JEFFREY BROWN: And we turn to other states and another budget battle, this one over Medicaid funding.
NewsHour health correspondent Betty Ann Bowser reports.
BETTY ANN BOWSER: In California, protesters marched to the state capitol to demand no more cuts to Medicaid. That's the federal and state shared program that provides health care to the poor, the elderly and the disabled.
It came on the heels of this blunt message from the state's newly elected governor, Jerry Brown:
GOV. JERRY BROWN (D-Calif.): What I propose will be painful. It's going to take sacrifice.
BETTY ANN BOWSER: And in Albany, N.Y., there was this grim assessment from another newly elected governor, Andrew Cuomo.
GOV. ANDREW CUOMO (D-N.Y.): Last year, state spending on Medicaid was about $14 billion. It will go up to $18 billion. New York State is functionally bankrupt.
BETTY ANN BOWSER: Governors across the country are desperately looking for ways to fill the hole created by a national total of $125 billion in state deficits. Most are required by law to balance their budgets, which means big cuts in state spending on all programs, including Medicaid.
So, recipients are worried. Last month in Idaho, more than 1,000 people lined up for a state hearing to urge lawmakers to reject cuts to the disabled, including recipient Jack Hansen.
JACK HANSEN, Medicaid recipient: I know for a fact that, if you cut these -- if you make these cuts, I will have to go back into a group home. I made a promise to myself, you guys, that I would not go back, not without a fight. I want you to know, you are -- you guys are my only hope.
BETTY ANN BOWSER: There have already been cuts to programs in states like California that have affected disabled people like James Nunez, who has cerebral palsy and learning difficulties. Three years ago, when we met Nunez, he attended a state-funded program in Sacramento, where he was learning skills to live independently.
He also had a home health worker who helped him cook and do laundry.
WOMAN: What does it say on the instructions?
JAMES NUNEZ, Medicaid recipient: It says four to six cups of water.
BETTY ANN BOWSER: But today, after several rounds of budget cuts, Nunez has lost both his helper and the day program.
And now Gov. Brown wants to cut another $1.7 billion from Medicaid, in part by limiting doctor visits for people like Nunez to 10 a year.
JAMES NUNEZ: Why do you want to cut us? Why don't you cut somebody else? What am I going to do if they take my money? How am I going to live?
BETTY ANN BOWSER: Officials across the country say these cuts are necessary because the long recession has drastically reduced state revenues.
Arizona's Medicaid chief, Tom Betlach:
TOM BETLACH, Arizona Medicaid director: We've got roughly 50 percent of the mortgages that are upside-down in the state. We have got over 50,000 homes that are in foreclosure, and as a result of losing about 11 percent of our employment. It's three years out, and we're still at that 11 percent loss. And it will be years before we get back to the overall employment level.
BETTY ANN BOWSER: Unemployment has meant thousands of people who also lost their health insurance have signed up for Medicaid during the recession. The federal government provided billions of stimulus dollars to the states to pay for the increase. But that program expires July 1. And states say they feel the crushing weight of higher Medicaid rolls.
Here in Arizona, state Medicaid spending has gone from 17 percent to 30 percent of the budget in just five years. During that same period of time, the amount of money the state had coming in to pay its bills dropped by over a third.
So, officials say they have no choice now but to make major cuts to the Medicaid program. That includes people like 38-year-old Jennifer Kiolbasa, who's expecting she will be dropped from the program this fall. She is a childless adult. Arizona is one of only seven states that had extended their Medicaid programs to cover them.
Last year, Kiolbasa lost her job, her medical insurance and went through a divorce. Now she spends much of her time online looking for work from her small apartment in Mesa. It's the first time she's ever been in this situation.
JENNIFER NOCE KIOLBASA, Medicaid recipient: I've been paying taxes for almost two decades. I've been working. I've been paying taxes. That money is supposed to be used to fund these programs. So, why shouldn't I be allowed to use that? And it shouldn't matter that I don't have children.
BETTY ANN BOWSER: Arizona officials argue that eliminating 250,000 childless adults would save the state $541 million, closing nearly half of the state's budget gap for next year.
TOM BETLACH: These are incredibly difficult decisions. There comes a point in time in which you can only do so much on the revenue side, and you have to look at where you are an outlay side. And so that's the balancing act.
BETTY ANN BOWSER: Diane Rowland is a senior executive at the Kaiser Family Foundation, who follows Medicaid issues closely.
DIANE ROWLAND, Kaiser Family Foundation: These are grim days at the state level. They are not out of the recession yet. Their revenues and economies have not rebounded. But they are about to lose that extra boost that the federal government was giving them through the stimulus funds. So, I think it's a difficult situation this time because they are about to face a cliff that they haven't faced before.
BETTY ANN BOWSER: There's another consequence to Medicaid cuts as well. Medicaid is a cornerstone of health care reform. Half of the 32 million Americans who will get health insurance under the new law would be covered by Medicaid beginning in 2014. States will get more federal funding then as well.
But given the budget pressures of the moment, the administration has made several moves to allow states to deal with growing costs now. Earlier this month, Secretary of Health and Human Services Kathleen Sebelius wrote to governors around the country outlining ways money could be saved by cutting optional benefits, including dental and vision care, prescription drugs, physical therapy and respiratory services.
Cindy Mann is deputy administrator of the Centers for Medicare and Medicaid Services.
CINDY MANN, Centers for Medicare and Medicaid Services: What we're trying to make clear is that states have lots of choices. And we are really wanting to be able to help them think through what those choices are, determine what choice -- what choice might make most sense for their program, for the residents in their states, and then to process that quickly for them, to the extent it's -- it's an action that we are able to take.
BETTY ANN BOWSER: But Betlach and other Medicaid officials around the country said they're doing a number of these things already.
TOM BETLACH: There's a menu of items that are offered in terms of the types of changes states should be looking at for their programs. But these are things that we've been doing for a number of years to try and manage our resources to the greatest extent possible.
BETTY ANN BOWSER: This week, the administration went even further than it had before. It said Arizona officials are able to let its coverage for childless adults, like Kiolbasa, expire later this year.
Arizona recently made another difficult and unpopular choice. It dropped some transplant surgeries from its Medicaid program to save money. Other states are also making painful choices, saying it's a matter of dollars and cents, and they're running out of both.
Editor's Note: The day after this report aired, Jennifer Noce Kiolbasa received a job offer at a company that offers health insurance.