States may cut health care

Loss of subsidy in June will hurt some programs

Cost of Medicaid soaring

No action in Congress to renew $10 billion in aid

January 29, 2004|By Cyril T. Zaneski | Cyril T. Zaneski,SUN STAFF

WASHINGTON - Poor and disabled Americans face a possible reduction in health care programs in cash-strapped states this year when a one-time federal subsidy for the Medicaid program expires, according to a survey released yesterday by a nonpartisan study commission.

The $10 billion subsidy that Congress authorized last spring raised the federal match of Medicaid funding by less than 3 percent, but that was enough to enable many states to postpone planned cuts or freezes in the health care programs of last resort for about 50 million people nationwide, the Kaiser Commission on Medicaid and the Uninsured survey revealed.

With no plans afoot on Capitol Hill to renew the Medicaid subsidy, there is "concern bordering on anxiety" about the fraying health care safety net in the states that rely most heavily on federal aid, said Vernon Smith, a former Michigan Medicaid director whose research firm, Health Management Associates, conducted the survey for the commission.

Maryland got a roughly $153 million boost from the one-time subsidy, which raised the federal match to about 53 percent of the state's $4.5 billion Medicaid program. That helped patch a $30 million to $40 million deficit last year and cover expected shortfalls this fiscal year, said John Folkemer, director of planning and finance for the Maryland Department of Health and Mental Hygiene.

"If we had not had that additional match, we would have had to have program cuts or a deficit appropriation," Folkemer said. Given the state's other budget woes, he said, some program cuts were likely.

States have struggled in the past four years to meet the soaring cost of Medicaid programs. Medicaid spending rose 11.9 percent nationally from 2000 to 2002, as the economic slump was eroding states' tax revenues, according to two related studies that the commission also released yesterday.

Medicaid spending has been rising at about 9 percent a year in Maryland, Folkemer said.

Though the national economic outlook has begun improving, states will have long-term budget problems as they struggle to recover from their worst fiscal crisis in more than 50 years, one of those studies, conducted by the Nelson Rockefeller Institute of Government and the Kaiser Commission, found.

The crisis will continue because one-time, temporary sources of revenue - bonds, tobacco settlement revenues and reserve funds - have been exhausted and high unemployment rates continue to sap states' income tax revenue.

"States are trying to climb out of a deep hole, but all they have is a stepstool to stand on," said Victoria Wachino, the commission's associate director.

Congress provided help for the states in May as part of President Bush's tax-cut package. The Jobs and Growth Tax Relief Reconciliation Act of 2003 included a $10 billion temporary increase in the federal share of the health care program's cost, increasing federal matching funds to each state by 2.95 percent.

The base federal reimbursement rate varies by state, ranging from 50 percent in Maryland and eight other states to 77 percent in Mississippi.

As a condition for receiving the additional federal aid, each state had to agree not to cut eligibility for Medicaid programs. The Medicaid subsidy applied for the last two quarters of federal fiscal 2003 and the first three quarters of fiscal 2004. It expires June 30.

"If it is not extended, there will be consequences to the program," Smith said. "There will be cuts. There will be very difficult conditions in [fiscal] 2005."

All states have taken measures in the past two years to limit Medicaid program spending. Those efforts have slowed the growth in Medicaid spending nationally from 11.9 percent to about 8.2 percent projected for this year, according to the second study released yesterday, by the Urban Institute.

Maryland, for example, has begun limiting increases in payments to pharmacists, medical day care centers and managed care organizations; is developing a list of preferred drugs; and has changed co-payments required on prescriptions to encourage greater use of generic drugs.

But states have found that deep cost cuts in Medicaid is difficult.

"This is the program for people without other options," Smith said.

What Md. is doing to cut Medicaid costs

Reducing increases in payments to pharmacists, managed care organizations and medical day care centers

Limiting access to some higher-priced drugs

Setting up schedules to reduce the length of hospital stays

Increasing pharmacy co-pays from $1 to $2 for brand-name drugs

Taking steps to reduce fraud and abuse

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