The Wall Street Journal - Some States Weigh Unthinkable Option: Ending Medicaid

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By JANET ADAMY And NEIL KING JR

Huge budget shortfalls are prompting a handful of states to begin discussing a once-unthinkable scenario: dropping out of the Medicaid insurance program for the poor.

Elected and appointed officials in nearly a half-dozen states, including Washington, Texas and South Carolina, have publicly thrown out the idea. Wyoming and Nevada this year produced detailed studies of what would happen should they withdraw from the program. Wyoming found that Medicaid accounts for 63% of the state's nursing-home revenue.

The idea of abandoning Medicaid as a solution is so extreme that even proponents don't expect any state will follow through, but officials are floating the discussions because dire budgetary pressures have forced them to at least look at even the most drastic options.

Medicaid, begun in 1965 and jointly funded by federal and state dollars, is the nexus of care for the neediest Americans, and a huge payer to hospitals, nursing homes and doctors. Medicaid enrollment totaled 62 million nationwide in 2007, the most recent data available.

But Medicaid has become one of the biggest items on state budgets, and states complain they don't have enough flexibility to pare it without losing their federal matching funds. The federal government, on average, covers 57% of the cost of the program for states. In exchange, states must keep Medicaid open to all who qualify.

Some states, in particular those led by Republicans, are calculating whether they'd be better off giving up the federal funding and replacing Medicaid with a narrower program of their own. Texas Gov. Rick Perry has proposed that his state get out of Medicaid in favor of a state-run system unburdened by federal mandates--including the one that prohibits states from reducing eligibility for the program if they want to qualify for the federal matching funds.

"We feel very comfortable that we could come up with a more equitable, a more efficient, and obviously a more cost-effective way to deliver health care," he said.

How to tackle the soaring cost of Medicaid was one of the big topics in the hallways at the Republican Governors Association gathering in San Diego last week. Mr. Perry said that in private discussions, most attendees agreed they wanted more freedom in choosing how to provide health care to the poor.

Officials at the federal Centers for Medicare and Medicaid Services dismiss the withdrawal discussions and say they're working to make the program more effective for states. "Medicaid's a strong program and it's getting stronger," said Donald Berwick, the agency's administrator. A new innovation center at the agency is looking for ways to tie Medicaid spending more to the quality of care, rather than quantity.

In Washington state, which has a Democratic governor, Medicaid Director Doug Porter says he discussed the idea of dropping out of Medicaid with members of a citizen advisory committee the governor pulled together to tackle a $5.7 billion budget shortfall over the next two years.

"It's not a serious consideration, but it's illustrative that people are even thinking about it," Mr. Porter said. "That I'm doing it is stunning."

However, many elderly people rely on Medicaid to pay for long-term care at nursing homes, and that makes pulling out a "deal killer," Mr. Porter said. No good alternative currently exists to cover such nursing-home costs.

Major cuts are in store for Washington's Medicaid program anyway. To plug the budget gap, the state is proposing eliminating coverage of prescription drugs, physical therapy and vision, dental and hearing treatments for adults next year.

Some policy experts say the most feasible scenario would be withdrawing from Medicaid in 2014 when the new health-care law overhaul is set to add 16 million Americans to the program's ranks.

A quirk in the law passed in March suggests that a portion of the new Medicaid enrollees could instead qualify to get a tax credit to buy private insurance on state-run exchanges, although Democrats say that wasn't the intent of the law.

Indiana Gov. Mitch Daniels said he put a different proposal before the Republican governors assembled in San Diego: that they all band together to create a multistate insurance pool for the uninsured. But the states would do it, he said, only on the condition that the federal government agreed to eliminate some of the mandates embedded in the health overhaul.

Wyoming's report said the 2014 Medicaid expansion would strain the state budget. "However, the strain that will ensue should Wyoming determine to opt-out of participating in Medicaid without a solid plan to replace it is truly immeasurable," the report said.

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