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Medicaid Commission Submits Proposals for Program Cuts

  • September 5th, 2005

Charged with the task of finding ways to trim $10 billion from the Medicaid program over five years, the federal Medicaid commission has submitted a report to Congress that it says will reduce Medicaid spending by $11 billion.

To no one's surprise, among the commission's recommendations are proposals to delay Medicaid eligibility for individuals who transfer assets for less than fair market value. Taken together, the transfer rule changes would allegedly save about $1.5 billion over five years.

The commission would save $1.4 billion of this by "moving the start date of penalty period from the date of the transfer to the date of application for Medicaid or the nursing home admission date, whichever is later." The panel also recommends increasing the "lookback" period for all transfers from 36 months to 5 years. This would save "less than $100 million" over five years, according to the commission.

The lion's share of Medicaid savings -- $4.3 billion over five years '“ would come from changing the way state programs buy drugs and how pharmaceutical companies report data. Also, Medicaid beneficiaries above the federal poverty level would be required to contribute more to the cost of prescription drugs not on a state's preferred list, a change anticipated to save another $2 billion.

The Medicaid cuts were called for in the 2006 budget resolution agreed to by the House and Senate earlier this year. In addition to the Medicaid spending reduction '“ the first sustained by the program since 1997 '“ the budget resolution called for the creation of a study commission to recommend where the cuts should be made and offer advice on longer-term changes to the Medicaid program.

The commission, appointed by Health and Human Services Secretary Michael Leavitt, took a little more than a month to study the Medicaid program and issue its recommendations. The commission held two meetings over three days and heard presentations from a total of five individuals, according to the Centers for Medicare & Medicaid Services' Web site. A second commission report, focusing on recommendations for stabilizing Medicaid over the long term, is due Dec. 31, 2006.

Senate Finance Committee Chair Chuck Grassley (R-Iowa) called the commission's recommendations "constructive" and said his committee would consider them as it explores ways to reduce Medicaid's growth by $10 billion over five years. As previously reported, Republican members of the Senate Finance Committee appear headed for a fight over whether to spare the Medicaid program drastic cuts by trimming the growth of Medicare. See GOP Senators Split on Whether to Cut Medicaid By $10 Billion.

For the full commission report, click here.

Two days before the commission issued its recommendations, The National Governors Association (NGA) weighed in with its own guidance for Congress on how to secure the $10 billion in Medicaid savings. The NGA recommendations include the following:

"Asset Transfer. States should have increased ability to prevent inappropriate transfer of assets by seniors to qualify for Medicaid. To that end, 1) the look-back period should be increased from 3 to 5 years; 2) penalty periods should begin at the time of application; and 3) the sheltering of excess resources in annuities, trusts or promissory notes must be prevented."

The report goes on to state that "Home equity should be considered a countable asset in order to require individuals to use home equity to off-set long-term and other medical expenses that would otherwise be paid by Medicaid." It also calls for reforms to facilitate the use of reverse mortgages to convert home equity into cash, as well as the expansion of Long-Term Care Insurance Partnership programs.

For the NGA's recommendations, click here.

For more on Medicaid's transfer rules, click here.

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Susan Pollack

Needham Mitnick & Pollack, PLC
Falls Church, VA

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Ron M. Landsman, P.A.
Rockville, MD

Last Modified: 09/05/2005

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