A new Medicaid: new federal law gives state officials greater latitude in shaping Medicaid reforms.

• Author: Tubbesing, Carl

The long-term spending bill that Congress approved earlier this year left the state-federal landscape marred by fiscal craters and public policy debris. The new law "unreforms" the 1996 landmark welfare reform law and shifts several billion dollars in child care, child support enforcement and child welfare costs to the states. It reduces federal funding for Medicaid by $4.8 billion. But there is a bright spot on the horizon. The law includes the most significant legislative reforms in the Medicaid program since 1997.

Medicaid, the nation's health care program for low income individuals and families, is funded jointly by the states and the federal government. The federal government sets the Medicaid ground rules. The states administer the program and have certain latitude to determine who is eligible and what services they offer. Spending on Medicaid is second only to education in state budgets. The federal government spent $315.2 billion in fiscal year 2005--7.6 percent of its total budget. State and federal spending on Medicaid currently is growing by 7.7 percent per year. It's no wonder that state legislators, governors and federal officials are so anxious to control Medicaid costs and to execute substantive reforms to the program.

Congress' budget reconciliation bill for 2005 was a vehicle for both. Changes in the new law, now known as the Deficit Reduction Act of 2005, will save the federal government nearly $1 billion a year over the next five years. It also creates several new programs and alters some older ones. There are four common threads to the reforms. They afford state officials greater latitude in shaping the Medicaid program, at least in certain areas. They attempt a new direction in the country's approach to funding for long-term care. They encourage moving people from institutions, such as nursing homes, to care that takes place in their homes and communities. And they seek efficiencies to control Medicaid spending.

MORE FLEXIBILITY

"The new law is encouraging for state officials because it recognizes that Medicaid really is a partnership between the federal government and the states," says North Dakota Representative Ken Svedjan. "It offers us greater flexibility and emphasizes experimentation and innovation in several important areas."

North Carolina Representative Beverly Earle, who, along with Representative Svedjan, co-chairs NCSL's Medicaid task force, points out that the new law shows greater deference to the states...