The confluence of a weak economy, years of budget cuts, and mounting fiscal pressure has caught up with the nation's governors, forcing them to make life-or-death decisions over their state budgets. Literally.
In October, Arizona ended Medicaid coverage for heart, lung, liver, bone-marrow, and pancreas transplants. Since then, two Arizonans have died after being denied potentially life-saving organs, the result of steep budget cuts to a Medicaid program that is in dire fiscal straits. Instead of receiving the care they needed to stay alive, the two were ensnared in the state's effort to cut $2 billion from Medicaid spending this year and next. All told, 100 people have been forced to cede their spots on the state's organ-transplants list.
Even before the deaths, Gov. Jan Brewer and state lawmakers had scrambled to restore funding and salvage the program, but it will be difficult: In a severe fiscal climate, shielding Medicaid is not universally popular with voters. Arizona faces estimated budget deficits of $763 million in the current fiscal year and $1.15 billion in fiscal 2012. This week, the governor asked Washington for leeway under the federal requirement that prevents states from dropping individuals from their Medicaid programs.
Brewer is not alone. Governors from Maine to California are drafting budgets that would cut Medicaid services at a time when more people are seeking coverage. State officials say they expect a 6 percent increase in enrollment nationwide in the current fiscal year, according to the Kaiser Commission on Medicaid and the Uninsured. A deeper-than-expected recession, which pummeled state budgets despite billions of dollars in federal assistance, has dialed back most economists' estimates for future state revenue growth. What's more, come July 1, state budgeteers will no longer have the $16.1 billion in enhanced federal dollars"”a carryover from the stimulus package"”that helped them defray Medicaid costs this year. And three years from now, states will oversee a mammoth expansion of Medicaid when the health exchanges created by the federal health reform legislation kick in.
The program's link to the federal budget is what makes state-level overhaul so difficult. At its core, Medicaid provides poor children and adults with health insurance coverage, and poor seniors with long-term care; it also covers medical services for the disabled. Today, the fiscal pressure on Medicaid is so strong that governors are moving beyond their customary response to lean times"”cutting provider payments"”and calling for a fundamental transformation of the program. The collision of needs and costs puts health care reform"”and the respective roles of the state and federal governments"”back on the table. None
In one of his first moves, Ohio Gov. John Kasich created the Office of Health Transformation. Headed by Greg Moody, a consultant familiar with the intricacies of Medicaid, the agency will seek ways to control costs in the state's struggling health care programs. Moody's job is to bring together Ohio's half-dozen or so health agencies and modernize their operations.
"You have to change the underlying system," said Matt Salo, director of the Health and Human Services Committee at the National Governors Association. "Fundamentally, you're trying to restructure the health care delivery system, the health care payment system, the whole nature of specialists, and those lower-tier levels of care that are available."
One of the most far-reaching reassessments could come in New York. Gov. Andrew Cuomo, despite impeccable liberal credentials, intends to drastically redesign his state's Medicaid program. When he made that pledge, you could have heard a pin drop in Albany. But Cuomo has little choice: New York is projected to spend more than $50 billion this fiscal year on Medicaid, and the new governor has created a Medicaid task force charged with finding savings. He told lawmakers that the goal was not just to cut the program but also to find "efficiencies "¦ so we actually provide a better service for less money." It's a tall order, but it worked in Wisconsin, where then-Gov. James Doyle saved $625 million from its program. Cuomo tapped Jason Helgerson, Doyle's Medicaid turnaround expert, to do the same for the Empire State.
In Wisconsin, Helgerson led a collaborative effort that brought together the state's provider groups, hospital executives, and Medicaid directors. The governor set a target"”$400 million in savings"”and let the group decide how to achieve it. Some of the resulting initiatives fit closely with those at the federal level, including paying doctors for results rather than treatments. The group required hospitals to reduce their readmission rates. Other initiatives, however, were simple cuts. About $200 million came from revised contracts with managed-care groups. The collaborators exceeded the savings goal and also managed to sidestep the legislative process.
In light of the new federal health care law, many conservative state legislators are eyeing ways to shift costs to Washington, partly just to thumb their noses over a statute that they say will cripple them. States may look to offload their high-cost Medicaid beneficiaries to the new federal high-risk pools, and they are also examining ways to shift their Medicare-Medicaid-eligible populations to the new health insurance exchanges that are due to come online in 2014. It's still unclear if the law will allow this.
In any case, shifting the burden does not reduce total costs or solve the underlying problem. Kasich, Cuomo, and other governors say that the only way to control Medicaid costs is to reengineer the program. That is true, but where does greater efficiency stop and denial of essential services to the poor begin? Almost everywhere, that subject is still too sensitive to acknowledge, let alone discuss.