Pay down the Medicaid deficit with surplus state funds

CEO and President, Appalachian Regional Healthcare

As Kentucky's elected leaders approach another season of budget deliberations, the state faces a large and growing problem that threatens to undermine its progress in many other areas: a $675 million shortfall in the Medicaid program.

This vat of red ink has been filling for several years as increases in the cost of health care services have outpaced the state's ability to pay for the program. Much like private health insurance premiums, certain factors are largely responsible for the rising cost of Medicaid: prescription drugs, growth in enrollment, medical inflation and long-term care costs. Recent changes in federal rules governing Medicaid have further complicated the financial situation.

Medicaid is particularly important in a low-income state like Kentucky where too many citizens have serious health problems. Nearly 700,000 economic disadvantaged, elderly and disabled Kentuckians-roughly 17 percent of the commonwealth's population-receive services under the $4.8 billion program that is financed by the state (30 percent) and federal (70 percent) governments.

All Medicaid recipients must meet income and resource guidelines. A pregnant woman with a child under the age of 1, for example, cannot have a monthly income exceeding $1,366. In addition to the financial requirements, a person must be in one of the following categories to be eligible for Medicaid:

n 65 or older

n blind or permanently disabled

n families with dependent children

n children under 18 and children in foster care

n pregnant women

These are Kentucky's most vulnerable citizens who cannot afford insurance and rely on Medicaid for their health care, the Medicaid deficit will almost certainly mean higher costs or fewer services for many of them.

As one of the nation's largest rural healthcare systems, Appalachian Regional Healthcare (ARH) is particularly concerned about these developments. Our 20-county service area includes seven Eastern Kentucky communities, and many of our patients participate in the Medicaid program.

ARH is one of the largest providers of healthcare services to Kentucky Medicaid enrollees. In fact, our payor mix is 80 percent Medicaid, Medicare and the uninsured. We know the risks that could result from continued cuts in Medicaid.

When Medicaid cuts occur, not only do patients

and the healthcare systems suffer, the local and state economies suffer as well. Reduced reimbursements leads to fewer services and jobs, hence a smaller tax base and overall dollars turning over in the community.

However more cuts appear to be on the horizon. State officials recently released a proposal that, according to media accounts, would restrict some benefits, increase charges for some services through premiums or co-payments and encourage low-wage workers to buy insurance through their employers. (The state is seeking federal waivers to make some of these changes.)

There is another way, however, that the state should consider as a way t decrease the current Medicaid deficit.

A recent announcement from Frankfort was considerably more positive than the news concerning the Medicaid deficit. Revenue growth and savings b state agencies combined to give Kentucky a $214 million General Fund surplu for the 2005 fiscal year.

Gov. Fletcher has indicated he will set aside $90 million of that surplus for the state's rainy day fund to help provide fiscal stability in the event of an overall shortfall.

In our view, the best possible place for the Governor to use part of th remaining $124 million is to decrease the Medicaid deficit. Economists predict slow to moderate revenue growth in the coming years, so it is critical that the state eliminate as much of the deficit as it can while it has the funds to do so. With the 70/30 match from the federal government, the $124 million would actually provide more than $413 million to reduce the shortfall.

An escalating Medicaid deficit could easily become a burden that consumes resources that would otherwise be used to meet the state's critical needs in education, corrections, transportation/infrastructure and other areas.

ARH believes, it is in the best interests of the commonwealth and all of its citizens to use a part of the surplus revenue to pay down the Medicaid deficit-making an investment in the health of Kentucky's citizens and it communities and taking an important step toward balancing the budget of this vital program.