Sebelius gets tough on Medicaid enrollment

Health and Human Services Secretary Kathleen Sebelius is threatening to cut federal payments to states that are not enrolling people into Medicaid quickly enough. If the administration wants to increase Medicaid enrollment, cutting the funds used to make that happen does not seem like smart policy. But there’s a more devious political agenda at work here.

Senator Robert Menendez (D-New Jersey) raised the issue of delayed Medicaid enrollment during a Senate Finance Committee hearing on April 10. New Jersey has a backlog of some 10,000 applicants for Medicaid and only six state workers to process the applications. The senator blames the delay on the state's failure to act quickly enough. The secretary agreed, asserting that that states have had four years to get ready. In her words, “they needed to update and upgrade their eligibility systems to make it seamless and easy for people to enroll.”

If anyone should know how difficult it is to create a seamless enrollment system, it is Kathleen Sebelius. She presided over the collapse of, the federal exchange website that also had four years to get ready.

The front end of that system — that is, what the individual sees when trying to select a health plan — now seems to work passably well. That’s not the case for the back end, which is supposed to transmit correct information about enrollees and transfer billions of taxpayer dollars to insurers. That system still does not work for the federal exchange.

If it does not work for the exchange, it almost certainly is not working for Medicaid. As Matt Salo, executive director of the National Association of Medicaid Directors, points out, “Right out of the gate, we knew the transfer [of information from the federal government] wasn't ready and wasn't happening … Medicaid is always the forgotten stepchild.”

Just how bad is state performance? Surprisingly, state Medicaid programs have beaten the exchanges in signing people up for coverage. According to HHS, state agenciesdetermined that 11.7 million people were eligible for Medicaid from October 1 to February 28. In contrast, health insurance exchanges over the same period reported that 2.6 million people had selected an exchange plan.

Let’s not forget that selecting a plan on the exchange or being determined to be eligible for Medicaid does not mean one has coverage. The exchange insurer must receive accurate information from HHS, and enrollees have to pay their premiums. Similarly, the states must process Medicaid applications, and states that expanded eligibility must essentially run the process twice to determine which enrollees will have all of their costs covered by the federal government and which will only be eligible for partial federal subsidies. With four times the number of applications as the exchanges, it is not surprising that states have backlogs.

Would a cut in federal subsidies for Medicaid administration get states moving faster? That seems unlikely, and beside the point. The federal government pays for half of administrative costs, and states must pay the rest. Investing in a massive computer system redesign could easily cost tens of millions of dollars, and states cannot easily find their share of that expense in budgets that have long been strapped by a weak economy. A reduction in subsidies would discourage new state spending for such improvements.

Funding cuts will not move people more quickly onto Medicaid rolls. But they give the administration a tool to punish states that have been uncooperative in implementing the president’s healthcare reform — a tool that has to be used with surgical precision.

Cutting Medicaid payments to the states is not easy. Even the Obama administration cannot cut the 50 percent subsidy rate for administrative costs without going to Congress, and it cannot overtly discriminate between states in what expenses are covered. Instead, any reduction in this subsidy must be done the hard way, disallowing certain types of expenses and questioning the magnitude of specific costs.

This time-consuming process could tie up payments for months or even years. That is an extremely unattractive prospect for any state caught in the crosshairs. It would be difficult to challenge politically because greater administrative scrutiny is not a change in policy. Instead, it would be cast as ensuring appropriate payment — with a vengeance.

Would the administration follow through on selectively cutting payments to states that are not toeing the line? Raising it in a hearing does not commit the administration to action, but it is a warning that states may face serious consequences if they do not cooperate. For a president with only two years to cement his legacy, this has the look of desperation.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

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