Bush Would Give States More Medicaid Flexibility

January 31, 2003
HHS Secretary Tommy G. Thompson announced a new plan to enable states to improve health insurance coverage for low-income Americans.

"The time to modernize Medicaid is here," Secretary Thompson said. "The states' budget crises are threatening the progress we've made in expanding health insurance, and at the same time the old Medicaid rules are a straight-jacket, restraining creative new approaches that could preserve coverage and expand it to more Americans in need."

The plan gives states the upfront investment and flexibility to design health care programs that best meet the needs of their citizens and expand coverage to more people, including the mentally ill, chronically ill, those with HIV/AIDS and those with substance abuse problems, Thompson said.

Secretary Thompson is consulting with governors in developing the new plan, which would be optional for states. The plan would:

• Provide an estimated $3.25 billion in extra federal funding for Medicaid in fiscal year 2004, with $12.7 billion in extra funding over seven years. Federal funding for Medicaid and State Children's Health Insurance Program (SCHIP) would be provided in annual allotments, with one allotment for acute care and another for long-term care.
• Preserve comprehensive benefits for "mandatory" groups, while giving states expanded flexibility to tailor coverage for "non-mandatory" recipients and services. The proposal would be built on the SCHIP model -- under SCHIP's flexible benefits, more low-income children and families were provided health care coverage than would have been possible using traditional Medicaid rules.
• Encourage coverage for whole families, not just the children in a low-income family; and encourage "medical homes," so that all the members of the family are treated by the same providers, whenever appropriate.
• Support increased use of home and community based services for Americans with disabilities, enabling them to be served outside of institutional settings -- including older Americans needing care that can help prevent premature use of nursing home care.

The plan would also require maintenance of effort, so states continue to invest and maintain their commitment to health care.

Secretary Thompson said the increased near-term funding, combined with flexibility similar to the SCHIP program, would help states preserve the benefits they now provide beyond the mandatory Medicaid population. By infusing extra federal funds quickly into state programs, the proposal would help protect beneficiaries who face loss of coverage when states are forced to cut back their Medicaid spending and would create opportunities to extend coverage.

Secretary Thompson compared the need for improving Medicaid with the successful movement for welfare reform. "We need to bring the same clear-eyed spirit of innovation to Medicaid that we brought to welfare," he said "We need to leave behind the old definitions and look at how we can better serve today's beneficiaries."

Based on the successful SCHIP model that Congress adopted in 1997, as well as successful innovations developed by states in their Medicaid programs through federally-approved waivers, the proposal would give states flexibility to simplify eligibility rules and tailor benefits to better meet current beneficiary needs. For example, as in SCHIP, states could work with private insurers and provide premium support for beneficiaries enrolled in private plans.