Why cutting state Medicaid budgets is a terrible economic decision

In 2003, the national office of ARC published an article focusing on the economic impact of cutting the state Medicaid budget. Considering the number of states currently attempting to do the same thing, the article's explanation of the mathematics of cutting state Medicaid budgets is extremely timely. The basic logic is that for every dollar of state spending cut, the state loses at least $1 in federal funding. It's because the federal government matches state medicaid spending, by percentages ranging from 53% to more than 80%. (The acronym for the federal matching funds percentage is FMAP). So in 2003, in Hawaii, for every dollar the state spent on Medicaid, it received $1.43 from the Federal government. This sums it all up:

In 2001, Hawaii spent $308 million of state dollars and $455.8 million federal dollars on Medicaid. This resulted in $743 million in new business activity in the state leading to the creation of more than 7,000 new jobs. Every $10 million cut in Hawaii’s state share of Medicaid spending could lead to a loss of $29 million in state business activity, resulting in 286 jobs lost in the state. Source: Families USA, Medicaid: Good Medicine for State Economies; January 16, 2003.

This could be summed up as the "cut off your nose to spite your face" approach to economics. What it also means is that for every $10 million the state (in this case Hawaii) cuts from it's Medicaid budget, the community of individuals with disabilities and special health care needs actually loses $2.43 million worth of services. The states forget to tell us that when they are going on and on about how they have to make the cuts someplace and we all need to just take it on the chin, or grin and bear it, or whatever platitude you're hearing from your state officials. The federal Stimulus bill enacted by Congress on February 17 of this year added $86.6 billion to the FMAP for the states. Each state's share of federal funding increased by at least 6.2%. Here's the list of how much additional FMAP funding each state is due to receive. The question is, with all the state cuts in medicaid funding happening across the country, what is going to happen to this potential increase in federal funds? Especially since

States would only be eligible for the FMAP increase if they ensure that their Medicaid eligibility criteria and enrollment/renewal procedures are no more restrictive than those in place on July 1, 2008.

So how narrowly are we going to define "Medicaid eligibility criteria and enrollment procedures"? In Hawaii, for example, the state put into effect substantial cuts in personal services (including skilled nursing) for children with disabilities under the age of 13. The letter sent out to parents on July 3, 2008 stated services were going to be re-evaluated for cuts for any child in a home based waiver program under the age of 13 and receiving more than 29 hours of services per week. Then in December, Hawaii cut another chunk from the personal services received by these same children, along with other participants (regardless of age) who were enrolled in the state's Medicaid 1915(c) waiver program providing Home and Community Based Services. I haven't heard anything about these services being reinstated. And I've already uploaded news articles showing another seven states are also in the process of completing first and in some cases, a second round of medicaid cuts. A lot of these cuts are aimed at the home services that allow our kids to stay at home with us. And in the middle of all this, what is happening with the funds for EPSDT? Mention of the program is strangely missing from the vast majority of articles I've been able to find on cuts in services for children with disabilities. I am not an economist. And right about now I'm beginning to wonder if the states need forensic economists in order to figure out where the EPSDT funding is being spent now and what's happening to it in the greater scheme of states cutting medicaid related services. EPSDT cannot be cut. Whether the services are provided through medical providers or your school district, your state absolutely cannot cut any service a doctor says is medically necessary for your child. If your child needs formula because he or she feeds through a tube, it can't be cut. If your child requires 24/7 skilled nursing, it can't be cut. If your child requires diapers, or specialized bathing equipment, these expenses cannot be cut. But they are. So what has happened to the EPSDT funds?