Medicaid Directors Say Program Teetering on a "Fiscal Cliff

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The American Recovery and Reinvestment Act (ARRA) of 2009 designated $87 billion for state Medicaid programs, enacting major increases in federal matching rates. Despite the boost from ARRA, state budgets have been groaning under the weight of the economic downturn, with 29 of them planning to make Medicaid cuts in 2010, according to a report from the Henry J. Kaiser Family Foundation. Another 15 states are considering cuts but have not yet made a determination. It is not only that state revenues are down; program enrollment and spending have exceeded projected levels in 44 states and the District of Columbia.

ARRA restricts states from changing eligibility criteria for their Medicaid programs, but only until 2011, when the federal matching rate drops back to normal levels. Kaiser reports that “across the country Medicaid directors described the upcoming abrupt end of these matching funds as a fiscal cliff that would have significant detrimental consequences on overall state budgets and on their programs.” The effect on patients will also be severe, with possible widespread cutbacks that force millions of current beneficiaries off Medicaid. This, says Kaiser, “would affect…the hospitals, doctors, and other providers who depend on Medicaid to pay for healthcare they provide to Medicaid enrollees.” Many Medicaid directors have called for a temporary extension of the federal matching rates established under ARRA.

In fiscal year (FY) 2009, 60 million people were covered under Medicaid, with expenditures estimated at $386 billion. For FY 2009, every state reported a record increase averaging 5.4% in the number of Medicaid subscribers; states expect an average 6.6% increase in enrollment for FY 2010 (Figure). Enrollment growth has vastly exceeded this average in some states, however, with Utah reporting a 16% jump in subscribers for the first months of FY 2010 and Hawaii experiencing more than 10% growth.

With state revenues failing to meet projections and many states teetering on the brink of economic distress—especially California, Nevada, and Arizona—shortfalls have led to freezes in hiring and spending. Medicaid has not been exempt from the economy’s effects, with most states reducing reimbursement rates to providers and restricting covered services. California is considering reducing eligibility for the Children’s Health Insurance Program (CHIP) from 250% of the federal poverty level to 200% and increasing premiums by $14 per child, up to $42 per family. Arizona has suspended CHIP enrollment. Many Medicaid directors told Kaiser they have made so many cuts, they are not sure where else they can trim.

Kaiser points out that the healthcare reform bills approved by the Senate and the House outlined a significantly expanded role for Medicaid that would require coverage for as many as 15 to 18 million more people. While the expansion would be fully funded for the first few years, what happens when that provision expires? Medicaid officials are concerned. They are also concerned that providers might not be willing to take new Medicaid patients without an increase in payment rates.

While the economy has picked up, unemployment remains high and the Labor Department expects it to drop very little this year. It is only expected to fall to 8.2% in 2012. At the recent National Governors Association meeting, 47 governors signed a letter petitioning Congress to extend the ARRA increase in federal matching for Medicaid. This would only be a stopgap solution and leave governors of the hardest hit states scratching their heads over where to come up with the rest. The full report from Kaiser can be viewed at http://www.kff.org.