States Spar Over Ways To Slice Medicaid Pie

New block grants could hurt states with leanest programs

MEDICAID civil war may be brewing.

Rival camps are forming across the nation as states prepare to battle for their "fair share" of federal Medicaid funds.

The stakes are high. Some 36 million Americans, including 4 million senior citizens, are enrolled in the health-care aid program for the poor. Medicaid covers more than half the nation's nursing-home bill.

The scramble is the result of a plan by the Republican-controlled Congress to turn Medicaid over to the states.

"It's a tug of war between all the states," says Diane Rowland, executive director of the Kaiser Commission on the Future of Medicaid, based in Washington, D.C.

In one camp are states from the Sun Belt to the Pacific Northwest. These states expect population growth to boost demand for Medicaid. And some states in this group offer relatively lean Medicaid benefits, when compared with Northeastern states that offer more optional services. In the view of this camp, the federal "block grants" should be apportioned on the basis of a state's need, and should be adjusted regularly for population and economic changes.

That sounds logical enough. Except that Medicaid money today is partially allocated not on need but on how generous a state has chosen to be.

So there is another camp, including the Northeastern states that have been more generous in offering optional services. These states, along with states with slow-growing populations, favor basing federal grants on current funding levels.

Such formula fights are not new. Another battle like this is occurring now over welfare reform. But this one is especially contentious, because the current funding disparities make it hard to find a formula that pleases all the states.

Consider the contrast between America's two most populous states: New York has less then two-thirds California's population, but its Medicaid program costs almost $20 billion to California's $13.5 billion.

John Rodriguez, who heads California's Medicaid program, says a formula based on current funding would punish his state for its success in holding costs down. He says California should somehow be given credit for cost-containment measures.

Grants based on current spending would "lock in all the inequities of the past," and then grow worse as populations and economic conditions change, adds Charles Salem, who represents Florida Gov. Lawton Chiles (D) in Washington, D.C.

"If you started from scratch,... it would perhaps be more equitable," Ms. Rowland says. But she says it will be "very hard to take money away" from states such as New York that are currently getting it.

The debate over formulas will blur partisan lines as Democrats and Republicans band together to protect regional interests, analysts say.

The Medicaid debate is prompted by the Republican congressional plans to balance the federal budget by 2002. That goal cannot be reached without tackling big entitlement programs such as Medicaid.

Without changes, federal Medicaid spending (about 60 percent of the total) will grow from $89 billion this year to $178 billion by 2002.

Under the House and Senate reforms, the total in the year 2002 would be cut back by about $52 billion. Medicaid spending would still grow by about 5 percent a year, but some analysts say this would not keep pace with growing demand.

Many state officials, sharing concern about the skyrocketing medical expenditures, like the idea of block grants. States would get more freedom to tailor the programs to their needs and cut red tape to save costs.

"I would be very supportive of trading the reduction [in federal funding] in exchange for flexibility," says Peter Blouke, who manages Montana's Medicaid system.

"We spent a year just negotiating with the feds" for waivers to modify Medicaid to meet the state's welfare-reform goals, he says.

Other officials, while acknowledging the budget problem and desiring flexibility, worry about the impact of Congress's plans.

Jane Beyer, Medicaid manager for Washington State, says the state wants to add 100,000 children who currently lack health insurance to the state's Medicaid rolls by 1997.

Washington and other states are unlikely to be able to make up such shortfalls on their own, since they are strapped by balanced-budget requirements.

A recent study by the Urban Institute, a Washington, D.C., think tank, forecasts that Congress's plans will mean as many as 9 million fewer Medicaid beneficiaries than if the current system remained.

This means there will be politically tough choices even for Republicans eager to balance budgets: Will reductions in service be dispersed evenly among the elderly, children, and the working adults? Or will one of these groups gain at another's expense? Meanwhile, should payments to hospitals be cut so more money can be spent on beneficiaries as the Senate plan proposes?

"There is going to be massive lobbying going on," from all affected groups, Ms. Beyer says.