Medicaid Woes Returning: After lying dormant for several years, Medicaid is again giving lawmakers headaches as they tackle budget problems.

• Author: Tomsic, Trinity D.

As if lagging revenues aren't enough, many states are now feeling pinched by rising costs in Medicaid, a program that makes up more than 13 percent of general fund budgets. So when Medicaid costs are out of whack so is the rest of the state budget. No wonder lawmakers are worried. Mounting Medicaid costs mean other programs will be squeezed.

Medicaid put pressure on state budgets even before the current economic downturn. Last year, Medicaid spending grew by more than 14 percent. While this growth made lawmakers uneasy, most had some flexibility to manage costs because of strong state finances. But times have changed.

Now, the sluggish economy is driving up Medicaid spending even more. As workers lose jobs and their incomes fall, many become eligible for coverage. It is estimated that millions could be added to the rolls because of the slowdown in the economy.

The rise in enrollment comes at a time when states face a $15 billion to $30 billion shortfall in budgets because of declining revenue growth. Lawmakers are caught between a rock and a hard place-there's a need for increased coverage and spending but erosion of state revenues places severe constraints on budgets. Policymakers are scrambling to find ways to pay for their Medicaid programs. And the end is nowhere in sight.

ESCALATING COSTS

There was a modest growth rate of 4 percent annually in Medicaid spending in the mid- to late 1990s, even as states expanded their programs. The first signs of real trouble emerged in 2001 when Medicaid spending grew considerably more than lawmakers anticipated. This trend is continuing in FY 2002. "Medicaid is growing at a rapid rate and growing outside the budget, meaning we're exceeding our projections" says Jim Johnson, director of the fiscal research division for the North Carolina legislature.

So what's driving up the cost? Prescription drugs, increases in the cost of caring for elderly and disabled beneficiaries, hikes in provider reimbursements and growing enrollment because states expanded eligibility and outreach efforts. (50 state table on Medicaid growth)

The Texas budget situation is typical of many states. Medicaid accounts for 16 percent of total general revenue spending. And lawmakers budgeted for a 10 percent increase in FY 2002.

"We are experiencing the same trends in the Medicaid program as other states. There has been a sharp upturn in caseload and continued rise in medical and prescription drug expenditures. Medicaid is a major...