Study: Medicaid is mounting strain on state budgets

Medicaid’s burden on the states is swelling rapidly, leaving them scrambling for ways to make cuts.

States are heading into 2012 saddled from all sides with more responsibility for Medicaid, according to a new report from the Kaiser Family Foundation. And states are facing that strain just as the congressional supercommittee is looking to further reduce federal health spending, potentially including Medicaid cuts that could shift even more costs to the states.

The biggest pressure on state spending comes from the federal government. The stimulus provided a temporary increase in the federal government’s share of Medicaid funding, but that boost expired this year. States are expected to spend 28 percent more on Medicaid next year to make up for the lost federal funding, according to the Kaiser report.

It’s “by far the largest increase” in state spending in the history of Medicaid, said Vern Smith, a principal at Health Management Associates.

The increased federal match is expiring while enrollment continues to grow. Because Medicaid primarily serves low-income people, more people are eligible for the program during times of high unemployment. But high unemployment also strains the tax revenues that pay for Medicaid.

“Enrollment growth is directly related to changes in the economy,” Smith said.

States have responded to the mounting fiscal pressures with a variety of Medicaid cuts. The most common tool is direct cuts in doctors’ payments — 39 states cut providers’ rates this year and 46 plan to next year, the Kaiser report says. States are also dropping or restricting certain benefits and requiring patients to pay more out-of-pocket.

The healthcare reform law significantly expands Medicaid, beginning in 2014, and it prevents states from cutting eligibility standards in the interim. The federal government will temporarily cover the full cost of the new enrollees.

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