Even before the economic slowdown and the tragic events of Sept. 11, it had become clear that Medicaid was unsustainable in its current form. A comprehensive, thoughtful, fundamental reform of this critical federal-state healthcare program is long overdue.
The combination of Medicaid cost growth and lower-than-projected state revenue has created a situation where Medicaid costs are eating up every spare dollar, leaving no room for increased funding for education or other key priorities. Furthermore, as people have lost jobs during the economic downturn, many have seen their incomes fall below state eligibility thresholds, making them or their families eligible for the program.
As a result, states are unable to afford their current commitments to Medicaid. Across the country, governors are being forced to stretch already tight budgets even thinner, and many are forced to contemplate eligibility and benefits cuts that in previous years were unthinkable.
What's needed is a short-term national fix in the form of additional federal assistance, and a long-term reform of the program.
A look at the scope of the problem explains why the nation's governors are seeking immediate help:
The nation's public insurance program for providing health and long-term-care coverage to low-income children, families, seniors and individuals with disabilities will provide services to more than 44 million Americans at a total cost of $245 billion this year. The program accounts for an average of 20% of state budgets and is growing at double-digit rates. Next to education, Medicaid is the largest expenditure in state budgets. Growth that large in a program that size is unsustainable even in a good economy, and is a financial time bomb when states are struggling mightily to balance their budgets.
The rising cost of healthcare coverage is already squeezing out millions of families and small businesses. The growing cost of prescription drugs and long-term care is already threatening to overwhelm public and private insurance programs. Medicare payment cuts are already threatening the financial health of hospitals, home health agencies and other providers. On top of these growing concerns, any reduction in support to Medicaid would be devastating and would jeopardize benefits, eligibility and payment rates.
The Urban Institute estimates that a moderate increase in unemployment to 6.5% will result in adding more than 3 million people to Medicaid rolls, requiring almost $6 billion in new state spending alone. That's not sustainable given our current fiscal situation.
As the latest forecasts arrive, some states are now entering their second and even third rounds of budget cuts. To make matters worse, state revenues lag the national economic turnaround by a year or more. That means despite good economic news, even tighter budgets will prevail for the foreseeable future.
Some states are taking measures such as freezing the Medicaid budget, which ultimately will force the elimination of optional benefits and the exclusion of optional populations. Other states are forced to make enormous cuts in other priority programs, such as education, to keep Medicaid whole.
With Medicaid in crisis and eating up all available state resources, states are in no position to address the other healthcare challenge-finding ways to provide coverage to the 40 million uninsured Americans. In fact, the combination of the state economic situation with the Medicaid cuts that states are forced to consider will probably increase the number of uninsured.
State governments must have balanced budgets, which leaves them in the position of either cutting non-Medicaid programs such as education, slashing Medicaid or sharply increasing taxes.
To address this crisis, the National Governors Association has backed legislation introduced in the U.S. Senate by Ben Nelson (D-Neb.) and Susan Collins (R-Maine) to increase federal assistance in these difficult economic times. The bill, based on NGA policy, would provide a temporary increase in the federal share of the program, a temporary grant to states to help meet a variety of health and social services needs, and a hold-harmless provision that would protect states from having their federal match decrease.
The provisions will help compensate states for projected losses in tax revenue. In addition, immediate financial assistance would alleviate the fiscal pressures that are forcing many states to make drastic cuts to benefits and eligibility in the program now. They also will help states absorb the enormous burden that the recession will place on Medicaid and other critical state safety-net programs.
However, this is only a short-term solution to the immediate crisis. That's why the governors also have called for the creation of a bipartisan Medicaid Commission to examine the program's structure and the capability of state budgets to support it in the future. Of particular interest will be discussions of long-term care and the extent to which Medicaid is increasingly responsible for the costs of individuals who are also eligible for Medicare. In fact, one-third of Medicaid spending goes to people who are also eligible for Medicare.
As the costs of prescription drugs, long-term care and medical technology increase, and as the baby boom generation ages, this will place a greater burden on state budgets-a burden that must be shared fairly by Washington.