New State Leaders to Play a Dangerous Game in Rejecting Federal Funding

More Republicans are preparing to occupy governorships and seats in state legislatures now that the November elections are over, and many are eyeing cuts to domestic programs. Some are even advocating that states reject federal funding for Medicaid because of eligibility mandates that limit states’ ability to cut spending on the programs.

Health care policy experts say if states do reject federal funding for Medicaid, more people will lose their health insurance. And if that happens, medical bad debt will increase significantly.  However, collecting payment from the lowest income earners will be difficult and costly for healthcare providers and their debt collection agency partners.

“Some (unpaid medical bills) will be written off as charity, and some will end up as bad debt,” said Jim Richards, president and CEO of Capio Partners, an Atlanta, Ga.-based medical debt buyer. “That’s not good for anyone because they (Medicaid patients) don’t have the means to make payment…If you have more uncollectable accounts, it clogs up the system and makes every one less efficient.”

During the last two years, millions of Americans were added to Medicaid programs throughout the country after the housing and financial crisis saddled the country with its worst recession since the Great Depression. Medicaid provides health insurance predominately to low income seniors, disabled people, children, and pregnant women.

Congress included an additional $87 billion in federal funds in the American Recovery and Reinvestment Act of 2009 – commonly called the stimulus bill — to help states foot the bill.  But the law prevented states from making it harder to qualify for Medicaid until the end of 2010. The healthcare reform bill extended the eligibility mandates until 2014 or until a state’s new health insurance exchange is fully operational.

Rachel Morgan, health committee director for the National Conference of State Legislatures, said health care reform allows states to be exempted from federal eligibility requirements for certain populations if the state certifies that it is facing a budget deficit.  “But I wonder how many will admit to that when they are mandated to balance the budget,” Morgan said.

Even so, Texas Governor Rick Perry and Arizona Senate President-Elect Russell Pearce would rather forego the federal funds, arguing that their states can’t afford it. Pearce told a local news reporter that he wants Arizona to turn down $7 billion in federal funding that supports the state’s Medicaid program known as the Arizona health Care Cost Containment System (AHCCCS).

Pearce said he believes AHCCCS can survive without the federal funding, but it would have to make some changes, including charging premiums and co-pays.

More than 1.3 million Arizonians rely on the program to receive medical care, said Jim Haynes, senior vice president and CFO of the Arizona Hospital and Healthcare Association.  Haynes said Medicaid reimbursements also contributed 18 percent of last year’s revenue to the hospitals in Arizona. If Arizona rejects federal Medicaid funding, the state’s unemployment rate – which is already above 9 percent – could increase across all job sectors, Haynes said.  Arizona hospitals’ uncompensated care, which includes bad debt charity care and discounts to uninsured patients, also will increase.

“It’s a huge concern,” Haynes said. “If the Medicaid program is shrunk materially, hospitals will still be responsible for taking care of patients who come to the emergency room and those costs would end up as bad debt and uncompensated care.”

Jennifer Sullivan, senior health policy analyst with Families USA, a Washington D.C.-based non-partisan consumer advocacy, told insideARM.com that any state considering rejecting federal funds can’t possibly expect to maintain their state’s Medicaid programs without making drastic cuts to enrollment.  Choosing which groups to cut won’t be easy, she said.

“They’ll only have half the money to provide service, and they will have to make some very difficult decisions,” Sullivan said. “Do they cut the seniors and disabled people or low income pregnant women and children…You can’t do it all.”