Federal Judiciary

Forced Spending

Even as governors brace for enormous budget shortfalls in the upcoming fiscal year, there's one program they cannot -- by law -- cut eligibility for: Medicaid. That's something Republican governors would like to see changed.

'The budget crisis is real. If there are two big issues that governors have to face, Medicaid is one of them [and] the pension crisis is the other one,' says Brian Blase, a health-care-policy analyst at the Heritage Foundation, adding that Medicaid is 'the more immediate issue.'

#ad#The stimulus bill that was passed in 2009 (which included increased funding for Medicaid) required states to maintain the same level of Medicaid services they provided in 2008, regardless of the hit their revenues have taken since then. Obamacare has a similar 'maintenance of effort' provision. It's no small requirement: States spend an average of 22 percent of their budgets on Medicaid. And while the stimulus-funding requirements end this fiscal year, the Obamacare provisions aim to be permanent.

 'The effect of the federal requirements is unconscionable; the federal requirements force Governors to cut other critical state programs, such as education, in order to fund a ‘one-size-fits-all' approach to Medicaid,' wrote 33 Republican governors and then-governors-elect in early January in a letter sent to President Obama, congressional leaders, and health and human services secretary Kathleen Sebelius.

In the letter, after acknowledging that 'in these difficult fiscal times, we understand that the federal government cannot provide new sources of taxpayer dollars to assist the states,' the governors asked that the federal government find a way to provide 'flexibility and relief' from the current stringent Medicaid requirements.

One Republican governor has gone a step further: Late last month, Arizona's Jan Brewer wrote to Sebelius, formally asking her to waive the Medicaid requirements for her state. Brewer estimates that if Arizona were permitted to tighten Medicaid-eligibility requirements, dropping coverage for 280,000 of the state's 1.2 million Medicaid recipients, it could save $542 million this fiscal year, and over $1 billion in the next. Those savings could make a crucial difference to the state budget, which has a $763 million deficit this fiscal year and is expected to have a $1.2 billion deficit next year.

Over the last four years, Medicaid spending has skyrocketed in Arizona from 17 percent of the budget to nearly a third, a rate of growth that Brewer spokesman Matt Benson calls 'unsustainable.' And the state has already turned to tax increases (for example, a sales-tax hike that will generate $1 billion annually over the next three years) and spending cuts elsewhere. 'We're talking hundreds of millions of dollars in cuts across state government,' says Benson. 'Every area of state government has been impacted, including education.'

Brewer is planning to meet Sebelius and make Arizona's case to her in a person, possibly within the next few days. 'We're hopeful and optimistic that that waiver will be granted,' says Benson.

Others are more dubious. 'HHS is going to be reluctant, because the Medicaid expansion was half of Obamacare,' notes Blase. Once Obamacare is implemented in 2014, everyone making less than 133 percent of the federal poverty level will be eligible for Medicaid. And for Democrats, rolling back eligibility in the years leading up to full implementation has never been part of the plan.

#page#Yet the writing is on the wall. Collectively, the states are expected to face budget deficits of $140 billion next fiscal year, according to the Center on Budget and Policy Priorities. And without the extra Medicaid funds the federal government has provided in recent years, states will face soaring Medicaid costs -- between this fiscal year and the next, these costs will rise 25 percent, according to the Kaiser Family Foundation. With numbers like these, it's clear that Arizona is no outlier. Most likely, many more states will request waivers in the upcoming months.

#ad#John Graham, director of health-care studies at the Pacific Research Institute, thinks the waiver request isn't entirely quixotic, particularly if more states jump on the bandwagon. 'If the states can collaborate and present a united front, I think their likelihood will be very, very high,' he says, adding that they should 'create a plain-vanilla, generic waiver and say, ‘This is from all of us.''

He also thinks that politicians may be more open now to such a request. 'It would not have worked before Boehner took the House of Representatives,' Graham remarks. 'But now it may work.'

--- Katrina Trinko is an NRO staff reporter.

Full post as published by Bench Memos - National Review Online on February 03, 2011 (boomark / email).