Federal aid to Medicaid: It could mean the most severe cuts will now be reversed
State Medicaid programs are reporting dramatic surges in enrollment, as the number of unemployed Americans now eligible continues to rise. At the same time, staffing resources often are frozen or being cut, and budget cuts still threaten eligibility, with the downturn expected to continue at least through the next fiscal year.
The recently passed stimulus package, however, is a stopgap to this catastrophe in the making. It is hoped that the temporary increase in Federal Medicaid Assistance Percentages (FMAP), estimated to increase assistance to states by $87 billion, will help prevent planned Medicaid cuts, particularly for eligibility. An explicit condition of the assistance is that states maintain Medicaid eligibility levels.
The federal aid "is definitely a huge help," says Judy Solomon, a senior fellow at the Center on Budget and Policy Priorities specializing in Medicaid and SCHIP. "It will take some of the pressure off. That is particularly important to meet increased demand as people lose their jobs and their health insurance. This will help states to meet that need."
Ms. Solomon says her organization, which has tracked cuts already made to Medicaid programs, as well as planned cuts, is "already beginning to hear that in some cases, states don't need to make those cuts."
It remains to be seen whether the states that were going to make changes in eligibility will now reverse those cuts, but there is now a significant financial incentive to do so.
"Those cuts likely will not occur, because states will not get the enhanced FMAP if those cuts are made," says Ms. Solomon.
She notes that the enhanced FMAP will be given retroactively to October 2008, if the states go back and reverse the cuts made to eligibility. If they do this by July 2009, then they still can get the entire allocation of enhanced FMAP.
A number of other states, however, have made cuts in optional benefits such as dental services, which don't fall under this requirement. "I don't necessarily know if we will see those get reversed or provider cuts reversed," says Ms. Solomon, "but I definitely think we will see less cuts going forward."
Eligibility may still not be safe
At least 46 states faced or are facing shortfalls in their budgets for this and/or next year. Severe fiscal problems are very likely to continue into the following year as well, according to a Center on Budget and Policy Priorities analysis. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated at more than $350 billion.
In light of this reality, the federal aid may not be enough to turn things around for states in the worst fiscal trouble. "It's a lot of money, but it doesn't necessarily fill the entire shortfall in every state," says Ms. Solomon.
Though many states were facing the possibility of cuts to eligibility, all were holding off on the most severe cuts as long as they could.
"States really do hold back as long as possible on cutting Medicaid for lots of reasons," says Alan Weil, executive director of the National Academy for State Health Policy. "They hold back partly because of the federal matching funds, partly because it's such a vulnerable population, and partly because with Medicaid cuts, you end up paying for them somewhere else in unmet needs, so it's not really a savings. But the flip side is the Medicaid budget is so big that when the going is bad, you have to start looking there, because that's where a lot of the money is," he explains.
The first line of defense is usually provider rates. "At least you don't cut anyone off the program, so you avoid the headlines on people losing coverage, though of course, the burden is picked up elsewhere," says Mr. Weil.
The next cuts usually are made to optional services. "Some states don't really offer very many of them, but other states have more and will go there," he says. "Then, they often go to what I would call procedural steps that build little annoying barriers to people's participation, such as requiring more paperwork."
Eligibility is the last resort. "So not only does Medicaid get protected, but eligibility within Medicaid is one of the last places states go," says Mr. Weil. "But I think we would be naive-look at the numbers in states like California-to think that even with federal stimulus, that eligibility is safe. That is not a realistic assessment."
He says, "I think we all feel we are in an unprecedented circumstance with respect to the economy. States have certainly seen fiscal downturns before. But in recent memory they have not occurred in the context of such overwhelming uncertainty about depth."
This downturn also is "unusual in its breadth," says Mr. Weil. For instance, Washington state does not have an income tax and Oregon does not have a sales tax, so they have different tax bases; but both incomes and sales have been hurt in this economy.
"There is no safe place for revenue," he says. This contrasts with other downturns-for example, after the tech bubble burst, when it was mainly high-tech regions that were hit due to loss of capital gains taxes.
The biggest unknown about this downturn, which will be a determining factor on how long states can protect eligibility, is exactly how long it will last. "I think the duration here is going to be a huge factor in how this plays out," says Mr. Weil. "Until you start seeing an upward slope, it's hard to know what the duration will be, although it's not looking very good right now."
It's true that states are working very hard to protect against cuts, but the longer the downturn lasts, the "harder it is to hold the line, because you run out of other options," says Mr. Weil.
Stimulus is 'buffer'
The federal stimulus package would greatly reduce the likelihood of budget cuts to Medicaid, according to Edwin Park, a senior fellow at the Center on Budget and Policy Priorities. "But the total amount of state fiscal relief in the package-not just Medicaid but other provisions in the package-would fill in less than half of the total budget deficits states will face."
Medicaid programs still could face cuts, but these will be greatly moderated due to the FMAP increase and the other fiscal relief in the stimulus.
According to Ann Berg, Minnesota's acting state Medicaid director, Minnesota expects to receive about $1.9 billion in additional Medicaid funding through calendar year 2010.
"The governor's proposed budget has reductions in eligibility," she reports. "We are studying the bill and its implications on our existing programs, as well as on the governor's proposed budget. This analysis will be reflected in the governor's supplemental budget proposal."
Mr. Weil says several components of the stimulus should buffer what would otherwise have happened.
"Over time, we are going to see cuts, unless we are all surprised and pull out of this much faster than expected," he explains. "Even with all the good that people are trying to do, I think we just have to brace ourselves for the fact that we do seem to be in a fiscal downturn of a scale that I just don't think it's realistic to believe we're going to get through this without some real cuts."
As states planned their budgets and estimated the number of people who would be enrolled in Medicaid, they were quickly confronted with a big gap between those expectations and the numbers they are seeing now.
"I think the speed with which things deteriorated here is a serious problem for states," says Mr. Weil.
Even with the stimulus passed, it's going to take a while for things to play out, he notes. "States are going to have to look at these numbers and figure out how they are going to respond," Mr. Weil says. "You have caseloads growing exactly when the problems are growing, and that's why it's so hard to get out of this. There is a strong tide here of just trying to get through this and hoping things get a little better."
The stimulus does offer "very substantial support to states," he says, with states having to commit to not cutting back their programs.
"So, states have a very strong incentive and opportunity to get funding through this," says Mr. Weil. "Individual states are going to have to evaluate their own numbers with respect to what the stimulus will offer. But it's a very good protective factor that I think will avoid what otherwise would have been an overwhelmingly negative picture with respect to coverage."
The stimulus package covers a two-year period, Oct. 1, 2008 to Dec. 31, 2010, and it's coming early enough to make a difference. "In the early 2000s when they did this, by the time they got around to doing the bump in matching provisions, we were already pretty far into it," says Mr. Weil. "This time, there is some hope that it's coming in fast enough to avoid some of the worst problems."
Contact Ms. Berg at Ann.[email protected], Mr. Park at (510) 524-8033 or [email protected], Ms. Solomon at (202) 408-1080 or [email protected], and Mr. Weil at (202) 903-0101 or [email protected].
State Medicaid programs are reporting dramatic surges in enrollment, as the number of unemployed Americans now eligible continues to rise. At the same time, staffing resources often are frozen or being cut, and budget cuts still threaten eligibility, with the downturn expected to continue at least through the next fiscal year.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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