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Fiscal Issues Could Put Medicaid Expansion in Jeopardy

The health care overhaul was predicated on a significant expansion of access to Medicaid. Under the new reform law, the nationwide eligibility threshold for the program will increase to 133% of the federal poverty level in 2014. At least 16 million currently uninsured U.S. residents are expected to be added to the program.

The federal government will fully subsidize new Medicaid beneficiaries between 2014 and 2016.  In subsequent years, the government’s contribution will diminish and states’ share of Medicaid spending will rise.

At the same time, governors just wrapped up their most significant round of budget cutbacks since the Great Depression, as combined state budgets fell by more than 10% between fiscal year 2008 and FY 2010. State budget deficits are projected to top more than $350 billion across the next two years.

“It’s like living in a parallel universe,” according to Monica Coury, an assistant director at Arizona’s Health Care Cost Containment System. “On the one hand, we have federal partners talking about expansion of this program. And at the state level, we’re looking at a program that we can’t sustain.”

States Anxiously Await FMAP Extension

Many state budgets had been partially bolstered by a $90 billion infusion to Medicaid programs through the $787 billion federal stimulus package. Most states used the Medicaid funds to cover caseload increases and maintain services and eligibility criteria or to avoid cutting payments to hospitals and physicians. Some states — like North Carolina and Ohio — reported using the funds exclusively for general fund needs.

However, the funds will no longer be available beginning in January 2011. Efforts to continue the additional Medicaid funding through the so-called “extenders” legislation (HR 4213) have stalled in the Senate.

In the meantime, many states are coming up with contingency plans. Some have been forced to undertake severe cuts because legislators have run out of savings and reserve accounts to tap. According to Washington Gov. Christine Gregoire (D), most governors already used up their rainy-day funds “because we considered it to be pouring down rain.”

In Massachusetts, Gov. Deval Patrick (D) says he will be forced to cut a program that provides limited health benefits to nearly 25,000 documented immigrants — although the program would likely be resurrected when new federal funds flow for health coverage in 2014, the Globe notes. To balance its budget, Texas is planning a 1% cut to physicians’ Medicaid reimbursement beginning in September.

California’s own budget is in gridlock, with Gov. Arnold Schwarzenegger (R) proposing major cuts in an effort to close the state’s $19.1 billion budget deficit. Citing a UC-Berkeley report, which details how the proposed budget would extensively affect the state’s Health and Human Services department, Anthony Wright of Health Access warns that the cuts would be “the worst possible choice for our economy.”

Downstream Effects

This budgetary yo-yoing could weaken public programs and drive providers out of Medicaid, leaving the nation’s health care system in worse shape entering 2014.

For example, many primary care physicians are opting out of Medicaid, which could drive more newly insured patients to emergency departments, further boosting overcrowding and reducing access. The situation is especially acute in Texas, where fewer than one-third of primary care physicians currently accept Medicaid, according to a survey by the state’s physician association. More physicians say they will pull out of the program if the state’s planned reimbursement cuts stand.

Meanwhile, U.S. residents who lose access to providers because of budget cuts might need more health care services when they are newly insured again in 2014, after several years going without coverage. Community health clinics that serve hundreds of thousands of state residents may go without payment if California’s budget impasse lasts all summer.

In the meantime, here’s a look at what else is happening in health reform.

In Financial News

  • The new health reform law could create challenges for the Internal Revenue Service, according to the agency’s midyear report presented by an IRS ombudsman last week. The new reform law mandates that IRS administer health insurance premium subsidies, tax credits for small businesses, assessments on employers and the individual mandate. However, the tax reporting requirement “may impose significant burdens on businesses, charities and government agencies,” according to the report. The report also noted that the requirement will present the agency with “challenges,” such as “making productive use of this new volume of information” (Hilzenrath, Washington Post, 7/7).
  • Jacob Lew, who will be the next director of the White House Office of Management and Budget, likely will oversee less-robust budgets than the plans designed by outgoing OMB Director Peter Orszag, who leaves office on July 30, experts say. Brian Riedl, a budget expert at the Heritage Foundation, said, “There’s a general sense that President Obama has had most of his spending fun already, and the next few years will be a period of tightening.” Joe Minarik, who served as OMB associate director for economic policy in the Clinton administration, also noted, “Sometime soon this administration is going to have to pivot toward bringing the budget deficit down, and they haven’t made that pivot yet” (Alarkon, The Hill, 7/11).

On Medicare Prescription Drug Coverage

  • On July 2, Reps. Joe Barton (R-Texas) and Michael Burgess (R-Texas) sent a letter asking CMS to provide 2010 enrollment data for the Medicare prescription drug program so they can track any changes prompted by the federal health reform law. The law cuts billions of dollars from the prescription drug program, which Barton and Burgess have said could reduce the program’s enrollment by 50%. The letter — addressed to CMS acting administrator Marilyn Tavenner — requests that the information be broken down by congressional district and by low-income subsidy enrollments, traditional fee-for service Medicare and Medicare Advantage (Pecquet, “Healthwatch,” The Hill, 7/2).
  • Last week, the Obama administration sent the second round of $250 rebate checks to more than 300,000 Medicare beneficiaries who fall into the “doughnut hole” prescription drug coverage gap (Wilson, “Prescriptions,” New York Times, 7/8). Last month, the administration sent the first wave of 80,000 checks to beneficiaries who fell into the coverage gap by May 31. The second wave will be directed to beneficiaries who are ineligible for low-income subsidies and fell into the gap by June 30 (Sturdevant, Hartford Courant, 7/8).

In Public Opinion

  • While U.S. residents remain divided over the new health reform law, public support for the overhaul has been steadily increasing since the overhaul became law in March, according to an aggregate of two dozen polls compiled by The polling group’s data indicated that opposition to the reform law reached its peak in January, when 52% of U.S. residents said they opposed health reform and 40% said they favored it. However, the latest polling data indicates that U.S. residents are now evenly divided, with 44% favoring the law and 44% opposing it (Bakhtiari, HealthLeaders Media, 7/6).
  • Prompted by recent polls indicating rising support for the new health reform law, House leaders urged Democratic members to tout the law’s benefits to constituents during the Fourth of July congressional recess. House leaders also circulated a memo to the caucus, loosely based on a July 2 letter from HHS Secretary Kathleen Sebelius, recommending that members hold public meetings to describe many of the law’s benefits. House leaders hope that publicizing the law’s benefits will help Democrats appeal to voters in November’s midterm elections (Lillis/Pecquet, The Hill, 7/6).

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