Many states in survival mode; cuts are likely

New York state expects to feel the effect of the current economic downturn most directly, as 20% of its revenues come directly from Wall Street activity, according to Claudia Hutton, director of the New York State Department of Health's public affairs group.

During the early part of this year, Medicaid applications in New York were about 30% higher than the same period in 2007. "We figure many of these people will become Medicaid enrollees," says Ms. Hutton. "Enrollment itself has fallen just a tad vs. a year ago, and spending is slightly lower than projections as a result. We do not expect that to continue much longer. New York's budget has not experienced all the 'bad' that's coming yet."

At this point, the state budget division is anticipating a gap between expected revenues and current spending of about $8 billion for the new fiscal year, which will begin April 1, 2009.

New York Gov. David A. Paterson already ordered spending cuts in state agency operations, and called the legislature into special session to propose a menu of about $1.5 billion in budget cuts. "The legislature approved about one-third of that," says Ms. Hutton. "He has called them back into session, and both the legislature and the governor are preparing for more spending cuts."

In terms of budget cutbacks, the benefits and eligibility levels of Connecticut's public health coverage programs have not been affected, according to David S. Parrella, director of Medical Care Administration for the Connecticut Department of Social Services.

However, the economic downturn already has doubtless played a role in driving up the state's HUSKY (combined Medicaid for children/parents/pregnant women and SCHIP) enrollment by 2% between September and October 2008.

"We can expect that trend to continue for the rest of the state fiscal year, as unemployment rises," says Mr. Parrella. "The cost of employer-based coverage is now $13,000, with the employer's share around $10,000. Financial pressure on employers to drop coverage may be expected, unless there is some federal mechanism to assist."

Funding for expansion programs that go beyond the federal minimum, such as the state's SAGA (State-Administered General Assistance), HUSKY A and B, and Charter Oak Health Plan programs, will be difficult in light of projected deficits in state revenues, says Mr. Parrella.

"One option that we have discussed is an Affordable Choices waiver that hopefully the new administration in Washington will be more receptive to," says Mr. Parrella. "Additional federal revenue would make these programs more sustainable."

The Affordable Choices waiver would bring in federal reimbursement for the outpatient portion of SAGA that is not currently federally matched, and the Charter Oak program.

Mr. Parrella says he would like to see "a top-to-bottom review of Medicaid rules that may be a hindrance to further reform in a time of great economic challenge." For instance, he says, Washington could reassess some of the fundamental rules in Medicaid that contribute to higher costs. These include limitation on the ability to contract with a single plan, broader application of managed care to the aged, blind, and disabled population, differential benefit packages for coverage groups, premium assistance, and shared savings for management interventions with dual-eligibles.

Maine is "preparing for very serious reductions as revenues continue to be lower than forecasts," says Trish Riley, director of the Governor's Office of Health Policy and Finance in Augusta. "We have made reductions in program growth each year, but this slowing economy will require a mighty stretch to balance the budget," says Ms. Riley. "There is no question that as the economy slows, revenues are slowing as well, and demand for services will grow."

Ms. Riley says it's essential to look at the underlying costs of health care and bring that growth down. "We know the U.S. spends twice what other developed nations spend on health care, yet we don't cover everyone and don't get better outcomes or quality," she says. "It's the inefficiency and variation in health care itself that must be addressed, if we are to afford our health programs."

Contact Mr. Parrella at (860) 424-5219, David.Parrella@ct.gov, and Ms. Riley at (207) 624-7442 or Trish.Riley@maine.gov.