Governors to bring Medicaid fight to Washington

WASHINGTON Fri Jun 25, 2010 3:59pm EDT

WASHINGTON (Reuters) - Desperate U.S. states are preparing to bring the fight for financial help to the Congress as early as Monday after the Senate rejected their pleas for assistance in paying for Medicaid.

Late on Thursday, a bill that would have sent billions of dollars to states to help them cover the costs of Medicaid, the healthcare program for the poor, failed in the U.S. Senate.

By Friday morning, governors were planning to come to the nation's capital to tell lawmakers that without the money, they will have to slash already lean budgets for fiscal 2011, which for most states begins in a week.

"For Michigan and for states across the country this is devastating," said Michigan Governor Jennifer Granholm, a Democrat, in a conference call with reporters.

She noted that 30 states, including some with Republican governors, have assumed the increased Medicaid funding in their fiscal 2011 budgets.

Soon, governors will "in person start giving the message that this will be disastrous for the recovery," said Pennsylvania Governor Edward Rendell, a Democrat. A group of governors is trying to schedule a press conference in Washington on Monday, he said.

"I am still pretty optimistic that we will get our message heard and this will be passed in a jobs bill or, at the latest, the President will include it in his budget, which goes into effect October 1," Rendell said.

With the recession that began in 2007 continuing to grind on state revenue, most will lay off thousands of workers to balance their budgets.

Unlike the U.S. government, states cannot run deficits. They have already cut spending and there is little appetite to raise taxes, according to National Governors Association Executive Director Raymond Scheppach.

Rendell said that without the Medicaid money, his state will lay off upward of 20,000 workers in July. He is still negotiating Pennsylvania's budget with the state legislature.

Last year's economic stimulus plan increased federal payments to states for Medicaid by 6.2 percent through December, with extra money going to those with especially high unemployment. States had asked for a six-month extension of the aid, at a cost of about $24 billion. The Senate bill continued the aid through June 2011, but gradually lowered the increase to 1.2 percent.

On average Medicaid, which is administered by the states with partial reimbursements from the federal government, takes up 20 percent of state budgets. That proportion swells during recessions as job lay-offs push more people to seek government-subsidized healthcare, just as state tax revenue to pay for the program drops off.

For Michigan, where the fiscal year begins October 1, the absence of enhanced Medicaid funding will put a new hole of more than $500 million in the budget, according to Granholm.

New York will lose out on $2 billion, according to the state's governor, David Paterson, a Democrat.

"While I understand and support the desire to restrain and pay for federal spending, cutting funding for mandatory safety net programs during the worst economic downturn since the Great Depression will have devastating consequences," he said in a statement.

(Additional reporting by Karen Pierog in Chicago; Editing by Dan Grebler)