Big Medicaid cuts may be coming, state officials say
Big Medicaid cuts may be coming, state officials say
Looking at state budget problems described as worse than the condition of the national economy — worse, in fact, than anything since World War II — representatives of the nation’s governors, budget officers, and legislators are predicting significant cuts in Medicaid among other steps to stop the bleeding.
"Any state with a fiscal problem is going to be cutting Medicaid next year," Al Jackson, American Hospital Association vice president for political affairs, told the Los Angeles Times in response to the biannual Fiscal Survey of States recently released by the National Governors Association (NGA) in Washington, DC.
That report pointed out that despite significantly curtailing state spending, 37 states still had to reduce their enacted budgets by some $12.8 billion in FY 2002. And nearly midway through the current fiscal year, 23 states told the association they planned to reduce their net enacted budgets by more than $8.3 billion.
No state is immune
Raymond Scheppach, NGA executive director, says no state is immune from the perfect storm-like crisis. "This is a result of a convergence of four major factors that have battered almost every state budget to the point where there just are no easy choices left," he says.
"The combination of long-run deterioration in state tax systems coupled with an explosion of health care costs is creating an imbalance between revenue and spending. To make matters worse, we’ve had a collapse of capital gains tax revenues added to the overall loss of revenue attributable to economic growth," Mr. Scheppach explains.
Meanwhile, the National Conference of State Legislatures (NCSL) in Washington, DC, weighed in with its own report that said two-thirds of states report declining revenues and more than half face expenditures that exceed levels projected in their current budgets.
"State legislators face a common problem around the country," says Bill Pound, NCSL executive director. "Spending needs are outpacing projected budget levels, particularly in the area of Medicaid and health care costs. Because most states require a balanced budget each year, these gaps must be resolved by the time state officials close their books; 2003 will certainly be a year of tough policy decisions."
The NCSL State Budget Update found that 33 states reported revenue collections below forecasted levels through October, and 29 states have made revisions to their revenue estimates for FY 2003, with 26 of the 29 lowering their forecast. Thirty-one states reported budget gaps in the early months of the current fiscal year. A $17.5 billion budget gap mostly has developed since the beginning of the fiscal year. Twenty-four states reported that Medicaid or health care programs, which typically account for 15% of the average state’s general fund expenditures, are over budget for the early months of FY 2003; 29 states reported that spending is exceeding budgeted levels; and the outlook for the remainder of the fiscal year is bleak, with 38 states concerned or pessimistic about revenue performance and only 10 states (Florida, Hawaii, New Mexico, North Dakota, Rhode Island, Tennessee, Utah, Washington, West Virginia, and Wyoming) reporting a stable or optimistic outlook.
The governors’ report showed that as a result of weakness in state tax collections and the stalled national economy, the enacted increase in states’ FY 2002 general fund spending is only 1.3% and is expected to grow by the same amount in FY 2003, after growing 8.3% in FY 2001. Medicaid spending grew 13.2% in FY 2002, the fastest rate of growth since 1992.
One-time strategies used up
"To address the severe imbalance between revenues and expenditures," the report said, "states relied heavily on specific strategies to reduce or eliminate budget gaps. In fiscal 2002, 26 states reduced the budget gap by enacting across-the-board cuts and using rainy-day funds, 15 states laid off employees, five states used early retirement, 13 states reorganized programs, and 31 states used a variety of other methods. This trend will continue in fiscal 2003. Many of these budget balancing actions are one-time only and cannot be used again."
The governors say the fiscal situation in states can be seen most clearly in their year-end balances. Total balances in FY 2001, FY 2002, and FY 2003 are $37.8 billion, $17.1 billion, and $14.5 billion, respectively. "FY 2003 total state balances have plummeted by a spectacular 70% since they peaked in fiscal 2000," the report declared.
One of the most significant causes of state budget woes is the growth in Medicaid expenditures, according to the reports. The NGA said the 13.2% growth in Medicaid spending in FY 2002 stands in sharp contrast to the lack of growth in state revenues experienced in the same fiscal year. And in FY 2003, even with extensive cost-saving efforts, Medicaid appropriations are 4.8% above the previous year’s level.
"Based on the continued fiscal pressures," the NGA report said, "all states have either taken action in fiscal 2002 or plan to take action in fiscal 2003 to control Medicaid costs. The most prevalent type of cost containment in both fiscal 2002 and fiscal 2003 is controlling pharmaceutical costs, followed by reductions or limits to provider payments." The NGA quoted a report from the Kaiser Commission on Medicaid and the Uninsured, which found that in FY 2003, 40 states plan to implement pharmacy controls, 29 states plan to implement reductions or freezes in provider payments, 15 states plan to reduce Medicaid benefits, and 18 states plan to restrict eligibility.
Another major component of state fiscal problems, and one not heard about nearly as much as Medicaid, is spending for state employee health coverage. The NGA said that an analysis by the Center for Studying Health System Change found that insurance premiums nationally increased by 11% in 2001 and are estimated to go up by 13% in 2002.
Looking to Washington for relief
Mr. Scheppach said the governors are supporting legislation in Congress that could help relieve the budget pressure on states. In particular, a bill proposed in the last session by Sens. Ben Nelson (D-NE), Susan Collins (R-ME), and John Rockefeller (D-WV), and passed by the Senate in July, would have provided $9 billion in fiscal relief to states through a combination of social services block grants and increased federal Medicaid funds.
A $5 billion version was included in a Medicare-giveback bill that was negotiated by Sens. Charles Grassley (R-IA) and Max Baucus (D-MT) but never made it out of the Senate Finance Committee. Any legislation would have to be reintroduced in the new session of Congress this year and would be affected by the shift in the political balance of power in Congress. "The fiscal relief package is an effective means of minimizing Medicaid cuts and would help offset the negative impacts of state budget cuts in the overall economy," Mr. Scheppach says. He also called on Congress to appropriate $3.5 billion for first responders for homeland security and to fund implementation of election reform legislation early in the new session.
But many independent analysts are expressing doubt that much help will be coming from Washington. According to the Los Angeles Times, Kenneth Finegold, Urban Institute senior research associate, said, "The general picture is, don’t count on anything from the feds, because the federal government now has a deficit, and it also has other priorities besides health care. National security and tax cuts are priorities of this administration, and balancing state budgets is not."
[Get information from the NGA at (202) 624-5300 or on-line at www.nga.org and information from the NCSL at (202) 624-8667 or on-line at www.ncsl.org.]
Looking at state budget problems described as worse than the condition of the national economy worse, in fact, than anything since World War II representatives of the nations governors, budget officers, and legislators are predicting significant cuts in Medicaid among other steps to stop the bleeding.Subscribe Now for Access
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