Secretary Sebelius sent a letter last week to state Governors outlining dozens of ways that states can trim costs in their Medicaid programs (see our summary here).

Most of these policies were right on target. They take aim at our fragmented health care delivery system, reduce costly inefficiencies, and would even improve the quality of care for high-risk Medicaid beneficiaries.

But a few of the approaches Sebelius drew attention to were, well, off-target. For example, the Secretary highlighted how states can impose higher cost-sharing on low-income beneficiaries and restrict or eliminate “optional” benefits like prescription drugs and home- and community-based long term care services. These approaches only shift costs from the state onto struggling families, and would harm the health of chronically-ill Medicaid enrollees.

Why is HHS drawing attention to states’ discretion to cut benefits and raise copayments? Good question. And there’s a good answer. While we don’t love having these poor policy choices showcased, this letter is part of an effort to avert an even worse outcome.

Last month, Republican Governors wrote a letter to Congress and the Administration demanding they lift the Maintenance of Effort (MOE) requirement – the provision in the Affordable Care Act (ACA) that prevents most states from reducing Medicaid eligibility between now and 2014. The Governors claim that by prohibiting them from cutting people off Medicaid, the MOE hinders their ability to balance their budgets. Their letter has generated momentum on the Hill for eliminating this critical consumer protection.

But repealing the MOE is the wrong solution to state budget crises. It’s dangerous for two key reasons:

  1. It would increase the ranks of the uninsured, cutting vulnerable children, families, seniors and people with disabilities off health care coverage in the midst of an economic crisis. The human costs would be extraordinary.
  2. It would create a major barrier to implementing the ACA’s Medicaid expansion in 2014. States that reduce Medicaid eligibility in the next few years would have to reinstate it at their regular matching rate in 2014. If states are complaining now about the burden of having to just keep the people they’re already covering on Medicaid, just imagine the drama when they have to expand eligibility – and at their regular matching rate.
The HHS letter helps make the case that repealing the MOE isn’t just wrong, it’s unnecessary. By highlighting all the ways – good and bad – that states can save money in their Medicaid programs, it undercuts the Republican Governors’ assertion they have to cut eligibility in order to balance their budgets.

The HHS letter can be a tool for strengthening Medicaid In their appeal for the elimination of the MOE, Republican Governors pleaded for the federal government to “restore states’ flexibility to craft Medicaid programs tailored to their specific needs.” As the HHS letter underscores, states already have very significant flexibility in designing their programs, and no state has taken advantage of every opportunity for savings.

It’s up to consumer advocates to hold states accountable. When policymakers propose eligibility cuts, cost-sharing increases or benefit restrictions, we should draw attention to the all the options in HHS’ letter to improve care for beneficiaries while lowering the cost for taxpayers (see our summary of the letter for a list of these positive approaches). No state should resort to jeopardizing the health of our most vulnerable families until they have exhausted the lengthy list of opportunities for reducing costs by strengthening Medicaid.

Going beyond the HHS letter The HHS letter creates a good starting point. But there are other strategies that states could pursue to sustain their Medicaid programs without harming beneficiaries. Stay tuned – Community Catalyst will be highlighting more consumer-friendly ideas to sustain Medicaid in upcoming blogs.

— Katherine Howitt, Policy Analyst