Medicaid bears brunt of states' budget crunch

Low-income Americans, beware.

Facing budget deficits, two of the nation's most populous states, California and New York, are proposing changes in Medicaid that could affect the eligibility of hundreds of thousands of people or decrease funding for hospitals, doctors, dentists, and pharmacists.

Last month, California cut reimbursements to providers by 10 percent. With the legislature deadlocked over the budget, some healthcare facilities are now close to bankruptcy since no money is flowing to providers.

Other states are tacking on fees or cutting funds for charity care in hospitals. And, as more states face falling tax revenues, there could be more cuts by this fall.

"Medicaid is very much in jeopardy," says Iris Lav, deputy director at the Center on Budget and Policy Priorities in Washington.

The last time states were forced to cut Medicaid programs was after the 2001-02 recession when unemployment was high and tax revenues weak. At the same time, enrollment in Medicaid soared – rising 11 percent between 2000 and 2002 and another 7 percent in 2003. In 2006, the latest numbers available, spending on Medicaid hit $304 billion, up 48 percent from 2000.

One in 5 Americans is covered by Medicaid.

"This is a recurring problem states have during every recession," says Stephen Zuckerman, a healthcare economist at the Urban Institute in Washington. "Last time, Congress allocated more money."

This time, however, it might be more difficult to get federal aid, says Dan Hawkins, policy director for the National Association of Community Health Centers in Washington.

"There is good support for fiscal relief by several key members of Congress such as Rep. John Dingell (D) of Michigan," says Mr. Hawkins, who has watched the healthcare debate for 35 years. "But it all depends on whether Congress does a second fiscal stimulus package, and that is looking increasingly doubtful with President Bush saying he would veto any more fiscal stimulus."

When state lawmakers look at their budgets, the two largest expenditures are education and Medicaid. On average, states pay 43 percent of Medicaid costs, the rest picked up by Washington. However, solons are often loath to cut education funding, especially during the school year.

Instead, they start to look at healthcare.

"There is more flexibility in Medicaid than education," says Ann Kohler, director of the National Association of State Medicaid Directors in Washington. D.C. "You can define who to cover and how to set rates."

California's case

That's what is happening in California. In February, the state facing a growing budget deficit, announced a 10 percent cut in payments to providers, such as hospitals, doctors, and dentists. The cuts went into effect on July 1.

"Many doctors were forced to stop seeing new medical patients or in some cases existing ones," says Ned Wigglesworth, a spokesman for California Medical Association in Sacramento. "The reimbursement rate for a regular 15 minute visit was $24, which is below the cost of providing care," he says. "Now, it's gone to $21.60."

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