MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The Medicaid system, which covers health care cost for the nation's poor and disabled, is a partnership between the states and the federal government. The partnership is scheduled to expand starting in 2014 with the Affordable Care Act. But many states are facing budget crises now and say that dramatic action, including opting out of the Medicaid system altogether, needs to be considered. Joining me to talk about state budgets and the future of Medicaid, Judy Feder of Georgetown University, Ed Haislmaier of the Heritage Foundation and Janet Adamy, she's a reporter with The Wall Street Journal. Throughout the hour, we'll take your calls. Join us on 800-433-8850. Send us your e-mail to drshow@wamu.org. Join us on Facebook or Twitter. Good morning to all of you.

MR. EDMUND HAISLMAIERGood morning.

MS. JUDY FEDERGood morning.

MS. JANET ADAMYGood morning.

REHMJudy Feder, if I could start with you, give us a sense of Medicaid, how it works and how strong it is right now.

FEDERMedicaid is an enormously valuable program, Diane, and it insures about 60 million people. And we want to think of it as a mix of programs. It is our insurance program for low-income families, particularly children. Medicaid covers about 30 million children across the nation. It takes care pretty well of pregnant women -- poor pregnant women -- very important for that population. It is less good for parents of children -- low-income parents in most states. You have to be very poor to get coverage, but it does provide some. And it is a very valuable program for low-income people with disabilities and older and younger people who need long-term care.

REHMI gather it also covers the mentally ill, those with HIV, AIDS, so a real broad...

FEDERVital support for people with all kinds of disabilities -- essentially for people who, because of health circumstances or low incomes who are not likely to qualify for health insurance through jobs.

REHMYou said more than 60 million people nationwide. It's also a huge payer to hospitals, to nursing homes, to doctors.

FEDERAbsolutely correct, and it is -- and when you purchase care for people -- population, the disabled and supporting elderly people alongside Medicare -- it's a supplement to Medicare -- it obviously is a provider of importance, particularly for nursing homes.

REHMJudy Feder, she is senior fellow at the Center for American Progress, professor of public policy at Georgetown University. Edmund Haislmaier, from the perspectives of many states, I gather there are some difficulties here with Medicaid.

HAISLMAIERWell, yes. States basically -- if you are -- it doesn't matter what state you're in or if, you know, you're a Republican or Democrat or a governor or a legislator. You really have pretty much the same picture when it comes to your state budget. And the state budget has, as its biggest items, these health care programs -- Medicaid, but also the children's health insurance program, which in many states isn't really an extension of Medicaid. That's one of the big budget items.

HAISLMAIERThe other biggest budget item in the state would be education spending, K through 12, also higher education, and then finally you have, in most states, a fairly sizable transportation budget. So whenever a state has a fiscal issue -- as virtually all the states do now with the current recession -- those are the three big ticket items that lawmakers have to look to to resolve their fiscal issue. And so obviously they're going to turn their attention to their Medicaid program.

REHMAnd I gather it has been the Heritage Foundation which has made a recommendation that states opt out.

HAISLMAIERWell, no. Let me be clear about that…

REHMOkay.

HAISLMAIER...because we have not recommended that.

REHMOkay.

HAISLMAIEROkay. I mean, I'm not recommending that. And the way you have to think about this is this is the same dynamic as the discussion about whether employers might decide to drop their coverage and simply send their workers to these new subsidized coverage starting in 2014 under the Health Care Bill. So I'm certainly not advocating that, say, Microsoft drop its employees plan, and I'm not advocating that a state drop its plan. What I'm pointing out is that the way this legislation works, is it creates a new alternative subsidy system and that it -- and that if I put myself in the shoes of a governor or a legislator or a, you know, employee benefits manager to a corporation, I'm going to -- I'm putting myself in their shoes.

HAISLMAIERRegardless of the politics, at a practical level, they're going to look and say, well, gee, you know, would this work better if instead of doing what I'm doing today I move these people into something where most of my people would get subsidized coverage, you know, that somebody else is paying for, and then if the people I don't -- can't do that for, I could do something else? I mean, does that make sense? Does it work out for me as an employer or as a state government financially? So if you put yourself in those shoes, and you start working through the interactions of the bill, and you calculate this, you start to find that for some of these folks-- some of these employers, some of these states -- yeah, it might make sense for them to do that if nothing changes between now and 2014.

REHMEdmund Haislmaier, he is senior research fellow at the Heritage Foundation. Janet Adamy of The Wall Street Journal, explain to us how this partnership between the states and the federal government works regarding Medicaid.

ADAMYSure, Diane. Well, the way that it works is the federal government pays 57 percent of the cost of the Medicaid program, and states pick up the remainder. But the catch is that states have significant limitations on how they can alter the program. The main aspect is that they can't change the eligibility requirements. So the situation you have now in states is that they're running into budget difficulty, but if they try to narrow the program and limit it so there aren't as many people on it, the federal government could say, well, you no longer qualify for the federal match, and therefore you'll lose your federal funding.

ADAMYI think Ed pointed out that -- he was making the point that starting in 2014, there will be some changing dynamics from the health law. Well, what the health law does in 2014 is it actually creates a significant expansion of the Medicaid program. Starting in 2014, the law will add 16 million people to the program, and so -- well, some Republicans have made the point that there may be some new opportunities to shift people off of Medicaid starting in 2014. In fact, the law actually does just the opposite. It grows the program, and that's one of the pressures that states are facing right now.

REHMSo how are states expected to deal with those changing dynamics?

ADAMYWell, there are a couple of things going on. The law, starting in 2014, will give states complete federal funding for the expansion of adding these 16 million people. So they'll be -- they'll get 100 percent dollars for the first couple of years. Now, that does start to taper off in the second half of the decade. But at the same time, what states are saying is that they can't -- looking out to -- beyond 2014, they think that that cost is going to be too great.

ADAMYThey also face the immediate pressure of the -- of these very tight budgets. There's also a third factor where the federal government, until next year, has increased their federal matching rate. But that's going to go away, starting next summer, so the confluence of all those things is causing states to have some -- you know, some pretty surprising discussions about the possibility of opting out of the program.

REHMJanet Adamy, she is a reporter for The Wall Street Journal. Do join us as we talk about this very important federal state program of Medicaid. And we'll look forward to hearing your questions, comments, 800-433-8850. Judy Feder, I know you wanted to add something.

FEDERThank you, Diane. I wanted to clarify -- in regard to Ed's comments -- what the Affordable Care Act does and what it doesn't do in terms of creating an alternative basis for coverage. The Affordable Care Act provides coverage in the exchange for people with incomes above 100 percent, above poverty. It does not deal with the population whose incomes are below poverty, which is where the expansion is, in part, that Janet is talking about.

REHMThe 16 million additional.

FEDERThat's right. But, also, that's where most of the young disabled population is -- the population that receives supplemental security income. They're dependent on Medicaid coverage, and the Affordable Care Act would not offer an opportunity to pick them up. The Affordable Care Act also would not provide, in general, the substitution for what the states are doing on long-term care, and that is tremendously important. Medicaid is the nation's long-term care safety net.

FEDERThere are some other provisions, which we can talk about in the Affordable Care Act, but there no substitution for what Medicaid does. And it's important to remember that while low-income families -- mostly children -- account for about three-quarters of Medicaid's beneficiaries, it's the elderly and disabled that make up two-thirds of the spending. So that's where the spending is, and the Affordable Care Act doesn't address it.

REHMSo what are states facing right now that is causing them to even think that they could possibly do 2014, Janet?

ADAMYWell, I think for -- we should put this in a little bit of context. The states all that are discussing this now are saying that it's highly unlikely that this scenario would actually happen. But the idea with 2014 is that there is a possibility that some of those people who fall into this Medicaid eligibility population could qualify for a sliver of a tax credit, and that's the thinking.

HAISLMAIERYeah, actually, one has to think about this as, really, two separate problems of yours. Again, put yourself in the shoes of a state-budget official. You've got a short-term problem of this year and next year's fiscal budget. I mean, most -- all but four states start their budgets in July. Then you have this long-term issue.

REHMEdmund Haislmaier, he is senior research fellow at the Heritage Foundation. And we'll take your calls very shortly. 800-433-8850.

REHMAnd welcome back to our discussion about the federal state role in Medicaid, how those rules could change, how states are going to manage those changes come 2014. Here in the studio, Edmund Haislmaier of the Heritage Foundation, reporter Janet Adamy with The Wall Street Journal, Judy Feder of the Center for American Progress, professor of public policy at Georgetown University. We do invite your questions, comments, 800-433-8850. Janet Adamy, do we know how many states have already expressed interest in opting out?

ADAMYWell, Diane, publicly, about a half dozen states have had discussions about this. The leading one is Texas where Republican Gov. Rick Perry has made several public comments, saying that he'd like to get out of the Medicaid program for Texas and replace it with a state-based program. We know that elected and appointed officials in the State of Washington, South Carolina have also discussed it, and Wyoming and Nevada ran projections on what this would do to their health care systems earlier this year.

REHMAnd that's what I don't quite understand. If states are already in trouble, how can they say, we'll take on -- we'll let the government get out of our hair on this? How can that possibly happen, Janet?

ADAMYWell, Diane, that's exactly what a lot of hospitals and doctors and nursing homes are saying, that that's exactly the wrong solution because it would just deprive the states of funding that's really critical to running these programs. What the proponents of the idea are saying is, look, we as a state can design a narrower program. It may not cover as many people. We would have to have different eligibility requirements, but we'd have the flexibility to adapt it to our specific state situation.

ADAMYAnd you see in a lot of states, states do try to address their health care, their -- the poor populations with specific types of programs. Louisiana, for instance, has a whole charity hospital system. So in a lot of ways, states feel like they're better equipped to handle their own problems and their -- the calculation is that even if they lost the federal funding, that they could come up with the solution that may be narrower. But that would be easier on their budgets.

REHMJudy.

FEDERYeah, it's -- I think it's really important to recognize that the problem in health care cost is not the inflexibility in Medicaid rules or adapting to their delivery system. Medicaid already adapts to the delivery system in many cases. The challenge -- and the challenge, Diane, that states are facing right now is that in a recession, the demand for Medicaid -- the numbers of people who qualify goes up. At the same time -- but the revenues go down. Medicaid is designed to keep the money flowing, and the extra federal matching dollars that states have had helped deal with this. So their ending those dollars is really unfortunate as the recession goes on.

FEDERSo anything that takes you away from that kind of ability to use federal dollars to respond is going to put states in a terrible bind and leave their citizens at terrible disadvantage. I would just add to this. I think a lot of it -- and Ed presented it in clarifying his position -- a lot of the discussion is around the Affordable Care Act and, I think, is a -- in part, a perpetuation of a battle, a political battle around the Affordable Care Act. Because looking at 2014, what happens is that the federal government is picking up this new population.

REHMAnd joining us now by phone from Carson City, Nev., is Charles Duarte. He's administrator in the Division of Health Care Financing and Policy for the State of Nevada. Good morning to you, sir. Thanks for joining us.

MR. CHARLES DUARTEGood morning, Diane.

REHMExplain for us the Medicaid challenge you're currently facing in Nevada.

DUARTEWell, I think some of your callers have explained it pretty well. Essentially, we've got a severe revenue shortfall as a result of a recession, increased demand as a result of growing unemployment -- the highest unemployment rate in the country -- a loss of federal funding and the unprecedented challenge of trying to implement the Affordable Care Act. And, you know, I would differ a bit from one of your callers in terms of the flexibility of Medicaid. It's changed. The federal-state partnership that runs Medicaid has become increasingly inflexible through actions of the executive branch, Congress and the courts. So it leaves states with very, very few options to manage during a very tight budgetary time.

REHMSo give me an example or a couple of examples of the kinds of changes you'll be trying to make.

DUARTEWell, first of all, you know, we are unfortunately forced to look at some options, including what we call optional services, so those are things like adult day health care, personal attendant care, therapies -- physical, speech, occupational -- dentures. So things that are considered routine covered services in Medicaid programs, they're actually optional. So we're looking at getting rid of options as well as reducing reimbursement rates to providers, which are already essentially quite low.

REHMSo what you're saying is you're looking at these kinds of services with a view toward eliminating them entirely.

DUARTECorrect.

REHMThat's going to make it pretty hard on those poor people. Is it not?

DUARTEIt really will. And, you know, we've continually said since 2008 -- when we started making budget cuts as a result of the recession -- that it's going to affect lives and livelihoods, on livelihoods of the health care professionals that are affected and lives of beneficiaries. So, you know, we don't -- we haven't been, you know, putting lipstick on this thing and saying that it's okay. It's not okay.

REHMAnd, now, you have a new governor coming in January. How might that fact change what's on the table?

DUARTEWell, he's coming in during at a time of really unprecedented challenges in Nevada with the largest revenue shortfall in history for the state and, as we said, growing demand for services at a time when the federal government is restricting our ability to manage the Medicaid program. So he's going to have to make some tough decisions, and his team is just getting started with that process.

REHMSo are you anticipating that he might -- will say to the citizens of Nevada, we're going to take over this program ourselves?

DUARTEYou know, I don't think so. We did a very detailed study in 2009 when the Senate was debating health care reform, and it really was for two reasons. One was the cost of health care reform. And, again, I'll differ with your caller that states are going to be required to take up a lot of the cost to this, not for new eligible, higher income levels but for those who would become eligible at the current eligibility levels. So, you know, we're still going to have a very large burden that we projected in our study to be over a half billion in state money over a six-year period. So that's reason number one we did the study. Reason number two, we were concerned about the unsustainable growth of Medicaid, period. Irregardless of health care reform, it's on an unsustainable trajectory.

REHMOkay. Now, realistically, tell me from your perspective, what happens when you stop providing these kinds of coverages for people who are too poor to pay for them themselves? What do you expect to happen?

DUARTEI -- you know, I fully expect that there'll be litigation. I also expect that there will be some people that find a way, either through charitable organizations or through friends and family. But there are going to be people that are going to be impacted, and their physical health could be affected. So, again, we're not trying to gloss over this and say that, you know, this is something that won't affect people and professionals out there that provide services. It will.

REHMCharles Duarte, he is the administrator in the Division of Health Care Financing and Policy for the State of Nevada. Thank you so much for joining us.

DUARTEYou're very welcome, Diane.

REHMAnd now on the line with us is Warren Chisum. He is a representative in the Texas State Legislator -- Legislature -- sorry. Good morning to you, sir. Thanks for joining us.

MR. WARREN CHISUMGood morning, Diane.

REHMYou've said there's a train wreck coming. Explain what you mean.

CHISUMWell, that -- you know, we're not that indifferent from your previous caller from Nevada. We virtually can't change our Medicaid eligibility. We can't adjust it. The growth is headed for the cliff, and so we in Texas are taking a serious look at what to do about it. And, you know, our economy is somewhat better than some other states, but we can't afford it either. So we have to have some flexibility.

REHMFlexibility is one thing, but your governor, Rick Perry, is one of those state leaders who has been talking quite a lot publicly about dropping out of Medicaid altogether. What's the thinking there?

CHISUMWell, you know, that's the extreme end of this thing. But if we can't get flexibility out of the federal government and get some ability to manage our own affairs, then there is little left for us to do than to opt out of it. Now, it doesn't say we're going to do that. It just says we're going to look seriously, even at dropping out of the system.

REHMWell, what he -- what Gov. Perry said on Fox News, Sunday, was that he doesn't think the federal government should be in the health care business at all. He said the federal deficit is too large. But he's still advocating that the federal government give each state the monies they would spend on health care and let the states run each program. Does that make sense to you?

CHISUMAbsolutely, it does. I mean, we have compassion for our people that need special care, and we would not just keep people off of the row. But we would have a very intense study about who is getting Medicare services and their ability to pay -- even the co-pay -- and the fair treatment of physicians that will take Medicare, so maybe a large state HMO or something like that that manages in health care. So we think we can do a better job of it. I think the federal government has some obligation, and they should step up to and help the states if they choose to do it on their own.

REHMWell, how much does the state of Texas take in in federal dollars from Medicaid now?

CHISUMWell, we pay about $16.5 billion, and that's 40 percent of what it is. So the Fed sends us about $20 billion, so...

REHMOkay. So...

CHISUMThose are kind of ballpark numbers...

REHMSure.

CHISUM...but it's growing every day.

REHMOkay. So you figure that the state of Texas would be losing by 2014 -- let's up it 20 percent and say -- $25 billion.

CHISUMYeah.

REHMIf you opted out?

CHISUMThat's what we think -- that's where we think we're headed with this. And if our share goes up to $25 billion, we don't have a tax structure that will supply $25 billion in 2015.

REHMSo where does that leave you? You just say to people, sorry, no matter how poor you are, we can only do the minimal amount. Is that right?

CHISUMWell, you know, hopefully it doesn't come to that. Hopefully, we will work some kind of a deal with the federal government and let the state of Texas go in and manage its own system and bring the cost down where we can supply services to everyone that needs it. But if the federal government doesn't give us any flexibility, and we just have to take their take-it-or-leave-it type of program that they forced on us, then Texas has to look for other options.

REHMHelp me to understand -- if you would, Mr. Chisum -- exactly what kind of flexibility you're looking for.

CHISUMWell, for instance, in some of our programs, we can't even verify the eligibility of the people that come in. So the federal government doesn't allow us to tell them that, you know, they now have a job and probably are not eligible for the system. We can't even ask those kind of questions. That's the kind of flexibility we're talking about.

REHMSo how much support is there for the idea of simply opting out of...

CHISUMWell...

REHM...federal Medicaid in the Texas State House?

CHISUMYou know, it's -- it -- we haven't even tested the water there. The problem we have is we know that there is a shipwreck coming, and we want to be ahead of the game in planning for that -- what we're going to do about it. So until we get a plan, you know, it's -- we don't know what we're going to do. We just know that we're -- we don't have the ability to stay the course that is laid out right now.

REHMWarren Chisum, he's a Republican representative in the Texas State Legislature. Thank you so much for joining us.

CHISUMThank you, Diane.

REHMAnd you're listening to "The Diane Rehm Show." Sounds as though states are talking about shipwrecks, Edmund.

HAISLMAIERYeah, actually, they are. And the thing that you have to keep in mind here, because people say, well all these needy people are on Medicaid. That's true. And I'm pretty confident states aren't going to do this and throw people in the streets. That's one of my assumptions. But, you know, they've got other priorities too. They've got education. I mean, all the folks in education are going to say, well, what are you going to -- you know, are you going to slash education?

HAISLMAIERBut I actually had, during the debate on this legislation -- it quite surprised me -- somebody from the office of a university president call me when I did this paper on Medicaid and warned about this back in December before the legislation was passed -- called me about the paper to talk about what would happen to the state budget in terms of education funding if they had to slash education to cover the cost of Medicaid. So this is the reality that they're dealing with. Now, I'd like to make a couple of points if you'd give me a minute to do that. First of all, it's important to understand that these programs vary substantially from state to state. Okay?

HAISLMAIERSo when a state looks at both the short-term options of what they can do now in terms of increased flexibility -- if Congress were to give them that -- and the long-term option of what the world is going to look like in 2014 and how they should respond, in both cases, that will differ from state to state. So, for example, the long-term care piece, as Feder mentioned, is a big piece, but it's a bigger piece in some states than it is in others. So when I looked at the calculations, I came to the conclusion that right off the bat, there are at least about 10 states where long-term care is such a big part of their program, that under no circumstances could I figure out that this would even make sense for them to do it. Okay?

HAISLMAIERBecause they would lose more money on the long-term care side than they would gain by getting rid of acute care, so right off the bat, you take away about a fifth of the state. You know, the other thing is, when you talk about -- well, what are the alternatives in the short term? Here's another example. Well, slash doctor's rates. I mean, you know, that's one -- you know, payment rates. Well, interestingly enough, the rural states, because of rural access issues, even poor rural states like Mississippi or New Mexico, pay doctors better than the big states like New York. So you could slash doctor rates in Oklahoma, but you'd have trouble doing it in California.

REHMEdmund Haislmaier, senior research fellow at the Heritage Foundation. When we come back, it's time to open the phones. Stay with us.

REHMAnd welcome back. It's time to open the phones, 800-433-8850. First to Elkhart, Ind. Good morning, Jackie. Thanks for joining us. Jackie, are you there? All right.

JACKIEHello?

REHMYes, go right ahead, please.

JACKIEAre you talking to me?

REHMI certainly am.

JACKIEOh, okay.

REHMPlease, go right ahead.

JACKIEOkay. This is Jackie from Elkhart, Ind. And I know from working in nursing homes and dealing with my own father's affairs in the state of Indiana, the lawyers push very hard -- and people want it, too -- if there's an estate, to push the money off to the children. Then they take care of their parent's expenses for a couple of years and then put them into a nursing home and put them on Medicaid. And I resisted it. It was overwhelming pressure for me to do that from the lawyers and some financial advisors.

JACKIEBut my father didn't need nursing home care. I kept him in assisted living, which was about half of what nursing home care would be. And when I was discussing this with my cousins, they asked their financial advisors, and their advisors said to buy long-term insurance. If you can't afford it yourself and the children want to preserve the estate, they can pitch in and help you pay for that long-term.

REHMAll right, Jackie. Thanks for calling. Janet, I gather this is a problem -- big problem all over the country.

ADAMYWell, it is. But, I mean, the problem isn't solved by trying to liquidate your assets. The problem is trying -- is to all to try to improve the Medicaid program. And, as Judy was pointing out, and starting in 2014, there are provisions to try to make the program more efficient. Donald Berwick, the CMS administrator, has said he started a new center that would try to make payments more efficient. So the idea is that the program should be improved, so people aren't in the situation.

REHMBut it is part of this larger political narrative.

ADAMYExactly, Diane. The idea that Medicaid is an unfair burden on the states has become a core part of the Republican argument against the health law, and we're even seeing it in these lawsuits, these constitutional lawsuits that are taking place on the state level. There's a large lawsuit with 20 states. In Florida -- filed mostly by Republican attorneys general and Republican governors...

REHMArguing?

ADAMYArguing. There are two arguments, but the second argument is that the Medicaid expansion unfairly burdens states, that even though they will get funding for this -- even though they will be entirely funded for the first two years -- that it's an unfair burden over the long term and that so many of the ancillary costs are going to fall to the states, and that that's going to end up being decided in court.

REHMJudy?

FEDERYeah, I think that I raised it before because I think that there is a -- this is a continuation of the political battle over enactment of the Affordable Care Act. And even as Ed presented this issue of whether states could drop out, he presented it in that context, challenging the viability and the predictions for the Affordable Care Act. The fact is, as Janet said, that the Affordable Care Act is providing a tremendous new source of revenues to states, and Medicaid is not just a value for health care for our citizens. It is an economic engine, particularly in low-income states. That doesn't mean that it isn't a challenge for states to bear their share. That's about health care cost, and we've got...

REHMDoes...

FEDER...to get health care cost under control.

REHMDoes, in fact, Medicaid subsidize the rest of the health care industry, Ed?

HAISLMAIERNo. It subsidizes certain subsets of the industry, but, actually, in some cases, one could argue that there are costs pushed onto some other parts of the industry. You know, as to Judy and Janet's points, yeah, it is a continuation and part of the battle, but it's one that's, I believe, driven by fiscal realities and is driven by the reality of what Congress passed last year. What they did is they upended the system and substantially changed it for people who are already in the system, and they had no idea how these interactions are going to play out. We're still calculating some of them. We still come up with surprising interactions when you compare this bill. You know, anybody who thought that the debate ended when they passed the bill is naïve.

REHMAll right. To Laurie in Kensington, Md. Good morning. You're on the air.

LAURIEGood morning. I am actually -- my question has exactly to do with what you just mentioned. I'm wondering if the guests could talk about the likelihood of repeal of the health care reform act, and if so, which aspects of it might be more at risk. In particular, I'm interested about the CLASS Act. And the reason I'm asking is that, surprisingly, I've already heard that some health care consulting organizations stopped hiring in anticipation of this possibility.

REHMJanet.

ADAMYThe idea of repeal -- at least for the next couple of years -- is highly unlikely. With Obama still in the White House and Democrats still controlling the Senate, there's just -- there's no way that there's going to be an outright repeal bill passed, even though Republicans in the House are expected to vote on that measure. However, where we may see some changes in the law is House Republicans have said that they will try to defund certain unpopular aspects of the law. So you mentioned the CLASS Act. That is one area that has gotten some criticism, even from Democrats.

REHMExplain that.

ADAMYThe CLASS Act, it's a new long-term care program. It was pushed by the late Sen. Ted Kennedy. It's designed to provide long-term care insurance, but Republicans were highly critical of it and even some fiscally conservative Democrats. They said that the way that it was funded was basically -- some even called it a Ponzi scheme -- that it took in revenues for the law early on, but that the payout would be far greater and that the budget implications could be huge.

REHMAnd what is before the Washington State legislature?

ADAMYWhat Washington State is considering right now, as I mentioned earlier, they're one of the states where they have a bipartisan group of citizens that's discussing ways to try to address the huge budget shortfall that they have there. And although the idea of getting out of Medicaid is one of the things that's on the table, they said that's highly unlikely. However, starting as early as next year, they're looking at getting rid of about a dozen different services. One of them is prescription drug coverage. So, Diane, the idea would be that you could stay on the Medicaid program. But if you're a diabetic and you went to your doctor and he wrote you a prescription for insulin, you wouldn't have coverage to get that filled. And that's likely to happen as soon as next year.

REHMWhat about that, Ed?

HAISLMAIERWell, states have done these sorts of things in the past. I mean, you know -- and this is part of the inefficiency of this program, is in many ways, you do things in this program that look like they save money in the short term and drive up cost in the long term.

REHMWait a minute. I don't understand how what Janet just said points to inefficiency.

HAISLMAIERWell, let me -- you know, well -- okay. If you say you're going to save money by slashing reimbursement for prescriptions -- some states say you can fill four prescriptions a month or something like that. Well, then what does that do if those patients don't get the prescriptions to them showing up in the hospital where you're going to pay for them on Medicaid but now you're going to pay for the hospital charge. Okay? So a state like New York that slashes provider rates, doctor rates, to the point where doctors simply won't see Medicaid patients, well, that just simply diverts those people to the hospital, which is a more expensive setting. And those people...

REHMBut how about the hospitals ultimately refusing to see Medicaid patients?

HAISLMAIERWell, they -- well, see, this is the interesting issue because we have a federal law, the Emergency Treatment Act that says that hospitals can't turn people away.

REHMAll right. Here's an e-mail from Doug, who says, "I live in Montana, laid off in 2007. I've been on Medicaid ever since. For 20 years, I could not afford dental care. Very few dentists will accept Medicaid patients. Recently, an excellent non-profit medical and dental clinic opened to serve those in our area. Only because of the clinic, staffed by two recent dental school graduates who are working off their student loans, was I able to get the extensive dental work done. For far too many, Medicaid saves lives and health. Better Medicaid payments, not less, are vital to the nation's well-being." Judy.

FEDERWell, actually in the Affordable Care Act, Diane, there are provisions that increase federal funding to actually increase Medicaid payments to primary care docs -- it's dentists and primary care docs and -- rather than specialists -- who are particularly underpaid in Medicaid, and that's where there's a tremendous need. The caller is -- I mean, or the e-mailer is pointing out how vital Medicaid services are. And there's been a lot of discussion about whether there is some flexibility that states could adopt that would somehow -- that they're somehow inhibited by federal rules in this regard. This is simply not the case.

FEDERWhat you're hearing -- and there are -- most states are employing using managed care for their beneficiaries. They are encouraged by the Affordable Care Act with new tools to better manage care, and we're calling them medical homes -- these extra payments to primary care docs to coordinate care. All of those things can improve Medicaid. The problem is not inflexibility in federal rules. The problem is health care cost.

REHMFlexibility, help me to understand that, Janet.

ADAMYThe idea is that states argue that they need more room to narrow the program without losing the federal matching dollar. So, for instance, in the example of Washington State, they can say, for adults, they can say we'll cut prescription coverage. We'll cut adult dental, vision. You can't get your dentures. But they can't just say, we're going to cut people out of the program altogether. Otherwise, the federal government will turn around and say, well, you're no longer eligible. You're going to lose all your funding.

HAISLMAIERYou know, if I could respond to that. I think for people to understand -- let's just look at the history of this program, okay? Essentially, when it started, it was a program where the states made all the decisions, and the federal government just paid part of the bill, okay? It's evolved over time to the reverse of that, where the federal government increasingly makes the decisions, and the states are simply paying part of the bill.

FEDERActually...

REHMI'm sure they do. I don't agree with you, Ed.

HAISLMAIERAnd that's what basically they're arguing about.

FEDERAnd that's -- actually, there have always, from the very beginning...

HAISLMAIERThere were some rules.

FEDER...the whole design -- there are a lot of rules. The rules that we're talking about, who you're required to make eligible, what kinds of services are required, what are optional. Those have been true from the beginning of the program and...

REHMAll right. To Dallas, Texas. Enrico, you're on the air.

ENRICOYeah, good morning, Diane.

REHMGood morning.

ENRICOCouple of quick questions. I wanted to know, what is -- is there something inherently wrong with each state managing their own version of health care? I also wanted to know why is it that anytime there is any amount of government intervention in the health care debate, it is immediately branded as socialist? Those are my...

REHMThanks for calling. This question of having each state -- if it comes to that -- determine how they will administer a Medicaid program, strikes me as rather confusing. Janet, what's the rationale behind allowing each state to do as it pleases? What happens if I move from Montana to New York, and I have no money for health care?

ADAMYI think -- to Ed's point earlier -- that the idea is that is that every state has a different situation. So, for example, in the State of Wisconsin, their incoming governor there, Scott Walker, is saying that he thinks that more private market-oriented solution would be the answer, so one of his proposals is to try to seek certain waivers to the federal requirements so there would be more private market involvement. The idea is that, you know, you have different types of populations in different states and that a state can better tailor its programs to its individual residents' needs.

REHMAnd you're listening to "The Diane Rehm Show." Now to Blountville, Tenn. Good morning, Randy. You're on the air.

RANDYGood morning. My comment is when a state goes on its own, like Tennessee did, it can be overwhelmed. Tennessee, several years ago, opted away from Medicare to a program called TennCare. And it was a commendable effort to expand coverage for the less advantaged, but it was completely overwhelmed by people coming from outside the state. They didn't have any residency requirements, so there really are some major problems if you expand care.

REHMJudy.

HAISLMAIERIf I could just clarify on that.

REHMSure.

HAISLMAIERTennCare actually is the state Medicaid program in Tennessee. What Tennessee did was to radically expand their Medicaid program and also, at the same time, restructure it. And the caller is correct. They had problems, not only with people moving, but they also had a lot of fraud problems. They had a number of problems with that whole program.

FEDERBut they are a perfect example of a state that argued that they could, by putting people in managed care -- which now most states do effectively -- but that they could somehow manage this program much more cheaply in new ways. And it goes back to demonstrate the problem is health care cost. We need, as a nation, to invest effort. And that's exactly -- you mentioned Berwick. That's what he's doing.

REHMAll right. To Toledo, Ohio. Good morning, Jonathan.

JONATHANYes. Good morning. You know, I think we got into this whole conversation -- this is the second go-around post-Clinton because we're twice as expensive as any other rich country in the world. We've got 51 million people uncovered. That means 50,000 unnecessary deaths a year 'cause that's about the ratio. So we have to remember why we got into this conversation to begin with, which was we're too expensive, and we don't cover enough people. If you look at the other countries, there are only three ways to do this. You can either have a national health service.

JONATHANYou can have -- which is what England has. Some other countries similar with their (unintelligible) They own the hospitals. You can do what the Germans and some of the other Northern European countries have done, which is they have a very regulated insurance where everybody is covered by some sort of program. Or you can have a single-payer like our Medicare system. When we have the debate, we wouldn't even talk about doing an improved, expanded Medicare for all. We could have done it, but we didn't. Within ACA, the hope was we could expand public programs to 16 million Medicaid, primarily because it was the cheapest way to get another 16 million people covered.

JONATHANMedicaid is relatively inexpensive compared to private coverage. If we actually look at market solutions, we've had our fill of market solutions since the Clinton plan collapsed. It hasn't saved us any money. Costs have not been controlled. And, in fact, they've gone through the roof. So my view on this, we do have something within the Accountable Care Act that we can use besides, as was mentioned, some of the excellent programs that might actually start to improve the cost of care.

REHMAll right. Thanks for your call and your contribution. Judy, where does this leave all the people with the least ability to make their voices heard in Washington?

FEDERWell, I'd like to hear more from the states about needing some more federal support to help them ride this bad economy through. This -- the extra matching they've received needs to be extended. They need help in this period, and any claim that some greater -- giving the states money and allowing them to be greater flexible -- have greater flexibility is simply going to lead people into being without care.

REHMEd.

HAISLMAIERWell, the federal government doesn't have the money to spend. I mean, that's pretty clear already, and so that solution is going to be very difficult in the next Congress to simply continue the status quo. The irony of all of this is that, I think, in blowing up the health system we have today with the -- this legislation, they've set in motion a sort of counter-effort to totally rethink a lot of this stuff. And it'll be very interesting to see how it plays out in the next couple of years.

REHMAnd, Janet, politically, where is all this going?

ADAMYPolitically, this is going to be a big Republican talking point, and the question is whether Congress will effectively give in and try to give states more money.

REHMJanet Adamy, a reporter for The Wall Street Journal, Edmund Haislmaier of Heritage Foundation, Judy Feder of Georgetown University, thank you all so much. Thanks for listening all. I'm Diane Rehm.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth. The engineer is Erin Stamper. Dorie Anisman answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales.