For immediate release
Wednesday, May 22, 2002
  Contact: Jon Gardner
(301) 656-7401 ext. 230


States' Fiscal Struggles Haven't Led to Big Medicaid Cuts

Health Affairs article says states reducing optional benefits, trimming provider payments

Bethesda, Md.–Squeezed by a recession and rising Medicaid costs, states are cutting spending and considering tax increases but are sparing their Medicaid and children's health insurance programs, according to a new article published on the Health Affairs Web site (

An analysis of 13 states that have been part of the Urban Institute's Assessing the New Federalism project found that states, in general, have not reduced eligibility in response to budget pressures. Those pressures include declining tax revenue; increasing enrollment because of expanded eligibility, new outreach, and higher unemployment; and increasing costs because of higher provider payments, drug prices, and lower savings from managed care. The analysis says that significant cuts are unlikely, however, because of federal matching payments, minimum federal standards, and the political strength of providers and beneficiaries.

Many states expanded Medicaid benefits and eligibility and added new health insurance programs for the uninsured during the 1990s when revenue was booming, medical inflation was low, and new program dollars were flowing from Washington. This picture began to change in 2000. Although they were not advocating cuts in enrollment, several states were cutting or freezing reimbursement to providers, eliminating some optional benefits, and limiting their outreach efforts to increase enrollment. If the recession deepens or lasts longer than now expected, this could change, said the report authored by John Holahan, Joshua Wiener, and Amy Lutzky.

The authors warn that the problems that state health policy faces will not fade when the recession ends. Between rising health care costs and slow economic growth, employer coverage could decline and the number of uninsured increase. Medicaid managed care is no longer saving as much money as it did in the 1990s. Hospital, nursing home, and drug costs are likely to continue increasing. And the federal government is determined to curtail use of the questionable financing arrangements that states have engaged in. States will have difficulty maintaining current coverage commitments and will have an even harder time expanding coverage.

States covered by the report are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington and Wisconsin.

For interviews with the authors, please contact the Urban Institute Public Affairs Office at (202) 261-5709, or

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

©2002 Project HOPE–The People-to-People Health Foundation, Inc.