Published on Monday, March 28, 2011 by The Hill

Dems: Potential Cuts to Medicaid Outlined by Administration 'Cruel'

by Mike Lillis

An Obama administration letter outlining potential Medicaid cuts to help states balance their budgets was "cruel" and "disappointing," according to several prominent Democrats.

"When you consider that – in a for-profit healthcare system, about 30 percent, and as much as 33 percent, of all spending goes for corporate profits, stock options, executive salaries, advertising, marketing, processing paperwork – it's cruel," Kucinich said of the HHS letter. (AFP/Getty Images/File/J.D. Pooley) The lawmakers are concerned the letter will encourage states to clip health coverage for some of the country's poorest people amid a poor economy when they could use the benefits most.

"It's cruel," said Rep. Dennis Kucinich (D-Ohio), "and it's nothing you would expect from a Democratic administration."

The potential for cuts highlights the pickle facing federal lawmakers as they try to expand healthcare coverage while simultaneously reining in soaring healthcare costs. It underscores the pressures on state leaders to balance budgets during a period of high unemployment and deflated revenues. It accentuates the structural flaw plaguing Medicaid, which often sees enrollment spike during bad economies when states can least absorb the extra costs. And it foreshadows potential troubles with the new health reform law, which leans heavily on an enormous Medicaid expansion to cover millions of uninsured Americans in the years to come.

The controversial letter, sent to the nation's governors last month by Health and Human Services (HHS) Secretary Kathleen Sebelius, acknowledges the severe budget conditions tormenting states and offers "new tools and resources to achieve both short-term savings and longer-term sustainability" under Medicaid.

The suggested strategies are wide-ranging, including efforts to rein in fraud, shift patients into managed care and encourage generic drugs in lieu of name brands. But atop the list are ways states can scale back non-mandatory benefits and shift higher costs onto Medicaid patients.

"While some benefits, such as hospital and physician services, are required to be provided by State Medicaid programs, many services, such as prescription drugs, dental services, and speech therapy, are optional," Sebelius wrote. "In addition, States may add or increase cost sharing for services within limits."

The message was a response to an earlier letter from 33 governors asking Sebelius to lift a provision of the new reform law – called the maintenance of effort (MOE) requirement – preventing states from trimming Medicaid rolls ahead of the law's broad 2014 expansion.

Mary Kahn, spokeswoman for the Centers for Medicare and Medicaid Services (CMS), said the Sebelius letter "does not encourage states to drop coverage, it simply outlines the flexibility available to states under current law."

But some liberal lawmakers say even that was a step too far. Kucinich, a long-time advocate for a single-payer healthcare system, is wondering why the country's most vulnerable populations should shoulder the burden of state efforts to balance budgets.

"When you consider that – in a for-profit healthcare system, about 30 percent, and as much as 33 percent, of all spending goes for corporate profits, stock options, executive salaries, advertising, marketing, processing paperwork – it's cruel," Kucinich said of the HHS letter.

Rep. Elijah Cummings of Maryland, the top Democrat on the House oversight committee, was also critical. Focusing specifically on Medicaid dental coverage, he said the HHS letter is "disappointing," and called on the agency "to revisit" its reminder that certain dental services are optional under the program.

"Dental care is something that's easy to resolve. I'm talking about stuff like sealants; I'm talking about check-ups; simple things," Cummings said. "I would hope that [Sebelius] would revisit that, and instead of making it a second-tier or third-tier health priority, she would put it on the first level."

The lack of dental care in Medicaid can have tragic consequences. In 2007, a 12-year-old Maryland boy named Deamonte Driver was hospitalized when bacteria from an abscessed tooth spread to his brain. Six weeks, two operations and hundreds of thousands of dollars later, he died. An $80 procedure might have saved him, but his mother couldn't find a dentist who would accept his insurance plan. It was Medicaid.

Because dental coverage for kids is mandatory under Medicaid, states cannot cut those services in search of budget savings. But they can eliminate dental coverage for adults, and cut reimbursement rates for doctors and dentists that can affect patients of all ages.

Jocelyn Guyer, co-executive director at Georgetown University's Center for Children and Families, an advocacy group, called the latter option "a back-door strategy" for cutting costs that can also erode access to care.

"They end up just pulling out people's teeth," Guyer said, "because it's cheaper."

Guyer noted that the HHS letter didn't contain anything that Medicaid experts – both advocates and state officials – don't already know. Still, she said she was "surprised they put the benefit cuts first" among the cost-saving options.

Medicaid, a federal-state partnership, is a prominent target for state budget hawks not only because it represents an enormous chunk of state budgets, but also because the low-income beneficiaries tend to hold much less sway politically than better-heeled special interests.

The Center on Budget and Policy Priorities (CBPP), a liberal policy group, says 31 states have already slashed public health benefits to balance budgets in response to the recession, with most of those cuts targeting Medicaid. Additionally, CBPP has identified at least 23 states that have proposed additional Medicaid cuts in their coming-year budgets.

Mike Leachman, a CBPP analyst, said many state officials are focusing their deficit-reduction efforts disproportionately on Medicaid because they've taken tax hikes off the table.

"Many governors," he said, "are proposing much deeper cuts than are necessary."

The debate over further cuts comes at a time when access to care under Medicaid is already at remarkably low levels. Only about 40 percent of physicians accept all new Medicaid patients, versus 58 percent for Medicare patients, according to a 2009 study from the Center for Studying Health System Change, which randomly surveyed more than 4,700 physicians.

Gaining access to dental care is even tougher. A 2007 survey by the American Dental Association found that fewer than 27 percent of respondents treated Medicaid-insured patients.

The reason is no mystery: Medicaid payments, despite a 12 percent increase between 2003 and 2010, represent just 69 percent of what Medicare pays for the same services, said Stephen Zuckerman, health policy analyst at the Urban Institute.

"This is serious stuff," Cummings said. "It's not just [about] the Deamonte Drivers of the world."

Other House Democrats downplayed the significance of HHS' menu of Medicaid cuts. Rep. Henry Waxman (Calif.), senior Democrat on the Energy and Commerce Committee, said Sebelius was simply reminding states of their ability to make changes to Medicaid – "even reductions that I don't think would be wise."

"She was interpreting the law for them in a way to show there are things the states can do – there are services that are optional, there are populations that are optional," Waxman said. "I wouldn't want to see a state not cover pharmaceuticals for the Medicaid population, but they do have that option. If they took that option, they wouldn't be spending their state share on what I think is an essential part of medical care – but it's their prerogative."

Rep. Frank Pallone (N.J.), senior Democrat on the Energy and Commerce health subcommittee, agreed. He said the Sebelius letter "essential shows that there's flexibility" for states trying to balance budgets.

"I'd rather have this flexibility than have people dropped from the program," Pallone said.

As the debate rumbles on, HHS is sending teams across the country to help local Medicaid officials devise ways to control costs. Eighteen states have requested help thus far, said CMS' Kahn, but the outreach program is just getting started, and CMS officials "haven't done extensive work yet."