Medicaid braces for ARRA funding "cliff"

State Medicaid programs face budget shortfalls of $140 billion for FY 2011, if the enhanced federal medical assistance percentage (FMAP) expires on Dec. 31, 2010, according to a February 2010 survey done by the Washington, DC-based National Association of State Medicaid Directors.

However, some Medicaid directors are already counting on the extension of the enhanced federal match, provided through the American Recovery and Reinvestment Act (ARRA) of 2009, in their planning for FY 2011. Others are planning for the worst-case scenario.

While eligibility is protected right now because of the ARRA requirements, if the funds are not extended, along with the maintenance of effort requirements, some states, including Arizona and California, "will be looking at pretty severe enrollment cuts," according to Robin Rudowitz, former Medicaid director in the Office of Legislation at the Centers for Medicare & Medicaid Services (CMS). "Other states are assuming that the ARRA funds will be extended. If that doesn't happen, then they will have to make even larger cuts than they had planned to."

Plan for the worst

Trish Riley, director of the Governor's Office of Health Policy and Finance in Augusta, ME, says that in the hopes that the enhanced FMAP would be extended by six months, "we budgeted a placeholder of $35 million."

In contrast, Utah's legislature worked under the assumption that ARRA funding would not be extended. All decisions were made based on that assumption. "The ARRA funding provided about $56 million of additional federal funding to use in the state budget planning process," says Michael Hales, Utah's Medicaid director. "On top of that, the CMS decision to allow funding to be used on the 'clawback' payments for Medicare Part D drug prescriptions gave our state an additional $17 million in one-time savings that have been factored into the budget."

The Oregon Department of Human Services' department's biennial budget covers the two years starting July 1, 2009 and ending June 30, 2011. In building the budget and developing caseload projections for Medicaid programs, the department took into consideration that the recession would increase the number of new people becoming eligible for medical assistance and keep people eligible longer.

"For this biennium, actual enrollment has not exceeded the projections," says Judy Mohr Peterson, PhD, director of the department's division of medical assistance programs. Because the Medicaid budget covers the two-year period ending June 30, 2011, and because Medicaid expenditures are currently tracking closely to the budget, no cuts are planned.

The department is currently developing its budget for the next biennium, which covers July 1, 2011, through June 30, 2013. "The Medicaid budget assumes ARRA funding ends Dec. 31, 2010," says Dr. Peterson. "The department is assuming the enhanced Medicaid funding provided by ARRA will not be available for the 2011-2013 biennium."

As standard procedure when developing the budget, the department is required to provide the department of administrative services a list of reduction options that it can consider in the development of the governor's recommended budget, due in December 2010. "It is anticipated there will be a significant gap between what is needed to continue operating existing programs and the revenues available," says Dr. Peterson.

In addition, caseloads in long-term care grew by 2.5% since the adoption of the budget. "This is putting major pressure on our budget," says James Toews, director of the department's senior and people with disabilities programs. "We are exploring several management options to stay within our legislatively adopted budget for this biennium. None have been finalized at this time."

Mr. Toews adds that for long-term care, "we are anticipating a significant gap between the needed revenues and the continuing case-load growth and operations of existing programs."

Is ARRA enough?

Kenneth S. Fink, MD, division administrator of Med-QUEST, Hawaii's Medicaid program, says that increased enrollment has resulted in a budget shortfall. "As Medicaid eligibility changes are not allowed under ARRA, adjusting benefits and provider rates are the main tools that states have available to them," says Dr. Fink. "We are also pursuing efficiency improvements and reductions in state-only funded programs."

Looking ahead to FY 2011, Dr. Fink says, "we need to make the necessary adjustments, so that our Medicaid expenditures are aligned with our appropriation. We need to make changes to address the budget gap. An extension of FMAP, while helpful, would still require programmatic changes."

Contact Dr. Fink at kfink@medicaid.dhs.state.hi.us, Dr. Peterson at (503) 945-6929 or judy.mohr-peterson@state.or.us, and Mr. Toews at (503) 945-6478 or james.d.toews@state.or.us.