GM pact may dent Medicaid

A plan for General Motors Corp. to establish a $50 billion union-run trust for retiree health care could cost Michigan $800 million yearly in federal assistance to Medicaid, possibly leading to severe cuts in the health insurance program for the poor, disabled and elderly.

"It could have a very substantial impact on the state," said Paul Reinhart, Michigan's Medicaid director. "It could cripple the program."

And while state negotiators try to hammer out a budget for the year that begins Monday, the anticipated loss of Medicaid funds could leave leaders looking for $800 million more in cuts or new taxes two years from now.

State officials say it's still not clear if the reduction will occur. But they say it's possible because they experienced a similar loss in funding in 2003 when GM made a $16 billion contribution to retirees' underfunded pension fund. That resulted in Michigan's Medicaid budget suffering a $175 million loss from the federal government in 2006.

At that time federal officials attributed $6 billion of GM's $16 billion contribution to Michigan retirees and added that figure to the state's per-capita income, a major component in how the federal Medicaid match is computed for each state.

The additional income made the state's personal income look higher than it actually was, leading federal officials to lower the amount of Medicaid money sent to the state.

GM agreed Wednesday to make a $50 billion contribution for the UAW to establish a voluntary employees' beneficiary association, or VEBA, for retiree health care benefits. It's unclear if federal officials again will add those funds to the Michigan's per capita income when determining future federal matches. But if they do, it would take effect Oct. 1, 2009, and would be included in the Medicaid match formula through the 2012-13 fiscal year.

Medicaid is Michigan's second-largest state program, with an $8.5 million budget serving 1.6 million people. Only school aid is larger.

Federal dollars can cover anywhere from 50 percent to 80 percent of a state Medicaid program. In Michigan, the federal government pays for 58 percent of Medicaid costs.

The most Michigan could lose from a federal match is 8 percentage points, Reinhart said, which could lead to a loss of about $800 million per year for three years.

Mary Kahn, a spokeswoman for the Centers for Medicare & Medicaid Services, a division of the U.S. Department of Health and Human Services, declined to comment on what impact a GM-funded VEBA could have on Michigan's Medicaid allotment.

"There are just too many unknowns and we are in the process of trying to work those out," Kahn said. "We are still trying to study and calculate how this may affect things. It may or may not have an impact."

A potential reduction in the future could be disastrous, said Terri Winegarden, staff attorney for the Center for Civil Justice, which advocates for the poor.

"They will have to disenroll people or cut services," Winegarden said. "It's going to mean more folks are uninsured. They will have to rely on emergency room services with more serious problems as their health suffers."

There's no question it would have an impact, said Gerald Poisson, a deputy Oakland County Executive who helped lay the groundwork for Oakland County to become the first Michigan county to pursue creating a health care trust to fully fund its retiree health care obligations up front.

The county wanted to issue $500 million in bonds to cover its obligations but Gov. Jennifer Granholm vetoed legislation that would have made that possible, saying it would have had a $3 million yearly impact on the state's Medicaid allotment. Oakland issued $570 million in trust certificates -- bonds with a higher interest rate -- instead.

You can reach Kim Kozlowski at (313) 222-2024 or kkozlowski@detnews.com">kkozlowski@detnews.com.