States' Medicaid Funding Falls $1.7B Short

Twenty-four states gambled—and came up short—on receiving additional federal funds to relieve state Medicaid budgets stressed by the recession. The Federal Medicaid Assistance percentages fell $1.74 billion short of what those 24 states had planned, leaving huge holes in their budgets, according to research by The Council of State Governments.

Those 24 states assumed the federal government would extend the 2009 Recovery Act's increased Medicaid dollars to their 2011 fiscal year budgets. Although Congress voted to provide $14.15 billion in Medicaid funds to the states, it wasn't enough for some state budgets.

"Medicaid can be the bane of state budgets," says Debra Miller, director of health policy at CSG. "The policy wonks say Medicaid is a counter-cyclical program. But that knowledge is small comfort to those in charge of balancing budgets, who watch Medicaid rolls expand as people lose jobs at the same time state revenues shrink as tax receipts decline."

The states that did not budget the additional funds—which includes California with its budget in limbo—now have an additional estimated $7.3 billion in federal funds. They can move state general fund revenue they had earmarked for Medicaid for other spending, or use these state funds to pull down even more Medicaid money, Miller said.

The additional federal funding will help cash-strapped states in the short term, but enrollment trends and rising healthcare costs mean that Medicaid spending will continue to strain state budgets. Most states say enrollment is growing faster than expected because of the slow economy. Many states will likely face Medicaid budget deficits by the end of fiscal 2011.

"The federal match for Medicaid may be a good deal for states—but states still have to come up with their share," Miller said. "In today's lean times, that is difficult and the states that counted on a larger match are digging into other state programs, including K-12 and higher education."

The additional funding ranges from $22 million in North Dakota, and $23 million in Wyoming and South Dakota, to $851 million in Texas, $1.41 billion in New York and $1.88 billion in California.