State Budgets Collapse Under Medicaid Costs

Jan. 14, 2003 - States planned for tough fiscal times during their budget deliberations for fiscal year 2003, but now halfway through the year nearly two-thirds of states have had to implement or are planning a second round of Medicaid cuts.

The updated survey of the 50 states and the District of Columbia released yesterday by the Kaiser Commission on Medicaid and the Uninsured (KCMU) shows the deepening fiscal crisis at the state level is now threatening Medicaid coverage for low-income families.

In addition to the survey of states, KCMU also released a new report examining how seven states coped with budgetary problems during the last year and a third report examined the impact of the State Children’s Health Insurance Program (SCHIP) enrollment freeze in North Carolina on coverage and access to care for low-income children.

The first report, Medicaid Spending Growth: A 50 State Update for FY 2003 (Pub#4082), is based on a follow up survey conducted by Health Management Associates for KCMU in December 2002, almost halfway into most states’ 2003 fiscal year, to update the survey of state budgets conducted in June 2002. The survey reveals that 32 states found it necessary to take further action to reduce spending for the year and 5 states, which had not taken action prior to July, now feel cuts are necessary.

Overall, virtually every state (49 states and D.C.) has already taken Medicaid cost-containment actions for FY 2003. “This is the third consecutive year of nationwide budget problems for the states. For most states there aren’t any easy solutions left, but cutting Medicaid means putting at risk the health and long-term care coverage of some of our poorest and sickest Americans – low-income children and the elderly and disabled,” said Diane Rowland, executive director of KCMU.

Over Two-Thirds (37 states) Have Taken Mid-Year Action

These actions come in the face of a worsening fiscal situation and widening budget gaps. More than half (27) report that their Medicaid budget shortfall is even greater than they had projected at the beginning of the fiscal year. The Medicaid spending growth forecast for the year is now an average of 9 percent, almost double their original appropriations for the year and more reflective of actual growth in Medicaid spending for FY 2002. States acknowledge a sluggish economy continues to drive enrollment in Medicaid beyond predictions of six months ago. Nearly halfway through the fiscal year, they predict enrollment will grow at an average 7.7 percent.

State Actions to Reduce Medicaid Spending

When the state responses from KCMU’s December 2002 update are combined with actions reported from the June survey on budget and spending trends, 49 states are taking some Medicaid cost-containment action for FY 2003. Some of the actions they have implemented or are planning include: • Provider payment reductions (37 states), including freezing provider rates or reducing rates or increases;

• Prescription drug cost controls (45 states), including prior authorization, preferred drug lists, monthly prescription limits, new or higher beneficiary copayments, and mandating generics;

• Reducing benefits (25 states), including restricting or eliminating dental coverage, occupational or physical therapy, and inpatient hospital days;

• Eligibility cuts and restrictions (27 states); and

• Increasing beneficiary copayments (17 states), including emergency room, emergency transportation, and physician visits.

In addition, 17 states have planned to or have taken action to reduce spending on long-term care, both in nursing homes and community-based settings.

Limited Options Remain for States

The current state fiscal crisis has entered its third year and the longer the crisis continues, the greater the budgetary pressure will build. As rainy day funds are depleted, deeper program cuts are likely. A new KCMU report by The Urban Institute, The State Fiscal Crisis and Medicaid: Will Health Programs Be Major Budget Targets? Overview (Pub#4073) and Case Studies (Pub#4074) reveals that the seven states studied (California, Colorado, Florida, Michigan, Mississippi, New Jersey, and Washington) have already expended their one time financial sources such as rainy day funds and tobacco settlement money to shore up state budgets and avoid making larger cuts in Medicaid and other large state responsibilities like education.

In previous times of fiscal crisis and the past two years, states have also tried to maximize the federal dollars being drawn down to their Medicaid programs to obtain fiscal relief. However, these options have been curtailed by the federal government and now provide limited results.

In a third new report released by KCMU, researchers from the Cecil G. Sheps Center for Health Services Research at the University of North Carolina, Chapel Hill report on the impact of North Carolina’s decision to freeze enrollment in its State Children’s Health Insurance Program (SCHIP).

North Carolina took the action in 2001 in response to budget problems, becoming the first state in the nation to do so, but other states are considering similar action. The report, The North Carolina Health Choice Enrollment Freeze of 2001 (Pub#4081), finds that over 34,000 children were placed on the waiting list during the freeze, with the majority (60 percent) seeking SCHIP coverage directly after losing Medicaid.

Six focus groups held with parents throughout the state revealed that affected children experienced unmet health needs and problems obtaining medications, and that families experienced financial hardship as a result of the enrollment cap. Today’s released reports are all available by calling the Kaiser Family Foundation’s publications request line at (800) 656-4533 or online at www.kff.org/kcmu You may also find the June 2002 survey results in the report, Medicaid Spending Growth: Results from a 2002 Survey, at http://www.kff.org/content/2002/4064 .

The Kaiser Commission on Medicaid and the Uninsured (KCMU) serves as a policy institute and forum for analyzing health care coverage and access for the low-income population and assessing options for reform. The Commission, begun in 1991, strives to bring increased public awareness and expanded analytic effort to the policy debate over health coverage and access, with a special focus on Medicaid and the uninsured. The Commission is a major initiative of the Henry J. Kaiser Family Foundation and is based at the Foundation’s Washington, DC office. The Henry J. Kaiser Family Foundation is a non-profit, independent national health care philanthropy dedicated to providing information and analysis on health issues to policymakers, the media and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.