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State Fiscal Pressures to Intensify when Federal Financial Relief Expires in June

The Kaiser Commission on Medicaid and the Uninsured has issued a series of reports on the Medicaid and state budget conditions pointing out that Medicaid cuts will continue as improving state economic conditions are insufficient to pull states out of the budget woes they face.

The first report, "States Respond to Fiscal Pressure: A 50 State Update of State Medicaid Spending Growth and Cost Containment Actions," found:

  • The rate of total Medicaid growth declined slightly. After growing 11.9 percent in FY 2002, states estimate that total Medicaid spending growth will slow slightly to 8.2 percent in 2004.
  • As a result of the federal fiscal relief that Congress provided in May 2003, the growth rate in the state share of Medicaid spending is significantly lower – an increase of 3.3 percent in FY 2004.
  • Medicaid enrollment growth is also slowing. The number of people enrolled in Medicaid is now expected to increase by 5.5 percent in FY 2004, falling from an 8.8 percent growth in FY 2003.
  • Almost every state is implementing Medicaid cost containment in FY 2004, including 18 states now taking new, mid-year actions to further slow Medicaid spending growth.
  • The temporary federal fiscal relief helped states ease their budget problems and avoid making additional and deeper changes to their Medicaid programs in FY 2004. Twenty-seven (27) states have reported that they used the fiscal relief to avoid, minimize or postpone Medicaid cuts or freezes.
  • States expect a significant adverse impact when temporary fiscal relief expires in June. When the fiscal relief ends, the percentage increases in the state cost of Medicaid in FY 2005 likely will be the highest experienced in many years.

The second report, "Is the State Fiscal Crisis Over? A 2004 State Budget Update," finds that that the fiscal year 2005 will be a difficult year for most states. Key findings include:

  • The economy is improving and has coincided with modest improvements in the state fiscal outlook. Unfortunately, the recent economic and state revenue growth is not enough to pull states out of a big slump.
  • The reasons are the state fiscal situation was very poor to begin with and the recent economic recovery may not offer much immediate good news for the states.
  • Even after employment recovers, economic growth will not translate directly and rapidly into state tax revenue growth.
  • Unfortunately, mounting spending pressures, reluctance to increase taxes, and "one-time" budget balancers point to continued state fiscal stress.

The third report released, "State Responses to Budget Crisis in 2004: An Overview of Ten States" profiles ten states’ responses to their budget woes in FY 2004. Key Findings include:

  • The states remained reluctant to increase income or sales taxes and tried to balance the budget by relying on one-time budget fixes and spending reductions.
  • Spending cuts were more severe than previous years as these states aggressively cut health programs through freezes and cuts on provider reimbursement; elimination of some optional benefits, particularly for adults; and began limiting enrollment by reducing eligibility standards, imposing SCHIP enrollment caps, reducing outreach, and making the enrollment process more cumbersome.

For more information read the following Kaiser reports:

States Respond to Fiscal Pressure: A 50-State Update of State Medicaid Spending Growth and Cost Containment Actions (PDF, 839kb)

Is the State Fiscal Crisis Over? A 2004 State Budget Update (PDF, 378kb)

State Responses to Budget Crises in Fiscal Year 2004 (PDF, 165kb)