Cash-Strapped States Plan to Cut Medicaid

WASHINGTON -- Every state except Alabama has cut or plans to cut Medicaid health-care benefits for the poor this fiscal year as part of efforts to balance state budgets as revenue plummets.

From limiting services at nursing homes to rejecting children who would have been accepted last year, the states are choosing a variety of ways to squeeze money out of the fast-growing program, the Kaiser Commission on Medicaid and the Uninsured said in a report issued Monday.

The latest report followed closely behind a survey taken at the beginning of fiscal year 2003 that found cuts planned in 44 states.

At the middle of the budget year, 32 of those states had decided that they needed to cut deeper and five other states had joined their ranks. The District of Columbia is also making reductions.

“Halfway through the fiscal year, states are even more pressed than they thought they would be, and many are taking additional action to cut Medicaid spending,” said Diane Rowland, executive director of the commission, an offshoot of the Henry J. Kaiser Family Foundation.

Plans could change as state legislatures meet. But states are required by their constitutions to balance their budgets, Rowland said, and so they have to cut somewhere.

Medicaid is a tempting target, the report shows. Not only does it account for 15% of an average state’s budget, but its beneficiaries tend to be poor children and elderly nursing-home residents, who have little political influence. And with health-care inflation in double digits, Medicaid costs are rising fast.

Rowland said that three consecutive years of state budget cuts had drained rainy-day funds and left states with few options.

However, “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,” Rowland said.

California and other states have appealed to the federal government to cover a larger percentage of the federal-state program, which serves 42 million Americans. But last year, the House bottled up a measure easily passed by the Senate that would have given states some relief.

States could opt to increase taxes to pay for the programs, but that does not appear likely.

“We’re currently in an era when raising taxes is not a popular option,” Rowland said.

The planned reductions will likely be particularly painful in these tough economic times, when more people qualify for the programs. States projected that the enrollment would increase 7.7% this fiscal year.

So if the cuts go forward as predicted, there will be fewer dollars to cover the needs of more people.

The report reflects responses from a survey sent to states in December questioning them about their Medicaid plans.

Forty-five states said they had reduced prescription drug benefits or expected to do so. Some had already reduced payments to pharmacies and health providers, required the use of generic drugs, increased the prescription co-payment or limited the number of prescriptions per month.

Twenty-five states said they had reduced acute-care benefits and 17 states increased co-payments for medical services.

Nineteen states said they had reduced or plan to reduce long-term care benefits by lowering payments to nursing homes or raising the criteria for applicants for home-based care.

Twenty-seven states said they had restricted eligibility for their program or planned to do so. Some states abolished their program for people who qualified under the exception for medically needy people. Others raised the eligibility requirements for adults with children. In California, Gov. Gray Davis has proposed dropping the threshold for coverage from about 100% of the poverty level to 61% or less, according to the report.

Rowland said that despite the cuts, benefits for children nationwide remained higher than they were before 1997, when the federal government increased health-care funding for low-income children.

So far, California recipients have experienced fewer cuts in benefits than those in many other states.

California faces deep budget challenges because the state cut many fees and taxes during the 1990s, when revenue from taxes on capital gains and stock options kept the state’s coffers full.

With a decline in those revenue sources, the state ended up with a $34.8-billion budget gap.