Grim times for state Medicaid budgets

WASHINGTON, Sept. 15 (UPI) -- States faced with lower tax revenues and a federal mandate for a balanced budget are being forced to significantly reduce funding for Medicaid, the government health care program for the poor and disabled.

"Thirty-four states are in deficit situations in Medicaid," Rep. Richard Burr, R-N.C., told the recent Medicare/Medicaid conference sponsored by the American Association of Health Plans. "It's a crisis situation today."

While states use the term deficit in talking about Medicaid budget shortfalls, there is in fact no deficit once a legislature passes a budget. States are not allowed by law to have deficits. Cuts are made or taxes and fees are increased to have a balanced bottom line.

Medicaid is a significant part of all state budgets -- usually second only to spending on education. States can spend up to 15 percent of their revenue dollars on Medicaid. The Congressional Budget Office expects the program will cover more than 47 million people this year -- making it even bigger than Medicare, the senior's health care program run by the federal government.

Medicaid is a state-federal deal, however, and the government's federal matching rate -- what it gives states to match their dollars spent on Medicaid -- ranges from about 50 percent to 83 percent.

The current problem includes the recession, which has reduced tax revenues in all states, double-digit increases in health care costs and an increase in the number of people eligible for and taking advantage of Medicaid offering.

Medicare covers families that, because of layoffs, find themselves falling beneath the poverty level. It also covers children through the State Children's Health Insurance Program, a part of Medicaid in many states, a growing senior population requiring long-term care not covered by Medicare and better benefits for the disabled.

Policy experts believe state budgets lag behind national economic trends by a year to 18-months and Barbara Edwards, deputy director of Ohio Health Plans for the Ohio Department of Job and Family Services, says in fiscal 2003, 41 states are predicting Medicaid shortfalls.

"If we are in a recovery, I'll tell you what, I can't find it," she said.

She said economic recovery for state budgets lags specifically in Medicaid spending because the program continues to provide services to people even as they find new employment and transition back to economic independence.

There are one-year fixes for Medicaid and other budget needs -- such as using money from a state's rainy-day fund or from the national tobacco settlement. After that, the difficult decisions begin.

Edwards said the Ohio Legislature has come back twice this year, ordering across-the-board budget cuts of 15 percent. She is faced with less money and 125,000 new Medicaid beneficiaries to figure into the budget mix. She will need an extra $850 million in the upcoming two-year budget cycle to maintain the status quo, while the state will face a $2 billion revenue hole.

"We have got a train wreck coming, so good health care policy may not be enough," she said.

Ohio is looking at reducing its pharmacy costs -- about $1 billion in the $7.7 billion state program -- by limiting the list of drugs its Medicaid program will cover and pushing people to choose more generics over name brands. It also is looking at containing costs by paying hospitals and long-term care facilities less, as well as reining in spending on the disabled, which account for only 29 percent of enrollees but 77 percent of Medicaid dollars spent each year.

While Ohio is considering its Medicaid cuts, Missouri is implementing them, or at least trying to.

Greg Vadner, director of the Missouri Division of Medical Services, runs a $4 billion Medicaid program that has seen its enrollment grow from 600,000 to more than 900,000 in the past seven years.

Vadner said he has made $286 million in cuts this past year, including $180 million in pharmacy costs and $20 million in lower payments to nursing homes. The problem is the Missouri Legislature wrote those savings into the overall budget immediately, rather than allowing time for them to be worked in.

"I'm under fire right now because I haven't quite implemented these cuts," Vadner said.

A public outcry over the reductions has meant a number of the proposals are being challenged in court on behalf of beneficiaries and businesses. Medicaid dollars translate into jobs and economic development on the local level.

"My staff is spending a lot of time in court or in the process of preparing to be in court," he said.

Vadner says 30 vacant administrative positions in his department will not be filled and he likely is looking at layoffs as Missouri now predicts another $500 million shortfall for fiscal 2004.

There are proposals in Congress to increase the federal matching rate through fiscal 2004 by between 1.5 and 2 percentage points. State Medicaid directors, however, are not writing any such increases into the budgets as the 107th Congress is nearing an end and key health care legislation remains up in the air.

Vadner said the irony is many states that need a federal matching rate increase the most -- including Missouri -- would not get it because of a requirement that states that cut services would not qualify.

Burr told the AAHP convention, "States realize they've got to be creative ... to meet new challenges."

Edwards says states facing critical cuts in Medicaid services are in no position to be creative about health care programs.