U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

23–941 PDF 2006

S. HRG. 109–224

Mandatory or Optional? The Truth About Medicaid

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC

June 28, 2005

Serial No. 109–10

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

GORDON SMITH, Oregon, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

RICK SANTORUM, Pennsylvania 

CONRAD BURNS, Montana 

LAMAR ALEXANDER, Tennessee 

JIM DEMINT, South Carolina 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Gordon Smith ....................................................... 1

PANEL I 

Diane Rowland, Sc.D., executive vice president, The Henry J. Kaiser Family 

Foundation, Washington, DC .............................................................................. 2

PANEL II 

Pamels S. Hyde, J.D., secretary, New Mexico Human Services Department, 

Santa Fe, NM ....................................................................................................... 31

Howard Bedlin, vice president, Public Policy and Advocacy, National Council 

on the Aging, Washington, DC ............................................................................ 43

Jeffrey S. Crowley, project director, Health Policy Institute, Georgetown University, Washington, DC ...................................................................................... 62

Sister Karin Dufault, SP, RN, Ph.D., chairperson, Board of Trustees, Catholic 

Health Association of the United States, Seattle, WA ...................................... 85

APPENDIX 

Prepared Statement of Senator Jeffords ................................................................ 103

Questions from Senator Jeffords for Diane Rowland ........................................... 103

Questions from Senator Jeffords for Pamela Hyde ............................................... 105

Questions from Senator Jeffords for Jeffrey Crowley ........................................... 106

Questions from Senator Jeffords for Sister Karin Dufault .................................. 109

Statement submitted by Association for Community Affiliated Plans ................ 113

Testimony submitted on behalf of the American Congress of Community 

Supports and Employment Services (ACCSES) and Disability Service Providers of America (DSPA) .................................................................................... 115

Statement submitted by National Citizens Coalition for Nursing Home Reform (NCCNHR) ................................................................................................... 121

Statement submitted by National Mental Health Association ............................ 124

(III) 

(1)

MANDATORY OR OPTIONAL? THE TRUTH 

ABOUT MEDICAID 

TUESDAY, JUNE 28, 2005 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The committee met, pursuant to notice, at 3 p.m., in room G50, 

Dirksen Senate Office Building, Hon. Gordon H. Smith (chairman 

of the committee) presiding. 

Present: Senators Smith and Carper. 

OPENING STATEMENT OF CHAIRMAN GORDON H. SMITH 

The CHAIRMAN. Ladies and gentlemen, welcome to this hearing 

on the Aging Committee. Our topic is ‘‘Mandatory or Optional? The 

Truth About Medicaid.’’ 

We are glad you are all here, and I am especially pleased to welcome our distinguished panel of witnesses, who I am certain will 

share with the committee a great deal of information that will help 

us make decisions as Congress moves forward with development 

and consideration of a reconciliation package later this year. 

Medicaid is a vital safety net program for 54 million elderly, disabled, chronically ill and poor Americans who rely upon it for their 

health care. The purpose of this hearing is to learn about a fundamental aspect of the program, use of mandatory and optional populations and benefits. 

To some these categories simply mean that those who are considered mandatory populations should receive care through Medicaid, 

and that those who are optional probably have other alternatives 

and do not really need Medicaid’s help. 

Well, by the end of this hearing I believe we will all learn that 

it is not necessarily the case. In fact, if we allow optional beneficiaries to lose Medicaid coverage, they will simply join the ranks 

of millions of uninsured Americans and end up costing taxpayers 

far more in the long run. We also may learn today that there are 

whole groups of Americans without health care coverage, and no 

matter how poor or sick they may be, they cannot receive care 

through Medicaid. 

Exploration of these issues is very important as we move forward to try to determine, one, how to meet the $10 billion reconciliation 

instruction given to the Finance Committee, and two, how to improve and reform this vital program. 

As we consider proposals intended to respond to the budget reconciliation instruction and deliberate ways to improve the overall 

2

Medicaid program, we must proceed with very real caution and 

heightened sensitivity. 

It is my experience, both as a State Senator in Oregon, and as 

president in the Oregon Senate, and now as a member of the U.S. 

Senate, that much good can be accomplished when we work together and remain focused on the people this program helps. Unfortunately, because of its complexity and the severity of many 

beneficiaries’ health status, much damage can also be done if Medicaid is not approached in the right way. 

That is why I continue to advocate for bringing all stakeholders 

to the table, because only when all voices have been heard can a 

solution be discovered that will be able to garner majority support 

from the U.S. Senate. 

Using the Aging Committee, I plan to hold a series of hearings 

over the next year and a half to provide a forum to share ideas, 

concerns and hopefully craft proposals that will result in a higher 

quality, more efficient, more sustainable Medicaid program. The 

focus of these hearings will be divided between the short-term challenge of meeting the reconciliation instruction and the long-term 

challenge of improving the program. 

So I look forward to working with my colleagues as we delve into 

Medicaid and welcome input from all Medicaid stakeholders. After 

all, every voice must be heard because all have an important and 

unique perspective to bringing to the table the right kind of solutions and reforms. 

We hope to have more of my colleagues here. There are a tremendous amount of things going on on the floor and other meetings 

that were called and canceled, so hopefully more will find their way 

to join us soon. 

We have two panels today. The first will be Ms. Diane Rowland, 

who is the executive vice president of the Henry J. Kaiser Foundation in Washington, DC. 

Diane, why do you not take the hot seat, and share with us what 

you would have us know. 

STATEMENT OF DIANE ROWLAND, Sc.D., EXECUTIVE VICE 

PRESIDENT, THE HENRY J. KAISER FAMILY FOUNDATION 

Ms. ROWLAND. Thank you, Mr. Chairman. I am delighted to be 

here and very pleased that you are holding this hearing as well as 

the series you have planned on Medicaid. 

Medicaid is today our largest health care program, and as you 

know, the only real source of long-term care assistance in the Nation. It assists 54 million Americans, including 8 million with severe disabilities and 5 million who are low-income elderly. The elderly and disabled are not the face of Medicaid. It is often the children that the program covers. Yet they account for 70 percent of 

all spending on the program. So really, Medicaid has very much become a program for the elderly and disabled, even though the majority of its beneficiaries are children. 

Much of the spending in the program is driven by long-term care. 

Medicaid now covers half of all long-term spending in the Nation, 

and 60 percent of nursing home residents depend on Medicaid for 

assistance with the substantial cost of long-term care. Financing 

3

these roles, however, as you’ve noted, has become an increasing 

challenge for both the Federal and State Governments. 

The structure of Medicaid provides for joint financing between 

the Federal Government and the States. There are certain requirements put on the States in terms of who they must cover and what 

services they must provide in order to receive matching funds from 

the Federal Government for the services they cover. The matching 

rate varies from 50 to 77 percent depending on the per capita income of the State so that the Federal Government assists those 

States that are poorer at a greater level. 

On average today 57 percent of all spending on Medicaid to covered by the Federal Government, so there is a large Federal stake 

in what happens to the State programs under Medicaid. 

In terms of what is required for Medicaid coverage, States are required to cover all children under the poverty level, pregnant 

women and children who are under age 6 in families with incomes 

under 133 percent of the poverty level, and the aged and disabled 

who are recipients of cash assistance through the Supplemental Security Income Program. Those are the so-called mandatory populations for Medicaid. 

What is optional in Medicaid coverage is that states can cover individuals with higher incomes who meet these categories, and especially a group we call the medically needy. The medically needy are 

individuals who meet the categories for Medicaid assistance under 

the mandatory rules, but have somewhat higher incomes, whose 

medical expenses allow them to spend down below the Medicaid eligibility levels and obtain Medicaid. Nursing home care is one of the 

most frequently utilized services for people who spend down to 

Medicaid eligibility. 

Twenty-nine percent of all people covered by Medicaid today are 

covered at the option of the State and not required by federal law; 

expenditures for populations and services covered at state option 

account for almost 60 percent of overall program spending. About 

48 percent of all elderly people covered by the Medicaid program 

are covered as optional groups, compared to only 22 percent of children. So it really is in the services the program provides to people 

who are elderly and those with disabilities where the term ‘‘optional eligibility’’ becomes most appropriate, mostly because nearly 

half spend down. 

On the benefit side federal law requires States to cover physician 

services, basic hospital care, laboratory services and some nursing 

home services, but leaves many of the other benefits, including prescription drugs, home and community based services, personal care 

services, and a lot of what is needed for someone with long-term 

care needs as optional benefits. 

It is hard to imagine if you were putting together a benefit package today that you would leave some of these services optional and 

put others into the mandatory category. This point was just so 

aptly demonstrated by Congress in making prescription drugs a 

part of the Medicare benefit package. 

Medicaid’s evolution as a long-term care provider has largely 

grown through the optional services. Benefits offered today at State 

option account for about 30 percent of all Medicaid spending. 

4

So overall when we look at the picture of mandatory versus optional populations and spending, we see that 61 percent of all Medicaid spending is either for optional services for people who are covered as mandatory populations or for optional and mandatory services for the optional population. 

But are they really optional? Is any of this really at State option? 

As the laws are changed to move toward broadening Medicaid coverage beyond its origin as the source of coverage for the welfare 

population, often those additions were made optional for the States 

so that new requirements would not be imposed on States unable 

to afford their State matching share. 

Increasingly, the Congress moved to make children more of a 

mandatory population, but the elderly and the disabled were left 

more at State option, in part, I believe because of the substantial 

cost that those individuals can impose, given their greater health 

care needs and use of long-term care. 

About 85 percent of all Medicaid spending on long-term care is 

optional. So when we think of long-term care services as the dominant role that Medicaid plays for people who are elderly or with 

disabilities, we are really talking there about a set of services that 

is largely considered optional. However, if you talk to any of the 

individuals needing these services, they are anything but optional, 

they are in fact essential benefits. 

One can clearly make the case that if you were revisiting Medicaid and trying to design it anew today, you would probably never 

make many of the optional benefits optional, nor limit the populations covered to the income levels that Medicaid covers as mandatory. You would clearly redesign it to provide a broader range of 

protection for all low-income individuals and a more stable benefit 

package for those in need. 

The question has always been one of resources and the options 

were put in place to try not to impose additional resource requirements on States that were resource poor. The question today of resources continues. States now want increased flexibility but without additional resources that increased flexibility is very likely to 

lead to penny-wise and pound-foolish solutions. 

Cost-sharing for poor families on Medicaid is one of the flexibility 

options that States have asked for. We know that you can collect 

some money from low-income individuals, but if they are living on 

$750 a month it may be pretty difficult to pay 5 or 10 dollars per 

prescription. We know that cost-sharing leads to barriers to primary care, and I think it is pound foolish because in the end we 

will see many of these individuals end up sicker and needing hospital care, sicker in the emergency room, and in the end will have 

to pay more for the cost of their care because we delayed the early 

primary and preventive care that can make a difference. 

Similarly, some States have begun to look at imposing enrollment premiums even for the lowest-income individuals, people living at less than 8 or 9 thousand dollars a year. Your own State of 

Oregon actually tried the premium route and discovered that enrollment in the program declined by over 50,000 people largely as 

a result of their inability or unwillingness to pay the premium. 

That was about half of the enrollees covered who were subject to 

premiums. So we know that premiums may sound good and seem 

5

like a way to save some additional funds, but may in the end result 

in growing our uninsured population instead of providing additional revenues to the Medicaid program. 

The CHAIRMAN. What was the amount of the premium Oregon 

charged? 

Ms. ROWLAND. It ranged from $6 to $20 a month, depending on 

the income. It was on a sliding scale. Sounds modest, but what we 

find is that our ability to understand what it takes to live on $750 

a month for a family of 3 may mean that what seems like very 

nominal cost-sharing or premium amounts to us may in fact not be 

within the budget of the families we are talking about. 

The CHAIRMAN. How would that compare to copays or an upfront portion for a particular service? 

Ms. ROWLAND. The copays might range from 3 to 5 or 10 dollars. 

They have been limited under the Medicaid program to date, but 

one of the areas of flexibility States have requested is to raise the 

copays. 

In the Utah experience there was an expansion of coverage to additional low income people with an annual enrollment fee of about 

$50 a year, hospital services and many mental health services were 

not covered and substantial copayments well imposed on covered 

services. 

So we are seeing costs for beneficiaries imposed within the program. It may be worthwhile looking at how costs have affected 

some of the higher income children who cost-sharing is allowed 

under the SCHIP program. In Medicaid we are primarily talking 

about adults who in some states are covered at 28 or 29 percent 

of the poverty level and do not really able to have much in the way 

of financial resources to pay for their care. 

Instead of cutting benefits, I believe, the real solution to making 

Medicaid sustainable is actually to make it less necessary. If we 

had universal health coverage or if we had some broader form of 

long-term care assistance, the future sustainability of Medicaid 

would not be in question. But now in the absence of these broader 

solutions, I think as you have stated so well in your opening statement, we really do need to take care to make sure that any 

changes to Medicaid do not shred the only safety net out there for 

millions of our sickest and frailest citizens. I believe we should be 

looking at ways to better coordinate care under Medicaid and to 

better organize services through Disease Management and other 

programs that help the chronically ill to get the care they need and 

not fall through the cracks and get sicker before we treat them. 

There are also ways I think we can really move to improve the 

delivery of long-term care services, with more home and community 

based services. We need to be building on these experiences. 

You also mentioned the uninsured and the fact that some individuals, no matter how poor, never qualify for Medicaid, and that 

is the case for adults without dependent children who do not meet 

the disability definition. We should really be looking at ways to secure coverage for our lowest income population and not through 

Medicaid shred the safety net Medicaid provides. I am glad you are 

holding this hearing to begin to explore these issues. 

Thank you, and I would welcome any questions. 

6

The CHAIRMAN. Can you talk a little bit more about the creation 

of mandatory and optional, and would you just discard those definitions or would mandatory become more of the preventive kind of 

medicine and optional, I guess, cosmetic surgery? 

Ms. ROWLAND. Clearly, Medicaid, when it was enacted in 1965, 

was a follow-up program to what was then known as the Kerr-Mills 

Act, which was assistance to States to provide care for the aged. 

When it was enacted it was seen as a program that could help people who were on welfare. So at the time the Aid to Families with 

Dependent Children Program, and by 1972 with the Federalization 

of Cash Assistance with the Supplemental Security Income Program for the Aged, Blind and Disabled, Medicaid really became the 

provider of medical services for the cash assistance population. 

One historical thing of interest is that in 1972 when the Aged, 

Blind and Disabled became a Federal cash assistance program 

under Supplemental Security Income, there was concern that not 

all States would be willing to provide full Medicaid coverage to all 

of the SSI Federal entitlement people. States were thus given the 

option of not providing coverage and using their old rules for the 

aged and disabled that were in place in 1972. A few States still follow those rules. 

So I think that the implementation of disability coverage under 

Medicaid really provided the first ‘‘if we are going to expand coverage to a population, not all States may be able to step up to the 

plate and cover that full population, so we will give them options.’’ 

Therefore, if you really look at the history of the program, optional populations were always those that had a worthiness to be 

covered by Medicaid. No one doubted that they were too well off, 

but coverage was optional because Congress did not want to impose 

requirements on States that may not have had adequate resources 

to provide coverage. Over time, some groups especially children, became a popular part of the program. Today many children are mandated for coverage because of the progression of a year at a time 

covering all children under poverty. That has not been the case for 

adults, so adults have remained largely covered at the option of the 

State. 

The CHAIRMAN. Obviously, I was being facetious when I mentioned cosmetic surgery as an optional procedure, but can you 

name something that is an optional procedure now that really 

ought to be a mandatory procedure? 

Ms. ROWLAND. Well, I certainly think that prescription drug coverage, which is an optional benefit, but available now in all the 

States, would be part of any benefit package today. Clearly a lot 

of the other services, such as prosthetic devices, and durable medical equipment, are optional services that you would think would 

be required for a program that covers people with severe disabilities. I think most of the other services that tend to be in the optional category like dental services and vision care may be optional 

if you were talking about a benefit package for working Americans, 

but when you are talking about the benefits needed by some of the 

lowest income and poorest Americans, you may want to include 

those as mandatory rather than optional services. 

Where the real options are that I would consider part of a mandatory program are around the long-term care benefits, where inVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
7

termediate care facilities for the mentally retarded, home and community based care and other services are not part of the mandated 

benefits, only nursing homes. 

The CHAIRMAN. How about mental health? Can you speak to that 

as an optional service? 

Ms. ROWLAND. Mental health I think is one of the area obviously 

that has emerged as a place where prescription drug coverage is essential. While mental health services in terms of physician visits 

are covered under the mandatory section of the program, prescription drugs are optional so clearly one of the main treatment options 

is an ‘‘optional’’ benefit. 

In fact, I just heard that the State of Florida is planning to impose some prior authorization requirements on use of psychotropic 

drugs. I think one of the areas where mental health really needs 

to be addressed is that if the services needed for treatment are optional, then providing people with access to the provider, but no access to the agents that they need to maintain their status is really 

counter productive. 

It is also an area where we found that many States, as they look 

to slim down or restructure their benefit packages have left mental 

health services out. Specifically when Utah was doing its primary 

care benefit package, it did not include mental health services. 

The CHAIRMAN. At all? 

Ms. ROWLAND. Not at all. You know, it included the basic physician services with copays and four prescription drugs per month 

with copays, but mental health specialist services and hospital care 

were excluded from the benefit package. 

I think one of the dangers we have today is that when we talk 

about the Medicaid benefit package being too comprehensive, many 

of the services that are optional today are being considered for 

elimination. The slimmer the benefit package, the less able this 

program will be to meet the diverse health needs of the population 

it serves. 

The CHAIRMAN. When you cut out the mental health component, 

have you ever quantified in the research that you do what it means 

to other costs that are borne by the State in terms of county jails, 

in terms of State hospitals, emergency rooms? 

Ms. ROWLAND. We have not done any studies that would relate 

to the other societal costs for cutting out mental health services 

from Medicaid specifically. We do know from some of the work on 

the uninsured population, the societal costs for people without 

health insurance coverage who do not get the health care they need 

contributes to problems among children in school, to people not engaging productively in the labor force, and to more preventable hospitalizations, because if people were under treatment they would 

not need to be hospitalized for care. 

There are definite costs to not providing coverage that we see 

from our analysis of the uninsured. I think we know from States 

that have been looking at cutting back on some of the prescription 

drug coverage for people with mental illness, that there is obviously going to be a rise in costs in other areas, probably hospitalization, but also I think as you are pointing out, to the prison 

system, and to society in general. 

8

The CHAIRMAN. In your testimony you spoke of the Oregon experience, my State, and some of the cost-sharing or cost-shifting that 

has gone on under the Oregon health plan. Can you speak to the 

Oregon experience as you see it and what the Congress might learn 

from mistakes that may have been made there? 

Ms. ROWLAND. Well, I think we see from Oregon a State that 

tried to do as much as possible to provide adequate and broad coverage to its low-income population. It was willing to take some 

risks and challenges in how it tried to set up its tiering of benefits. 

It had broad use of managed care and also has been a State that 

led the way in terms of community based care as an alternative to 

nursing home care. 

Yet I think that when budgets get tight and revenues from the 

Federal Government are not there to help support States through 

some of the economic downturns they face, you see that as you trim 

on benefits you have people who go without the care they need. We 

see a higher rate of hospitalization for conditions that are avoidable 

if they are subject to early preventive care. Especially around use 

of cost sharing we see people deferring care that should be available at the beginning, and we see providers saying that they are 

seeing it imposing greater administrative burdens on them for trying to collect the cost sharing. This really results in providers actually getting less payment for the services they provide since under 

Medicaid law they cannot require the beneficiary to pay the cost 

sharing before rendering services. As a result I think in some 

States we have seen some providers unwilling to continue to participate in the program, thereby further compromising access for 

the low income population. 

The CHAIRMAN. If premiums are not the answer or maybe counterproductive to the right answer, what could be reasonably required in terms of to induce responsibility, avoid abuse, without 

hurting peoples’ access to using Medicaid but not abusing Medicaid? 

Ms. ROWLAND. I think that cost sharing is probably more difficult 

than premiums, so let me just differentiate between the two. 

The CHAIRMAN. They are very different, but what works and 

what does not? 

Ms. ROWLAND. I think that premiums have their negative effect 

on overall participation, but they do not influence how someone 

uses the health care system, whereas cost sharing influences how 

somebody accesses the health system, when they access it and how 

much they use. 

I think that one of the more effective ways to control utilization 

and work with patients is to have them enrolled in managed care 

plans that actually try to manage their care and give them incentives. I think it is counterproductive to have cost sharing for preventive services where you want people to have no barriers to use 

services. I think if you try to distinguish within the benefit package 

on the benefits that may be less necessary, perhaps that is one 

place where you could impose some of the cost sharing. But premiums I think work the best if you are trying to get participation 

in the program financially from individuals, but they do discourage 

enrollment. 

9

If one is going to use premiums, one of the most important things 

is how you keep people established in the program. So if I used 

premiums I would combine them with longer term eligibility so 

that you do not have people dropping on and off. 

The CHAIRMAN. As you see the Finance Committee wrestle with a $10 billion reconciliation, are there some obvious things that you 

would suggest to us to do so that we do not hurt the people we are 

trying to serve and improve the program? What would you have 

the Finance Committee do with that $10 billion? 

Ms. ROWLAND. They always say that you should go where the 

money is if you are trying to save money, and I think one of the 

places that we see tremendous opportunity to improve care as well 

as potentially reduce costs is in better coordination between Medicare and Medicaid of the care of the dual eligible population. 

About 18 percent of all Medicare beneficiaries are currently also 

getting assistance from Medicaid. They account for 42 percent of all 

Medicaid spending so. We need to look at better management, especially around some of their prescription drug needs, around their 

coordination of care between the Medicare benefits and Medicaid, 

around long-term care to achieve possible savings. This is the 

group for whom disease management and better care management 

may well result not only in some savings to both Medicaid and 

Medicare but also in improved quality of care. 

I think around the children’s services——

The CHAIRMAN. Can you quantify that? How much would that 

save? I mean, 5, 10? 

Ms. ROWLAND. I think you could probably get to 5 or 10 over a 

couple of years. 

The CHAIRMAN. We have 5 years to do it, so. 

Ms. ROWLAND. Really 4, right? 

The CHAIRMAN. Exactly, 4. We are burning up the first year 

here. 

Ms. ROWLAND. I think that is one area. The other area is obviously where States have already been very aggressive in trying to 

get better prices for prescription drugs, to try to better control utilization of the prescription drugs. Possibly introducing some tiering 

so that some of the brand name drugs are not as available and 

have limited differential cost sharing could be used. Most of the 

current employee benefit plans have tiered cost sharing in the 

Medicaid program working with preferred drug lists and working 

with better pricing is a priority getting better prices is both important to make sure that the drugs that are needed are available but 

also as a way to save some money. 

The CHAIRMAN. A lot of the information sharing on that is being 

done by a number of States. I believe even Oregon is doing that. 

Do you think we can glean from that the kind of information that 

will allow for tiering and for more effective use of——

Ms. ROWLAND. I think you can glean some from that. I think the 

other issue that you really are going to have to visit is what the 

implications on January 1, 2006, of pulling the dual eligibles drug 

coverage out of Medicaid and over to Medicare is going to mean for 

the State’s ability to continue to get the kind of discounts and rebates that they have gotten in the past. They will obviously have 

a lower market share now. 

10

Second, obviously, revisiting some of the issues in the clawback 

and the lack of a wraparound for some of the dual eligible beneficiaries where States are not eligible for federal matching funds—

if they try to supplement the Medicare package. This is the area 

of concern to people with mental illness who really need some of 

the drugs that may not be well covered under the Medicare formulary. I think that is an area where helping the States to be able 

to still obtain Federal matching funds if they wrap around is an 

important item to consider. It would not save money, but it might 

really save lives. 

The CHAIRMAN. Do you think policies on copays should wait to 

consider options for all program aspects, or can we look at drugs 

and not cause damage in other areas? 

Ms. ROWLAND. Well, we have always looked at drugs a little differently, because as I said, they have been an optional benefit. 

Adults covered by Medicaid can be changed minimal copays imposed on prescription drugs. 

One of the experiences though is that many States used to have 

a dollar or two dollar copay for prescription drugs. They decided in 

many ways that that was too expensive to administer, and so a lot 

of States dropped copays on drugs. 

One of the most negative experiences with copays for prescription 

drugs was actually in the State of New Hampshire, where they imposed copays on individuals who often needed mental health drugs. 

They did not take their drugs and they ended up in nursing homes 

and hospitals, costing the State substantially more. 

I think that the one thing to always remember with this population is what may seem like a prudent policy for individuals who 

are relatively healthy does not always apply to the Medicaid population where individuals not only have fewer resources than others 

in society, but also often have more co-morbidities and health care 

problems that require very delicate balancing to make sure they do 

not get out of kilter. 

The CHAIRMAN. I think you have answered my questions. You 

have been very, very helpful, Ms. Rowland. You have added measurably I think to the Senate record, and I think your advice to us 

is be careful of the designations of mandatory and optional populations. I think I am understanding you to say that flexibility may 

ultimately save money short term, but cost money long term and 

will not ultimately save us money, and may throw people off coverage that really should be covered. 

Ms. ROWLAND. That is right. One of my colleagues likes to say 

there is no such thing as an optional person, and I think that is 

something to remember as we move forward in this debate. 

The CHAIRMAN. Anybody optional here? [Laughter.] 

No. I think everyone here is mandatory. Thank you very, very 

much for your time and for sharing the experience of the Kaiser 

Family Foundation. 

Ms. ROWLAND. If there is anything else we can provide we would 

be glad to work with you and look forward to working with you. 

Thank you. 

The CHAIRMAN. We look forward to that as well. Thank you so 

very much. 

[The prepared statement of Ms. Rowland follows:]

11


23941.001
12


23941.002
13


23941.003
14


23941.004
15


23941.005
16


23941.006
17


23941.007
18


23941.008
19


23941.009
20


23941.010
21


23941.011
22


23941.012
23


23941.013
24


23941.014
25


23941.015
26


23941.016
27


23941.017
28


23941.018
29


23941.019
30


23941.020
31

The CHAIRMAN. We will now call up our second panel. That panel 

will consist of Pamela S. Hyde, who is the secretary, New Mexico 

Department of Human Services at Santa Fe, NM—welcome, 

Pamela; Howard Bedlin, vice president for Public Policy and Advocacy, the National Council on the Aging here in Washington, DC; 

Jeffrey Crowley, project director, Health Policy Institute at Georgetown University here in the District; and Sister Karin Dufault, who 

is the chair of Board of Trustees, Catholic Health Association in 

Seattle, WA. 

Why do we not go in the order announced? So, Pamela, you are 

first at bat. 

PAMELA S. HYDE, J.D., SECRETARY, NEW MEXICO HUMAN 

SERVICES DEPARTMENT, SANTA FE, NM 

Ms. HYDE. Thank you, Chairman Smith, distinguished members 

of the committee when they get here. 

The CHAIRMAN. Yes. [Laughter.] 

Ms. HYDE. My name is Pamela Hyde. I am secretary of the New 

Mexico Human Services Department. That is a department that is 

responsible in New Mexico for the Medicaid program. We also administer several other Federal and State programs. 

I am grateful to the chairman and to the committee for holding 

these hearings, and I am especially grateful to you, Senator Smith, 

and to our Senator Bingaman, for your leadership in trying to find 

some compromise in this process and for trying to resist the massive cuts that were originally proposed to the program. So thank 

you. 

The CHAIRMAN. You are welcome. 

Ms. HYDE. I would like to make three points about the role of 

the Medicaid program in serving people with mental illness, and 

then make three recommendations. 

First, Medicaid is a critical source of funding for the services 

upon which persons with mental illness rely. Reducing that funding will not make those service’s needs go away. Individuals served 

through Medicaid are often severely disabled by mental illness or 

substance abuse, and without services designed to assure their 

ability to live and work in the community, they end up in other 

systems where services will significantly be more costly, such as inpatient settings, emergency rooms, or they will be inappropriately 

addressed, such as jails, prisons, juvenile justice settings and 

homeless shelters. 

Medicaid now exceeds for the first time half of the public mental 

health expenditures nationwide. In New Mexico Medicaid accounts 

for over 60 percent of those public mental health expenditures. 

States need Federal assistance to increase their expenditures for 

mental health and substance abuse, not decrease them, by absorbing reductions in Federal funding or forcing States to reduce the 

single most important source of funding for behavioral health treatment in support of services. 

Medicaid recipients of mental health services generally need ongoing services due to the severity and chronic nature of their disorders. However, some of the adults most in need of mental health 

and addictions services are not quite disabled enough to receive a 

disability designation. The irony is that in many States a member 

32

of a ‘‘mandatory population’’ with a less critical clinical need may 

be entitled to a mandatory mental health service, while an optional 

or even ineligible, high-need, high-risk adult or child cannot get an 

optional or a mandatory service such as assertive community treatment, multi-systemic therapy, or even medications. 

Second point. Many of the populations and most of the services 

considered to be optional in the Medicaid program are simply not 

optional for people with mental illness. Mandatory services, as you 

know, include outpatient, inpatient, physician services. However, 

they do not include medication monitoring or prescription medications, which are critical, especially for people with severe mental 

illness. 

They do not include clinical services of psychologists or social 

workers or personal assistance programs. Mandatory services do 

not include those community based services that are particularly 

helpful for the management of symptoms and life with mental illness. 

They also do not include those most widely accepted evidencebased practice such as medication algorithms, assertive community 

treatment, family cycle education, therapeutic day care, respite 

care, multi-systemic therapy or even targeted case management. 

Even psychologists and social workers, as I indicated, are not mandatory in the Medicaid program. 

These are all services that are not optional by any means for 

adults with serious mental illness or children with severe emotional disturbance. States are forced to reduce the cost of their 

Medicaid programs. They have no choice but to reduce those services that are considered optional by the Federal Government. Since 

some populations in need of behavioral health services in almost all 

the services needed by seriously mentally ill adults and severely 

emotionally disturbed children are optional, these artificial distinctions have a disproportionate impact on such individuals. 

Third. Medicaid rules and regulations stifle creativity in the 

treatment of persons with mental illness and addictions, and prevent the utilization of evidence based practices for such individuals. 

I have mentioned that some already, but some of the most appropriate supportive services for these individuals, such as a supported housing, supported employment, integrated treatment approaches for co-occurring disorders, respite care for adults, afterschool therapy, they are difficult if not impossible to get in the 

Medicaid program even through waivers. States find themselves in 

the awkward situation of being required to fund medically oriented 

services for populations that would best be served by a rehabilitative or supportive therapies approach. 

The mandatory and optional categories just do not work well for 

people with behavioral health needs, and some CMS waivers, Oregon being an example, even allows mental health and substance 

abuse benefits to be excluded from some of the limited benefit 

package approaches being tried through waivers. 

Because of the historical unwillingness of the Federal program to 

pay for institutional care for adults between 18 and 64, we have 

something called the IMD exclusion which makes it very difficult 

for States to make the case about financing of home and commuVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
33

nity based services in order to obtain these waivers for adults with 

mental illness. 

I want to highlight just three recommendations in this short 

time, and would be glad to answer questions. 

First, Medicaid reform cannot be disconnected from Medicare. 

Many adults with serious mental illness are duly eligible for both 

programs as are many children. Once Medicare Part D begins, 

many of these individuals are going to find themselves dealing with 

multiple formularies and having to receive some of their medications through Medicare, some through Medicaid, and some not 

through either. Medicare does not cover all the needs of persons 

with mental illness and in many ways is discriminatory about that 

benefit, especially not the Medicaid optional rehab services. So coordination of benefits is necessary and it is always difficult to do 

that coordination for the individual, for their families and their 

providers. 

Additionally, dual-eligible individuals have to wait 2 years, as do 

all dual-eligibles, to become Medicare eligible. They may receive 

Medicaid services during that 2 years, then they must switch to 

those services that Medicare will cover and begin the coordination 

of benefits. The 2-year waiting period should be eliminated so that 

those dually eligible individuals can be covered by Medicare upon 

receipt of their disability determination. Better yet, Medicare 

should pick up all the medication costs for this population from the 

day they are determined to be disabled, and should assure that the 

formularies cover all the drugs they need, including the newest 

anti-psychotic medications that have less side effects and therefore 

higher compliance rates. 

Congress should seriously consider having the Federal Government take over the whole care of persons who are dually eligible. 

I know that is controversial, but in fact, I believe that it would save 

a lot of administrative costs both at the provider level, at the State 

level and at the Federal level, trying to do this coordination of benefits. 

Second. Make it simple to allow States to put evidence-based 

practices into their State plans or waiver programs. States have to 

wait long periods of time for approvals of State plan amendments 

and waiver requests even if they are changes other States have 

been doing for years. Mexico right now is waiting for approval for 

the addition of ACT teams. Almost every other State already has 

these in their State plan, it should not be a big thing to do. 

Anything another State has been allowed to do, especially if it 

helps to implement an evidence-based or promising practice for 

adults or children with behavioral health needs, should be allowed 

on a fast-track approach. CMS needs to work with States to come 

up with creative ways to deal with the IMD exclusion so that housing supports and supported employment can be available for persons with mental illness. These services are available through 

waivers for other disability categories. 

Third. As Congress considers reforms, do not make those reforms 

different for optional and mandatory populations without considering what may not be optional in the lives of those with serious 

behavioral health needs, and frankly, avoid simply making current 

optional services mandatory or simply protecting current mandaVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
34

tory populations and services. The assumption is that States are 

going to behave inappropriately in order to gain more Federal 

money. In fact, we share common goals including increasing services as well as containing costs. 

States do not want to be in a situation where they have to reduce 

services or eligibility that will hurt the most vulnerable individuals 

because the Federal Government wants to preserve services for socalled mandatory populations and reduce its own spending for socalled optional ones. We should work together to contain costs 

while providing critical services for those most in need. 

Thank you. I would be glad to answer any questions. 

[The prepared statement of Ms. Hyde follows:]

35


23941.021
36


23941.022
37


23941.023
38


23941.024
39


23941.025
40


23941.026
41

The CHAIRMAN. Thank you very much, Pamela. You mentioned 

in your testimony that some States have obtained waivers in order 

to exclude mental health from the optional category. How many 

States have done that? 

Ms. HYDE. Mr. Chairman, I am sorry, I do not have the number 

of the States that have done that, but Oregon is certainly an example. When they did a limited plan, one of the things that were excluded were mental health and substance abuse services. New 

Mexico has a limited benefit plan that we are about to implement, 

but we did include mental health and substance abuse services, but 

that was an option. Had we chosen not to do so to save more 

money, we could have done that. But the point here is those are 

considered optional, they are not considered critical to the health 

of our Nation. 

The CHAIRMAN. Has New Mexico quantified the other costs that 

are borne by the State when this option is pursued? I mean what 

has New Mexico done? Have you cut back on the mental health? 

Ms. HYDE. Mr. Chairman, at the moment, no, and I think I need 

to say I have a fairly strong behavioral health background, so as 

the person in charge of this program I would probably lay my body 

down before we did that. 

But having said that, we are actually—the only way we can increase services, because we have lost Federal money—we have lost 

FMAP because our economy got slightly better. We have lost the 

extra FMAP that the Federal Government provided, and we have 

lost huge proportions of it, more than other States, more than 

every other State except Texas even though we are an extremely 

poor State. 

Having said that, the only way we are able at this point to increase services—and frankly, mental health is one of the sets we 

are trying to increase—is through better matching of existing State 

dollars. So we have something called the Interagency Behavioral 

Health Purchasing Collaborative. It is a unique approach. We are 

trying to look at every dollar and every State agency that is legitimately considered matchable, and use that to increase, for example, ACT teams we are trying to put into our State plan. We are 

trying to add intensive outpatient therapy and maybe next we will 

be looking at multi-systemic therapy which is now only done as an 

enhanced service at MCOs’ options. In other words, our managed 

care organizations can do it just because they think it is a good 

thing to do, but it is nothing that we require in our State plan at 

this point. 

The CHAIRMAN. As someone with your professional background, 

I assume you can attest to the fact that physical health and mental 

health are not exclusive, that both are legitimate fields? 

Ms. HYDE. Mr. Chairman, absolutely, and in fact, what we know, 

that a lot of times people with severe mental illnesses or children 

with severe emotional disturbances also have higher physical 

health implications. So the cost to any health care program for untreated mental health services could be high, higher accidents, 

higher health and heart disease, higher high blood pressure, other 

high physical health needs go together with these issues. 

The CHAIRMAN. Thank you very much, Pamela. 

42

We have been joined by my colleague, Senator Tom Carper, 

former Governor of Delaware. 

Senator CARPER. A graduate of Ohio State University. [Laughter.] 

The CHAIRMAN. Yes. 

Senator CARPER. I see that Pamela Hyde spent some time in, 

was it Columbus? 

Ms. HYDE. Senator, yes, I did. 

Senator CARPER. What did you do there? 

Ms. HYDE. Actually, I worked for Governor Richard Celeste as 

his mental health director in his cabinet there, among other things. 

Senator CARPER. When did you leave Ohio? 

Ms. HYDE. I left Ohio, Senator, about 1990. 

Senator CARPER. I think that was the year that George Voinovich 

was elected Governor. 

Ms. HYDE. Mr. Chairman, that is correct. 

Senator CARPER. All right, good enough. [Laughter.] 

The CHAIRMAN. You have an opening statement, right? 

Senator CARPER. I have no statement, but I am anxious—not 

anxious. I am looking forward to being able to ask a couple of questions when the time comes, but thanks very much. To our witnesses, whether you are from Ohio or not, you are welcome. 

The CHAIRMAN. Or Delaware. 

Senator CARPER. When I was at Ohio State I used to think Delaware was a little town just 30 miles north of Columbus. Later on 

after I graduated from Ohio State, I found out it was a whole 

State, and they were looking for a Governor, so I showed up and 

applied. [Laughter.] 

Ms. HYDE. Mr. Chairman, Senator, I lived in Delaware for not 

too long. Delaware, Ohio, of course. [Laughter.] 

Senator CARPER. Someday I will tell you a great story about 

going back for my high school reunion and running into a guy, and 

I had a State trooper with me. I was trying to get to a high school 

reunion, and just north of Columbus looking for this place, and I 

ran into this guy in a convenience store, and I had to get to this 

high school reunion just before 7 o’clock in the evening before they 

took the picture, the class reunion picture. 

We went into this convenience store just about halfway between 

Columbus and Delaware, Ohio. This guy was coming out and I said 

I am trying to find my class reunion and told him where it was. 

He said, ‘‘Well, just go down this road, take a turn, go there and 

there.’’ He said, ‘‘By the way, where are you from?’’ I said, ‘‘Well, 

I am from Delaware.’’ he said, ‘‘Well, what do you do there?’’ I said, 

‘‘Well, I am their Governor.’’ he said, ‘‘I work in Delaware every 

day.’’ He was thinking Delaware, Ohio, I am thinking the State. So 

here was a guy did not know we had a State either. [Laughter.] 

The CHAIRMAN. All right. Our next witness, Howard Bedlin. You 

know where Delaware is? 

Mr. BEDLIN. I go to the beach there all the time. 

Senator CARPER. God bless you. 

Good for the economy. [Laughter.] 

43

STATEMENT OF HOWARD BEDLIN, VICE PRESIDENT, PUBLIC 

POLICY AND ADVOCACY, NATIONAL COUNCIL ON THE 

AGING, WASHINGTON, DC 

Mr. BEDLIN. Thank you, Mr. Chairman, Senator Carper. I am 

Howard Bedlin, vice president for Public Policy and Advocacy with 

the National Council on the Aging. 

Over 5 million seniors receive some form of assistance from Medicaid. A typical senior on Medicaid is a very poor, chronically ill 

widow in her 80’s. In our view, the distinctions between mandatory 

and optional populations and services are not helpful in evaluating 

how to reform the program. Optional beneficiaries are among our 

Nation’s most needy and vulnerable. They are not less worthy. 

Many optional services are essential, they are not less valuable. 

Over the past 6 years both the Administration and the National 

Governors Association have recommended treating these populations and services quite differently, essentially by eliminating 

minimum Federal consumer protections. But would Federal nursing home quality standards for optional groups be eliminated? 

Could a State charge 50 percent coinsurance for home care to a 

senior at the poverty line, or could a State mandate children to 

supplement their mothers’ nursing home payments? I hope not. 

With the Federal Government paying 57 percent of Medicaid 

costs, imposing minimum standards is not unreasonable. Seniors 

may have the most to lose if Medicaid reform results in the elimination of Federal protections for optional populations and services 

since over 84 percent of Medicaid spending on the elderly is optional. 

It is very difficult too for a senior to qualify for mandatory Medicaid services. In general they must need nursing home care. They 

have to have a monthly income below only $590—that is a little 

over $7,000 a year—and have non-housing assets below $2,000, 

which is not adjusted for inflation and has not been updated for 

over 20 years. 

The primary senior Medicaid question we need to address is who 

will pay for long-term care? The States do not want to pay for it. 

The Federal Government does not want to pay for it, and seniors 

and their families simply cannot afford it. 

Our long-term care crisis is growing worse. Overburdened caregivers are sacrificing their own health. Seniors have few choices to 

stay in their own homes, and after working hard throughout their 

lives, millions of seniors are forced to bankrupt themselves before 

getting help from Medicaid, which pays about 43 percent of our Nation’s long-term care costs, more than any other source. 

While Medicaid nursing home coverage is mandatory, only 16 

percent of Medicaid’s long-term care dollars for seniors are spent 

on home and community services, primarily through the Home and 

Community Based Waiver Program and the Personal Care Program, both of which are optional, but should be mandatory. Both 

fall far short of meeting consumers’ and families’ needs and suffer 

from enormous State variations. Even Medicaid protection against 

spousal impoverishment is institutionally biased since it is mandatory for nursing home care, optional for home and community 

based waivers, and non-existent for personal care. 

44

Congress needs to take action this year to improve access to 

home and community services. NCOA recently released a report estimating that over 13 million households of those over age 62 are 

candidates for using a reverse mortgage to pay for home care, and 

the private sector funding could increase for such households that 

have an impaired member by $953 billion. Congress should permit 

States to use Medicaid dollars to reduce up-front reverse mortgage 

costs, and allow seniors who take them out to protect some assets 

from a State recovery. 

Additional Medicaid reforms to promote independence and choice 

and reduce per capita costs are included in our written statement. 

For example, States should be able to provide home and community 

care through a State plan amendment rather than a burdensome 

waiver. Another important Medicaid category of service for seniors 

and people with disabilities is the Medicare savings programs 

which pay for Medicare premiums and cost sharing. These include 

the so-called QMB and SLMB programs. In addition, the QI–1 program also pays Medicare premiums for low-income beneficiaries, 

but it is a 100 percent Federal capped allocation and it is scheduled 

to expire this October 1. 

While these programs are mandatory, there is no requirement 

that the Federal and State Governments find and enroll those who 

are eligible. Very few actually receive the benefits they are entitled 

to. QMB take-up rates are only 33 percent, while SLMB take-up 

rates are an abysmal 13 percent. That is about 1 out of 8 of those 

who are entitled to it actually get it. 

Important lessons can be learned from a study issued just last 

week by the NCOA-chaired Access to Benefits Coalition which analyzed the best practices on outreach and enrollment. 

Congress needs to strengthen the Medicare savings programs by 

simplifying and consolidating them, improving outreach and enrollment, indexing the asset test to inflation, and extending the 

QI–1 program for 5 years at a minimum. 

In conclusion, our Nation’s moral compass should be guided by 

how we treat our poorest and most vulnerable citizens, and frankly, 

Mr. Chairman, in terms of how we are caring for America’s most 

frail mothers, grandmothers and great-grandmothers, we are doing 

a lousy job. With the aging of the baby-boom generation, there is 

a great need and opportunity for a national dialog and debate 

about how to best address our Nation’s long-term care crisis. America needs a comprehensive national strategy that includes a strong 

public sector safety net and foundation of support, supplemented by 

a variety of high-quality private sector funding mechanisms. 

NCOA looks forward to working with you, Mr. Chairman, and 

members of this committee and Members of Congress to address 

these challenges in a way that protects the most vulnerable, provides quality services, spends dollars as efficiently as possible, and 

promotes choice, independence and dignity. Thank you. 

[The prepared statement of Mr. Bedlin follows:]

45


23941.027
46


23941.028
47


23941.029
48


23941.030
49


23941.031
50


23941.032
51


23941.033
52


23941.034
53


23941.035
54


23941.036
55


23941.037
56


23941.038
57


23941.039
58


23941.040
59

The CHAIRMAN. Howard, as we look for ways to save $10 billion 

over 5 years without reducing coverage to the people that should 

be on Medicaid, are there any things in your view that we ought 

to be considering? I mean how would you counsel us on that? 

Mr. BEDLIN. Well, other than questioning whether we really should be saving $10 billion—we will leave that aside for the moment——

The CHAIRMAN. But I mean are there some programmatic things 

that we ought to be doing differently that would save the money 

so we can serve more people? 

Mr. BEDLIN. Well, the two that I mentioned in my statement, for 

example, are looking at reverse mortgages, No. 1. We asked the 

Lewin Group to analyze how much savings could potentially be realized if we made those more available and a greater number of 

seniors who have an impairment, that have an ADL dependency, 

many of whom are very good candidates for a reverse mortgage actually took one out, and I think the study found that there could 

be savings of 3 to 5 billion. It is not I think over the next 5 years, 

but it is something that we think should be very seriously looked 

at this year. We could certainly share those estimates with you to 

give you a sense of what would need to be done to achieve those 

level of savings. 

The CHAIRMAN. For the benefit of the committee, describe these 

reverse mortgages and how they would work in answering the 

question of long-term care. 

Mr. BEDLIN. A reverse mortgage is essentially a loan that would 

allow a homeowner to convert home equity into cash while living 

at home for as long as they want. The borrower could continue to 

live in their home. They can receive payments as a lump sum or 

a line of credit or a monthly payment, and then the loan comes due 

when the last borrower moves out, dies or sells the home. They 

would never owe more than the value of the house, and we believe 

that many people could use their home to stay at home, and that 

they could delay the need to spend down onto Medicaid, and we 

think that it makes a lot of sense for a whole host of reasons, and 

could save some money as well. 

The CHAIRMAN. Where is it being done now? 

Mr. BEDLIN. The FHA makes so-called HECM loans available, 

and there are not a great many that have been sold. I think consumers need to learn more about them. There is a great deal that 

could be done in terms of public education. The up-front costs in 

some instances are prohibitive, and we think that there are ways 

that those could be reduced to make them more available. 

We did a pretty comprehensive report this past January that we 

are happy to share with the committee. We had the author, who 

is an expert, Barbara Stucki, testify a couple months ago before the 

House Energy and Commerce Committee, and detail some specifics 

about the potential as well as what Congress could do to promote 

these. So that is one thing we think could save money. 

Second, we do believe that making home and community services 

more available could reduce per capita costs. We would love to see 

the Congressional Budget Office take a broader view of the potential cost savings, not only in Medicaid but in Medicare and other 

programs as well. We do think that making home and community 

60

services more available could delay institutionalization. It could reduce cost, could improve quality of life, and through some pretty 

straightforward changes to Federal law, the institutional bias could 

be reduced somewhat, and we think that those could reduce Medicaid spending as well. 

The CHAIRMAN. Because it would be far less expensive to leave 

them in their homes than putting them in these other institutions, 

that is your point. 

Mr. BEDLIN. That is certainly our view, and if you look at 

Oregon, for example, which has, I would argue, one of the Nation’s 

best home and community base care programs, and Wisconsin, Senator Kohl’s State, those two States have done a wonderful job. I 

think there are important lessons that could be learned from those 

States, and I think that they spend their long-term care dollars 

much more efficiently and wisely than many other States. 

The CHAIRMAN. That is a very good suggestion and certainly one 

that I am hoping that we will produce to answer the question of 

long-term care and who pays for it, and obviously I think while my 

State and others have done some things wrong, we certainly have 

done some things right, and that is one of them, and I appreciate 

you pointing it out. But I did not hear you promoting new premiums or higher copays. Would you speak to that as how effective 

or ineffective you think that would be? 

Mr. BEDLIN. Well, I certainly have very serious concerns about 

higher cost sharing on populations that have such low income and 

assets. I think there are a number of studies, one recently by the 

Center on Budget Policy and Priorities, that found that higher cost 

sharing would keep the people in need from using the services that 

they really require to be well. So I think in the long run, while it 

could reduce utilization, you probably would find more people in 

emergency rooms because they would delay or neglect their health 

care needs. 

So I think we really need to be extremely cautious about shifting 

even more costs onto the poorest Americans because I think at the 

end of the day it will not serve them well. 

The CHAIRMAN. Thank you, Howard. 

Senator Carper, do you have a question for this witness? 

Senator CARPER. Yes, I do. 

Mr. Bedlin, I want to come back and talk just a little bit about 

home and community-based services if we could. I think you mentioned that these are primarily optional services, and I would ask 

a couple of questions. What else can we do to increase the availability of these home and community services? A corollary to that 

is, maybe just talk a little about the cost of those services, and are 

they cheaper in your view than the cost of institutionalization? 

Mr. BEDLIN. Thank you. Our written statement includes a number of specific recommendations. For example, there is a piece of 

the legislation that the administration has recommended that was 

introduced I believe by Senator Harkin, I believe, Senator Smith, 

you are a cosponsor, S. 528, Money Follows the Person proposal, 

which we think makes a great deal of sense for people transitioning 

out of institutions. The Federal Government would cover 100 percent of the first year of Medicaid home and community-based waivVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
61

er costs. We very much support that and would like to see that enacted into law this year. 

I mentioned earlier a State plan amendment rather than having 

to go through a waiver, would give States more flexibility. We also 

think that under current Medicaid law, in order to receive a waiver 

service, an individual needs to meet a nursing home level of care 

requirement. In other words, if a State has a three activities of 

daily living impairment requirement to get nursing home care, an 

individual getting home and community-based waivers also needs 

to have a three ADL impairment level. We think States should 

have more flexibility to distinguish between those two. So it might 

be three ADLs for nursing home care, but two ADLs for home and 

community services. 

I mentioned spousal impoverishment protections, mandatory for 

nursing home care, optional for home and community-based waivers, non-existent for personal care. That could be addressed. 

There is also a great deal that is going on in States on consumer 

directed care. Cash and counseling demonstrations in Arkansas, 

New Jersey and Florida have had very positive results. There are 

some things that could be done at the Federal level to make those 

more available, and I think a lot of people would be very interested 

in those kinds of alternatives. 

In terms of savings, the concern has always been that people are 

going to come out of the woodwork because they want home and 

community services, and generally are not rushing to get into nursing homes. So the question is whether or not the savings that I 

think are probable on a per capita basis, whether or not those 

might be offset by more and more people utilizing the service. So 

that is really I think the issue that we need to look very closely 

at. 

I know that in Wisconsin they have run I think some very good 

numbers showing that overall that there would be net savings. I 

do think that if you look at it on a case-by-case basis certainly you 

would find that home and community services are much less expensive. You know, for nursing home care, Medicaid on average is paying over $50,000 a year. It is much less than that for home and 

community services, and I do think that if you target the home and 

community-based care effectively, you can definitely realize cost 

savings in the long run and I think have a much more family 

friendly policy for folks that are caring for not only seniors but 

younger people with disabilities as well. 

Senator CARPER. Thanks very much for responding to that. 

Mr. Chairman, I am going to have to slip out and go meet with 

a former Governor of Ohio in just a moment. Can I ask another 

quick question of Ms. Hyde? 

The CHAIRMAN. Sure. 

Senator CARPER. Who is your Governor now? 

Ms. HYDE. Mr. Chairman, Senator Carper, in New Mexico, where 

I am from, it is Governor Richardson. 

Senator CARPER. Bill Richardson? 

Ms. HYDE. You bet. 

Senator CARPER. You know he was a member of the class of 1982 

elected to the U.S. House of Representatives with Mike DeWine, 

Tom Ridge, John McCain, John Spratt, Marcy Kaptur also from 

62

Ohio. There are a whole lot of people, and yours truly. When you 

see him, tell him that an old classmate says hello. Give him my 

best. 

Ms. HYDE. I will do that, thank you. 

Senator CARPER. I am going to try to come back before the panel 

finishes. Thank you. 

The CHAIRMAN. Thank you, Senator. 

Jeff Crowley. 

STATEMENT OF JEFFREY S. CROWLEY, PROJECT DIRECTOR, 

HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY, 

WASHINGTON, DC 

Mr. CROWLEY. Mr. Chairman, Senator Carper, good afternoon. I 

am Jeffrey Crowley, a project director at the Georgetown University Health Policy Institute. Thank you for inviting me to provide 

a disability perspective to the current Medicaid policy discussion. 

An estimate 9.2 million non-elderly people with disabilities depend on Medicaid, and an unknown percentage of the 5.4 million 

seniors on Medicaid also have disabilities. For these individuals, 

Medicaid is generally the only place they can turn to have the full 

range of their needs met for health and long-term services. 

Medicaid is the largest source of funding for developmental disability services, largest source of health coverage for people with 

HIV/AIDS, largest source of funding for State and local spending 

on mental health services, and it provides critical support for people across the spectrum of disability, including persons who are 

blind, individuals with traumatic brain injuries, spinal cord injuries, epilepsy and multiple sclerosis. 

Much recent discussion has taken place over the difference between mandatory and optional beneficiaries. For people with disabilities the mandatory/optional distinction has no connection 

whatsoever to the level of disability or the need for health and 

long-term services. Some parties have characterized optional beneficiaries as higher-income individuals with less serious need for 

Medicaid assistance. Virtually all Medicaid beneficiaries with disabilities have extremely low incomes and all have met the same 

standard for serious long-term disability. 

Seventy-eight percent of Medicaid beneficiaries with disabilities 

are mandatorily eligible. States, however, have several options to 

extend coverage beyond Federal minimums. These include the Poverty Level Option, which is particularly important for States that 

wish to extend coverage to many SSDI recipients; the Medically 

Needy Option, which permits States to cover individuals who spend 

down to coverage by subtracting medical expenses from their incomes. 

There is no relation however, between the income standard for 

mandatory Medicaid and the Medically Needy income limit. Therefore, individuals may start out with income above Medicaid standards, but their effective income after their medical expenses are 

counted, leaves them often extremely poor. In one State individuals 

must spend down to $100 per month. 

The CHAIRMAN. Where is that? 

Mr. CROWLEY. That is in Louisiana, and also Arkansas has a 

Medically Needy income limit of $108 per month. 

63

Although these and other options respond to differing needs of 

certain groups within the disability community, they share important commonalities. All the populations covered by the optional categories meet the same standard of need as mandatory populations, 

and the vast majority of individuals receiving Medicaid coverage 

through these options have very low incomes. 

Although all mandatory services are critical, the EPSDT benefit 

is a mandatory service that is unique to Medicaid and is especially 

important to people with disabilities. The EPSDT benefit ensures 

that children on Medicaid are screened on a regular basis, and if 

a disability or health condition is diagnosed, the State covers the 

treatment. The rationale for this essential protection is that by intervening early, the harmful effects of disability can be minimized, 

and in some cases lifelong disability can be prevented. 

Medicaid optional services sometimes have been characterized as 

discretionary services. The list of optional services, however, I 

think are more appropriately characterized as indispensable disability services because they are not frequently needed by people 

who are otherwise healthy. Moreover, many people end up on Medicaid because they have tried and failed to obtain these services 

elsewhere in the private market or in Medicare. 

Critical optional services include prescription drugs, physical 

therapy and related services. The personal care option is also particularly important for extending access to community living services. 

Optional services are mandatory for meeting the needs of people 

with disabilities, therefore, a State should not be permitted to not 

cover them or eliminate them every time there is an economic 

downturn. 

The savings required by the budget resolution should not be 

achieved at the expense of Medicaid beneficiaries. I encourage you 

to focus on prescription drug reforms to achieve savings. Additionally, 42 percent of Medicaid spending is for services for low-income 

Medicare beneficiaries, the dual-eligibles. Even minor program adjustments to reduce the Medicare cost shift could relieve significant 

pressure off Medicaid. 

Congress could, for example, end or phaseout the Medicare waiting period. Net savings could be achieved, however, through reductions in or elimination of the $10 billion in funding provided under 

the Medicare Modernization Act for the regional PPO stabilization 

fund. 

Many other policy proposals to achieve Medicaid savings I believe are misguided and are a direct threat to people with disabilities. It would be very dangerous for the Congress to grant any new 

benefits package flexibility. New flexibility for States could only 

lead to new discrimination for people with disabilities. People with 

disabilities already have experience with States’ ability to tailor 

benefits to specific populations through the Home and Communitybased Services Waiver Program. What we have seen there is that 

which populations can access services and which cannot is not rationale. 

Several policymakers have proposed relying more heavily on the 

private market. Unfortunately, people with disabilities often end 

up on Medicaid because the private market has failed them. IndiVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
64

viduals with disabilities are already subject to cost sharing in Medicaid. In fact, when Medicaid does impose cost sharing, people with 

disabilities and chronic conditions, the people that use the most 

services, tend to bear the highest burden. 

The best and perhaps only way to make long-term progress is not 

to look to Medicaid alone for policy solutions. The challenges facing 

Medicaid are a result of broad failures with our health system and 

long-term care system. Until broader reforms are implemented, 

however, we must continue to shore up Medicaid so that it can continue its successes at serving people with disabilities and others. 

Thank you for the opportunity to appear before you today. 

[The prepared statement of Mr. Crowley follows:]

65


23941.041
66


23941.042
67


23941.043
68


23941.044
69


23941.045
70


23941.046
71


23941.047
72


23941.048
73


23941.049
74


23941.050
75


23941.051
76


23941.052
77


23941.053
78


23941.054
79


23941.055
80


23941.056
81


23941.057
82


23941.058
83

The CHAIRMAN. Jeff, I wonder if you could comment for me on 

a recently issued proposal by the Governors suggesting that Medicaid should provide flexibility like SCHIP provides. What does that 

do? 

Mr. CROWLEY. What that would do is provide a benefits package 

that is inadequate for people with disabilities. The SCHIP package 

has been modeled on the private sector standards which are based 

on serving health populations, and we have Medicaid as a safety 

net, and so people often move from the private market onto Medicaid so that they are very different populations. 

The CHAIRMAN. You have made very clear in your testimony that 

services currently classified as optional really are not optional for 

the disabled population, so they ought to be in the mandatory category. 

Mr. CROWLEY. That is correct. I often hear people talk about the 

cost of services and wanting to tailor services, but I think that people do not use services unless they need them. So if there is a problem with Medicaid beneficiaries getting services when they are not 

medically necessary, I think that calls for a policy response, but we 

have not seen any evidence of that. So when these services are 

made available, people only get them when they do truly need 

them. 

The CHAIRMAN. We have heard a lot in Congress on the whole 

issue of asset transfers to be paper poor so you can get Medicaid. 

What is the experience of the disabled population in terms of asset 

transfers? Is this a real problem or is this more imaginary with the 

disabled? 

Mr. CROWLEY. I think for people with disabilities, that does not 

really affect them because many of them have not accumulated assets. I would say—and this is not an area I have a lot of expertise 

in—is that there are special protections in the Medicaid law right 

now that allow parents and other family members to set up special 

trusts for their children with disabilities, adult children, so that 

after their deaths their children can continue to have additional 

support to supplement Medicaid, and I would just want to make 

sure that if changes are made in the asset transfer policy we continue to protect those special exemptions. 

The CHAIRMAN. In the savings area you mentioned the drug benefit and States’ ability to negotiate, and making sure that those 

kinds of medicines that the disabled tend to use most frequently 

are on their formulary. 

Mr. CROWLEY. I mentioned——

The CHAIRMAN. Describe again the savings you would envision. 

Mr. CROWLEY. With respect to prescription drugs. 

The CHAIRMAN. Right. 

Mr. CROWLEY. I think we could look to a number of areas. One 

issue that has been proposed is just to address the Federal rebate. 

Some States do get supplemental rebates, but not all States are 

able to obtain them. I think there is some concern that States’ ability to obtain those supplemental rebates would be diminished with 

the implementation of the Medicare drug law, but I also think 

there is room to just increase the Federal rebate. 

I also think there are ways to use evidence-based medicine, and 

I heard you earlier state that your State has been a leader in that, 

84

to achieve real savings. Some of the discussion about cost sharing 

has been what level of sort of cost sharing measures are appropriate given the low incomes of many Medicaid beneficiaries? 

One thing I have noticed is that Missouri, they believe that they 

save a lot of money on mental health drugs, and their approach is 

not to really push the consumer, but they do a retrospective review. 

If they see that physicians are prescribing mental health drugs 

that they think are inappropriate for clinical standards, they send 

them a letter. It starts out with a letter just from the Department 

of Mental Health, but they escalate it, and they eventually get up 

to where it is one of two or three top psychiatrists in the State that 

intervenes personally. So they are not punishing individuals. They 

are not saying doctors cannot prescribe drugs. But they are really 

applying peer pressure. 

The CHAIRMAN. They are looking for outcomes. 

Mr. CROWLEY. Right. It has not hurt access, it has improved access to care, but it is also saving the State money. So I think we 

could look at other ways to use evidence. 

The CHAIRMAN. So just monitor the process better than we are. 

Mr. CROWLEY. That is correct. 

The CHAIRMAN. Missouri is a State that has done that effectively? 

Mr. CROWLEY. Missouri has done that with respect to mental 

health drugs. A number of States have very effective evidencebased medicine programs. 

The CHAIRMAN. How about New Mexico, Pamela, on mental 

health? 

Ms. HYDE. Chairman Smith, we are just implementing what we 

call a preferred drug list in New Mexico, and we are just beginning 

that with all of our medications. We have essentially exempted out 

the door the psychiatric medications from, ‘‘try other drugs first’’ or 

the ‘‘you must do a generic first,’’ because of all the issues about 

psychiatric drugs. However, the organization that is managing that 

for us happens to be headed by a physician whose son is mentally 

ill, so we have a very sympathetic doctor running that program, 

who does work with psychiatrists around their prescribing practices. 

I think that Mr. Crowley is correct, that dealing with it on a peer 

basis is much better than some sort of arbitrary, kind of, ‘‘you cannot prescribe this medication unless you have tried 3 others first.’’ 

That generally is really bad for people with mental illness. 

The CHAIRMAN. In terms of all the controversy around some of 

these psychiatric drugs right now, does the State of New Mexico 

feel any exposure if it gets more involved in the prescribing? Maybe 

you have a thought about that, Jeff. Are States being enjoined in 

some of the lawsuits that are being filed on these issues? 

Ms. HYDE. Mr. Smith, New Mexico is not yet, and we are not too 

worried about it at the moment, because in fact, as I said, the way 

we are implementing this is we are actually treating psychiatric 

drugs differently. We are letting psychiatrists prescribe without 

any kind of up front authorization. It is more of a, as Mr. Crowley 

said, a retrospective review using peer involvement about it. It is 

not quite as formal as being described in Missouri, but we certainly 

recognize that you cannot treat anti-psychotics the same way you 

85

treat drugs for gastrointestinal disorders or other kinds of things 

of that nature. 

Mr. CROWLEY. Could I also add, I do not think it is fear of lawsuits that is holding States back, and in some States, quite frankly, 

it is the pressure from the pharmaceutical manufacturers, and I 

think that might be a roll for Congress to step in and establish 

some standards. 

I can also say, however, in States like Kansas, Washington 

States, they have managed to overcome this, and now I think they 

have a process that even the pharmaceutical manufacturers believe 

works effectively, but that was a big stumbling block initially. 

The CHAIRMAN. Very good. Thank you. 

Sister Dufault. 

STATEMENT OF SISTER KARIN DUFAULT, SP, RN, Ph.D., CHAIRPERSON, BOARD OF TRUSTEES, CATHOLIC HEALTH ASSOCIATION OF THE UNITED STATES, SEATTLE, WA 

Sister DUFAULT. Good afternoon, Mr. Chairman. I am Sister 

Karin Dufault, a member of the Sisters of Providence religious 

community and vice president Mission Leadership for the Providence Health System. 

I am pleased to be here with you today as the chairperson of the 

Catholic Health Association to address your committee. 

The Catholic health ministry provides care and services to Medicaid patients throughout the continuum of care. Our concern for 

Medicaid patients is rooted not only in our experience as service 

providers but as faith-based organizations and people committed to 

the common good and called to offer special protection for the poor 

and vulnerable. 

As policymakers strive to make improvements in the Medicaid 

program, we believe that it is important to keep in mind the primary oath of medicine, first do no harm. There is too much at 

stake if we get this wrong. 

CHA does believe that it is time for a serious and careful discussion about the Medicaid program and how best to modernize it. Mr. 

Chairman, we appreciate your efforts to do just that, to establish 

a bipartisan Medicaid commission to examine modernization of the 

program absent Medicaid budget cuts. 

We also believe that the process should not be driven by cost saving target and that modernization be developed and implemented 

with primary consideration of the impact on patients and a goal of 

ensuring coverage, access and quality. 

CHA supports providing States with flexibility to operate their 

Medicaid programs more efficiently, but we remain concerned 

about how that is done. Specifically, two components of increase 

flexibility, cost sharing and benefit package design have not 

achieved the desired goals of more appropriate utilization, reduced 

program costs and significantly increased the numbers of persons 

covered. 

Our hospitals in Oregon have witnessed and experienced firsthand the results of increased Medicaid patient cost sharing. In 

2003, under the Medicaid waiver, Oregon established a new Medicaid premium policy under which poor adults pay a $6 to $20 dollar monthly premium based on income. Oregon also implemented 

86

a new lockout period for non-payment of premiums and removed 

the ability of low-income and homeless beneficiaries to obtain waivers. What we saw is that patients who were unable to afford required cost sharing delayed needed medical services until the condition reached an urgent level. 

Following the changes, the 7 Providence hospitals in Oregon experienced a 25 percent increase in uninsured patient activity in the 

emergency rooms, while hospital uncompensated care costs doubled 

over a 2-year period. 

We cannot stress enough the importance of coverage provided 

through State optional categories. While categories of beneficiaries 

and services may be deemed optional, these categories do not seem 

like an option for the beneficiaries we serve. 

I would like to provide you with one example out of many that 

we could provide that illustrates this point. Sally George, we will 

call her, age 70, a double amputee who suffers from Crohn’s disease, was living in low-income housing when her health deteriorated. With the help of Medicaid she was able to move into Providence ElderPlace in Portland, OR. This innovative PACE program 

serves frail elderly in a community-based setting that is less expensive than traditional nursing facilities. 

Sally, a caretaker herself, who looked after her own mother until 

her death at age 97, is grateful for the services she receives and 

the independence that she enjoys at ElderPlace. She feels fortunate 

that the doctor is in house, as well as the nurses, physical therapists and other caregivers. Sally hopes that the Medicaid funding 

for this optional program will continue to be there for her, even 

though she works hard to be as self-sufficient as possible. 

Medicaid is a primary source of revenue for America’s safety net 

institutions including many Catholic hospitals which serve a disproportionate share of low-income, uninsured and under-insured in 

their communities every day. In order to ensure continued access 

to services, attention must be paid to Medicaid payment rates for 

all providers. When Medicaid payment rates fail to keep pace with 

the cost of providing care, access to care for Medicaid patients is 

affected and the quality of care could be jeopardized. 

We currently have some 45 million uninsured persons in our Nation. They rely on America’s hospitals for their health care needs, 

and creating barriers to Medicaid will simply worsen an already 

terrible situation. Making the continuum of health care services 

and facilities more effective for patients and for the system itself 

requires that we focus most of our attention on helping people 

maintain health and independence while treating their chronic illness in the most appropriate setting. 

Home and community-based services are proving to be cost effective means for keeping frail and disabled persons as independent 

as possible and avoiding or delaying the need for costly institutional care. However, it is important to realize that to be effective, 

a broad range of supportive services must be available. We strongly 

support policies that coordinate Federal and State supported health 

and housing services and move our Nation toward a more rationale 

and comprehensive long-term health care policy. 

Medicaid represents a measure of how we as a society and the 

wealthiest Nation in the world treat the poorest and most vulnerVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
87

able among us. The cumulative effect of Medicaid program reductions and cuts in other essential services for low-income individuals 

and families could be devastating. 

Mr. Chairman, as Congress considers Medicaid reform, we urge 

you to make decisions that will preserve and strengthen this vital 

program while protecting those with the greatest need and the fewest resources. 

Thank you for the opportunity to speak before you. 

[The prepared statement of Sister Dufault follows:]

88


23941.059
89


23941.060
90


23941.061
91


23941.062
92


23941.063
93


23941.064
94


23941.065
95


23941.066
96

The CHAIRMAN. Thank you, Sister. I wonder if you can share 

with the committee and the audience, when you saw your emergency room utilization go up 25 percent and the ranks of the uninsured go up, how did you deal with that as a system, as Providence 

Health System? Did you have to eat it on your bottom line, or were 

you in a position where you would ultimately have to pass that on 

to other paying patients? 

Sister DUFAULT. Well, it certainly did affect our bottom line. We 

did eat the cost. Our commitment to serving the uninsured and the 

under insured continues to be there. However, in order to sustain 

our ministry, and again, looking at that in the long run, how 

long——

The CHAIRMAN. You cannot eat it forever. 

Sister DUFAULT [continuing.] Can we continue to do that and still 

continue to invest in our facilities and services? This is an issue in 

terms of recapitalizing our institutions and adding additional services. That is very important for us to consider. 

So we certainly recognize our responsibility, but we do see it as 

a shared responsibility with our State and with our Nation. 

The CHAIRMAN. So you would probably agree with me then that 

ultimately your ministry does not call on you to go bankrupt, and 

eventually you have to find a way to invest in the future and keep 

your books in balance as part of your ministry. So ultimately paying patients will have to bear these increased costs. 

Sister DUFAULT. That is correct. There is a cost shifting that does 

occur. We know that when we have talked about the Medicare program as well, that there does have to be some bearing of the burden. However, I would say that this is becoming more and more 

difficult to do, especially as we negotiate with our managed care insurance companies. 

Again, how long this shifting? The shifting is becoming more and 

more difficult to do. 

The CHAIRMAN. So your comment then on copays and premiums, 

your experience is that those are counterproductive. 

Sister DUFAULT. I think that we have been able to demonstrate 

in Oregon that it is counterproductive, that people are going off of 

Medicaid because of it or during this period, if they miss a payment 

and they are off of Medicaid for supposedly a 6-month period, they 

are unable to get back on because of the limits, in terms of the 

number of Medicaid eligibles that are allowed in the State. So 

again, what we saw was the uninsured continued to go up, and 

that is a serious problem. It is aggravating, on the other side, the 

increase of the uninsured population for our Nation. 

The CHAIRMAN. The reason I am asking these questions, I would 

like the audience, and obviously, the larger public that may be 

viewing this, to understand that we are paying these costs already, 

and perhaps not very efficiently. But rightly or wrongly, the public 

generally, and I think many Members of Congress believe that 

there needs to be some sort of incentive not to abuse the system 

while you use the system. Are there things that you have found in 

Providence in Oregon or elsewhere that are good checks against 

abuse, but permit use? 

Sister DUFAULT. Well, I think that one of the areas that has been 

mentioned by others is that we do have a health plan in Oregon, 

97

the Providence Health Plan, and we do have Medicaid recipients 

who are a part of that plan. We have been able to demonstrate that 

we have been able to manage the costs of the beneficiaries’ care in 

a much more efficient manner than previously when they were not 

in a managed care program. I think that one of the other factors 

is that for those who go off and then use the emergency room, they 

are either using the emergency room for care that should have 

been provided in a primary care setting, or their situation is grave 

at the time that they are receiving care. 

So again, the costs—and if that goes in the uncompensated care 

category, the charity care category, that cost goes up. So either that 

is passed on to others, the whole goal of providing the right care 

at the right time is not being done, increasing the overall cost to 

the system as a whole. 

So what we advise is that the recipients receive the right care 

in the right place and be incentivized to be able to do that. The 

copays just add another incentive for not going there until things 

get a little worse. 

So I hope that that addresses the question that you asked. 

The CHAIRMAN. It very much does. On balance do you think Oregon has learned some good things that have been helpful to Providence? 

Sister DUFAULT. Oregon has learned many good things, and I 

guess this is one of the other pieces that the committee may want 

to consider, is that the waivers, the demonstration projects that 

have been going on throughout this country need to be mined for 

what has worked and what has not worked. That will offer some 

opportunities for those things that have really worked to be a part 

of the program rather than a part of a waiver. 

The CHAIRMAN. There are some savings in there as well that 

allow the right kind of coverage at the right time that it is needed. 

Sister DUFAULT. Correct. 

The CHAIRMAN. But I mean we ultimately, just like anywhere 

else, we have to do a better job of balancing our books here, and 

the more information experientially that you can give us to how to 

provide the outcome, serve the people that need it, qualify for it, 

with the best outcomes, that is really what we are looking for. 

Sister DUFAULT. One of the areas that I mentioned was in terms 

of the PACE project, which is now being spread in many of the 

States. I think that we have been able to show how we have avoided hospitalizations by virtue of that program, reducing the costs, 

or being able to help people maintain a quality of life and reduce 

their need for acute care by virtue of the close supervision that 

they are being provided through such settings as the PACE program. 

The CHAIRMAN. You have talked about some of the things Oregon 

has done well. What are the mistakes Oregon has made? 

Sister DUFAULT. I think that one of the mistakes has been what 

we have spoken about in terms of the premium and also the copay. 

Incentivizing people to go off of Medicaid and be on the uninsured 

list is one of the areas. I think that has been a really big-mistake 

creating barriers. Then reducing what some of the ‘‘optional’’ category of services in order to have more people covered has also 

98

been counterproductive in many ways because it has just increased 

the need for some of the acute services. 

The CHAIRMAN. What other States are you in? I know you are 

in Washington State. 

Sister DUFAULT. Alaska, Washington, Oregon and California. 

The CHAIRMAN. Are there things those States have done that you 

think could be good national models? 

Sister DUFAULT. We have been able to replicate the PACE program in Washington based on our experience in Oregon, and again 

were able to get the waivers by virtue of what we demonstrated in 

Oregon. We have not replicated it in our other States, though it is 

being seriously considered. That is one of the principal areas where 

Providence Health System, I think, has assisted our Medicaid population. 

The CHAIRMAN. Those States would need to apply for the same 

waivers that Oregon has under the current system? 

Sister DUFAULT. Actually, it is one of the optional services now. 

It was not at the time that we initiated it. We did ask for waiver 

when we initiated it in Washington, and have multiple sites related 

to the PACE program. 

The CHAIRMAN. You have answered my questions, been very 

helpful. 

Any of you, hearing the others, have any closing comments you 

would like to make? You do not have to, but you are welcome to. 

Pamela. 

Ms. HYDE. Senator Smith, you asked a couple questions of other 

folks that you did not ask of me, and I would like to tell you what 

we are doing in New Mexico. One was about the copay issue, or I 

should say cost sharing because there is two different kinds. Oregon has of course done a premium approach. We are in the process of requesting authorization to do an enrollment fee approach. 

If I personally had my own druthers, I would not do it, but the legislature said we should, and there is sort of pressure to do cost 

sharing. The theory of individuals should participate in their own 

care, I think philosophically is understandable. It is frankly going 

to cost us more to implement this than it is to save anything out 

of it. 

We do have cost sharing already in our SCHIP program, so that 

is for the higher income children. For our working disabled program, we have increased those cost sharing, and by that I mean 

the copays. Other than that we do not have any kind of a premium 

or enrollment fee at this point. 

The CHAIRMAN. What would the enrollment fee be? 

Ms. HYDE. The enrollment fee we are proposing to be, I think it 

is $25 per month per family, and the point being here you could 

have 4 people in your family and if you did it per person that really 

would be prohibitive. I thoroughly anticipate—and I know it is in 

some of the other materials—that frankly, what will happen is 

probably what happened in Oregon, which is nonprofits and others 

will probably try to come up with money to help people enroll. I 

think that is just shifting costs to the charity population or the 

charity providers. 

The other thing that is a little odd about this situation with cost 

sharing is we are not at this point allowed to require it except 

99

through waiver. Oregon is one of those that have done that. Utah 

has been able to do it through sort of a State plan definition. But 

what that does is it essentially means that if a person does not 

have the 2 bucks or the 5 bucks or whatever, then the provider 

eats it because they really cannot turn away that individual. So we 

do have to balance this issue for providers and others. 

In our State the cost-sharing proposal is not going to impose any 

cost sharing at lower income levels for middle income, if you will, 

slightly over 100 percent of FPL. We are going to have this enrollment fee plus a modest amount for prescription drugs and physician services, but a higher amount for emergency room, $25 for an 

emergency room visit, the theory being to try to get people to go 

to physicians rather than waiting until they are sicker. 

I do not know if this is going to work. I just want to echo this 

whole issue of cost sharing as a difficult one. I certainly philosophically understand the idea of personal responsibility. As a person responsible for the Medicaid program, I do not have any choice on 

some of these matters, but it is not a simple one as it seems on 

its face. 

The CHAIRMAN. I think that is right. I think we would all acknowledge a need for personal responsibility. I mean all the paying 

patients that Providence has obviously exercise that, and there is 

not an unreasonable request that everybody pay something. But I 

guess what I am searching for is what is the level at which it is 

counterproductive, that on the one hand satisfies the demand of 

the tax-paying public, but the tax-paying public does not want 

these things so unproductive that they get these shifts in other billings that they get in the mail from their insurance companies. 

I do not know that we have that answer, but obviously, whether 

it is called an enrollment fee or a premium or whatever we want 

to call it, I am really searching for what is the right level, what 

is the effective thing and the fair thing for the patient, the needy 

and the taxpayer? 

Ms. HYDE. Senator Smith, one of the things that I think—again, 

it is not simple—but for those, let us take medications for example. 

One could say $2 is not enough to ask. If you are somebody who 

makes enough money to pay taxes, $2 probably seems like not 

much to ask. If you are a person on multiple medications, especially if those medications are not much fun to take, and you just 

soon not be taking them anyway, as is the case with some conditions, then this is just one more reason not to go get your medications. 

So it may be an area where giving States a little more flexibility 

in the context of some guidance might be useful, rather than going 

all the way to where Oregon went, which I think was to try to impose a private sector model of cost sharing that I think really is 

not appropriate in these populations. 

The CHAIRMAN. Another part of the question—and as a State administrator you would really be in a position to tell us this—I mean 

what does collecting the fee cost us in Government? I mean the Administration costs could be fairly astronomical to pick up a couple 

bucks. 

Ms. HYDE. Senator Smith, when we look at the amount that it 

is going to cost us to implement these really relatively modest costVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00103 Fmt 6633 Sfmt 6633 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
100

sharing proposals—because our premium is not going to be a 

monthly premium, it is going to be a one-time enrollment fee, so 

an annual enrollment fee to try to make it less onerous on us and 

the families. Even at that, the overall savings is pretty much offset 

by the cost that it is going to cost us to do. Which means essentially we are doing it for the benefit of the tax-paying public who 

feels that it is important that people participate. 

We have not analyzed—I do not know how we can until we do 

it—what the implications will be for people who either do not sign 

up or for people who fall off and cannot pay the money to get back 

on or for people who do not take their medications because of it. 

We have not implemented yet, so we do not know what that is. 

Now again, we already have cost sharing at the higher income 

levels, and for the working disabled they are more than happy to 

pay $2 or $3 a prescription. That is different for somebody who is 

making 33 percent of the Federal poverty level, or maybe on SSI 

and has a major schizophrenia or manic-depressive illness or whatever. 

The CHAIRMAN. I would be really interested to stay in touch with 

you, Pamela, to find out what your experience is. I hope you have 

a way to track it and can monitor it, because I think the whole 

country is looking to the laboratory, the 50 States, to help us find 

the right level, the right formula. HHS gives out 2,000 waivers a 

year. 

Well, there have got to be some nuggets in there somewhere that 

we can learn from and include in not this $10 billion we are talking 

about, but ultimately whatever long-term reforms that we pursue 

in Medicaid, we really do need the States to share with us the kind 

of information you are likely to develop. 

Sister, as you have ideas too, please do not be hesitate to share 

them with us. 

Sister DUFAULT. Senator, I do not know if Oregon has done an 

analysis with regard to the recipients who went off of Medicaid 

with the premium, but I think that that would be something to 

really ask, because again, we do have—I mean we know that people went off. We do not know how much each of them were charged 

and what their income level was, because, you know, it is by income level. So that would be something that maybe the State could 

provide that data. 

The CHAIRMAN. We will ask. 

Howard or Jeff, do you have any closing comments? 

Mr. BEDLIN. I just want to reiterate a point that did not come 

up in the Q&A but I think is very important, and that is that there 

are so many low-income families, children, people with disabilities, 

seniors, who are eligible for help under Medicaid and other programs that just are not getting it. I mentioned the QMB and SLMB 

programs, but if you look at the elderly who are eligible for Medicaid, only 60 percent of them actually get it. There are 40 percent 

of the seniors out there who could get Medicaid and are not getting 

it. 

So I think at the same time that we are worrying about hitting 

a $10 billion savings figure and trying to figure out ways to shift 

more costs onto these populations, I think we also need to look at 

101

the bigger picture and try to get the neediest Americans the help 

that they are entitled to. 

The CHAIRMAN. Why do the 40 percent not do it in your opinion? 

Mr. BEDLIN. Lots of reason, and there is some analysis out there. 

It is burdensome in terms of forms that are very complicated to fill 

out. There is a stigma attached to many of these programs. Many 

are not available in languages other than English. There are real 

burdens in terms of finding these individuals. It is true for food 

stamps. Only 30 percent of the seniors after 40 years that are eligible for food stamps are getting it. 

There is a lot that needs to be done, and I am concerned that 

while we are talking about trying to impose more costs onto these 

populations we are not getting them the help that they are eligible 

for, and that is one of the reasons why this is so unaffordable, that 

they are not even getting the assistance from a whole host of Federal programs because we are not committing the resources that 

are ultimately needed to find these people and enroll them in these 

low-income means tested programs, and I think that is a big problem that people are not focusing sufficient attention on. 

The CHAIRMAN. Jeff, do you have a closing comment? 

Mr. CROWLEY. Yes. Senator, you have spoken a lot about cost 

sharing, and I guess I just want to share my fears, as the Congress 

considers that, in that you may seek to eliminate this current protection that says services must be provided even when individuals 

cannot pay the cost sharing. I only have anecdotal data, but I have 

talked to many Medicaid beneficiaries that tell me they are embarrassed when they cannot pay $2 in cost sharing. It is not that they 

are willfully just gaming the system. 

I am just really concerned that that will produce bad health outcomes, increase hospitalizations and other things if people just cannot get the services they need. 

The last point I would make is that I know you are trying to get 

to what is a fair level of cost sharing, and while cost sharing is not 

charged in every State, what is fair may not be additional cost 

sharing. A study that was recently published by the Center on 

Budget and Policy Priorities found that the average cost sharing 

for SSI beneficiaries in Medicaid was $441 a year. So I think many 

Members of Congress will be surprised that individuals are already 

paying that level of cost sharing. 

The CHAIRMAN. Ladies and gentlemen, we thank you. This panel 

has been very helpful in illuminating a very complex problem, and 

certainly has not made the Congress’ challenge any easier, but you 

certainly have made us more informed. So you have added measurably to the Senate record, and you shared your time and your talent, and for that we thank you. 

We are adjourned. 

[Whereupon, at 4:45 p.m., the committee was adjourned.] 

(103)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR JAMES JEFFORDS

Thank you Mr. chairman. I want to commend you and Senator Kohl for holding 

this important hearing today. While it is important that we understand the structure of the Medicaid program—it is even more important that we know who the people are who depend on Medicaid for their healthcare. 

This is all the more true as the Congress begins to debate what, if any, changes 

need to be made to the Medicaid program. 

Mr. Chairman, I also want to note for the record your contributions to this effort 

and to say that I was pleased to join you and Senator Bingaman in calling for a 

bipartisan Commission to review the Medicaid program. 

I envisioned an effort similar to the commission on the Medicare program. That 

is, a commission whose members would include a range of stakeholders and who 

would have the opportunity to vote on its recommendations. Unfortunately, that did 

not happen and it remains to be seen whether the Administration’s effort will contribute much to the Medicaid debate. 

I also want to join you in welcoming our witnesses at today’s hearing. Their testimony promises to shed light on who is served by the Medicaid program. 

As we listen to them though, I would urge that we be careful not to stereotype 

or categorize those served by the Medicaid program. 

All too often, we fall into the ‘‘jargon-trap’’ in Washington and suddenly people 

stop being viewed as people. Instead they become program ‘‘mandatories’’ or 

‘‘optionals’’ or ‘‘dual eligibles’’. The worst is when Medicaid beneficiaries are called 

‘‘bennies’’. 

So I would just urge, that as we all listen to today’s testimony, we remember that 

we are talking about ‘‘people’’. Their healthcare is not an option. 

Let me also say that I am very concerned that we not let an artificially-set budget number—in this case $10 billion dollars—drive the policy making process. 

Instead, our focus should be on determining if there is a better way to manage 

the Medicaid program and how we can help the States better provide services to 

people who depend on Medicaid. 

In closing, I again want to commend Senator Smith and Senator Kohl because I 

believe this hearing is moving us in that direction. 

QUESTIONS FROM SENATOR JEFFORDS FOR DIANE ROWLAND

Question. Ms. Rowland, I want to thank you for your statement and also commend 

you and the Kaiser Family Foundation for your ongoing work on Medicaid and providing health coverage for the uninsured. 

Your statement closed by noting that there are no ‘‘easy answers’’ to covering the 

50 million Americans who depend on Medicaid. You also note that policymakers, absent broader solutions like universal health care, need to maintain the ‘‘safety net.’’

The Kaiser Commission on Medicaid and the Uninsured has delved deeply into 

this issue and there are other efforts underway by several think tanks. 

Can you share with us the current thinking among health policy experts on approaches that can assist us in maintaining the safety net? 

Answer. Medicaid’s performance as a safety-net in the recent economic downturn 

offers important insights into how Medicaid’s eligibility and financing structures 

work to assure the program’s safety-net role. By guaranteeing coverage to all who 

meet its eligibility standards and guaranteeing federal matching funds to states for 

their Medicaid spending as needed, Medicaid was able to offset the decline in jobbased coverage among children from 2000–2003, and it kept the increase of 5 million uninsured adults from being even greater. Medicaid can respond to economic 

downturns and other health problems as a safety-net because it directs coverage and 

resources in accordance with need. 

104

The pressure the recession generated on state Medicaid spending highlighted the 

importance of a greater federal role in financing Medicaid during economic 

downturns. An increased federal role is appropriate in light of the much more limited fiscal capacity of the states, the large share of Medicaid spending attributable 

to Medicare beneficiaries, and the national scale of the demographic and economic 

trends that drive Medicaid spending. Notably, the temporary federal fiscal relief 

granted to states in September 2003 enabled many to stave off or hold the line on 

an array of Medicaid cuts while addressing their budget shortfalls due to declining 

revenues. Finally, as broad a safety-net as Medicaid provides, 45 million Americans—15 million of them living below poverty—remain uninsured. Under federal law, adults 

without children, no matter how poor, are excluded from Medicaid because they not 

meet the ‘‘categorical requirements’’ for federal matching funds under Medicaid. 

Federal financing to support Medicaid coverage for all Americans living in poverty 

would patch this weak place in our nation’s safety-net health insurance program. 

In sum, maintaining the existing financing structure—in which dollars follow 

services provided to individuals and federal matching funds follow state spending—

is critical to Medicaid’s role as our nation’s health safety-net, able to respond when 

and where health needs increase. Increased federal support during economic 

downturns and recessions, when the demands on the program tend to rise sharply, 

would strengthen Medicaid’s safety-net role. 

Question. In listening to your statement I began to realize that we are not talking 

about a single Medicaid program. What we really are facing is at least 50 different 

Medicaid programs, each with its unique coverage policy and funding mechanism. 

I know for example, that Vermont operates one of the most effective Medicaid programs and significantly, Vermont ranks very high health-related outcome measures. 

But Vermont, like other states, is also facing budget constraints that are forcing a 

reevaluation of its program. 

Should there be some reassessment of what benefits should constitute a minimum 

national benefit package? 

What in your opinion constitute the key elements that a state Medicaid program 

should have? 

Answer. In the context of efforts to control Medicaid spending, some have questioned whether Medicaid’s comprehensive benefits are necessary and proposed, instead, a limited basic benefit package with additional benefits for people with special needs. 

In reassessing Medicaid’s benefit package, it is important to bear in mind the people Medicaid serves and what their needs are. Medicaid’s beneficiaries include infants and children, pregnant women, adults and children with disabilities, those 

with chronic physical and mental illnesses, seniors, people with HIV/AIDS, and 

many others, whose very low income and limited resources permit them to qualify 

for Medicaid. To address the diverse and extensive needs of these individuals, Medicaid covers a broad set of both acute and long-term care services, with no or nominal cost-sharing. 

Despite the breadth of Medicaid’s benefits and limits on cost-sharing, researchers 

have found that, when health status differences are taken into account, Medicaid 

beneficiaries do not use services at a higher rate than the low-income privately insured. Other research shows that Medicaid spending is highly concentrated in a 

small proportion of beneficiaries with intense health needs and utilization. These 

findings indicate that Medicaid’s broad benefit package has not led to wide use of 

all covered services, but, rather, has facilitated access based on health needs. A comprehensive benefit package is necessary to ensure that Medicaid beneficiaries can 

obtain the care they need. To ensure that they obtain only the care they need is 

the role of states and managed care organizations, applying an array of utilization 

and disease management strategies. 

Question. Congressional consideration of Medicare reform included several years 

of debate—and the debate itself was preceded by a national commission charged 

with making recommendations to strengthen Medicare. 

The recent Medicare Modernization Act included many of these recommendations—not all of which were agreed to by everyone. 

But one of the outcomes was the inclusion of new health promotion and disease 

prevention benefits. Some experts believe that these benefits will save money in the 

long run by preventing people from getting more serious diseases. 

Short of EPSDT, are there any comparable efforts underway to bring modern 

health promotion into the Medicaid program? 

Answer. As distinct from Medicare, Medicaid has always covered preventive care. 

Furthermore, to promote access to care, children and pregnant women are exempt 

from cost-sharing under Medicaid, and cost-sharing for others must be nominal. 

105

EPSDT, the Medicaid benefit package for children, integrates early intervention, 

health promotion and disease prevention with more traditional coverage of treatment for disease and disability. Federal Medicaid law authorizes states to cover 

screening and preventive services, as well as case management, for adults too. Many 

states provide some coverage for immunizations, preventive services, health education, screening mammography, and other such benefits. 

The wide and pioneering adoption of managed care in Medicaid as a care delivery 

model represents a broader kind of health promotion/disease prevention effort in the 

program. In its most successful form, managed care can improve access to appropriate care and effectively manage it for Medicaid beneficiaries, whom the fee-forservice system often does not serve adequately. Disease and care management strategies, which also have promise for improving the quality of care, are also being 

adopted by some states in their Medicaid programs. 

QUESTIONS FROM SENATOR JEFFORDS FOR PAMELA HYDE

Question. Thank you for your statement Ms. Hyde. I agree with your assessment 

about the special challenges people with mental illness face in accessing health care 

services through the Medicaid program. I’m coming to the conclusion that the Medicaid program’s exclusion of funding for Institutions for Mental Disease discriminates against people fighting mental disease. For example, in Vermont the 

Brattleboro Retreat has operated for many years under a waiver program that is 

now being withdrawn by CMS. Are there not instances where the best and most 

cost-effective treatment can be provided in these hospitals. 

Answer. It is true that at times, the best care for an individual person for a short 

period of time is in a hospital setting, and some of the state-operated hospitals in 

the country are now among the best. The exclusion of IMDs is a historical artifact 

of the federal government not wanting to be responsible financially for services that 

were traditionally paid for by state governments. However, in the case of persons 

with developmental disabilities, the federal government does allow home and community based services, even when the institutional services from which individuals 

in such programs are diverted are state-funded and operated. It is also true that 

most states have now moved significant numbers of individuals from state facilities 

or large private facilities into more community based settings. Today, the IMD exclusion operates in some cases to prevent states from moving institutional funding 

for services for adults 18–64 into community settings that have a residential component, and operates to prevent states from providing some of the services that adults 

with mental illness need, such as supported employment and supportive housing 

settings. These same services are available for persons of all ages with individuals 

with developmental disabilities, using federal funds. In this sense, the IMD exclusion is in fact discriminatory. 

The solution, however, may not be a full scale removal of the IMD exclusion, since 

we do not want to encourage the re-institutionalization of adults with serious mental illness (SMI). Rather, the solution, I believe, rests in CMS allowing states to include in their state plans the same services for adults with SMI that they allow for 

DD individuals, including residential supports and supported employment, as well 

as some of the flexible services and items that are being allowed by CMS for DD 

individuals under self-directed waiver approaches where a set amount of funds are 

provided for each individual to spend for the services and things they need to live 

successfully in the community. Another aspect of the solution may be to allow states 

to receive federal funds (FMAP) for community-based programs (including residential treatment and supports in small home-like facilities, just as DD individuals 

enjoy) for SMI adults that would otherwise be in larger institutional settings, so 

long as the state continues to provide the same level of state support that was provided for such individuals in the past or so long as the state reduces the number 

of individuals in large institutional settings. There must be creative ways to support 

adults with SMI to be successful in the community just as there has been with DD 

adults. 

It’s time we understood that the keys to success for Medicaid-eligible adults with 

SMI include housing and employment, things that are currently not fundable using 

federal funds. 

Some people advocate for allowing federal funding for the acute care (less than 

21 or less than 30 days) provided by state facilities, just as they would for acute 

care in private hospital settings. This might be a compromise, but with limited dollars, I personally would rather see federal funds more easily used to support 

smalled home-like environments and rehabilitation and supported employment 

106

and/or supported education approaches that are more geared to assisting adults 

with SMI to find their own recovery path. 

The committee should note that the recent Bush Administration Medicaid reform 

proposals for which legislative language was just released include narrowing of the 

definitions of case management and rehabilitative services that will have a devastating affect on many states an on adults and children with serious mental and 

emotional illnesses. This is NOT the way to save money in the Medicaid program. 

It is in fact, a step backwards. It may in fact result in more adults and children 

institutionalized and is absolutely in opposition to the recommendations of the 

President Bush’s President’s New Freedom Commission on Mental Illness report. 

I urge Congress to resist these attempts to limit federal funding for persons with 

mental illness throughout our country. 

QUESTIONS FROM SENATOR JEFFORDS FOR JEFFREY CROWLEY

Question. Mr. Crowley, Medicaid plays an important role for schools in covering 

the cost of ‘‘related services’’ that are required by a child’s Individual Education 

Plan (IEP) under IDEA. 

Over the past few years, CMS has conducted a series of audits of school-based 

Medicaid claims. Vermont has been the subject of one of these audits. CMS and the 

state disagree on the findings of the audit, and CMS has been slow to respond to 

the issues raised by Vermont. 

I have some real concerns about the timing and conduct of these audits. I am concerned that we might be discouraging schools from providing services to which our 

children are constitutionally and legally entitled. 

Can you discuss the need for school-based Medicaid and the effect of these audits? 

Answer. The civil rights law, the Individuals with Disabilities Education Act 

(IDEA), entitles children with disabilities to a free, appropriate public education in 

conformity with an individualized education program (IEP). An IEP is developed for 

eligible individuals with disabilities that describe the range of services and supports 

needed to assist individuals in benefiting from and maximizing their educational opportunities. The types of services provided under an IEP include services such as 

speech pathology and audiology services, and psychological and occupational therapies. While IDEA confers rights to individuals and obligations on the part of school 

systems, it is not directly tied to a specific program or an automatic funding source. 

For years, the Federal government has failed to provide anywhere near the level 

of funding promised in the IDEA statute. States’ ability to appropriately rely on 

Medicaid funds for Medicaid services provided to Medicaid-eligible children pursuant to an IEP helps defray some of the state and local costs of implementing IDEA. 

This, in turn, helps assure that children receive all of the services they have been 

found to need in order to meet their full potential. 

The sources of funding available to fund services under IEPs have been a contentious issue in the past. Some time ago, the Health Care Financing Administration 

(HCFA, the predecessor to the Centers for Medicare and Medicaid Services, CMS) 

attempted to limit the availability of Medicaid funding for services under IEPs. In 

1988, the Congress addressed the issue in enacting the Medicare Catastrophic Coverage Act of 1988 (Public Law 100–360) in which it clarified that Medicaid coverage 

is available for Medicaid services provided to Medicaid-eligible children under an 

IEP. Under current law, the Social Security Act at section 1903(c) reads,

‘‘Nothing in this title shall be construed as prohibiting or restricting, or authorizing 

the Secretary to prohibit or restrict, payment under subsection (a) for medical assistance for covered services furnished to a child with a disability because such services are included in the child’s individualized education program established pursuant to part B of the Individuals with Disabilities Education Act or furnished to an 

infant or toddler with a disability because such services are included in the child’s 

individualized family service plan adopted pursuant to part H of such Act.’’

Nonetheless, federal officials have, from time to time, suggested that costs for 

school-based services are being inappropriately shifted to Medicaid. In response to 

these concerns, the HHS Office of the Inspector General (OIG) has carried out a 

number of reviews over the years, including a recent audit of Vermont’s Medicaid 

school-based health services. The results of this audit were made public in January 

2005. While I am not in a position to comment on the validity of the specific audit 

findings, I believe it is important to ensure that the rules governing these issues 

are clear, consistent, and implemented in an even-handed manner across all HHS 

regions. I also believe that, working within both the Medicaid and IDEA statues, 

the Federal government should take every opportunity to provide services to lowincome children with disabilities. This has not always been the case. 

107

While CMS and federal officials have important responsibilities to ensure that all 

federal Medicaid payments are appropriate and reimburse states for only allowable 

Medicaid services, without transparent rules and fair administration, supervisory 

unions in Vermont may be unable to provide optimal school-based services to children with disabilities. Moreover, there are significant concerns by representatives 

of children with disabilities in Vermont that federal officials are attempting to restrict Medicaid reimbursement in a manner that is expressly prohibited by the Social Security Act, and that audits are being used as a tool to create uncertainty that 

reimbursement will be allowable, thus leading states and school systems to preemptively restrict the school-based services it provides to children with disabilities. Indeed, my understanding is that Vermont has been a leader among states in using 

schools to meet the needs of children, and when appropriate, to receive Medicaid 

reimbursement for the cost of providing some of these services to Medicaid beneficiaries. There is a strong concern that this audit has had a chilling effect and has 

led supervisory unions to limit the services they provide under IEPs because they 

are unsure they will be able to receive Medicaid reimbursement for these services. 

The Congress could not have been clearer in its intent that it wants Medicaid to 

support the goals of IDEA; these narrow interpretations of the law are inconsistent 

with that intent. 

Question. Vermont has been trying for two years now to gain approval from CMS 

of its Early and Periodic, Screening, Diagnostic, and Treatment (EPSDT) program. 

The uncertainty that surrounds the administration of this program has led 25% 

of the Supervisory Unions in Vermont to withdraw from the program. They did not 

want to get caught in an audit if Vermont’s plan was disallowed two years after 

its submission. 

I fear the lack of response from CMS has hurt Vermont schools any may have 

denied children access to care. 

What can be done to provide some certainty to the states so that they can focus 

on providing care to our neediest children? 

Answer. The Early and Periodic Screening, Diagnostic and Treatment Services 

(EPSDT) benefit is a mandatory Medicaid benefit that provides critical protection 

to children who receive Medicaid. EPSDT ensures that all children are screened on 

a regular basis, and when a disability or health condition is diagnosed, it ensures 

that Medicaid covers the treatment, even if a state does not provide the same service to its adult beneficiaries. EPSDT services can do much to help children maintain 

the ability to function as independently as possible, as well as improve their abilities, prevent secondary conditions, and reduce the incidence of increased disability. 

Access to these critical services can help families avoid institutionalization and keep 

their children at home. A critical outcome of EPSDT is that it allows children with 

disabilities to attend public schools in their neighborhoods or communities. According to the National Mental Health Association, a recent national survey found that 

mental illness begins very early in life, with 50% of lifetime cases starting by age 

14. The problems caused by early onset of these and other illnesses is compounded 

by the fact that treatment is often delayed for ten or more years increasing the risk 

of school failure, teenage childbearing, unstable employment, early marriage, marital instability and violence. The early screening and diagnosis provided by the 

EPSDT benefit in Medicaid is critical to detecting and treating mental illnesses and 

a variety of disabilities and other conditions that can strike so early in life. 

In Vermont, it is a common practice to use school nurses to conduct outreach and 

refer for treatment children covered by Medicaid who are eligible for services under 

EPSDT. Since not all of a school nurse’s time should be billed to Medicaid, school 

systems have been instructed by CMS to rely on time studies to determine the percentage of time that school nurses are involved in such activities. Under this approach, a time study is conducted to determine the amount of time that school 

nurses (or other personnel) expend on outreach, find Medicaid providers, and facilitate enrollment in services. Schools then seek reimbursement from Medicaid based 

on the percentage of time that can be attributed to providing a Medicaid based on 

the percentage of time that can be attributed to providing a Medicaid beneficiary 

with EPSDT services, as determined by the time study. 

Over the past ten years, the manner in which states can seek Medicaid reimbursement for school based services has been subject to controversy. During much 

of this time, there was no national policy on this issue and CMS regions had differing rules regarding permissible services and permissible reimbursement standards. In May 2003, CMS issued the Medicaid School-Based Administrative Claiming 

Guide, establishing a national standard for Medicaid payment for school-based services. The guide cites OMB Circular A–87 to state that ‘‘substitute systems’’ for allocating salaries and wages to federal awards are permitted in Medicaid. These samVerDate 0ct 09 2002 15:37 Jan 09, 2006 Jkt 000000 PO 00000 Frm 00111 Fmt 6601 Sfmt 6601 H:\DOCS\23941.TXT SAGING1 PsN: JOYCE
108

pling systems (including time studies), however, are subject to approval by the funding agency. 

While I do not have the knowledge or expertise to respond to the specific issues 

affecting Vermont, it appears that the delay relates to federal approval for a time 

study as a substitute system for allocating salaries and wages to Medicaid. I have 

learned many Vermont stakeholders share the concern raised by Senator Jeffords 

that the lack of approval by CMS has led to considerable uncertainty and the end 

result is that children with disabilities may not be receiving all of the services they 

need; and for which Medicaid reimbursement should be available. Given the urgency 

of ensuring that children on Medicaid have access to the full range of school-based 

services that they need, consistent with EPSDT, federal policy makers should be required to provide a timely review of state submission of substitute sampling systems, and if the state proposal is deficient in some way, to provide technical support 

to the state so that it may construct a suitable system. Given the long history with 

this issue, it may be necessary for the Congress to press CMS to clarify permissible 

practices for states in seeking Medicaid reimbursement for providing Medicaid services in school settings to Medicaid-eligible children. As a first step, I encourage the 

Aging Committee to request from CMS all outstanding requests for substitute sampling systems used to bill for school-based services, including all approved and rejected sampling systems along with the date of action by CMS.

109


23941.067
110


23941.068
111


23941.069
112


23941.070
113


23941.071
114


23941.072
115


23941.073
116


23941.074
117


23941.075
118


23941.076
119


23941.077
120


23941.078
121


23941.079
122


23941.080
123


23941.081
124


23941.082
125


23941.083
126

Æ


23941.084