Healthcare could stretch states' budgets: Moody's

WASHINGTON (Reuters) - While the U.S. healthcare overhaul law passed last month included help for states to cover some costs of making sure all Americans have health insurance, in the long term some states may find their budgets stretched, Moody’s Investors Services said on Tuesday.

The burdens could be even greater if the recovery from the recession that began in 2007 is slow or mild, which could leave states strapped to pay for their current responsibilities, let alone the expanded healthcare demands, Moody’s said.

The plan made more people eligible for Medicaid, the program for the poor that is administered by states and the U.S. government and which eats up large parts of states’ budgets. The federal government is responsible for 100 percent of covering the newly eligible through 2016 and after that will lower the rate to 90 percent.

“However, states will not receive additional support to cover those who are currently eligible for, but not served by, Medicaid, and these expenses could hit state budgets as early as 2014,” Moody’s said in a special report.

The short-term 100 percent coverage gives states some “breathing room,” Moody’s said.

“Over the longer term, we expect these costs to become financially burdensome to states,” Moody’s said. “States may also face higher administrative costs that come with increased coverage.”

At a recent Washington meeting of the National Conference of State Legislatures, state policy-makers worried that the U.S. government had not provided extra staffing money or funds for systems to accommodate the swell of new Medicaid enrollees.

Moody’s said there were areas outside of Medicaid that may put pressure on states’ budgets as well.

The U.S. government has asked states to create special “exchanges,” where those who are not qualified for Medicaid and who also do not receive health insurance from their employers can buy their own healthcare policies.

Creating and regulating the exchanges, as well as enforcing the law’s requirement that all individuals have insurance could also create costs, Moody’s said.

Medicaid already represents an average of 20 percent of total state spending, said Moody’s. In the recession, more people applied to the program and states were able to absorb some costs through a one-time boost in federal funds from the stimulus plan passed last year.

“If revenue recovery is slow, states will have a hard time replacing the one-time federal revenues to maintain their Medicaid programs,” Moody’s said. “Given the uncertainty of the strength and timing of the economic recovery ... many states will be challenged to accommodate the healthcare reform provisions.”

Reporting by Lisa Lambert; Editing by Kenneth Barry