Medicaid Is Fastest-Growing Squeeze on State Budgets

State spending on Medicaid, the health safety-net program for 52 million poor and disabled Americans, is expected to grow four times faster than all other state expenditures this fiscal year, according to a new 50-state survey by the Kaiser Commission on Medicaid and the Uninsured.

State Medicaid spending is projected to jump 11.7 percent in fiscal 2005, dwarfing the 4.8 percent increase in the previous fiscal year when states benefited from a one-time $10 billion bail-out tucked into President Bush’s 2003 tax-cut package.

The report released Oct. 4, called “Budget Challenge: State Medicaid Spending Growth and Cost Containment in Fiscal Years 2004 and 2005,” examined budget conditions and state efforts to control spending during fiscal 2004 and fiscal 2005, which began July 1 for most states.

With last year’s federal bail-out cash gone, states are left to carry a heavy load, despite a recent uptick in state revenues, the survey said. “The bottom line is that even with all of the (cost-control) actions that states have taken over the past several years, Medicaid spending growth has far exceeded the growth in state revenues,” said Vernon Smith, a former Medicaid director in Michigan who conducted the survey.

In fact, 39 Medicaid directors reported that they expect fiscal pressure on their programs to increase in coming months. No state expected budget strains on their programs to ease. Officials in 30 states said that a Medicaid shortfall was probable in fiscal 2005.

Medicaid expenses are shared by states and the federal government. Total federal-state Medicaid spending grew at an average rate of 9.5 percent in fiscal 2004, which is basically unchanged from the previous year. Medicaid is the country’s largest health-care program and the second largest item in most state budgets, behind education. Total state and federal Medicaid spending is likely to exceed $300 billion and account for about 17 percent of total health care expenditures in the U.S. this year.

Both Medicaid and the state Children’s Health Insurance Program provided a vital safety net for low-income children and families during the recent economic downturn, but enrollment increases, rising prescription drugs costs and increases in the price of health care overall will continue to squeeze state budgets in the coming year, the Kaiser Commission said.

Medicaid directors’ looming concerns included the increasing number of uninsured Americans, which reached an all-time high of 45 million in 2003, Smith said. They also worry about the effects of the new federal Medicare prescription drug benefit, the growing number of elderly Medicaid beneficiaries and increasing federal scrutiny of the program’s finances.

“As we look into the future, the states face tremendous challenges in financing and administering the (Medicaid) program,” Smith said.

All 50 states plan to put in place at least one new Medicaid cost-saving measure this fiscal year. Most state are using multiple strategies, including reducing or restricting payments to hospitals, nursing homes or other health care providers, reducing or restricting program eligibility, increasing co-payments and starting disease management or long-term care cost-savers.

Notable eligibility reductions in fiscal 2005 included:

• Colorado lawmakers approved a law to remove legal immigrants from full Medicaid coverage, affecting about 3,500 people. 
• Georgia tightened the eligibility income limit for about 7,500 pregnant women and their infants. The Peach State also eliminated coverage for 1,700 medically needy nursing home patients. 
• Oregon closed enrollment in part of its Medicaid program and expected the rolls to drop from 54,000 patients to between 25,000 and 30,000. 
• Mississippi adopted a plan to stop coverage for about 65,000 elderly and disabled beneficiaries.

The Medicaid forecast isn’t entirely dismal, however. In fiscal 2005, state legislatures are less likely to cut benefits and more likely to expand or restore previous cuts compared to the past two years, the report said. For example, in fiscal 2004, 19 states cut benefits such as dental or vision care for adults, whereas in fiscal 2005, only nine states planned to reduce this type of benefit.

The commission also issued a second report on state-funded health care for kids, called “Beneath the Surface: Barriers Threaten to Slow Progress on Expanding Health Coverage of Children and Families,” which found that 23 states took actions that made it harder for poor children to get and keep state-funded health coverage between April 2003 and July 2004.