Statement of Senior Policy Analyst Raymond Castro at Medicaid Roundtable

Thank you for the opportunity to comment on the Governor’s FY 2012 Budget as it relates to Medicaid. Given both the cost and importance of this program, it is critical to examine the proposed budget cuts as thoroughly as possible in order to avoid any unnecessary harm to the 1 million New Jersyans who depend on the program for health care.

I would like to recognize that the administration has at least tried to minimize direct cuts in benefits and, instead, emphasized more efficient delivery of services. Nonetheless, the proposed cutbacks raise troubling issues.

The Budget unfairly targets Medicaid for a disproportionate amount of state budget cutbacks, including about $550 million in Medicaid reductions. The administration justifies this reduction by declaring that state Medicaid funding is “out-of-control.”

However, I am pleased to report that is far from the case.

State funding of Medicaid in New Jersey the past decade (2000 to 2010) increased by an annual average of about four percent – well below the seven percent annual rate of inflation for national health expenditures during most of that period. The increase in state Medicaid costs for New Jersey also has been well below the national average for such costs in every year for the last ten years. New Jersey state Medicaid funding increased by 42 percent during that period compared with 55 percent for all states. Also state Medicaid funds consist of a smaller share of the state general funds in New Jersey (14 percent) than the national average in FY2010 for all states (15 percent). This has been the case for most of the last decade.

Understandably, there has been a higher than average increase in total Medicaid expenditures since the recession started. For example, the total cost for general medical services increased by an annual average of about five percent from FY 2007 to FY 2011. Considering that the nation experienced the highest unemployment rate in 80 years during that time, the increase in cost is much lower than might have been expected.

In any case, far from being a sign that Medicaid is out of control, a modest increase in total Medicaid expenditures during a recession is an indication that Medicaid is doing exactly what it is supposed to do – meet greater health care needs when times are tough. Further, it is important to understand that this increased cost throughout the recession was completely paid for with federal stimulus funds. State funding for Medicaid general medical services, for example, remained flat for four years through FY 2011.

It is true that the failure of Congress to extend stimulus funds will create a shortfall in state funding. However, the state used most of the stimulus funds to address a structural shortfall in the state budget, not for Medicaid costs. The state could have identified permanent revenues for that purpose but chose not to, even though it was known that the federal funds were a temporary, stop-gap measure. Given that history, it is unfair to expect Medicaid beneficiaries to bear the brunt of balancing the budget in order to solve a problem they did not create.

A fair and careful analysis must also take into account the many cuts that have already been made in state health coverage. New Jersey was one of just two states to cut eligibility in the Children’s Health Insurance Program, or what we call NJ FamilyCare, last year. Those cuts resulted in denying health coverage to 48,000 uninsured parents whose children were covered. Because the reduction in the eligibility level (from 200 percent to 133 percent of the federal poverty level) was made permanent, the number of uninsured parents who will be denied health coverage will nearly double to 92,000 this year. To make matters worse, the proposed Budget terminates NJ FamilyCare for 1,400 impoverished adults, most of whom have incomes below $10,000 a year.

The other major problem with the proposed cuts is a lack of clarity about which specific programs are affected. Of the $550 million in proposed cuts, $300 million are achieved by what is now being called a “comprehensive” waiver, which will need federal government approval to move forward.

Achieving $300 million in savings through efficiencies alone will be a challenge, especially given that many Medicaid “efficiencies” were approved in last year’s budget and new ones have already been proposed separate from the waiver in this year’s Budget. There is also often a fine line between efficiencies and a reduction in services or eligibility.

It will be critical therefore that the administration shares its plans for the waiver with the public and demonstrate how the waiver will result in less state cost without jeopardizing the health of the most vulnerable people in our state.