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February 2009

State Budgets in Crisis; Federal Stimulus Package Offers Assistance

As state legislatures reconvene across the country and Governors produce fiscal year (FY) 2010 budgets, the alarming impact of the recession on state budgets is becoming more evident.  According to the Center on Budget and Policy Priorities, 45 states are projecting budget gaps for 2010 and beyond.  For those states that have already predicted the size of their gap, the average budget deficit is 16 percent.  This is in addition to the 15 percent budget gaps that have already been experienced in FY 2009.[1]

States are facing an estimated $145 billion expected shortfall in FY 2010 and an estimated $350 billion shortfall for FY 2009-2011.[2]  The American Recovery and Reinvestment Act, signed by the President on February 17, 2009 will ameliorate some of the fiscal challenges.  The package includes $87 billion for state Medicaid programs (in the form of an increased Federal Medical Assistance Percentage [FMAP] contribution), $53.6 billion for a State Fiscal Stabilization Fund and additional resources targeted at education, child care, and transportation.  For a breakdown of the impact of the stimulus bill on specific states, click here.

State Medicaid and Children’s Health Insurance Programs (CHIP) are especially feeling the pinch as declining state revenues are matched with rising demand for services.  For every one percent increase in unemployment, enrollment in Medicaid and CHIP rises by about one million people.[3]  Unemployment rose 2.7 percent in the last year, from 4.9 percent in January 2008 to 7.6 percent in January 2009, and states are bracing for further increases. Already, Florida and Utah, for example, have experienced 10.4 and 13 percent increases, respectively, in Medicaid enrollment over the last year.

As a result of the economic downturn, many states have proposed and/or enacted eligibility and benefit cuts.  (For a chart of the proposed and enacted cuts, click here.), Some of these cuts may be averted due to requirements in the federal stimulus package, because in order to qualify for an increased FMAP, states must not implement eligibility requirements that are more restrictive than were in effect on July 1, 2008.  States can restore enacted cuts in order to qualify for the increase in federal payments.  In addition, states must promptly pay providers for services rendered to Medicaid recipients.

Health care provisions in the stimulus package include:

  • An increase in FMAP to states by $87 billion until the end of 2010;
  • A 65 percent subsidy to purchase a former employer’s COBRA coverage for up to nine months for low- and middle-income workers who lost their jobs between September 1, 2008 and December 31, 2009;
  • $19 billion for health information technology;
  • $2 billion for Community Health Centers;
  • $1.1 billion to research the effectiveness of certain healthcare treatments;
  • $1 billion to fight preventable chronic diseases;
  • $500 million to train healthcare personnel;
  • $500 million for healthcare services on Indian reservations;
  • An extension of  Transitional Medical Assistance (TMA), a program that helps needy families maintain Medicaid coverage when they start a new job; and
  • A continuation of the Qualified Individual (QI) program which helps low-income individuals pay their Medicaid premiums.[4]

[1] McNichol, E. and I. Lav, “State Budget Troubles Worsen,” Center on Budget and Policy Priorities, February 10, 2009.
[2] Ibid.
[3] “Unemployment’s Impact on the Uninsured and Medicaid,” Data Spotlight, Kaiser Commission on Medicaid and the Uninsured, 2008.
[4] “What Does the Stimulus Bill Do for Health Care?” FamiliesUSA, available at: