Next Year's Medicaid Sticker Shock

Here's the good news: Thanks to federal stimulus money under the American Recovery and Reinvestment Act, states got a lot of help with their Medicaid ...
October 2, 2009

Here's the good news: Thanks to federal stimulus money under the American Recovery and Reinvestment Act, states got a lot of help with their Medicaid spending. So much so that, for the first time in Medicaid history, the state share of total spending for the program decreased this year by 3.3 percent, even though overall spending increased by 7.9 percent. "It's unprecedented," says Verne K. Smith, a former Michigan Medicaid director who is one of the authors of the Kaiser Family Foundation's annual survey on Medicaid spending. "This happened expressly because of the enhanced federal Medicaid match rate."

The bad news is that the federal stimulus match goes away by the end of 2010, and that will leave states' 2011 budgets with a severe case of sticker shock. That shock will be compounded by the state of state revenues. No one expects them to return to anything remotely close to normal by that time.

When the Kaiser researchers polled Medicaid directors on their top concerns for the future, the sticker-shock issue--what to do when the stimulus enhancement ends--headed the list. "The concerns," Smith reports, "went far beyond anything we have heard previously. They talked about unthinkable cuts and the continuation of difficult choices."

What kind of cuts would they be? Nevada's Medicaid director, Charles Duarte, says that when the ARRA money runs out, his program will be have to look at "wholesale elimination of eligibility groups and at big spending categories that involve the aging and elderly." He noted that home and community based benefits that help keep elderly or disabled people out of institutions had expanded significantly over the past six years, but they may come under the budget knife. Provider rates and professional reimbursements may also be cut, even though that affects access to care. "We're at a point there that may be a secondary consideration," Duarte says, "if we're going to face the revenue shortfalls we're anticipating as a state."

Meanwhile, the ARRA funds helped defray cuts that some states, such as Nevada, were already considering for their fiscal 2010 budgets. In all, the survey found, 38 states used the stimulus money to avoid or reduce cuts in provider payments and 36 avoided benefit cuts. Since the federal money was conditional on states not reducing eligibility, 14 states reversed previously enacted restrictions and five abandoned plans to tighten coverage.

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