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Rising Medicaid costs for Indiana mean service cuts likely

December 1, 2010

Indiana lawmakers likely will cut some Medicaid-provided services in the upcoming legislative session after learning Wednesday that the state's share of government health insurance program costs will balloon by $1.1 billion over the next two years unless checked.

The federal government pays about two-thirds of Indiana's Medicaid costs, but human services chief Michael Gargano told the State Budget Committee that the state's share has been growing by more than 10 percent each year. He said that's because the recession has made more people eligible for Medicaid, which serves those who are needy and disabled.

Gargano, secretary of the Indiana Family and Social Services Administration, asked for an additional $900 million in state Medicaid funds over the two-year period starting next July 1. He recommended the General Assembly rein in the costs by cutting some optional services the state currently provides.

He didn't identify specific services lawmakers could cut. But details will likely come when the Family and Social Services Administration presents its annual Medicaid spending forecast to the budget committee on Dec. 15.

Lawmakers are so concerned about ballooning Medicaid costs that cutting some services is not the only option they want to pursue. Senate Appropriations Chairman Luke Kenley, R-Noblesville, said Indiana should join Texas and other states that are considering opting out of Medicaid.

"We can't afford it. We have to be serious about finding alternatives," Kenley, who also chairs the budget committee, told The Associated Press.

The state has one of the most comprehensive Medicaid programs, providing about 30 optional services including prescription drugs, eyeglasses, dental work, hospice care and smoking cessation.

Enrollment has grown from about 850,000 Indiana residents in 2005 to about 1.1 million currently in programs including Hoosier Healthwise for children and pregnant women, the Healthy Indiana Plan for uninsured, low-income adults and Care Select for people with disabilities.

The Family and Social Services Administration projects that two years from now, total enrollment will approach 1.3 million. That means one in every five residents would be on Medicaid.

Gargano said the Medicaid appropriation from the General Assembly two years ago has been slashed through austerity moves ordered by Gov. Mitch Daniels and is on track to create a budget shortfall in the current fiscal year. Indiana also will lose more than $300 million per year now provided by federal stimulus funding while incurring more than $500 million in new costs over the next two years unless lawmakers cut services, he said.

"This Medicaid thing is shocking," said Rep. Jeff Espich, R-Uniondale, the new chairman of the House Ways and Means Committee, where the new state budget will originate in the upcoming session. "We're going to have to reduce the growth."

David Roos, state director of Covering Kids & Families of Indiana, said he and other public health insurance advocates want lawmakers to balance the long-term interests of their constituents against short-term budget shortfalls.

"Advocates hope the administration and our Legislature will continue to show leadership and creative thinking to minimize any cuts in these vital services," Roos said.

Kenley first raised the idea of Indiana opting out of Medicaid last spring when actuaries for FSSA projected the federal health care overhaul passed by Congress would cost the state billions of dollars. He raised that prospect again Wednesday as a way of dealing with the immediate budget problems facing the state.

He asked FSSA officials if the state could find a way to opt out of Medicaid while capturing the federal government's share of the program's costs to operate an alternative program more efficiently. Texas Gov. Rick Perry also has raised the possibility of opting out of Medicaid in favor of a state-funded insurance system that backers claim could be more efficient and less expensive. Kenley said other states also are interested in doing that.

"If we're not reacting to the elephant in the room it's just going to squash us all," Kenley said during the budget meeting.

Such an alternative most likely would require action by Congress, and that's unlikely since Democrats still control the U.S. Senate and any legislation that were to pass would need President Barack Obama's signature. But Kenley was hopeful, explaining that if Congress could pass the health care reform in a matter of months earlier this year, it could find a viable way for states to opt out of Medicaid.

"This problem extends beyond the state of Indiana," Kenley said.

FSSA spokesman Marcus Barlow said the agency hasn't planned for opting out of Medicaid.

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