One [health care concern] is the many federal deadlines creeping up on states — dates by which the law requires them to make key decisions related to implementing health care reform. The other is the overwhelming cost of Medicaid. The state-run health insurance program for low-income people is eating up a fast-growing portion of state budgets that are entering the fourth — and probably worst — year of fiscal crisis.
The result is a messy situation chock full of contradictions. One of the federal law’s milestones for 2011 is for states to decide whether and how to launch their own health insurance exchanges. Every state but Alaska has begun planning to that end — even as 20 states continue fighting the federal law in court. Meanwhile, the budget crisis gives most states no choice but to try and squeeze cost savings out of Medicaid. Simultaneously, states will be deciding whether to deny costly services to Medicaid patients — as Arizona already has done with organ transplants — even as they plot a course toward universal coverage.
Many governors want flexibility to cut their Medicaid rolls by limiting who is eligible. That’s a strategy that states have used to weather previous recessions, but provisions in the federal health care law, as well as the economic stimulus law, prevent them from doing it now.
Last year, at a time when states made severe cuts in many programs, Medicaid spending grew by 8.2 percent. Medicaid has surpassed K-12 education as the largest portion of state budgets.
On average, the federal government pays 54 percent of all Medicaid bills; for poor states the federal share can be as high as 84 percent. Although states complain about the strings attached to Medicaid, no other federal program pumps as much money into state economies. According to the National Association of State Budget Officers, Medicaid accounts for nearly 43 percent of all federal dollars flowing into states.
The federal stimulus program added another $137 billion to state Medicaid coffers to help make up budget shortfalls in 2009 and 2010. Last fall, Congress extended a scaled down version of the subsidy worth $25 billion more, but that help gradually dissipates this year until it runs out entirely at the end of June.
When it’s finally gone, states will have to find a way to replace about $60 billion for the coming budget year. That pressure comes at a time when the weak economy and high unemployment rate have driven Medicaid enrollment to a record high.
Faced with this dire budget situation, states in 2011 are likely to turn to two places to cut Medicaid costs. Neither of them are particularly desirable.
One is payments to doctors and hospitals. States already have substantially cut back on reimbursement rates over the past two years, however. If fees go much lower in some states, health care providers will stop seeing Medicaid patients. Many doctors and hospitals already have fled the program.
The other thing states can cut is the types of services they cover. South Carolina, for example, plans to stop providing hospice care for the terminally ill. Massachusetts will no longer pay for dentures. North Carolina has stopped covering surgery for the clinically obese. In Texas and Nevada, lawmakers have toyed with the idea of dropping out of the Medicaid program altogether.
The problem is, nearly every state has cut their Medicaid programs to the marrow over the past two years.
Compared to their budget dilemmas, the decisions states must make about implementing health care reform seem relatively easy. The first agenda item is to decide whether or not to run a health insurance exchange — a virtual marketplace that would allow individuals and small businesses to compare public and private policies and premiums.
The most controversial decision states will face in designing their exchanges will be whether to create an open, unfettered marketplace such as one already adopted in Utah. Another option is to negotiate prices and more tightly control the insurance industry, as Massachusetts has done under its three-year-old health care reform program.
Other decisions, such as whether to run the exchange through a state agency, a nonprofit or an independent commission also will require some deliberation this year. In many states, the biggest challenge in designing an insurance exchange will be finding the staff to do it after two years of widespread state government layoffs and furloughs.
The good news for states is that the federal government will pay the full cost of developing insurance exchanges. Once the exchange is up and running, however, states will be on their own.
Then will come the usual challenges of putting together a brand new program. Small states will be challenged to pull together a large enough pool of providers to successfully bid for low premiums. Meanwhile, large states may find the enormity of the project and the short time frame daunting.
Even as states implement the exchanges, however, the backlash against the federal law is bound to go on. The key flash point is the individual mandate. In addition to Arizona, six states — Georgia, Idaho, Louisiana, Missouri, Oklahoma and Virginia — already have approved laws or constitutional amendments making it illegal to require anyone to purchase an insurance policy.
Opponents and supporters of the health care law agree that if the individual mandate were struck down, most other aspects of its approach to achieving near universal coverage also would unravel