States facing historically high Medicaid enrollments may run into a federal bulwark opposed to cutting people from the rolls.

The Obama administration is concerned that state leaders facing dire fiscal problems may shrink and weaken their Medicaid programs just as federal officials are counting on them to provide coverage for millions of adults and children newly eligible under the Patient Protection and Affordable Care Act in 2014.

Instead, federal healthcare officials are trying to channel states' Medicaid reductions toward other types of spending reductions.

Only one state, Arizona, which has reached about 1.3 million beneficiaries, so far has moved to cut enrollment. Nationally, Medicaid enrollment has risen to a record 60 million people, according to estimates by the Kaiser Family Foundation, because of coverage expansions funded by a surge in federal funding in the American Recovery and Reinvestment Act. And federal officials appear inclined to keep it that way, despite calls by Republican and Democratic governors for the availability of an option to cut beneficiaries.

The primary tool federal officials have to keep states from cutting Medicaid eligibility and enrollment is the “maintenance of effort” requirement included in the 2009 American Recovery and Reinvestment Act and extended through the ACA. Those measures provided the states with increased Medicaid funding in exchange for their agreeing to not reduce the eligibility below their February 2009 levels.

The continued deterioration of state finances led governors to write HHS Secretary Kathleen Sebelius on Jan. 24 to ask that the federal government waive cuts in funding to states that reduce their Medicaid rolls in order to close their estimated $175 billion in budget gaps through 2013. Her Feb. 3 response—repeated often since—was to suggest that states instead implement cuts to optional services that could save up to $100 billion annually.

“Cuts are not a strategy to win the future,” Sebelius told the Senate Finance Committee after its Republican members repeatedly urged her to grant Medicaid enrollment waivers during a Feb. 15 hearing.

Sebelius' effort to keep states from cutting their enrollments includes her assertion that she lacks the authority to waive the maintenance-of-effort requirement for any state. Republicans have disputed that assertion.

The waiver issue was dropped for Arizona after Sebelius wrote Republican Gov. Jan Brewer on Feb. 15 that the state was free to cut 250,000 enrollees when its current Medicaid agreement with the federal government expires Sept. 30. But Arizona's Medicaid struggles will likely continue after a state senate committee approved a plan Feb. 23 to scrap the entire program in favor of a smaller state-funded alternative.

CMS Administrator Dr. Donald Berwick told Modern Healthcare that his agency is “very aware” of the budget stress states are under and how that stress is affecting their Medicaid programs. He said the CMS is offering state Medicaid programs every form of assistance possible while making sure Medicaid recipients are protected.

“This (Medicaid) is as intense as anything I'm working on,” Berwick said.

In a Feb. 25 letter, the CMS suggested at least one new area of potential savings for state Medicaid directors: increases in premiums for Children's Health Insurance Program beneficiaries. The source of revenue would now be allowed without violating the maintenance-of-effort requirements.

Underlying that federal and state confrontation is the unanswered question of whether changes to Medicaid that stop short of cutting enrollment offer enough savings for states to balance their budgets.

“Medicaid's cost driver is the increasing enrollment,” said Peter Cunningham, a senior fellow at the Center for Studying Health System Change. “It's increases in enrollments that are driving the budget problems in the states.”

That assertion is borne out by data from the Kaiser Commission on Medicaid and the Uninsured, which reports that Medicaid enrollment has grown by 7.6 million, or 17.8%, since the start of the recession in December 2007. Much of that increase was made possible by increased federal spending, including an estimated $87 billion in stimulus funding and another $16 billion appropriated by Congress in June 2010.

But that wave of federal funding is set to dry up in June, and the Republican-controlled House of Representatives is expected to block any more such Medicaid spending. That has led a growing number of state governments to urge cuts to Medicaid's historically high enrollments.

The Obama administration's efforts to block state moves to cut their Medicaid rolls have drawn the attention of provider groups across the nation, even as those groups grapple with a number of proposed spending cuts from their states' elected officials.

“Cuts are not a strategy to win the future.” —Kathleen Sebelius, HHS secretary

“It makes more sense not to change the rules in midstream,” Bruce Rueben, president of the Florida Hospital Association, said about the importance of the existing federal enrollment requirements.

Others emphasize that lifting the maintenance-of-effort requirements and the resulting loss of Medicaid coverage by millions of beneficiaries would leave former Medicaid beneficiaries who have chronic or degenerative conditions unlikely to use preventive care, and their conditions would deteriorate until costly hospitalizations were required. Those increased costs for hospitals, which must provide emergency charity care, are eventually passed along to taxpayers and privately insured individuals through higher reimbursements needed to keep the hospitals solvent.

Meanwhile, Florida hospitals are fighting a series of Medicaid cuts proposed by state leaders that fall short of enrollment cuts and are typical of the changes legislatures and governors have proposed across the country.

In addition to a 5% payment cut to hospitals, Florida's primary cost-saving proposal would expand the use of managed care to nearly the entire Medicaid population. Florida Gov. Rick Scott said in his recent budget address that managed care would save $4 billion over two years. Much of that counts on reducing Medicaid hospital admissions by 35%, according to a breakdown by the state hospital association.

While managed care has drawn some praise for successfully lowering costs in many states that use it, some healthcare providers urge caution. Florida legislators are weighing alternative approaches that would either allow commercial insurers unrestricted access to the Medicaid managed-care market or require a role for hospital- and physician-led managed-care groups.

“Managed care is going to be the approach; the only question is how it's done,” Rueben said.

Use of managed care in Medicaid, which includes assigning a physician to each beneficiary and emphasizing preventive care, has become increasingly popular as a cost-control technique among states. The number of Medicaid enrollees in managed-care programs has grown from 12 million in 2000 to 24 million in 2009, according to the Association for Community Affiliated Plans, which represents not-for-profit insurers. In 46 states and Washington, more than half of Medicaid enrollees are in some form of managed care.

Florida hospitals prefer the use of not-for-profit, provider-led managed-care programs on the belief that they would provide more generous care and have less administrative cost because they would not need to produce a profit.

Commercial insurers disagree with that characterization and are pushing nationwide for a role in the expanded use of managed care to control Medicaid costs.

Idaho residents protest potential cuts to Medicaid in Boise. Lawmakers are looking to cut $9.8 million in state funding.

“If people really want to get serious about that, our plans are ready tomorrow,” Karen Ignagni, president of America's Health Insurance Plans, said in an interview.

Not-for-profit insurers tout their managed-care experience to increase care coordination and focus on preventive and in-home care to reduce costs without compromising quality.

“Budget constraints are spurring a renewed look at managed care, but the improvements in quality of care are just as important as the dollars saved—and even more important to those served,” said Margaret Murray, CEO of the Association for Community Affiliated Plans.

The insurers see the greatest potential cost savings in expanding managed care to Medicaid's elderly population that needs long-term care. For these beneficiaries, managed care could encourage expanded use of lower cost home- and community-based care, toward which Medicaid has slowly moved for two decades.

Sebelius recently touted the potential for Medicaid programs to achieve significant savings by moving more beneficiaries from nursing homes that cost an average of $75,000 per year to “several hours of home-based care,” which averages $18,000 annually.

Reducing provider payments, however, is the most direct way to curb costs short of reducing who is covered.

An advisory group appointed by Democratic New York Gov. Andrew Cuomo last week proposed holding annual Medicaid spending growth to 4% and authorizing state health officials to enact across-the-board cuts to rates to maintain the cap.

In a January speech, Cuomo said he wanted the team to find better ways to save money than cutting rates for providers. “Let's see if we can't actually find efficiencies in the program so we actually provide a better service for less money,” Cuomo said.

The California Legislature is considering cutting payments to hospitals by 10% if they do not have contracts to provide care to Medicaid beneficiaries, which is about 75% of the state's hospitals, according to the California Hospital Association. That proposal came despite CHA's ongoing legal challenge to similar previous cuts in the Medicaid program, known as Medi-Cal, which the Supreme Court last month agreed to consider.

The hospital group is more resigned to other Medicaid cuts expected in the state, including the expansion of mandatory co-payments for hospital and some physician visits. “This is likely to be an uncollectible debt because these patients' incomes are so low and so it's effectively a net reduction in medical and hospital payments,” said Jan Emerson, vice president of external affairs for the CHA.

These proposed changes came despite Medi-Cal's last-place ranking nationally in Medicaid payments to physicians and hospitals, with its payments almost 25% less than the national average for Medicaid programs, according to the CHA.

Such provider cuts, especially in state Medicaid programs that already rank well below private insurance and Medicare reimbursement levels, will further reduce access to clinicians—especially specialty physicians—who are increasingly refusing to treat Medicaid patients, said Robert Helms, a resident scholar at the American Enterprise Institute. “That kind of defeats the purpose of the expanded access they are trying to achieve,” Helms said.

Because of the impacts on all Medicaid beneficiaries of cost-saving moves such as provider reimbursement and benefit cuts, Helms and others expect states to continue considering enrollment cuts as a longer-term and larger source of cost savings.

Looming over every state battle over the size and scope of their Medicaid plans is the planned expansion of Medicaid by at least 16 million beneficiaries beginning in 2014 under provisions of the Affordable Care Act. The law will extend eligibility to adults without children and households with incomes up to 133% of the federal poverty level.

The expansion is 100% federally funded for the first few years and 90% paid by the federal government after 2020, but current Medicaid funding problems could give states pause about their eventual burden.

“Cutting off Medicaid (enrollment) could be a slippery slope that undermines healthcare reform,” said Dr. Bruce Siegel, CEO of the National Association of Public Hospitals and Health Systems.