President Clinton's plan to retain Medicaid as a federal entitlement that pays states on a per-beneficiary basis drew support last week from Democratic governors and moderate Senate Republicans.
That sets up a battle between the White House proposal and GOP plans to give states complete control of Medicaid.
Under the White House outline, states would receive a per-capita amount that would be capped at an unspecified growth rate. The plan would save about $55 billion over a seven-year period.
The proposal differs sharply from the one being negotiated by GOP governors and House members. They have called for complete state control of the Medi-caid program, including allowing states to determine program eligibility requirements.
In return, they'll accept a strict block grant. Under the GOP budget agreed to last month, the grant would increase by 8% in 1996 with the growth rate declining to 4% by 1999 for a savings of about $180 billion over seven years.
The Congressional Budget Office estimates that federal Medicaid spending will rise more than 10% a year, jumping from $90 billion this year to more than $175 billion in 2002.
The governors haven't been able to figure out how the money would be divided under a block-grant approach, however. Governors of states with growing populations have complained that allowing each state to grow at the same rate would penalize them.
But supporters of the Clinton administration plan say it would take into account changes in population.
"If you just give us block grants, you're certainly going to have disagreement," Vermont Gov. Howard Dean, M.D., a Democrat, told the Senate Finance Committee last week. "A capped entitlement gets you over arguments about which state gets what."
But Finance Committee Chairman Sen. Bob Packwood (R-Ore.) asked whether giving states a capitated payment but allowing the number of beneficiaries to grow unchecked would produce significant budget savings.
GOP governors are also concerned that by keeping the entitlement in place states will be forced to care for an increased number of beneficiaries with less funds.
However, the idea of a strict block grant has many moderate Senate Republicans concerned.
Sen. John Chafee (R-R.I.) is preparing a Medicaid reform plan that would maintain the existing federal entitlement but would give states more flexibility to move beneficiaries into managed-care plans. It also would cap disproportionate-share payments and allow states to funnel those funds to sites other than hospitals, such as clinics or rural health centers.
The plan also may contain a per-capita spending cap.