Question: How do you cut federal Medicaid spending by $21 billion and not slash disproportionate-share funding in the process?
Answer: It can't be done.
That's what many people in statehouses and on Capitol Hill are thinking as the House Commerce Committee meets this week. The panel is scheduled to start finding ways to meet the overall spending targets in the five-year budget plan approved by the House and Senate last month. One of the goals is a $21 billion reduction in federal Medicaid spending over the five years.
Observers are saying it is a foregone conclusion that Medicaid disproportionate-share payments, which reimburse hospitals for treating large numbers of poor people, will be reduced.
Hospital groups, aligning themselves with the National Governors' Association, contend that a disproportionate-share reduction of any more than $8 billion from fiscal 1998 through 2002 will devastate the program and cause disruptions at small rural and large public hospitals.
But lawmakers have a problem. Because White House and GOP negotiators rejected a Clinton administration plan to cap individual Medicaid spending, few savings avenues remain besides disproportionate-share payments, which constitute 9.3% of total federal Medicaid spending. The Congressional Budget Office estimates $9.8 billion will be spent on Medicaid disproportionate-share funding this year, rising to nearly $14 billion in 2002 (See chart).
The NGA has its own proposal that it says would reduce Medicaid spending by giving states more flexibility over the Medicaid program.
But even if the GOP accepts the governors' proposal, which is unlikely, there would still be a gap of about $10 billion, and that has hospital groups nervous.
Should that happen, it would surely set off a fight in Congress to determine which states take the biggest hit. California lawmakers are already arguing that their state should not get penalized, and members of the New York congressional delegation are making a similar argument.