Indiana may cut Medicaid services to check costs

The General Assembly likely will cut some optional Medicaid services rather than resort to raising taxes to check the overall growth in the government health insurance program at a time Indiana revenues still lag behind current overall spending, a key legislative budget writer said Wednesday.

State Senate Appropriations Chairman Luke Kenley, R-Noblesville, said he and other members of the State Budget Committee were "speechless" after the state Medicaid actuary projected Indiana's share of the program's costs will rise by about 25 percent this fiscal year and next, or by $1.46 billion and $1.84 billion respectively, and by nearly 9 percent, or $2 billion, in the 2013 fiscal year unless some services are cut.

Actuary Robert Damler of the private firm Milliman Inc. said the Legislature can cut some optional services such as chiropractors, podiatrists and adult dental services to reduce its overall Medicaid bill. He also presented an alternative scenario in which the state's share of Medicaid costs rises by about 19 percent, or $1.74 billion, during the fiscal year that begins July 1, and by about 8 percent during the following 12 months.

Kenley said the challenge to lawmakers is to control the growth in Medicaid costs at a time when other state spending is flat, and they're more likely to do that by cutting optional services rather than raising taxes to balance the budget.

"If the forecast numbers hold up . . . I think we're beginning to see a path where Indiana can continue to be a fiscally solvent state without raising taxes," Kenley said after the committee's hearing.

Kenley, who also chairs the State Budget Committee, said he was backing away from his early suggestion that Indiana follow Texas' lead in exploring alternatives to Medicaid, because there was no enthusiasm for such an option from Gov. Mitch Daniels' administration.

An updated forecast projects Indiana's sales and income taxes and other revenue will be about 1 percent higher than previously believed and will grow by about 4 percent in each of the next two fiscal years, the period covered by the biennial budget that lawmakers will write during the upcoming session of the General Assembly.

However, current state spending is about $13.9 billion per year, and revenues during the next fiscal year will reach only $13.4 billion even with the projected growth, State Budget Director Adam Horst said.

Revenues would reach $13.9 billion in state fiscal year 2013 under the latest forecast, rebounding finally to where they were in 2008, before the economic downturn began.

"We essentially lost five years," Horst said.

Despite austerity moves by Daniels over the last several years as revenues fell short of projections, the state still has had to dip into Medicaid and state tuition reserves and its Rainy Day Fund to keep its books balanced. It likely will have a structural deficit of about $700 million when the current fiscal year ends next June 30.

Kenley and his House counterpart, Republican Ways and Means Chairman Jeff Espich of Uniondale, said the next state budget won't have any money for new programs because lawmakers must find ways to eliminate the structural deficit while also closing the gap between current spending and forecast revenues.

Damler said Indiana's Medicaid population of about 1.11 billion needy children and parents and elderly and disabled people will only keep growing because the state can't reduce eligibility before June 30 without risking losing some federal stimulus funds and can't cut it through the end of 2013 without possibly losing some federal funds under the health care overhaul.

He said the Medicaid population will reach a projected 1.25 million Indiana residents during fiscal year 2013 and grow by an additional 400,000 when key provisions of the health care overhaul begin in 2014. Medicaid will then cover about one in four Indiana residents.