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Governors’ Proposals for FY 2103 Medicaid Spending

Tori Socha

July 2012

A recent report from the Henry J. Kaiser Family Foundation, Governors’ Budgets for FY 2013-What Is Proposed for Medicaid?, provides Medicaid highlights from proposed state budgets for fiscal year (FY) 2013. The authors utilized data from state budget documents, news reports, and other relevant documents to compile the report, which included information on budgets from 42 states. Eight states are in the middle of a biennium budget cycle with no new proposals presented for review.

Medicaid is a federal program jointly administered by individual states and jointly funded by both the federal government and the states. The states have flexibility in structuring their programs in terms of eligibility requirements, benefits, delivery of service, and provider payments, all subject to federal regulations. States receive a guarantee of matching funds for qualifying Medicaid expenditures based on their federal medical assistance percentage (FMAP). FMAPs are calculated each year and vary inversely with the average personal income in each state.

Medicaid spending and enrollment peaked in 2009 during the recession, a period when spending increased while revenues decreased. The American Recovery and Reinvestment Act of 2009 provided some fiscal relief to states in the form of an increase in the Medicaid match rate from October 2008 through June 2011. At the start of FY 2012, the enhanced funding expired, resulting in a need for increased state funds to offset the expiring federal monies.

In FY 2012, every state implemented at least 1 new policy to control costs associated with Medicaid, restricting provider rates and benefits and attempting to control spending for prescription drugs, for example. Provisions in the 2010 Patient Protection and Affordable Care Act (ACA) have maintenance of eligibility (MOE) requirements, making it difficult for states to tighten enrollment procedures, the Kaiser report notes.

As states look forward to FY 2013, economic conditions have, on the whole, shown improvement. Unemployment rates have dropped and state tax revenues are beginning to rebound. The Kaiser report finds that some states have included proposals to cut Medicaid spending in FY 2013 and that others have used the improved fiscal landscape to make targeted investments in the program. In some cases, states have included proposals that reflect policy changes related to the ACA.

At least 11 states have proposed policies in their FY 2013 budget designed to control Medicaid spending growth by restricting payment rates; however, at least 13 states are planning to increase at least some of their current provider rates. A few states budgeted for additional federal funds tied to the primary care physician fee increase for 2013 that was included in the ACA.

At least 6 states included proposals targeting eligibility expansions or simplifications of the renewal and enrollment processes, and 6 others proposed eligibility and enrollment restrictions. The Centers for Medicare & Medicaid Services will have to determine whether the proposed restrictions are in compliance with the MOE requirements in the ACA, the report cautioned.

Budgets in 12 states include eliminating or restricting benefits in 2013. Some benefit changes are targeted and include cuts to dental, home health, personal care, therapy, and vision services. Five states have proposed expansions to benefits, mainly for behavioral health services.

Many states have included various Medicaid care management initiatives in their proposed budgets. Also included in many proposed plans are efforts to enhance health information technology. Managed care initiatives varied from broad-based health delivery system changes to efforts targeted to specific populations or geographic regions. Health information projects were budgeted in 22 states, including major upgrades to Medicaid eligibility systems.

The report concludes by noting that state legislatures will work throughout the second quarter of 2012 to pass balanced budgets that may or may not include Medicaid items in the current proposals from the governors. Issues at the federal level, including the Supreme Court ruling on the individual mandate in the ACA and efforts by Congress to reduce the federal deficit, will have significant effects on states and the Medicaid program going forward.

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