The Maryland Public Policy Institute
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JANUARY 22, 2010
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ANNAPOLIS - Gov. Martin O'Malley's inclusion of $389 million in federal aid for Medicaid in his $13.2 billion budget represents a bet that Congress is again going to bridge a growing cost that has the potential to cripple states struggling to emerge from the recession.
But a gamble that paid off last year seems less certain after Tuesday's election of Republican Scott Brown to the Massachusetts Senate seat formerly held by the late Sen. Edward M. Kennedy (D).
Brown's election, which cost Democrats their 60-vote supermajority in the Senate, means federal health care reform legislation - and the Medicaid assistance contained therein - is in jeopardy, said Todd Eberly, an assistant professor of political science and coordinator of public policy studies at St. Mary's College of Maryland.
"The real gamble here is given what just happened in Massachusetts, there may be no bill at all," Eberly said.
Last year, O'Malley (D) left a $350 million hole in the state's fiscal 2010 Medicaid budget to be plugged by federal aid. The feds stepped up with about $775 million in stimulus aid for Medicaid for Maryland.
"Had the Congress and the president not acted last year, we would've had to have gone back as part of the budget process to cut another $350 million," the governor said in announcing his budget plan Tuesday. "Fortunately, they came through in excess of that."
The state faces the same situation this year, said O'Malley, whose budget math is based on a bill passed by the House of Representatives that would extend the Medicaid stimulus through fiscal 2011 and would mean $384 million in federal aid for Maryland's general fund.
A reform bill approved by the Senate does not extend the federal aid, but does include a provision that would allow states to change Medicaid eligibility levels if Congress does not extend the enhanced match at the end of 2010.
House Minority Leader Anthony J. O'Donnell (R-Dist. 29C) of Lusby called O'Malley's budget "not based in reality."
"Submitting a budget to the legislature predicated on money you hope to receive highlights the complete mismanagement of the budget situation by the O'Malley administration," he said. "The O'Malley spending plan erects our fiscal house without the appropriate foundation, and I think we're far from receiving additional bailout money from Uncle Sam. And I think the Massachusetts election of [Sen.-elect] Brown puts an exclamation on that."
Maryland's Medicaid problem stems from the General Assembly's decision during a 2007 special legislative session to expand Medicaid coverage instead of restructuring the costly program, said Marc Kilmer, a senior fellow with the Maryland Public Policy Institute, a free market conservative think tank in Rockville.
"The governor and the General Assembly don't seem to want to do anything about it," Kilmer said. "They're reaping the fruits of their inaction."
O'Malley's decision to balance the budget with revenue he doesn't have is "bad budgeting," Kilmer said.
Regardless, other governors, including in Alabama, California and Maine, also have submitted budgets that assume Medicaid stimulus.
While there is no contingency plan in place should the feds not come through with additional aid, O'Malley and budget Secretary T. Eloise Foster noted that the governor's plan would leave $274 million in the state's general fund balance and a rainy day fund of $634 million.
"We'll figure it out," O'Malley said.
The $389 million provides a "placeholder" and allows O'Malley to meet the constitutional requirement of submitting a balanced budget, Eberly said. It also buys him some time.
"If there is even a chance of this money coming, why make the cut now rather than when we absolutely have to?" Eberly said.
In three rounds of cuts totaling $110 million to the fiscal 2010 budget, the Board of Public Works slashed Medicaid payments to hospitals, doctors, nursing homes and other health care providers.
Health Secretary John M. Colmers said the $389 million in stimulus "is not an unreasonable assumption to build a budget on."
In lieu of a federal health care reform bill, Colmers said he would expect other federal legislation to extend Medicaid assistance that would have bipartisan support.
"This is a bipartisan issue for lots of states," he said. "Medicaid remains a major problem for us. There is no quicker way of getting funds to help states than through the Medicaid [match] program."
With Medicaid stimulus included in both the health care reform bill and a federal jobs bill passed last month by the House, assuming the stimulus money in the state budget is a good bet, said Sen. Richard S. Madaleno Jr.
Still, lawmakers should consider a contingency plan, he said.
"I think it would be wise to do it so that the Board of Public Works doesn't have to shoulder all the responsibility and so that the public can weigh in on what should or should not be on the table," said Madaleno (D-Dist. 18) of Kensington.
But even with states in need, Congress might not have the political will to act, Eberly said.
After the failure of the Clinton administration's health care reform plan, Congress was slow to re-enter the fray, he said.
Congress did not pass a significant health care bill until the economy rebounded from the early 1990s recession. The State Children's Health Insurance Program, aimed at children who live in poverty, passed in 1997.
Staff Writers Erin Cunningham and Alan Brody contributed to this report.
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