With the flow of federal funding slowing dramatically, states will need to look to Washington for flexibility rather than dollars to meet their own budget challenges.

Late last week, the U.S. House of Representatives passed a bipartisan bill ending the stalemate over the payroll tax cut and assorted entitlement programs, and the Senate quickly followed suit.

Today Secretary Sebelius announced that Marilyn Tavenner will serve as interim administrator for the Centers for Medicare and Medicaid (CMS). The U.S. Senate must confirm her nomination and according to media reports she is expected to be confirmed.

Tavenner served as Secretary of Health and Human Services in Virginia, in the administration of Governor Tim Kaine, from 2006 to 2010. In 2010 she was named a principal assistant to Don Berwick, who resigned from the CMS top post effective December 2.  Berwick was a controversial pick of the Obama administration and Senate Republicans refused to confirm him.

States have received over $160 billion in budget relief since the beginning of the Great Recession both through the Recovery Act of 2009 and the Education Jobs and Medicaid Assistance Act of 2010.  The Obama administration is doubling down on this approach in its proposed American Jobs Act which includes $30 billion in direct state budget support and billions more in infrastructure and other program spending that would flow through the states over the next two years.  However, the deficit proposal revealed by the President today calls upon states to shoulder billions in long-term costs as part of a broader effort to set the nation on sounder fiscal footing. 

A debate about how to fund Medicaid, the public health insurance program that now covers 16 percent of Americans, is under consideration by state and federal policymakers alike.  And one idea that has received particular attention of late is shifting Medicaid to a block-grant program.

States face a grim future under the federal deficit reduction deal reached to raise the debt ceiling earlier this month. Chris Whatley, director of The Council of State Governments’ Washington, D.C., office, told policymakers around the country that states stand to lose federal funding in several areas. “You’re going to get squeezed and the squeeze is going to be disproportionate to the amount of total spending on the federal side,” said Whatley.

The U.S. Department of Health and Human Services (HHS) announced three new initiatives to integrate primary, acute, behavioral health, and long-term services and support for full Medicare-Medicaid enrollees.  

The Affordable Care Act mandates that states operate insurance exchanges to enable every citizen across the country to purchase or renew health insurance. The reform legislation provides federal support for “necessary” expenses so states can plan, establish and operate the exchanges for the first year of 2014. Although it specifies several conditions that insurance products offered through the exchange must meet, it allows the states great flexibility in determining how they will regulate and how much reform they will introduce for their state insurance market. Read about what health insurance exchanges can accomplish, how state Medicaid programs will be involved and what decisions states are facing in 2011 and 2012 related to health insurance exchanges.