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With Stimulus Funds Gone, States Brace for Increased Medicaid Spending With Stimulus Funds Gone, States Brace for Increased Medicaid Spending

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With Stimulus Funds Gone, States Brace for Increased Medicaid Spending

Nearly every state moved to cut Medicaid costs this fiscal year because of budget pressures and the loss of federal stimulus funds, according to a Kaiser Family Foundation report released on Thursday.

Stimulus spending cushioned states from Medicaid expenditures in 2009 and 2010 -- making those two years the only period in the program’s history when state Medicaid spending did not rise. With stimulus funds gone, state spending on Medicaid is expected to increase by an average of 28.7 percent in the next fiscal year, the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured found.


“Medicaid officials in over half the states reported a 50-50 chance of a Medicaid budget shortfall, and almost one-quarter indicated a Medicaid budget shortfall was almost certain for FY 2012,” the report noted. Medicaid consumes about 16 percent of state general spending.  

Possible Medicaid cuts coming out of Congress’s deficit-reduction super committee may put additional pressure on state Medicaid budgets, the report said.

Spending on the program has increased at a steady annual clip of around 7 percent for the past three years, Health Management Associates Principal Vernon Smith told reporters on a conference call. But state lawmakers projected only a 2.2 percent increase in total Medicaid spending for fiscal year 2012. With states already scrambling to fill the budget shortfall left by the lost stimulus dollars, the last thing they want to absorb is a large increase in spending for the next fiscal year.


States used a number of tools to trim their Medicaid  budgets. They mostly cut the rates paid to providers such as doctors and nursing homes, “with 39 states restricting rates in 2011 and 46 reporting plans to do so in 2012," Kaiser said in a statement. States also imposed new and higher co-payments on patients, tried to lower the cost of prescription drugs, and reduced optional benefits such as dental services for adults.

One big trend: the move away from institutionalized care and toward less-expensive managed-care programs. “States look at managed care as an opportunity to hold health providers accountable for some of the most important objectives of the Medicaid program—namely, access and quality,” Smith said.

Another trend was innovation. States are already exploring some ideas that federal lawmakers have suggested for reducing entitlement spending -- such as coordinating care for dual eligibles, the expensive patients who qualify for both Medicaid and Medicare assistance. States “can innovate. They can change a lot quicker than the federal government,” Brookings Institution Fellow Tracy Gordon told reporters on the same conference call.

Despite budget pressures, states must also prepare for the expansion of Medicaid services under 2010’s health care reform law. Although it requires the federal government to cover the initial cost of expanding Medicaid enrollment, state officials told Kaiser researchers they worry that they lack the staff and resources to effectively expand their Medicaid programs and comply with new federal requirements.


The report, conducted with Health Management Associates, combined a written survey with follow-up phone interviews of Medicaid officials in all 50 states and the District of Columbia.

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