Originally Published: January 14, 2011 10:10 p.m.
PHOENIX - Arizona Gov. Jan Brewer on Friday proposed to drop health care coverage for about 280,000 low-income adults next October to help balance the state budget, a move that if implemented would reduce the state's Medicaid program's enrollment by about one-fifth.
The $541 million of cuts to the state Medicaid program proposed Friday by the Republican governor came as she revealed plans for dealing with shortfalls of $763 million in the current fiscal year that ends June 30 and of $1.1 billion in the next one. Brewer's shortfall estimates are smaller than ones released previously by legislative budget aides.
Brewer relied most heavily on additional borrowing to close the midyear budget gap. but $1 billion of spending reductions provide the bulk of the budget-balancing steps in the fiscal year that begins July 1.
Besides Medicaid, the reductions would hit hardest at higher education. K-12 schools would get off relatively unscathed.
Citing the imminent end of federal stimulus that has propped up the state's spending for health and education, Brewer budget director John Arnold said the Medicaid reduction is necessary to avoid even deeper reductions throughout the rest of state government.
Brewer plans to ask the Republican-led Legislature for permission to roll back a voter-approved increase in enrollment in the Arizona Health Care Cost Containment Program.
The program's eligibility standard is above the federal Medicaid minimum. But reducing the state standard requires a waiver from a federal requirement imposed when the federal health care overhaul was approved last spring.
The waiver approach "is really a method of saving the underlying Medicaid program," Arnold said. "We are fearful if we are unable to get a waiver the entire Medicaid program will be at risk."
Brewer a year ago proposed dropping coverage for approximately 300,000 people, a move supported by the Republican-led Legislature. She and lawmakers retreated, however, after the federal health care overhaul was enacted, blocking states from reducing Medicaid enrollment.
However, the flow of federal stimulus money that Arizona has used to prop up stimulus spending is now drying up.
The renewed proposed Medicaid reduction drew criticism from an advocate for social services.
"It's more abandonment of people who have real, legitimate needs. It's also bad for the economy," said Tim Schmaltz, coordinator of the Protecting Arizona's Family Coalition. "We don't have to do this. We have options. We could raise some revenues."
House Speaker Kirk Adams, R-Mesa, applauded Brewer "for having the courage to make some very tough decisions during a difficult economic time for our state. She's presented to us a good, solid framework as we begin our budgeting process. "
Steps previously used by Brewer and lawmakers to balance the current budget and previous ones during the crisis included spending cuts, a three-year sales tax increase, borrowing, raids on special-purpose funds and use of federal stimulus money.
Brewer, a Republican who was elected in November to a four-year term, won approval of the 1-cent sales tax increase in a May special election. She has indicated she won't seek another tax increase, which would face dogged opposition from fellow Republicans in the Legislature.
Brewer did not include any new tax increases in her budget proposal, and Arnold said planned business tax cuts to be announced in an economic development plan would have only a minimal effect on the state's next budget.
The next fiscal year would be the fourth in a row that Arizona has had to close shortfalls.
State revenue dropped by about a third because of the Great Recession and the housing industry's collapse. Meanwhile, demand for health care for low-income Arizonans surged.
Arizona already trimmed AHCCCS, reducing payments to providers and trimming services, including the Oct. 1 end of some transplant coverage.
The latest employment figures show Arizona had about 281,000 fewer jobs than it did at its peak employment of 2.7 million in December 2007.