Most states began new fiscal years last week, and many did so with budgets that could be derailed within months by the end of federal Medicaid relief to help states ride out the recession. That could leave states with gaps that could prompt cuts to healthcare services or provider payments, said governors and healthcare officials.
States start to squirm
Without federal help, states warn deficits will grow
In Washington, governors pleaded for Congress to extend through June 30, 2011, relief that was included in the 2009 economic stimulus law that increased the federal share of financing for Medicaid, which is jointly paid for by states and the federal government. The assistance, calculated using what's called Federal Medical Assistance Percentages, is expected to pour $87 billion into states through December, when it expires, and an extension could provide states with up to $25 billion more.
But an increasingly deficit-wary Congress has rejected recent legislation to continue the aid, even after wrangling to scale back the relief, which has prompted increasingly urgent lobbying from states and hospitals.
“The federal money is critical to preventing deeper pain and deeper job losses,” said California Gov. Arnold Schwarzenegger, one of 10 governors who argued for the extension at a Washington news conference last week. Schwarzenegger said the FMAP aid, if lost, would add $1.8 billion to the state's deficit. California lawmakers failed to close the state's $19 billion budget gap before the fiscal year began last week.
Michigan Gov. Jennifer Granholm said 29 states have included revenue from the stimulus extension in 2011 budgets, including Michigan, which stands to lose $560 million without continued relief.
The American Hospital Association and a coalition of other trade groups are urging members to travel to Washington in mid-July to press Congress to continue the Medicaid aid, as well as change proposed health information technology and inpatient payment rules.
States have seen demand for Medicaid surge and budgets contract sharply as the economic downturn accelerated. During the 12 months prior to July 2008, roughly 1.3 million people signed on for the safety net insurance, and Medicaid rolls added another 3.3 million people in the year that followed, according to the Kaiser Commission on Medicaid and the Uninsured.
In South Carolina, the Legislature carved out $213 million largely from health, social service and education budgets to be funded only if Congress agreed to continue the relief—including $170 million in Medicaid spending. But the state's governor swiftly vetoed the spending and sharply criticized the Legislature for funding critical services with uncertain revenue. “The bottom line is that we have no reason to believe we will receive additional FMAP funds, and it would be reckless for us to include this money in our budget,” Gov. Mark Sanford wrote. South Carolina's Legislature failed to override the veto.
Allan Stalvey, a lobbyist for the South Carolina Hospital Association, said a newly enacted cigarette tax increase is projected to raise $120 million that could be used to offset lost Medicaid funding if Congress does not extend the stimulus aid. But hospitals could face increased demand and expenses as a result of other spending vetoed by Sanford, including $600,000 for prescription drug relief and $200,000 for HIV prevention, Stalvey said.
Kentucky hospitals have begun drafting contingency budget proposals for a meeting scheduled in coming weeks with the state's secretary for health and family services, said Michael Rust, president of the state hospital association. Kentucky included $238 million from the proposed relief in its budget. Rust declined to say what proposals are under development because they have not been completed.
North Carolina plugged its budget gap for the year that began last week with $519 million the state would receive should Congress continue the Medicaid stimulus relief.
Without the six-month extension of federal aid, the budget is expected to shave Medicaid payments by $26 million, said Don Dalton, a spokesman for the North Carolina Hospital Association. That follows the prior year's cut, which squeezed hospital rates by 3%.
With a projected $3 billion gap in North Carolina's 2012 budget, hospitals continue to lobby for the relief that no longer seems as likely as once believed. “There has continued to be, if not optimism, then hope,” Dalton said.
Connecticut plugged its budget with $266 million from the anticipated relief. “We are absolutely counting on these funds,” said Gov. Jodi Rell, who defended the decision in light of prior passage of separate bills in the House and Senate. “This isn't like in blind faith that we decided to count on these dollars.” Rell said funding for Alzheimer's and hospice care could be eliminated without needed funding.
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