Headed for a Crunch: An Update on Medicaid Spending, Coverage and Policy Heading into an Economic Downturn, Results from a 50-State Medicaid Budget Survey for State Fiscal Year 2008 and 2009

As states finalized Medicaid policy decisions for fiscal year 2009, they faced a dramatically different situation than the prior year. At the start of state fiscal year 2008, the economy was generally strong and many states were restoring cuts from the last economic downturn and moving forward with Medicaid improvements and expansions to cover more low-income uninsured individuals. A year later, over half of all states faced significant budget shortfalls and slower than anticipated state revenue growth. For some states, plans to expand Medicaid were put on hold as states struggled to allocate funding and balance their budgets. Despite the budget crunch, few states took significant actions to cut Medicaid. During the last economic downturn from 2001 to 2004, most of the major Medicaid restrictions came later in the downturn cycle, not at the very beginning.

The Medicaid program provides health coverage and long-term care support services to 59 million individuals. Medicaid is administered by the states within broad federal guidelines, but financing is shared by the states and the federal government. During an economic downturn, unemployment rises and puts upward pressure on Medicaid enrollment and therefore Medicaid spending, as individuals lose employer sponsored coverage and incomes decline. At the same time, increases in unemployment have a negative impact on state revenues making it even more difficult for states to pay for Medicaid spending increases.

For the eighth consecutive year, the Kaiser Commission on Medicaid and the Uninsured (KCMU) and Health Management Associates (HMA) conducted a survey of Medicaid officials in all 50 states and the District of Columbia to track trends in Medicaid spending, enrollment and policy initiatives. This report presents findings for state fiscal years 2008 and 2009.