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January 2011 St@teside

States Use Medicaid Cuts To Fix State Budget Gaps

States continue struggling to find ways to close budget deficit gaps that have resulted from an unprecedented drop in revenues during the recession while facing an increase in the number of people applying for Medicaid after losing their jobs and employer-sponsored coverage. Coverage levels in public programs have remained stable as a result of the temporary Medicaid fiscal relief provided to states through June 2011 provided by the American Recovery and Reinvestment Act of 2009 (ARRA), which has required states to maintain their Medicaid and CHIP eligibility rules and enrollment procedures until broader health reform goes into effect.[1] Under the maintenance-of-effort provisions (MOE), states would lose some or all of their federal funding for Medicaid if they tightened their eligibility rules to decrease the number of people who can enroll in Medicaid.[2] The Patient Protection and Affordable Care Act (ACA) includes similar MOE provisions. 

Given the impending loss of the temporary federal funding provided by ARRA, states continue to develop ways to overhaul their Medicaid programs in order to generate savings and, ultimately, close budget gaps. Many states have already improved their fraud and abuse prevention measures, and are seeking to expand the use of managed care.[3

Among the states with an eye on expanding managed care, New York’s plan to redesign the Medicaid program in a way that promotes greater use of managed care has received broad support among the state’s stakeholders interested in finding solutions to eliminate program inefficiencies while preserving the quality of care for patients.[4]

Similarly, Illinois recently passed bipartisan-supported legislation that includes a provision shifting hundreds of thousands of Medicaid patients into managed care.  Specifically, it would increase the number of managed care patients from less than 200,000 in 2011 to 2.8 million in 2015. But the legislation goes further and also implements more rigid eligibility and enrollment procedures and fraud detection.[5

Mississippi and South Carolina are also taking steps to enroll a greater number of the Medicaid population in managed care. Beginning at the start of the year, Mississippi has enrolled 56,000 Medicaid beneficiaries in one of two coordinated care organizations (CCOs). To improve care and care coordination, beneficiaries will receive incentives to adopt healthy behaviors and will be connected with a medical home. CCOs will be required to develop disease management programs for chronic and very high-cost diseases and to reimburse providers at a rate no less than the Medicaid fee-for-service payment rate for the same service.[6

South Carolina will also expand its managed care program by including 80,000 Medicaid patients in one of several care coordination plans.  Beneficiaries receive the same core benefits as those enrolled in traditional fee-for-service Medicaid as well as some additional benefits.  According to the South Carolina Department of Health and Human Services, the managed care plans have outperformed traditional Medicaid in several key measurements, including more screening for diabetes and heart disease, higher number of routine checkups and dental visits, more screening for breast and cervical cancer, better prenatal care, and more appropriate prescription drug use.[7]

In spite of the MOE provisions, others continue to consider more drastic cuts centered around: 1) tightening eligibility rules; 2) restricting benefits and long-term care services; and 3) implementing provider cuts or freezes. On January 7, 2011, 33 Republican governors and governors-elect asked the federal government to allow them more latitude with respect to MOE.[8

To close a $25.4 billion budget deficit, California Governor Jerry Brown proposed $1.7 billion in spending cuts to the Medicaid program for the fiscal year 2011-2012 budget.[9] The proposal includes 10 percent across-the-board payment cuts to providers, increased cost-sharing on the part of beneficiaries and utilization limits on Medi-Cal services.  Some providers and the National Senior Citizens Law Center representing Medi-Cal recipients are currently challenging the cuts in court.[10]

Arizona is also considering severe cuts.  The state has targeted cutting specific benefits such as mental health and organ transplants. On January 20, 2011, Arizona’s legislature approved legislation allowing Governor Jan Brewer to request a federal waiver to end Medicaid coverage for about 280,000 residents.[11] According to Dr. Laurence Miller, who heads the American Psychiatric Association’s Committee on Public and Community Psychiatry, nine states—including Pennsylvania, New Jersey, Indiana, and Mississippi— have closed down some public units and substance abuse programs to save money.[12]

Other states proposing budget cuts include Florida[13] and Texas. Texas’ plan to reduce providers’ payment rates by 10 percent was unveiled on January 18, 2011, by the Legislative Budget Board in its proposed budget submitted to the House.[14

In a still struggling economy, states are faced with the difficulty of trying to balance their budgets while preparing to implement requirements in the new health care law. The challenge for states is to find opportunities to capture savings and allow them to tap into the federal funds while maintaining access and quality of care.


[1] Heberlein, M., Brooks, T., and Guyer J., Artiga, S. and Stephens, J. (2011, January). Holding Steady, Looking Ahead: Annual Findings of a 50-State Survey of Eligibility Rules, Enrollment and Renewal Procedures, and Cost Sharing Practices in Medicaid and CHIP, 2010-2011. Georgetown University Center for Children and Families and Kaiser Commission on Medicaid and the Uninsured.  Retrieved January 20, 2011, from

[2] Barr, S. (2011, January 17). Budget Woes, Reform Implementation Top Medicaid, Safety-Net Agenda.  BNA’s Health Care Policy Report (Subscription only). Retrieved January 20, 2011, from

[3] Ibid.

[4] Silverman, G.B. (2011, January 10).  Gov. Cuomo Proposes Overhaul Of Medicaid to Reduce Program Costs. BNA’s Health Care Policy Report (Subscription only). Retrieved January 24, 2011, from

[5] Bologna, M. State Seeks $800 Million in Savings Through Sweeping Medicaid Reform Package.  BNA’s Health Care Policy Report (Subscription only). Retrieved January 20, 2011, from

[6] Tumey, B. (2011, January 24). State Requires Some Medicaid Beneficiaries To Enroll in One of Two Managed Care Plans. BNA’s Health Care Policy Report (Subscription only). Retrieved January 24, 2011, from

[7] Tumey, B. (2011, January 24). Agency to Expand Managed Care Plans To About 80,000 Medicaid Beneficiaries. BNA’s Health Care Policy Report (Subscription only). Retrieved January 24, 2011, from

[8] Ibid.

[9] Rizo, C. (2011, January 17). Governor Proposes Significant Cuts to Medi-Cal Services, Provider Payments.  BNA’s Health Care Policy Report (Subscription only). Retrieved January 20, 2011, from

[10] Sturgers, P.M. (2011, January 24).  High Court Agrees to Decide if Providers,Beneficiaries May Challenge Medi-Cal Cuts. BNA’s Health Care Policy Report (Subscription only). Retrieved January 20, 2011, from

[11] Carlile, W.H. (2011, January 24).  Lawmakers Pass Governor's Waiver Proposal To End Medicaid Coverage for About 280,000. BNA’s Health Care Policy Report (Subscription only). Retrieved January 24, 2011, from

[12] Ibid.

[13] Douglas, D. (2011, January 24). Report Warns Medicaid Overhaul Could Cause Job Loss, Harm Economy. BNA’s Health Care Policy Report (Subscription only). Retrieved January 24, 2011, from

[14] Moore, N. (2011, January 24). Proposed State Budget Would Reduce Medicaid Provider Payments by 10 Percent. BNA’s Health Care Policy Report (Subscription only). Retrieved January 24, 2011, from