Leavitt urges major overhaul of Medicaid

WASHINGTON — Mike Leavitt, the secretary of health and human services, called Tuesday for sweeping changes in Medicaid that would cut payments for prescription drugs and give states new power to reduce or reconfigure benefits for millions of low-income people.

In his first speech as secretary, Leavitt also said it should be more difficult for elderly people to qualify for Medicaid by transferring assets to their children.

"Medicaid must not become an inheritance protection plan," Leavitt said at a convention of health-care executives here. "Right now, many older Americans take advantage of Medicaid loopholes to become eligible for Medicaid by giving away assets to their children. There is a whole industry that actually helps people shift costs to the taxpayer."

Medicaid helps pay the bills for two-thirds of the 1.6 million people in nursing homes in the United States.

Leavitt said President Bush wanted to join Congress in an effort to rein in the cost of Medicaid, the nation's largest health insurance program. Medicaid spending has shot up 63 percent in the last five years. Federal and state outlays now total more than $300 billion a year.

Anticipating the proposals by the Bush administration, many governors have banded together in a bipartisan effort to stave off restrictions on federal Medicaid spending. In a letter to Congress in December, the National Governors Association said it was unacceptable to shift federal costs to the states as part of a deficit-reduction strategy.

Meanwhile, some governors, including George E. Pataki of New York, have turned to Medicaid in trying to address their own budget pressures. Some states have dropped recipients, set harsh limits on spending, and reduced benefits.

One of the biggest changes Leavitt suggested on Tuesday was to provide a more "flexible package of benefits" to women and children in many low-income families.

States already have a large degree of discretion, but the basic package of benefits required under Medicaid is more comprehensive than that of most private plans. The Medicaid package is also more extensive than the benefits required under the Children's Health Insurance Program, which is less likely to cover mental health services, vision care, and dental treatments.

"Medicaid is not meeting its potential," Leavitt said. "It is rigidly inflexible and inefficient. And, worst of all, it is not financially sustainable."