Governors and state
legislators too often hear from Washington health care consultants and advocacy
groups, the "experts," that health care is simply expensive, that
nothing can be done about it, and that the citizens of their states are passive
victims of high and uncontrollable health care costs. They are also often told
that the "right" solution is to wait for Congress to act on
"national health reform"; or to obtain more money from the federal
Treasury for Medicaid, which is administered at the state level; or to impose a
new tax on private employers and workers in their states; or to extract new
revenues from doctors and hospitals in the form of a "provider tax"
either to offset rising health care costs or to pay for the cost of caring for,
or covering, the uninsured.
What many health policy
"experts" will not tell them is to take a clear-eyed look at their
own state policies and programs. The problem is that many state legislators
often do not understand the underlying policies crafted by their predecessors,
so they do not know how to change them, or they fail to recognize the negative
impact of their own invariably well-intentioned policies, which are often
contributing factors in rising health care costs.
dealing with insurance are not the same as those dealing with Medicaid, which
often means that health care is viewed in two vastly different environments. In
fact, Medicaid may be the largest "insurer" in the state. Too often
health policy experts fail to give state officials sound advice for harnessing
market forces to control costs or expand coverage. But state officials are not
powerless at all. Just as states drive up health care costs, they can reverse
current trends through sound reform.
The rising cost of
health care for the states and their citizens is often tacitly assumed to be a
problem solely in search of a federal solution. In reality, state officials
also drive up costs as regulators, financiers, purchasers, and providers of
health care. State officials play critical roles in both the supply
(thelicensing of health care professionals, controlling the supply of medical
facilities through "certificate of need" laws that determine the
number of hospital beds in a certain area, and regulating health insurance
markets) and demand (determining eligibility for public programs,
setting reimbursement rates for doctors and hospitals, and mandating health
benefits, procedures, and treatments). Because Medicaid is now the largest
single budget expenditure in many states, "crowding out" funding for
other state priorities, legislators and governors have little choice but to
engage in serious, long-term reform of their Medicaid programs. With rising
costs, they should also take a broader view of how state policies affect the
cost of health care and how those policies can be changed.
It must also be
acknowledged that change requires taking on special interests in the health
care sector that are often even more powerful at the state level than at the
national level. Challenges to the status quo are likely to meet resistance from
well-entrenched alliances between advocacy groups and providers.
New and Better Policies
State policymakers can
do a great deal to control costs, improve coverage, and restructure the financing
and delivery of health care in their states. There are several avenues open to
- Create premium support. State legislators can create, within current law, a
premium support system for Medicaid and the State Children's Health
Insurance Program (SCHIP) recipients, enabling them to enter or re-enter
private insurance markets. Premium support is essentially a direct government
payment to a private health plan of the recipient's choice.
- Re-direct government funds from institutions to
individuals. They can also re-direct
existing government funding in order that the public dollars follow the
person, and not the institutions. This would transform the system from a
provider-based to a patient-centered system. Where this has been tried on
a limited basis, such as the "cash and counseling" demonstration
projects that provide long-term supportive services for the disabled and elderly,
it has increased access to services, improved patient care, and increased
patient satisfaction, all without any increase in the risk for fraud.
- Reform health insurance markets. State policymakers, who have an enormous amount of
authority over state health insurance markets, can restructure their
health insurance markets, reduce excessive benefit mandates and regulation,
and foster competition both within the state and across state lines with
interstate health insurance plans.
State officials are not
helpless, and they should not wait for Washington to improve public programs,
revitalize health insurance markets, and expand coverage.
How States Drive Up
In the $350 billion
Medicaid program, the nation's largest means-tested program (participation
determined by income level), federal dollars follow state decisions. Within
broad federal guidelines, states set Medicaid eligibility, adopt optional benefits,
and determine reimbursement rates. Medicaid consists of "mandatory"
populations and benefits, set by federal law, and "optional"
populations and benefits, determined by state law. State decisions on optional
spending account for 60 to 65 percent of the cost of Medicaid.
Broad Flexibility. States already have a great deal of
flexibility and freedom in setting Medicaid policy, such as determining:
- Income levels of eligibility for enrollment in the
program beyond the minimum federal requirements;
- Application of an asset
test for certainpopulations;
- Coverage extension to "medically needy"
- Frequency of re-determining eligibility for enrollment;
- Liberalization of access by adopting "presumptive"
eligibility (starting benefits immediately prior to a full determination
process because the person appears to be eligible based on initial
information)for certain persons or continuous eligibility for persons
- Adoption of the administrative flexibilities available
to them under the Deficit Reduction Act of 2005 reforms on benefit
packages and cost-sharing;
- Methods for setting reimbursement and rebates for
- Which benefits, if any, are to be subject to prior
authorization rules; and
- The number of home- and community-based waiver slots
for elderly and disabled populations seeking alternatives to institutional
facilities that will be offered.
States can also decide
how to deliver health care coverage—through "fee-for-service,"
capitation contracts (flat fee per patient) with managed care organizations, or
other types of managed care arrangements. Long-term care accounts for about
one-third of Medicaid spending. States can determine the ratio of
institutional care and community-based care. Medicaid spends about $100 billion
on Medicare beneficiaries ("dual eligibles"). States can play a key
role in the spread of Medicare Advantage Special Needs Plans. Better
coordination for the high-risk, high-cost dual eligibles has the potential for
improving health outcomes for the beneficiary and lower costs for both Medicare
and Medicaid. It is clear that states can do a great deal, under existing law,
to rationalize Medicaid spending and thus more effectively control costs.
Medicaid and Medicare (the large government program for senior and disabled
citizens) were both created in 1965. Since its inception, Medicaid has operated
as a federal–state partnership, with the states largely administering the
program under federal law and regulation, and has been jointly financed as a
federal–state "matching" program. This fundamental arrangement
relies on both partners to share the cost, and therefore the risk, of caring
for the poor and the indigent. Over the years, states have been encouraged by
advocacy groups to expand Medicaid because for every dollar a state is willing
to spend, it will receive at least a dollar from the federal government; and
in a state with a higher match rate, even more. Not surprisingly, during the
fiscal years (FY) 2007 and 2008 alone, an expansion of Medicaid benefits
occurred in 24 states; eligibility for Medicaid coverage was expanded in 36
states, including so-called conservative states.
Federal Money Machine. During the 1990s, Medicaid became a federal
money machine used to help fuel "economic development" and even balance
state budgets. The combination of Medicaid as a matching program and loopholes
in federal law were often exploited in ways that allowed states to claim more
federal taxpayers' dollars without proportionately increasing the state
taxpayers' share of cost. Creative state officials discovered imaginative ways
to artificially generate additional federal funds through "provider
taxes" (i.e., new taxes on hospitals, nursing homes, and even
physicians), the Disproportionate Share Hospital (DSH) program (used to
channel federal payments to hospitals for caring for the uninsured), and
phantom "upper payment limits (UPL)." Using upper payment limits,
states and providers, usually hospitals and nursing homes, worked together to
generate additional funding from the federal government by charging in excess
of the net amount the provider received for services. The UPL was calculated
based on Medicare cost principles and the federal government paid its share
based on those amounts. However, the provider returned a portion of such
amounts to its state or local government.
Missouri and Tennessee. A number of states jumped
at the chance to receive more federal dollars in the 1990s only to create
conditions that would force them to face more difficult budget decisions in the
2000s. Looking at two such states, Tennessee and Missouri, the ebb and flow of
Medicaid funding can be observed. TennCare was originally conceived as a
federal bailout for the state's budget crisis. The relief was short-lived.
Without appropriate safeguards, enrollment ballooned, the health insurance
markets were disrupted, over-regulation thwarted competition, costs soared, and
the program was in a perpetual state of litigation and uncertainty.
Missouri implemented a
waiver in 1998 to expand eligibility for children to 300 percent of the federal
poverty level (FPL) ($63,600 for a family of four in 2008) to 100 percent FPL
($21,200 for a family of four in 2008) for parents and to 125 percent FPL
($26,500 for a family of four in 2008) for adults. Coupled with the economic
slowdown, enrollment in Missouri's public programs soared and private coverage
dropped. Prior to the waiver, Medicaid enrollment averaged 2.9 percent annually
In 1998–2001, enrollment averaged 11.4 percent annually.
There was also evidence of a decline in private coverage acceptance or enrollment,
a typical consequence of public program expansion. Employer-sponsored health
insurance for low-income adults dropped from 41.7 percent in 2000 to 30.0
percent in 2004.
In FY 1997, before the
waivers kicked in, Medicaid expenditures as a percentage of total expenditures
in Missouri and Tennessee were generally in line with other states. Medicaid
expenditures accounted for 20 percent of total expenditures in all states
compared to 20.2 percent in Missouri and 23.7 percent in Tennessee.
By FY 2001, however, the percentage spent by Missouri on Medicaid had grown to 29.5
percent and to 31.4 percent by Tennessee compared to just 19.7 percent by all
From 2002 to 2005, Missouri and Tennessee were the only states spending more
than 30 percent of their budgets on Medicaid in each of those years. As a
percentage of total expenditures, Tennessee spent more on Medicaid than any
other state and Missouri was second. Medicaid spending, as a percentage of
total expenditures, for Missouri and Tennessee peaked in FY 2005 at 34.3
percent and 35.9 percent, respectively.
Federal Crackdowns. As more money was pumped out of the Treasury,
Members of Congress and executive branch officials alike awakened to the
funding abuses and acted, over time, to close the various financing loopholes.
The effects of those actions caught up with states during the Bush
Administration. No longer able to rely on the cost-shifting arrangements,
states, including Missouri and Tennessee, were required to deposit more of
their own taxpayers' dollars into Medicaid to continue spending at the same
rate. The current governors of Missouri and Tennessee, one Republican and one
Democrat, were stuck with difficult and painful decisions left to them by the
actions of their predecessors in the 1990s. These states subsequently made
some of the most difficult decisions of all to include reductions in
eligibility in order to restore their programs to more fiscally sustainable
levels. According to projections for FY 2007, Medicaid spending for the two
states has dipped below 30 percent. Maine and Pennsylvania have since replaced
them as the highest-spending Medicaid states as a percentage of all state
Private Costs. In California's
inconclusive health care debate last year, Republican Governor Arnold
Schwarzenegger described the "hidden tax" in health care caused by
the cost of uncompensated indigent care and how providers shift costs from low
Medi-Cal reimbursement rates to private payers, and thus working families
(Medi-Cal is California's name for its state Medicaid program.). It is
estimated that 17 percent of premiums paid by insured individuals in California
are attributed to this "hidden tax."
In New York, the
dynamics are different: Excessive reimbursement drives up costs. New York uses
high inpatient hospital reimbursement rates to subsidize outpatient clinics.
Hospital beds in New York have massive debt attached to them, which must be
repaid through higher rates, thus driving up costs for everyone. New York State
Health Commissioner Richard F. Daines, M.D., told the State General Assembly
last February that "[f]rom this data we know that New York ranks well
above average of avoidable hospitalizations. And we know that there are huge
disparities in the numbers of avoidable hospital admissions across the state.
The state's own reimbursement system has perpetuated this problem by
overpaying for the delivery of acute care and high-tech interventions and
underpaying for the provision of basic preventive and primary care. So we
shouldn't be surprised that we have more inpatient care and less outpatient
To its credit, New York
now appears to be taking the threat caused by overspending seriously and has
taken steps to reduce Medicaid inpatient hospital payments and combat Medicaid
According to the New
York State Department of Health's "Report on Implementation of the Report
of the Commission on Health Care Facilities in the Twenty-First Century,"
the state is undergoing "a historic transformation of the New York State
health care delivery system. Approximately one-fourth of all
hospitals in the State have been reconfigured; some have closed, others have
merged, and still others have eliminated excess beds and redundant services."
When fully implemented by 2011, "it is expected that 21 hospitals and
nursing homes will have been closed and more than 6,200 beds eliminated."
New York estimates the changes will save $106 million annually.
New York has also begun
seriously combating Medicaid fraud. According to the 2007 Annual Report of the
New York State Medicaid Fraud Control Unit, increased investment in states has
yielded dividends: "The Unit obtained orders and settlements of Medicaid
restitution totaling $112.5 million (in 2007), 90% higher than the $59.4
million achieved in 2006."
The High Price of
Inaction. There is a price to
inaction, as well as a cost for bad policy. Once again, California
provides an excellent case study. Three years ago, the Public Policy Institute
of California published a paper, "Medi-Cal Expenditures: Historical
Growth and Long Term Forecasts,"outlining the challenge of the state's
Medicaid spending. The researchers, not surprisingly, found that, "the
most expensive 2 percent of enrollees were responsible for more than 40 percent
of all fee-for-service Medi-Cal benefit expenditures. The bottom 75 percent of
enrollees accounted for less than 6 percent of all costs. This means that even
if costs were cut in half for all fee-for-service enrollees in the lowest 75
percent of cases, the total savings would be less than 3 percent."
The researchers concluded that California needs to focus reforms on disabled
and elderly enrollees, which are the highest cost cases: "[A]ny serious
strategies to contain costs for Medi-Cal need to address costs for the high-end
enrollees, costs driven by long-term care for the elderly, a broad array of
expenses for disabled enrollees, and expensive hospital stays for other
But when the federal
government tied special Medicaid funding under a hospital financing reform
waiver to adopting benchmarks to expand managed care for the expensive Medicaid
populations, the California General Assembly forfeited those funds and future
savings rather than adopt any meaningful reform. Today, California faces a $16
billion budget deficit and Medi-Cal providers face 10 percent cuts in
reimbursement in this year's budget. Providers in turn have sued the state to
prevent the implementation of these cuts, alleging that such action threatens
access to health care for California's Medicaid recipients.
More Taxes. State decisions are often influenced by
Medicaid financing arrangements as well as by the delivery of health care
itself. States received a total of $12 billion in various provider taxes in
2007 through Medicaid. Hospitals in New York alone paid $2 billion in provider
taxes. Hospitals and other providers often willingly agree to such arrangements
as they are generally passed along with rate increases. Such "taxes"
more accurately resemble slot machine tokens that are played with the
expectation of a return. The result: The state share of the cost is passed to
the provider, the provider is made whole, and the unwary federal taxpayer
foots the bill. Federal rules say that such provider taxes are to be
"broad-based," uniform, and do not constitute a "hold
harmless" arrangement. In other words, the tax must be applied equally
and the tax cannot be repaid. The underlying assumption of these three
requirements is that it should be politically difficult to tax the provider,
who in turn, must pass the tax on to the patient. Fundamentally, a provider tax
would mean taxing people who are elderly, disabled, sick, or perhaps all three.
These federal rules are supposed to be safeguards for the taxpayers, but
states continue to try to stretch the limits of their power to extract more
federal taxpayer dollars.
Some state policymakers
view provider taxes, like taxes on employers, as a politically attractive
source of revenue. But the reliance on provider taxes may disrupt the service
system itself. Because nursing homes can be a source of provider taxes, yet
home- and community-based providers cannot, nursing homes may have an advantage
in competing for government funding in times of tight budgets.
Such provider taxes may
be politically easier to sell to the public when carefully crafted to shift the
cost to federal taxpayers. But such financing should be rejected as unstable.
The federal government can be expected to close such loopholes, and it eventually
does when discovered. The government has closed loopholes both through statutory
and regulatory oversight. In 2005, Georgia shifted to managed care in part
because of a loophole in federal law on how provider taxes are applied to
managed care plans. Through the Deficit Reduction Act of 2005, Congress struck
back and subsequently stopped the spread of arrangements in which managed care
plans were taxed by states that had the potential to shift costs to the federal
Illinois has enacted different versions of provider taxes on hospitals over
the past few years. But the hospitals in Illinois have faced disruption in
payments as changes were made in the complex provider-tax arrangements under
federal scrutiny through the state plan amendment review process.
Long-Term Care Costs. In long-term care, Medicaid dominates the
market and exerts tremendous influence over both supply and demand in virtually
every state in the union. According to a January 2008 report for the Department
of Health and Human Services prepared by researchers at Mathematica Policy
Research, Inc., "Medicaid is the largest insurer for long-term care
services in the United States, covering over 60 percent of long-term care users
and accounting for 45 percent of nursing home expenditures in 2002."
Any state that continues
to invest Medicaid dollars disproportionately in institutions rather than
home- and community-based options is driving up costs for taxpayers.
Mathematica analyzed spending for 1.3 million Medicaid enrollees using community-based
long-term care and 1 million enrollees using institution-based long-term care
in 2002 and found that total Medicaid expenditures per Medicaid enrollee who
used only community-based long-term care was $24,966—compared to $38,844 for an
enrollee who used only institutional care.
How States Distort the
Health Care Markets
State and local
governments frequently play leading roles on the supply side of health care as
providers themselves. Even in the face of numerous and serious violations of
health quality standards that resulted in several deaths, the state of
California and Los Angeles County (aided by federal matching dollars) bailed
out the dysfunctional Martin Luther King Hospital, a county facility, for years
before it was finally closed last year. Government facilities may receive preferential
treatment in terms of higher reimbursement rates. Contracts may require health
plans to include government entities within their networks, whether or not that
inclusion makes sense from an economic point of view. States also exempt
Medicaid from the legal or regulatory requirements that they often apply to the
Certificate of Need. As regulators enforcing "certificate of
need" (CON) laws, state health planning entities often decide whether
private medical facilities can be opened or closed.
The recent high-profile
closing of Muhlenberg Regional Medical Center in Plainfield, New Jersey,
reflects state and local political decisions and market distortions, not
federal law or regulation. After 131 years of providing care, the state of New
Jersey approved the 355-bed facility's closure this summer. State law
"provides for the issuance of a certificate of need only where the action
proposed in the application for such certificate is necessary to provide
required health care in the area to be served, can be economically accomplished
and maintained, will not have an adverse economic or financial impact on the
delivery of health services in the region or statewide, and will contribute to
the orderly development of adequate and effective health care services."
The Muhlenberg Medical
Center's closure provides a number of interesting insights into government
financing as well as the implementation of CON. In its analysis, the state
agency staff recognized that Muhlenberg was not a "financially sustainable
The staff cited several factors contributing to the decision to close the
hospital. For example, the hospital was running annual operating losses because
of charity care and low government payments. In 2007, over 71 percent of
admissions were dependent on government payment (Medicare, Medicaid, and
Charity Care) or were without insurance, compared to the state average of 59
Meanwhile, as the staff
report noted, the hospital was nonetheless the beneficiary of tens of millions
of dollars of private investment for the purpose of increasing its revenue and
expanding its patient base.
Yet, on the basis of 2007 data, the Muhlenbergemergency department contributed
only 18.2 percent of hospital admissions, indicating that the emergency room
was serving primarily as a unit for "non-acute diagnostic and treatment
Curiously, the staff
report also noted that, despite the CON law to establish a "rational"
number of hospital beds, there was already an oversupply of licensed acute care
beds in the surrounding areas, and the hospital had only a 38 percent occupancy
rate of licensed beds. 
In fact, according to the State Health Planning Board, there were already eight
hospitals within 13 miles of Muhlenberg, as well as a federally qualified
health center. In a normal market, as opposed to a centrally planned allocation
of hospital beds by a government panel, that sort of "oversupply"
would have been highly unlikely. Investors are normally rational.
Of course, the snapshot
of Muhlenberg revealed in the State Health Planning Board report reflects the
culmination of years of planning decisions by state and local authorities. The
story, interestingly, does not end with the closure of Muhlenberg. Literally
days after the last patient left Muhlenberg, it was reported that the company
that applied for the closure of the hospital was back working the system:
"Solaris Health System is looking to expand JFK Medical Center in
"certificate of need" regime can provide a lucrative avenue for
lawyers and consultants who can spend a great deal of time, effort, and money
on behalf of their clients arguing for or against the construction or
expansion of a "competing" medical facility before a state planning
agency, adding to health care's administrative costs in the process. But it can
also have a negative impact on market competition in the state and thus
undermine efforts to control health care costs.
In a joint 2004 report
on the lack of competition in the health care sector of the economy, Improving
Health Care: A Dose of Competition, the U.S. Federal Trade Commission
and the U.S. Department of Justice called on state officials to take several
steps to reduce barriers to market competition, including a reconsideration of
CON laws. The joint agency report held that such laws are not effective in containing
health care costs and can pose "anticompetitive risks" that outweigh
Benefit Mandates. The 1990s witnessed significant increases in
state-mandated benefits for group and individual health insurance policies.
According to the Council for Affordable Health Insurance, there are 1,961 state
mandates nationwide, and depending on the nature and scope of those mandates,
they can significantly increase health care costs. State officials are
beginning to examine them. At least 30 states require a cost assessment before
they are imposed, and at least 10 states have enacted laws that allow
"mandate-lite" insurance policies to ease the financial burdens on
individuals and families.
States differ radically
in their health insurance markets and widely in their laws and regulations. A
key objective for state policymakers is to take a clear-eyed look at how much
competition is present in their respective health care markets and what they
can do to increase it. Market discipline, driven by consumer choice, is
necessary not only to control costs, but also to secure value for patients.
In a study for the
Wisconsin Policy Research Institute, health care economist Linda Gorman argues
that due to lack of competition dating back to rating setting actions in the
1980s and other government policies related to benefits and payments,
"[t]he Milwaukee (Wisconsin) health care market is plagued with unusually
Gorman points out that a "Mercer/Foster Higgins survey placed Milwaukee's
costs at 55 percent above other Midwest metro areas."
Such costs are passed on to taxpayers, employers, and employees.
What State Legislators
Must Do to Control Costs
As the cost of health
insurance continues to rise and threaten coverage even among the middle class
and the number of non-insured remains at unacceptably high levels, many state
officials clearly are determined to address the health care needs of their
citizens, and rightly so. But they should not assume that many of the nation's
health policy so-called experts are correct in either their analyses of, or
their prescriptions for, these problems. To control health care costs or expand
quality care, Medicaid is not the best option. State officials can do better.
In fact, state officials should look at reforms both within and outside the
- Adopt a system of premium support for Medicaid
recipients. Within Medicaid, states can
move their healthy members covered by Medicaid and SCHIP back into the
private health insurance market through premium assistance, providing
direct funding to the insurance options chosen by the recipients.
This policy will help reverse the "crowd out" effect of the
public program expansions that have been displacing private health
insurance coverage, draining private insurance pools of younger and
healthier members, and driving up the costs for the working families that
- Within Medicaid, states can also adopt appropriate
cost-sharing in Medicaid and SCHIP to help prevent over-use and to share
the cost of public programs.
- Make public dollars follow the person, not the
institution. States can adopt consumer
choice in their Medicaid long-term care programs and allow the
"money to follow the person" rather than be controlled by
institutions. Consumer direction has proven to increase quality and lower
total costs. Moving the Medicaid dollars in the "right"
direction will relieve the mounting pressures of cost shifting on families
obtaining coverage in the private sector.
- Make health insurance plans compete. State officials can help lower the cost of private
health insurance by allowing real consumer-directed competition among
health plans, enabling individuals and families to choose what is best
for them, not government officials or the companies that dominate the
existing health insurance markets—and by ending preferences for government
monopolies where they still exist.
Another variation on
this idea is for state legislators to restructure the state health insurance
market itself, repealing existing health insurance laws and regulations,
including the excessive benefit mandates that govern many health insurance
markets, and replacing the existing legal regime with a statewide health
insurance exchange, which would be confined to handling premium collection and
related paperwork processing for individuals and small businesses in a broadly
competitive market. This would allow individuals and families to buy the health
insurance coverage of their choice, take advantage of the existing tax
preferences for group insurance (provided through the "exchange")
under federal law, and create ownership of health policies and portability of
health insurance, just as there is portability of other types of insurance.
Through an employer-based defined contribution, such a mechanism would enhance
the transparency of employment-based financing and allow individuals and small
businesses access to the best features of group insurance, while permitting
them to take advantage of the best features of competing health plans and
Beyond restructuring the
market, state legislators could create a more sophisticated way of handling the
persistent problem of adverse selection in a pluralistic system—the tendency
of older and sicker enrollees to congregate in a few plans—by designing a
risk-adjustment mechanism for the private health insurance markets without
adding any additional financial burdens to the taxpayers.
It is popular to think
that states can do nothing about the cost of health care, that they are simply
small rafts carried by the winds, currents, and tides. But it is the individual
drops of rain that swell streams and rivers. Policymakers have already seen the
dangers of "free" money demonstrated in Missouri and Tennessee. As
long as Medicaid is a matching program, the federal government will eventually
insist that the states pay their share. As such, states eventually face painful
decisions to restore order to their budgets. But even getting the Medicaid
budget in order does not repair the damage to the private insurance market on
which most American families rely. In fact, some of the Medicaid remedies, such
as benefit and eligibility expansions, can disrupt the private market even
further, causing a "crowd out" of existing private coverage.
Governors and state
legislators should ignore those who insist that the only solution is to obtain
more money from the federal government and instead focus new efforts on returning
competition to their states' health insurance markets.
 Kaiser Commission on Medicaid and the
Uninsured, "Medicaid 'Mandatory' and 'Optional' Eligibility and
Benefits," July 2001, p. 12. See also, Kaiser Commission on Medicaid and
the Uninsured, "Medicaid Enrollment and Spending by 'Mandatory' and 'Optional'
Eligibility and Benefit Categories," June 2005, p. 11. In order to qualify
for federal matching funds, states are required to cover certain mandatory
populations and provide mandatory benefits. Federal matching funds are
available to states to cover additional populations and provide additional
benefits at their discretion. In the July 2001 paper, Kaiser estimated
expenditures on optional populations and benefits to be 65 percent. In the
later paper, that number was revised to 60 percent. Estimates may vary over time
due to changes in eligibility groups and assumptions about benefits. Some
consider all benefits to children mandatory due to the Early Periodic Screening
Diagnosis and Treatment (EPSDT) provision. Other changes over time that can
affect the percentage include the migration of prescription-drug benefits for
"dual eligibles" from Medicaid to Medicare and growth in caseload.
 Heather Jerbi, "Tracking State Health
Reform Initiatives," Contingencies, (September/October 2008), pp.
 For a detailed explanation, see U.S.
Government Accountability Office, Medicaid: CMS Needs More Information on
the Billions of Dollars Spent on Supplemental Payments, GAO-08-614, May
2008, p. 10. Also see various reports of the GAO and the Office of the
Inspector General in the U.S. Department of Health and Human Services. For a
comprehensive list of reports, see Hearings, H.R. 5613, Protecting the
Medicaid Safety Net Act of 2008, Subcommittee on Health, Committee on
Energy and Commerce, U.S. House of Representatives, April 2, 2008.
 John Holahan and Mindy Cohen,
"Missouri Medicaid Spending Growth 2001–2005," Missouri Foundation
for Health, 2006, p. 2.
 Ibid., p. 4.
 National Association of State Budget
Officers (NASBO), 1998 State Expenditure Report, June 1999, Table 29.
 Office of the Governor, Governor's Health
Care Proposal, "Governor Schwarzenegger Tackles California's Broken Health
Care System, Proposes Comprehensive Plan to Help All Californians,"
January 8, 2007, p. 3.
 Commissioner Richard F. Daines, M.D.,
"New York State Department of Health's 2008–2009 Budget," testimony
beforethe Finance Committee, New York State Senate, and the Ways and Means
Committee, New York State Assembly, February 6, 2008.
 New York State Department of Health
Services, "Report on Implementation of the Report of the Commission on
Health Care Facilities in the Twenty-First Century," Summer 2008, p. 1, at
15, 2008). Emphasis in original.
 Ibid., p. 26.
 New York State Medicaid Fraud Control
Unit, 2007 Annual Report, p. 7.
 Thomas MaCurdy, Raymond Chan, Rodney Chun,
Hans Johnson, and Margaret O'Brien-Strain, "Medi-Cal Expenditures:
Historical Growth and Long Term Forecasts," Public Policy Institute of
California, June 2005, p. vi, at http://www.ppic.org/main/publication.asp?i=619
(September 7, 2008).
 Ibid., p. 45.
 The Deficit Reduction Act of 2005, Public
Law 109–171, Section 6051, "Managed Care Organization Provider Tax
 Audra T. Wenzlow, Robert Schmitz, and Kathy
Shepperson, Mathematica Policy Research, Inc., "A Profile of Medicaid
Institutional and Community-Based Long-Term Care Service Use and Expenditures
Amount of the Aged and Disabled Using MAX 2002: Final Report." Prepared
for the Office of the Assistant Secretary for Planning and Evaluation, Contract
#HHS-100-97-0013, January 18, 2008, p. 1.
 Ibid., p. 23.
 Letter from State Commissioner Heather
Howard to John P. McGee, Solaris Health System, July 29, 2008, approving
Solaris's certificate of need application for the discontinuance of Muhlenberg
Regional Medical Center, p. 2.
 State Health Planning Board,
"Certificate of Need, Department Staff Project Summary, Analysis and
Recommendations, Closure of Muhlenberg Regional Medical Center," FR
#080303-20-01, 2008, p. 1.
 Ibid., p. 2.
 Ibid., p. 5.
 Ibid., p. 6.
 Continuous News Desk, "Solaris
Looking to Expand JFK Medical Center," The Star-Ledger, August 9,
 See the U.S. Federal Trade Commission and
the U.S. Department of Justice, Improving Health Care: A Dose of Competition
(Washington, D.C., 2004).
 Council for Affordable Health Insurance, Health
Insurance Mandates in the States 2008, at http://www.cahi.org/cahi_contents/resources/
pdf/healthinsurancemandates2008.pdf (September 7, 2008).
 Linda Gorman, "Why Milwaukee Care
Costs are High: What to Do About It," Wisconsin Policy Research Institute,
May 9, 2008, p. 1.
 For a checklist of sound health reform
options, see Robert E. Moffit, "State Health Reform: Six Key Tests,"
Heritage Foundation WebMemo No. 1900, April 23, 2008, at http://www.heritage.org/research/healthcare/wm1900.cfm.
 For a detailed discussion of how this can
be done within current law, see Dennis G. Smith, "State Health Reform:
Converting Medicaid Dollars into Premium Assistance," Heritage Foundation Backgrounder
No 2169, September 16, 2008, at http://www.heritage.org/Research/HealthCare/bg2169.cfm
 For a more detailed description of how
this can be implemented, see Christopher J. Meyer, "State Health Care
Reform: Retargeting Medicaid Hospital Payments to Expand Health Insurance
Coverage," Heritage Foundation Backgrounder No. 2177, August 29,
2008, at http://www.heritage.org/research/healthcare/bg2177.cfm.
 For a description of the purpose and
function of a state health insurance exchange, see Robert E. Moffit, "The
Rationale for a Statewide Health Insurance Exchange," Heritage Foundation WebMemo
No. 1230, October 5, 2006, at http://www.heritage.org/research/healthcare/wm1230.cfm.
 See Edmund F. Haislmaier, "State
Health Reform: How Pooling Arrangements Can Increase Small-Business
Coverage," Heritage Foundation WebMemo No. 1563, July 23,
2007, at http://www.heritage.org/research/healthcare/wm1563.cfm.