In a letter to other state governors, Mr. Perry said, "For the first time, state governments would be expected to directly finance federal Medicare benefits with state tax dollars. In effect, states will be billed on a monthly basis for the cost of federal services."

The Administration says the federal law clearly requires states to make the payments starting in January. The state of New Hampshire however, appears ready to go to court. The recently enacted New Hampshire budget stipulates that, "no payment shall be made to the federal Medicare program, unless a court has determined that the provisions, popularly known as "clawback," are constitutional."

A majority leader in the New Hampshire Senate, Robert E. Clegg Jr., said, "We don't think it's constitutional for the federal government to commandeer our revenue. The federal government can print its own money. We can't."

Medicaid is a joint state and federal government health care program with both states and the federal government contributing a portion of the cost. Under the 2003 Medicare drug law, if a state fails to comply with the new provision, the federal government can simply deduct the amount owed from its regular payments to the state's Medicaid program. Approximately 7 million low-income seniors are currently receiving health care coverage under both Medicare and state Medicaid programs. Medicaid programs now cover drug costs for these seniors but, starting January 1, 2006, they will start receiving that coverage under Medicare instead.

The stand-off comes just as state governors, Congress, and the Administration are seeking ways to cut Medicaid costs by $10 billion over the next ten years.

Sources: "States Rejecting Demand to Pay for Medicare Cost," Robert Pear, The New York Times, July 4, 2005.

September 2005