For several weeks, the District's Medicaid program has been the subject of controversy.

In a June 6 Close to Home column, D.C. Council member Sandy Allen, who chairs the council's Human Services Committee, defended her committee's action in cutting funding for the District's Medicaid program. I would offer a few comments in response.

The Medicaid budget for 1999 is $247 million. The mayor had proposed $260 million for next year, or about a 5 percent increase. Allen's committee initially endorsed a policy of no increase, but the final budget agreed to by the mayor, the council and the control board contained a $3.5 million increase. This brought the Medicaid budget up to about $250 million, 1.5 percent more than the current year. The only problem is that expenditures are growing at a rate of 5 percent to 6 percent a year.

Why are costs rising at such a rate? Mainly because reimbursement formulas have inflation built into them. For instance, Medicaid's HMO rates went up 4.7 percent this year because inflationary increases are written into the contracts. Hospital payments are increasing by 3.5 percent a year because reimbursement rates are tied to inflation in the hospital industry. Payments to nursing homes and group homes for the mentally retarded similarly have inflation built into them.

In addition, the District last year extended coverage to all children and parents with incomes below twice the poverty level. As a result, the number of Medicaid recipients is increasing.

In her column, Allen defended her cuts on the grounds that "in three out of the past four years, the District's Medicaid budget has enjoyed double-digit surpluses."

On average, though, there was no Medicaid surplus over these four years, and the only significant exception, in 1998, was the result of a special circumstance. For several years, the District had been paying off a backlog of Medicaid bills, some dating to the '80s. However, this backlog turned out to be smaller than expected, and as a result, some of the money allocated for old bills in 1998 was not needed, leading to a surplus. Significantly, however, next year's budget contains no funding for this purpose. More generally too, it is hard to see how surpluses in past years justify arbitrary cuts in the budget for future years.

All of this may sound like the Medicaid director arguing for more funding for his program, but it isn't. The District has one of the most expensive Medicaid programs in the nation, and a strong case can be made that cuts are in order. We have undertaken a major cost containment effort in the past three years, with the result that program expenditures declined between 1997 and 1999. Payments to providers were cut, recipients were enrolled in managed care and 20,000 ineligible individuals were removed from the rolls. The District's political leaders certainly would be within their rights in calling for more cuts. If so, however, they should be clear that that is what they want.

My agency is eager to work with members of the D.C. Council on these issues and more than willing to sit down with provider groups that have questions about the numbers. We are not trying to squirrel away money in the Medicaid budget so that we can claim some sort of victory down the road because we have money left over.

All we are saying is that here in the District, as elsewhere, Medicaid spending is growing at an annual rate of 5 to 6 percent. Next year's Medicaid funding grows by 1.5 percent. Therefore, we will either have to make cuts or face a deficit.

-- Paul Offner

is director of D.C. Medicaid.