Medicaid covers health care expenses for four primary low-income populations: 1) children, 2) parents of children and pregnant women, 3) the aged, and 4) the blind and disabled. Approximately three quarters of the current Medicaid population consists of children and other adults, with the remaining quarter consisting of the aged and disabled persons. The aged and the disabled, however, consume two-thirds of all Medicaid expenditures, principally through their use of long-term care, pharmaceuticals and related services. Statutory mandates require that states cover certain populations, e.g. children under age 5 with family incomes below 133 percent of the Federal Poverty Level (FPL), while states may elect to cover other "optional" populations, such as children age 6-19 with family incomes at or below 100 percent of FPL.

Medicaid covers two distinct types of health care services: those that are statutorily mandated and those that are optional. Statutorily mandated services include inpatient and outpatient hospital care, physician services, early and periodic screening, diagnostic and treatment services and immunizations. Optional services include outpatient prescription drugs, dental care and vision for adults. About two-thirds of all Medicaid expenditures are attributable to services for optional populations and benefits.

According to a report by the Kaiser Commission on Medicaid and the Uninsured, States are beginning what is for some the fourth consecutive year of fiscal stress. State tax revenues declined significantly in 2002 and remained at that low level throughout 2003. As they completed their 2003 fiscal year and developed budgets for the fiscal year 2004, states faced total budget shortfalls of at least $70 billion. To close these large budget gaps, states reduced planned spending and some began to raise taxes and fees. After the beginning of fiscal year 2003, states reduced budgeted spending levels for the year, and many states proposed to reduce fiscal 2004 spending.

These fiscal conditions place significant pressure on Medicaid, the state/federal program that funds health and long term coverage for 51 million low-income Americans. Medicaid is generally the states' second largest budgeted item. At the same time that the state revenues have fallen, spending on the Medicaid program has been increasing significantly, reflecting increasing health care costs and the growing number of people living in poverty as a result of the weak economy.

States have been implementing many new measures to control their budgets in the face of the declining revenues. The Kaiser Foundations' report outlines their conclusions all of which, I believe, reflect a need to reform Medicaid at the Federal level. I am here today to share with you my thoughts for your consideration as you review the Medicaid program, the increasing numbers of uninsured and underinsured, and our declining revenues.

The Medicaid program serves an important role in the provision of health care for some of the sickest and most vulnerable citizens in this country. It has been very successful improving care to individuals who would otherwise be without health care. For instance, in Maryland all children below the federal poverty level have access to care, including for the first time ever access to Treatment for Substance Abuse and Mental Health. This has resulted in a proliferation of providers for those services. Also in Maryland in our enthusiasm to provide coverage for as many kids as possible we enrolled more than we anticipated and funded. When we, on the budget committee attempted to freeze the enrollment of the program until the funding levels equaled the service demands, we were accused of limiting services. It is important to me that a program work efficiently before expansion occurs. Probably some advocates may characterize any effort to reform and improve Medicaid as an attempt to dismantle the program. This is simply not the case. In fact, as a health care provider/RN, I am committed to ensuring that Medicaid beneficiaries continue to receive access to high quality care and I believe that we can improve the kind of care they receive and how it is provided.

Reform Measures

There are many challenges currently facing the Medicaid program. One of the primary problems is that the current rules limit the states' ability to provide the best care to the most needy citizens. The current Medicaid structure attempts to impose one set of rules and provide one standard set of benefits to a varied and diverse Medicaid population state by state. Moms and kids, the elderly, and the disabled all have different needs and would benefit from very different coverage packages. States need flexibility to determine eligibility and tailor different benefit packages to best meet the needs of these populations, rather than having to adhere to the fixed prescriptive formulas for eligibility and benefits.

Until recently states have not been allowed to design individualized packages without losing the federal monies. We in the states have appreciated the increased flexibility given in the SCHIP program, which gives states a greater degree of autonomy and control in how they design their benefit structure and provide coverage for children. States can tailor their programs consistent with beneficiaries' needs and existing government structures. States are under tremendous fiscal constraints, but cannot afford to drastically limit benefits because of the increasing pressure on our hospitals for treatment when other measures fail. If health care is not offered early through community based services and as we face the increasing numbers of citizens needing long-term care, our costs will continue to soar. The emphasis will continue to be on the more expensive inpatient care. The pressure will also continue to remain on the use of Medicare dollars. Many of our most vulnerable citizens need comprehensive coordinated services that can be provided in the community. Careful and thoughtful attention is important, as states design effective programs using the available Medicaid funds.

Flexibility also needs to be considered as we find solutions for the dually eligible Medicare- Medicaid beneficiaries. In Maryland within the Medicaid program 80 percent of the health care dollars are spent by 20 percent of the beneficiaries. Long-term care costs are increasing with the increasing numbers of seniors. Can we think about allowing states to use monies from both programs to institute managed care for this population. The coordination of care would improve and many states would welcome the opportunity to develop pilot projects. What have we got to loose. Most states want to provide quality care to families and flexibility is the key.

Another challenge facing Medicaid is how to deal with the culture of dependence that entitlement programs can sometimes breed. My state of Maryland has had tremendous success in interrupting the cycle of dependence in our Welfare to Work program. We have been able to work with individuals as they enter the workforce and assume productive roles in society. We also are taking advantage of the federal programs to allow those disabled individuals who are working to increase their earnings and not loose their healthcare benefits.

The culture of dependence in Medicaid can lead to over utilization of services. It can inhibit more and more individuals from taking personal responsibility for obtaining their own health insurance, when it is available. When we increase the availability of free health care to higher income groups, we fail the poorest citizens and provide disincentives for employer sponsored coverage.

Another problem is that of individuals inappropriately attempting to gain Medicaid coverage for expensive services such as nursing home care and prescription drugs. A veritable cottage industry has developed to coach individuals in ways to shift and/or hide their assets in ways that will allow them to qualify for Medicaid. This type of abuse undermines the public trust in these programs and most importantly takes dollars away from the care of those persons who need it most and for whom Medicaid was intended to protect. Strong measures need to be taken to prevent this practice.

Prescription coverage is essential as we face the long-term care and increasing senior population. Without a Medicare Prescription coverage option, Medicaid foots the costs of those citizens who make difficult choices when the options include whether or not to buy food, fuel or medication. If the medication prescribed is difficult to obtain due to cost, citizens do not follow their plan of care and again the result is the utilization of hospital care. It is absolutely critical that we create a new drug benefit within the Medicare program to provide this assistance to our most vulnerable low-income citizens. Prescription drugs are the fastest growing expense within our states Medicaid budget, and individuals who are dually eligible are some of our biggest consumers of these drugs within the existing Medicaid benefit. Creating a new Medicare drug benefit will also allow for better coordination of care for Medicare services, which can lead to better clinical outcomes for these people. In summary I have attempted to share with you my thoughts regarding Medicaid reform. I have reviewed the current Medicaid programs and some of the current information that the Kaiser Commission has presented about the States' response to their increasing fiscal crisis and increasing numbers of uninsured. As the county slowly comes out of our economic decline, now is the time to do something and reform Medicaid to prepare for the future. States have been doing the best with what they have patching their public health care system with whatever they can find to provide for the most vulnerable citizens. It is the right thing to do. There are simply several ideas to keep in mind. Give states more flexibility - there are too many restrictions for managed care in the types of organizations and in regard to quality and access. Give states increasing flexibility with eligibility and benefits. Provide a way to limit the practice of hiding assets so that individuals have to utilize Medicaid. Encourage the use and tax relief for long-term care insurance. Develop pilot programs using Medicare and Medicaid funding to allow states to offer a managed care program for these individuals. Or better yet let the states develop plans and fund them on their creativity and ability to make the best use of the dollars for their populations. Provide incentives for states that promote health and personal responsibility and significant positive health outcomes. Remember that government closest to the people is the most effective and most responsive. Let the states decide whether they want to cover fewer people with more coverage or whether to cover more with fewer benefits. I appreciate the opportunity to come before you today and on such short notice. It is important to me that we spend taxpayer's money wisely but together figure out a way to provide affordable quality health care to our constituents. I look forward to working with you.