States' Changes Reshape Medicaid

By Amy Goldstein
Washington Post Staff Writer
Monday, June 12, 2006

After winning greater freedom from federal Medicaid rules, states are moving aggressively to transform the nation's largest public health insurance program, adding fees, restricting benefits and creating incentives for patients to take responsibility for their health.

The changes are just beginning in several states that are being watched closely by governors nationwide. Those changes are reshaping Medicaid, which covers 55 million poor and disabled Americans, so that the program more closely resembles private insurance, rather than a social welfare system run with a strong, central government hand.

Starting July 1, West Virginia will phase in a redesigned form of Medicaid that requires patients to sign a "member agreement," promising that they will keep doctors' appointments, take prescribed medicine and not overuse hospital emergency rooms. Patients who refuse to sign or to follow the rules will be eligible for less care.

Kentucky is dividing its Medicaid patients into four categories, depending on their health and their age, with different benefits for each group. Most adults will face higher co-payments for medical services and new limits on prescription drugs. But patients who sign up for a "disease management" program eventually will be able to earn credits toward extra "get-healthy benefits," such as eyeglasses or classes to quit smoking.

Florida, meanwhile, will privatize part of its Medicaid system in September, directing patients in Jacksonville and Broward County to pick from 19 health plans, each offering different services. In a departure from how states have reimbursed doctors or health plans, Florida health officials will rate the health of every Medicaid patient in the two communities and pay for only as much care as officials predict they should need.

"We've got a whole new dialogue about how health care should be delivered and financed," said Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, a nonpartisan policy group.

The emerging shape of Medicaid represents a victory for governors of both political parties and for fiscal conservatives, who argued for years that states deserved more control over the program so it would place less strain on their budgets. Some patients advocates, however, warn that the vulnerable patients Medicaid was designed to help will be less certain to get the health care they need.

Since its creation in the 1960s, Medicaid has been a shared responsibility of the federal government and the states. States shoulder more than 40 percent of the cost, which totals $338 billion this year, and have always had certain freedom to decide how many benefits to cover. But the federal government has determined many of the program's basic contours.

Last December, Congress granted states broad flexibility to alter benefits, charge patients more and expand the role of private insurers as part of a law that will cut federal Medicaid spending by $43 billion in the next decade. Even before the law, the Bush administration was sympathetic to states that wanted greater say over how their programs are designed.

The law, called the Deficit Reduction Act, and the administration's policies have eliminated a hallmark of the program: Until now, every Medicaid patient within a state has qualified for the same benefits.

Medicaid's new direction borrows ideas from the overhaul of the welfare system a decade ago. That transformation also decentralized a major piece of the social safety net, limited government assistance, expanded the private sector's role and tried to instill self-reliance in low-income people who had depended on government help.

The Bush administration is encouraging states to embrace the altered view of Medicaid. "We are trying to be as supportive as we can," said Mark B. McClellan, administrator of the federal Centers for Medicare and Medicaid Services. His agency has been coaching states on the changes they can make -- and swiftly approving states' revisions. When West Virginia's Medicaid commissioner, Nancy V. Atkins, sent the federal agency the proposal for the state's redesigned program on April 26, she was startled that it was approved one week later.

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