Vermont testing cap on Medicaid

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MONTPELIER, Vt. (AP) -- A growing inability to pay ever-increasing Medicaid costs has forced Vermont into an innovative deal with the federal government that critics fear could jeopardize a safety net dating back to the Great Society.

Gov. Jim Douglas says he is confident his Global Commitment to Health, in which the state has agreed to cap federal Medicaid funding over the next five years, will give state officials unprecedented flexibility to manage the health insurance program for the poor and begin to control costs.

The program went into effect Saturday, with the start of the fiscal year.

There is irony in Vermont's pursuing a federal funding cap. Vermont, a solidly Democratic state, has transformed Medicaid into a program in which even middle-class families can get the insurance, especially for children. Now, roughly one in every four Vermonters is covered.

But soaring medical inflation, particularly among the traditional Medicaid users, has forced the state to try fresh thinking, and other states are keeping watch.

"I'm sure they'd be looking at states like Vermont, states that have gone ahead and tried new approaches," said Martha Roherty, director of the National Association of State Medicaid Directors. The Medicaid reform "commission and others in Congress would be looking to states like that, to see how they've restructured, how it's working."

The federal government pays roughly 60 percent of the costs of providing health insurance to the poor and disabled, and state governments pay the rest. States administer Medicaid, but must do so under stringent federal rules, unless they win a waiver of those regulations.

Mr. Douglas, a Republican, turned to Washington early this year asking for a guaranteed level of spending from the federal government and new control over running it. He got much of what he wanted, although less guaranteed money from Washington than he sought.

One of the unique aspects is that Medicaid would be administered through a statewide managed care organization, which would be paid a fee for each person insured and then would have to manage with that money.

A pending agreement calls for total Medicaid spending in Vermont to be no more than $4.7 billion over the next five years, with roughly 60 percent of the bill being paid by Washington. The Douglas administration and the legislature estimate spending will total $4.2 billion.

The state also estimates that it will save between $135 million and $165 million under the new arrangement during the next five years. But even then, the state's funding problems will be only partially solved; Vermont still will fall short of its contribution to the Medicaid program by $300 million in that period.

Another hitch in the minds of some critics is that the shift would take the federal government off the hook if costs continue to skyrocket, leaving Vermont to pay for any spending above the $4.7 billion ceiling.

"State policy-makers would have to choose between covering those costs entirely with state funds or reducing health care coverage or provider payments," wrote Judith Solomon of the Center on Budget and Policy Priorities.

Mr. Douglas' response to the criticism, given at a recent press conference, is simple: "What's the alternative?"