Congress Passes Bill Containing Punitive New Medicaid Transfer RulesLast

Updated: 2/2/2006

Topic: Medicaid

By a vote of 216-214, the U.S. House of Representatives has passed budget legislation that will impose punitive new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. The Deficit Reduction Act of 2005 now goes to President Bush for his promised signature.

Several Republican moderates who had supported the bill when it was voted on in December changed their votes after learning details of the legislation and under intense pressure from groups like AARP, but in the end the vote switches were not enough to defeat a bill that the Congressional Budget Office says will reduce or bar benefits for millions of Medicaid recipients. The measure is estimated to save $39 billion over five years.

Rep. Frank LoBiondo (R-NJ) cast the deciding vote, breaking a 214-214 tie. All House Democrats and 13 Republicans voted against the bill. Republicans who voted yes in December but no in the final vote included Reps. Jim Gerlach (PA), Jim Ramstad (MN), Rob Simmons (CT) and John Sweeney (NY). (Click here to see the full vote.)

Democrats attacked the measure as an assault on Medicaid patients and other vulnerable groups, and said it was a prime example of the powerful influence of lobbyists for corporate interests like drug manufacturers and health insurers, who got much of what they wanted in closed-door negotiations with Republican lawmakers.

"This is a product of special interest lobbying and the stench of special interests hangs over the chamber," said Rep. John Dingell (D-MI).

The Impact on the Elderly

The legislation will extend Medicaid's "lookback" period for all asset transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage. In other words, the penalty period does not begin until the nursing home resident is out of funds, meaning she cannot afford to pay the nursing home.

Because the change in the penalty period start date will likely leave nursing homes on the hook for the care of residents waiting out extended penalty periods, ElderLawAnswers has dubbed the bill The Nursing Home Bankruptcy Act of 2005. Nursing homes will likely be flooded with residents who need care but have no way to pay for it. In states that have so-called "filial responsibility laws," the nursing homes may seek reimbursement from the residents? children.

The bill also will make any individual with home equity above $500,000 ineligible for Medicaid nursing home care, although states may raise this threshold as high as $750,000.
The legislation also:

Establishes new rules for the treatment of annuities, including a requirement that the state be named as the remainder beneficiary.

Allows Continuing Care Retirement Communities (CCRCs) to require residents to spend down their declared resources before applying for medical assistance.

Sets forth rules under which an individual's CCRC entrance fee is considered an available resource.

Requires all states to apply the so-called income-first rule to community spouses who appeal for an increased resource allowance based on their need for more funds invested to meet their minimum income requirements.

Extends long-term care partnership programs to any state.In addition, the legislation incorporates provisions in the original budget bill passed by the Senate closing certain asset transfer "loopholes," among them:

The purchase of a life estate will be included in the definition of "assets" unless the purchaser resides in the home for at least one year after the date of purchase.

Funds to purchase a promissory note, loan or mortgage will be included among assets unless the repayment terms are actuarially sound, provide for equal payments and prohibit the cancellation of the balance upon the death of the lender.

States will be barred from "rounding down" fractional periods of ineligibility when determining ineligibility periods resulting from asset transfers.

States will be permitted to treat multiple transfers of assets as a single transfer and begin any penalty period on the earliest date that would apply to such transfers.

While the federal law applies to all transfers made on or after February 1, it also gives the states time to come into compliance. This gives many people in most states a little time to plan. The deadline for states to enact their own laws varies from state to state, but generally is the first day of the first calendar quarter beginning after the end of the next full legislative session.
The bottom line is if you have been hesitating about seeing an attorney about long-term care planning, hesitate no longer. If you have considered protecting some assets for your loved ones in case you later require long-term care, you should contact a qualified elder law attorney now.

Vote on Budget Set for Feb. 1; Group Seek to Sway GOP Moderates

Vote on Budget Set for Feb. 1; Groups Seek to Sway GOP Moderates

Last Updated: 1/13/2006
Topic: Medicaid

House Speaker Dennis Hastert (R-Ill.) has tentatively scheduled a re-vote on the 2006 budget reconciliation bill (S 1932) for February 1, the day after the House reconvenes following its winter recess. Moderate Republicans are feeling mounting pressure from groups like AARP to change their votes.

Among other provisions in a bill that cuts back federal entitlement programs for the first time in a decade, the legislation would impose punitive new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. (Click here to read these provisions.)

The Senate passed the bill before Christmas, with Vice President Dick Cheney casting the tie-breaking vote. However, procedural moves by Senate Democrats require the House to vote on the bill a second time after having passed it by a 212-206 margin at the end of an all-night session.

Although House Republicans "expect to narrowly approve the bill again, boosted by President Bush's State of the Union speech the night before," according to CongressDaily, groups opposed to the bill's cuts are working hard to convince moderate Republicans to vote against it. Brian Riedl, a budget analyst for the Heritage Foundation, says, "[N]othing is guaranteed over a six-week break."

Leading the fight against the bill is AARP, which strongly opposes the transfer restrictions and has vowed to make lawmakers who vote for them pay a political price. "This budget represents bad policy and AARP will now work to explain the full impact of this vote to its more than 36 million members," said AARP's CEO William D. Novelli.

Joining AARP is a temporary umbrella group, the Emergency Campaign for America's Priorities (ECAP). Spokesperson Brad Woodhouse said, "If they win, and we're not convinced they will, we want to spill blood in the process so that they are gun-shy about turning around and doing this again in the next budget." ECAP has targeted some moderate Republicans at local vigils and is organizing phone blitzes in advance of the vote.

"Clearly, moderate Republicans in the House were reluctant to vote in favor of these drastic changes to Medicaid," reports the National Senior Citizens Law Center (NSCLC). According to NSCLC, several Republicans who did not vote against the bill the first time around delivered a letter in December to the congressional leadership expressing objections to the scope of the Medicaid cuts.

Meanwhile, in his weekly radio address Saturday, January 7, President Bush said Congress should "finish its work" and pass the budget bill. Bush said that passage would show that the "people's representatives can be good stewards of the people's money." Bush also urged Congress to make all his tax cuts permanent. In an opinion piece in the San Jose Mercury, Sen. Barbara Boxer (D-CA) said that House Republicans should "scrap this poor excuse for a budget" and "instead cancel some of the tax cuts for millionaires," which "would accomplish the same thing -- deficit reduction -- but without harming our kids, our elderly and the middle class."

Democrats Split on Medicaid Changes

Last Updated: 12/12/2005

The National Governors Association, whose membership includes both Republican and Democratic governors, sent a letter to Congress on Monday mostly endorsing the House's budget reconciliation package that contains changes to Medicaid transfer rules. The endorsement of the House bill by Democratic governors is a split with Democratic members of Congress. Every Democratic member of Congress voted against the bill when it passed by a slim 217 to 215 vote in November.

Among other things, the House bill includes a measure that would extend Medicaid's "lookback" period for all asset transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application. In addition, the House version allows states to increase co-payment increases on Medicaid beneficiaries with incomes above the federal poverty level. The House version differs from the Senate budget bill, which makes only modest changes in the asset transfer rules and doesn't include an increase in co-payments. The two bills now have to be hashed out in a joint House-Senate conference committee.

The NGA's letter specifically approved of the changes to transfer penalties in the House bill, saying the final bill should "include critical House provisions that would increase the look-back period and begin the penalty period at the time of application for services." The letter also endorsed the co-payments provision and a provision in the house bill making any individual with home equity above $750,000 ineligible for Medicaid nursing home care.

For the full letter, click here. An article in the Dec. 12, 2005, New York Times reports that "Medicaid is a flash point" as House and Senate conferees sit down to reconcile the two budget bills. The article focuses on provisions in the House bill that would allow states, for the first time, to deny care or services because of a person's inability to pay premiums or co-payments.

House GOP Leaders Fail to Muster Majority for Bill Containing Medicaid Transfer Changes

Last Updated: 1/11/2006

Topic: Medicaid

Facing a revolt among Republican moderates, House GOP leaders pulled their budget-cutting bill containing $9.5 billion in Medicaid cuts off the House floor on Thursday rather than put it to a vote.

The bill, the House version of fiscal year 2006 budget reconciliation legislation, would impose harsh new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. The asset-transfer changes are reportedly among the provisions that may be adjusted as the House leadership scrambles to forge a compromise that could win the support of both moderate and conservative party members.

The bill's withdrawal signals that GOP leaders could not muster the 218 votes needed to pass the budget measure. Republicans said they would try again after the Veterans Day weekend to find a bare majority for more than $50 billion in spending cuts and policy changes.

On Nov. 3, the House Energy and Commerce Committee approved the budget reconciliation package that includes restrictions on asset transfer rules. It would extend the "lookback" period for all transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application. It also would make anyone with more than $500,000 in home equity ineligible for Medicaid-funded long-term care. The Senate's version of the budget bill does not include these provisions.

In an effort to win passage of the bill on the House floor, Republicans dropped a controversial provision that would allow oil drilling in the Arctic National Wildlife Refuge, but even this failed to win enough votes for the bill's approval.

Reps. Sherwood Boehlert (R-N.Y.), Michael Castle (R-Del.) and Vernon Ehlers (R-Mich.) said they want some of the Medicaid cuts to be removed from the bill. According to CongressDaily, the House leadership was discussing Medicaid with Republican moderates, focusing on provisions that would tighten restrictions on asset transfers and increase copayments for Medicaid recipients.

Stunning Reversal The vote cancellation was a stunning reversal for a Republican majority that heretofore has maintained iron discipline among its members. But that was before President Bush's plummeting poll numbers, last Tuesday's election results, and the electorate's growing discomfort with Republican budget priorities.

"The fractures were always there. The difference was the White House was always able to hold them in line because of perceived power," Tony Fabrizio, a Republican pollster, told the Washington Post. "After Tuesday's election, it's 'Why are we following these guys? They're taking us off the cliff.' "

Opponents of the Medicaid asset transfer changes have a formidable ally in AARP. In a statement, AARP said it could not support the House bill because of the asset transfer provisions. These provisions, the senior advocacy group said, would penalize people who have simply helped family members or given to charity.

"We agree that steps should be taken to close real loopholes that allow people to improperly qualify for Medicaid," AARP said. "However, the extended look-back period and the change in the penalty date would deny coverage to those eligible for Medicaid at precisely the time they need assistance and have no remaining assets, leaving them no other way to pay for needed long-term care."

AARP also said that the provision denying Medicaid nursing home coverage to those with substantial home equity will force the elderly "to either take an expensive reverse mortgage or sell the home in order to get long term care coverage."

Meanwhile, the Congressional Budget Office estimates that the provisions in the House bill changing the treatment of asset transfers and home equity would reduce Medicaid outlays by about $2.5 billion over the next five years. In its report on the bill's budgetary impact, the CBO notes that under the current law, "very few of the applicants for Medicaid incur penalties for prohibited asset transfers."

Even if House Republicans are able to pass the budget cuts, the bill could be doomed by the determination of some House and Senate Republicans to add drilling for oil in the Arctic to any final bill. Some GOP moderates have said they will oppose any bill that permits Arctic drilling.
For an article in the Chicago Tribune on the politics of the House reconciliation measure, click here

New Study Finds That Few Nursing Home Residents Transferred Assets

Last Updated: 1/09/2006

Agreeing with earlier results, a study by the Kaiser Commission on Medicaid and the Uninsured finds that asset transfers by individuals entering nursing homes are relatively small.
The study found that 9.2 percent of Medicaid recipients entering a nursing home had transferred assets within two years of admission. The mean amount transferred was $5,380 and the median was $1,400. Researchers also discovered that 18.7 percent of Medicaid nursing home patients had transferred assets more than two years before they entered a facility. The mean amount transferred by this group was $8,202 and the median was $3,000.

The study also found that Medicaid nursing home residents had minimal assets before entering the nursing home. For example, half of unmarried residents had less than $4,000 of non-housing assets before entering nursing homes as Medicaid patients.

The study confirmed the findings of earlier studies on the impact of asset transfers. The Government Accountability Office (GAO) released a study in October that reported the level of assets being transferred by the elderly were relatively insignificant. The Georgetown University Long-Term Care Financing Project reached a similar conclusion in May.

These studies indicate that changes to asset transfer rules proposed by the Medicaid Commission may not save much money. The commission, which was established to advise Congress on how to cut $10 billion from Medicaid, proposed rules that would extend the "lookback" period for all transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application. These changes in the law have been incorporated into the House version of the 2006 budget bill.

The Kaiser study on asset transfers is part of a group of studies on Medicaid released by the Kaiser Commission. Other studies look at the distribution of assets in the elderly population and strategies for keeping individuals out of nursing homes, among other topics. For a full list of all the reports, click here.

Bush Administration Reportedly Endorses House Transfer Changes

Last Updated: 12/24/2005

Topic: Medicaid

The Bush administration has given its blessing to provisions in the House budget reconciliation bill (H.R. 4241) that would make it far more difficult for the middle-class elderly to gain Medicaid coverage of nursing home care, according to McKnight's Long-Term Care News. Such support, says McKnight's, "increases the likelihood these provisions will remain in the final budget."

McNight's source is a Nov. 23 Bureau of National Affairs article stating that "The Bush administration has announced support for most of the key Medicaid elements in the House fiscal year 2006 reconciliation bill (H.R. 4241), particularly the provisions to tighten rules regarding asset transfers and to give states greater flexibility to administer Medicaid programs."

The House measure would extend Medicaid's "lookback" period for all asset transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application. The bill also would make any individual with home equity above $750,000 ineligible for Medicaid nursing home care.

Speaking to the National Association of State Medicaid Directors on Nov. 8, Centers for Medicaid & Medicare Services Administrator Mark McClellan said that as the bill goes to conference committee with a Senate budget bill (S. 1932) that makes only modest changes in the asset transfer rules, the administration will continue to work closely with legislators. Congress is expected to begin work on resolving the starkly different proposals in early December.

Meanwhile, the Washington Post is reporting that while Democratic lawmakers in Washington are united in their opposition to the Medicaid cutbacks in the House bill, "Democratic governors are quietly supporting the provisions and questioning the party's reflexive denunciations." The Congressional Research Service (CRS), the public policy research arm of Congress, has produced a 192-page side-by-side comparison of the Medicaid and Medicare provisions of S. 1932 and H.R. 4241. Although the CRS does not distribute its reports to the public, the National Senior Citizens Law Center says the report is or will be available on its Web site. Go to http://www.nsclc.org/

House Approves Bill Substantially Changing Asset Transfer Rules

Last Updated: 11/21/2005

Topic: Medicaid

By the narrowest of margins, the House has voted to approve a budget plan that cuts about $12 billion from Medicaid, including imposing harsh new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care.

The Deficit Reduction Act of 2005 (HR 4241) was approved by a 217 to 215 vote in the early hours of Friday, November 18. The bill maintains provisions aimed at making it even more difficult for the middle-class elderly to receive long-term care coverage. The measure would extend Medicaid's "lookback" period for all asset transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application. The bill also would make any individual with home equity above a certain limit ineligible for Medicaid nursing home care, although in a concession to Republican moderates that limit was raised from $500,000 to $750,000. The final measure retains a provision imposing co-payment increases on Medicaid beneficiaries with incomes above the federal poverty level.

The bill now must be reconciled in conference committee with a Senate budget bill that makes only modest changes in the asset transfer rules. (For an ElderLawAnswers article explaining the effects on America's elderly of the two competing proposals, click here.)

Last week, Republican leaders were forced to pull the bill from the floor because of a lack of support. In the final vote, after some of the bill's cuts had been softened, 14 House Republicans and all House Democrats opposed the bill. (For a tally of votes on the bill, click here.) The Center on Budget and Policy Priorities estimates that the eleventh-hour changes only eased the cuts aimed at the poor by 2 percent from the original version.

The House bill would also:

Codify the income-first rule.

Establish new rules for the treatment of annuities, including a requirement that the state be named as the remainder beneficiary.

Require Medicaid applicants to provide "full information . . . concerning any transaction involving the transfer or disposal of assets during the previous period of 60 months, if the transaction exceeded $100,000, without regard to whether the transfer or disposal was for fair market value."

Allow Continuing Care Retirement Communities (CCRCs) to require residents to spend down their declared resources before applying for medical assistance. Set forth rules under which an individual's CCRC entrance fee is considered an available resource. Extend long-term care partnership programs to any state.

The Associated Press predicts that the upcoming conference committee negotiations with the Senate will be "arduous." The negotiations, writes the Los Angeles Times, "are likely to test [President] Bush's ability to work his will in Congress when his approval ratings are at an all-time low." The conference committee has not yet been named and no timetable for its deliberations has been set.

The final version of HR 4241 is still unavailable. For a version of the bill that does not reflect last-minute changes (such as the shift from $500,000 to $750,000 in home equity), click here. Scroll down to Title III, Chapter 2 for the asset transfer rule changes. Meanwhile, a survey for the National Academy of Social Insurance finds that 7 in 10 Americans age 40 and over think the federal government should do more to help people meet the cost of long-term care.

State Budget Pressures Easing, But Medicaid Still Faces Long-Term Challenges, Surveys Show

Topic Medicaid
[Oct 20, 2005]

Sustained state cost-containment actions and a stronger economy have improved the outlook for Medicaid and SCHIP, but factors contributing to Medicaid's cost growth continue to present long-term challenges, according to a new state surveys released Wednesday by the Kaiser Commission on Medicaid and the Uninsured. According to the survey, state Medicaid officials say that rising health costs, declining employer-based coverage, demographic trends and other factors raise concerns about future Medicaid cost growth.

Budget In a survey of state officials, KCMU and Health Management Associates found that growth in Medicaid spending slowed to an average of 7.5% in fiscal year 2005, the third year of decreased growth. The survey indicates that a decline in enrollment growth in fiscal year 2005 to 4% combined with spending reduction measures taken at the state level contributed to the slowdown in spending growth. Enrollment growth is expected to slow for the fourth consecutive year to 3.1% in fiscal year 2006 (KCMU release, 10/19). The gap between Medicaid spending increases and state tax revenue growth fell to 2.6%, the lowest level since 1999. According to the survey, despite the improved fiscal outlook, states are planning new cost-control measures, such as provider rate reductions or freezes, the Washington Post reports (Washington Post, 10/20).

In addition, many states are expanding coverage (CQ HealthBeat, 10/19).
Drug Benefit In addition, KCMU and Georgetown University's Health Policy Institute surveyed state officials regarding the outpatient prescription drug benefit, finding that all surveyed states actively managed their benefits and imposed a variety of cost-control mechanisms. More than two-thirds of responding states use preferred drug lists. Sixteen of 37 states surveyed placed limits on prescription refills, but only two states automatically denied refills that surpassed limits.

Enrollment Procedures KCMU and the Center on Budget and Policy Priorities conducted a survey that focuses on state actions regarding Medicaid and SCHIP eligibility, enrollment and renewal procedures, as well as cost-sharing requirements for low-income families (KCMU release, 10/19). According to the survey, Missouri and Tennessee have made large cuts in eligibility. The survey also found that 20 states reported taking actions expand coverage by simplifying procedures and requirements for beneficiaries, expanding eligibility or reducing premiums for children's coverage (CQ HealthBeat, 10/19). However, 10 states either increased premiums or lowered the level at which they begin charging premiums for children's coverage, according to the survey.

Reaction Diane Rowland, executive director of KCMU and executive vice president of the Kaiser Family Foundation, said, "These studies affirm the basic countercyclical nature of Medicaid. Its costs increase most rapidly when it is most in demand -- in a sluggish economy," adding, "While the fiscal crisis has subsided, state budget pressure remains because the nation relies on Medicaid to forgive the failures of our larger health system." (KCMU release, 10/19). Alan Weil, executive director of the National Academy for State Health Policy, said, "We are at a turning point in how much with think of (Medicaid) as a national program," adding, "There is tension between state and federal government, ... we need to think about who the burden is going to fall upon" (CQ HealthBeat, 10/19).

20 Common Nursing Home Problems ? Can You Help?

Last Updated: 11/25/2005

Topic: Nursing Home Issues

In December, the National Senior Citizens Law Center (NSCLC) will publish a new guide to nursing home laws, entitled 20 Common Nursing Home Problems, and How to Resolve Them. The guide is an adaptation and expansion of NSCLC attorney Eric Carlson?s Fifteen Falsehoods presentation.

In order to publicize the guide, NSCLC would like to be able to quote nursing home residents, family members, or advocates who have encountered any one (or more) of the Twenty Problems. If you or your client has heard any one of the nursing home falsehoods listed below, please contact Eric at (213) 639-0930, ext. 313, or ecarlson@nsclc.org. NSCLC will not mention you or your client without express permission.

1. ?Medicaid does not pay for the service that you want.?
2. ?The nursing staff will determine the care that you receive.?
3. ?We don?t have enough staff to accommodate individual schedules. You will be woken up every morning at six a.m.?
4. ?We don?t have enough staff. You should hire your own private-duty aide.?
5. ?If we don?t tie your father into his chair he may fall or wander away from the nursing home. There?s just no way we can always be watching him.?
6. ?Your mother needs medication in order to make her more manageable.?
7. ?We must insert a feeding tube into your father because he is taking too long to eat.?
8. ?Your children can visit you only during visiting hours.?
9. ?We can?t admit your mother unless you sign the admission agreement as a ?Responsible Party.??
10. ?Please sign this arbitration agreement. It?s no big deal. Arbitration allows disputes to be resolved quickly.?
11. ?Medicare can?t pay for your nursing home care because we have determined that you need custodial care only.?
12. ?We must discontinue therapy services because you aren?t making progress.?
13. ?We can?t give you therapy services because your Medicare reimbursement has expired, and Medicaid doesn?t pay for therapy.?
14. ?Because you are no longer eligible for Medicare reimbursement, you must leave this Medicare-certified bed.?
15. ?Even though you?re now financially eligible for Medicaid payment, we don?t have an available Medicaid bed for you.?
16. ?We don?t have to readmit you from the hospital because your bed-hold period has expired.?
17. ?You must pay any amount set by the nursing home for extra charges.?
18. ?We have no available space in which residents or family members could meet.?
19. ?You must leave the nursing home because you are a difficult resident.?
20. ?You must leave the nursing home because you are refusing medical treatment.?

U.S. Gives Florida a Sweeping Right to Curb Medicaid

Bottom of Form
By ROBERT PEAR

Published: October 20, 2005
WASHINGTON, Oct. 19 - The Bush administration approved a sweeping Medicaid plan for Florida on Wednesday that limits spending for many of the 2.2 million beneficiaries there and gives private health plans new freedom to limit benefits.

The Florida program, likely to be a model for many other states, shifts from the traditional Medicaid "defined benefit" plan to a "defined contribution" plan, under which the state sets a ceiling on spending for each recipient.

Children under the age of 21 and pregnant women will be exempt from the limits.
The Florida plan says, "The state will set aside a specific amount of money for each person enrolled in Medicaid," based on the person's medical condition and historic use of health care.
Michael O. Leavitt, secretary of health and human services, approved the proposal 16 days after it was formally submitted to him, with strong support from Gov. Jeb Bush.

After meeting here on Wednesday afternoon with Governor Bush, Mr. Leavitt said: "Today will be remembered as a day of transformation for the Florida Medicaid program. Florida's framework will be helpful to other states."

Joan C. Alker, a senior researcher at the Health Policy Institute of Georgetown University, said: "Florida's proposal is one of the most far-reaching and radical proposals we've seen to restructure Medicaid. The federal government and the states now decide which benefits people get. Under the Florida plan, many of those decisions will be made by private health plans, out of public view."

Vernon K. Smith, a former Medicaid director in Michigan who is now a consultant to many states, said: "Florida's program is groundbreaking. Every other state will be watching Florida's experience. South Carolina has developed a similar proposal. Georgia and Kentucky are waiting in the wings." In his state of the state speech to the Florida Legislature in March, Mr. Bush called for transforming Medicaid, saying it was unsustainable in its current form. "Over the last six years," he said, "Medicaid costs have increased an average of more than 13 percent annually. State revenues grew an average of 6 percent a year." The plan, to be put into effect over five years, will significantly increase the use of managed care. Questions and answers prepared by federal officials say that a principal aim of the Florida program is "to bring predictability to Medicaid spending and to reduce Medicaid's rate of growth." President Bush has proposed similar changes at the federal level for several years, but Congress has not accepted those ideas. In Congress, Democrats and some moderate Republicans resisted the president's proposals on the ground that they would have allowed states to reduce coverage for very poor and very sick people. On Wednesday, Mr. Leavitt waived many provisions of federal law, letting Florida make the changes in a demonstration project.

Under the waiver, Florida will establish "a maximum per year benefit limit" for each recipient and fundamentally change its role. The state will largely be a buyer rather than a manager of health care.

In an interview, Alan M. Levine, secretary of the Florida Agency for Health Care Administration, estimated that no more than 5 percent of Medicaid recipients would hit their annual limits. At that point, Mr. Levine said, "the health plan will still be responsible for providing services to the consumer, but the state's reimbursement would be limited to that amount." Asked whether the beneficiary would be responsible for paying costs beyond the limit, he said: "That can happen today. There are arbitrary limits and caps embedded in the state Medicaid program, limits on home health services, doctors' visits, prescription drugs."

For each beneficiary, Florida will pay a monthly premium to a private plan. Insurance plans will be allowed to limit "the amount, duration and scope" of services in ways that current law does not permit.

The Florida Medicaid director, Thomas W. Arnold, said he believed that insurers would tailor benefits for different groups like people with AIDS and children with chronic illnesses. About half of Medicaid recipients in Florida are children, but they account for less than 20 percent of the costs.

The Florida program includes these features, approved Wednesday by the federal government:
If a recipient does not choose a private plan, the person will be automatically enrolled in one that the state selects.

Medicaid recipients can "opt out" of Medicaid altogether and receive subsidies to help pay the employee's share of the premium for employer-sponsored health insurance. Those beneficiaries will have to pay co-payments and deductibles like other employees in the same plan, even if the charges exceed normal Medicaid limits.

The state will deposit money into individual accounts for recipients who enroll in programs to help lose weight, stop smoking and lead healthier lives. Florida and the federal government will establish a pool of money providing up to $1 billion a year to help hospitals and other health care providers who treat large numbers of uninsured people.

A spokeswoman for Mr. Leavitt, Christina Pearson, said the decision on the Florida plan was not influenced by the fact that Governor Bush is the president's brother. Federal officials are prepared to approve similar innovative solutions from other states, Ms. Pearson said.
Medicaid provides health insurance to more than 50 million low-income people. The states and federal government jointly finance it.