Stateline Story

Medicaid Rolls, Spending Up in Bleak Economy

After two years of flat Medicaid enrollment - the same two years which also saw the smallest spending increases for the federal-state health insurance program for the poor - the failing economy has led to a dramatic growth both in enrollment and spending, according to a new report.

"Just when it looked like things would get better, a new economic downturn has pulled the fiscal rug out from under the states," said Vern Smith of Health Management Associates, which conducted the survey for Kaiser Commission on Medicaid and the Uninsured.

Kaiser released " Headed for a Crunch," the eighth installment of its annual survey of the 50 states' Medicaid directors, on Sept. 29. The report covers the period from July 1, 2007 to June 30 of this year and paints a dismal picture reflective of a weakening economy.

Some of the spending increase comes as states begin to reverse cuts in Medicaid services and benefits made because of the recession early this decade. Some states expanded eligibility or increased outreach efforts this year as unemployment rates rose, and legislatures are beginning to increase their provider payments, often catch-up increases because of previous rate cuts or freezes.

But one of the main reasons Medicaid spending rose significantly - up 5.3 percent this year, compared to 1.3 percent and 2 percent increases in 2006 and 2007, respectively - is because of increased numbers of people using the program, a result of the worsening economy. In the last two years, enrollment was essentially flat, but it already has risen 2.1 percent this year, with a projected 3.6 percent increase for next year - the highest rate in five years.

Another worrisome sign: state Medicaid directors are already saying the projected spending increase for fiscal year 2009 - which the report estimates will be 5.8 percent - is too low. Directors in two-thirds of the states say there's a 50-50 chance their state will have a shortfall in Medicaid funding next year.

About 59 million Americans, or about one in six, are covered by Medicaid. States pay for about half of Medicaid costs, with the federal government picking up the rest, and Medicaid spending accounts for about 22 percent of state budgets.

Although Smith said most states are restoring the cuts they had made and increasing payments to doctors and other medical providers, so far this year, three states have rolled back benefits because of unexpected shortfalls they faced after passing their budgets. In August, Nevada and New York cut payment rates for hospitals and nursing homes, while earlier this month South Carolina announced cuts for doctors and dentists.

"As state fiscal situations worsen, actions in these three states may be a harbinger of things to come," Smith said.

Another state that might be forced to make drastic Medicaid cuts is Connecticut, whose state revenues are linked, in large part, to capital gains on Wall Street and could be hit hard by the financial emergency there. David Parrella, director of Connecticut's Medicaid program, said he predicts that in January, the state will see drastically smaller revenues than expected.

"I do have a lot of concerns (whether) we're going to be able to meet the primary care challenge in the years ahead, particularly in light of rising caseloads," Parrella said.

Doug Porter, Washington state's Medicaid director, said he has been given a goal of reducing expenses by 15 percent over the next two years. He said he will first cut new services provided by the state, such as interpreters for clients. After that, he would consider cutting payments to doctors, like the 48 percent hike to pediatricians the state enacted last year after years of increasing payments only by 1 or 2 percent. The last resort would be tightening eligibility for Medicaid, he said.

"We're in survival mode here, trying to protect the core part of our program rather than improving our standards," he said.

Kaiser's report was released the same day America's Health Insurance Plans , which represents health insurance companies, issued a report finding that states will spend $1.6 trillion of their Medicaid budgets on long-term care over the next 20 years.