How Sustainable is the Medicaid Program for States?

NCHC Writers
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February 25, 2011

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State budget shortfalls have caused state officials to reconsider their voluntary participation in the Medicaid program. Charles Duarte, administrator of Nevada’s Division of Health Care Financing and Policy, released a report assessing Nevada’s options on whether or not to drop out of the Medicaid program per Governor Jim Gibbons’ request. However, Mr. Duarte has stated that Medicaid termination is “not a serious consideration for Nevada. Federal rules and court actions have severely curtailed states’ ability to manage spending in Medicaid.” If Medicaid spending goes unchecked, it would continue to eat up a larger and larger percentage of Nevada’s revenue, replacing funding for other important services like K-12 education, higher education, and public safety.

States have considered different ways to control spending in the near term—reductions in eligibility, provider reimbursements, service limitations and elimination of “optional” services—but have limited tools to enact such measures. The American Recovery and Reinvestment Act (ARRA) and the ACA established Maintenance of Effort (MOE) requirements that would restrict states from limiting eligibility. Access issues, legal issues and regulatory issues also restrict states from eliminating optional services and reducing reimbursements.

Judith Solomon is the co-director of health policy at the Center on Budget and Policy Priorities and has said that Nevada, Wyoming and Texas have considered dropping the Medicaid program but “concluded that dropping out was not something the states could afford to do.”  Terminating the Medicaid program in Texas would cost the state $15 billion in federal funding and almost 2.6 million Texans could become uninsured. States that dropped out of Medicaid would struggle in 2014 when their residents with incomes below the poverty level would not be eligible for premium credits but also could not rely on Medicaid.  

Terminating the Medicaid program produces numerous obstacles for states. According to Michael Sparer, PhD, JD, department chair and professor of health policy and management at Columbia University, “A big chunk of state Medicaid expenditures these days, and an important role for state Medicaid programs, has to do with being a safety net for the nation’s long-term care system. You couldn’t make up for that money with the [health insurance] exchanges.” Many state officials would like to get their state out of Medicaid, but are finding it difficult to do so without causing significant harm to their overall budgets and the health of their residents.

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