New Medicaid study warns of worsening state fiscal health

A new state Medicaid survey finds that national unemployment and increasing pressure on public benefits – like Medicaid – have left states in a financial lurch.

In its report, “State Fiscal Conditions and Medicaid”, the Kaiser Family Foundation, a healthcare policy think tank, has found that the Medicaid spending growth rate in FY 2009 averaged 7.9% – higher than originally predicted and the highest rate of growth in six years. Medicaid enrollment, meanwhile, averaged 5.4% with an additional 6.6% growth rate expected in FY 2010. According to the report, three-fourths of Medicaid officials believed there was a 50% chance that initial funding for 2010 would be insufficient.

All of this occurring as state revenues plunge. The Census Bureau released figures on Tuesday finding that tax revenues fell 17% from a year earlier, which was the sharpest decline since at least the 1960s. “This brings really bad news for almost every single state and leaves them with unprecedented budget crises,” said Lucy Dadayan, a senior policy analyst with the Nelson A. Rockefeller Institute of Government at the State University of New York, in an interview with the Wall Street Journal. And despite early signs the recession is waning, economists don’t believe state revenues will bounce back anytime soon. “The decline in tax revenue collections indicates that states will likely continue facing weak tax revenues for the quarters ahead,” the Rockefeller Institute’s Ms. Dadayan continued.

The recession has revealed the kinds of, “challenges for states of maintaining coverage when state revenues drop during times of economic crisis,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and the Kaiser Commission on Medicaid and the Uninsured. The Medicaid report also found that for every 1% increase in national unemployment figures, a 1% increase in Medicaid and CHIP enrollment; 1.1% increase in uninsured; and a 3-4% decline in state revenues can be expected.

But the American Recovery and Reinvestment Act has sheltered many states from what would otherwise be a disastrous picture, the report shows. With an estimated $87 billion for a temporary increase in the federal share of Medicaid costs from October 2008 through December 2010. These funds reached states quickly, and they were used to address both overall state budget and Medicaid budget shortfalls, the report stated. Cuts to providers, benefits and eligibility, were also avoided, with ARRA funds reversing decisions in more than 20 states to restrict eligibility.

The report warns, though, if more substantial reforms are not made to Medicaid there is concern the economy will not be fully recovered when the stimulus funds expire in 2011.

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