FRANKFORT — A looming $470 million shortfall in the state Medicaid budget could have "a catastrophic impact" on Kentuckians, Gov. Steve Beshear said Thursday as he announced the state will not get as much federal funding for the program as expected.
Beshear had better news in reporting that Kentucky will receive nearly $135 million in federal money to support teachers, but that money can't be used to help the cash-strapped Medicaid program that provides health insurance for the needy.
Beshear said at a Capitol news conference that the state budget approved this year by the General Assembly assumed the federal government would provide an additional $238 million for Medicaid. Congress did provide additional money to help the states last month, but Kentucky will receive $137 million — only about 58 percent of what was expected, he said.
That leaves a $111 million hole, Beshear said. Since funding for Medicaid is matched by the federal government on a roughly 4-to-1 basis, the gap represents a $470 million total program shortfall, the Democratic governor said.
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About 800,000 poor and disabled Kentuckians depend on the $6 billion program for health insurance.
Sheila Schuster, who works with organizations in the state for the disabled, said it is not hyperbole to say such a shortfall in the Medicaid budget would be catastrophic.
"There are relatively few ways to recoup such a loss," she said, noting that even more people will be eligible for Medicaid under the health care reform law approved earlier this year.
"We don't want to cut out the people who truly need help and services to them and we can't cut reimbursements to providers at a time when the state is having problems getting providers," she said.
Beshear said he will ask two legislative work groups to review the situation and recommend ways to make up the shortfall. The issue will be addressed in next year's legislative session, he said.
Beshear, who is seeking re-election next year, said all options should be considered but then ruled out any tax increase to address the shortfall.
He put the blame on the state legislature.
"Congress did take action to provide some much-needed funds to the states so we can continue to provide medical care to our most vulnerable citizens," Beshear said. "However, our General Assembly assumed we could get millions more and balanced their budget based on that assumption."
Beshear noted that he had warned against making the assumption and that his original budget included additional revenue from the state provided by expanded gambling. The legislature, however, balked at that proposal.
Senate President David Williams, a Burkesville Republican who has announced he will run for governor next year, noted that Beshear adopted the legislature's Medicaid assumptions in a budget proposal he presented for a special legislative session in May.
Williams also noted that Kentucky would be facing a bigger problem in Medicaid if it had not received any additional federal funding. The U.S. House gave final approval to the spending bill on Aug. 10 with the support of only two Republicans.
"I think it's almost laughable that he complains that we didn't assume we were getting enough," Williams said.
Williams said the Beshear administration needs to do a better job in managing Medicaid and sharing information about it with legislators.
The program is adding about 3,000 new members a month. It covers health care services ranging from hospital, doctor and nursing home care to dental, vision, hearing and medical transportation.
House Speaker Greg Stumbo, D-Prestonsburg, said the Beshear administration "has not been as forthcoming as we would like" regarding the Medicaid budget and administration of the program.
To solve the problem, Stumbo said, lawmakers "must have quick and timely information."
House budget chairman Rick Rand, D-Bedford, noted that more than two dozen other states assumed a larger Medicaid match by the federal government in their budgets.
The two-year state budget passed in May requires the Medicaid program to save $544 million, including $106 million in state funds. Those savings are in addition to the shortfall announced by Beshear.
"It's going to be extremely tough" to overcome the shortfall, said state Rep. Jimmie Lee, D-Elizabethtown. Lee co-chairs one of the legislative panels reviewing Medicaid costs.
In July, state health officials announced changes to the Medicaid program in an effort to cut more than $26 million in state money from the program. Some of the changes to the program include:
■ Paying only for generic drugs rather than brand names for many over-the-counter medications, such as aspirin.
■ Only paying for prescriptions written by doctors participating in the Medicaid program. Officials believe the change will decrease "doctor shopping" among drug addicts.
■ Reducing payments to providers for certain conditions, such as those acquired because someone was in a hospital.
Concerning the $135 million from the federal government to aid Kentucky schools, Beshear said it will go directly to local school districts through the state's normal funding mechanism for schools known as SEEK.
He said local districts can spend the money on measures such as recruiting teachers and improving salaries, but he warned that it is one-time money.
Kentucky Education Association President Sharron Oxendine said she would like to see the money used to restore an instructional school day that has been cut.
"There won't be any increases in salaries for teachers. It just would be a restoration of their lost salaries," she said.
Williams said he would like to see part of the additional federal dollars for education go to fund Senate Bill 1, a wide-ranging education reform measure that the state legislature approved in 2009. Among other things, it requires a new statewide student testing system and new core content standards that must be ready for the 2011-12 school year.