Quick economic downturn surprises states
It seems only yesterday that many states were enthusiastically embracing an improving fiscal situation and making plans to restore many of the Medicaid cuts and restrictions that had been adopted during economic downturn. Now they are surprised to see that after just a few months of FY 2008, signs are emerging that the economic climate is changing.
In a November 2007 discussion with state Medicaid directors who serve on the executive committee of the National Association of State Medicaid Directors, the Kaiser Commission on Medicaid and the Uninsured asked the directors to identify the most important issues facing Medicaid in their states and how the issues may have changed since the beginning of the fiscal year.
At the top of the list of key issues, concerns, and priorities in mid-FY 2008 were the effects of an increase in fiscal stress across states, a number of federal-state issues, including those affecting Medicaid enrollment and access, and the directors' efforts to address the uninsured.
State Medicaid directors described an economic situation that in many states had leveled off unexpectedly, or even deteriorated, between July and December 2007. As a result, for a number of states, revenues early in the current fiscal year came in below projections and below levels on which state policymakers had based their state budgets. So, outlook for the immediate future was less optimistic than it had been at the beginning of the year.
At the beginning of this fiscal year, Medicaid directors had described in the Kaiser Commission budget survey a strong sense that state economies were rebounding compared to recent years, based on recent rates of growth in state revenues. They said state budget decisions had been based on expectations of continued growth in revenues. Medicaid planning had been based on expected relatively slow growth or even a decline in enrollment and there was interest in improving Medicaid.
But by the middle of the fiscal year, Medicaid directors described a less optimistic picture of the economic conditions in several states. While some directors continued to see positive economic news, most reported that recent revenue projections indicated a likelihood that actual state revenues would be below previous estimates for the current fiscal year.
Housing market major problem
The state Medicaid directors said that housing market difficulties were being cited as a primary contributor to the less optimistic state revenue outlook. Also, some states face an "unresolved structural deficit," in which even a relatively healthy economic climate in the state doesn't translate into comparable revenue strength.
The report says the slower growth rate in state revenues brought out a concern that the gap between the revenue growth rate and Medicaid expenditures might widen, and that it could be more difficult for states to finance their share of Medicaid program costs in the future.
Some officials said there already were discussions under way on the possibility of targeted or even across-the-board Medicaid program cuts before the end of calendar 2008 and the possibility of state work force reductions that could affect Medicaid staff.
The Medicaid directors also expressed concern over the way state budgets are affected by the annual changes in each state's federal Medicaid matching rate, the Federal Medical Assistance Percentage (FMAP). Although the FMAP formula is intended to be countercyclical, providing states with increased federal funding during times of fiscal stress, because of lags in the data the matching rate changes usually are not responsive to changes in states' economic situations. Directors also expressed concern that the FMAP calculation doesn't account for the relative ability of states to finance Medicaid or for the differences in the cost of living across states. They indicated that a more responsive formula would improve Medicaid program stability at the state level.
The Medicaid directors told Kaiser Commission interviewers it will be more difficult to achieve significant Medicaid cost savings now than it was during the last economic downturn. That's because many policy options that typically would be considered now were just used during the recession a few years ago and are no longer available. Thus, in 2003 and 2004 virtually every state adopted prescription drug controls. This time around, any savings that could accrue from additional prescription drug controls would be much lower.
"Even with the less optimistic economic outlook," the Kaiser Commission says, "the directors expressed their strong commitment and a commitment of their state administrations to maintain current levels of coverage and the restorations of the payment rates and benefits that occurred in the last two years. Most states continue to look for ways to expand coverage for low-income uninsured individuals if at all possible, even while recognizing the need to restrain the growth in Medicaid spending in a time of state fiscal constraint. One director suggested the issue of expanding coverage is such an imperative in states that all governors have had to look at it."
It seems only yesterday that many states were enthusiastically embracing an improving fiscal situation and making plans to restore many of the Medicaid cuts and restrictions that had been adopted during economic downturn.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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