States May Benefit, as Well, if Medicare Drug Bill Passes

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States May Benefit, as Well, if Medicare Drug Bill Passes

By Richard Perez-Pena

New York Times, July 18, 2003

The states hope to be among the big winners if Congress passes a Medicare drug benefit, allowing them to shift expenses from state-financed programs onto the new federal program.

The windfall could be billions of dollars a year, or it could be far less, depending on how differences between the Senate and House versions of the Medicare bill are hashed out in a conference committee. Even if a program won approval, experts caution, it would be so complex, and so far in the future — it would begin to go into effect in 2006, with some pieces coming much later — that the effect on the states would not be fully comprehended for years.

While passage of a bill once seemed nearly assured, there have been warning signs in recent days — including objections to elements of both the House and Senate versions from AARP, the big lobby for older Americans — that agreement on compromise legislation will be difficult to negotiate.

State officials are lobbying Congress aggressively, hoping to influence the bill and win some relief for their fiscally battered states, a goal the National Governors Association has called its top priority for the year. New York could be the biggest beneficiary because it spends more than any other state on health care programs — including more than $3 billion a year on drug coverage, counting state, federal and local government contributions — and some of those burdens might shrink under a Medicare drug plan.

"As prescription drug coverage is debated in Washington, we are working with our delegation, Congressional leadership and other states to ensure that programs we have already invested in receive federal assistance," Gov. George E. Pataki said this week.

The federal government pays most of the expenses under Medicare, the health plan for the elderly and disabled, which historically has not paid for most prescription drugs.

The states pay about 43 percent of the cost of Medicaid, the plan for the poor, which does cover medicine. In the last two years, states have suffered through budget cuts and tax increases, and one reason is Medicaid, the fastest-growing part of state budgets. Prescription drugs are the fastest-rising expense in Medicaid.

Of the 40 million people on Medicare, 7 million are poor enough to qualify for Medicaid, making them eligible for drug coverage. These people are, on the whole, sicker than most Medicare recipients, and far more likely to be disabled, suffer mental illness, be in nursing homes and have heavy drug expenses.

People on both Medicare and Medicaid account for about $13 billion a year in Medicaid drug costs, according to federal officials and policy analysis groups, and the states pay almost half of that.

The Medicare bill passed by the House would cover such people, transferring significant costs from Medicaid to Medicare. Recipients would continue to rely on Medicaid to fill the significant gaps in coverage under the new plan.

The Senate bill would exclude Medicaid recipients from the new Medicare drug plan because senators wanted to provide a more expansive benefit than the House did, without inflating the program's total cost.

If the House version prevails, the savings to Medicaid and to the states could be billions of dollars annually, according to Congressional staff members and policy analysis groups. The biggest benefit, proportionally, would be to states like New York and Massachusetts that have large low-income populations, relatively lax Medicaid eligibility standards and generous benefits.

States are also seeking significant savings in their own programs that subsidize senior citizens' drug benefits.

Thirty states have laws providing state money, outside Medicaid, to help older people with low and moderate incomes pay for medicines, according to the National Conference of State Legislatures.

The programs in operation cover almost 1.5 million people and spend about $2 billion a year. New York, New Jersey, Pennsylvania and Illinois account for about two-thirds of the enrollment, and an even larger share of the expenses.

A Medicare drug benefit would pick up some of those costs. Some states' laws provide that people are eligible for the state subsidy only if they have no other coverage, so they would automatically be dropped after qualifying for a Medicare benefit.

The House bill does not directly address how such state programs would be affected by a new Medicare benefit, and instead would form a commission to study the matter.

"The concern is that under the House bill, a state might actually have to dis-enroll people from the state program to make them eligible for the Medicare benefit, get them enrolled in the federal program, and then enroll them back in the state program once the federal benefit runs out," said Matt Salo, director of health legislation at the National Governors Association.

Eighteen states have laws that try to lower drug prices for the elderly without a direct state subsidy, according to the conference of legislatures. They use their influence as major drug buyers through Medicaid to pressure pharmaceutical companies or pharmacists to charge less.

Drug coverage under Medicare would mean there would be less of a role for such programs, though the savings to the states themselves would be negligible.

"The states have a huge amount at stake in the Medicare bill," said Tricia H. Neuman, vice president of the Kaiser Family Foundation. "They're spending billions on drugs now and they have an expectation that this bill means they'll spend a lot less. But how much relief they'll get is still very much in question."