Medicaid Reductions Could Have Expanded Effect on Healthcare

The state of the economy is taking its toll on the Medicaid system. Financed and run jointly by the federal and state governments to care for low-income people of all ages, Medicaid is one of the largest budget items of most state budgets. But because of surging enrollment and a lack of funds to support the growth, state lawmakers across the U.S. are considering significant reductions in Medicaid spending, including provider reimbursements and coverage for ancillary services (i.e. dental, vision). As a result, millions of low-income individuals who depend on Medicaid assistance could be without the services they desperately need. And while the effect on the low-income population is evident, these Medicaid reductions could eventually have a more significant effect on providers, insurers, and even employers.

Medicaid funding has become a more pressing issue over the past year as an increasing number of people began enrolling in the program after losing their jobs and their employer-sponsored healthcare. According to a recent study by the New York Times, Medicaid enrollment in a number of states grew by 5-10% in the last 12 months – and for some states, that represents double the growth rate from the previous year. With such unprecedented growth, state legislatures have been forced to make up their budgeting shortfall by negotiating reductions to Medicaid spending – even on top of cuts that already had been implemented for this year.

However, because these Medicaid cuts are focused on reimbursement rates for providers and facilities the overall effect on the healthcare system is more expansive than one might think. Lowering payments to hospitals and nursing homes or eliminating payments for healthcare services not required by the federal government (such as physical therapy, eyeglasses, hearing aids and hospice care) would force more costs to be shifted to the commercial insurance payers. In order for the providers to make up for the reductions, they would need to negotiate with the insurance carriers or charge other patients more for services. As a result, the insurance carriers could be forced to raise their premium rates, and their members would be subject to higher out-of-pocket expenses.

While there are currently no proposed Medicaid reductions for North Carolina recipients, the length of the current recession could factor into whether state legislators will consider cuts in the near future. Federal assistance may already be on the way for other states, however, as Congress has approved a two-year, $825 billion economic stimulus package that includes additional funds for Medicaid programs. Regardless, the Medicaid situation will bear close watching in the months ahead, as providers and insurers continue to struggle over the crippling cutbacks that are already in place.

For more information on this topic, please click on the following links…

States Cut Medicaid Coverage Further

Medicaid Enrollment Surging in Many States

North Carolina Division of Medical Assistance

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Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.

January 30, 2009

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