President George W. Bush's fiscal year (FY) 2009 budget proposal
for Medicaid is consistent with the Administration's overall
efforts to address the growing entitlement crisis. These efforts
are weakened, however, by the proposal for a dramatic increase in
funding for the State Children's Health Insurance Program (SCHIP).
Congress should embrace the President's proposals for Medicaid but
reject the increase in SCHIP spending.
The President's budget proposal takes modest but meaningful
steps to rein in spending on Medicaid, an entitlement program for
the poor that is administered jointly by the federal and state
governments. The President's budget slows the annual rate of growth
in Medicaid's budget from 7.4 percent to 7.1 percent over the next
five years. Critics have called this a cut in
Medicaid, but that is incorrect. Funding for Medicaid would
continue to increase, but at a slower rate. For example, the
President's budget allocates $218 billion for Medicaid in FY
2009, a $12 billion increase over the expected
spending in FY 2008.
The President's budget recommends a variety of small but
sensible policy changes to achieve these needed savings. The
following are the most notable proposals and the savings
expected from each:
- Realign reimbursement matching rates. The proposal would
simplify the reimbursement structures for administrative services,
family planning, case management, and the qualified-individuals
program by unifying the matching rate within each function.
Total Expected Savings: $9.8 billion over five years.
- Grant greater flexibility in adopting managed care. The
proposal would expand states' ability to enroll Medicaid
beneficiaries in managed care arrangements. Total Expected
Savings: $2.1 billion over five years.
- Reduce duplicative administrative costs. The proposal
would recover administrative costs claimed by the Temporary
Assistance for Needy Families (TANF) block grant. Total Expected
Savings: $1.7 billion over five years.
- Establish a reliable asset verification process. The
proposal would permanently extend and improve the Web-based asset
verification demonstration program. Total Expected Savings: $1.2
billion over five years.
- Adjust prescription drug reimbursement. The proposal
would repeal the counterproductive "best price" requirement in
Medicaid prescription drug purchases and replace it with a
budget-neutral flat rebate. Total Expected Savings: $1.1 billion
over five years.
These proposals are reasonable and should gain bi-partisan
support if Congress is serious about facing the looming entitlement
crisis. At a time when spending on Medicaid alone is expected to
reach $445 billion by 2018, it would be fiscally irresponsible not to
make some modest changes in the program. These proposals
represent a downpayment. Over time, Congress will have to make more
significant changes to the structure of Medicaid to bring about
long-term sustainability. Along these lines, policymakers should
consider converting Medicaid dollars into a direct, transparent
subsidy for low-income beneficiaries. Congress should also rethink
the best way to assist the disabled and elderly who depend on
Medicaid for services.
In contrast to its approach to Medicaid, the Administration
makes major concessions to liberals on SCHIP. Last year, the
President took a prudent and fiscally conservative approach to
reauthorizing SCHIP by proposing an increase of $5 billion over
five years. He now proposes spending four times that amount,
recommending $20 billion over five years. By 2013, spending on SCHIP
would top $46.3 billion, almost doubling its current cost.
Moreover, the proposal would dedicate $50 million in FY 2009 and
$100 million in each of the next four years for outreach. The
goal, as described by the Department of Health and Human Services,
is to increase enrollment 3 percent by FY 2009 and 12 percent by FY
While the President's budget dramatically increases spending on
SCHIP, the following strategies stay true to his previous policy
- Reaffirm anti-crowd-out provisions. The Administration's
proposal would preserve requirements that states implement policies
to avoid substituting SCHIP for private health insurance.
- Clarify eligibility based on income. The proposal would
better define income for the purpose of establishing
- Maintain SCHIP as a program for children, not adults.
The proposal would preserve SCHIP's original purpose as a program
for children, but it would do so by moving adult beneficiaries into
Medicaid (see below).
The Spending Problem
The Administration's proposal for increased spending on SCHIP is
a major departure from its previous position. Unlike Medicaid,
which is an open-ended entitlement program, SCHIP was created as a
block grant. The block grant is intended to keep program expansions
in check and maintain fiscal responsibility.
Flooding the program with new money and focusing on expanding
enrollment would defeat the fiscal rationale of a block grant. More
important, it would undermine efforts to expand access to private
health insurance by implying that a government-run health program
is the preferred way to cover uninsured children in low-income
Another problem is the plan's approach to adults enrolled in
SCHIP. Critics argue correctly against having adults in the
program. However, the Administration's proposal adopts a
"compromise" solution that would simply transfer adult
beneficiaries to Medicaid, another taxpayer-funded program with an
open-ended federal funding stream.
Back to the Drawing Board
Instead of expanding the role of SCHIP, the Administration and
Congress should focus on ways to empower low-income families to
purchase private health insurance. SCHIP should be a last resort,
safety-net option. A federal health care tax credit would be an
effective way to give families direct financial assistance to help
them purchase private coverage. Expanding personal choice through
private coverage is a better strategy for both low-income families
The Administration should be commended for its efforts to bring
about small but important changes to Medicaid that begin to address
the long-term challenges facing the program. However, the savings
achieved by slowing Medicaid would be diluted by a massive increase
in SCHIP spending. The Administration's proposal for SCHIP is a
dramatic shift from its position last year and erodes the
fundamental goal of expanding access to private health care
Congress would be wise to adopt the modest Medicaid provisions
and reject the proposed increase in SCHIP funding. Instead,
Congress should focus on enacting policies, such as health care tax
credits, to make private health care coverage more affordable for
low-income families, thus reducing the dependence on SCHIP and
Nina Owcharenko is
Senior Policy Analyst for Health Care in the Center for Health
Policy Studies at The Heritage Foundation