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States Held Back on Medicaid Cuts in 2010, but Reductions May Be in the Future

By Rebecca Adams, CQ HealthBeat Associate Editor

January 11, 2011 -- With a little more help than usual from the federal government, states maintained or expanded eligibility and enrollment for Medicaid and their Children's Health Insurance Programs in 2010, despite the economic downturn, according to a new Kaiser Family Foundation survey. But the picture may not be so stable going forward.

Governors have complained that they cannot afford to hold their Medicaid coverage steady because state revenues have fallen as demand for Medicaid rose during the recession and its aftermath. However, the 2009 stimulus law (PL 111-5) gave states extra funding if they maintained eligibility standards and enrollment procedures. The health care law (PL 111-148, PL 111-152) later expanded those requirements to CHIP. As a result, state officials that might have considered tightening eligibility or making it harder for people to enroll have not done so, despite the financial pressures.

But governors say that when the stimulus funding runs out in June, when many state fiscal years end, they won't be able to avoid significant Medicaid cuts. Last week, 33 current or departing GOP governors asked the Obama administration and congressional leaders to enact new legislation to lift the maintenance of effort (MOE) requirements, which they called "unconscionable" because "the federal requirements force Governors to cut other critical state programs, such as education, in order to fund a 'one-size-fits-all' approach to Medicaid."

Director of the Center for Medicaid and State Operations Cindy Mann, who oversees Medicaid and CHIP, told reporters in a conference call that there is an "ongoing discussion and efforts [are] underway to address the very real pressures that states are feeling."

The Kaiser report indicates that Arizona and New Jersey did cut coverage last year, but they did so in ways that did not run afoul of the law. Arizona capped enrollment in its CHIP program and New Jersey stopped enrolling parents covered through a CHIP waiver. The changes took effect before the health care law expanded the rules to CHIP.

A total of 13 states expanded eligibility in 2010, mostly for children, the Kaiser report found. Another 14 states simplified and streamlined enrollment and renewal procedures, through such techniques as presumptive eligibility for pregnant women and children and 12-month renewals.

The MOE rules were expanded by the health care law. They now require states to maintain their eligibility standards for children that were in place on March 23, 2010 until Oct. 1, 2019. For adults the new standard will hold until state exchange markets launch, which is expected in 2014. The health care law will expand Medicaid significantly and allow some uninsured people who wouldn't be eligible for Medicaid because they earn too much to get insurance through the new exchanges.

The law does provide a way for states to get out of the maintenance of effort rules. If a state certifies that it faces a budget deficit, it can shake off the requirements for childless adults who are not pregnant or disabled if they earn more than 133 percent of the federal poverty limit. The rules also do not apply to benefit changes or provider payments. States, therefore, could save money by scaling back the benefits they added to the core Medicaid program when times were better.

Tricia Brooks, senior fellow at the Georgetown University Center for Children and Families, said that while the tough economy makes budgeting difficult for governors, it is "even harder for families that are struggling with finding a new job or paying the bills." She said that what governors are really advocating is taking coverage away from children who need it.

Mann encouraged state officials to investigate opportunities to get additional funds from the federal government. She noted that the CMS distributed $200 million in performance bonuses in 2010, more than double the awards in 2009—which could be another reason why some states improved their programs in 2010. The federal government has two sets of performance goals that states must meet to qualify for a bonus. States must take steps to streamline their enrollment and renewal processes to make it easier for families with eligible kids to get coverage and must document a significant increase in the number of children enrolled in Medicaid.

Other ways for state officials to get more federal dollars include fees on providers, which can draw down additional federal revenues when states contribute more funding; new grant programs, including those funded by the Center for Medicare and Medicaid Innovation (CMI); and higher federal matching rates for care coordination. One CMI project that is currently taking applications will award up to $1 million each for up to 15 states who have innovative ideas about delivering care to people who are eligible both for Medicare and for Medicaid. Applications are due Feb. 1.

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