Proposed Medicaid Rule Changes Would Cost States $50B in Federal Aid Over Five Years

Kaiser Daily Health Policy Report , March 4, 2008

Proposed Medicaid Rule Changes Would Cost States $50B in Federal Aid Over Five Years :According to Report

Proposed changes to federal Medicaid guidelines would reduce payments to states by nearly $50 billion over five years — more than three times the federal estimates, according to a report released by House Oversight and Government Reform Committee Democrats on Monday, CongressDaily reports (CongressDaily, 3/3). The changes include provisions that would prohibit states from using federal Medicaid funds to help pay for physician training, place new limits on Medicaid payments to hospitals and nursing homes operated by state and local governments, and limit coverage of rehabilitation services for people with disabilities, including those with mental illnesses (Kaiser Daily Health Policy Report, 3/3).

The Office of Management and Budget has estimated that changes would reduce federal payments to states by about $15 billion over the next five years. The federal government, which currently pays about 57% of the total cost of Medicaid, is expected to spend about $204 billion on the program this fiscal year.

The report included a financial breakdown of how each of the rule changes would affect each state. The report stated that in “a program like Medicaid, which is operated by states on a day-to-day basis and is famous for its variation from state to state, the lack of state-specific estimates represents a major failure in transparency” (CongressDaily, 3/3). However, the report stated that the estimates “should be viewed with caution” because not all states responded to the committee’s Jan. 16 request for cost estimates of the rule changes. In addition, states that did respond used different methodologies to calculate their estimates; some states did not provide estimates for all of the regulations; and some said they were unable to analyze some regulations’ full impact (CQ Today, 3/3).

Committee Chair Henry Waxman (D-Calif.) said, “As the economy tips into recession, the last thing we should be doing is taking federal funds from states, especially funds that are supposed to help people with their health and medical expenses” (AP/Houston Chronicle, 3/3).

Administration Response

CMS spokesperson Jeff Nelligan called the report “not credible,” saying that it contains questionable calculations and lacks supporting evidence. He said, “The committee paper fails to provide any reliable information such as the assumptions, expenditure reports, the knowledge of how states will respond and budget forecasts necessary to substantiate any of the numbers contained in the paper” (CQ Today, 3/3).

Dennis Smith, director of the Center for Medicaid and State Operations at CMS, said the report lacked credibility, had gaps and made assumptions. He said, “We don’t see states changing their budgets based on these kinds of assumptions” (AP/Houston Chronicle, 3/3).


The first regulation, which limits federal reimbursement for ancillary services, such as helping beneficiaries find jobs or housing, took effect on Monday (CQ Today, 3/3). Congress has placed a moratorium on four of the rules and likely will extend the moratorium into next year, according to CongressDaily (CongressDaily, 3/3).

On Monday, a Senate Democratic aide said Democrats might use the budget reconciliation to prevent the regulations from taking effect. The aide said, “We’re all waiting to see if there will be a reconciliation part of the budget, and if so, then senators who are interested in overturning the [regulations] could use that as the vehicle,” adding, “Republicans will, no doubt, object, but my understanding is that we’ll be able to overcome their objections” (CQ Today, 3/3).

*       The committee report is available online.

1 Response to “Proposed Medicaid Rule Changes Would Cost States $50B in Federal Aid Over Five Years”

  1. 1 mlyon01 March 4, 2008 at 1:25 pm

    From: Randall Hagar []

    New Medicaid Rules Shift $12 Billion in Health Care Costs to California

    At a time when California is already grappling with a $16 billion budget shortfall, the federal government has introduced a plan to reduce the amount of money it gives states for Medicaid and other social services, putting further strain on California’s Medi-Cal program.

    This week, the Centers for Medicare & Medicaid Services (CMS) is implementing the first in a series of new Medicaid rules that would shift billions in health care costs to state and local governments. The rules would limit how much states could pay health care providers, ban the use of federal Medicaid money to train doctors, set new limits on Medicaid payments to hospitals and nursing homes operated by state and local governments, and limit Medicaid coverage of rehabilitation services for people with disabilities, including serious mental illnesses. The rules are scheduled to take effect over the next several months.

    Some estimates indicate that California alone would lose $12 billion over five years.

    One of the rules would ban the use of federal Medicaid funds to help pay for physician training, a use that has been allowed since the program began in 1965. According to Dennis Smith, director of CMS’ Center for Medicaid and State Operations, the Bush administration believes “that paying for graduate medical education is outside the scope of Medicaid’s role, which is to provide care to low-income people.”

    Stan Rosenstein, California’s Medicaid director, believes using funds for physician training is justified because “interns and residents provide a tremendous amount of care to Medicaid beneficiaries.”

    Governors of both parties have strongly objected to the new rules and have asked Congress to stop implementation of the regulations, which could have a devastating effect on the nation’s health care system. For states already grappling with rising health-care costs, the new rules will force them to consider cutbacks in services, leaving the most vulnerable Americans without access to health care and other vital services.


    Randall Hagar

    Director of Government Affairs
    California Psychiatric Association
    1400 K Street, Suite 302
    Sacramento, CA 95814
    (916) 442-5196
    (916) 442-6515, fax

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