What's Ahead in Medicaid for Children?

April 13, 2003

What's Ahead in Medicaid for Children? 

Children in poverty and their parents make up 73 percent of Medicaid beneficiaries but account for only one-quarter of Medicaid spending. The rest of the $250 billion that states and the federal government spend on Medicaid annually goes to care for the elderly and disabled, including disabled children and 60 percent of all nursing home patients.

Those statistics are likely to play into a debate now beginning about whether, and to what extent, Medicaid as it now exists will continue in the future, and which populations will continue to be served.

Four state governors--Bush of Florida, Rowland of Connecticut, Owens of Colorado, and Richardson of New Mexico—told the House of Representatives Subcommittee on Health in March 2003 that Medicaid demands on state treasuries are increasing because the population is aging and health care costs, particularly prescription drug costs, are rising.

Reflecting the governors’ preoccupation with the growing costs of Medicaid for the elderly and disabled, advocacy groups for the elderly and persons with disabilities outnumbered children’s groups at the congressional hearing, which was convened to discuss a Medicaid reform proposal put forward by President Bush in January.

What’s on the Table

Although details of the administration’s Medicaid proposal were lacking at the time of the hearings, in general the plan proposes to:

  • Convert the current state/federal partnership, in which the federal government matches state Medicaid expenditures, to a capped block grant for Medicaid and the State Children’s Health Insurance Program (SCHIP), combined;

  • Make the proposed block grant "budget neutral," meaning that in return for an up-front payment to states in the initial year, block grants would be reduced each year thereafter;

  • Divide the federal Medicaid/SCHIP contribution into two programs, one for acute care and the other for long-term care;

  • Continue federal matching entitlements for populations and programs that are mandated in Medicaid law, but put a limit on what the federal government would contribute for "optional" services.

The three Republican governors commended President Bush for "putting Medicaid on the table" but Democratic Governor Bill Richardson of New Mexico was critical of the administration’s proposed reforms, charging that limiting what the federal government would contribute for "optional" Medicaid services (meaning services and populations states are allowed but not required to cover under current law, including care for elderly and disabled persons) would leave states with the difficult decisions and financial costs of continuing those services.

The Bush proposal may be modified before it goes to Congress for approval. For example, the National Governors Association has formed a Medicaid Reform Task Force to work with the administration and Congress on restructuring Medicaid. Any final agreement would have to be based, said task force co-chair Governor Dick Kempthorne of Idaho, on an NGA policy statement adopted by the organization in February, which included the following provisions:

  • States are especially concerned about "dual eligibles," meaning persons who are enrolled in the Medicare program but are also eligible for Medicaid because of their low incomes. These are often nursing home patients who became eligible for Medicaid after exhausting their personal resources. "It is unacceptable for Medicaid to be the only long-term care program in this country," the policy statement said.

  • States want greater ability to manage the Medicaid program with respect to eligibility, benefits, cost-sharing, and coordination with private sector insurance, but they would like protection from the "fiscal and health policy implications" of such a change;

  • States believe the federal government should pay 100 percent of the cost of any new Medicaid mandates imposed by Congress, federal regulation, or court decisions.

Who’s at the Table

Three of the advocacy groups who testified at the March congressional hearing represented children who receive Medicaid.

The March of Dimes pointed out that in 2000, almost 22 million children and more than one-third of all births that occurred in hospitals (1.4 million) were insured by Medicaid.

The American Academy of Pediatrics noted that Medicaid provides health insurance for one in four American children, including one-third of children with special health needs, making it the largest children’s health program in the country.

The National Association of Children’s Hospitals pointed out that more than half of the 44.3 million Medicaid beneficiaries in the year 2000 were children under the age of 19, with one in three children depending on Medicaid or SCHIP for health coverage.

Speaking for Medicaid’s other constituencies, the American Health Care Association and the National Center for Assisted Living focused on long-term care patients, including seniors and persons with disabilities, "who rely heavily on the program." Their concern, which was repeated by other organizations, was that if Medicaid were to be separated into two block grants, one for acute and the other for long-term care, the funding of the long-term care grant would not be sufficient to meet the needs of the growing population of "the frail, elderly, and disabled."

The Leadership Council of Aging Organizations also opposed any attempt to block-grant the program, fearing a reduction in the federal contribution to long-term care, as did the American Association of Retired Persons, which noted that the administration’s proposal for "lump-sum allotments" to the states is insufficient and could lead to "permanent changes that will reduce or eliminate future care."

The American Hospital Association, representing 5,000 hospital, health care systems, and other health care providers, noted that the majority of states are considering proposals to cut Medicaid eligibility, health services, and payments to health care providers. The administration proposal "weakens the guarantee of coverage for vulnerable populations and dismantles the Disproportionate Share Hospital Payment program, which provides federal funds to hospitals that are safety-nets for poor people," the association said.

The Consortium of Citizens with Disabilities, a Washington, DC-based coalition of more than 100 national disability organizations, noted that for children with all types of disabilities, access to the Early and Periodic Screening, Diagnosis and Treatment (EPSDT) benefit under Medicaid "makes a major difference in their lives." The consortium also pointed out that for persons with epilepsy, mental illness, HIV, and a variety of physical disabilities, "Medicaid generally is the only source of funds."

The National Association of Public Hospitals and Health Systems cited the fact that 40 percent of the revenues of NAPH member hospitals are Medicaid revenues and called the Medicaid Disproportionate Share Hospital Program "the cornerstone of financial support for hospital services to low-income Americans."

The National Citizens’ Coalition for Nursing Home Reform said Medicaid supports about 70 percent of nursing home residents, about half of whom spent their life savings on nursing home care before they became eligible for Medicaid. Current law "protects adult children of nursing home residents from being forced to contribute to their parents’ nursing home care," the coalition noted.

The Debate Ahead

The portion of Medicaid that benefits elderly and disabled persons has powerful constituencies, including not only the patients themselves and organizations that represent them but adult children whose parents receive Medicaid-financed nursing home or other care. This may be a voting bloc that states and the federal government will want to please, while children receiving Medicaid and their disadvantaged parents are less likely to make themselves heard.

Further complicating the future of Medicaid, a federal "budget resolution" that sets parameters for federal spending over the next 10 years would require cuts of approximately $265 billion in "entitlement" programs to compensate for tax reductions. While the budget resolution does not specify what programs Congress might cut to reach those goals, Medicaid is a likely target. And if cuts in Medicaid were to be reached entirely by reducing the number of children covered, that would lead to the elimination of health coverage for 13.6 million children, according to an analysis by the Center on Budget and Policy Priorities.

Critics charge that the Bush administration’s new receptivity to budget deficits, once a conservative no-no, is less about fiscal policy than social policy. With a huge deficit, the critics speculate, Congress will be urged not to reform but to eliminate "wasteful social programs," including Medicaid.

Other factors that may figure in the coming debate include whether persons who are enrolled in Medicaid are actually receiving services. Reimbursement to doctors and other health care providers is generally lower under Medicaid than in the overall health market, making it hard for some Medicaid recipients to find doctors or dentists willing to treat them. A recent report by the Congressional Research Service found that states have poor follow-up and incomplete records on the care actually being received by children enrolled in Medicaid.

The debate is expected to heat up as the administration makes formal its tentative Medicaid reforms. Some opposition has surfaced; a bill introduced in the House of Representatives would forbid making Medicaid a block grant, for example.

With looming financial problems, it is likely, however, that states will not let the Medicaid issue die, and that they may ask Congress to reconsider some of the "mandated" Medicaid services, including services to children.