‘Fiscal Crisis’ May Force States to Cut Back Medicaid Programs
A combination of "soaring costs and declining state revenues" has put Medicaid in a "fiscal crisis" that will force state legislatures convening this month to "look for ways to cut benefits and reduce payments" to hospitals, nursing homes and pharmacies, the New York Times reports. Spending on Medicaid increased 11% last year, and many states report that spending on prescription drugs in the program has been rising at an annual rate of more than 20%. Scott Pattison, executive director of the National Association of State Budget Officers, said that 37 states reported a Medicaid deficit last year. Meanwhile, the recession that began last March has caused state revenues to "declin[e]," and most states by law must balance their budgets. Michigan Gov. John Engler (R), chair of the National Governors Association, said that states "are struggling to decide which services to trim and which groups should bear the brunt." He said, "These are terrible choices." Vermont Gov. Howard Dean (D) added that the program faces "enormous pressure everywhere because of the catastrophic increase in health care costs, particularly pharmaceutical costs and hospital costs." Medicaid accounts for about one-fifth of state budgets; Engler said that it is the "fastest-growing" state budget item. As a result of the "financial vise" created by rising Medicaid costs and the recession, governors from both parties are putting "pressure" on the federal government to increase the federal match rate for Medicaid, the Times reports.
According to state officials, the "need [for increased federal funds] is particularly acute" during a recession, when many people "turn to Medicaid" after they lose their jobs and their health insurance. Advocates for low-income people "argu[e]" that Congress and the Bush administration must "confront the problem or face renewed growth" in the number of uninsured. "I think this is going to be a very tough year for low-income and low-wage working families who depend on Medicaid as a lifeline," Ron Pollack, executive director of the advocacy group Families USA, said. In the past few years, states have used Medicaid as an "important tool" to extend health coverage to children and families, the Times reports. But state officials say that their "success in adding people to the Medicaid rolls, encouraged by the federal government, is one reason the program is such a burden on states today."
The Times reports that none of the "standard cost-control techniques are easy." For example, states say that they have "achieved nearly all of the savings they can expect" from increased use of managed care plans. In most states, Medicaid reimburses doctors and hospitals at a lower rate than it reimburses private insurers, leading health care experts and providers to warn that "any decision to cut reimbursement threatens to reduce access to care or harm its quality" (Pear/Toner, New York Times, 1/14).
In a New York Times opinion piece, William Pound, executive director of the National Conference of State Legislatures, writes that states face a "re-emerging challenge" to address spending on Medicaid, which "is squeezing state budgets due to increases in prescription drug prices, demands by providers for higher payments and growth in the population eligible to participate in the programs." He adds that states also must face the "consequences of the evaporating federal budget surplus" and "be vigilant about maintaining federal commitments to Medicaid" and children's health programs. Pound writes that over the past 10 years, while the economy was strong, states "put some money away for a rainy day" while extending health insurance to low-income children and helping seniors to cover the cost of prescription drugs. He adds, "Now that rainy day has come -- with a vengeance." However, Pound concludes, "The challenges of the rainy-day economy are substantial, but they are not insurmountable" (Pound, New York Times, 1/14).