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Gov. Hunt uses Medicaid to help ease the budget crunch.

Targeting the poor 

Why is the governor using Medicaid cuts to ease a state budget crunch?

Minnie Alston slides a small tray off a shelf in her Durham kitchen and turns to show me six plastic bottles containing her daily medications. A lively, expressive 86-year-old, Alston takes the drugs for chronic high blood pressure, diabetes and glaucoma.

She used to pay nearly $100 a month for her medicines--more than she could comfortably handle on a fixed monthly income of $600. But thanks to an expansion last year in North Carolina's Medicaid program, Alston can now buy her prescriptions for $1 apiece.

Prescriptions aren't covered under federal Medicare for the elderly, but they are among the added benefits made available by state Medicaid. Alston was referred to Medicaid by staff members at Senior PharmAssist, a Durham nonprofit that helps elderly citizens pay for prescription drugs. As luck would have it, she applied for benefits at a time when North Carolina was expanding Medicaid services to low-income elderly and disabled citizens.

Alston's new drug benefits have brought her peace of mind. "I don't want to be a burden to my children and I don't want anybody to be holding out the hat for me," she says, carefully placing her medicines back on the tray. "But you know, just one of these tiny bottles of my eyedrops was costing me $16. It was more than I could afford."

How long the state can afford to help people like Alston is an open question. As part of a plan to plug a $450 million hole in next year's state budget, Gov. Jim Hunt wants to transfer $70 million out of the Medicaid trust fund into its operating account to free up money for other budget items. (See "Budget winners and losers.") The trust fund acts as a "rainy day" account to cover such unexpected costs as a rise in the number of people applying for Medicaid. Hunt has also proposed cutting a planned increase in Medicaid spending by $44 million--including $12 million for prescription drugs. Altogether, reductions in the Medicaid budget make up 34 percent of the total $334.9 million the governor has recommended trimming from next year's spending plan--the largest cut in any state program.

This isn't the first time state leaders have trimmed Medicaid spending or shifted funds to help ease budget shortfalls. But the magnitude of Hunt's proposed spending reductions this year--paired with continuing uncertainty about the extent of hurricane-relief needs, and tax cuts that have reduced the state's tax base by 10 percent since 1995--add up to a big gamble. If the state's economy suddenly goes into a tailspin, or if budget analysts underestimate the number of people qualifying for Medicaid, the program may not have enough funds to provide needed services.

The budget plan "means we will have no flexibility in the Medicaid program, no ability to deal with a blip in the economy and no ability to address other needs," says state Rep. Lanier Cansler (R-Buncombe), who has been raising pointed questions about the Medicaid trust fund in legislative meetings where Hunt's budget is being hashed out. "We're basically at the bottom of the barrel."

Health-care advocates say the danger isn't that people now receiving Medicaid benefits will suddenly lose them, but that the program will be unable to accommodate new clients or provide added benefits such as the prescription aid Minnie Alston now receives.

"The problem we are setting up is that we'll have no reserves," says Sorien Schmidt, a public-interest attorney with the N.C. Justice and Community Development Center in Raleigh. "If all of a sudden we have a new influx of people and Medicaid is costing more and we have no reserves and no new revenues, they'll have no choice but to start cutting those optional services or cutting the amounts they pay doctors," which would make it harder for Medicaid recipients to find care.

Others see Hunt's willingness to raid Medicaid reserves as a symptom of a larger problem in state government: a prevailing slant toward funding pressing needs by cutting programs and depleting savings rather than raising taxes or closing tax loopholes that are now costing the state between $1.9 billion and $2.2 billion each year.

"I get mad when I keep hearing about how we don't have enough money and this is a tight budget year and we brought it on ourselves," says Adam Searing, director of the N.C. Health Access Coalition. "If we closed even a couple of the loopholes we now allow for things like luxury cars, we could address some of the huge health needs we have in this state."

Just one loophole, the $1,500 cap on the state sales tax on cars--which effectively means that luxury car owners pay less--costs $25 million a year. Searing says that money could be used to begin expanding the state's Health Choice program for uninsured kids to include coverage for their parents.

State budget officials argue that while the proposed spending cuts may sound large, they're only a small portion of Medicaid's annual $5 billion budget. But privately, some analysts admit that Hunt's Medicaid plan rests on rosy assumptions: namely, a steady economy and a drop in demand for services. Even if the economy is stable, analysts say, it's often hard to predict how much money will be needed each year for Medicaid because the forecasts are based on variable factors, like the cost of health-care services and the number of times people will use their benefits.

State Medicaid officials say they aren't worried. "The budget is not being cut. It's just a cut in the growth rate," says Allen Gambill, assistant director of financial operations for the state Division of Medical Assistance. "When we take a look at the number of eligibles and historical spending patterns, we're expecting to spend less money than we originally projected."

Gambill points to a recent drop in the number of Medicaid recipients as comforting proof that fewer program dollars won't lead to a reduction in services. Between 1998 and 1999, the number of North Carolinians enrolled in Medicaid fell from 1.19 million to 1.17 million. The decrease was admittedly small, and was the first such reduction in 15 years. But Gambill says the need for Medicaid services might also be reduced by the expansion of other state health-care programs, such as the $1.4 million Hunt wants to give the Health Choice program to cover an additional 65,690 children.

Cansler, for one, is not convinced. "Obviously, the department heads have to support the governor's budget and they are very careful in their responses," he says. Instead of transferring money out of Medicaid reserves, the Buncombe County lawmaker wants funds used to fill health-care needs that are now going unmet.

"There are things we need to do in Med-icaid, such as increase the reimbursement rates for dentists so that more people can get dental care," says Cansler, who has introduced a bill to do just that. "And we have psychiatric beds that are closing all over the state while we're having trouble accessing those services" for Medicaid clients.

Others worry that the decline in Medicaid rolls is mainly a result of people falling through the cracks of the reformed welfare system.

"It would be perfectly fine if people leaving Medicaid were getting good jobs with decent health insurance," says Dan Gerlach, director of the N.C. Budget and Tax Center in Raleigh, which advocates for low-income citizens. "But they aren't." Many people are leaving welfare unaware that they can still qualify for Medicaid. Now, Gerlach says, "they simply form part of the 15 percent of North Carolinians who are uninsured."

Why is Medicaid a target for spending cuts? Rep. Cansler says the program is a casualty of the governor's desire to raise teachers' pay and expand the Smart Start early-childhood initiative. "It's all a shift to move dollars around to get money for the governor's favorite programs," he says. "My big concern is that we are digging holes elsewhere that we are going to have to refill next year."

Chris Fitzsimon, head of the progressive Common Sense Foundation in Raleigh, has other theories about why state leaders are turning to Medicaid for budget relief. He says it's because the program serves low-income citizens like Minnie Alston--people who don't make big campaign contributions and don't have lobbyists roaming the halls of the legislative building.

"That's the big problem with the budget debate every year," Fitzsimon says. "Our state takes care of the people who are there [lobbying] and are powerful. In really good years, the rest of us get to fight over the crumbs."

This time around, there may be no crumbs. Spending for many state programs--including Medicaid--has already been cut or frozen to pay for last year's $386 million hurricane-relief package. And with many lawmakers opposed to the governor's suggestion to borrow money to pay for a $240 million intangibles tax settlement, health-care advocates and Medicaid recipients are bracing for even bigger spending cuts before a final budget is approved. EndBlock

  • Gov. Hunt uses Medicaid to help ease the budget crunch.

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