Wednesday March 14 10:55 AM ET
Big Medicaid States Try to Restrain Rising Costs

By Joan Gralla

NEW YORK (Reuters) - The five states with the biggest Medicaid bills are searching for ways to restrain the megabuck program that helps provide health care for the needy -- an urgent task because costs are expected to spiral upward after the past few years of modest increases.

In the near term, Medicaid experts say most states simply will have to come up with money to pay for ballooning costs. But one of the most difficult things to predict is whether the states -- New York, California, Texas, Pennsylvania and Illinois -- will at some point slash benefits for the people who qualify for Medicaid, a joint state-federal program.

``Suddenly, states feel they're facing higher costs and don't have the appropriate money to act on that,'' Richard Cauchi, senior policy specialist at the National Conference of State Legislatures, said recently.

Medicaid will exceed budgets in many states, a recent NCSL study found. Florida lawmakers will likely consider spending cuts because of the increasing burden of Medicaid, while other states, such as Kentucky, face a tight budget for fiscal 2002 due to Medicaid cost overruns.

The Washington-based Kaiser Commission on Medicaid and the Uninsured said in a February report that early reports showed Medicaid spending accelerated in 1999 and the trend likely would continue for lots of reasons, from rising drug costs to the need to pay staff higher wages.

``Medicaid spending could grow by up to 10 percent in the near future because of rising health care costs, particularly prescription drugs, the eroding impact of Medicaid managed care, wage pressures in the health care industry, the use of supplemental financing programs and enrollment increases,'' the research group said.

Reluctance To Slash Rolls Or Benefits

But another expert argued that politicians do not want to slash the number of people who get benefits: ``What states will try to avoid at all costs is kicking people off the rolls; it's viewed as much less harmful to get rid of a particular benefit, (such as) getting rid of dental coverage.''

The federal government requires states to provide 12 services and leaves them free to offer more than 30 optional services from providing wheelchairs to paying for prescription drugs. Some 40 million Americans get Medicaid benefits.

California takes pride in offering 32 out of 34 optional benefits and providing coverage for 19.8 percent of its population. ``That contrasts with the 10 largest states that average 15.5 percent,'' a state official said.

Yet the burden its Medicaid program poses is substantial. The cost is rising by $603 million in fiscal 2002 from $24.5 billion in 2001, the official estimated, adding: ``We're not proposing a lot of changes (to cut costs).''

The state expects to rely on its success in getting extra rebates from drug companies on top of federal discounts and using its clout to buy stays in hospitals at cheaper rates. Another big cost-saver is California's use of stringent prior authorizations to ensure expensive medical services are really medically necessary, the official said.

Though New York State has just over 18 million people, it has the nation's largest Medicaid program measured in dollars. Most of the beneficiaries live in New York City.

Gov. George Pataki's nearly $84 billion financial plan for fiscal 2001 proposed spending $32.4 billion on Medicaid, a $1.5 billion rise from a year-ago.

The Republican governor has focused his latest cost-cutting efforts on slashing nursing home reimbursements, but the Republican-led state senate wants to restore $130 million of his reductions, which were estimated at $327 million for nursing homes. And the Democratic-led Assembly also has signaled it believes Pataki's cuts were too deep.

A spokesman for the state Department of Health said Pataki was stressing cutting nursing home reimbursements because they cost the state a total of $6 billion a year. ``The next closest is Pennsylvania, which spends $3.5 billion in nursing home reimbursement. California has the largest elderly population in the country and they reimburse nursing homes for services provided by approximately $2 billion.''

New York has 676 nursing homes with about 115,000 residents, the spokesman added. Pennsylvania has 790 nursing homes with nearly 90,000 residents, Richard McGarvey, a spokesman for the state Department of Health, said. California has 1,400 nursing homes with about 150,000 residents.

Pennsylvania was expected to spend $9.3 billion on Medicaid in fiscal 2002, according to Susan Aspey, a spokeswoman for the Department of Public Welfare. The cost has been rising an average of almost 8 percent in each of the past five years.

Managed Care Data Inconclusive

Cost-cutting efforts have relied mainly on switching beneficiaries to managed care, Aspey said. ``It's enhanced the quality of both physical and mental health facilities for our clients. It also stabilizes Medicaid spending.''

Yet the Kaiser report found that the data showing managed care contained Medicaid costs were inconclusive. Nearly 54 percent of the people who get Medicaid benefits in all the 50 states were enrolled in managed care in 1998, the study said, but the amount spent per person rose 7 percent that year.

Texas projected that it will spend nearly $11.5 billion in fiscal 2002, about $640 million more than the year before, according to a state official. A Medicaid working group now is exploring why costs are rising as well as trying to get a grip on how best to restrain them, state officials said, adding the budget process still was too early to release definite plans.

But inflating Medicaid costs could erase an estimated $300 million the Texas Legislature has to spend on new programs and may land the state's budget in the red.

In Illinois, the forecast for Medicaid spending is seen at around $7 billion in fiscal 2002, deputy budget director George Hovenac said. The state expected to live off some of the savings already enacted -- about $155 million of cuts on an annualized basis -- he said, but it needs to slash the total state budget for all spending by $270 million.

But Medicaid does not have to bear the brunt of that cost-cutting. ``We have no plans at this point -- we will not reduce eligibility nor do I believe we will make any major changes to our eligibility package,'' Hovenac said, explaining this was a fairly expansive package of benefits.