Commentators often use a “good news, bad news” format. I wish this report had that balance, but it is a developing story of bad news, worse news, some recent worrisome political news, and the distinct possibility of even more bad news in the near future.  That said, there is still hope that Congressional relief will materialize, but first let’s look at the bad and worrisome news:

  • The bad news is that Wisconsin has a projected deficit of $273 million GPR in its Medicaid budget.

  • The worse news is the $273 million figure is merely the state portion of the Medicaid shortfall. If the state decided to close that deficit by Medicaid cuts alone (which doesn’t seem to be a very realistic option), policymakers would have to cut at least $750 million in combined state and federal funds.

  • The recent worrisome news is that the House dropped Medicaid fiscal relief for the states from the jobs bill passed in late May, which appeared to be the best hope for approving the long-anticipated 6-month extension of federal relief for the states. (The ball is now in the Senate’s court.)

  • The possibility of even worse news is that the Wisconsin Supreme Court is expected to rule in the next few weeks on the State Medical Society’s challenge to the measure transferring $200 million from the patients compensation fund to the General Fund, where it was used to help balance the Medicaid budget.
Wisconsin is one of many states facing a dire fiscal situation, as the recession cuts into state revenue and substantially increases demand for safety net services, such as Medicaid. A June 8 New York Times article reports on the situation in financially beleaguered states that have been counting on relief from Congress for their Medicaid deficits. The article notes that Pennsylvania has been counting on about $850 million more for Medicaid, which would close nearly half of the state’s $2 billion projected deficit for fiscal year 2011.

There are about 30 states that have either passed budget bills that assume the Medicaid relief (FMAP) will be extended or who are working on budget bills that make that assumption. That seemed like a pretty safe bet because both houses of Congress had approved a $24 billion, six-month extension of the Medicaid fiscal relief provided to states by the Economic Recovery Act, although Congress hadn’t completed the deal because it passed in somewhat different forms. The House action just before Memorial Day now makes passage of that fiscal relief look far less likely.

Wisconsin isn’t on the list of 30 states for the simple reason that policymakers here thought we didn’t need a budget adjustment bill to keep our 2009-11 budget balanced. But that conclusion was based on the assumption that roughly $350 million from another 6 months of federal Medicaid relief would be forthcoming and would fill a $273 million GPR hole in the Medicaid budget. The Medicaid deficit estimate comes from the most current DHS projections, which were made in late March. The DHS estimate already assumes that the rate reforms and other changes that the department began to implement last fall will save about $200 million GPR in the current biennium.

If the state were to try to fill the $273 million hole solely within Medicaid (i.e., not raising taxes or cutting elsewhere), total state and federal Medicaid spending would need to be reduced by roughly $750 million in fiscal year 2010-11. That’s a virtually impossible task, which means that if federal Medicaid relief is not extended, the state legislature will probably need to meet late this year or early next year to adopt a budget bill that includes some combination of cuts in other areas of the budget and/or tax increases.

The news could get much worse for Wisconsin’s Medicaid budget if the State Supreme Court supports the State Medical Society’s position and blocks the transfer of $200 million from the patients compensation fund. That case was argued before the Court this spring, and a decision is likely in the next few weeks.

The best hope for Wisconsin’s budget, and particularly the Medicaid budget, is that the U.S. Senate will amend the jobs bill by adding back the funding for extended Medicaid relief. The Senate Finance Committee proposal unveiled today (June 8) would do just that. Although well over 50 Senators support extending that fiscal relief, finding the needed 60 votes will be challenging. 

The fate of the Medicaid relief is critically important issue for Wisconsin and for the vast majority of states. Today’s New York Times article reinforces the points made in a March report by the Center on Budget and Policy Priorities – that failure to extend the Medicaid relief would result in more drastic MA cuts, an increase in the ranks of the uninsured, and further stress for the economy.