By Donna Smith and Lisa Lambert, Reuters, June 22, 2010
The U.S. Senate may find a compromise on helping cash-strapped states pay for healthcare, according to a proposal circulating through Congress on Tuesday, a week before the fiscal year begins in many states.
According to the proposal, extra money included in last year's stimulus plan for Medicaid would be extended past its December expiration through the first six months of 2011. But there would be a "phase-down" of the funds sent to states, shrinking the overall cost of the aid.
Medicaid is the healthcare program for the poor administered by the states and U.S. government.
Many states face an historic collapse in revenues. Because almost all must balance their budgets, they will compensate for lost healthcare money by cutting elsewhere.
"At this point in the game, if it passes with a haircut, it's still a good outcome for the states," said Chris Whatley, Washington director of the Council of State Governments.
The proposal could help break a Senate impasse over a bill that would extend a set of popular business tax breaks and provide additional aid for the long-term unemployed.
The bill stalled last week over concerns that it would have added about $55 billion over 10 years to an already bloated budget deficit, and Senate Democratic leaders are now pushing to round up the 60 votes necessary to advance the bill in the 100-member Senate. The bill also would raise taxes on investment fund managers as a way to cover some of its costs.
The proposal circulating on Tuesday would adjust that carried interest tax provision to address concerns about family partnerships paying the higher tax that was meant for private equity and hedge fund managers.
Senate Democratic aides said nothing has been finalized, but leaders hope to reach final agreement and clear the bill through the Senate in the next few days.
The Senate bill also includes a provision providing homebuyers with contracts signed before April 30 more time to settle and take advantage of the homebuyers tax credit.
MEDICAID A STICKING POINT
The House of Representatives has already passed its version of the legislation, and the Medicaid extension has proven to be a major sticking point. It was stripped from the House version at the last minute and states fear it will be cut from the Senate bill.
Conservatives say a blanket extension of the extra Medicaid boost, estimated to cost $24 billion, will put a country with a $1.4 trillion deficit and $13 billion debt deeper into debt.
Without the continued Medicaid boost, states say they will have to lay off thousands of workers and cut healthcare.
"It's ... a Medicaid issue for the vulnerable. It's also a fiscal reality for states," said Pennsylvania Senator Robert Casey, a Democrat, on Tuesday.
The stimulus plan increased the amount of money all states received for Medicaid by 6.2 percent, and then added extra funds for states with high unemployment rates. The total federal cost was more than $85 billion.
Typically, Medicaid takes up 20 percent of a state's budget, but the proportion swells during recessions when more people enroll in the program. Many states banked on a six-month extension of the funding boost and included it in their budgets for fiscal 2011, which for most begins July 1.
In language that circulated on Tuesday, each state would receive a declining boost. Their Medicaid funds would start out 2011 with an increase of 5.3 percent and end with an increase of 3.2 percent.
"If it is just a diminution ... as opposed to removing it entirely, it's clearly much better," said Senator Dianne Feinstein, a Democrat.
The "phase-down" could cut the amount sent to states by billions. Many say if they do not receive the funds they will fall off a fiscal cliff.
"I have always thought for a long time that it was a disservice to states to have a cliff in the Medicaid funding where one month they are getting it completely and the next month they're getting none," said Senator Susan Collins, a Republican. (Reporting by Lisa Lambert and Donna Smith; Editing by Kenneth Barry) ((lisa.lambert@thomsonreuters.com; +1-202-898-8328; Reuters Messaging: lisa.lambert.reuters.com@reuters.net))