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Most States Cutting Medicaid Spending

By Rebecca Adams, CQ HealthBeat Associate Editor

October 27, 2011 -- Medicaid officials in states throughout the nation are cutting medical providers' payments, turning more to managed care strategies and pushing some costs on to patients in order to compensate for the biggest one-year increase in spending in the program's history, according to a new report released Thursday by the Kaiser Commission on Medicaid and the Uninsured.

The dramatic spike in Medicaid costs to states is due in part to the loss of extra federal funding that had postponed the pain for a few years. The 2009 stimulus law (PL 111-5) contained nearly $90 billion in additional Medicaid money but those funds expired at the end of June, when the fiscal 2012 year was starting in most states. As a result, state spending is jumping 28.7 percent in fiscal 2012, after rising 10.8 percent last year. When the bonus federal funds were first available, the state share of spending had fallen for two consecutive years, which had never happened before.

As the federal funds evaporated, state revenues were still below the levels that they had been before the recession. States faced budget shortfalls totaling at least $149 billion for fiscal 2012 through fiscal 2013, according to the report. Already, states had filled budget gaps of $430 billion in fiscal years 2009-2011.

Medicaid enrollment, which surges when people lose their jobs and health coverage, is higher than it had been before the recession although some Medicaid directors reported that the growth was beginning to wane. Enrollment is expected to rise about 4.1 percent in fiscal 2012, compared to 5.5 percent in 2011 and 7.2 percent the year before.

To cope with the difficult fiscal climate, state officials are cutting spending as much as possible. The report found that in fiscal 2012:

  • Forty-six states have cut rates for some providers in fiscal 2012, after 39 states took similar action in fiscal 2011. About 28 states have raised payments to specific providers. But study author Vern Smith that the payment cuts tend to be broad while the increases typically are narrow boosts to a small range of providers. Hospitals were particularly hard hit, with 40 states lowering inpatient rates in fiscal 2012.
  • Twenty-four states expanded the use of managed care plans or techniques used by health plans, after 17 took similar steps in fiscal 2011.
  • Fourteen states shifted their costs to patients by raising or adding co-payments, after five states did so in fiscal 2011.

The study, the 11th annual report produced by the commission, is based on survey results from Medicaid directors throughout the country. Surveys were conducted in July and August. Valerie J. Harr, director of the Division of Medical Assistance and Health Services in the New Jersey Department of Human Services, praised the report as the most thorough one she had seen.

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