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Told that states are facing a worsening economic condition with short-term prospects remaining gloomy, the nation’s governors are asking Congress for help with Medicaid, which now accounts for nearly one-fifth of state expenditures.
During its annual meeting in Washington, DC, in February, the National Governors Association (NGA) got the bad economic news in a report from Mark Zandi of economy.com in West Chester, PA. Mr. Zandi projected that state revenues would be down 3.8% this year, led by a 17.9% drop in corporate taxes and a 6.4% reduction in personal income tax revenues.
According to Raymond Scheppach, NGA executive director, while Mr. Zandi is looking for a relatively robust economic recovery with total state tax revenues increasing by 5% for the next fiscal year, the average annual growth rate for 2001-2003 is only 0.5%, significantly lower than the 6.6% average annual growth rate during the preceding three years.
Mr. Zandi said the broad-based nature of states’ fiscal problems is due in part to the broad-based nature of the current recession. Unlike in past recessions in which specific regional economies were hurt badly while others held up well, nearly every regional economy has suffered in the current downturn, he said.
State economic woes have been exacerbated by less substantial federal support to states than in past recessions, due in part to a change in the structure of a number of state-administered federal programs.
State governments are being forced to address their budget gaps, Mr. Zandi reported, by drawing down on rainy day and other reserve funds, making significant spending cuts, postponing previously legislated tax cuts, and even going for tax increases. "These budgeting efforts come at an inopportune time for the struggling economy, insofar as much of state government spending is used to support financially distressed households and businesses. Indeed, an efficacious method for the federal government to support the ailing economy would be to more aggressively fund the federal programs administered by state governments."
At a governors-only session on Medicaid during the conference, attendees reached consensus on four items that are to be the heart of their legislative and regulatory priorities for the rest of this year: (1) maximum implementation of current Medicaid waiver authority; (2) greater flexibility in cost-sharing, such as copays and premiums, for optional populations and/or services; (3) greater flexibility in benefit design for optional benefits and for all benefits for optional populations; and (4) approval of President Bush’s Medicaid drug rebate proposal. A spokesman for the NGA tells State Health Watch a letter was sent to congressional leaders on the four priorities.
The governors also agreed to establish an independent commission on Medicaid reform, but could not reach agreement on a proposal to ask Congress for a temporary increase in federal funds for Medicaid. Mississippi Gov. Ronnie Musgrove had proposed a plan to ask Congress for more money for Medicaid temporarily, no matter what happens to any economic stimulus bill. With the lack of agreement, however, the idea was referred to the NGA executive committee for further study. Mr. Musgrove told reporters that some governors were concerned about separating additional Medicaid funding from an economic stimulus package because they would be going against Bush administration wishes.
Administration forces have said they are concerned that a temporary funding increase could become permanent, and have suggested that emergency Department of Labor grants be expanded so states could provide health insurance to unemployed workers and their families.
[Contact NGA at (202) 624-5300.]