States Face Layoffs, Cuts as Federal Medicaid Aid Stalls

BY Lea Winerman  July 14, 2010 at 2:59 PM EDT

Across the U.S., cash-strapped states are facing the possibility of layoffs and program cuts this year as an extension of federal Medicaid aid looks increasingly uncertain. Thirty states had written the extension of the additional Medicaid money — first granted last year as part of the federal stimulus package — into next year’s budgets, and many will have to make major cuts to close their budget gaps if Congress doesn’t come through with the money.

A few examples of the potential fallout:

In Massachusetts, some social workers for the disabled will lose their jobs and hundreds of thousands of people will lose dental coverage provided by the MassHealth program.

In Washington, Gov. Christine Gregoire has said the state could be forced to lay off between 6,000 and 12,000 employees.

And in Michigan, Gov. Jennifer Granholm has floated the possibility of a 35 percent cut in the Medicaid provider payment rate.

Congress first granted states the extra Medicaid money last year, as the recession caused state revenues to drop at the same time more people, newly out of work, were in need of the program. The funds were set to expire at the end of 2010, but earlier this year a six-month extension looked likely — Democrats in Congress had included $24 billion more in aid as part of a larger jobless benefits extension bill.

But that bill failed in the Senate last month, as Democrats were unable to overcome the opposition of Republican lawmakers who said they were worried about the impact on the federal budget deficit.

Senate Democrats are working to revive the measure — a spokesman for Senate Majority Leader Harry Reid told the Wall Street Journal that the Senate may consider the Medicaid aid as a stand-alone bill this month.

But there are no guarantees. According to Bloomberg News, Erskine Bowles, the head of President Obama’s debt commission, told a meeting of the National Governor’s Association last weekend: “I don’t think we can count on the federal government again [...] They just do not have the financial resources.”

The potential loss of the extra Medicaid money will hit already-squeezed states hard this year as the recession continues, says Todd Hagerty, a policy associate in the fiscal affairs program at the National Council of State Legislatures.

“It just compounds difficult decisions states have been making for now three years,” he says.

California alone was counting on about $1.5 billion in federal aid; other states had penciled in between about $36 and $900 million. (NCSL has compiled a table of which states included the Medicaid money extension in their budgets, and how much aid they were counting on.)

Some state officials also find irony in the fact that the Medicaid budget crunch is coming on the eve of a massive expansion of the program — the health care reform law will expand Medicaid to cover 16 million more Americans beginning in 2014.

The newly passed law bars states from trimming Medicaid eligibility, the New York Times explains, so the states will have to find other ways to make up the shortfall.

“If they don’t fund this, it’s an unfunded mandate on the states,” Michigan Gov. Granholm said.