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States object to Medicare “clawback”

A little-discussed provision of the Medicare Modernization Act, which established prescription drug coverage, requires states to pay billions of dollars each year to help finance the benefit.

The state “contributions”—called “clawback payments”—should total around $124 billion between 2006 and 2015, according to the Congressional Budget Office.

Texas is leading the charge against the requirement, considered to be even more onerous than the unfunded mandates imposed by the No Child Left Behind Act. Gov. Rick Perry, a Republican, vetoed a $444 million appropriation to cover the Texas contribution for the next two years.

New Hampshire is also refusing to pay. The state budget stipulates that no payments will be made until a court has determined the provision to be constitutional.

Kevin B. Sullivan, Lieutenant Governor of Connecticut, has asked the state attorney general to review the constitutionality of what he calls a “hidden tax,” expected to cost $160 million over two years.

To come up with the money, Ohio is eliminating Medicaid coverage to 25,000 parents and reducing dental benefits for 800,000 adults (Robert Pear, New York Times, July 4, 2005).

In passing the law, Congress intended to relieve states of the cost of drugs for low-income elderly {“dual-eligibles”), who account for nearly half of all Medicaid spending for prescription drugs. The states, however, were to return part of the savings. Because of state cost-containment efforts, however, states may end up owing Washington more money than they otherwise would have spent (Robert Pear, New York Times, March 25, 2005).

While Congress has for decades induced states to cooperate with federal initiatives by attaching strings to federal aid, “the clawback is different,” stated Timothy Nelson, general counsel to Arizona Governor Janet Napolitano. “It’s not imposing a condition for the receipt of fedral money. It’s taking money from the states to pay for a new federal program. It’s a dangerous precedent” (ibid.).

The program is expected to increase Medicaid enrollment by about one million as people discover their eligibility in the course of applying for the Medicare drug benefit.

Additional information:

“Medicare Sticker Shock,” by Robert Moffit, supplement to AAPS News, April 2005.

“Medicare Prescription Drugs: Medical Necessity Meets Fiscal Insanity,” Cato Briefing Paper, Feb 9, 2005

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