Medicaid facing financial crisis, hard choices in cuts

The program's fiscal challenge is expected to continue even if the nation's economy turns around. The prediction: reductions for many patients and doctors.

By Joel B. Finkelstein, AMNews staff. Feb. 23, 2004.

Washington -- Doing more with less. That is the mission of states struggling with the rising cost of Medicaid.

While economic indicators may point to better times ahead, there will be years of lag between an economic recovery and when states get back on their feet financially. That spells trouble for physicians who participate in the program and for the low-income patients who rely on it.

"I have been observing Medicaid budgets now for over 35 years," said Vernon Smith, PhD, principal with Health Management Associates, a national health care research and consulting company. "I have never seen a more difficult time for Medicaid than 2003 and 2004."

Many state Medicaid directors reported that they were able to sustain the program last year only because of a temporary increase in matching funds from the federal government. Others relied heavily on rainy-day funds and money from tobacco settlements to buoy the program. Both sources are expected to run out soon.

"States are trying to climb out of a deep hole," said Victoria Wachino, associate director of the Kaiser Commission on Medicaid and the Uninsured. "But really, all they've got is a stepstool to stand on."

Future program cuts seem inevitable. Physician payment rates in most states have been frozen for so long that legislatures are hesitant to cut them for fear of losing even more Medicaid practitioners. On the other hand, states are unlikely to start raising rates any time soon.