ElderWeb

National Association of State Budget Officers and the National Governors Association recently released a survey of the financial problems of the states and the ways they are compensating for the financial shortfalls. The report says this is the "the most dire fiscal situation since World War II". Even more worrisome is the fact that most states are using up all their easy options this year, but will probably be in as bad or worse financial shape next year, even if the economy suddenly explodes, because increases and decreases in state revenues lag actual changes in the economy.

There are important implications for the Medicaid program, which is the only "long term care insurance" that most Americans have. This huge and growing program cannot escape scrutiny when state budgets falter, a problem which will only get worse as a larger and larger percentage of the population grows older. States will have no choice but to continue to cut payments and eligibility to keep their budgets balanced. It won't be very pleasant for the poor elderly who are dependent on the system, and it should serve as a warning for anyone who thinks they can avoid planning ahead because they expect the government to pay for their long term care costs in the future.

Most states are making cuts in Medicaid in two ways:

• Making programs harder to access and more expensive for recipients:
  • Reducing optional benefits/eligibility;
  • Requiring prior authorization pharmaceuticals;
  • Increasing cost-sharing requirements, including instituting premiums;
  • Adding statutory authority for additional estate recovery;
• Getting revenue/savings from providers (reducing their profit and perhaps driving them out of the program):
  • Increasing fraud and abuse efforts;
  • Contracting for services;
  • Reducing prescription drug costs by revising the ingredient cost reimbursement rates;
  • Reducing provider rates;
  • Negotiating additional drug rebate payments;
  • Eliminating special grants to rural hospitals;
  • Entering in multi-agency purchasing arrangements for volume discount savings.
  • Adding/increasing provider taxes;

For example, like nearly every other state, California is facing a severe budget crisis. In December 2002 Governor Gray Davis announced a proposal to cut $10 BILLION from the state's budget. Among other cuts are the following:

• $2.5 million to be cut from the Department of Aging, including cuts in the program that provides meals to poor and homebound seniors. Part of the savings will come from the elimination of the Respite Registry Program, the Foster Grandparent Program, the Senior Companion Program, and state support for the Brown Bag Program which provides surplus fruits, vegetables, and other unsold food products to low-income elderly persons.
• $90 million to be derived by cutting reimbursement rates by 10% for all Medicaid providers, including long term care providers.

The Kaiser Commission on Medicaid and the Uninsured published a survey in September 2002 of the impact that state budget problems are having on Medicaid. Analyzing the results, 30 states reported that long term care was either a significant factor in the growth in expenditures or was a target of budget cuts in FY 2002 or FY 2003. These numbers are probably understated, since other states, like California, continue to announce Medicaid cuts.