Stateline Story

Tax-Cut Cash Won't Fix Medicaid, States Say

  • June 17, 2003
  • By Erin Madigan

The one-time $10 billion boost from the federal government to state Medicaid programs might avoid cuts for now, but the money is only a stopgap measure that falls far short of providing a long-term solution to Medicaid's soaring costs, state officials, budget directors and policy analysts said.

The money is part of President Bush's $350 billion tax cut package that was signed into law May 28. The nation's governors applauded the aid, as budget experts forecast that fiscal 2004 will be even bleaker than fiscal 2003, which ends June 30 for most states.

"States really need this money and (since it was) specifically earmarked for Medicaid, I think everyone sees it as a real boon to states," Trudi Matthews, chief health policy analyst at The Council of State Governments told Stateline.org. "Not that (states) will be able to expand programs, but they'll be able to stave off cuts for a little while longer." "The fiscal relief is very welcome, but it is temporary. It's one-time relief and we cannot let it divert attention from the need to deal proactively with on-going structural problems," said Maryland Budget Director Neil Bergsman.

Spending on Medicaid the state-federal health insurance program that serves more than 40 million low-income and disabled Americans outpaced state tax revenue in recent years and the program is one of the biggest drains on state budgets, according to the Kaiser Commission on Medicaid and the Uninsured, a research and philanthropy organization in Washington, D.C.

Under the Bush tax plan, states will receive a portion of the $10 billion based on their usual federal matching rate, which is determined using a formula based on average personal income. This means, the poorer the state, the more money it receives from the federal government for Medicaid.

The money will be distributed over a 15-month period, beginning with retroactive payment from April 1, 2003, Medicaid experts said. Based on the formula Wyoming will receive the least amount of relief, New York the most.

But how much states will receive is an estimate at best, said Victoria Wachino, associate director at the Kaiser Commission. "The feds match a share of whatever a state spends on Medicaid ... We won't know what states will actually receive in Medicaid-related fiscal relief until we know what they've spent on their Medicaid programs, which won't be for some time," Wachino said. In the meantime, Medicaid remains on the chopping block in many states.

"In many cases legislators have already decided, well, we know we're going to cut Medicaid, it's just how much and what' ... the fact that there's extra money in the budget won't necessarily change the fact that there was already some political consensus arrived at," said Leighton Ku, senior fellow at the Center on Budget and Policy Priorities, a left-leaning research institution in Washington, D.C.

Medicaid experts said it's too early to tell what most states will do with the money, but a handful have already unveiled plans:

  • Minnesota lawmakers no longer plan to chop 68,000 single adults from the Medicaid rolls. The Gopher State's estimated $195 million share of the funds allowed them to avoid "some very serious cuts," said state Medicaid Director, Mary Kennedy. Though some adults will still be cut, the money allowed the state to "significantly" scale-back the original number. "Our legislature had not been able to come to budget agreement and this money, which came during our special (legislative) session, certainly did allow our House and Senate to come to a budget resolution and moderate some of the eligibility cuts," Kennedy said.
  • Louisiana averted some major spending cuts, including reductions in Medicaid payments to health care providers such as private hospitals and group homes by as much as 15 percent. "We really had some serious cuts to make before the money came down," said Susan East, spokeswoman for the Louisiana Department of Health and Hospitals. But the estimated $154 million the state will receive did not prevent the state from capping to eight the number of prescriptions Medicaid beneficiaries can get.
  • Colorado Gov. Bill Owens (R) announced plans to use $5.6 million in general federal funds not money specifically earmarked for Medicaid -- to avoid capping enrollment in the state's children's health insurance program (CHIP), which serves 52,864 children. The money will also help restore pre-natal care for more than 900 low-income women.

"The legislature actually eliminated certain funds for CHIP this year, so the governor felt that it was a prudent way to restore these funds," Dan Hopkins, the governor's press secretary, told Stateline.org.
Some other states that are still negotiating budget bills, plan to use the money to prevent cuts, but haven't approved specifics.

State senators in Ohio, for instance, may abandon a proposal to cut 50,000 parents from the Medicaid rolls, but the General Assembly is still hammering out a budget agreement. And Arizona, which faces a billion-dollar deficit, will most likely use the federal money to restore cuts in child and health care. And in Wisconsin, Democratic Gov. Jim Doyle and the Republican-controlled legislature are butting heads over the budget.

"I think you can argue that it will help and has already helped stave off some cuts here, but it's not that black and white," said Jon Peacock, director of the Wisconsin Budget Project, a nonpartisan research and advocacy group based in Madison. "The federal money helps us buy some time while we struggle with how we're going to balance conflicting political realities."