Mr. Chairman, Congressman Dingell and members of the Committee:
thank you for inviting me to testify today about the most recent
Medicaid proposal introduced by Representatives Bliley,
Bilirakis,Archer, and others on May 22.
As this Committee and the Congress continue to consider options
to reform the Medicaid program and pursue a balanced budget, we
appreciate the opportunity to state clearly the President's
vision for reform in this area.
The Clinton Administration believes that we must balance the
budget by the year 2002 and give more responsibility to the
states and local communities. But we must do it in a way that is
consistent with the values of our nation.
As the President has said time and time again: We can balance the
budget and find common ground -- without turning our backs on our
values, our families, and our future.
In Medicaid, we believe we can give the states the flexibility
they need, while maintaining a strong federal-state partnership
built on a foundation of shared resources, accountability to the
taxpayers, and national protections for the most vulnerable
That is why the President has proposed a common sense plan that
balances the budget, gives unprecedented flexibility to the
states, and reforms Medicaid without breaking our promises to our
citizens -- from seniors living in nursing homes to families
struggling to work their way out of poverty. And that is why he
has refused to sign legislation which breaks these promises.
The President has also made clear that the current strategy of
the majority in Congress to link welfare reform to unacceptable
changes in Medicaid will leave him no choice but to veto the
entire package. We call on Congressional leaders to abandon the
"poison pill" strategy that is designed to provoke a veto. We
strongly support the bipartisan efforts of the governors and
moderate bipartisan groups in both Houses of Congress to reform
welfare without gutting Medicaid.
Medicaid provides vitally important health and long-term care
coverage for approximately 37 million Americans and their
* It provides primary and preventive care for 18 million low
* It covers 6 million individuals with disabilities --
providing the health, rehabilitation, and long-term care services
that would otherwise be unaffordable for these individuals and
* It covers 4 million senior citizens -- including long-term
care benefits that provide financial protection for
beneficiaries, spouses, and the adult children of those requiring
nursing home care.
* Finally, it pays the Medicare premium and cost sharing for
low income seniors, thus putting the benefits of Medicare Within
The Clinton Administration is dedicated to strengthening and
improving Medicaid, so that it can continue to fulfill the
promise of our nation to millions of children, elderly, and
disabled Americans and their families. To achieve this goal,
this Administration has worked vigorously in partnership with the
states to test innovative new approaches to delivering and
financing care for Medicaid patients. During our first 3 years
in office, this Administration approved 91 major Freedom of
Choice waivers and waiver renewals, which allow states to enroll
beneficiaries in managed care plans. We have also approved 163
new and renewed Home and Community-Based Services waivers, which
enable states to use home care as an alternative to costly
nursing home care. in addition, since January 1993 we have
approved 12 statewide Medicaid demonstrations, 8 of which are
currently operational. This compares to a total of one such
demonstration approved under all previous administrations. In
addition, we are currently reviewing proposals submitted by 12
other states. Some statewide demonstrations expand access to the
uninsured, others test new methods for delivering mental health
services, and still others implement simplified eligibility
The flexibility provided by these waivers has allowed states to
improve the efficiency with which they provide care. Some states
have used the resulting savings to cover additional populations
with unmet health care needs. When all of the currently approved
demonstrations are implemented, nearly 2.2 million individuals
who did not receive Medicaid coverage will be eligible for
As part of his balanced budget plan, the President has proposed a
carefully designed and balanced approach to Medicaid reform which
builds on this experience. His plan preserves the essential
elements of Medicaid (title XIX of the Social Security Act) while
making important changes that will give states unprecedented
flexibility to meet the needs of the people they serve. The
* preserves Medicaid protection for all currently eligible
* maintains our shared financial partnership with the
states as they provide health coverage to needy individuals;
* preserves the Federal guarantee of a congressionally-
defined benefit package for Medicaid beneficiaries;
* contributes Federal savings to the balanced budget plan
through reductions in disproportionate share hospital payments
and the use of a per capita cap on Federal matching that adjusts
automatically to changes in state Medicaid enrollment and changes
in the economy; and
* provides states far greater flexibility to better manage
their programs, pay providers of care, and operate managed care
and other arrangements with reasonable Federal requirements to
maintain programmatic and fiscal accountability (Chart A). <.ul>
I have brought a chart that details the broad new flexibility
states would have under the President's proposal.
As you know, the President strongly opposed the Medicaid
proposals passed by Congress last year because they failed to
meet these principles. The Congress repealed the Medicaid
program and replaced it with a new "Medigrant" program that did
not provide meaningful Federal guarantees of eligibility or
benefits. The Congress also put forward a "block-grant" funding
mechanism that breached the 30 year Federal commitment with the
states to Share in Changes in state Medicaid spending, and left
states with the full financial responsibility for providing
health care to individuals who qualify for services in the future
due to unanticipated enrollment increases or economic downturns.
Last February, the National Governors' Association approved
the outlines of a bipartisan Medicaid reform plan. As I
testified before this Committee in March, we believed the
governors' plan -- produced through a bipartisan process-- held
some promise and we were hopeful that, once more details were
known, there would be a real basis for Medicaid reform. The
governors clearly worked very hard to move the debate forward.
At the same time, however, I discussed the Administration's
concerns with some key elements of the governors' plan.
Last month, the Republican majority in both Houses of
Congress introduced a revised version of their Medicaid bill,
which I will discuss today. This bill moves us further away from
the bipartisan reform envisioned by the governors, and much
closer to the Republican legislation that the President vetoed
last year. Our view is shared by the Democratic governors who
were instrumental in crafting the NGA agreement. In a May 29
letter to Senator Roth, four Democratic governors stated that:
"The Republicans' Medicaid proposal is far from the NGA
agreement and appears to be more like the proposal vetoed by
the President last year and rejected by the Governors at our
winter meeting.... According to our early calculations, 96
percent of the funding under this new formula is distributed
precisely in the same manner as your earlier bills proposed. You
have created a block grant for this program with essentially the
same language and parameters of the vetoed bill -- a block grant
that denies a safety net for our most vulnerable citizens."
Let me be clear: the new Republican bill, like its predecessor,
fails to meet the President's basic principles for Medicaid
reform. If this bill is sent to the President, I would recommend
that he veto it.
I discussed the President's basic principles for Medicaid reform
when I testified before this committee last fall and this spring.
AS shown on the next chart (chart B), they are: (1) the need for
a real, enforceable Federal guarantee of coverage to a
congressionally-defined benefit package; (2) appropriate shared
Federal and state financing; and (3) quality standards,
beneficiary protections, and accountability. I will now discuss
why the new Republican Medicaid plan fails to meet each of these
The Federal Guarantee of Coverage and Benefits
The Federal "guarantee" of coverage and benefits is at the
core of the Medicaid program. Unfortunately, the term
"guarantee" has been assigned very different meanings in the
context of the current Medicaid debate. When we use the term
guarantee in the context of a Federal statute like Medicaid, we
mean a real guarantee, composed of three interrelated components:
definitions of 1) eligibility; 2) benefits, and 3) enforcement.
Let's begin with eligibility. The new Republican bill would
deny millions of Americans the Federal guarantee of Medicaid
eligibility that they now have under current law. The bill
repeals the phase-in of the Federal guarantee of Medicaid
coverage for children ages 13 to 18 in families with income below
the Federal poverty level -- a bipartisan coverage expansion
signed into law by President Bush.
In addition, the new Republican bill repeals the Federal
standard for defining disability and replaces it with language
that could mean 50 separate state definitions. This has the
effect of making Medicaid coverage and benefits for those with
disabilities uncertain and variable across the nation. For
example, some states could use restricted definitions of
disability that result in very limited coverage for those whose
needs are pronounced and among the most costly. In fact, States
might be forced to narrow their definitions of disability in
order to cope with lower Federal funding levels. In such
situations, narrow state definitions of disability could preclude
individuals with HIV, certain physical disabilities, or mental
illness from receiving critically needed services under Medicaid.
We should not turn back the clock on those with disabilities by
permitting 50 different state definitions for purposes of
The new Republican bill also eliminates the current law
requirement that Medicaid be provided for one year to persons who
leave welfare in order to join the workforce. By eliminating
this guarantee, the Republican proposal could discourage
individuals from leaving welfare and set back our efforts to
reform the welfare system.
Finally, the new Republican bill gives states the authority
to impose additional eligibility limits based on age, residence,
employment or immigration status, or more restrictive definitions
of assets and income. This provision will enable states, if
financially necessary, to restrict eligibility even among those
people who supposedly are "guaranteed" coverage.
Eligibility is only one component of the guarantee. The next
question is "eligibility for what?", which brings us to benefits.
The new Republican bill "guarantees" some benefits for those
populations who are "guaranteed" eligibility. But this guarantee
is hollow. Many loopholes make it essentially meaningless.
One giant loophole in the "guarantee of benefits" relates to
the adequacy of the benefits. Current Medicaid law and
regulations already give states substantial flexibility in
defining the amount, duration, and scope of benefits, and states
have used this flexibility to tailor Medicaid packages to their
unique circumstances. This latitude is tempered by a very
reasonable constraint -- benefits must be "sufficient to
reasonably achieve their purpose." The Republican bill removes
this sensible provision, giving states complete flexibility on
amount, duration, and scope. Thus, states could "guarantee"
coverage for hospital and physician services, but -- if forced to
do so -- could limit this coverage to unreasonably low levels
such as 3 days of hospital care and one physician visit per year.
This type of guarantee is meaningless for persons who truly need
Another loophole in this "guarantee" is the new elimination
of current law standards of comparability and "statewideness" of
services. Without these standards, some states could offer
different coverage and benefit packages in different parts of the
state, or to different groups based on their age or diagnosis.
Eliminating requirements for comparability and statewideness
leaves states free to discriminate against persons who live in
certain areas, who have specific diseases (such as AIDS), or who
lack political clout (such as children).
The new Republican bill also severely curtails the treatment
services which must be provided under the Early and Periodic,
Screening, Diagnosis, and Treatment (EPSDT) program. Under the
Republican bill, Children must be screened for a range of health
problems, but treatment is only required for dental, hearing, and
vision problems. If a child is diagnosed with any other medical
problem, they are not guaranteed treatment. Therefore, an
asthmatic child would not be guaranteed coverage for treatment,
such as asthma-controlling drugs or inhalers. Diagnosis without
treatment is bad medical care and a wasteful use of taxpayers'
The third essential component of the Federal guarantee is
enforcement. Implicit in the concept of defined populations and
defined benefits is the notion of a meaningful enforcement
mechanism. A Federal cause of action for beneficiaries assures
that those seeking a remedy for the deprivation of medical care
receive the same due process rights everywhere in the United
States. The new Republican bill requires states to provide a
state right of action, but eliminates the Federal right of action
for individuals and providers who assert that a state is
violating Federal Medicaid laws. The only access to Federal
court for such claims would be if the Secretary brings the action
to Federal court on behalf of the individual or if the individual
petitioned the U.S. Supreme Court for review of a decision of a
state's highest court. By denying beneficiaries access to the
Federal courts, the Republican bill eliminates individuals'
guarantee to enforceable Federal benefits. Thus, Medicaid would
confer a Federal right to benefits but lack a Federal enforcement
mechanism - a virtually unprecedented situation.
Provider suits against states have caused the greatest
problem to the states. Under the Administration's plan, the
Boren Amendment and related provider payment provisions would be
repealed, thereby eliminating these causes of action by
providers. Thus, the Administration's plan resolves states'
major concern about their exposure to providers' suits in Federal
court, and does not undermine beneficiaries' ability to enforce
their Federal guarantee to coverage and benefits.
On balance, when we assess the three components required to
make any guarantee real -- the definitions of eligibility,
benefits, and enforcement -- we find that the so-called
"guarantee" of Medicaid coverage and benefits contained in the
new Republican bill is neither real nor enforceable for
beneficiaries. This is not about whether the governors can be
trusted. They can be trusted, which is why our proposal offers
states unprecedented flexibility in program management and why we
have worked with so many states on their innovative
demonstrations. The issue is whether an individual, regardless
of where he or she lives, is guaranteed meaningful coverage.
The President's second principle for Medicaid reform is an
appropriate financing structure -- namely, one that maintains the
Federal-state partnership that has been at the heart of the
Medicaid program for 30 years. Under this partnership, Federal
dollars follow the people, meaning that the Federal government
shares responsibility with the states for increased costs
associated with increases in enrollment. As with the Federal
guarantee of coverage and benefits, the new Republican bill falls
far short of meeting this principle.
I have reviewed the components of the new Republican financing
arrangement before -- and it was not in the governors' agreement.
This newest financing structure is simply the MediGrant 11 block
grant formula, dressed up with a tiny embellishment to pay lip
service to the governors' principles that funding must
automatically adjust for enrollment.
To demonstrate this point, I will walk through each component
of the financing structure of the new Republican bill, and I will
use this next chart to illustrate my points (Chart C).
The first component of the Republican funding system is
called the base allotment. These allotments, which account for
an average of 96 percent of total Federal spending over the 6
year period (as shown on the Chart) are distributed to states
based on a formula that includes factors such as "needs-based
amounts" and "program need". Given this structure, at first it
might appear that each state's base allotment is determined based
on its actual need, including enrollment growth and caseload
However, the base allotment is not what it seems. After
careful analysis, my staff has concluded that only 5 percent of
this 96 percent of funding is actually distributed based on need.
The remaining 91 percent is distributed to states based on what
is essentially a block grant system. Under this system, states'
allotments are determined through the use of "floors" and
"ceilings", rather than by the results of the needs-based
formula. Each year, between 44 and 49 states' allotments are
determined through a floor or ceiling. For these states, the new
Republican bill is a block grant, with a new name.
Furthermore even the 5 percent "needs-based" funding does not
truly reflect the financial need of states in their Medicaid
programs. This is because it is determined by the number of poor
people in a state rather than Medicaid enrollment growth. As a
result, if the number of Medicaid recipients in a state increases
but the number of poor people does not, the state's base
allotment would not increase.
The second component of the financing structure is called the
"umbrella fund", and it consists of supplemental Federal money
that is to be distributed to states with high enrollment growth.
But if the Republican umbrella is the states' only protection
against the costs Of high enrollment growth, the states are going
to get drenched. The entire umbrella fund accounts for only 3
percent of all Federal Medicaid spending; thus, it could provide
only a fraction of what states would need in times of recession.
in addition, it covers enrollment increases only for the year of
the increase -- not for any later years during which the new
enrollees continue to receive Medicaid. Thus, if a state
suffered a three-year recession that caused its Medicaid
enrollment to rise, it could get umbrella funds for new enrollees
for their first year, but could be forced to bear the entire cost
of these enrollees for any later years during which they remained
This is shown on my next chart (Chart D). Assume that the
recession begins in year 2. As you can see, this recession causes
a dramatic increase in the state's enrollment, which triggers an
umbrella payment to assist the state in covering the costs of
these new enrollees. In year three, however, the state's
enrollment remains at the same level as in year two, but this
time there is no umbrella payment, because these payments are
based only on changes in enrollment from the previous year, not
total enrollment. Thus, the state is forced to bear the cost of
the much higher enrollment with the same amount of Federal
assistance as it received in year one.
Pools for Undocumented Aliens and Indians
The final component of the financing structure is $4.3 billion to
assist states in providing care for undocumented aliens and
Native Americans. The first pool is allocated across the 15
states with the highest numbers of undocumented aliens. The
second pool is allocated among all states that have Indian-funded
health facilities or programs.
Changes in FMAP and Taxes and Donations Laws
In addition to replacing the current financing partnership with a
block grant to states, the new Republican bill also includes two
changes in the way states finance their share of Medicaid costs.
It increases the rate of Federal contribution to Medicaid (known
as the FMAP) for many states, thereby reducing the amount of
funds necessary to collect Federal matching funds. It also
repeals the restrictions on states' use of provider tax and
donation financing mechanisms.
While these proposals are appealing to many states, they
raise significant concerns. Specifically, the proposed changes
to the FMAP will raise the Federal share of national Medicaid
spending from 57 percent to 63 percent. In addition, the FMAP
changes could encourage states to reduce their contributions to
the program, resulting in even deeper reductions in total
Medicaid spending than this bill suggests. The new Republican
bill will reduce total Federal spending on Medicaid by $72
billion over 6 years. But total reductions in Medicaid spending
could be far greater. The Center for Budget and Policy
Priorities estimates that states could reduce their own spending
on Medicaid by about $185 billion over 6 years without decreasing
the amount of Federal funds for which they are eligible. Thus,
the new Republican bill could lead to a total reduction of
approximately $257 billion in Medicaid spending over the next 6
Defining and revising the appropriate Federal and state
contributions and spending levels always will be one of the most
difficult issues to settle in any Medicaid reform plan. There is
no question that these matters merit careful attention in the
long-term. The President's plan proposes to gain advice from an
intergovernmental advisory commission on the appropriate
relationship between Federal and state funding before the
Congress proceeds to change the current distribution.
The new Republican bill also would permit unconstrained use of
provider tax and donation financing approaches for the "state"
share of Medicaid. These are the same financing approaches that
were widely used by some states in the early 1990s to increase
their Federal Medicaid payments without actually increasing state
Medicaid spending. For example, a state would impose a tax on a
hospital, and then take the revenues generated and give them back
to the hospital calling them "Medicaid payments". The state
would then claim -- and receive -- Federal funds to match its
payment to the hospital, even though it had not truly spent any
additional state dollars.
During the late 1980s and early 1990s, many states took
advantage of these types of financing mechanisms, costing the
Federal government billions of dollars and helping to drive
annual Medicaid spending growth rates to well over 20 percent.
Congress responded in a bipartisan fashion by limiting the
provider tax schemes and completely outlawing the donations
schemes. Now, the Republican bill seeks to remove these
restrictions that were passed with overwhelming bipartisan
support just a few years ago. Without these restrictions, states
would be free to finance significant portions of the state share
without contributing any real state dollars, leading to
substantially lower support overall for the Medicaid program.
In summary, the new Republican bill fails to meet the President's
second principle for Medicaid reform -- a financing structure
that maintains the Federal-state partnership that has been at the
heart of the Medicaid program for 30 years. Neither does it meet
the financing principles agreed to on a bipartisan basis by the
Governors. The Governors' proposal reflected a willingness to
assume a greater responsibility for the management of the
Medicaid program, but only if they had a strong financial
partner to help meet the costs. The NGA proposal was designed to
provide this Federal-state partnership, and was based on a
funding mechanism that protected states from the full costs
associated with actual changes in enrollment. The money was
supposed to follow the people, in order to protect states from
unexpected, uncontrollable enrollment increases. When the latest
Republican proposal was released, it did not take the Democratic
Governors long to realize that the centerpiece of their deal was
no longer part of the mix.
Protecting beneficiaries, families, and taxpayers
This brings me to the President's third principle for Medicaid
reform: protections for beneficiaries, families, and taxpayers.
Once again, the new Republican bill fails to meet to President's
The new Republican bill would repeal title XIX and create a new
title for the Medicaid program. This has the effect of seriously
compromising the framework for quality standards, beneficiary and
family financial protections that limit families' out-of-pocket
costs, and program accountability.
This bill reduces or eliminates many long-standing family and
beneficiary protections. For example, it would permit states to
require adult children of Medicaid beneficiaries to contribute to
the cost of their care, except for long-term care. in addition,
the bill grants states broad discretion to impose cost-sharing
requirements on Medicaid beneficiaries. It imposes minimal
cost-sharing limits only for certain services to children and
pregnant women below poverty, leaving other women, children, and
most disabled and elderly fully exposed to potentially serious
financial consequences. This lack of limits on cost-sharing is
another factor which effectively undermines these persons'
"guarantee" of eligibility and benefits.
In addition, while the bill retains current law provisions
designed to protect spouses and other relatives of nursing home
patients from excessive liability for the cost of care, repeal of
the more general cost sharing protections significantly minimize
these protections. For example, nursing home residents who have
spent down their income to become eligible for Medicaid could be
charged any level of cost-sharing to help pay for long term care
services. In addition, services included in the nursing home
benefit could be reduced, leaving the spouses or children of
nursing home residents to bear the full cost of these services.
Furthermore, states could charge elderly or disabled persons any
level of premium, which could be set so high as to effectively
exclude them from the program.
Quality Assurance Requirements for Managed Care
In addition, the new Republican bill makes no mention of
quality assurance requirements or monitoring responsibilities for
Medicaid managed care. This is a serious concern since Medicaid
managed care enrollment is increasing so dramatically. About
one-third of beneficiaries now are in managed care, a 140 percent
increase in enrollment over the past three years. The
President's plan recognizes the need for updating managed care
quality standards. It replaces some outdated approaches with a
quality improvement program that must include appropriate
standards for Medicaid-contracting health plans and data analysis
that tracks utilization and outcomes.
Finally, we recognize that the Federal government finances
well over half of Medicaid spending nationwide, at a Cost to
Federal taxpayers which is growing to more than $100 billion a
year. The Federal government has a responsibility to those
taxpayers to ensure that these funds are spent efficiently and
Fulfilling this responsibility requires imposing a minimal
amount of reporting and monitoring requirements on states. There
are ways, similar to the approach taken in the President's plan,
that would provide states with expanded flexibility in management
and operation of their Medicaid programs, while ensuring
accountability for funds at the same time. Unfortunately, the
new Republican bill, includes no quality assurance requirements
or monitoring responsibilities for Medicaid managed care, and it
contains no mechanism to ensure that changes in benefits and
cost-Sharing do not jeopardize the sufficiency of coverage.
Thus, under the Republican bill, the Federal government will
finance a greater percentage of the Medicaid program, but
taxpayers will have fewer assurances that their money is being
In summary, like its predecessor last fall, the new
Republican bill fails to meet the President's third principle --
protecting beneficiaries, families, and taxpayers.
Let me conclude by focusing on one fundamental structural
issue - whether we approach the task of Medicaid reform by making
changes in the current title XIX of the Social Security Act, or
by repealing that program and replacing it with a new title. We
support reform, not repeal, of title XIX. The potential
unintended consequences of repealing and replacing this program
are staggering -- for states, beneficiaries, providers, and the
Federal government, especially when you consider that it would
reopen thirty years of settled litigation. The Congress can
address many of the most pressing concerns about any Medicaid
reform plan by amending the current law.
We in the Administration believe that Medicaid must be financed
through a Federal-state partnership that ensures Federal
funding and provides a real, enforceable guarantee of coverage
for a defined package of health and long-term care benefits. The
President's plan proposes unprecedented flexibility for the
states to operate their programs, pay providers, and use managed
care and other delivery arrangements, while retaining and
revising key standards related to quality and beneficiary
financial protections. The President's proposal would achieve
those objectives in a way that would also help to balance the
budget by 2002.
The last time I testified before this committee, I was encouraged
that the governors' bipartisan efforts appeared to be moving us
toward a solution that could meet the President's principles.
Since that time Moderate Republicans and Democrats in the Senate,
and more recently in the House, have worked hard to build on the
balanced approach envisioned in the NGA agreements. I am
disappointed that the bill before this Committee today is
extremely similar to the one that the President vetoed last fall
and that departs from the bipartisan agreements reached by the
Governors just a few months ago. While we cannot support this
bill, I can assure you that we stand ready to work with the
members of this committee and the entire Congress to design a
reformed Medicaid program that will meet the needs of
beneficiaries, states, and taxpayers.
Mr. Chairman, thank you again for the opportunity to testify
today and I look forward to answering your questions.
*There are 4 charts attached.