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Medicaid Impasse Allows Some Governors to Increase Budgets

By Judith Havemann
The Washington Post

Every passing day makes it less likely that Congress will enact GOP Medicaid and welfare reforms that would save the states billions of dollars, but many governors are acting as if they already had the cash in the bank.

Washington's possible failure to act on the proposals would send states such as New York scrambling to make up huge shortfalls later this year.

"It's got to happen in the next month," said Wisconsin Gov. Tommy G. Thompson (R), referring to enactment of the big budget items. "If it doesn't, I don't know what some states are going to do."

New York Gov. George E. Pataki (R), whose Medicaid program is the nation's largest, has introduced a budget that taps into a $1.3 billion Medicaid gold mine opened up by an arcane formula change in the distribution of federal funds that was approved by Congress last year.

That change was vetoed by President Clinton in early December.

Pataki is not alone. Michigan Gov. John Engler (R) has penciled in $320 million in anticipated Medicaid savings to finance a 5 percent increase in funds for Michigan's state universities.

But Congress hasn't passed legislation that would allow Michigan to implement Engler's plan without going through the cumbersome process of obtaining a waiver of today's Medicaid rules.

California is assuming it will have enough authority in a welfare block grant to cut benefits 4.5 percent, and make further cuts after six months and again after 12 months of welfare dependence, according to the Center for Law and Social Policy, a liberal group. The cuts would save about $299 million in the upcoming fiscal year.

Clinton vetoed such a plan, not once, but twice.

In an attempt to force Congress to act, the nation's governors unanimously proposed their own blueprint three weeks ago to break the Medicaid and welfare stalemate.

Congressional leaders are considering whether to attach the National Governors' Association proposals to next month's must-pass legislation to increase the government's borrowing authority.

But Republican congressional aides give the plan only a slim chance of success in this election year, when months will be devoted to campaigning. The governors' proposals have attracted fierce opposition from interest groups representing the poor. Also, many members of Congress in hearings last week raised questions about the cost, workability, philosophy and possible side effects of the gubernatorial plan.

In a crowd of high-stakes bettors, no governor has gambled more on congressional action than New York's Pataki, now in his second year as governor of the state with a Medicaid program so vast it has been labeled the "Medicaid Industrial Complex" by James Fossett, a professor at the State University of New York at Albany.

Medicaid is a $155 billion-a-year joint federal-state health insurance program for the poor. It provides some standard benefits such as hospital coverage for everybody who qualifies but offers states the opportunity to add optional benefits such as prescription drugs if they are willing to put up their share of the cost. New York's $21 billion-a-year Medicaid program offers just about everything.

Furthermore, the state, like many others, has used the program as a form of revenue-sharing, according to Fossett. "In a lot of cases we've really pushed very hard to push programs that used to be funded 100 percent by state dollars onto Medicaid. A big slug of Medicaid money goes for special (education)."

New York, with 7 percent of the nation's population, consumes 15.7 percent of all Medicaid money. Its nursing home rates are the highest in the nation, although its nursing home patients are among the sickest. More Medicaid funds are spent on mental health and home care in New York than in any other state, by far.

In his budget, Pataki took advantage of a little-noticed change in the formula for distributing Medicaid funds to the states that was added to a massive deficit reduction plan in a late-night Senate Finance Committee markup on Sept. 29 by New York Sens. Daniel Patrick Moynihan (D) and Alfonse M. D'Amato (R). Both senators are members of the powerful Finance Committee, through which all Medicaid legislation must move.

The amendment changed the Medicaid formula to benefit 21 of the nation's wealthier states that are currently required to fork over more of their own money than others to get federal matching funds.

When Clinton vetoed the balanced budget plan Dec. 6, he also killed the formula change.