Arizona May Touch Off Flood of States Asking Obama to Allow Medicaid Cuts

President Barack Obama faces a new challenge from deficit-plagued states over Medicaid costs just as he squares off with Republicans trying to repeal his 2010 health-care law, which extends coverage to 32 million Americans.

Arizona Governor Jan Brewer asked for U.S. permission on Jan. 25 to reduce Medicaid eligibility and drop coverage for 280,000 people. That would save $541.5 million for the state, which projects a $1.2 billion budget deficit for the coming fiscal year.

U.S. states must confront potential budget gaps of more than $140 billion for fiscal 2012 because tax collections declined by the most on record during the recession, according to the Washington-based Center on Budget and Policy Priorities. That may prompt more to seek release from some Medicaid obligations, their biggest expense, as federal aid that has helped them cover the costs for the last three years ends.

“There are other states contemplating” requests for waivers, said Dan Mendelson, chief executive officer of the Washington-based consulting firm Avalere Health LLC and a former associate director for health in the Office of Management and Budget under President Bill Clinton. “Letters are coming from some big states reaching the point of no return.”

Photographer: Ron Sachs/Pool via Bloomberg

Arizona Governor Jan Brewer asked for U.S. permission on Jan. 25 to reduce Medicaid eligibility and drop coverage for 280,000 people. Close

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Photographer: Ron Sachs/Pool via Bloomberg

Arizona Governor Jan Brewer asked for U.S. permission on Jan. 25 to reduce Medicaid eligibility and drop coverage for 280,000 people.

Mendelson declined to name them, saying “border states” such as Texas were in “fiscally impossible situations.”

“This gets political and there will have to be a political accommodation reached,” Mendelson said. “Arizona is not the only state in trouble and the administration is going to have to think collectively about how to deal with all of them.”

Federal Help

Enrollment in Medicaid, the joint federal and state health- care program for the poor, jumped almost 14 percent since the recession began in 2007, according to the Henry J. Kaiser Family Foundation in Menlo Park, California. The health-care overhaul signed by Obama on March 30 would add another 16 million people to the program in 2014 as the federal government establishes a nationwide eligibility standard to replace the current rules set by the states.

States got federal help with Medicaid costs from the American Recovery and Re-Investment Act, which provided $103 billion for the past three years. That will cease in June. States may see a 25 percent jump in Medicaid expenses in fiscal 2012 as a result, according to the Kaiser foundation.

They’re unlikely to receive help from Congress, where Republicans won a majority in the House of Representatives in November with promises to reduce federal spending.

Appeal by Governors

The House voted on Jan. 19 to repeal Obama’s health-care legislation. While the bid has little chance of taking effect because Democrats still control the Senate, it furthered Republican efforts to reopen the issue in their drive to cut government spending.

Pressed by their own need to reduce costs, 33 governors and governors-elect, including Brewer, sent Obama and other federal officials a letter on Jan. 7 asking for the removal of a requirement in the health-care overhaul that makes states maintain Medicaid eligibility for the same people who qualified before the legislation was signed.

The rule is designed to prevent states from dropping people as a result of the law. States that fail to comply can lose federal Medicaid reimbursements. Arizona, where Brewer stands to lose as much as $1 billion in federal funds if she cuts enrollment, is the first to seek a waiver of the rule.

“We’re asking for a little more control over our destiny,” said Matt Salo, director of health-care policy for the National Association of Governors in Washington. “This isn’t a partisan issue, it’s just a fiscal-reality issue.”

Sebelius Decision

The association sent a letter to congressional leaders on Jan. 24 asking them not to limit the ability of states to cut health-care and other programs partly funded by Washington.

The Department of Health and Human Services hasn’t received any letters, including Brewer’s, seeking a waiver from the enrollment rules, said Mary Kahn, a spokeswoman for Secretary Kathleen Sebelius, who would make the decision. The White House declined to comment, said Nick Papas, a spokesman.

Rick Perry, the Republican governor of Texas and one of those who signed the Jan. 7 letter to Obama, hasn’t submitted a waiver request, said Lucy Nashed, a spokeswoman for the governor. Mississippi Republican Governor Haley Barbour, also part of the Jan. 7 letter, isn’t planning one, his spokesman Dan Turner, said in an e-mail.

Within Rules

Georgia’s Governor Nathan Deal, a Republican, hasn’t “offered specific cuts, but the governor would happily work on such a proposal,” Brian Robinson, a spokesman, said via e-mail.

Democratic governors are acting to curb Medicaid costs within the federal rules. California’s Jerry Brown, in one of his first actions upon taking office in January, proposed a $1.7 billion cut in Medi-Cal, the state’s $41 billion Medicaid administrator. That was $700 million more than asked by his Republican predecessor, Arnold Schwarzenegger.

Brown’s budget anticipates the number enrolled in the program rising by 131,500 to 7.65 million, or 20 percent of the state’s population. His proposal would for the first time stop paying for doctor visits after 10 per year, among other cuts.

“We’re not asking for a similar-type waiver,” Anthony Cava, a spokesman for California’s Department of Health Care Services, said in a telephone interview when asked about Arizona’s request.

Difficult Decision

California looked at program reductions “without eliminating people,” Cava said. “We’re not cutting core benefits.”

Democratic Governor Pat Quinn of Illinois signed Medicaid overhaul legislation on Jan. 25 that would tighten but not reduce eligibility standards by requiring proof of Illinois residency and a month’s worth of income information. It would also establish a moratorium on eligibility expansions, among other measures.

Allowing states to cut some beneficiaries, as Arizona seeks, would be a difficult decision for the Obama administration because it doesn’t want anyone to lose coverage, said Vernon Smith, a former director of Michigan’s Medicaid program and now a consultant in Lansing, Michigan, with Health Management Associates.

“The federal government will be torn on this issue,” Smith said in a telephone interview, because the Obama administration is “clearly aware of the dire straits” of states.

“States are grasping at every straw,” he said, “and this is one of them.”

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net; Pat Wechsler in New York at pwechsler@bloomberg.net

To contact the editors responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net; Reg Gale at rgale5@bloomberg.net

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