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Governors Warn of a 'Double-Dip' Recession Without Medicaid Funds

By Jane Norman, CQ HealthBeat Associate Editor

June 30, 2010 -- A bipartisan group of governors at a Washington news conference Wednesday renewed their plea to Congress to approve special Medicaid funds for their states, warning that layoffs, service cutbacks and a 'double-dip' recession will ensue unless the federal money is plugged into state budgets.

"The consequences on the ground across the country will be devastating," said Michigan Gov. Jennifer M. Granholm, a Democrat. She said that her state—with its 13.7 percent unemployment rate—cannot bear the cutoff of Medicaid money combined with an end to extended federal unemployment benefits.

"Inaction, I think—and economists across the nation agree—will force this nation into a double-dip recession," she said. "Our plea is to beg Congress, particularly the Senate, to find the votes to be able extend these emergency measures."

Democratic Gov. Edward G. Rendell of Pennsylvania said action is needed within the next two weeks because most state budgets for the new fiscal year begin July 1. While Rendell said funding is needed to the "greatest degree possible," he indicated a compromise scaling back the Medicaid funds may be the best hope for cash-strapped states.

"Could we live with that? It would be hard, because every increment means pain, every increment means job losses, none of them makes sense to us," said Rendell. "But sure, I think the key is, there would be action."

The governors did not endorse a specific bill or offsets, though 47 governors signed a letter in February agreeing on the need for the Medicaid funds.

The special federal Medicaid money, matched by state funds, is part of a package of tax breaks and social spending (HR 4213) that has gotten waylaid by objections from the GOP over additional deficit spending. Unhappy Senate Democrats say Republicans only want to kill the measure; Democrats also have, without success, sought the support of moderates in their own party and among Republicans.

The original proposal was for an additional $24.2 billion in Medicaid money, though Democrats have proposed scaling that back.

The temporary increase in federal Medicaid matching funds for states would be a continuation of aid that began with the 2009 economic stimulus, and it would extend through June 2011. Three-fifths of states already have included the anticipated money in their 2011 budgets after the House and Senate approved it, though in separate bills, and the Obama administration gave its support.

Democratic governors have been most prominent at past press events urging passage of the Medicaid funds, but this gathering was marked by the participation of Republicans Arnold Schwarzenegger of California and M. Jodi Rell of Connecticut. Rendell said the event also had the backing of Republicans Sonny Perdue of Georgia, Jan Brewer of Arizona and Chris Christie of New Jersey, though they weren't present.

Schwarzenegger, speaking via a video feed from California, said that "the importance of this extension can't be overstated" and that California already is facing a $20 billion deficit this year. "The cuts I have proposed to close the gap are absolutely devastating. They break my heart," he said.

If the federal money vanishes, the state will face an additional $1.8 billion in reductions, he said. "I urge Congress—Democrats and Republicans—to do the right thing," said Schwarzenegger.

"We are absolutely counting on these funds," said Rell, whose state would get $266 million in extended Medicaid funds if Congress approves. "We have cut in every possible place that we can."

Aides to Senate Finance Chairman Max Baucus said he's attempted for months to push through the extended Medicaid funds and just last week was blocked repeatedly on the Senate floor. Nonetheless, Baucus remains committed to seeing the funds approved, aides said.

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