Arizona Medicaid cuts have hidden costs, providers say

Kaiser Health NewsMarch 2, 2011 

WASHINGTON — Arizona's plan to cut about a quarter-million adults from Medicaid would lead to uninsured patients crowding emergency rooms, hospitals slashing services and laying off thousands of workers and health plans increasing premiums to make up for lost revenue, health providers say.

Arizona Republicans and conservative groups backing the move say there will be some pain, but the impact will not be that dramatic.

"The health care industry is always expanding," said Byron Schlomach, an economist at the Phoenix-based Goldwater Institute, a conservative research group. "Maybe now the growth will be a little slower."

So who's right?

Missouri, which in 2005 cut 100,000 adults from Medicaid, the state-federal health insurance program for the poor, offers some possible answers.

A study published in the journal Health Affairs in 2009 found the Missouri cuts led to an increase in uninsured patients in hospital ERs and in uncompensated care hospitals provided. But the hospitals were able to avert "serious financial pressure" because the number of Medicaid patients needing hospital care held steady, and extra state Medicaid funding to hospitals also cushioned the blow.

The study's lead author, Stephen Zuckerman, said few Arizona health care providers would feel a big impact from the proposed cuts because most Medicaid recipients are treated by a relatively small percentage of hospitals and doctors.

"Not all hospitals or health providers feel the impact equally," said Zuckerman, a senior fellow at the Urban Institute, a nonpartisan Washington research group.

David Dillon, a spokesman for the Missouri Hospital Association, said while there were sporadic layoffs following the Medicaid cuts, the industry has added jobs overall since 2005. "Most hospitals found a way to manage without cutting staff or services," he said.

Hospital revenues in Missouri grew as the industry negotiated higher rates from insurers, according to a study commissioned by the Missouri Foundation for Health.

Still, the ramifications to Arizona's hospital industry will likely be more severe than in Missouri. That's because Arizona's proposed cut is nearly three times bigger than what occurred in Missouri and the economy is worse than in 2005, which is pushing up the number of uninsured.

Arizona's plan to scale back its Medicaid coverage of 250,000 childless adults and 30,000 low-income parents would save the state $541.5 million. It's the single biggest component in Republican Gov. Jan Brewer's plan to eliminate a projected $1.2 billion shortfall in the next state budget.

Last month, Health and Human Services Secretary Kathleen Sebelius said the proposal for the 250,000 childless adults would not violate a federal law that prohibits states from reducing eligibility for Medicaid because Arizona's coverage was an optional program that is set to expire Sept. 30.

After meeting with Sebelius in Washington on Monday, Brewer said she may scale back the reductions if the federal government allows the state to eliminate some benefits such as transportation and to impose co-payments on Medicaid patients.

Arizona is one of many financially strapped states looking to cut Medicaid spending, although most are doing it by reducing reimbursements to providers and so-called optional benefits, such as dental care. Arizona is seeking to cut reimbursements, benefits and eligibility.

Arizona, which has the fourth highest rate of uninsured residents in the U.S., is one of only a handful of states to cover childless adults in the Medicaid program. Defenders of Brewer's proposal say Arizona would merely be putting its program more in line with most other states.

But that's little consolation for people losing their coverage or health care providers that are bracing for the worst.

"It would be catastrophic," said Bill Byron, spokesman for Banner Health, the state's largest health system with 13 hospitals. Because the federal government matches Arizona's Medicaid funding on a 2 for 1 basis, the cut would cost Arizona's health industry $1.6 billion, he said.

Byron said the cuts would lead to many more uninsured people using hospital emergency rooms. That will lead to delays in care and increased costs that hospitals will pass on to insurance companies, which will, in turn, raise premiums.

Judith Solomon, vice president for health policy at the liberal-leaning Center on Budget and Policy Priorities, believes the hospitals may be overstating the consequences. She points to a recent federal study noting that the rates for using ERs for non-urgent health issues is similar among the uninsured, Medicaid enrollees, or patients with private insurance.

Schlomach calls the argument that patients lacking health coverage would crowd the emergency rooms a "red herring." He said hospital ERs are only responsible to cover emergencies and don't have the obligation to provide primary care services.

Arizona Hospital and Healthcare Association estimates the Medicaid cut would lead to about 13,000 job cuts at the state's hospitals.

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