State Long-term Care Programs: Balancing Cost, Quality, and Access

Economic & Fiscal Climate

Presenters: Donald J. Boyd, Deputy Director, Nelson A. Rockefeller Institute of Government Albany, NY. Vernon K. Smith, Ph.D., Principal, Health Management Associates, Lansing, MI.

Donald Boyd of the Rockefeller Institute of Government suggests that despite recent positive economic news, State tax revenue is likely to lag substantially behind the improving economy. Income taxes, and especially taxes on capital gains, are extremely volatile and are likely to decline significantly this year and remain low for at least several years. The other major State tax revenue source, sales taxes, are not likely to recover very rapidly in the near term.

Absent policy changes, Medicaid spending is likely to grow much faster than State revenue, placing increased pressure on State budgets. While State fund balances are relatively high by historical standards, they offer only modest protection. As a result, State budgets will be very constrained for at least the next two years, and significant tax increases and spending cuts are likely to be on the table in many States once we get past the current election year.

Vernon Smith described the drivers of Medicaid spending increases, how States are dealing with budget shortfalls, and the outlook for the future. Medicaid spending increases have paralleled increases in private sector health insurance premiums.

A survey conducted by Health Management Associates for the Kaiser Commission on Medicaid and the Uninsured showed that spending has increased due to rising caseloads, prescription drug costs, and provider rate increases. Long-term care is an increasingly important factor.

The survey found that in mid-FY 2002, over two-thirds of the States were considering or had initiated significant spending reduction strategies, including:

• Benefit and eligibility changes.
• Case management.
• Disease management.
• Prior authorization.
• Expanded prescription drug formularies.

Because of Federal matching, Medicaid reductions of $2 to $4 are needed to save $1 in State resources. The outlook is for Medicaid spending to increase faster than increases in State revenues, and to become an even larger share of State budgets.

Additional Resources

Attachment A: State efforts to manage medicaid expenditures. Washington (DC): National Governors Association; 2002 Feb.

Boyd DJ, Scheppach RC. The disappearing state surpluses: how come, how long, and how will they affect social service programs? Washington (DC): National Health Policy Forum, George Washington University, 2001 Oct 30;769:1-6.

Smith V. Testimony to the Senate Committee on Aging. Washington DC. Washington (DC): The United States Senate; 2002 Mar.

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