In a hearing before the House Budget Committee on February 26, Health and Human Services (HHS) Secretary Tommy Thompson defended the administration's Medicaid proposal.

Chairman Jim Nussle (R-Iowa) opened the hearing by raising concerns over the delay in the introduction of the administration's Medicare and Medicaid proposal. Nussle stated that the committee needed proposals within the next three weeks to include such plans in the budget reconciliation bill, which is due by April 15th. Secretary Thompson was non-committal on an exact date of introduction, but pledged that the administration is in the midst of formulating a proposal. The Secretary asked for pertinence and promised an administration proposal in short time. Nussle, however, did praise the Secretary for his work in bioterrorism.

Senior Democrat James Moran (D-Virginia) also raised concerns over the HHS budget for FY 2004. Moran is worried that federal Medicaid payments to states would be capped by the implementation of block grants, but the Secretary pointed out that no such thing would occur. Thompson strongly asserted that the Medicaid system was in need of reform. The Secretary said that 38 states have already cut back on Medicaid services and more would cut back on services if changes were not enacted.

Thompson outlined the main principles of what the administration's Medicaid proposal would look like. Thompson said that states would soon have the option of choosing partnership allotments over the current Medicaid system. The allotment option would allow states the opportunity to receive two separate grants from the federal government: one for acute-care and one for short-term care. Also, the option would combine Medicaid payments with states' Children Health Insurance Program (SCHIP) payments. Under current law, states must return SCHIP payments not used back to the federal government, which the administration wants to change.

If states choose the allotment option, they would also have the flexibility to alter coverage for certain populations, said Thompson. Under current rules, states cannot offer different coverage options to different groups of optional populations. According to the Secretary, the allotment option would provide states with the opportunity to offer different coverage for various optional recipients of Medicaid. For example, the Secretary asserted that instead of eliminating whole populations, which many of the states have been forced to do, states with fiscal trouble could require that optional recipient groups purchase private insurance. However, Thompson stressed throughout the hearing that the allotment program was an option and would be not be forced upon states. Thompson made it clear that states could stay in the current system, but certainly advocated on behalf of the allotment option.

Tommy Thompson stated that close to 1/3 of the Medicaid population is optional, but the optional population is responsible for 2/3rds of the cost, which is necessitating that governors cut whole populations instead of restructuring coverage. While the administration wants to provide states with flexibility with respect to optional Medicaid populations to preserve services, the Secretary reassured members that mandatory benefits for mandatory populations would not change.

Some Democratic committee members like Tammy Baldwin (D-Wisconsin), Artur Davis (D-Alabama) and Darlene Hooley (D-Oregon), expressed concern over the administration's plan and whether the federal government would increase Medicaid payments to states. The Secretary tried to assuage their fears by claiming that federal payments to states as a percentage would increase in the coming years. Thompson reiterated that states could save money and preserve services by enrolling in the allotment option.