Much of the federal stimulus spending has helped to save states and local governments from cutting programs and services as much as they otherwise would have.  One major example:  enhanced federal matching payments have mitigated the impact of growing Medicaid enrollment on the states. .

Many observers, ourselves included, have been wondering what happens when the states and localities are on their own again? Will they be overwhelmed by the need for hatchet-like cuts, even if the economy begins to turn around? A recent GAO report looks directly at this question.

As the report details, states and the District of Columbia encountered Medicaid enrollment growth in excess of 14% between October 2007 and February 2010. As a result, they are on pace to utilize nearly all (94%) of the $87 billion available in increased federal matching funds provided by the Recovery Act.

The GAO’s survey of states reveals that almost all states are concerned about the sustainability of their Medicaid programs when the enhanced matching rates expire in July 2011, with most citing the continuing depressed economy and lower tax revenues, as well as additional enrollment growth.

Strikingly, 46 states have already taken actions to address their sustainability and financing concerns, with a variety of approaches exercised and many states using multiple approaches (see Appendix IV, pages 37-38 for the full breakout). The actions include reducing or freezing practitioner payment rates, reducing benefits, increasing co-payments or premiums, or adjusting intergovernmental financing with local governments.

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