Governor Michael O. Leavitt

It is a privilege for me to come before this distinguished body to address two very important questions pertaining to your Medicaid deliberations. First, what is the best strategy for maximizing Medicaid's critical role in providing access to health care? Second, how do we slow the rate of growth in Medicaid expenditures without simply transferring this unsustainable liability to the states?

States have been charged with the primary responsibility to administer Medicaid since its inception in 1965. During the last thirty years, we have moved responsibly to look for ways to achieve both program and administrative cost savings, while assuring delivery of quality health care. While each state has met with varying degrees of success in achieving this goal, the evidence is quite clear that taken as a whole, the states have done a good job of serving the country's poor, unborn, disabled, aged, blind and medically atrisk citizens. This has been done in the face of heavy federal regulation and federal restrictions that have severely hampered state efforts.

In Utah specifically, Medicaid serves 1 out of every 8 Utahns each year. The philosophy of the State has been to foster market place competition and individual recipient financial responsibility to the extent permitted by federal law. This has allowed us to achieve one of the most efficient and actuarially sound Medicaid systems in the country. In fact, sound management of Medicaid has contributed in large measure to the State being consistently selected as one of America's best managed states by Financial World. Utah has been employed competitive purchasing of major Medicaid services since 1981. We first included HMO products in the Medicaid program in 1982. Along this vein, the State long ago abandoned inflationary cost based reimbursement systems except where still required by present Medicaid federal law. Shortly after taking office in 1993, I joined with my Utah legislative colleagues in a nonpartisan initiative that would span 8 years of comprehensive, incremental health care reform that would ultimately make available affordable health care to all Utahns by the year 2000. This bold yet down to earth strategy is set forth in a document titled HEALTHPRINT A BLUEPRINT FOR MARKET BASED REFORM IN UTAH. A major component of HEALTHPRINT is expansion of Medicaid to more Utahns living at or near poverty using no more federal dollars than would actuarially have been spent under the traditional Medicaid program. Under the current system, the Medicaid piece of HEALTHPRINT would take the form of an 1115 Waiver.

Unfortunately, as a new governor and as a new student navigating the complex Medicaid federal approval processes, I have discovered that this country's governors do not have the authority needed to reinvent how this vital health care program can best meet the needs of its citizenry with the limited federal and state dollars that will be available in the future. Increasingly, federal mandates, court decisions and regulations issued by federal bureaucrats have tied the states' hands when it comes to tailoring a Medicaid program that fits within the budgetary and health care environments of the individual states.

The Medicaid program has evolved into a myriad of subprograms each with its own set of individual entitlement rules. Administrative flexibility and simplicity has given way to unsurpassed administrative complexity and insensitivity to serving the public efficiently. In addition, federal administration of the Medicaid program through its various regional offices is not proceeding quickly enough to recognize the dramatic changes occurring in our health care markets. As a consequence, states with aggressive health reform efforts are stymied by out-of-date federal regulations and waiver application processes that not only fail to respond to the opportunities presenting themselves to states today, but establish artificial rules and conditions for granting waivers that have absolutely no bearing on the realities of the market place.

While there are many, many examples of how federal administration of Medicaid has failed to meet the needs of the states, its citizens and this country, I would like to recap just a few. First, we have the outdated Boren requirements that tie state reimbursement systems to obsolete cost-based methodologies rather than the competitive market trends evolving so rapidly in most of our markets. This will continue to cost the states and the federal government billions of dollars each year.

Next, we have the so called list of "optional" services that each state can supposedly add or subtract from its benefit package to stay within budgetary constraints. Unfortunately, federal law and regulation have restricted states from removing optional services from so many special subpopulations of Medicaid, that by the time all these protected eligibility groups are eliminated there is very little cost savings left to realize.

The current system prohibits states willing to make hard choices. An example. Currently, a Medicaid recipient has benefits that are 130% of the average worker in the private sector in our state. After expensive deliberation and discussion with low income advocates, we decided that in Utah we would rather have everybody have basic health care than fewer have the best health plan in the state. We proposed to reduce the benefit level from 130% of the average private sector plan to approximately 118%, using the savings to provide coverage to people who currently have no coverage. What we believe to be a common sense decision, was not allowed under the existing system. There may be those of you who still disagree with our decision, but if we are going to meet our objective of providing access to basic quality health care to all Utahns, we need the ability to make those hard decisions.

Another example, federal law and regulation has so tightly limited the use of copayments and other forms of financial responsibility within the Medicaid population that any strategies to save funds by sensitizing these participants to the consequences of health care utilization decisions is lost. Reasonable cost sharing requirements must be injected into the purchase of health care by a significant part of the Medicaid population, particularly adults, if we hope to gain control of this program and assure its continued availability to future generations.

In the administrative area, the explicit and expensive requirements imposed by federal law and regulation on operation of state Medicaid agencies inhibits redesign of the basic program to transfer greater responsibility to private health plans where they can be more cost-efficiently borne, and the basic responsibilities of states redefined around rate negotiation, health plan enrollment, quality of care monitoring and reporting, and health data collection and analysis.

There will shortly be no need for states to maintain expensive, complex Medicaid Management Information Systems. In fact, the State of Utah is presently operating on a trial basis a single, comprehensive medical billing system that electronically processes claims from all provider types. UHIN, the Utah Health Information Network, collects claims on behalf of all public and private insuring entities in Utah. UHIN is a nonprofit organization that was formed voluntarily to address the growing concern around duplicate administrative expenses incurred by multiple insurers. UHIN receives claims either manually or electronically, processes them for payment against the requirements of each liable insurer, handles automatically the coordination of benefits where more than one insurer is involved, applies limitations and other edits against the services received, and directs a payment remittance statement back to the provider advising of the action taken on the claim, and the parties from whom payment will be received. All organizations that came together to form UHIN committed in the articles of incorporation to return all administrative savings that are derived from this public/private venture to the consumer.

UHIN is just one example of how the states are moving aggressively to implement real health care reform that will stand the test of time. The time for action is now, and the place for this action is the individual states.

As Congress looks toward limiting the federal funds available to the Medicaid program, it is vital the states be given the tools necessary to craft a program that is not only efficient, but which continues to provide at-risk populations good quality medical care. In my opinion, the most important tool the states must have to accomplish this is flexibility.

Franklin D. Roosevelt said "The future lies with those wise political leaders who realize that the great public is interested more in government than in politics". As the nation's governors, each of us has the first line responsibility to understand our communities needs and the values based on which those needs must be met. I hope we have the courage and the wisdom to give states the needed flexibility to make critical decisions relative to managing Medicaid within a mutually acceptable funding agreement. This is the only path I see that will enable us to both balance the federal budget and preserve this important program.

Again, it has been my pleasure and privilege to speak to you today, and at this time I would be very happy to speak to any specific questions or concerns you may have.