Medicaid Provisions of House Reconciliation Bill both Harmful and Unnecessary: Senate Bill Achieves Larger Savings without Reducing Access to Care

PDF of this report (18pp.)

By Victoria Wachino, Leighton Ku, Edwin Park and Judith Solomon

Revised December 9, 2005

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Executive Summary

The House and the Senate are attempting to work out a conference agreement on a budget reconciliation bill that reduces funding for a range of programs, including Medicaid. The House and Senate bills differ dramatically in their approach to Medicaid.

The House bill would significantly increase the co-payments and premiums imposed on low-income Medicaid beneficiaries and restrict the availability of important health care services. The Congressional Budget Office (CBO) has found that if these provisions become law, many low-income people would forgo health care services, and others would lose health coverage altogether.

The Senate bill demonstrates that it is possible to achieve savings in health entitlement programs without compromising care for low-income people, by reducing the cost of health care rather than beneficiaries’ access to it. The Senate bill achieves the bulk of its health care savings by reducing Medicaid payments for prescription drugs and curbing excessive Medicare payments to managed care plans. The House bill, in contrast, largely shields drug companies and managed care plans and obtains the bulk of its savings by shifting costs to low-income beneficiaries.

The House bill contains other harmful elements as well. One such provision is aimed at preventing people who apply for Medicaid long-term care services from sheltering assets that could have been used to pay for long-term care. While the goal of this provision is reasonable, the House provision is poorly designed and would penalize many individuals who make small asset transfers, such as birthday gifts or charitable donations, well before an unexpected decline occurs in their health that causes them to need long-term care. The asset-transfer provisions in the Senate bill are better targeted and would be more effective.

In addition, the House bill would impose a new requirement on states that U.S. citizens who apply for Medicaid must provide documentation of their citizenship status, generally by producing a birth certificate or passport. Government investigations have found no significant evidence that immigrants are obtaining Medicaid by falsely claiming citizenship, and the main effect of the House provision would be to make it harder for many eligible U. S. citizens to obtain Medicaid coverage because they do not have ready access to a passport or birth certificate.

The House bill also would establish a risky “Health Opportunity Accounts” demonstration project in up to ten states. Beneficiaries who opt for the accounts would be required to meet a substantial deductible before they could access their standard Medicaid benefits, and the accounts would not necessarily be large enough to cover the full deductible. As a result, some low-income beneficiaries could face a sizeable increase in their out-of-pocket health costs. The accounts also would increase federal Medicaid costs, since account-holders would be permitted to keep most of the unused funds in their account once they were no longer eligible for Medicaid. This provision, like the new documentation requirement, is not in the Senate bill.

Even as the Senate bill avoids imposing new risks and burdens on low-income people, it also reduces federal expenditures on health entitlement programs more than the House bill does. The net health entitlement savings over five years are $9.3 billion for the Senate bill and $8.6 billion for the House bill. Over ten years, the gap between the two bills is larger: the Senate bill reduces expenditures for health entitlement programs by $53.3 billion over ten years, while the House bill reduces expenditures by $42 billion.

For all of these reasons, any conference agreement should rely heavily on the savings proposals in the Senate bill, including those that reduce excessive payments to Medicare managed care plans and reduce what Medicaid pays for prescription drugs.

This paper outlines the provisions of the House bill that pose the greatest risks to low-income families and individuals.

Complete PDF of this report.

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