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Budget Shortfalls Drive Medicaid Discussions in a Few States

By Marissa Evans, CQ Roll Call

August 31, 2016 -- Despite ongoing contempt for the federal health law in some of the Medicaid expansion holdout states, lawmakers in a few of the states have started considering broader eligibility as they face gaping billion-dollar holes in their budgets.

In Virginia, Democratic Gov. Terry McAuliffe and his Republican-majority legislature are facing the prospect of filling a $1.2 billion budget hole when the session starts in January. While McAuliffe's Medicaid expansion hopes have been dismissed three years in a row, he continues to press for changes. He said in a speech on Aug. 26 that the $7.95 billion in federal funds "are dollars that we can never get back."

"We could soften this budget shortfall significantly if Virginia agrees to expand Medicaid and accept federal dollars that remain on the table waiting for our decision," McAuliffe said. "Those funds would go a long way in relieving some of the difficult budget actions that lie ahead."

McAuliffe is the latest governor in recent months to point to opening up eligibility for the joint federal-state health insurance program for the poor and disabled as a path to fiscal salvation. As state budgets continue to erode, even some of the most conservative lawmakers are softening long-held criticism of the federal health law to give expansion another look.

Alabama Gov. Robert Bentley, a Republican, has mulled how to convince his state legislature in recent months to take up expansion, a move that could bring the state $1.2 billion into the state's economy. The legislature recently walked away after denying the governor's request to have a vote for a state lottery in November. The state's Medicaid program is now dealing with an $85 million shortfall and grappling with how to adequately serve its one million beneficiaries.

"It was a vote against those children, those half a million children in poverty today because their health insurance is being jeopardized by the fact that the legislature did not take up this bill," Bentley said in an Aug. 26 speech. "They looked those children in the eye today and they said, 'I'm not going to do anything to fund your health insurance.'"

The Affordable Care Act allows states to expand Medicaid to individuals with incomes up to 138 percent of the poverty level. Starting in 2017, states will have to start chipping in 5 percent of the costs and by 2020, 10 percent of costs. Thirty-one states and the District of Columbia have taken up expansion.

Besides Alabama and Virginia, lawmakers in Georgia, Louisiana, Oklahoma, and Wyoming have considered Medicaid expansion for help with budget woes. However, chances are low that any of the remaining states will be able to strike a deal with federal officials before the Obama administration ends.

"An increased number of people are starting to say let's get real about this and let's have some conversation," said Matt Salo, executive director for the National Association of Medicaid Directors. "It's also setting the stage because there's only about three or four months left in the current administration and so it's unlikely the states are going to get an expansion finalized in the next three months."

While Republicans still predict unforeseeable costs with expansion and warn that the federal government could dial back support more after 2020, many states that have expanded are experiencing gains.

Expansion states have been able to shift more costly patients, including patients living with a disability and low-income pregnant women, from state to federal spending responsibilities, according to Stan Dorn, a senior fellow with the Urban Institute. States have also been able to restore substance abuse and addiction programs for beneficiaries, thanks to the new wave of federal funding under expansion.

John Hick, executive director for the National Association of State Budget Officers, said in an interview that many lawmakers from across the political spectrum can see there are some benefits to expansion. He points to states being able to spend less of their own money on the Medicaid program.

"The rationale in general for adopting expansion are more for health care reasons but there are some perceived economic benefits in the short run," Hick said.

Politically, the current post-primary season is a more opportune time to express interest in Medicaid expansion, said Salo. Saving face in front of more die-hard voters in the primary has been key for some lawmakers who are now considering expansion.

"For the past several years, there's always been a court case or election at the national or state level where you could conceivably say, 'Let's hold off on making a decision because the landscape could change six months from now,'" Salo said.


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