Originally Published: February 16, 2011 9:58 p.m.
PHOENIX - Arizona has received initial clearance from the federal government to pursue Gov. Jan Brewer's plan to dramatically reduce its Medicaid rolls to help balance the state budget, state officials said Wednesday.
Brewer said she was encouraged by a letter in which Health and Human Services Secretary Kathleen Sebelius said the federal health care overhaul does not require the state to keep its Medicaid population as-is past the Sept. 30 expiration of the current five-year authorization of Arizona's Medicaid program.
"It certainly helps us resolve our issues with the budget," Brewer said. "I feel we're on the right road to get our state in order."
Arizona's program now provides eligibility coverage above federal minimums, and Sebelius told Brewer in a letter released late Tuesday by Brewer's office that the state can include the eligibility change in its proposal for reauthorization of the program.
Brewer in January proposed suspending coverage for 280,000 low-income adults effective Oct. 1 to help eliminate a projected $1.1 billion shortfall. State officials said Wednesday that Sebelius' stance means that Arizona will be able to drop coverage for 250,000 of those people.
Arizona is not alone among states in moving to reduce Medicaid costs in the face of budget shortfalls, but the proposed eligibility reduction would go beyond other cutbacks by Arizona and other states to reduce provided services and payments to care providers.
Officials in several other states have suggested they also want to consider eligibility reductions. Wisconsin Gov. Scott Walker for example, has proposed legislation that would give his administration the power to make eligibility reductions and other changes to his state's program without approval by the Legislature.
However, a National Conference of State Legislatures official said the possible impact of Sebelius' stance on Arizona's proposed eligibility reduction might be limited.
That's because Arizona's entire program is authorized as a Medicaid demonstration project under a waiver that is coming up for a routine renewal, creating circumstances that allow changes to be made this fall, said Joy Wilson, NCSL's health policy director.
"This is a very specialized situation because of the way Arizona's Medicaid program is structured," she said. "But I am sure there will be a lot of lawyers taking a lot of looks at this to see if there are other ways to read this that would broaden the scope."
Brewer had asked Sebelius for a waiver to the federal health care overhaul's mandate that states keep their Medicaid populations at early 2010 levels until the overhaul expands the Medicaid program in 2014.
But Sebelius said a waiver is not needed because the so-called "maintenance of effort" requirement does not apply to Arizona past Sept. 30 because that's when the program's current authorization ends.
Most of the 250,000 people who would lose coverage under Brewer's proposal now pending in the state Legislature for consideration in drafting the next state budget are adults without children. Approximately 5,000 are people with medical expenses so large that those people have little money left over.
The 30,000 people that Arizona cannot drop from the program as proposed by Brewer are parents. They must still be covered because those people fall under a federal mandate for the Medicaid, said Monica Coury, an assistant director of Arizona's Medicaid program, the Arizona Health Care Cost Containment System.
Coury said Arizona officials need to further review Sebelius' letter, but she said that months of consultations with federal officials over renewed authorization for the program are on tap.
"We still have to go through the process submitting that (eligibility) change" to a previously submitted application to renew the entire program, Coury said.
Also, eventual formal federal approval of the eligibility reduction would not necessarily allow it to take effect. A court challenge is expected that would argue that the reduction violates a state constitutional protection for a voter-approval law that expanded Arizona's Medicaid coverage.
"Gov. Brewer now plans to ignore the will of the voters," said Sen. Kyrsten Sinema, D-Phoenix.
While giving Brewer leeway to proceed with her proposed eligibility reduction, Sebelius in her letter also appeared to nudge Brewer to consider an Arizona Hospital and Healthcare Association proposal for a temporary assessment on hospitals tax to raise $300 million to help the state to close its budget gap.
HHS officials are available to work with Arizona officials to work on that proposal "in a fiscally responsible and permissible manner to help sustain program coverage in a difficult economic time," Sebelius said.