Washington: State may cut health care for poor

By Ralph Thomas
Seattle Times Olympia bureau

OLYMPIA, WA - 8/19/02 — Several popular state programs that provide health care to hundreds of thousands of poor people — including the state's groundbreaking Basic Health Plan — are rapidly running out of money.

Within a year, Washington's Health Services Account could fall $300 million into the red, according to recent projections from state budget officials. And unless Gov. Gary Locke and the Legislature soon find a fix, the cumulative deficit could grow to more than $700 million during the next two years.

That's grim news for Basic Health, which provides subsidized health care to more than 130,000 people, mostly low-income adults. Also at risk are programs that cover more than 340,000 children, including kids in foster care and low-income families.

Locke administration officials are looking at options, including reduced enrollment in the Basic Health Plan and the other programs. They could be forced to start cutting by fall.

Meanwhile, some lawmakers and health-care advocates say the state should find the money, even if it means raising taxes, to keep the programs growing.

"There are very few programs in the state that have as much support as the Basic Health Plan," said Rep. Eileen Cody, D-Seattle, chairwoman of the House Health Care Committee. "Having affordable health care for the working poor is something that rings true with everyone."

Some legislators have hinted at raiding money from a recent voter-approved cigarette-tax increase to help bail out the Health Services Account. The money is supposed to be used for expanding Basic Health.

While much attention has been paid during the past year to the broader fiscal crisis in the state's general fund, the separate Health Services Account has been slipping largely unnoticed toward insolvency.

During the next two-year budget cycle, the combined deficit between the health-care account and the general fund could exceed $2 billion, according to a recent analysis by Senate Ways and Means Committee staff.

The state's huge general-fund problem will make filling the Health Services Account deficit all the more difficult, and vice versa.

The health-care fund is deficit-bound because of many of the same factors plaguing the rest of the state budget: fast-rising enrollments, soaring costs and sagging tax collections.

But the Health Services Account's problems are compounded by shaky assumptions state officials made about reimbursements from the federal government. In addition, budget writers have saddled the fund with hundreds of millions in costs once borne by the general fund.

Burgeoning enrollment

During the past decade, the major programs funded out of the Health Services Account have grown faster than anything else in state government.

The Basic Health Plan was launched in the late 1980s as an experimental program to provide subsidized coverage to working people who were not covered by their employers, and were too poor to afford insurance but made too much money to qualify for government-assistance programs such as Medicaid.

"It catches a lot of people who otherwise would fall through the cracks," said Dave Wasser, spokesman for the Washington Health Care Authority, which runs Basic Health.

Viewed as a model nationwide, the program quickly gained popularity in Olympia among Democrats and Republicans alike.

In the early 1990s, lawmakers made the Basic Health Plan a permanent fixture in the budget and began easing eligibility restrictions. Since then, enrollment has grown more than 400 percent to more than 130,000 — including more than 25,000 people in King County.

Washington also aggressively expanded Medicaid coverage for uninsured children. Long before most other states, Washington in the early 1990s loosened its income-eligibility requirements for children on Medicaid, a joint state-federal health-care program. The state worked hard at recruiting families for the free coverage.

To help pay for all the expansion in Basic Health and Medicaid, lawmakers in 1993 created the Health Services Account, to be supported by taxes on tobacco, alcohol, hospitals and insurers. The state also later propped up the account with money from the nationwide tobacco settlement and from a controversial federal-funding loophole.

It worked for a while, with the account often carrying a surplus. The health-care fund was sometimes so flush, in fact, that state budget writers used it to help fill holes in the general-fund budget. Lawmakers also shifted some expenses over to the account as a way around the state's general-fund spending limit.

But during the next two-year budget cycle, expenses for the Health Services Account are expected to exceed revenues by nearly $450 million, according to the Senate Ways and Means analysis.

"It doesn't work," said Rep. Barry Sehlin, R-Oak Harbor, the ranking Republican on the House Appropriations Committee. "It was structured with a source of revenue that was flat, and with obligations that are growing rapidly."

Federal windfall unlikely

To make matters worse, the state has been banking on a large but unlikely federal windfall to help keep the health-care fund afloat.

For much of the past year, the Locke administration has been pressing for nearly $1 billion the state claims it is entitled to under a Medicaid-funding loophole that the Bush administration is closing. Though federal officials are still negotiating, they have told the state not to count on the money.

The state expects a final answer soon, perhaps this month.

"That is really the big domino we're all waiting on," said Ida Zodrow, director of the Washington Health Care Authority.

If the federal government stands firm, that could immediately rip a $235 million hole in the Health Services Account. Without that money, the account would fall into the red around October, according to Locke's budget office.

If that happens, Locke might be forced to start ordering cuts. The current state budget requires Locke to impose across-the-board cuts in Health Services if necessary to avoid a cash deficit in that account.

Wolfgang Opitz, the governor's deputy budget director, said the administration is trying to figure out whether it would have to make cuts this fall or if it could wait until January to ask the Legislature for additional funding.

Meanwhile, Basic Health and Medicaid program managers have been told to begin preparing contingency plans for such cuts.

"Frankly, if your base funding is diminished, there's not much you can do but cut enrollment," said Zodrow. She said each Basic Health enrollee costs the state a little more than $2,000 per year, on average.

Under Medicaid, more than half the 340,000 children whose care is paid out of the Health Services Account are in "mandatory" categories the state must cover. These are generally the poorest kids.

But the rest are in "optional" categories, which the state could choose to shrink, perhaps by tightening income-eligibility rules, said Doug Porter, the state's Medicaid director.

The health-care fund is not likely to get any immediate relief from Initiative 773, a cigarette-tax increase approved by voters last year. The increase, expected to generate about $110 million a year, can be used only to expand Basic Health enrollment beyond 125,000.

If the state can't afford to maintain that enrollment level, revenues from I-773 would have to be stockpiled.

It would take a two-thirds vote of the Legislature to remove I-773's enrollment requirement, which would allow lawmakers to use the money to bail out — rather than expand — Basic Health. Though that would be a politically risky move, Sehlin said he wouldn't be surprised if someone tries it.

Meanwhile, lawmakers will be under a lot of pressure from health-care advocates and providers to find more money, rather than reduce enrollment.

U.S. Rep. Jim McDermott, who created the Basic Health Plan while serving in the state Senate, said the costs to state government and the overall economy would ultimately be higher if the state starts cutting health care for the working poor.

"To move away and say we're just going to abandon this idea would be very shortsighted," McDermott, a Seattle Democrat, said recently. "It has worked, but it requires putting in some dough. If I was in the state Legislature right now, I'd be fighting for more money."

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com.