States Still Struggling to Pay for Medicaid

Some 50 million people are currently enrolled in Medicaid, the joint federal-state health program for the poor and disabled. Another 16 million are expected to join the system after the new health care law's major coverage provisions kick in in 2014. But there are serious potential problems with this plan. For example, many states can't afford their Medicaid programs as they exist—and the coverage expansion may cost far more than expected. Via The Arizona Republic, here's what's happening in Arizona:

Federal health officials have approved an additional 5 percent reduction in the rates hospitals and other health-care providers ar reimbursed for Medicaid patients, part of Gov. Jan Brewer's budget-balancing package.

The rate cut, retroactive to Oct. 1, follows another 5 percent reduction in April and a rate freeze imposed in 2007.

It will save the state an estimated $95 million this year, savings hospitals say comes at the expense of health-care facilities and privately insured patients.

Arizona hospitals will now be paid 70 percent of what it costs to care for a Medicaid patient, said Pete Wertheim, a vice president with the Arizona Hospital and Healthcare Association.

Arizona mangled its Medicaid program in the late 1990s when it made the decision to fund expanded health coverage using tobacco settlement revenues, which, thanks to lower smoking rates, are now declining. But it's not the only state that's cut back on Medicaid payments. California cut back payments in hopes of saving more than $600 million too. And now health providers are suing the state over the rate cuts, and warning that as a result of the payment reductions the state medical system won't be able to handle the new health law's expanded coverage requirements. Those coverage requirements, meanwhile, may end up costing far more than expected: A recent study by Harvard health researchers warned that the Medicaid expansion was subject to substantial uncertainty, and that it could cost nearly $100 billion a year—roughly as much as the entire law was projected to cost.

There isn't an easy fix. Last year's health care overhaul not only pushed states into a coverage expansion, it also threatened the loss of billions in federal funding should states cut Medicaid eligibility in between now and 2014. Yet most states are bound by balanced budget requirements, which means that they have to cut back somewhere. And with Medicaid clocking in as one of the top budget items for state governments, it's got a big target on it. So payment rates get cut, and providers balk, launching lawsuits or cutting back on the number of Medicaid patients in their caseload. Care quality, already extremely poor within Medicaid, gets even worse. State budgets become constrained as they attempt to pay for Medicaid. Yes, the federal government shoulders much of the burden of the new health care law's expansion, but states will eventually pick up about 10 percent of the cost, which, in the context of already strapped state health care budgets and rising health costs, is still a heavy burden.

When Medicaid was passed, it was an afterthought to the bigger and more politically important program, Medicare. At the time, most policymakers assumed that Medicare would serve as the vehicle for government-funded health expansion. But it turns out that both states and the federal government have found ways to stuff people into Medicaid instead. ObamaCare brings Medicaid coverage to the bottom edge of the lower middle class—about 133 percent of the poverty line. And yet we still don't know how to pay for it. The program, designed to be modest in scope, has been asked to do far too much.