33 governors ask Obama to allow Medicaid eligibility reductions as tool to balance state budgets

Today, the Wall Street Journal reported 33 governors and governors-elect sent a letter pressing the Obama administration to ease restrictions on cutting Medicaid enrollment.

The three big levers states can use to cut Medicaid spending are reducing enrollment, lowering provider payments or decreasing benefits. Under provisions of the federal health reform act, and the federal stimulus before that, states are held to “maintenance of effort” and are not allowed to roll back income eligibility levels for Medicaid. This takes one budget cutting tool out of states’ hands.   

States are turning to other cost saving mechanisms. The Kaiser Family Foundation reported that 39 states cut provider payments and 20 cut optional benefits in their 2010 fiscal years, with similar numbers planning to do so in 2011.

Reducing benefits is not without consequences. CBS News reported yesterday that a second person has died in Arizona because the state’s Medicaid program will no longer pay for transplants. In California non-emergency dental services to adults have been curtailed and there are reports that dentists pull teeth that could be saved because Medicaid will pay for extractions but not root canals.

Medicaid provider payments are often already below the costs of providing the service. Hospitals, physicians and dentists may turn away Medicaid enrollees if they can receive higher reimbursement from private insurance and Medicare.

The federal government helped out states by increasing Medicaid match rates under the federal stimulus package and again late in 2010, adding another $26 billion that a CSG analysis found $1.74 billion short of levels budgeted in 24 states. It seems unlikely that states can expect more funding from Washington.

As budget processes get underway in states, governors and legislators will be grappling with difficult choices as they are forced to match revenues to expenditures.