States Likely To Make More Medicaid Cuts in FY 2005, New Studies Find
States might make more aggressive cost-containment actions in their Medicaid programs in the next fiscal year, as financial pressures intensify with the expiration of a one-time federal subsidy, according to a series of reports from the Kaiser Commission on Medicaid and the Uninsured, the Baltimore Sun reports (Zaneski, Baltimore Sun, 1/29). In a survey by Health Management Associates for KCMU, researchers found that in response to fiscal pressures, 49 states and the District of Columbia implemented or planned Medicaid cost-control strategies in fiscal year 2004. States took action to control drug costs, reduce or freeze provider payments, limit benefits, restrict eligibility and increase beneficiary copayments (KCMU release, 1/28). The report also found that states are tightening benefits and eligibility rules under SCHIP (Goldstein, Washington Post, 1/29). States experienced a slowdown in Medicaid spending and enrollment growth in FY 2004, the survey says. States anticipate an average Medicaid growth rate of 8.2% in FY 2004, compared with an 11.9% average rate of growth in 2000-2002, according to the survey. The survey indicates that states expect Medicaid enrollment to increase by 5.5% on average in FY 2004, which would be the lowest rate of growth since 2000 (KCMU release, 1/28). A one-time federal allotment of $10 billion in Medicaid funds that states received in September 2003 allowed many of them to avoid additional Medicaid cost-containment actions in FY 2004 (Rovner, CongressDaily, 1/28). The one-time funds increased the federal funding matching rate for each state by 2.95%, the Sun reports (Baltimore Sun, 1/29). However, the survey found that fiscal pressures on states will intensify when that funding runs out July 1, CongressDaily reports (CongressDaily, 1/28). According to unnamed sources in the Bush administration, the president might not revisit a proposal that would have reformed Medicaid and given states new authority regarding funding and benefits. An administration official said, "We are rethinking ways we can work with the states on Medicaid reform" (Washington Post, 1/29).
The recent growth in the national economy "is likely not enough to help states recover from their worst fiscal crisis in over 50 years," according to second report, prepared by the Nelson Rockefeller Institute of Government and KCMU (KCMU release, 1/28). States will continue to have fiscal problems because many of them have "exhausted" one-time, temporary sources of revenue, including bonds, tobacco settlement revenues and reserve funds, and because "high unemployment rates continue to sap states' income tax revenue," the Sun reports (Baltimore Sun, 1/29). In a third report, the Urban Institute and KCMU examined efforts by Alabama, California, Colorado, Florida, Massachusetts, Michigan, New Jersey, New York, Texas and Washington to respond to "budget woes" in fiscal year 2004. The states generally remained "reluctant" to raise income and sales taxes and focused on balancing their budgets through one-time fixes and spending cuts. States "aggressively cut health care programs" by freezing or decreasing provider reimbursements; eliminating some optional benefits; and limiting enrollment, according to the report.
KCMU Executive Director Diane Rowland said, "The issue is not out-of-control Medicaid spending, but the economic downturn and sluggish state revenue growth that are pushing states to cut Medicaid. Federal fiscal relief has clearly helped to stave off deeper cuts this year, but the June end of fiscal relief is likely to bring more aggressive cost containment next year" (KCMU release, 1/28). Vernon Smith, coauthor of the survey and a principal of Health Management Associates, said, "I have been observing Medicaid budgets now for over 35 years. I have never seen a more difficult time for Medicaid than 2003 and 2004" (Ling, Reuters, 1/28). He added that on the state level, there is "concern bordering on anxiety" about the future of the health care safety net (Baltimore Sun, 1/29). Victoria Wachino, KCMU associate director and author of one of the reports, said, "States are trying to climb out of a deep hole, but all they have is a stepstool to stand on" (Baltimore Sun, 1/29). The reports are available online.
In related news, the National Conference of State Legislatures on Wednesday proposed that the federal government make additional Medicaid funds available during economic downturns, Reuters reports. The group is calling for a "trigger" that would initiate the additional funds, according to Reuters. Joy Wilson, NCSL's director of health policy, said, "There are all different kinds of triggers you could use. We have to address whether it would be a national trigger or whether it would be a state trigger or a regional trigger. There's a lot of details we've not addressed" (Reuters, 1/28).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.