Iowa House Report

Since the summer of 2000, states have been receiving pressure from the federal government to end a controversial, but legal, Medicaid funding mechanism known as the Inter-Governmental Transfer (IGT). Inter-governmental transfers are a funding mechanism used by a number of states to qualify for additional money from the federal government.

This process inflates Medicaid reimbursement rates for providers who transfer the excess payments back to the state. States then use the excess payments to draw down additional federal Medicaid funds. Currently, the state receives approximately $65 million in inter-governmental transfers from facilities around Iowa. The state then uses that money to qualify for the additional federal Medicaid dollars.

This process has allowed states to creatively stretch Medicaid funding to fit the needs of the people they serve. However, as the federal budget has experienced troubles recently, Administration and Congressional opponents of these methods have come to the forefront.

Through intense negotiations, Iowa now has an opportunity to put an end to these funding mechanisms and to serve as a laboratory for real Medicaid reform. While there are risks involved with any reform effort, the opportunity for setting the model for Medicaid in the 21st century is being offered to only one state. President Bush and Health and Human Services Secretary Mike Leavitt have made this offer to Iowa. We have been rising to the challenge and attempting to make health care better for all Iowans.

Since December 2003, the Department of Human Services and the Legislature have been working with Iowa's Congressional delegation to find a resolution to the dispute. Key to these efforts has been trying to find ways to offset the loss of IGT funding. In August 2004, DHS and key legislators made a proposal to the Department of Health and Human Services for a resolution. The elements of this included:

* Iowa would give up the “bad” Inter-Governmental Transfers beginning in FY 2006; and

* Iowa would give up efforts to implement the Nursing Home Quality Assurance Assessment.

In exchange for giving these up, the Federal government would grant Iowa a Medicaid waiver to implement the following changes:

* Allow the state to change the management structure of state institutions (Resource Centers and the MHIs) so that adults age 21-64 treated at the MHIs could be covered by Medicaid. Current federal law prohibits Medicaid from paying for serving this population at an Institute for Mental Disease;

* Allow the state to raise the level of care required for new admissions to nursing homes, while maintaining it at the current level for in-home waiver services. This move would help keep more Iowa seniors in their homes while receiving the services they need;

* Allow the state to provide mental health services to children without their parents having to give up custody of their child;

* Create a new Medicaid coverage group for those people who could qualify for Medicaid, but are currently being treated at Broadlawns Hospital or through the State Papers program at the University of Iowa Hospitals and Clinics (UIHC). Currently, much of the care in these two facilities is paid for with 100 percent state funding (UIHC - $27 million) or with 100 percent property tax funds. Iowa would give up efforts to implement the Nursing Home Quality Assurance Assessment.

Secretary Leavitt sent Governor Vilsack a letter stating the department's intention to work with us on the implementation of this waiver plan, as long as the terms and conditions of the agreement “include positive steps to bring the State's financing of the Medicaid program into compliance and a prohibition of provider taxes for the duration of the waiver.”

DHS and legislative staff are now working on developing a bill including these proposals for the Legislature's consideration this year. This is necessary as Secretary Leavitt also stated that in order for the waiver to be approved; all required statutory, budget, and other supports must be in place.

Iowa taxpayers spend at least $100 million a year to pay for healthcare for those who have no other means of payment. This money should be managed in a way that allows for maximum federal match through a reformed Medicaid program. While this is no easy task, I am confident that we will rise to the challenge and set an example for the rest of the country to follow.