Medicaid threatens budgets of states: governors

WASHINGTON (Reuters) - State governments cannot handle the current costs of Medicaid, and federal requirements to expand the health insurance program for the poor will create “a perfect storm” in state budgets, a coalition of Republican governors said on Friday.

A stethoscope rests on a container of hand sanitizer inside of the doctor's office of One Medical Group in New York March 17, 2010. REUTERS/Lucas Jackson

“Every governor, Republican and Democrat, will face unprecedented budget challenges in the coming months,” the 33 governors and governors-elect said in a letter to congressional leaders and Health Secretary Kathleen Sebelius.

They added that efforts by federal health agencies “to regulate state operations impose greater uncertainty on our budgets for oncoming years.”

Medicaid, which is partially reimbursed by the federal government, is one of the biggest spending pressures for states and can equal up to a third of their budgets. Demand for Medicaid surged as Americans lost jobs and employee-sponsored health insurance as the economy tipped into recession in late 2007.

Although state revenues have recently begun to grow again, they are still suffering from the collapse caused by the financial crisis and longest recession since the Great Depression. Collectively, states forecast a gap of at least $113 billion for the fiscal year that starts for most in July.

Because of certain federal requirements that prevent states from cutting Medicaid, governors and legislatures will have to slash already slim appropriations for education and other programs in order to wipe out those gaps, the governors said.

“Medicaid enrollment is up. Revenues are down. States are unable to afford the current Medicaid program, yet our hands are tied by the ... requirements,” the governors said.

In 2009, 3.69 million people joined the Medicaid rolls in the sharpest annual rise in 40 years, according to the Kaiser Family Foundation.

Growth in Medicaid spending almost doubled, from 4.9 percent in 2008 to 9 percent in 2009, the Centers for Medicare and Medicaid Services said in a report on Wednesday.

The federal government stepped in to help through the $814 billion economic stimulus plan, boosting the reimbursements it makes to states. But states were required to keep their Medicaid enrollment and spending at current levels or lose out on the additional aid.

The federal healthcare law passed last March contained a similar requirement, while making more people eligible to enroll.

Those provisions “prevent states from managing their Medicaid programs for their unique Medicaid populations,” the governors said.

While pushing for passage of the healthcare law last year, President Barack Obama acknowledged that expanding Medicaid would burden state budgets, and so the legislation included measures to help them with the additional costs.

Most notably, the U.S. government will reimburse states by 100 percent for new enrollees in the first few years.

The expansion will not be in full effect until 2014, but states are welcome to begin bringing people into the program and receiving the full reimbursement now.

Newly-empowered Republicans in Congress have begun a campaign to repeal the law, which was intended to provide healthcare for all Americans.

In addition, nearly half of all states are suing the federal government, saying the requirement that all Americans purchase health insurance is an overreach of power.

And some Republican governors are refusing to participate in parts of the plan considered optional, such as the early Medicaid expansion or the creation of exchanges where individuals can buy insurance.

Additional reporting by Susan Heavey; Editing by Leslie Adler