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State to Pay Feds $40 Million-Plus For Drug Benefit
By Sean Reilly, Mobile Register
October 26, 2005
Normally, states turn to the federal government for help in maintaining essential services and programs. Early next year, that time-tested relationship will be flipped on its ear as the Alabama Medicaid Agency begins shipping more than $5 million a month to the federal treasury.
Together with other states, Alabama is in effect subsidizing the new Medicare prescription drug benefit set to start in January. As envisioned by Congress, state Medicaid programs should give back most of the money they'll save by no longer having to pay medicine bills for some of their older low-income enrollees.
States will begin making those "clawback" payments in February. According to newly released estimates, Alabama will pay about $5.3 million per month, or $42.7 million for the fiscal year that ends next September.
Although federal officials predict that states will come out ahead, only nine states agreed when recently surveyed by the Kaiser Commission on Medicaid and the Uninsured, a Washington, D.C., research organization. More than half predicted higher costs for this fiscal year. Fifteen expected to break even.
At least one state, Kentucky, plans a legal challenge over the issue and others are considering it, said Jennifer Hans, a state assistant attorney general there.
In the office of Alabama Attorney General Troy King, spokesman Chris Bence confirmed discussions on the issue with Gov. Bob Riley's legal office and state Medicaid officials, but declined further comment.
For the current fiscal year, Alabama Medicaid is among those expecting to break even. It could, however, face about $6 million in fresh expenses for fiscal 2007, spokeswoman Mary Finch said via e-mail. She attributed the possibility of higher costs to new enrollees who will be signed up for Medicaid in the course of an "aggressive" outreach campaign for the Medicare prescription drug benefit.
Although oft confused, Medicaid and Medicare generally serve two distinct populations. Medicare is a federal program that provides health care for anyone aged 65 or older. Medicaid, a state-run program jointly funded by states and the federal government, covers low-income people. Unlike Medicare, Medicaid already furnishes prescription drug coverage.
The two programs intersect in the form of some 6.4 million "dual eligibles," as low-income elderly people who qualify for both are known. Those people include much of the nursing home population and -- in part because of high medicine bills -- account for a disproportionately large share of Medicaid expenses.
Alabama has more than 87,000 people in the dual eligible category. For each state, the size of the clawback payment is calculated on a formula tied to the number of dual eligibles and the amount of Medicaid prescription drug spending.
Alabama's predicted clawback for this fiscal year is a fraction of its $4.1 billion Medicaid budget, most of which is picked up by the federal government. But the potential for any additional costs is unwelcome at a time when the state's share of the program is already exploding.
For this fiscal year, the state's General Fund tab for Medicaid stands at $429.4 million, or almost an 18 percent jump over last year, according to the Legislature's budget office. For fiscal 2007, Medicaid managers are reckoning that another $90 million in General Fund money may be needed, Finch confirmed Tuesday.
Even before it goes into effect, the new Medicare drug benefit is stirring similar financial unease, although members of Congress appear unlikely to address it.
When approved by Congress two years ago, the new program ranked as the biggest expansion of government in four decades. And early this year, the Bush administration revealed that the 10-year price tag would come in at roughly $724 billion, or more than 75 percent higher than once anticipated.
That disclosure led U.S. Sen. Jeff Sessions, R-Mobile, to propose capping expenses at the lower level, but "there were insufficient votes at the time to get that passed," he said Tuesday. While open to the idea of delaying introduction of the new benefit as a way of paying for hurricane relief costs, Sessions said the administration is "totally opposed."
Apart from the financial strain, some observers predict mass bafflement among dual eligibles who will have to trade in their Medicaid drug coverage for one of numerous Medicare options available in Alabama.
"It's just going to be hell on wheels to help these people figure out what plan they need to be on," said Mary Weidler, a policy analyst for Alabama Arise, a Montgomery-based coalition that lobbies on behalf of low-income people.
At the Baltimore-based federal Centers for Medicare & Medicaid Services, spokesman Peter Ashkenaz said dual eligibles will be "auto-enrolled" in a plan if they don't pick one on their own by year's end. Unlike other beneficiaries, Ashkenaz said, they will be able to change plans as often as once a month to ensure that they get the drugs they need.
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