Saving $10 Billion

The Medicaid Commission on Thursday voted on six recommendations to save $10 billion over the next five years in federal Medicaid spending. Some changes involve the intricacies of Medicaid pricing formulas and others set out new incentives that plant the seeds for bigger changes to come.

Former Govs. Don Sundquist and Angus King, chair and co-chair of the panel, created a chairman’s mark which was approved unanimously, but only after considerable debate. Here are the recommendations:

  • The biggest savings come from changing the prescription drug reimbursement formula from the much criticized Average Wholesale Price to the apparently more accurate Average Manufacturers Price. Savings: $4.3 billion.

  • One of the most hotly debated issues was whether to allow states to create and enforce tiered co-payments for drugs for Medicaid beneficiaries. Tiered co-payments have long been employed in the private sector to encourage cost efficiency. The recommendation sets the tone for Medicaid to begin to operate more like private plans while giving the states broad authority to waive the co-pays in hardship cases. Savings: $2 billion.

  • Two items would make it harder for middle-class Americans to transfer assets so they can qualify for Medicaid. Together, the two changes total $1.6 billion.

  • The commission voted to stop one of the newest tactics that states use to draw more money from the federal government through matching funds. The commission said states should stop imposing taxes on Medicaid Managed Care Organizations and then kicking them back after the states collect their federal match money. This sends a message this scamming of the system must stop. Savings: $399 million.

  • Finally, Meg Murray of the Association for Community Affiliated Plans (a trade association of safety net health plans) made a presentation to the commission arguing that the current Medicaid rebates should be extended to Medicaid managed care organizations. Bob Helms of AEI offered two substitutes that would have instead curtailed the most significant gaming of Medicaid by the states, but the commission postponed these decisions, mostly because members felt they needed more information. Savings from the Medicaid rebate extension: $2 billion.

The report on these short term recommendations is due September 1, and will advise Congress about decisions they expect to make next month about saving the $10 billion. The commission’s major report concerning broader restructuring of the program isn’t due until next December. The Commission plans to hold several hearings around the country between now and then and has a long list of ideas it wants to explore and experts it wants to hear from to make progress toward meaningful longer-term program changes to better serve beneficiaries.


Health Policy Matters will take a short summer break and will return after Labor Day. Enjoy what’s left of this very hot summer.

Grace-Marie Turner



  • Insurer reveals what doctors really charge
  • Medicaid’s unseen costs
  • Awash in information, patients face a lonely, uncertain road
  • Rocky Mountain Medicaid
  • How many governors does it take to reform Medicaid?
  • Pacific Research Institute launches new blog
  • HSA state implementation guide

Author: Vanessa Fuhrmans
Source: The Wall Street Journal, 08/18/05

This week, Aetna became the “first major health insurer to publicly disclose the fees it negotiates with physicians,” reports The Wall Street Journal. To answer the chorus of consumer demands for more information about health care prices, Aetna will make available to its members actual discounted rates for hundreds of procedures provided by 5,000 physicians in parts of Ohio, Kentucky, and Indiana. “Some in the health-care industry say the move is likely to push more insurers to follow suit, which in turn would give a significant boost to consumer-driven health plans,” reports the Journal. “To create a more functional health-care market, we needed more transparency,” said Ron Williams, president of Aetna. [Amen!]
Full text (subscription required):
Aetna press release:

Author: Michael F. Cannon
Source: Cato Institute, 08/18/05

Current Medicaid policy “actually exacerbates the problems of poverty and the lack of affordable medical care,” says Michael F. Cannon, director of health policy studies at the Cato Institute. “Medicaid encourages people to become dependent on government; encourages people to behave in ways that increase the cost of government and of medical care, which makes self-reliance more difficult for others; and encourages states to induce more people to impose those costs on their neighbors.” In this paper previewing an upcoming book, he offers three recommendations for Congress, which should use the 1996 welfare law as a model for reform: “(1) cap federal Medicaid spending, (2) block grant federal funds to the states, and (3) allow states full flexibility to define eligibility and benefits under their Medicaid programs.”
Full text:

In a Health Affairs Web Exclusive, Teresa A. Coughlin and Stephen Zuckerman of the Urban Institute examine budget strategies that eight states employed from 2003 to 2005 to cope with the rising costs of Medicaid and SCHIP.
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Author: Jan Hoffman
Source: The New York Times, 08/14/05

The New York Times health section is featuring a series on “being a patient” in our modern health care system. The first article in the series focuses on the often overwhelming decisions patients face after being diagnosed with an illness. “Within the past decade, the shift in the doctor-patient conversation – from, ‘This is what’s wrong with you, here’s what to do,’ to ‘Here are your options, what do you want to do?’ – became all but complete,” reports the Times. According to a New York Times/CBS News poll, after a diagnosis 44% of patients now seek additional medical information from the Internet, friends, relatives, and from physicians other than their own. “As this new responsibility dawns on patients, some embrace it with a sense of pride and furious determination,” reports the Times. “But many find the job of being a modern patient, with its slog through medical uncertainty, to be lonely, frightening and overwhelming.”
Full text:
Also in this series:

Author: John Andrews
Source: The Wall Street Journal, 08/18/05

Colorado introduced an experimental Medicaid initiative for the severely disabled, called Consumer-Directed Attendant Support (CDAS), that has improved quality of care and patient satisfaction while also lowering costs, writes John Andrews, a Claremont Institute fellow and former president of the Colorado Senate. CDAS, which started in 2002, allows Medicaid beneficiaries “to hire and fire their own caregivers?bypassing the provider agencies otherwise required under Medicaid rules for home- and community-based services.” Average monthly spending for the first two years of the CDAS program was 21% under budget, with $3, 925 per client allocated and $3,131 expended. “Half of any monthly savings a CDAS client realizes go into a personal fund for approved purchases to further his or her independence,” writes Andrews, such as purchasing a voice-activated telephone for a wheelchair bound patient. Patients also are much more satisfied with the quality of their care. The patient-empowerment initiative now has 146 participants but will be offered to 33,000 Medicaid recipients statewide in 2006.
Full text (subscription required):

Author: John R. Graham
Source: Pacific Research Institute, 08/05

“Medicaid has a built-in perverse incentive that all but guarantees unaccountable spending growth by state politicians,” writes John R. Graham of the Pacific Research Institute. At least 50% of a state’s Medicaid costs are paid for by the federal government and “states with lower per-capita incomes actually get more than the standard hand-out” with some federal shares going up to 83%. Graham writes that President Bush’s “offer of waivers from Medicaid regulations to states that accept a cap on federal matching funds has the potential to limit spending growth and spark valuable innovation in state programs.”
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The Pacific Research Institute has launched a new blog,, to provide commentary and analysis on policies and news concerning public health and medicines. PRI’s Peter Pitts, a senior fellow in health care studies, will serve as chief pundit for the blog, which will also feature guest commentaries from policy experts, physicians, regulators, and scientists. “DrugWonks will discuss issues from drug importation, to Medicare’s new prescription drug program, to drug development. We invite policymakers from all sides, the medical community, drug makers, and the media to debate these critical issues and to comment on the blog,” said Pitts.

Source: The Council for Affordable Health Insurance, 08/05r
The Council for Affordable Health Insurance (CAHI) has released a guide listing actions in the states involving conflicts between state laws and federal requirements for Health Savings Accounts (HSAs). The report contains information about state actions in several areas including: tax treatment of HSAs, mandated health benefit issues, high-risk pools, HSAs for state and municipal employees and for Medicaid beneficiaries, and mandating that an HSA option be available. “Just because a federal bill becomes law (e.g., the HSA legislation) doesn’t mean that implementation will go smoothly in the states,” concludes CAHI, “each state regulates the health insurance industry and products for its state residents.”
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Medicaid and the Long-Term Care Crisis — Who Should Pay?
Cato Institute Policy Forum
Wednesday, September 7, 2005, 12:00 PM (Luncheon to follow)
Washington, DC

For additional details and registration information, go to:

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