by Medicaid. Those include both increasing the

focus on home and community-based alternatives to institutional care as well as

strengthening the chronic care management components of both Medicare and Medicaid.

C. Improving Access to Home and Community-Based Care. The long-term care

policies advocated by NGA should also include reforms to the Medicaid program

that produce better health outcomes for beneficiaries and result in greater efficiencies for both the federal government and states. Such reforms should give states

more tools to encourage home and community-based care and could include the

elimination of the requirement for a waiver for home and community based care as

discussed in the section on waiver reforms and in the current NGA policy on Long

Term Care (HHS-28).

D. Improving Chronic Care Management. The long-term care policies advocated

for by the Governors should include reforms that encourage better care for the

chronically ill populations in Medicaid. Although this is a small population, they demand a large portion of the available resources. States should be rewarded for program improvements that produce savings for both Medicaid and Medicare, particularly through improved chronic care management, by sharing savings evenly with

states in the form of enhanced FMAP on a year-to-year basis. States should have

the authority to provide financial incentives for care management methods that save

money and improve outcomes outside of the targeted case management benefit.

5. State Contribution to the Medicare Drug Benefit

The Medicare Prescription Drug, Improvement and Modernization Act of 2003

(MMA) was designed to deliver a federal pharmacy benefit to Medicare beneficiaries.

It was also designed to ease state Medicaid programs of their responsibility for providing pharmacy benefits to those eligible for both the Medicare and Medicaid programs—the dual eligibles.

While Medicare beneficiaries have some guarantees that on January 1, 2006, the

Medicare program will begin providing them with a drug benefit, states do not have

the same guarantee that their fiscal burden will be lifted. In some states, contrary

to clear congressional intent, the Phased-Down State Contribution (clawback) provision will actually cause states to spend more in Medicaid in fact, a handful of states

are projecting that they will never see any financial relief in prescription drug costs

from the MMA than they would have in the absence of the law. In addition to their

monthly clawback payments, states will also face increased costs from the administrative burdens of the new law. While state Medicaid programs operate with administrative costs far below those of private insurers, states have been forced to trim

their program overhead even further in order to protect scarce resources for the care

that their beneficiaries need. Tracking, calculating, and reporting clawback payments, as well as the other duties that resulted from the MMA, present substantial

new administrative tasks [as well as potential costs] for Medicaid programs.

Integrating Medicaid’s coverage with the drug coverage provided by the separate

prescription drug providers will be a difficult undertaking for states. The clawback

40

provisions should not be a further financial burden on states as they work to focus

on the coordination of care that is central to the spirit of the Medicare Modernization Act.

Chairman BARTON. We thank you, Governor. The Chair is going

to recognize himself for the first 5 minutes of questions. Because

we have so many members here, which is a good thing, the Chair

is going to be fairly strict about the 5-minute rule.

Just so that we make sure we understand the main points, I

would like either Governor Huckabee or Governor Warner to summarize the main, principal recommendations of your report, just,

you know, one, two, three, four, five. Either one of you.

Governor HUCKABEE. Mr. Chairman, the first one is dealing with

the prescription drug improvements primarily to make the system

more transparent. The current system is based on an idea of average wholesale price. It really is built on acquisition cost plus a dispensing fee; then, there is a rebate that is given back to the States,

which States negotiate. The whole issue of an average wholesale

price is a complete misnomer. It is neither average nor wholesale.

It is a complete fabrication. No one knows what the real drug costs

are, and there is no real capacity or authority of the States to negotiate best price. Our State attempted to that, got sued, and lost.

That is one of the issues——

Chairman BARTON. I hate to stop a Governor in mid-sentence,

but my time is limited. So your first recommendation is just to

change the drug pricing system——

Governor HUCKABEE. Yes.

Chairman BARTON. [continuing] do you have a specific recommendation or just that it needs to be changed?

Governor HUCKABEE. Well, no, sir, it is in the full context of

what we have given in the 13-page document that——

Governor WARNER. Let me just add on this very briefly on the

drug pricing issue, and it is obviously enormously complex. We feel

that some of the initial proposals, particularly that came from the

Administration, disproportionately put the issue of the savings

coming out of the hides mostly of local pharmacists. We think it

ought to be—if there are going to be savings it ought to be borne

by not only the pharmacists in terms of the dispensing fee, but it

also ought to be dealt with a little bit by Pharma.

We ought to also look at stronger policies to incent generic use.

We ought to look as well, for example, one of the things the Governors are concerned about, and well, this backs into the Medicare

drug benefit, and I know that folks don’t want to revisit that, but

we have States like Virginia that, through our use of a preferred

drug list, have negotiated, for example, $35 million worth of savings. We have negotiated a better price than we are going to be

able to have under the new drug benefit. And with the ‘‘clawback’’

provision, we are going to not get those benefits.

Chairman BARTON. Right. Well, I agree with that. In fact I have

asked that the Pharmacy Association to come up with a drug-pricing plan that they are supposed to give to me in the next 2 weeks.

So No. 1 is drug pricing. What is your second general recommendation?

Governor HUCKABEE. Let me skip down to the issue of judicial

reform because without it, none of these others probably will work

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anyway because we will be tied up in court trying to get them dealt

with. We would ask that Congress and the Health and Human

Services authorize the States statutorily to make some basic operating decisions about components of the program. We need that authority in statutory law because right now, every time we try to

make any type of changes, whether it is done through an 11.15

waiver or whatever, we end up getting sued. We are in a protracted

court battle, we lose, and what could have been a modest cost can

become an extraordinary cost. We are looking for assistance in that

and also a reform to the idea of consent decrees, which sometimes

can last as long as 20 years and four Governors and administrations down the road.

Chairman BARTON. Okay.

Governor WARNER. We are looking as well—I mean, we raised

the issue, for example, on asset transfer both looking at tightening

rules on asset transfers in terms of look-backs, for example, but

also balancing that with an approach on reversible mortgages that

would allow some equity being passed on and tax incentives, tax

credits to look at the purchase of long-term care. We see those as

a coupling, for example.

Chairman BARTON. Okay.

Governor HUCKABEE. We would mention the cost-sharing rules.

Once again, it is not in order to deny benefits to people, but so that

people could be empowered and have some sense of personal responsibility in the benefits that they receive. Again, a limitation

with a capitation on how much they would actually have to spend.

Chairman BARTON. So cost-sharing means some sort of an increased co-pay?

Governor HUCKABEE. Right.

Chairman BARTON. Okay. That is four. Are those the main ones?

Governor WARNER. No, I think we have also looked at a modified

benefit package. Now, again, we recognize that if inappropriately

implemented, this could—particularly for mandatory populations—

cause enormous concern. But what we have seen with—I think the

benefit, for example, of some of the SCHIP programs, if we can find

a modified benefit package that could be applied in a quasi-Medicaid role, particularly to some folks who are on the verge of falling

onto Medicaid, we could substantially move the ball forward. But

we need some flexibility there.

Chairman BARTON. Okay. My time is about to expire, so I have

got one final question. What sort of mechanism do you want to establish with this committee as we move toward legislating on this

in September? How do we communicate with the Governors?

Through you two or is a there a taskforce or——

Governor WARNER. We have a taskforce, Mr. Chairman. We

would ask that you communicate through us and then our staff

who has worked very diligently. We have not only NGA staff, but

a whole group of Medicaid directors who will be happy to work

with your and your staff. Again, what we are, as—particularly, the

Medicaid directors, these are the folks on the frontline have to implement whatever policy change you bring about. They are critically important to this process, and I think it would be a great

value to you as you put together your legislation.

42

Chairman BARTON. And my final question, does the National

Governors Association support Federal legislation this year on

Medicaid?

Governor HUCKABEE. Yes, sir.

Governor WARNER. We recognize that at least in terms of the

budget reconciliation, you have gotten numbers out there, although

some of your Senate colleagues were indicating that they thought

that not all of those dollars needed to necessarily come from the

Medicaid program——

Chairman BARTON. I am not asking a specific number, but Governor Huckabee said you do. Governor Warner——

Governor HUCKABEE. We look forward—we recognize we are

going to have to see some changes in the Medicaid program——

Chairman BARTON. I take that as a yes?

Governor HUCKABEE. Yes, sir.

Chairman BARTON. Okay. Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman. Governor Huckabee,

thank you. Governor Warner, thank you for joining us. Governor

Warner, when you became Governor of Virginia, you took over an

SCHIP program that simply wasn’t working very well. Virginia had

at that point premiums of $15 per child up to $45 per family per

month on SCHIP recipients. Those premiums seemed to, from your

later actions—it was believed those premiums cost thousands of

kids to lose coverage. When you took office you eliminated the premiums; you referenced earlier that was one of your proudest accomplishments since more children were covered. So I think this—

in my mind it shows two things; one, that cost-sharing, even on relatively higher-income people in SCHIP quickly cause people to fall

into the ranks of the uninsured; and second, because of the changes

you made on the other end if you will, simplifying eligibility, reducing co-pays, you were successful in getting a lot more needy children in the program. I think you recognized that cost-sharing by

your actions could be a barrier to participation. Given that experience, I wonder why you are now lending your support to a policy

of cost-sharing for children even below the poverty level. This is the

group we most want to reach. This is also the group that costs the

States the least to cover than any other. I don’t think anyone

blames children because they don’t cost much typically—blames

children for the budget problems of Medicaid. Explain to me why,

in light of your experience and your policy changes and your success in Virginia, explain to me why you are supporting this policy.

Governor WARNER. Let me try to explain that. First of all, we

found a program that was clearly not working in Virginia. We

made not only the changes in terms of co-pays, but I think more

important, the changes in terms of co-pays were some of the regulatory changes we made in terms of the administrative burden that

a family had to go through in terms of signing up for our famous

program, our SCHIP program, or our Medicaid circumstance. It

was not a problem of co-pays, I don’t think, driving people away;

it was a problem of we had such administrative hurdles to get folks

signed up in the first place, we thought they needed to be signed

up. We have done that; 97 percent of the kids have signed up.

I think looking at the co-pay issue, for example, the fact that on certain Medicaid populations we are looking at $1 to $3 maximum

43

co-pay that hasn’t changed since the early 1980’s. I believe even a

Congressional study has seen that moving those slightly up to the

$3 to $5 range or in that parameter makes some sense. I am open

to that. I am also open to some modified co-payment scale if there

is, for example, a misallocation, a mis-utilization of how people access the healthcare system. You know, I have seen the different

studies out there. I can tell you in Virginia I am not sure we know

how much misuse of, for example, the emergency room is. We have

made some changes there. For example, we don’t reimburse if folks

go into the emergency room and the hospital determines it is not

an emergency room warranted visit. We only reimburse them at a

doctor office level as opposed to an ER visit. These kind of tools,

which I think help diminish any potential misuse of the system are

terribly important.

I also think the notion of some minimal increase in co-pay, par- ticularly in that $1 to $3 range that has been not changed, to my

understanding, since the early 1980’s bears consideration.

Mr. BROWN. So why did you eliminate the $15 up to $45 per

family——

Governor WARNER. What we eliminated at the front end was we

wanted to make it as easy as possible for children in Virginia to

sign up for our SCHIP program, and we were very successful with

doing that.

Mr. BROWN. I appreciate the other things you did, but now you

are saying that that premium you eliminated, and now you are

saying well, maybe that premium wasn’t a particular barrier——

Governor WARNER. Well, I would say that most of our finding

was that the premiums were not potentially as much of a barrier,

and I am not saying I am ready to re-implement those premiums.

I am saying that when you have got, for example, in some procedures a $1 to a $3 level maximum co-pay that hasn’t changed since

the early 1980’s that some moderate readjustment of that ought to

be on the table. Yes, sir, I do.

Mr. BROWN. I think that we all agree about some of the administrative burdens on families and we need to help States eliminate

such burdens, but report after report after report shows that costsharing does in fact deter enrollment. Oregon implemented a plan

of $6 to $20 cost-sharing, the premium significantly less than Virginia, more than the $1 to $3, and nearly 50,000 people lost coverage. I mean I admire what you have done in Virginia and how

you have made that program work better. I just think that that

kind of premium that some people in this committee suggest can

in fact deter children from enrolling.

Governor WARNER. But you are taking one subset of a host of

programs that are underneath the umbrella of Medicaid. From this

Governor’s standpoint, I would like to have the flexibility to look

at some areas where we could look at potential increase in co-payments. I am also very anxious to look at other areas where in

terms of inappropriate utilization of the healthcare system, there

could be a higher co-pay if you inappropriately utilize. Now, again,

I think—and you may have better studies than I, but I spend an

awful lot of time on this—you know, there is a lot of smoke around

what level of inappropriate utilization goes on in our healthcare

system. I don’t know. I would like to find out. But if it is out there,

44

I would like to squeeze it out of the system so, again, those dollars

can be redirected to expanding coverage for those folks who really

need it.

Mr. BROWN. One more comment, Mr. Chairman, if I could. I did

choose one subset, as you say, Governor, but the subset is maybe

the single least expensive part of Medicaid. And I would like perhaps both of you to submit to us which cases you think we should

have premiums and what they should be. I don’t believe—if your

report could be a little more specific, your recommendations. Thank

you very much. Thanks.

Mr. DEAL [presiding]. Governor Warner, welcome. You didn’t get

to hear some of the opening comments, and perhaps we can debunk

some of the comments that some of my colleagues on your side of

the aisle——

Governor WARNER. I can take the recording home and listen to

it——

Mr. DEAL. Okay. One of those is that you are picking on the most

vulnerable. We have heard some of that in the response to Mr.

Brown’s questions about co-pays. But has the experience been that

in waivers that have been granted to States that you have in fact

been able to expand coverage rather than subject those who are the

most vulnerable to any kind of criticism or elimination from participation? Would you comment on that?

Governor HUCKABEE. Mr. Chairman, I would be happy to. It is

exactly the waivers that have given us the ability to put a safety

net under people who didn’t have it. That is one of the concerns

that as Governors we have about Medicaid. It provides extraordinary coverage for a few, but it provides nothing for many. And

if we had the flexibility to put that net under more people rather

than to put an extraordinary net, maybe more net than is even

needed under some, then that would be a great improvement on

the system. That is exactly what we did in our State. When I became Governor one of the most impassions pleas I heard early on

was all the uninsured kids. We created a program called KIDS

FIRST. Congressman Ross helped us do that as a member of the

State legislature. When we did that what we found was with small

co-pays—we didn’t even have a premium, just very minimal copays—but it added over the years some 280,000 kids into insured

coverage who had nothing before. Their benefit package matched

that of what State employees had. And it has made a dramatic difference. And here is what we found: people utilized the services

that they needed, but they didn’t over-utilize. They were responsible with it, and they appreciated it. And it saved the lives of a

lot of children and it has made it possible so that a single mom’s

greatest nightmare was not that her son was going to break his

arm on the playground and she wouldn’t have the ability to make

the rent payment next month because that safety net was there.

We are not asking for the ability to hurt people. We are asking

for the capacity to make it so that this program, a good program,

can be run more efficiently in the same way that any person administrating a benefits package would hope to do.

Governor WARNER. Mr. Chairman, let me just add again, since

we are staying on the children’s program, what we found in Virginia was with the wavier, we were suddenly able to no longer

45

have this administrative nightmare of two doors. If you didn’t go

through the right—if you had one level of eligibility, you went

through the Medicaid door; if you had another level of eligibility,

you went the SCHIP door. And what we were finding are these

families don’t remain fluid. Some months they may be qualifying

for Medicaid; some months they may be qualifying for our SCHIP

program. They were, in effect, being thrown off the rolls because

we didn’t have the administrative flexibility to make sure there

was only one door. Now, in my mind that was a huge mistake. And

the fact that we have now—Kaiser Foundation is recognized as

having one of the highest sign-up rates of any State in the country

because we have had some of that administrative flexibility. I think

kids are better served.

Mr. DEAL. As my time is expiring as well, let me just tell you

how much I appreciate the work that your association has done

and your staff has done. There has been, in opening comments, the

intimation at least that the reason we are here today is driven by

the Federal budget numbers. Am I not correct that the Governors

Association undertook what has now led to your recommendations

far before we ever knew what the budget numbers at the Federal

level were going to be? And would you briefly outline for us when

this all started and the degree of participation that you have had

from the various Governors in this effort?

Governor HUCKABEE. Congressman, I have been Governor since

July 1996, and I can tell you Medicaid discussion has been on the

table every time two or more of us get together. Over the past year

we have become very focused on it to a degree of actually creating

the taskforce long before the Federal budget numbers ever came

about. What we did hope for, frankly, was that we would have policy first, then budget numbers. Frankly, we wanted to establish

that there would be the social agenda, what it was we were trying

to accomplish. Then, look at the program that would best accomplish it, and then, see what it would cost. The fact that we are

being driven more by budget is not our decision necessarily, but we

bring you not so much the numbers; that is, we feel, something

Congress has to grapple with. We are bringing you ideas that we

believe will improve the system. CBL will have to score the numbers and determine exactly what it is, although we think that there

are efficiencies—I am not going to use the word savings; I think

that is the wrong word—efficiencies to be had by better expenditures of monies. But the fact is, under the current system this program is unsustainable for the State level. We can’t print money

like you do, and that is why we come with a sense of real crisis

with the Medicaid program.

Governor WARNER. And I would simply add to what Governor

Huckabee has said we have also laid before you ideas of reinvestment. That is why this is a policy-driven document and not—and

we have been very clear from the outset. We started last fall with

the working group that this was going to be policy-driven. It was

the message we continued to try to bring up to you; it should not

be budget-driven. We have looked at ways where yes, we may be

able to find some savings, but also ways where we think there

needs to be reinvestment, or the problem is going to be worse in

the coming years.

46

Mr. DEAL. I commend you and the efforts of your group. I think

what you have done is historic. I now recognize Mr. Waxman for

questions.

Mr. WAXMAN. Thank you, Mr. Chairman. Governor Warner, I

have read some of your past statements where you have spoken out

eloquently about the responsibility of the Federal Government to

bear the State, Federal responsibilities for making sure that all

Americans have access to healthcare. And I am puzzled by why

your reform proposal that the Governors Association is bringing

forward to us today is so timid in suggesting that the Federal Government has a responsibility to do more. You have said nothing

about picking up the cost of dual eligibles. You have not suggested

adjustments in the matching rate to help counteract the effect on

the Medicaid rolls and State budgets with unemployment increases. You haven’t asked that we eliminate the 2-year waiting period before Medicaid covers the disabled. You have a very timid

statement about the clawback problem in the drug benefit. You

haven’t noted the problems resulting from the decline in the matching rate. So you are ready to ask for co-payments from poor children, yet you are not willing to come here and say that the Federal

Government ought to stand together with the States to meet more

of its obligation.

Governor WARNER. Well, Congressman——

Mr. WAXMAN. Can you explain that to me?

Governor WARNER. Well, I would be happy to. First of all, I

would be happy to share with you—and we will have staff do that

later today—the position that NGA has maintained over the years

on dual eligibles. We think this is one of the cost shifts that has

taken place, never was legislated——

Mr. WAXMAN. Is that part of the proposal for the National

Governors——

Governor WARNER. We continue to——

Mr. WAXMAN. [continuing] Association on Medicaid?

Governor WARNER. We have never revoked or moved away from

our proposal that the question of dual eligibles needs to be on the

table, that it is what is driving—as my statistics earlier—40 percent of our cost are related to dual eligibles, something that broke

the Federal-State compact that was with——

Mr. WAXMAN. Governor Huckabee, is it your understanding

also——

Governor WARNER. Let me just go ahead and finish the two other

points that you asked us to address.

Mr. WAXMAN. Please do, but I have a limited time and some I

would ask——

Governor WARNER. One——

Mr. WAXMAN. [continuing] that I have 5 minutes to do in——

Governor WARNER. All right.

Mr. WAXMAN. [continuing] put the time in.

Governor WARNER. If there was an issue on FMAP, we were appreciative of the effort a couple years back, but if you want to reopen that, that would be, again, welcome. And the question——

Mr. WAXMAN. Governor, I am going to have to interrupt you——

Governor WARNER. Is it a question of the clock——

47

Mr. WAXMAN. No, I am going to interrupt you because it is my

time. I am looking at a proposal of the National Governors Association that was submitted to us. I don’t see these in this proposal.

If they are long-standing proposals by the National Governors Association, then we ought to take that into consideration as well.

And I am pleased to hear, and I gather, Governor Huckabee, you

stand with him in saying that those are also proposals that you

would back for us to take advantage of?

Governor HUCKABEE. Absolutely. Those are long-standing proposals, Congressman. I think that what we would want to emphasize today, these are the proposals that have the unanimous consent of all the Governors. There are a lot of things that individual

Governors would strongly urge, but this is a group of proposals

that has bipartisan, unanimous——

Mr. WAXMAN. Right.

Governor HUCKABEE. [continuing] support, and that is why we

are presenting these. Not everything needs to be done, but at

least——

Mr. WAXMAN. Some of the others may not have unanimous support?

Governor HUCKABEE. No, I think they have the complete support

of the NGA, it is just that——

Mr. WAXMAN. Governor Warner——

Governor HUCKABEE. [continuing] they are not new.

Mr. WAXMAN. Excuse me. Governor Warner, you have shelled out

for us an ideal for healthcare that the States can buy a package

that is less than a comprehensive package of insurance in order to

make ends meet. In one State we know that the Governor proposed

that the outpatient care be covered, but not the inpatient care.

States would be allowed to do that. You suggested that tax credits

ought to be available so parts of insurance coverage could be available to other people as well. Is your vision of the future for

healthcare in this county that people go out and buy policies to

cover just a few of things that might be needed, but not to be protected from the overall healthcare costs of hospitalization or whatever the future may need? First question. Second question, you

said this is not a policy-driven proposal. Why aren’t the Governors

saying to us if you can reduce the cost for prescription drugs, you

ought to be able to reinvest that money back into Medicaid? Instead, the proposal we have is if you can reduce and we can reduce

with you the cost of the Medicaid program either in prescription

drugs or narrowing the benefits or making the elderly have to pay

more, get reverse mortgage, et cetera, we are putting that money

back into the Federal Treasury. $10 billion is what our goal is so

that we can put it back into the Treasury to pay for other priorities

like tax cuts for billionaires. It is hard for me to believe that this

isn’t budget-driven when we don’t really provide for the money that

is saved to be reinvested in the program. So I would like you to

address those——

Governor WARNER. Well, first——

Mr. WAXMAN. [continuing] two questions.

Governor WARNER. [continuing] of all, I would say that we actually have put in very strongly this is a policy-driven—I think you

48

got it reversed—this is a policy-driven document, not a budget-driven document, No. 1——

Mr. WAXMAN. No, I beg to differ. I think you have got it reversed,

Governor.

Governor WARNER. Well, this is not the format of the Nation’s

Governors in terms of laying this out. No. 2, we have also put in

place incentives that we think need to be in place to insure that

people don’t fall onto the Medicaid rolls. No. 3, whether it is longterm care insurance, whether it is other tax credits to provide some

level of a private sector product that can be purchased. No. 3, I

come back to your initial question, Congressman Waxman. I want

to make sure that every Virginian and every American has the best

healthcare possible. What I am looking at right now in a State of

7.4 million people after a fivefold increase in Medicaid spending,

after a healthcare foundation that has done more—that I am proud

to have started—done more to take care of the needs of the uninsured than any healthcare foundation I have seen around the country. I am looking 10 years later still at a million Virginians without

healthcare.

Chairman BARTON. Gentleman——

Governor WARNER. One of the things we have got to grapple with

is how folks don’t—as Governor Huckabee said—fall off that cliff

into no coverage at all. And we think——

Chairman BARTON. The gentleman’s time——

Governor WARNER. [continuing] we have laid out some——

Chairman BARTON. [continuing] has expired. I understand the

frustration because we all want to ask a lot more questions and we

will—I assume, Governors, that you will take questions in writing

for the record? Because I am sure a lot of members—5 minutes is

very insufficient. The Chair is going to recognize out of order Mr.

Norwood of Georgia for one question to Mr. Huckabee because I understand that Mr. Huckabee has to leave and Mr. Norwood had a

specific question for Governor Huckabee.

Mr. NORWOOD. Well, it is really a point of clarification. My question is basically if we were to write the National Governors Association, who do we write and whose point of view do we get back?

Do we get back Governor Huckabee’s? Do we get back the National

Governors Association point of view? Because if you are speaking

with one voice, you have a very powerful voice in my opinion. But

if I am going to get today one answer from Governor Huckabee and

a different answer from Governor Warner, then I get confused a little bit. And I am not going to be able to ask Governor Huckabee

questions, so are you unified in your position on Medicaid and can

we expect an answer back from the National Governors Association? Because I am going to send you a bunch of questions because

I won’t get to ask them.

Governor HUCKABEE. Congressman, I think that is what we

bring to the table today is complete unity among the Governors,

Democrat, Republican, north, south, east, west, male, female. It is

an unusual situation that we have worked hard to achieve. And if

you talk to the National Governors Association, you are going to

get a very strong, unified voice. That is why we are limiting our

discussion to the things upon which we agree, not to the things for

which we could not yet find agreement, but we are still working toVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
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ward it. There are many issues yet that we want to resolve. We

have not gotten there. But we have gotten this far. And these are

the issues that we can come to you with and say that from the left

and from the right, Governors across America have not only accepted, but agreed upon and endorse and support and ask for your

partnership in making them happen.

Mr. NORWOOD. Mr. Chairman, I thank you for that. I can tell you

I will be very supportive if you are unified, and I think this committee will be too.

Chairman BARTON. Governor Huckabee, do you have to leave

now or can you stay a little bit longer.

Governor HUCKABEE. Congressman—Mr. Chairman, I am afraid

I do have to leave. I am——

Chairman BARTON. Congressman is fine. I am a Congressman.

Governor HUCKABEE. But I do have to preside with another NGA

meeting this afternoon, but you are in good hands, and he speaks

with the voice of unity and authority for the National Governors

Association.

Chairman BARTON. We appreciate your attendance and we look

forward to working with you.

Governor HUCKABEE. Thank you, Congressman.

Chairman BARTON. Chair would now recognize Mr. Bilirakis of

Florida for questions.

Mr. BILIRAKIS. Thank you, Mr. Chairman. I think we are all—

or most of us in any case are grateful to these people for all their

hard work over a period of months and years. Governor Warner,

we are agreed, I suppose, that Medicaid’s original mission or their

current mission is to provide basic healthcare to those who can

least afford it. Isn’t that correct?

Governor WARNER. Yes, sir.

Mr. BILIRAKIS. Okay. In the written testimony—and you have

said it so many times here; I am not sure how many people were

listening—that your recommendations make Medicaid more efficient and effective, were not developed to generate any particular

budget-saving number. You said they were policy-driven as against

budget-driven, that this all started long before we started with this

budget reconciliation. It is unfortunate, to be perfectly honest with

you, I know we had a taskforce here on this committee working on

discussing Medicaid reforms and meetings and that sort of thing in

the last Congress. We didn’t have budget reconciliation or $10 billion or anything of that nature that was budget-driven. And people

on this committee refuse to believe that, what are you going to do?

But you said that instead they were developed to maintain or even

increase health outcomes while potentially saving money through

efficiencies for the States and the Federal Government. So the bottom line is that we don’t change the original mission, which is providing basic healthcare to those who can least afford it. But as a

result of efficiencies and some flexibility and some of the things

that you have requested that we make that plus. By plus meaning

you have indicated increase health outcomes, possibly add additional people to the rolls. Is that correct?

Governor WARNER. What we are talking about is if we can find

savings, if we can make this system more efficient, that if we can

end up, again, through some of the tools we have used, for examVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
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ple, incentives on long-term care, find ways to have folks not fall

or wait later in life until they fall on the rolls of Medicaid, that improves the health outcome of that individual and our country at all

and obviously our States in terms of serving the people that need

it.

Mr. BILIRAKIS. And in addition to the efficiencies and whatnot,

you hope to reach that same result by focusing more on—using the

words of your report—wellness and health promotion, as opposed

to simply sick care treatment. Isn’t that correct?

Governor WARNER. That falls clearly into the category of overall

healthcare reform, which has to be——

Mr. BILIRAKIS. Yes.

Governor WARNER. [continuing] we have laid out first steps here,

but getting into preventive care and wellness care, absolutely critical. It has not been the direct focus of this piece.

Mr. BILIRAKIS. Your executive committee consists of nine Governors. I believe——

Governor WARNER. Eleven Governors were participating in the

working group; over 35 Governors have either themselves been involved or their Medicaid director has been involved. The other

roughly 15 Governors, there has not been a single Governor that

has said hold on here; I am opting out of this. So you do have back

to Congressman Norwood’s position. And there has been back and

forth. You have the Nation’s Governors coming before you with

ideas that they have reached consensus on.

Mr. BILIRAKIS. So all of these Governors, Republicans and Democrats basically agree on this concept and reaching the result that

I have already indicated, which is basically hold the line to the

basic mission originally and add to it through wellness and possibly

treating additional beneficiaries and that sort of thing. Now, would

that breakdown have been how close in terms of Republicans

versus Democrats?

Governor WARNER. Well, sir, the thing is Medicaid is not a single

program. There are 50 separate Medicaid programs.

Mr. BILIRAKIS. Yes.

Governor WARNER. They vary dramatically. What you find mostly where the disagreement would come along would not be based

on Republican versus Democrat; it would be based on what level

of reimbursement levels you were able to provide within your respective States.

Mr. BILIRAKIS. Yes. Up here, as you have already heard, it is——

Governor WARNER. We may be the last——

Mr. BILIRAKIS. [continuing] Republican versus Democrat.

Governor WARNER. [continuing] bipartisan game in town.

Mr. BILIRAKIS. Yes, amen to that. Well, I just find it hard to understand why, you know, everybody here doesn’t sort of agree that

you have tried awfully hard to do this on a policy-driven, non-partisan type of a basis without hurting current beneficiaries and with

the idea of adding additional ones and additional health outcomes,

as well as, of course, wellness preventative care. It amazes me, but

that is the way life is up here unfortunately. Thank you very much,

Governor Warner, for all your hard work. Thank you, Mr. Chairman.

51

Chairman BARTON. Thank the gentleman. The gentleman from

Massachusetts, Mr. Markey, is recognized for 5 minutes.

Mr. MARKEY. Thank you, Mr. Chairman, very much. Welcome,

Governor.

Governor WARNER. Thank you.

Mr. MARKEY. Mr. Governor, we have 34 million Americans who

live in poverty in America. 14 million children live in poverty in

America. 13 million Americans live in abject poverty. That is half

of the poverty rate. In other words, rather than $19,000, it is

$9,500. Abject poverty. So under this proposal the Governors will

have the ability to raise the fees for these poorest people. Now, I

don’t know what the incentive would be to raise the fees for the

poorest people other than to pay for the tax cuts that the Republicans want for the wealthiest people in our society. In other words,

the tax break for them comes from a tax increase, a fee increase

for those people living in abject poverty, $9,500 a year for a family

of four and for the 13 or 14 million children who live in poverty

in our country. So that is a budget decision. Because it doesn’t

seem to make any sense to me that you would want to raise the

fees on the people—the children living in poverty. They already are

the worst-treated citizens in our country. So isn’t it really a budgetdriven decision that you are making since you would never want

to increase the fees for those people. And it is really not a policy

decision because there really is no policy justification for increasing

the fees for the poorest people.

Governor WARNER. Let me first of all say that, you know, in Virginia we actually—and some of you actually may have read about

it—we put together a bipartisan coalition a year ago to deal with

our tax code, to deal straight up with paying for what Virginians

wanted in terms of level of service.

Mr. MARKEY. Has Governor Huckabee done that too?

Governor WARNER. Governor Huckabee has done it as well. Many

Governors in both parties have stepped up and dealt with their

States’ finances.

Mr. MARKEY. So, again——

Governor WARNER. Let me——

Mr. MARKEY. [continuing] let me just say have you all agreed

that you are not going to raise the fees for the poorest——

Governor WARNER. Congressman, what we have said is—matter

of fact, Congressman Brown raised the point earlier—when we in

Virginia tried to actually expand our children’s health initiative, we

actually cut back on co-payments so we could expand the program

along with some of the administrative changes we have made. But

to somehow say that the co-payment issue that in some areas has

not moved from $1 to $3 since the early 1980’s should somehow remain sacrosanct forever, respectively, I disagree. I think we need

to look at that tool. We need to look——

Mr. MARKEY. But you do—again, Governor, you do understand

that the only reason you would have to consider it is that the Republicans are going to cut——

Governor WARNER. Actually——

Mr. MARKEY. [continuing] $10 billion, and it is actually going to

be more than that as the years go on, that this is just this year’s

installment on that because of the huge tax breaks for the wealthy.

52

So in other words, if I can ask you this, would you, rather than

have the tax break and rather than being here talking about your

policy recommendations in the context of their tax break that requires this $10 billion cut, would you prefer there be no cuts in

Medicaid from the Federal Government and they reduce the tax

break by the $10 billion that is being required to be cut out of Medicaid? Would you prefer not to have that tax break?

Governor WARNER. Congressman, we would prefer not to see substantial cuts in Medicaid. That has been——

Mr. MARKEY. No, but will you——

Governor WARNER. Let me——

Mr. MARKEY. No, I understand, but it is important for us from

the Governors’ perspectives——

Governor WARNER. And I would like to give you that Governors’

perspective, and the Governors’ perspective is we want to minimize

the cuts in Medicaid. What we also——

Mr. MARKEY. But there is no need for cuts in Medicaid if——

Governor WARNER. Sir, let me just say that we spend for every

dollar, at least in Virginia, you put forward, we match it dollar for

dollar. Now, if you are going to suddenly say we are going to take

and pay 100 cents on the dollar in terms of all Medicaid costs, have

at it. But in Virginia we have seen our State Medicaid costs go

from $1 billion to $5 billion in the last 15 years. I make the choice

because we don’t have the luxury of not balancing a budget. Our

numbers have to add up at the end of the year, and we have to

make——

Mr. MARKEY. No, but I——

Governor WARNER. [continuing] decisions each year, and Medicaid is the largest single increase in our——

Mr. MARKEY. But do you think, Governor, that we should be

talking about increasing Federal aid for Medicaid from a Federal

level rather than decreasing Federal aid for Medicaid to you to

minimize these difficult choices that you have to make to actually

increase the fees for the children in abject poverty. That is the decision you are being forced to make, and you are making it——

Governor WARNER. No, what we are making is the statement—

you are saying that——

Mr. MARKEY. I am asking whether or not you would want—do

you want Congress not to give the tax break that requires the cuts

in Medicaid that forces even more difficult decisions upon you and

the other Governors? Do you oppose those tax breaks?

Governor WARNER. No, we put forward the position that said we

would oppose—we were not looking, clearly, at any Medicaid cuts.

You came up with a $10 billion number. Our hope is that you will

find some ways to spread that out amongst other programs or other

areas. But we also, irrespective—let me make clear, though—irrespective of your current budget debate, Medicaid, as it is currently

structured, is not sustainable over the long haul.

Mr. MARKEY. Well, let me——

Chairman BARTON. The gentleman——

Governor WARNER. From a State’s standpoint——

Mr. MARKEY. You have——

53

Chairman BARTON. The gentleman’s time has expired. I know it

is frustrating, but it has expired. We now go to Mr. Upton for 5

minutes.

Mr. UPTON. Thank you. Thank you, Mr. Chairman. I applaud you

and Chairman Deal for hosting this hearing. And, Governor Warner, I want to say thank you, as well, for your fine work with the

Governors Association.

I know that our delegation sat down with our Governor a couple

months ago, I guess, and we pledged to work in a bipartisan basis

with Governor Granholm to try and make sense out of program

that clearly today is not working. And you all made the very distinct point that doing nothing is not an option because it is simply

not sustainable. And the demographics show that. The increase in

the ages above 64 years old, and, again, for those growing over 80

years old, those percentages, the increase that are demanding Medicaid services, it clearly is not working today.

And I also thought that the Tennessee Governor’s statement on

Saturday as part of the response to the President’s radio address

was pretty much right on message. And he talked about the work

that he has been a part of with regard to the Governors’ plan that

you all presented to us this morning. And I would agree strongly

with the judicial reforms that you talked about. I might just ask

my chairman does that mean we have to get the Judiciary Committee involved in our process as part of reconciliation, Mr. Barton,

and do we have to get the Judiciary Committee to be involved, or

can we just steal their turf and do it on our own?

Chairman BARTON. Well, we will try to steal their turf——

Mr. UPTON. All right——

Chairman BARTON. [continuing] on our own but——

Mr. UPTON. [continuing] that is good to me——

Chairman BARTON. But if they need to be involved, they will be.

Mr. UPTON. The question that I have for you, Governor Warner,

what else can we do to create better personal responsibility for

those demanding Medicaid? You talked a little bit about a small increase in the co-pay, something that has not gone up in more than

20 years. Are there some incentives that we can do to decrease

smoking, better diet plans, a number of things that we might want

to think about for preventative healthcare that you all took a look

at as part of your report?

Governor WARNER. Absolutely. All of those are tools that we have

to use. I mean I have got communities in Virginia where 20 percent

of the kids in junior high are obese and Type II diabetes candidates. It is a ticking time bomb. I had Medicaid expenditures of

$400 million a year that are directly related to even non-alcohol

and drug, but other lifestyle-related disease, Type II diabetes, hypertension. There has got to be a preventative aspect of this, and

we have started somewhat, but we need to do more, and I think

that is probably the case in every State.

Mr. UPTON. You know, one of the things as it relates to Michigan, last year is an example—this is in my opening statement I

submitted for the record—Michigan’s Medicaid program financed

40,000 births, 40 percent of the total number of births in the State.

Is that about right for Virginia as well?

54

Governor WARNER. We are about that number, and one of the

things we did recently—and, again, this is the kind of investment

we think that needs to be part of—investment to save over the long

haul—we recently, in this past year, expanded the quality of care

to our prenatal care and actually raised to I believe 175 percent of

the poverty level covering expectant mothers.

Mr. UPTON. You talked a little bit in your statement about expanding purchasing pools. We have had an issue in the Congress

here the last couple of years to do that for small businesses called

AHP, Associated Health Plans, and it is my understanding that we

are likely going to have that legislation up on the House floor perhaps as early again as next month. Is that something that you all

took a look at?

Governor WARNER. We did not take a look at AHPs specifically.

I am not going to weigh in on those. I do think we all know that

the lack of success sometimes that takes place with the purchasing

pools is the adverse selection that takes place as younger firms or

folks with younger employees opt out, and you have got to find

ways to incent and even potentially mandate the ability to get the

numbers together so that you can drive your insurance cost down.

Mr. UPTON. Our Governor shared her frustration with our delegation with a lack of the asset forfeiture items that a number of

Governors have. Should we penalize those States that don’t have

a workable plan in that regard?

Governor WARNER. Are you talking about asset transfer here in

terms of——

Mr. UPTON. Right.

Governor WARNER. [continuing] seniors? What we have tried to

put together—and it is trying to strike a balance here—because I

don’t think any of—I can only speak for Virginia—I am not sure

any of us know how much of inappropriate asset transfer is going

on. But what we do have is a system, whether we like it or not,

I believe, that encourages people to gain the system with it.

Again——

Mr. UPTON. Let——

Governor WARNER. [continuing] let me just finish. And what we

have tried to say here is while there needs to be perhaps stricter

look-backs and other tools, we have to couple that with other incentives to purchase long-term care insurance, allows people to maintain some equity to their house to pass on, the reverse mortgage

ideas and others. We need a series of both incentives and, yes, penalties to make sure that we are fair about dealing with folks as

they go into long-term care situations.

Mr. UPTON. Thank you. My time is expired.

Chairman BARTON. Gentleman from Illinois, Mr. Rush, is recognized.

Mr. RUSH. Thank you, Mr. Chairman. Governor, thank you so

much for your questions. I am going to ask you a series of questions, and hopefully, you will be able to answer them all. And I am

going to ask them in their entirety before you answer. I would appreciate it if you would concur with me.

I want to ask you more about the asset transfers that will restrict access to nursing home care. And I understand that research

indicates that even before the 1993 Omnibus Reconciliation Act exVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 22983.TXT HCOM1 PsN: HCOM1
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tended the look-back for transfers of assets to trust to 60 months,

the establishment of trusts by people who could have used them to

avoid Medicaid spend-down was extremely rare. Indeed, most

trusts are established by the wealthy, and I think you will agree,

to avoid paying taxes. And my first question is can you tell me why

it is okay for wealthy people to give their entire estate to their children when they die while somehow it becomes a problem that people who need nursing home care, most of whom have very little

wealth, can’t keep anything? It seems to me that the Medicaid

spend-down may possibly be the last estate tax left standing. In

your testimony you stated that Medicaid reform could include

changes that restrict the types of assets that are being transferred

and increase penalties for inappropriate transfers. Can you be more

specific and outline to this committee which assets that are being

transferred that need more restrictions? And then also, as I understand it, older people can shift from being healthy to needing longterm care in a very short period of time following a stroke or fall,

for example. And I know that many grandparents want to help

their children and their grandchildren with purchasing their first

home or getting a college education and the like. Do Governors support a policy that will go after grandparents who, without any

awareness that a nursing home was in their future, pay for part

of their children’s college education? Do the Governors support a

policy that would allow the State to go after a grandchild in college? Or do Governors support a policy that will allow the State to

go after parents struggling to save for their own retirement if their

own mother or father needed nursing home care but was unable to

pay? So could you answer those questions?

Governor WARNER. I would be happy to, sir. First of all, what we

are looking at is trying to ensure that seniors have a better quality

of long-term care. We are looking at, in terms of the issue of

wealthy versus non-wealthy, I think if there is misuse or inappropriate use of the system, it obviously needs to be applied fairly,

equally. But I come back to the basic point, what I believe we have

right now is a system that basically is all or nothing.

Mr. RUSH. Governor, is there a profile of someone who is abusing

the system? Is there a profile that currently exists now? Who

abuses the system?

Governor WARNER. Congressman, what I am concerned about is

the fact of how I deal in a State where increasing numbers of seniors don’t have virtually any options. Their only option is to spend

all the way down before they go into a nursing home facility, or in

some cases if they have the right counsel, can figure out a way to

have any financial responsibility. We are trying to strike a balance

here. And I believe that not trying to strike a balance, to simply

continue to allow what seems to be a mini-growth industry in itself

of ways to—and I think it is disproportionately used actually by

more wealthy individuals, candidly, because they have the more sophisticated legal counsel and accountants and others who allow

this to happen. In the long run, again, continues to diminish the

resources we have available at the Federal level or the State level

to provide the kind of quality long-term care that we need.

Now, asset transfer alone isn’t going to solve the problem. It has

got to be coupled, as I said, with significant incentives to encourage

56

people to purchase long-term care insurance. I mean we have a

problem that is not going to go away with the baby-boomer generation heading toward retirement. In my State 65 percent of the people in nursing homes, they are on Medicaid. With a trajectory of

a cost increase that is not going to diminish, we have to find a way

to grapple with this issue.

Chairman BARTON. The gentleman’s——

Mr. RUSH. I can understand your problem, and I understand

your point, but I just don’t see where they are going to be able to

afford it, even long-term——

Governor WARNER. Well, that is why we are saying that if you

can find a way so that folks—particularly in terms of their house—

can preserve a piece of that equity so they don’t have to totally dispose of it. And what the right number is, I am not sure. But there

ought to be some way to preserve that so you can absolutely find

that way to pass on some—you have worked all your life, and your

largest asset is your house and you want to pass something on to

your kids, you ought to be able to have that. But what we have got

right now is, in effect, an all or nothing.

Chairman BARTON. The gentleman’s time has expired. The

gentlelady from New Mexico, Mrs. Wilson.

Ms. WILSON. Thank you, Mr. Chairman. And, Governor, thank

you for being here and thank you for your leadership on this issue.

I think it is a tremendous contribution to the body of work that has

been done on Medicaid.

My colleague from Massachusetts who was here briefly before

talked about budgets for Medicaid. And I think we need to be clear

about this. Over the next 5 years under the Federal budget we are

going to increase Medicaid spending by $215 billion. That is a 7.1

percent annual increase over the next 5 years. We have got Tennessee dis-enrolling 300,000 people on Medicaid, the Governor of

Alabama having real declines in Medicaid spending this next year,

every State in the Nation struggling to meet the needs of their people because, as you mentioned and Governor Huckabee did as well,

you don’t print the money. Can Virginia sustain a 7.1 percent

annualized growth rate in Medicaid?

Governor WARNER. That is, again, one of the reasons why we

have said we have got to deal with this issue now. It is going to

get exponentially worse over the next decade with the aging population, with increasing populations who are at a young age now.

For example, just the obesity-related issue on Type II diabetes, we

have got to get a handle on it. Now, that does not mean—and what

I find somewhat frustrating is this—it is all or nothing, or somehow it is all about cuts or it is all about somehow being against

the people who are in need. What we have tried to strike is a good

faith effort to find ways to make the system more sustainable over

the long haul, reinvest in areas where we can hopefully have folks

not fall upon the Medicaid rolls over the long-term, either through

long-term care insurance, through purchasing of some level of

healthcare insurance in a modified benefit package. Because, again,

your basic question is in most States it is much more than a 7 percent increase. You can’t sustain it.

Ms. WILSON. Thank you. And I really appreciate your focus on

letting policy drive the budget here. I know you have got to come

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up with a budget that balances. But one of the things that frustrates me about Medicaid is that we don’t look at whether it improves anybody’s health. And it wasn’t set up to improve anybody’s

health. It was set up to pay the bills. And I wonder if in Virginia

you have looked at or whether the NGA has looked at what is the

health status of people who depend upon Medicaid, and how does

that compare to folks who have private health plans, or, more

broadly, the population?

Governor WARNER. Well, we have started to look at how we can

better manage toward healthier outcomes. I mean we have some

preventative care programs we have put in place. You know, arguably, some folks who we move to, you know—HMO-modeled Medicaid in some areas as well that at least arguably are making the

case that they are managing toward a better health outcome. I

think you also have to recognize, though, that to take a Medicaid

population that by definition is disproportionately poor and has

other chronic problems that may not—you know, to compare that

apples to apples with a middle-class population that is buying traditional health insurance and a large corporate structure, that is

not a fair comparison.

Ms. WILSON. No, and I don’t think it is either, but I think we

do need to look at the apples to apples comparison, because I am

not sure it is there. And in particular, with respect to that and the

efforts you are making on trying to shift toward prevention and the

management of chronic disease and getting a hold on obesity and

so forth, are you awarded at all from the Federal Government in

terms of reimbursement rates or anything for improving——

Governor WARNER. No, we don’t——

Ms. WILSON. [continuing] the health——

Governor WARNER. [continuing] have an incentive system that

encourages good behavior on the basis of the States.

Ms. WILSON. So from your State’s Medicaid director, there is no

help at all from the Federal Government if you show results?

Governor WARNER. To my knowledge, and I am glad I am here,

we have no incentive reimbursement level that encourages the

States to take on these initiatives. And, again, let us be candid

with each other. Part of the problem is we are going to have to

have a willingness and a dedication from you guys on the Congressional side and us on the Governors’ side to make long-term investments in this type of preventive care. You cannot turn on the preventive care program day one and see results in 6 months. And

when you have got the very real choices that we have to make

about what level of care in terms of just dealing with the acute

population, it is a balancing act. My hope would be, we would be

able to move toward that preventive chronic disease management,

these kind of investments, but we are going to need to kind of lock

arms on this and be willing to acknowledge that the results are not

going to happen overnight.

Ms. WILSON. Governor, thank you, and I look forward to continuing to work with you.

Chairman BARTON. We expect a series of votes in the next 15 to

20 minutes. We are going to get as many questions in, as many

members in, and we will come back. What is your schedule?

58

Governor WARNER. I actually am going to use the same excuse

that Mike Huckabee used a few moments ago. You know, in about

another 15 or 20 minutes I am going to need to move on. I have

got another session up here on the Hill.

Chairman BARTON. We have about an hour’s worth of questions.

Any way we could.

Governor WARNER. Let us compromise at a half-hour.

Chairman BARTON. All right. Mr. Stupak.

Mr. STUPAK. Thank you. And, Governor, thank you for being

here. The issue really isn’t—as Ms. Wilson indicated, we are putting more money into Medicaid—we are putting enough money in

to meet the needs of the clientele we are trying to serve. So even

though we may be putting more money in the next couple years,

it is not meeting the needs we see. In my State of Michigan we see

a 30 percent increase, and yet Jennifer Granholm has been able to

keep our increase cost for Medicaid at 1.5 percent. So we do have

to get smarter on the way we do that. On top of not meeting the

needs, we are also expected to come up with $14.7 billion over the

next 5 years. That is what we have been instructed by the Budget

Committee to make $14.7 billion cuts over the next 5 years. So my

concern, and I am sure you weren’t here for my opening, but I

highlight a point in Michigan—in fact yesterday, the Michigan legislature did a couple of things. It goes to flexibility and I want to

ask you a little bit about it. The State Senate voted to make some

Medicaid patients pay a $5-per-month premium. The budget also

calls for a $10 co-pay for brand name drugs where there is a generic equivalent and a $25 co-pay for non-emergency room visits.

The House bill would eliminate 43,000 people on Medicaid recipients in Michigan including all 19- and 20-year-olds and relatives

who raise family members—Medicaid eligible children. It sounds

like there is a lot of flexibility in the Medicaid program already,

but I am hearing the Governors saying we need more flexibility. In

what way?

Governor WARNER. In terms of—and I can’t speak to the Michigan-specific situation; perhaps you have already gone through the

waiver process to grant you that flexibility—but I can assure you

that to——

Mr. STUPAK. So that is unusual amongst the States?

Governor WARNER. To get an answer out of CMS on a timely

basis to get a waiver through continues to be an issue.

Mr. STUPAK. So you want to move the waiver——

Governor WARNER. We want——

Mr. STUPAK. [continuing] provision quicker.

Governor WARNER. [continuing] to look at the waiver situation on

a quicker basis, we want to encourage greater use of generics, we

want to look, as I indicated, on the whole drug pricing issue in a

much more aggressive way than has been done so far. I didn’t get

a chance to, but I would like to retake issue with one of your colleague’s earlier comments. We very specifically raise the unfairness

of the Federal Medicare drug benefit that actually penalizes

States——

Mr. STUPAK. Correct.

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Governor WARNER. [continuing] on the clawback who have, subsequent to 2003, done a better job of negotiating drug prices than

the Federal Government. That doesn’t make any sense.

Mr. STUPAK. I was going to ask you that. That was one of my

questions. Your proposal mentioned the clawback provisions of the

Medicare Modernization Act that requires States to begin making

payments to the Federal Government in 2006 in exchange for

Medicare-covering prescription drugs for dual eligibles. So what is

the true cost of a clawback to a State like yours?

Governor WARNER. It varies by State. With the loss of our renegotiated prices that we received from our PDL with the administrative costs that are being put upon the system where there is no

transition help put in, we see it pretty much as a negative, at least

in the short run. And I think, again, it will vary by State. Some

States will do all right; some States will not. But it seems strange

that an issue that is supposed to help in the long haul deal with

pharma costs actually increasing the costs in many cases.

Mr. STUPAK. Sure. Can some of these problems with the

clawback—I mean Michigan is one that really kept their rates really low for prescription drugs. Is there anything we can do other

than Congressional action that could relieve you from that

clawback provisions in there?

Governor WARNER. We have heard talk that there may be some

ability to invest some in the administrative transition. We have

seen—the short answer is I don’t know. My hope would be that

those States who have negotiated a better price over the last 2

years, if you move the cut time from 2003 up to 2005——

Mr. STUPAK. Sure.

Governor WARNER. [continuing] that would at least allow us to

implement the deals that we have negotiated. Again, I have

spent——

Mr. STUPAK. Right, because you——

Governor WARNER. [continuing] 3 years in——

Mr. STUPAK. [continuing] have been penalized——

Governor WARNER. [continuing] government; I have spent 20

years in business. If I have got a good deal that I have already cut,

it seems a shame to take that deal away from us.

Mr. STUPAK. Absolutely. You did a good deal and you are being

penalized underneath a Medicare bill. Let me ask you about—and

I want to get into this a little bit—the cost-sharing proposal. There

has been a lot of talk—in fact Governor Huckabee mentioned about

when the program started cost was only this much and gas was 24

cents and things like that, but the cost that is being paid here by

the recipients, it is 5 percent of the service, and the service certainly has gone up. I mean with the service in 1982, that is the

provision we use, 1982. You say they haven’t gone up since then.

But certainly, the cost of hospitalization from 1982 is different from

2005, so those costs have also gone up for the recipients.

So if the Governors’ proposal is a cost-sharing—would allow

greater cost-sharing similar to what we have in CHIPS, I am concerned if the proposal for Medicaid is being similar to what is allowed in CHIPS, in reality your proposal appears to be much more

onerous than the CHIPS requirements. Because children below 100

percent, of course, are not in CHIPS, and you said earlier there are

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more people below the poverty line. And for those in CHIPS with

income between 100 and 150 percent of the poverty line, cost-sharing is limited to nominal amounts. So it appears to me that if you

retain all of these protections from SCHIP, for example, would impoverish seniors—because you were just talking about that with

Mr. Rush—in nursing homes. Would they be exempted from these

new cost-sharing requirements?

Governor WARNER. What we are saying is——

Chairman BARTON. This is the gentleman’s last question, and

then we are going to go to Mr. Norwood.

Governor WARNER. [continuing] and, again, the issue here, remember Medicaid populations vary in our State——

Mr. STUPAK. Sure.

Governor WARNER. [continuing] we are very, very strict in terms

of our eligibility requirements. Other States are Medicaid eligible

up to 300 percent of poverty. We are saying that there ought to be

some flexibility there. Now, you ought to have the caps, particularly for those 100 percent and below no more than 5 percent of

their total income. There needs to be—what I have looked at,

again, are some of these $1 to $3 levels. You alone have—or Congress or one of the Congressional entities has done their own study.

If you simply bump those from $3 to $5, there are some savings.

Do I think you are going to find enormous savings here? No. If we

can simply partially dispel the notion that there is gross over-utilization, I think by having slightly higher co-pays, that is a step in

the right direction as well.

Mr. STUPAK. Okay.

Governor WARNER. We don’t know at this point. There are lots

of studies on both sides. But I don’t think you are going to see a

lot of Governors go out, particularly in some of our most meaty

populations, those 100 or 150 percent and below in poverty and

suddenly put in SCHIP-type $15 or $25 co-pays.

Mr. STUPAK. Well, I just want to say——

Chairman BARTON. All right——

Mr. STUPAK. [continuing] like——

Chairman BARTON. [continuing] all right.

Mr. STUPAK. [continuing] Oregon, 50 percent increase drop and

people dropped out once they raised the premiums——

Chairman BARTON. The gentleman’s time has expired. We are

going to go to——

Mr. STUPAK. Thank you, Mr. Chairman.

Chairman BARTON. [continuing] Mr. Norwood. We are going to

give him 4 minutes because he did get to ask a question of Governor Huckabee.

Mr. NORWOOD. I also passed over my opening statement too.

Chairman BARTON. Well, a lot of other people did. Four minutes.

Mr. NORWOOD. Governor, thank you sincerely for your work you

are doing. It is a pleasure to see adults at work trying to solve a

policy problem rather than getting it so political. And I hope this

committee can do the same thing.

I have two questions so I will try to get them both answered if

I can. I was wondering what the NGA proposes to do in respect to

taking people off Medicaid that really shouldn’t be there? Specifically, I refer to illegal aliens, but I also refer to the millionaires

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that were on the program who have done away with all their assets

perhaps legally, perhaps not. This would restore the program to, I

think, its original design, to serve as a safety net for people, citizens in this country who are most vulnerable. I know that you had

problems in your State of Virginia. We have had problems in our

State of Georgia. The strain of illegal aliens on your public infrastructure, as well as your criminal justice system.

Now, I am concerned that we don’t know the resources that we

are expending on this particular segment of the population. We

have limited resources, obviously, and we have no idea of the level

of Medicaid dollars being used to benefit illegal aliens at the State

level. Or do you have an idea in your State what it is costing you?

Governor WARNER. Well, sir, we already have a policy to not provide Medicaid benefits to undocumented persons, and the legislature moved forward on that, even broadened that this year. In

terms of the question, again, Congressman Rush is not here, one

of the things that I don’t think we know is—Congressman Rush

asked for that giving the prototype of someone who is misusing the

asset transfer; well, I don’t know if the millionaires out there are

doing that. But if they are out there doing that when I am seeing

poor seniors not being able to get the kind of long-term care they

need, we ought to put a stop to that. And what we are simply saying is that has to be on the table as we look at this. And, again,

I keep coming back to it is not an either/or. It is yes, looking at

asset transfers, but coupling that with incentives to purchase longterm care insurance, an ability to recognize that folks, particularly

modern-income folks ought to be able to pass on some assets to

their kids, and trying to do this in a more ration process than we

have done so far.

Mr. NORWOOD. Well, you can go through nursing homes and figure this thing out just a little bit. And I don’t know about your

State. It is illegal to put illegal aliens on Medicaid, but you got to

ask the question, I hope you are doing that in Virginia?

Governor WARNER. We are doing that.

Mr. NORWOOD. We are not doing that real well in some places.

Now, one last question. How would the Governors’ proposals work

to give us some comfort or some assurance that core benefits, those

preventive care benefits—and I admit dental is one of them that

is important to me—they have a huge impact on health and wellbeing, and basically, many times are cost-effective. How do we assure ourselves that we won’t—or does your program keep from

eliminating those because of the budgetary crisis?

Governor WARNER. Congressman, those are the issues we face

every day because it oftentimes does not break down to eliminating

the benefit. It turns into a situation where the reimbursement level

may be so low that the provider decides to opt out. That was an

issue that we ran into recently in Virginia where we were losing

so many of our OB-GYN’s in rural communities. So, again, I would

love to paint all this as black and white, but what we are trying

to say is we want to put in place a system that encourages preventive care, we want to find efficiencies, but at the same time, we

have got to recognize that right now, with the increasing populations, a lot of it driven by long-term care costs, we are not able

62

to do all the preventive activities because we have got to deal so

much with just dealing with acute care.

Chairman BARTON. Gentleman’s time has expired. The gentleman from Florida, Mr. Davis, 5 minutes.

Mr. DAVIS. Governor, good to see you again. I certainly applaud

your leadership on this issue, in particular, on education issues,

and you certainly aren’t afraid to stick your head out of the foxhole

here because you get shot at when you do.

I think what is going to advance this conversation is going to be

a more specific understanding as to how this newly gained discretion could be used, or in the minds of some people, abused. I would

like to ask you about a specific example that is taking place in my

home State of Florida. I understand it may be taking place in your

State and others. And it is a limitation on the ability of physicians

to prescribe psychotropic drugs to people with mental health issues.

Florida has adopted a policy, which is being described as a ‘‘failfirst’’ policy where a physician has to prescribe the least costly alternative, and only if and when that fails can the physician then

move on to something that may be more medically appropriate. I

would like to ask you if this is something that you are aware of?

Is it happening in Virginia or something similar to it? Is it taking

place in the other States besides my State?

Governor WARNER. I am vaguely familiar with what is happening

in Florida, and I know kind of pushing the edge of the envelope on

a series of Medicaid-related issues in Florida. And this is an area

above my pay grade in terms of the technical definition of which

drugs are in or out. But when we dealt with out PDL list, we did

not include these drugs on our PDL list, and we have left that

flexibility with the docs.

Mr. DAVIS. Are there any other States——

Governor WARNER. And I am not sure if there are any other

States. We could try to find out and get back to you on that.

Mr. DAVIS. Would you care to express an observation or opinion

as to the merits of the type of approach I have described where the

physician is forced to prescribe something least costly and it has

to fail before something that might be more medically appropriate

could be prescribed?

Governor WARNER. Well, we chose not to go that route in Virginia based on our Medicaid folks, my Health and Human Services

secretary, and working with the drug industry. So we chose not to

pursue that and that is the way we are going to stay in Virginia.

But let me say there may—because a case was made the medical

necessity and the differentiation between drugs in this category,

psychiatric drugs were so important that you couldn’t substitute.

On the other hand, there are areas where we can——

Mr. DAVIS. Right.

Governor WARNER. [continuing] increase generic use. There are

other areas, and I mean not to leave—just so that I make sure that

I can at least get shot at by everybody in the whole universe, you

know, we also have got to look at generics as well as we see drugs

rotate off of the brand name list, now, we have got to be careful

the drugs don’t move from a $1 down to 80 cents and suddenly they

get called generic and we haven’t really realized the full benefits.

I mean——

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Mr. DAVIS. Right.

Governor WARNER. [continuing] Canada, for example, has been

very out there on defining generics. Everybody has got to come to

the table on this issue on drug pricing.

Mr. DAVIS. I agree with you generally. I want to cite you this

specific example, which, obviously, you are not prepared to defend

today—as an example of what is some of the concern here. It is not

clear to me how many State could defend taking such a position of

‘‘fail-first’’ for psychotropic drugs. As Florida and many States have

worked very hard to deinstitutionalize our mental health patients

and try to keep them healthy, as well as the entire community

healthy, and this type of Medicaid approach has been adopted.

I would also like to ask you in what little time I have left if there

has been any discussions you have been involved in or the NGA

has been involved in in terms of how much benefit there is to be

achieved in further nursing home diversion, more emphasis in

terms of Medicaid coverage of home healthcare, adult daycare, alternatives to institutional settings that might not only improve the

quality of life for our seniors and disabled, but actually be a more

cost-effective use of Medicaid.

Governor WARNER. I sure have—actually with Governor Kempthorne on a commission that is chaired by former Senator Kerry

and former Speaker Gingrich looking at this issue. And I can just

give you my personal view, and I think I speak for most Governors

is we strongly urge at looking at these alternatives. Matter of fact,

one of the things we have included in our plan is incentives to encourage more home-based care, more adult daycare, alternatives to

nursing home care. And honestly, having sat down with some of

the folks in the nursing home industry, I think they would not be

opposed to that appropriate continuum of care if, again, we match

it with the type of approach that we make the mindset in this

country that when you buy life insurance, health insurance, you

also got to go ahead and buy long-term care insurance.

Mr. DAVIS. Right. Has there been any discussion——

Chairman BARTON. Let this be the last question.

Mr. DAVIS. [continuing] about the States collectively engaging in

regional compacts to pool their purchasing power to negotiate discounts in the pharmaceutical industry, and are there Federal obstacles to your doing so? And if you don’t have time to fully answer

that, I would certainly like to hear the answer——

Governor WARNER. Well, the short answer is yes, there are obstacles, particularly driven by the fact that we can’t even get the benefits that we have already negotiated with the new Medicare direct

benefit coming along. And then second, in terms of purchasing

pools, we think they ought to be expanded, but you have got to

have some ability to manage the adverse selection where the

younger employees or the firms with the younger employees opt

out.

Chairman BARTON. The gentleman’s time has expired. The gentleman from Michigan, Mr. Rogers.

Mr. ROGERS. Thank you, Mr. Chairman. Thank you, Governor.

Thanks for taking a little extra time today. And as you can see by

the tone of the questions, it is going to be a difficult decision for

all of us to get there, and we appreciate your leadership. To have

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all the Governors come together and say we need more flexibility

in a system that has 1,500 waivers, I mean this is a system that

has not worked well for the States. And to have the courage to

stand up and say give us the flexibility that we need and we will

put a product out there that takes care of the disabled, that takes

care of the needy elderly, that takes care of the needy populations

in America is pretty exciting. And it is going to take that kind of

leadership to get, I think, through this committee. And your help

in that is going to be very, very important.

I want to talk about a couple of things. HSA is a great example.

That is an innovation that is working in the marketplace. We have

seen about 40 percent of the over a million people who have signed

up for these things never had access to healthcare before. Pretty

powerful thing. You have called, in the NGA’s recommendation, a

national Healthcare Innovations Program where you would go out

in 10 to 15 large demonstration projects. Can you just talk a little

bit about how you envision—what the kind of things you would like

to see that tackle?

Governor WARNER. Well, let me give you my particular bias as

somebody who spent 20 years in the technology industry before I

transferred to this interesting business. The fact that we don’t have

the power of IT in the largest sector of our economy, that we have

not used information technology to bring any kind of efficiency

should be an embarrassment to all of us. The fact that we don’t

have electronic medical records and that we have not—to bring a

true electronic medical record to the table on a State or regional

basis, we have got to have resources, but also some ability to

change the behavior folks that—whether it is providers and others,

whether they have got legacy systems or the fact that they just

don’t want to change how they operate, we have got to change. And

that will require not only the State, that will require the Feds; that

will require hospitals, insurers, Pharma, local doc providers to

come to the table. We need to move past talking about this, which

we have been talking about for 10 years and actually start making

it happen.

Now, there are some demonstration projects; there have been—

I can point to a system in Central Virginia, our VCU Health System has gone a long way, but it is still a closed system. We have

got to make it on a much broader basis. That would be a prime example.

I think purchasing pools is another example where we are going

to have to let some folks, a la welfare reform, try things. I know

there will be some consternation about mandatory purchasing pools

where if you try to include various groups inside, you can’t opt out.

So that we can get the aggregate numbers we need to try to be able

to purchase the level of healthcare that is provided from both the—

you know, and you might be combining Medicaid populations with

currently privately covered populations. But we ought to try that.

Again, from both sides where we have been so far is we can’t be

afraid to shake this system up because, again, I come back to some

of the questions I have heard from some of the members. There is

no Governor—because we are the first folks people turn to if there

is a healthcare—there is no Governor that doesn’t want to increase

the quality of healthcare for the most vulnerable of our citizens.

65

Mr. ROGERS. So——

Governor WARNER. But we have to be able to recognize that even

if we defer this debate for a year or two, it is not going away, and

let us go ahead and sit down together and try to work through it.

Mr. ROGERS. And that is a very good point. You are not going to

let those people fall through the cracks. You are going to do everything that you can, and I believe you. And the Governors came out

and said they are going to establish enforceable premiums,

deductibles, and co-pays. You are not doing that to exclude people

from the system, are you? Do you want to have a co-pay that excludes somebody from participating or are you trying to say that

people need to participate in the healthcare delivery system in

America? We need to apply consumerism so that everybody is invested in the solution. That is the way I understood——

Governor WARNER. We need to understand that there is a sense

of personal responsibility, but we also have to recognize there are

many people on Medicaid who are so poor that they have extraordinarily limited resources. And that is why, again——

Mr. ROGERS. But if we gave the——

Governor WARNER. [continuing] I am taking the notion——

Mr. ROGERS. [continuing] State the flexibility, you could make

that determination of what that ought to look like. But in some

cases you would recommend that somebody should pay a co-payment, even if it is a nominal fee. Is that correct? That is the way

I understand this——

Governor WARNER. That is what we are looking at, but recognizing that there needs to be some caps, because there are—I think

there is also going to be—let me be clear here. One of the things

I think this would move toward, I think it would dispel the notion

that this is somehow to save your Medicaid; this is not. There will

be some perhaps marginal savings here. And if we can do that and

dispel the notion a little bit that there is great abuse going on, let

us have at it.

Chairman BARTON. The gentleman’s time——

Governor WARNER. But——

Chairman BARTON. [continuing] has expired.

Governor WARNER. [continuing] it is not a silver bullet.

Chairman BARTON. The gentleman’s time has expired. The distinguished ranking member of the full committee, Mr. Dingell of

Michigan, is recognized for 5 minutes.

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy. Welcome, Governor. I am pleased that you are here with us. Governor,

a series of questions. You noted that the Governors 11 in number

and others had an input. Were representatives of children’s groups

included in the development of the proposal?

Governor WARNER. Congressman, we worked with our Governors,

we worked with our Medicaid directors——

Mr. DINGELL. Yes, but Governor, with all respect, time is very

limited. Were representatives of the children’s groups included in

the development of——

Governor WARNER. No, that is why this was the National Governors Proposal.

Mr. DINGELL. Now, were representatives of the disability community or seniors groups included in the development of the proposal?

66

Governor WARNER. Well, I guess what I would take some issue

with is saying that somehow Governors and/or Medicaid——

Mr. DINGELL. Governor, this——

Governor WARNER. Can I answer your question?

Mr. DINGELL. [continuing] is a search for fact, and I am just asking a yes or no. And I say so with all respect, but I have 4 minutes

remaining and——

Governor WARNER. Right. The——

Mr. DINGELL. [continuing] I have a lot of questions——

Governor WARNER. [continuing] answer is this is the National

Governors—the people who were involved in this proposal were the

National Governors——

Mr. DINGELL. Okay.

Governor WARNER. [continuing] Nation’s Governors, their Medicaid directors, and their health——

Mr. DINGELL. So, then, I assume the answer is no?

Governor WARNER. I have said who was——

Mr. DINGELL. Okay.

Governor WARNER. [continuing] involved.

Mr. DINGELL. Now, were representatives of the physicians

groups, nursing groups, hospital groups, representatives of nursing

homes included in the development of the program?

Governor WARNER. The Nation’s Governors, the Medicaid directors, and their health advisors were involved in this.

Mr. DINGELL. And so you are having to tell me again that the

answer is no?

Governor WARNER. No.

Mr. DINGELL. Now, I have some other questions here, Governor.

And, again, I apologize for being so brusque because I have great

respect for you, but I have got to get certain questions and the answers in the 3 minutes and 22 seconds remaining. Your proposal

has been called tiered benefits. And then it has had other names

applied to it. I want to know if this proposal will provide beneficiaries with the flexibility in a way which is intended to save the

States money, or is it intended to accomplish other purposes?

Governor WARNER. No, what we are geared at is recognizing that

we have to meet, at least in my State, 50 cents of every dollar that

is spent in Medicaid to make sure that we can yes, save resources,

but also our proposal is to encourage reinvestment in areas such

as Federal tax credits for long-term care, for purchasing of health

insurance for those folks so they won’t fall onto the Medicaid rolls.

Mr. DINGELL. Now, the Medicaid law requires that payments

must be made only for medically necessary treatments. The only

way I can figure that you would save money, then, is by taking

away benefits who currently need and are using them. Am I incorrect in that assumption?

Governor WARNER. Well, no, what I think there remains a question, and I can tell you how we addressed it in Virginia. Is there

inappropriate use? If you have a, you know, the classically cited example of the head cold that shows up at the emergency room four

times in the same month. I don’t think that happens enormous

amounts of time, but if it does happen, I need a tool to make sure

that we prevent that from happening——

Mr. DINGELL. Now, I assume——

67

Governor WARNER. [continuing] and don’t reimburse——

Mr. DINGELL. [continuing] that you have——

Governor WARNER. [continuing] our hospitals at the——

Mr. DINGELL. I assume that under existing law you may address

that problem, may you not?

Governor WARNER. We may——

Mr. DINGELL. Is there anything——

Governor WARNER. [continuing] address it——

Mr. DINGELL. [continuing] inhibiting you——

Governor WARNER. We may address it, but if there was a way

that allowed us a differential co-pay on the fourth visit to the emergency room, that is a tool I would like to see.

Mr. DINGELL. Under existing law you have the capacity to address fraud, waste, abuse, misuse of the system by beneficiaries, do

you not?

Governor WARNER. I don’t believe we have all the tools that

would make this system——

Mr. DINGELL. I am going to——

Governor WARNER. [continuing] the best possible——

Mr. DINGELL. [continuing] submit a letter to you, Governor, because the points you are making are very good and I want to find

out about that particular question. Does the NGA proposal allow

States to cut nursing home benefits to people with incomes below

$7,000 a year?

Governor WARNER. That is not our intent. That is not my intent.

Mr. DINGELL. Does the NGA proposal allow States to cut medically necessary services needed by children and families whose income is under $12,000 a year?

Governor WARNER. That is not our intent. That is not my intent.

Mr. DINGELL. Okay——

Governor WARNER. Matter of fact, we have taken—let me just

again—you missed the earlier part of my presentation. And matter

of fact, Virginia has dramatically expanded its children health program and been recognized by Kaiser as one of the most successful

in the country.

Mr. DINGELL. Governor, don’t take my comments as being critical

or hostile. They are simply a quest for facts. Does the NGA proposal allow States to cut pregnancy-related services to pregnant

woman?

Governor WARNER. In Virginia we actually expanded that coverage this year.

Mr. DINGELL. I would note that in Virginia, a Medicaid beneficiary living in Alexandria, Virginia, with two children can only

have $384 a month in income to still qualify for the program. In

Arkansas, a person with two children on welfare, TANF, would

have no more than $204 a month in income to still qualify. Is there

any way you can——

Chairman BARTON. This will have to be the gentleman’s——

Mr. DINGELL. [continuing] at those levels, Governor?

Chairman BARTON. This will be the gentleman’s last question.

Mr. DINGELL. I thank you, Mr. Chairman. Governor, you have

my apologies if I have offended you.

Governor WARNER. I just wanted to try to give factual answers

to your questions.

68

Chairman BARTON. Do you want to answer his last question?

Governor WARNER. No, in both of those cases, again, earlier we

cited the fact that in Virginia what we did, particularly for expansion of our SCHIP program was we cut back on any co-payments

so we could expand our program.

Chairman BARTON. Gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you very much, Mr. Chairman. Governor,

thank you and thank you to your colleague who has had to leave

for excellent work in this effort. I want to follow up on the issue

of co-pays that my colleague from Michigan raised. We wrestled

with this when I was in the Oregon legislature and we were implementing the Oregon Health Plan and talked about the idea of copays. And one of the issues that came up was a concern about collectability of them. Have you all looked at that? Because even——

Governor WARNER. Yes.

Mr. WALDEN. [continuing] if it is $2 or $3, we were hearing testimony that said docs, others are going to end up eating it because

they are just not——

Governor WARNER. Right.

Mr. WALDEN. [continuing] going to get paid. Do you have a mechanism you are kicking around?

Governor WARNER. We are still trying to sort through that because it was and is an issue.

Mr. WALDEN. Okay. All right. We also heard testimony in those

days, and this was quite a while back, that co-pays might help in

the sense of trying in some way to get people to actually keep their

appointments. Some of the medical community found that some

Medicaid patients would make appointments and not keep them at

a higher rate than others. Have you found that to be the case?

Governor WARNER. That has been our experience as well.

Mr. WALDEN. And are you looking from——

Governor WARNER. But whether the co-pay——

Mr. WALDEN. Yes, I don’t know if——

Governor WARNER. [continuing] system has changed that behavior in keeping appointments, I can’t speak to that. I don’t know.

Mr. WALDEN. Is your——

Governor WARNER. But it is one of the things we ought to find

out.

Mr. WALDEN. Well, that is what I wondered. Is your taskforce

looking at that as an issue that the——

Governor WARNER. We have not at the gubernatorial level. I

think the Medicaid directors have discussed this. But at the gubernatorial level we haven’t drilled down to that level.

Mr. WALDEN. Okay, because that was an issue we kept hearing

about too, and, you know, I am one of them who says just because

a law has been on the books 40 years doesn’t make it untouchable.

We should use the latest in technology; we should think outside the

box and say how do we make this the best possible system given

the budget constraints we are given?

One of the other issues that comes up is the Federal law

EMTALA that requires emergency rooms, hospitals——

Governor WARNER. Right.

Mr. WALDEN. [continuing] you go in there, you get care. And

there has been some talk, some ideas kicked around about giving

69

some relief there to say if you are not truly an emergency case, the

ER room should have the ability to refer you, then, perhaps to a

public clinic or elsewhere. Have you all looked at the implications

of that law and policy?

Governor WARNER. You are asking me not only to stick my head

out but get it chopped off three different ways but——

Mr. WALDEN. That is why it is so nice you are there and I——

Governor WARNER. No, we have not looked at that specifically,

but let me tell you what we have done. We have said that if a hospital provides, as they should, provides that care and it was an inappropriate use, for example, of the ER, that we will only reimburse at a doctor visit rate rather than an ER visit rate. And so

we have incented—and, again, this is something that a lot of States

haven’t done yet. The hospitals are trying to put in place now, you

know——

Mr. WALDEN. But can that——

Governor WARNER. [continuing] a better screening process so the

person still gets care——

Mr. WALDEN. Right.

Governor WARNER. [continuing] but we have shifted some of the

burden over to the hospitals to try to——

Mr. WALDEN. Well, that is why I wondered——

Governor WARNER. [continuing] push them toward the clinic as

opposed to the ER.

Mr. WALDEN. And help me on this one. Do they have the authority under Federal law to make that move——

Governor WARNER. No, I don’t——

Mr. WALDEN. [continuing] to push that——

Governor WARNER. One, I don’t know the answer. Two, I

think——

Mr. WALDEN. Okay.

Governor WARNER. [continuing] they do not. But three, what we

have simply used is our——

Mr. WALDEN. Well, yes, you just push the cost onto——

Governor WARNER. Right.

Mr. WALDEN. [continuing] them, but as a bigger picture is that

a law. Okay. One we probably should take a look at. I don’t know

whether it is you or Governor Huckabee talked about the issue we

have looked at in the Oversight and Investigations Subcommittee

on AWP versus ASP, average wholesale——

Governor WARNER. Right, right.

Mr. WALDEN. [continuing] price versus average sales price. We

have found some extraordinary disparities, and really what appears to be, and I am sure there are those that can educate me on

a different manner, but perverse incentive when a drug goes generic to actually keep the price high to maintain market share.

Have you found that?

Governor WARNER. I can’t speak to that specifically, but I am

concerned about this notion of as drugs fall into that generic category that the fact that they are sometimes—they have kept prices

artificially high, which is not fair or right. We are starting to look

at other countries, what Canada has done and others, about trying

to——

Mr. WALDEN. You might want to go——

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Governor WARNER. [continuing] better to find generics.

Mr. WALDEN. I know you have lots of time and nothing to read,

but you might want to get the transcripts from some of our hearings on this issue. It was pretty phenomenal, people testifying

under oath what happens in that system.

Governor WARNER. Mr. Chairman, I will listen to everybody’s

opening comments first on that transcript before I——

Chairman BARTON. Yes, sir.

Governor WARNER. [continuing] listen to that.

Mr. WALDEN. Yes, cut right to the witnesses, believe me. The

final issue, given your experience in community healthcare, I am

curious about—we have held some oversight hearings on the expansion of the federally qualified healthcare facilities. I have seen

them firsthand in my district, incredible work they are doing. Do

you see this community health center concept as a reliever and an

effective and affordable reliever that may actually hold down cost

of Medicaid?

Governor WARNER. I think it is one of the tools. We have got I

think 41 community healthcare centers. We also have the largest

number of free clinics of any State in the country. And, again, one

of the things that goes back to why I am pushing part of this process and pushing reforms that some may say, you know, oh, my

gosh, you know, how are you willing to even consider these? Because I see the 1 million Virginians who don’t have anything who

access healthcare on an episodic basis through free clinics who

have no permanent medical home at all, and they are the ones who

are really getting stuck by our system and, you know, to again say

that, you know, we are not willing to at least look at how we can

fix Medicaid. And somehow we are going to put off the greater

problem, the 45 million plus Americans who don’t have any

healthcare coverage at all for another day just isn’t fair or right.

And we can——

Chairman BARTON. Gentleman’s time has——

Governor WARNER. [continuing] do this at the same time expand

some level of are, that is in the best interest of this——

Chairman BARTON. Gentleman’s time has expired. The

Gentlelady from California, Ms. Capps.

Governor WARNER. I am going to have to make this the last——

Chairman BARTON. Well, if you could do one more on each side,

Ms. Capps and the long-suffering Dr. Burgess. Do two more? They

both have been here the whole time.

Ms. CAPPS. Thank you, Mr. Chairman. Thank you, Mr. Governor,

for your testimony. I listened very carefully to it. And there is an

elephant in this room, no partisan pun intended, which you referenced with respect to pharmaceutical costs, but exploding costs

of healthcare are the bottom line across the board everywhere. For

example, the growth in the cost of premiums for private insurance

programs has risen 12 percent per year, twice as fast as the growth

of increased costs for Medicaid as one example. And I hope there

is a chart that is going to be lifted up so that you can see it.

[Chart]

Ms. CAPPS. There is a version for you.

Governor WARNER. With my eyes, that is about a perfect

range——

71

Ms. CAPPS. Is that a good range for you? I would like to focus

on with your time as a percentage of income, Medicaid beneficiaries

out-of-pocket medical expenses, as you can see, are substantially

larger than those with private insurance. And, for example, in 2002

poor adult Medicaid beneficiaries’ incomes under $797 a month

spent 2.4 percent o their incomes on medical expenses. Privately

insured adults with incomes over twice the poverty levels, incomes

more than $1,595 a month spent less than 1 percent. And this proposal about co-pays and increasing the out-of-pocket costs for Medicaid beneficiaries could be categorized as nothing more than a tax

on the poor for being sick or trying to stay healthy. Many of those

Medicaid beneficiaries have extending circumstances that make it

tougher for them to stay healthy, labor work, repetitive motion,

and those with disabilities, it goes on and on. It seems to me that

what we are considering is increasing taxes on those who can least

afford it when they are sick. And this is, you know, something that

you are proposing. I want to ask, given that the poor are already

paying much more out of pocket for their care on average than affluent families, you know, how will they manage to do this? They

don’t get a discount at the tax pump, low-income families don’t get

a discount when they buy school clothes for their kids or a discount

at the grocery store or a discount on their rent. And we have seen

difficulty this year with gasoline prices, heating, fuel costs, housing

costs, how can we expect that they are going to be able to pay?

And my real topic that I want you to address in addition to those

concerns of mine, we have, as part of our crisis, an exploding number of people without health insurance as people become unemployed, as more and more employers are eliminating health insurance because they can’t afford it, small businesses and others. Now,

you are making the case and your association that your desire for

flexibility is to keep more people insured. I would like to hear how

you propose to do that.

Governor WARNER. Great. Well, first of all, you know, someone

who has, you know, spent enormous amounts of time trying to

make sure—going back to our Children’s Health Initiative—that

we——

Ms. CAPPS. Yes.

Governor WARNER. [continuing] sign up more kids, I have seen

these studies. I have seen other studies as well that have the opposite result. I do know this on just kind of a baseline; Congress set

as a co-pay level $1 to $3 in the early 1980’s. I think some being

willing to give some flexibility to have some marginal increase to

that, $3 to $5, $3 to $6 is what I believe your own study looked

at. I am willing to have that on the table. Let me assure you, we

have, unfortunately, many parts in Virginia still where folks are

struggling every day to get by. But what I also feel very strongly

about is that what you were asking me to when I have to match

50 cents on every dollar and I have got make—you know, again,

I come back to my point I made earlier—I have got to make a

budget balance——

Ms. CAPPS. All right.

Governor WARNER. [continuing] and another editorial comment,

we have dealt with taxes in a way to make sure that——

Ms. CAPPS. Yes.

72

Governor WARNER. [continuing] we can pay our bills——

Ms. CAPPS. Let me ask you one more——

Governor WARNER. No, please——

Ms. CAPPS. [continuing] question.

Governor WARNER. [continuing] let me finish here. And I feel that same level of concern for somebody who makes $50 over the

Medicaid eligibility line who has nothing.

Ms. CAPPS. I so much——

Governor WARNER. And that is——

Ms. CAPPS. [continuing] agree——

Governor WARNER. [continuing] exactly why I am saying, you

know, I have changed on this. It may not be a perfect on the employer/employee tax credit to at least have them purchase some

level of a——

Ms. CAPPS. I hear you.

Governor WARNER. [continuing] modified benefit package that

may look like an SCHIP package. I think it——

Chairman BARTON. I want to——

Governor WARNER. [continuing] makes sense——

Ms. CAPPS. I——

Governor WARNER. [continuing] when we try——

Chairman BARTON. The gentlelady’s time has expired and we

still have five members that haven’t asked questions. And the Governor is only going to let one more go. I am going to ask Dr. Burgess—I am going to recognize him, but I would hope that he would

at least allow Mr. Engel to ask one question, because Mr. Engel

was here at the gavel and has waited the whole time, and it is not

probably going to have a chance to have his own time. So I am

going to recognize—okay, the gentleman yields his first 21⁄2 minutes to Mr. Engel. Two and a half minutes.

Mr. ENGEL. Thank you. I will speak very fast. Welcome, Governor. It is nice seeing you hear rather than on a plane. And I have

been listening to your testimony, and no wonder people think you

are a rising star. I just want to quickly say that the Medicaid discussion, there is no denying that budgetary numbers are playing

a major role, and I think what you have heard from many of us,

particularly on this side of the aisle is that we feel the priorities

are misdirected in this Congress, that if we didn’t have these huge

tax cuts for wealthy people there would be more money to share

for the Medicaid program with the States.

I would like to just say two things and then ask you to comment

in some—and I thank my colleague, Mr. Burgess, for yielding to

me. What bothers me is there are a million people living with HIV/

AIDS. New York is one of the epicenters of that unfortunately. If

we are going to say that under current Medicaid standards the

beneficiary could be charged up to $3 per prescription, in the case

of an individual that might be taking multiple drugs might be $45

a month, it really would impact very, very negatively on these people. I am wondering if you could talk about that.

And also, Governor Huckabee had mentioned the changing of the

ability to have redress in the courts, and that bothers me because

if you take a State like California, the State wasn’t screening kids

for lead poisoning and people went to court and changed that. The

AIDS epidemic, Missouri refused to provide coverage for AIDS

73

drugs; they went to court and lost. If you take that away, I am

afraid that we are going to have a lot of problems. So if you can

comment to anything I have said, I would appreciate it.

Governor WARNER. I appreciate your comments and very briefly,

at some level you have to hope and expect the Governors are going

to bear some level of responsibility and not, you know, put someone

who has AIDS and be able to have them so restrict their drugs

they can’t get the therapy they need. There has to be, again, some

balance here. I think that most Governors have not, you know,

when we have been granted flexibility in the past have not abused

it. There are exceptions, but I think for the most part they will do

the right thing.

I think in terms of—we have tried to draw very, very narrowly

the question on judicial reform. And I understand your concern.

There was a number of us that were concerned on some of the consent decree.

Chairman BARTON. Dr. Burgess——

Mr. ENGEL. Thank you.

Chairman BARTON. [continuing] last 3 minutes.

Mr. BURGESS. Governor, thank you very much for being with us

today. It has really been a fascinating discussion that we have had.

Quickly, what have you done in Virginia to keep employers from

dropping out of the private insurance when you have expanded coverage in your SCHIP and your Medicaid program? You said you

brought 95 percent of children into the fold, and we have a problem

back in Texas with some employers dropping out of the insurance

coverage when that happens.

Governor WARNER. Well, again, we have relatively low eligibility

standards again, so that it is not—we are serving children that we

think desperately need it. I think you raise a bigger question,

which is if you are going to provide some incentive, and what we

propose, for example, a tax credit that might go toward small businesses or might even go toward employees to be able to purchase

some form of private health insurance, how do we not turn that

into an incentive for employers to drop coverage? And if you asked

me 2 years ago I would have said, and that is the reason why I

don’t support that tax credit approach. What I am saying 2 years

later with what I see of this taking place anyway, with what I see

with increasing caseloads, with what I see with these increasing

costs, we have got to try to find a way to sort through to not tip

the balance so the people actually no longer provide the health insurance. But for those who are on the edge, there ought to be an

employer contribution, but somehow craft something to try at least

in the middle. That is not a very good answer, not very articulate,

but I hope you know what I am——

Mr. BURGESS. I do, and in fact at the risk of oversimplifying, I

see three populations on the Medicaid system, the truly medically

destitute, medically frail who are going to need the big——

Governor WARNER. Full boat.

Mr. BURGESS. [continuing] safety net that Mr. Huckabee was

talking about. And then you have got, of course, the long-term care

issue that does have to be dealt with. And in between you have got

the patients that I used to see in my medical practice, basically

pregnant moms who need help paying for insurance. And they don’t

74

need the same kind of safety net that the medically frail and indigent need. So I certainly welcome your concept, whether we call it

vouchers, premium support, or tax credits, I am absolutely in favor

of that, and I would like to see us be able to expand that and offer

the whole panoply, HMO, PPO, EPO, HSAs, whatever, to that segment of the population and let them choose what best fits their

needs.

Finally, in the last few seconds I have, I couldn’t help but think

as I watched both of you up here, we are seeing a preview of the

debates of 2008, and I hope you do remember that you are the last

bipartisan game in town, and we will keep the tone as great as we

have seen it this morning. It was truly something to watch, both

of you together. Thank you.

Governor WARNER. Thank you.

Chairman BARTON. We have five pending votes on the floor. We

are going to adjourn the hearing. Unfortunately, Mr. Ross and Ms.

Myrick and Mr. Shimkus aren’t going to be able to ask verbal questions, but they will be given the opportunity on the written record.

We want to thank you, Governor. We will be working with your

taskforce and the Governors Association. This committee is a bipartisan committee, and we intend to report a bipartisan Medicaid reconciliation package sometime this fall. This hearing is adjourned.

Governor WARNER. Thank you, Mr. Chairman.

[Whereupon, at 2 p.m., the committee was adjourned.]

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF GOVERNOR ANIBAL ACEVEDO-VILA ́, COMMONWEALTH OF

PUERTO RICO

MEDICAID REFORM: THE NATIONAL GOVERNORS ASSOCIATION’S BIPARTISAN ROADMAP

The federal Medicaid partnership with U.S. commonwealths and territories

has become increasingly unbalanced over a period of years...The imbalance affects quality of care issues and creates increased financial stress.

Medicaid reform needs to include a review of the current relationship and

the development of a pathway that moves to a rebalancing of this partnership.

National Governor’s Association

Policy Position

EC-16. Medicaid Reform Policy

The National Governors Association Policy Position EC-16 recognizes the imbalance that has developed over a period of years in regard to the Federal Medicaid

partnership, the Commonwealth of Puerto Rico and the U.S. territories.

I would like to take this opportunity to add my support to the NGA policy and

to put forward interim steps that begin to address this imbalance.

In 1968, three years after the start of the Medicaid program, Congress established

a $20 million limit on the level of federal Medicaid that would be available to the

Commonwealth of Puerto Rico. At that time Federal Medicaid costs, nationally, totaled $1.1 billion. The Commonwealth matching assistance percentage (FMAP) continued at the 50 percent level; however, the Federal cap meant that there was no

reimbursement for expenses to Puerto Rico once the Commonwealth expended $40

million. From time to time, Congress has raised the cap, but has never reviewed

the cap in terms of healthcare or fiscal policy.

Currently, the Commonwealth of Puerto Rico’s effective FMAP rate approximates

18 percent. If the 1968 cap had been authorized to grow at the same rate as Medicaid grew nationally, Federal support for Medicaid in Puerto Rico would now approximate $1.7 billion, as opposed to the current Federal support of $219 million.

In the states, federal Medicaid support approximates $330 per month per participant as compared to federal support in Puerto Rico of about $20 per month per participant. If Puerto Rico’s 1968 Medicaid cap had increased as the Medicaid program

75

increased, nationally, the average monthly Federal contribution would be about

$173 per participant, still a fraction of average Federal support.

These are the challenges the Commonwealth’s healthcare community confronts

while operating in an economy where the cost of living is no less than many metropolitan areas in the states, and all of the Federal regulatory requirements governing

healthcare facilities and providers are the same in Puerto Rico as they are in the

states.

As Congress moves forward with its review of Medicaid, I would urge that the

Committees consider adhering to four principles in terms of addressing Medicaid in

Puerto Rico:

1. It is in the interest of both the Federal Government and the Commonwealth that

the existing healthcare gap between the Island and the states does not grow

any greater, and that measures need to be taken to narrow this gap.

2. Federally mandated expenses resulting from Federal consent decrees and U.S.

Justice Department enforcement actions should be reimbursed outside of the

cap.

3. Critical healthcare needs, particularly for children, persons with disabilities and

the frail elderly, need to be considered as strategic healthcare investments, with

the Federal contribution coming outside of the cap.

4. The Federal investment in Puerto Rico’s healthcare must be safeguarded and efforts and initiatives, particularly in technology, that can safeguard the Federal

investment and make the healthcare system more productive should be encouraged and supported.

In addressing the first principle of not allowing the healthcare gap between the

Island and the states to grow any further, I believe that there are three actions

which the Committee can take this year that would be meaningful in starting to

address the current imbalance:

1. Family Opportunity Act (FOA) (HR1443, S183). The FOA, as drafted, effectively

precludes Puerto Rico from participating, as the cap on Medicaid reimbursement

will prevent any Federal participation. If Congress enacts FOA this year, it is essential that Puerto Rico be permitted to participate in this program and the New Freedoms Initiatives must be placed outside of the cap, so that families and children

with disabilities in Puerto Rico are not left behind.

2. Transitional Medical Assistance (TMA). The Congress requires Puerto Rico to

meet all of the same work standards of the Temporary Assistance to Needy Families

(TANF), but the Commonwealth is not authorized to participate in TMA. TMA is

recognized as one of the most critical elements in the success of moving families

from welfare to work. When Congress reauthorizes TANF and TMA, it is essential

that Puerto Rico be authorized to participate in and receive reimbursements for

TMA so that it is in a stronger position to meet its TANF obligations.

3. Adjustment Factor. From 1998 to 2003, Federal support for Medicaid increased

nationally 65 percent while Federal support for Medicaid in Puerto Rico increased

30 percent. The disparity in the growth rate is an issue that must be addressed this

year, because each year that it is delayed, there is increasing pressures on the Commonwealth’s healthcare system and fiscal strength. I urge the Committee to amend

the provisions related to the annual adjustment for the Puerto Rico’s Medicaid cap

so that the adjustment is no less than the percentage increase in the national Medicaid program. This can be an important step in addressing the overall healthcare

gap. It will also be consistent with actions Congress took in regard to the Medicare

Modernization Act where the annual adjustment to the Commonwealth’s block grant

is based upon the annual growth of Medicare Part D.

These three steps start to lay the foundation to address the current imbalance.

By including Puerto Rico in the two authorizations and adopting an adjustment policy that reflects changes in the program nationally, Congress will put into practice

the principle of not permitting the imbalance of the Commonwealth/Federal Medicaid partnership.

I urge the Committee to consider these proposals as you move forward with budget reconciliation and I am certainly available to work with the Committee to find

solutions which start to realign the current imbalance of the Commonwealth Medicaid partnership with the Federal government.

When Congress considers long term comprehensive Medicaid reform, I urge the

Committee to examine the issues I raised previously, including:

1. Impact of Consent Decrees. The Commonwealth is under two consent decrees

initiated by the US Justice Department requiring the expenditure of funds that are

eligible for Medicaid reimbursement, but not eligible for a Federal match in Puerto

Rico. My fellow Governors are concerned about the impact of the consent decrees

since they are required to pay between 20 and 50 percent of their costs (Federal

Medicaid financing the balance). I am particularly concerned as the Commonwealth

76

is not authorized to receive any additional reimbursements for eligible Medicaid

costs resulting from the enforcement action of the U.S. Justice Department, and is

required to absorb 100 percent of the costs.

2. Critical Needs. Critical healthcare needs, particularly for children, persons with

disabilities and the frail elderly must be assessed with consideration given to possible support for strategic healthcare needs investments and should be viewed in the

context of Medicaid reform to insure that these vulnerable populations are adequately served. One simple way to begin to take care of these critical needs and to

begin to narrow the existing gap would be a new policy that would place the Federal

contribution of Medicaid coverage outside of the existing cap for every child born

after a date certain. This way, we begin to take care of our children first, and we

tackle the existing gap in a slow, but steady fashion.

3. Safeguards and Technology. The Federal investment in Puerto Rico’s healthcare

must be safeguarded. Efforts and initiatives needed to protect that investment and

make it more productive should be encouraged and supported. While technology development has been encouraged in the states with as much as 90 percent reimbursements for improvements, the Commonwealth has not been authorized to receive

similar support. The President’s initiative on ‘‘interoperable health information technology infrastructure’’ is an opportunity to make great strides in the quality and

productivity of the Commonwealth’s healthcare system, that can pay dividends to

both the Federal government and Puerto Rico, provided the Commonwealth is authorized to access Medicaid funding for the development of these systems, in a manner similar to the states.

As Congress moves forward with comprehensive Medicaid reform, I encourage the

Committee to follow the guidance of the NGA policy where it recommends that Medicaid reform ‘‘needs to include a review of the current relationship and the development of a pathway that moves to a rebalancing of this partnership.’’ The cap established in 1968 is grounded in neither healthcare nor economic policy. The result is

an effective FMAP for Puerto Rico of approximately 18 percent, a rate that could

not be sustained in any jurisdiction.

The Commonwealth of Puerto Rico has a long history and strong commitment to

providing comprehensive healthcare in its communities, and that commitment is not

going to change. However, meeting that goal and fulfilling the Federal statutory requirements such as Early and Periodic Screening, Diagnosis and Treatment

(ESPDT), and Health Insurance Portability and Protection Act (HIPPA), Federal

Court rulings such as Olmstead and Cedar Rapids, and meeting the Federal regulatory requirements of Health Resources and Services Administration and the Center for Medicare and Medicaid Services without a more balanced Federal partnership creates inordinate financial pressure that has an impact on the type of

healthcare provided.

As the Committee moves forward with budget reconciliation I would urge establishment of the principle that the current Commonwealth/Federal Medicaid partnership should not develop any further imbalance, and that this goal can be accomplished by enacting the three proposals I have outlined. Secondly, in terms of comprehensive long term Medicaid reform I urge the Committee to examine the current

Commonwealth/Federal Medicaid partnership with the objective of establishing a

more balanced partnership, particularly in light of the healthcare needs, consent decrees and opportunities for technological advances.

Working together, sharing ideas, examining the effects of current policy, I believe

that we can establish a pathway to rebalancing the Commonwealth/Federal partnership, a pathway that makes economic sense for both the Federal government and

the Commonwealth.

PREPARED STATEMENT OF BARBARA KENNELLY, PRESIDENT NATIONAL COMMITTEE TO

PRESERVE SOCIAL SECURITY AND MEDICARE

Mr. Chairman and Members of the Committee: Chairman Barton, Ranking Member Dingell, and members of the Committee, I appreciate your leadership in holding

this hearing on the future of Medicaid—a program of vital interest to our nation’s

seniors.

Over the next few months, Congress will be considering a number of changes to

Medicaid, likely involving substantial cuts to the program. On behalf of the 4.6 million members and supporters of the National Committee to Preserve Social Security

and Medicare, I strongly urge you to oppose cuts to the Medicaid program.

For the past forty years, the Medicaid program has played a crucial role in our

country’s health care system by providing public health insurance for low-income

Americans. The program protects those that are among the most medically and ecoVerDate 11-MAY-2000 10:35 Sep 16, 2005 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6621 22983.TXT HCOM1 PsN: HCOM1
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1 Congressional Budget Office. ‘‘Fact Sheet for CBO’s March 2005 Baseline: Medicaid and the

State Children’s Health Insurance Program’’. Washington, D.C.: March 2005. 2Kaiser Commission on Medicaid and the Uninsured. ‘‘The Medicaid Program at a Glance.’’

The Henry J. Kaiser Family Foundation. Washington, D.C.: January 2005. 3These figures refer to the average growth rate per enrollee for acute care from FY2000-2003.

For additional information, see John Holahan and Arunabh’s article ‘‘Understanding The Recent

Growth In Medicaid Spending, 2000-2003’’ from the January 26, 2005 edition of Health Affairs.

nomically vulnerable—children, adults, disabled individuals, and seniors—who do

not have access to or cannot afford private health insurance. According to the Congressional Budget Office, in 2005 Medicaid will provide health coverage to 58.5 million people (including 5.4 million senior citizens and 9.2 million disabled individuals) 1.

Older Americans benefit from an array of important services provided by Medicaid, such as: hospitalization, physician services, long-term care, prescription drugs,

clinic services, prosthetic devices, hearings aids, and dental care. While seniors represent only 9 percent of Medicaid’s enrollees, they receive over a quarter of Medicaid’s expenditures. Seniors receive a larger share of Medicaid’s expenditures because

they require more frequent and expensive medical attention. The Kaiser Family

Foundation estimates that in 2003 the Medicaid program spent almost $13,000 per

senior.2

Senior citizens also benefit from Medicaid because of its leading role in our nation’s long-term care system. The program’s spending accounts for 43% of our nation’s total spending on long-term care. For example, Medicaid provides vital financing for nursing homes, which rely on the program for about half of their total funding. Further, nearly 60 percent of all nursing home residents receive Medicaid. The

fiscal year 2006 budget resolution passed by Congress targets the Medicaid program

for billions of dollars in reconciled cuts over the next five years. The National Committee strongly opposes any cuts or funding caps to the Medicaid program. Cutting

the program or imposing caps on federal payments to the states would disproportionately hurt seniors by ending coverage for millions of beneficiaries and/or shifting

rising health care costs on to state governments that are already struggling to meet

the needs of an aging population.

It is impossible to make meaningful reforms to the Medicaid program without examining the flaws in our nation’s health care system. The growth in Medicaid

spending is symptomatic of the larger problems with health care, such as: growing

health care costs, skyrocketing prices of prescription drugs, declining employer-sponsored health care coverage, and the increasing number of the uninsured. Despite

these daunting facts, Medicaid’s overall growth rate is significantly lower than that

of private health insurance premiums (6.9 percent for Medicaid versus 12.6 percent

for private insurance premiums) 3.

About twenty-two percent of National Committee member households have incomes below $15,000 per year and many are eligible for Medicaid benefits. Our

members know that the program’s financing structure has proven highly successful

in responding to difficult economic times because it guarantees coverage to all those

who are eligible. Therefore, we believe it is essential to preserve the current structure of the Medicaid program.

Thank you for giving me this opportunity to discuss Medicaid and to share the

National Committee’s views on the program before this Committee. As always, I

look forward to working with you on the host of issues impacting America’s seniors.

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