Medicaid reform may be too late for some states

Impending budget crunches could knock people out of public coverage and leave physicians with more uncompensated care.

By Joel B. Finkelstein, AMNews staff. March 21, 2005.

Washington -- Congressional lawmakers want to get Medicaid reform done by the end of the year, but for some states, that might not be soon enough.

Huge growth in the program over the past five years is driving both the federal and state governments to focus on the issue.

Governors are facing difficult decisions about how to deal with growing Medicaid deficits that are eating away at their budgets and crowding out other programs. But states already have trimmed much of the fat, as well as some of the meat. Before long, they could find themselves cutting into bone, experts said.

"It's burning a hole in states' budgets," said Matt Salo, director of health policy for the National Governors Assn.

The program currently serves some of the most vulnerable Americans, but that could change quickly if states start eliminating optional services and populations, which are not required by the federal statute but currently constitute 65% of Medicaid costs, said Kathleen Gifford, a principal at Health Management Associates, a national health care research and consulting firm.

In the past, states have focused on saving by freezing or reducing reimbursement rates to physicians and others, making small changes to eligibility, and restricting or limiting access to expensive drugs and services. While all those options are still on the table, several states already have begun considering even larger cuts that could include substantial reductions in Medicaid rolls.