Originally Published: December 14, 2010 9:58 p.m.
PHOENIX - Cash-short Arizona's budget troubles could put the state's Medicaid program on the chopping block again, with the possibility of hundreds of thousands of low-income people losing their government-funded health care.
Gov. Jan Brewer and the Republican-led Legislature have already cut payment rates for care providers and reduced services, including some medical transplants, but Brewer spokesman Paul Senseman said the program's costs remain "the largest single state budget problem that we're dealing with."
The Arizona Health Care Cost Containment System accounts for nearly a third of the state budget, providing coverage for approximately 1.4 million Arizonans, or about one in five,
Federal stimulus funding that has helped prop up state spending is drying up, and lawmakers won't have it when they begin work on a state budget for the next fiscal year.
That has Brewer and Republican legislative leaders eying a slightly smaller version of an AHCCCS cut they included in a budget-balancing plan for the current fiscal year. It would have eliminated coverage for up to 310,000 people now provided Medicaid coverage under an eligibility expansion approved by voters in 2000. That expansion raised Arizona's eligibility level above the federal minimum.
The eligibility cut was erased from the budget about a month last spring because the federal health care overhaul enacted in the meantime requires the state to maintain its Medicaid eligibility at early 2010 levels.
Now, with the flow of stimulus cash about to cease, an eligibility reduction is back on the drawing board for Arizona.
"This is crunch time," said Laura Tobler, a National Conference of State Legislatures health care policy analyst.
Arizona, like many other states, has already cut payment rates for providers and reduced services - to great controversy in the case of transplant funding eliminated Oct. 1 by Arizona. But the state still projects a $1.4 billion shortfall in the next budget.
Brewer said last week she'll ask the Obama administration for a waiver to permit the eligibility reduction. She's also urging the state's congressional delegation for federal legislation to loosen federal health care mandates and participating in a multistate lawsuit challenging the entire health care overhaul.
"We need flexibility from the federal government in order to get our state budget in line," Brewer said.
If those strategies don't work, Arizona should approve the eligibility cut to save a projected $750 million but also enact spending cuts in other programs that would take effect if the eligibility cut is blocked, said House Appropriations Chairman John Kavanagh, R-Fountain Hills.
"They would be everywhere, including education. That's the doomsday scenario."
Tim Schmaltz, a spokesman for a coalition of social-service advocacy groups, called the possible reduction of AHCCCS enrollment outrageous and irresponsible.
"How do you abandon several hundred thousand people's health care? It's just bad economics, and certainly it's bad for people," Schmaltz said.
Schmaltz said the state could pay for health care by getting more tax revenue by eliminating current sales tax exemptions for some transactions. That idea has been regularly proposed by Democratic lawmakers but never got any serious any traction in the Legislature.
An even drastic step being discussed by some lawmakers is withdrawing from Medicaid altogether, a step that would surrender roughly $7 billion of annual federal funding in favor of setting up a much smaller state-funded program.
"If we're not successful with granting a waiver from the feds, unfortunately other options have to be considered, even poor ones, and opting out of the program altogether and setting up our state program with state dollars is an option," said House Health Committee Chairwoman Nancy Barto, R-Scottsdale.
"It would have horrendous outcomes on Arizona's economy but Arizona is forced to look at these options," she added. "The medical budget is really threatening to overwhelm everything else. It really has to be addressed."
Brewer "is not pursuing" the idea of opting out of Medicaid and instead thinks the solution is to create a program "that is sustainable," Senseman said. "We'd like our policymakers to make the decision what is the right size for our state budget."
Kavanagh said considering a complete pullout from Medicaid reflects "frustration, brinksmanship, wishful thinking" but isn't realistic.
"You're talking about the collapse of $7 billion of medical payments that will cause the collapse of a lot of hospitals and you still have a lot of sick people around," he said.
The Arizona Hospital and Healthcare Association declined to make a representative available for an interview by The Associated Press.
But the association said major reductions in AHCCCS eligibility would clog emergency rooms, burden individuals and businesses with higher health care costs and make the state an unattractive place to live and work.
Care providers are already feeling the pinch from the state's reduction of AHCCCS' payment rates. Banner Health Systems, the state's largest hospital system, said it will scrap employee pay raises in 2011, while John C. Lincoln Health Network cited AHCCCS reductions as a factor in closing a hospital's birthing center.