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Additional Medicaid funding stalls in Congress putting AZ in a bind

A doctor at the Mountain Park Health Center in Phoenix examines Saquelyn Vargas, a toddler who was visiting for a routine check-up on July 8. If Congress doesn't approve more money for states' Medicaid programs, hundreds of thousands of residents in Arizona may lose health care coverage. (photy by Ryan Cook/RJ Cook Photography)

A doctor at the Mountain Park Health Center in Phoenix examines Saquelyn Vargas, a toddler who was visiting for a routine check-up on July 8. If Congress doesn't approve more money for states' Medicaid programs, hundreds of thousands of residents in Arizona may lose health care coverage. (photy by Ryan Cook/RJ Cook Photography)

Hope is fading that Congress will approve hundreds of millions of dollars that Arizona is counting on to operate its Medicaid program, and state lawmakers don’t know whether they’ll have to scrounge for cash, beg for help or drastically downsize the state-run health care system.

In late May, the U.S. House of Representatives stripped $24 billion from a spending bill that would have provided additional Medicaid payments to states. The money for the Federal Medicaid Assistance Percentages (FMAP) was put back into the bill when it went to the Senate, but the bill failed a cloture vote on June 24.

Arizona and 29 other states drafted their budgets to reflect an anticipated extension of the federal stimulus money that is scheduled to expire on Dec. 31, and state lawmakers across the country are waiting nervously to see if Congress will extend that assistance an additional six months, as they were told when the Obama administration’s health care reform measure passed.

Without the $400 million the FMAP bill would have provided for the Arizona Health Care Cost Containment System (AHCCCS), the state is in a desperate position — stuck without money to pay for its full Medicaid program and barred by the federal government from restricting eligibility or cutting spending. If the state violates the mandate and cuts AHCCCS anyway, the federal government could withhold nearly $8 billion in health care funding from the state.

Many lawmakers are wondering if, or when, Gov. Jan Brewer will call a special session, a near certainty if Congress doesn’t approve enough additional health care funding to pay for the mandates in the landmark health care bill it passed in March. Few are eager to return to the Capitol before the general election in November, and no one knows where the money will come from if they do.

But the federal money that is keeping AHCCCS funded runs out on Jan. 1, and something has to be done before then.

Senate President Bob Burns, a Republican from Peoria, said additional federal help is looking far less likely now than in March, when Arizona passed its budget and Congress passed its health care bill. Soon the governor may have to decide whether to act on her own.

“At some point we would decide that there’s no possible chance of getting that money,” Burns said. “So things are kind of up in the air at this point.”

Senate Majority Leader Chuck Gray, a Republican from Mesa, said Republicans now serving in the Legislature would shoot down any attempt to approve more state money for Medicaid programs for fear of GOP voter backlash this fall. Brewer would have to wait until after the general election, or at least the Aug. 24 Republican primary, to call a special session, he said.

“If she calls a special session before the election, you’ll see a lot of people vote differently than they would directly after the election,” Gray said.

Brewer spokesman Paul Senseman said the governor has no plans for a special session and is waiting for Congress to either lift the mandates from the health care bill or pay its costs.

The lack of additional federal assistance has added $9 million to the state’s budget because Arizona did not get money it was expecting to help pay for KidsCare, the state’s branch of the federal Children’s Health Insurance Program. Instead of eliminating the program on July 1, when the new budget year began, the state kept it running with the hope that federal money would eventually cover the costs.

“There’s still plenty of time for Congress to relax the MOE (maintenance of effort) before it impacts our state budget,” Senseman said. “There just isn’t any viable solution outside of the congressional solution.”

Arizona won’t need the extra money for AHCCCS if Congress gives the state a pass on the maintenance-of-effort mandate in the health care bill, which bars states from decreasing health care spending. In a June 30 letter to Arizona’s congressional delegation, Brewer asked that the requirements be lifted or relaxed, which would prevent a $400 million shortfall in Arizona’s precariously balanced budget and remove an estimated 310,000 people from the state Medicaid program.

AHCCCS isn’t the only thing that might blow a hole in Arizona’s budget. If voters in November reject ballot measures that would sweep $325 million from the First Things First program and $125 million from the Growing Smarter fund, the state will be back in the red, even with more Medicaid assistance. Without more Medicaid money, however, the state could be looking at a deficit of more than $850 million in this year’s budget.

State lawmakers are baffled by the situation; state and federal requirements to maintain funding levels for certain programs mean they can’t cut their way out of such a large deficit, and the Legislature has refused to consider tax increases. Democrats have proposed eliminating tax breaks to raise more money, but Republicans have refused to consider the idea.

Burns said the state could rely partly on a contingency plan that would have cut about $435 million from the budget, largely from education, if voters had rejected a sales tax increase in a May 18 special election. The tax hike passed overwhelmingly, though, and lawmakers may hesitate to cut education spending that Arizonans had approved.

Lawmakers would likely figure out where money could be cut or shifted from other programs to make up the difference, Burns said. But then it risks running afoul of other federal and voter mandates on education spending, which makes up more than half the state’s budget.

Rep. Andy Tobin, the House majority whip, said the state would have no choice but to cut into education. He said the onus was on the Democratic Congress to approve more Medicaid funding, and criticized Democratic lawmakers who opposed the AHCCCS cuts in March on the grounds that more federal money was expected.

“We’re going to have to find other ways to come up with the savings that the minority doesn’t want to do,” said Tobin, a Paulden Republican.

Of course, some argue that the state cannot cut AHCCCS under any circumstance because it, too, is protected by voter mandate. House Assistant Minority Leader Kyrsten Sinema, a Phoenix Democrat, said the $400 million in cuts the Legislature and governor approved before the federal health care bill passed were unconstitutional because they violated Proposition 204, which voters passed in 2000. That ballot measure gave Arizona some of the most generous Medicaid benefits in the country.

Sinema said she expects Congress to approve the money, perhaps even after the November election, but suggested eliminating a number of tax breaks or incentives to fill the budget gap, if necessary. If there is no extra federal money, she said the state could fully fund AHCCCS until it approves new funding in January by shifting money from other operations until new funding was found.

“I’m not sure exactly where we’d find it, but I can say that we would have to find it,” Sinema said. “Not only is it now required if we want to keep our federal matching funds, but … it’s required under the Arizona Constitution because it’s an initiative that was passed by the voters back in 2000.”

Others advocate a far more drastic approach. Gray said the state should refuse to comply with the maintenance-of-effort requirements in the federal health care bill and downsize the AHCCCS program significantly.

“Government should not be providing health care,” Gray said. “I think there are too many people on AHCCCS, and I think that government has facilitated that by providing more and more money to a failing program.”

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