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Keep the Medicaid Money Flowing, Governors Plead

By Jane Norman, CQ HealthBeat Associate Editor

June 8, 2010 -- Governors appealed to Congress on Wednesday to retain an extension of Medicaid funds proposed in a tax and benefits measure, warning of thousands of layoffs and severe budget pain if Washington ends the special additional payments to states.

Nursing home owners and other providers of health care to the poor and elderly also flooded Congress with pleas as well, arguing that the temporary increase in Medicaid funds — a continuation of aid that began with the 2009 economic stimulus — is needed to keep the country from sliding back into a recession.

The latest version of the tax and benefits bill includes $24.2 billion in Medicaid funds added by Senate leaders after they were stripped out in the House amid complaints from moderate Democrats over the budget deficit. The House passed its version on May 28. Senate leaders unveiled their new, $140 billion version Tuesday.

Senate Majority Leader Harry Reid, D-Nev., said Tuesday that "I think that the House will accept" putting back the special Medicaid funds. But the measure will have to pass the Senate first, where moderate Republicans and even some Democrats are nervous about the bill's overall price tag. While there are some offsets, the overall measure would add $78.7 billion to the deficit.

On a conference call with reporters organized by the liberal-leaning Economic Policy Institute, four Democratic governors said they will have no choice but to slash state spending and jobs if the Medicaid money doesn't survive.

Unlike the federal government, states must balance their budgets.

Christine Gregoire, governor of the state of Washington, said that after both chambers of Congress initially approved the Medicaid funds in earlier versions of the bill, the state legislature in Washington decided it was "appropriate to bank on it" and so the money was factored into the state budget.

Washington was one of 30 states that included the funds in their fiscal 2011 budgets, she said. If the $480 million for her state is revoked, the state would have to reduce medical services for the poor, slash provider reimbursements or make across-the-board layoffs of about 6,400 state employees to account for the loss of revenue, she said. California faces a loss of $1.8 billion, Gregoire said.
"We have made it very clear to our members of the House and Senate it is essential they move now. Time is of the essence," she said.

If approved by Congress the $24.2 billion in Medicaid funds would be matched with state funds in the state-federal program of health care for low-income people. The additional pot of Medicaid money was first extended to states as part of the economic stimulus law in 2009 in reaction to the economic downturn. Those payments end Dec. 31, 2010. The $24.2 billion would extend the added Medicaid funding through June 30, 2011.

Wisconsin Gov. James E. Doyle said the federal Medicaid funds were not included in his state's budget but the failure to provide the money still will put "enormous pressure" on the budget. Wisconsin already has cut its Medicaid spending despite a 26 percent enrollment increase and further cuts would mean layoffs in state government, said Doyle.

Most Medicaid money in Wisconsin goes to nursing homes and rate cuts would result in homes cutting back dramatically or closing, he said. "You would see job losses in communities big and small all across Wisconsin," Doyle said.

Kansas Gov. Mark Parkinson said his state is beginning to come out of the recession but the loss of the Medicaid money would mean "a real possibility" of layoffs. Kansas is another state that included the federal government's $130 million in its state budget. Because 63 percent of the Kansas budget is for education, the main impact would be reductions to education spending resulting in the layoffs of as many as 4,000 teachers, Parkinson said.

Edward G. Rendell, governor of Pennsylvania, said his state would lose $850 million in money already included in its budget and predicted the state would be thrown back into recession. "If we have to deal with the loss of $850 million by layoffs, it would mean 20,000 layoffs," he said. That would include state workers, teachers, university professors, caseworkers, policemen and firemen, Rendell said.

Mark Zandi, chief economist at Moody's Analytics, said the funds are needed to keep the nation's economy afloat. He said that the economic expansion remains "very tentative" while unemployment remains near 10 percent and likely closer to 17 percent when the under-employed are considered. Growth likely won't accelerate by the end of the year, said Zandi.

Intense fiscal pressures on state and local governments thus will be a significant drag on the economy in coming months as well, he said.

State and local governments already have had to cut jobs and that trend would accelerate if they don't get the Medicaid funds and have to tighten their belts again, he said. Medicaid funds are an effective form of stimulus because they go directly to states and then into the economy, Zandi said.

Demands for spending offsets are not realistic, he said. "In an ideal world I think it would be good if this aid were paid for . . . but I don't think paying for it is a necessary condition for passage," he said. The risks are "just too high" to cut off the funds, he said.

On the Hill, more than 400 members of the American Health Care Association and the National Center for Assisted Living, which represents nursing homes and assisted living facilities, paid calls on members of Congress to urge support of the added Medicaid funding. "The eldercare financing crisis at hand cannot be papered-over or pushed to the policy back burner, and Congress must act now," said Bruce Yarwood, president and CEO of the organization.

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