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Gov. Arnold Schwarzenegger wrote in a letter to Congressional leaders today that while he still supports passing a sweeping overhaul of the nation's health care system, he's worried about the cost the implementation of the plan could have on California.

As Rob Hotakainen reports from Washington, one of the governor's central concerns is a proposed Medicaid expansion.

Sounding more like a Democrat than a Republican, the governor said Congress should pass a plan "quickly, thoughtfully and, most important, successfully." And he said health care should not be a partisan issue, as it has become in Washington. ...

But unless Congress pays for all of its costs, Schwarzenegger said a mandatory expansion of Medicaid "will only be an empty promise of health insurance coverage" and will force California and other states to make cuts in education, public safety and elsewhere.

Read the full text of the letter after the jump.

Dear Senator Reid, Senator McConnell, Madam Speaker and Mr. Boehner,

I have long supported comprehensive health reform and encourage you to enact changes this year that will attain our shared goals of slowing the growth in health care costs, improving the quality of care and providing health insurance coverage for the uninsured. Congress is closer to comprehensive health reform than ever before, and we must all work together to prevent this opportunity from slipping away.

Successful health reform must build upon the core principles of cost containment and affordability; prevention, wellness and health care quality; and coverage for all. The pending House and Senate proposals include significant policy reforms that will move the nation closer to addressing these core principles and fixing our broken health care system. Striking the appropriate balance between many factors - including public program expansion and state fiscal capacity, personal responsibility for coverage and affordability, insurance market reform and health care delivery system reform and cost containment measures and affordability - will be the difference between success and failure. While I believe that the elements of successful reform have been proposed in one form or another by Congress, additional work is required to ensure the reform package contains the necessary balance to ensure success.

Affordability

As I have shared with you previously, my major concern is the affordability of these proposals for state budgets. The significant mandatory Medicaid expansions proposed by Congress will impose hundreds of millions, if not well in excess of a billion, dollars in new costs each year on California state government. Our state cannot afford its current Medicaid program as structured and governed by federal rules. Mandating the addition of 25 percent more people into an already fiscally unsustainable program will only worsen our situation.

New Medicaid costs will be driven not only by mandated eligibility expansions, but by the necessity of raising provider reimbursement rates. The House proposal properly recognizes that provider rate increases will be required in order to maintain sufficient network capacity to ensure those covered by Medicaid - projected to grow from 7 million to 8.6 million beneficiaries in California under pending federal reforms - can access physicians and other health services in a timely and appropriate manner. The House bill's inclusion of nearly full federal funding for rate increases for physicians and other primary care providers recognizes the necessity of reimbursement changes to ensure this access for enrollees. I encourage Congress to build upon the House proposal and fund 100 percent of the mandated Medicaid eligibility expansion and rate increases necessary to maintain adequate network capacity. Without this important step, the mandatory expansion will only be an empty promise of health insurance coverage and will force states like California to cut funding for education, public safety or other important responsibilities.

On a related issue, federal reforms must include support for states for the costs of implementing those reforms. The responsibilities contemplated for states, such as the infrastructure for the Medicaid expansions and the health insurance exchange, are considerable and will be costly to implement. Federal reforms will fall short on their promise if states aren't provided the federal resources to implement reforms appropriately and well in advance of the required timelines.

It is clear that pending Medicaid expansions could cost California more than $1 billion. Less clear, however, are the savings that states may be able to attain when health insurance coverage is significantly expanded. California has established a number of state programs that are targeted to high-risk and high-need uninsured populations with specialized medical conditions. States like mine will be reluctant to terminate such programs without greater clarity and confidence that the specialized medical needs of these populations and the provider networks upon which they rely will be replicated in the proposed health insurance exchange. Without such assurances, it is premature to assert savings associated with the elimination of existing state programs. Rather than requiring these typically medically fragile people to fend for themselves in the new exchanges, I encourage Congress to consider federalizing these state programs.

While I agree that state Medicaid programs represent an important safety net for low-income populations, the proposed Medicaid and Children's Health Insurance Program Reauthorization Act (CHIPRA) maintenance of effort requirements, a series of "clarifications" to Medicaid law and new state mandates are troubling and problematic. Such provisions will have significant financial impacts on state programs, dramatically limit states' ability to directly manage and control Medicaid costs and likely involve states and the federal government in a never-ending cycle of litigation. For example, new and expanded Medicaid rules regarding provider reimbursement reporting, the expansion of mandatory Medicaid benefits and a broadened definition of "medical assistance" would place significant new burdens on states and limit our ability to control costs.

In the absence of full funding of new federal mandates, it is prudent for Congress to provide states with additional authority to manage within available state resources following the proposed implementation of the Medicaid expansions in 2014. Federal assistance in this context could take a number of forms, including flexibility related to benefit requirements, cost-sharing and Medicaid and exchange eligibility. Moreover, if Congress insists on a state maintenance of effort prior to the proposed 2014 reform implementation, Congress should include a corresponding continuation of the enhanced federal medical assistance percentage (FMAP) provided under the American Recovery and Reinvestment Act (ARRA).

Cost Containment

Meaningful progress in slowing the rate growth of health care costs will require meaningful changes in the health care delivery system. While ARRA included important reforms, such as financing for health information exchange and technology and comparative effectiveness research, pending reforms must go further in containing and lowering medical costs in the long term.

Toward that end, I encourage Congress to look more closely at available cost containment ideas that have not been fully considered. One such area is medical liability reform. California has led medical liability reform, and physicians in the state operate under some of the lowest medical malpractice rates in the country. Lower medical malpractice insurance rates can lower costs throughout the delivery system. A recent analysis by the Congressional Budget Office indicates that the federal government could save up to $54 billion over 10 years by enacting medical liability reforms. These common sense reforms should be included in national health reform efforts.

Additionally, Congress must be more aggressive in controlling health care costs for the dually eligible population. Medicare and Medicaid spending is approaching $250 billion annually for the dually eligible population, and this care is seldom coordinated to ensure quality or effectiveness. While I firmly believe the federal government should take full responsibility for the care and cost of providing health services for this population, many states - including California - would be willing to take on the responsibility of care coordination if provided the opportunity and allowed to share in the combined Medicaid and Medicare savings that would result. Even a small 5 percent savings for this group would result in tens of billions of dollars in savings over the next decade. Limited demonstrations and pilot programs in this area will not be sufficient to move the health care cost curve of this high-need, high-cost population in the right direction.

Prevention and Wellness

I am encouraged by the many positive proposals to include comprehensive prevention, wellness and chronic disease management programs as part of national health reform. As a nation, we must be as aggressive as possible in this area. Over the long term, prevention and health promotion efforts can make a meaningful contribution in bending the health care cost curve.

Expanded prevention and wellness activities can also improve health outcomes and slow health care costs in the near term, as evidenced by initiatives undertaken by some prominent corporations, such as Safeway. I strongly support proposals that promote prevention in the context of an individual's health insurance coverage, such as no cost-sharing for prevention services and positive incentives for participating in programs that improve personal health. These should be standards for both private and public insurance products.

Correspondingly, aggressive population-based public health investments can be hugely beneficial in improving the health status of broad segments of the population, especially those most at risk, and reducing health care costs. California's nation-leading campaign against smoking is an example of the long-term benefits that can be attained from these public health initiatives. Since its inception in 1989, our state's community-based anti-tobacco effort has dramatically reduced adult and youth smoking rates. In so doing, California has saved more than a million lives along with an astounding $86 billion dollars in health care costs. People do listen and change their behavior when they have the facts about living healthier, are protected from known health hazards and live in communities that support healthy behaviors.

I always tell people they do not need to be in Washington to impact health reform: it starts at home with healthier eating habits and regular exercise. But people need supportive environments to make healthy choices, and states need support from Congress to invest in comprehensive community-based public health initiatives. My 2007 health care reform effort included a major investment in such community-based efforts. I strongly urge you to make the proposed healthy communities grant program and Prevention and Wellness Trust a central part of health reform to reinforce this lifestyle message and ultimately alter how people take care of themselves.

Coverage for All

Finally, coverage for all is essential. I share Congress's recognition that a requirement on residents to secure coverage for themselves and their children, coupled with a requirement on health plans to guarantee access to coverage and public subsidies for lower-income individuals, is the most effective way to achieve universal coverage. Without an enforceable individual mandate, people will continue to voluntarily forgo coverage, shifting uncompensated costs to insured individuals.

As we learned in our 2007 health reform effort in California, finding the right balance of incentives and accountability measures to ensure broad participation in the coverage mandate is challenging, but the mandate must be firm and enforceable. Moreover, the responsibilities on individuals and health plans must be supported and reinforced by the broader community. Proposals that incentivize point-of-service enrollment in hospitals, physicians' offices, school-based health centers and general government offices will promote enrollment and ensure maximum participation. Working together, we can create a culture of coverage where there is an expectation that individuals purchase and maintain coverage supported by efforts to facilitate enrollment and promote broad coverage.

Even if the coverage goals are met under federal health reform efforts, there will be up to 25 million people that will remain without health insurance according to the Congressional Budget Office. Many of these people will be undocumented immigrants. For these reasons, I urge you to carefully reconsider the size of the reductions proposed to Medicaid disproportionate share hospital (DSH) payments and ensure these funds are distributed to states based on the number of uninsured and undocumented immigrants present. In all cases, states should maintain control of the distribution of Medicaid disproportionate share dollars.

In terms of state coverage options, I support the inclusion of language that will provide states the option of developing state-based insurance options for people with incomes above 133 percent of the federal poverty level but below 200 percent. I believe this provision can be strengthened and made more effective by allowing states, especially those with higher costs of living, to serve populations up to 300 percent FPL, providing states access to at least 95 percent of the tax credits and cost-sharing subsidies available for eligible individuals in the state and ensuring sufficient state flexibility to enable continuity of care between Medicaid and the state-based option. Providing states with the flexibility to set eligibility to 300 percent of the federal poverty level recognizes different cost structures across states and is more consistent with existing income eligibility thresholds allowed under the federal children's health insurance program, which will help support the policy goal of keeping families together for health insurance purposes.

Finally, creating transparent and user-friendly health insurance exchanges at the state level can help facilitate the enrollment process. At the same time, I believe these state-based exchanges must be more than simple clearinghouses of information, but instead allow states to certify plans and negotiate within broadly established federal parameters to help promote competition among health plans. I also continue to believe that states must remain the primary regulator of health insurance in order to maintain the strongest consumer protections possible.

Transitional Support

To help promote a responsible and effective transition to the new health care model envisioned by pending proposals, I encourage Congress to work with states to develop reasonable timeframes for mandated program changes and provide short-term financial assistance.

During the period between reform enactment and implementation, it is essential that Congress maintain the enhanced FMAP rates under ARRA, provide financial support to undertake the necessary administrative actions mandated to prepare for implementation and provide interim funding for high-risk pools. To the extent that states may not already meet federal high-risk pool funding standards, funds must be available for states to make any modifications necessary to qualify for federal funding. Funds must not be limited to state high-risk pools that already qualify.

My participation in President Obama's regional health care town hall last spring was intended to emphasize the importance of health reform to California and the nation and to show that this is not a partisan issue. We all have a vested interest in making sure health reform is accomplished quickly, thoughtfully and, most importantly, successfully. I look forward to working with Congress to find the reasonable and responsible balance required to achieve our shared goals of lowering the growth in health care costs, improving quality and health outcomes and gaining coverage for all.

Sincerely,

Arnold Schwarzenegger



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