Medicaid extension leaves Iowa with $32 million budget shortfall

Iowa lawmakers will be faced with a $32 million hole in the FY2010 budget when they return to Des Moines in January if Congress passes an extension of federal funding to the state’s Medicaid program.

The U.S. Senate passed a bill Wednesday that includes $16.1 billion  for the Federal Medical Assistance Percentages, or FMAP, which provides Medicaid funding to states. The House is expected to return from recess to vote on the measure and send it to the president. Without the additional funding, Iowa would have faced a $121 million budget shortfall for the current fiscal year, according to figures from the nonpartisan Legislative Services Agency.

The American Recovery and Reinvestment Act, more commonly known as the federal stimulus, temporarily provided states with an increase in the portion of Medicaid financed by the federal government. Medicaid is the government health insurance plan for the poor.

Legislators crafted the 2010 budget with that federal money built in. The increase, however, expires in December, right in the middle of Iowa’s fiscal year. Congress made several attempts at passing an extension of the funds, first in a bigger jobs bill, then as a standalone measure, but Republican opposition to deficit spending made passage impossible. In order to pay for the increased funding, Democrats made cuts to the the Supplemental Nutritional Assistance Program, formerly known as food stamps, and limited the ability of some multinational companies to use foreign tax credits to reduce their U.S. taxes.

Roger Munns, spokesman for the Department of Human Services, told The Des Moines Register his agency was not yet sure how it would balance its budget. But Jess Benson, a fiscal analyst with the state’s Legislative Services Agency, said in an interview with The Iowa Independent in June that the state was limited in how it could deal with the shortfall.

Federal requirements mean Iowa would not legally be allowed to make the cuts in Medicaid alone, Benson said. For example, he pointed out pregnant women are eligible for Medicaid up to 300 percent of the poverty level. The state would not have the authority to raise that eligibility threshold in order to save money.

“Basically, legislators will have to either increase revenues or cut expenditures in other places,” Benson said. “There isn’t a lot they can do within the Medicaid program, and six months into the fiscal year, there isn’t a lot that they could do that would go into effect quickly enough to have an impact.”

A study by the nonpartisan Iowa Policy Project (IPP) released in November found federal stimulus for Medicaid created a $252 million increase in the value of goods and services produced in the state during fiscal year 2009, and $114 million in income for 2,354 workers in created or saved jobs.

The bill also includes $10 billion in funds to help states save the jobs of public employees like teachers, police officers and firefighters, positions that were in peril across the country. U.S. Sen. Tom Harkin says Iowa stands to receive $96.5 million of that money.