Stateline Story

Budget Ax Hits Medicaid Second Time

Halfway through fiscal year 2003, nearly every state has targeted health insurance programs for the poor, elderly and disabled to balance severe budget deficits, and two-thirds of those states are on their second round of such cuts.

According to a survey by the Kaiser Commission on Medicaid and the Uninsured (KCMU) released Monday (1/13), 32 states reported that it will be necessary to make deeper cuts in their Medicaid programs, and five states, which had not taken previous action to cut Medicaid spending, are now planning cuts. Overall, 49 states have already taken action to contain Medicaid spending increases.

"This is the third consecutive year of nationwide budget problems for the states. For most states there aren't any easy solutions left, but cutting Medicaid means putting at risk the health and long-term care coverage of some of our poorest and sickest Americans- low-income children and the elderly and disabled," said Diane Rowland, executive director of KCMU.

Rising Medicaid expenditures are a major concern for states during the current economic downturn, and experts have been warning for months that states would continue to target Medicaid in their efforts to balance budgets. An estimated 44 million low-income, disabled and elderly people receive health insurance through Medicaid, a joint federal-state program that constitutes about 15 percent of most state budgets, second only to education in spending.

In September, KCMU reported that 41 states cut Medicaid programs as they closed $50 billion in budget deficits for fiscal year 2003, which began in July for most states and ends in June. Budget analysts estimate that states still have to close a deficit of $17.5 billion this fiscal year, and face a projected $60 to $85 billion deficit for fiscal year 2004.

Velvet G. Miller, a former Deputy Commissioner of the New Jersey Department of Human Services, referred to these second rounds of Medicaid cuts as "Going back to the trash can."

"These are ideas that you absolutely threw out (because) they were too harmful -- now you have to revisit (them) again and again," Miller said.

One of the reasons states are targeting Medicaid programs for cuts, the study found, is because healthcare programs are the most likely to be over budget. The survey found that Medicaid spending is now expected to increase by 9 percent this year, nearly double the original estimate.

Increased Medicaid spending is due in large part to an increase in enrollment. During an economic downturn, unemployment rises and personal income drops, increasing the number of people eligible for Medicaid. Medicaid officials reported in the survey that their estimate for Medicaid enrollment growth is now 7.7 percent, higher than the 6.2 percent growth they projected last June.

To slow enrollment, 27 states have proposed or implemented restrictions to eligibility that will cut at least one million people from Medicaid, the Center on Budget and Policy Priorities (CBPP) recently reported.

In California, for example, Gov. Gray Davis has proposed to eliminate health care coverage for about 300,000 low-income parents by lowering the eligibility threshold from 100 percent of the poverty level to 61 percent ($15,000 to $9,160 for a family of three).

New Jersey has begun to phase out enrollment for low-income parents in the state's joint Medicaid and SCHIP (State Children's Health Insurance Program) that will cut 100,000 parents.

Tennessee has already implemented changes that will eliminate health care coverage for between 160,000 and 250,000 adults and children. Oklahoma lawmakers have approved cuts to Medicaid that will soon cause about 80,000 children, adults, seniors and disabled people to be dropped from coverage, including near-elimination of the state's SCHIP program.

The largest increase in health care spending has been for prescription drugs. According to a recent government report on health care spending, prescription drug costs exceeded spending on nursing homes and home health care combined last year for the first time, costing $140.6 billion, a 15 percent increase from the year before.

Responding to this trend, 45 states have taken action to control prescription drug spending. The measures include mandating generic drugs, imposing monthly prescription limits, forcing beneficiaries to co-pay for drugs, and restricting preferred drug lists.

In addition to these cuts, 37 states have implemented or plan to reduce payments to medical providers by freezing or reducing provider rates; 25 states are restricting or eliminating optional Medicaid benefits, including dental and optical coverage, occupational or physical therapy, and inpatient hospital days; and 17 states are ordering Medicaid recipients to make co-payments for emergency room visits, emergency transportation and physician visits.

State Medicaid officials also reported in the survey that despite undertaking significant cuts to Medicaid this year and last, they believed that states would have to consider deeper cost-containment measures for fiscal year 2004. When Medicaid officials were asked to comment on the outlook of Medicaid next year, the most commonly used words were "grim, bleak and difficult," said Vernon Smith, Principal with Health Management Associates and a consultant on the KCMU survey.

"Even with all of these actions, most states believe that these cuts will not be enough to regulate spending. (Officials in) 40 states told us they now expect there will be further cuts in benefits, further cuts in eligibility and further cuts in Medicaid provider rates, even on the heels of cuts that have taken place in the last year or two," said Smith.

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