Today’s New York Times discusses a problem faced by 30 states — including Iowa.
State budgets have been put together assuming the extension of an increased reimbursement for Medicaid, a smart move for economic recovery and a necessary move to help states deal with the increased demands in a severe economic recession.
For Iowa, the loss of those dollars would cause a Medicaid deficit of almost $120 million, according to the nonpartisan Legislative Services Agency.
When building the state’s 2011 fiscal year budget this spring, Iowa lawmakers assumed the federal government would extend a temporary increase in its share of Medicaid financing. The American Recovery and Reinvestment Act of 2009 (ARRA) temporarily increased the Federal Medical Assistance Percentages (FMAP), the portion of Medicaid financed by the federal government. That increase, however, expires in December 2010, right in the middle of Iowa’s fiscal year. Iowa and many other states expected this financing to continue as these needs have not subsided.
So far, however, Congress has not acted. Without an extension, Iowa faces a shortfall that at some point will need to be addressed, with cuts in services that could come both in and outside the Medicaid program. Either way, a cut would be bad for the economy, which has benefited from the infusion of federal dollars. Pennsylvania Governor Edward Rendell, in fact, warns in the New York Times story today that in his state, the cuts “would actually kill everything the stimulus has done.” His concern is warranted.
Besides shoring up state revenues, as Iowa Fiscal Partnership reports have shown, ARRA has brought significant economic benefits to Iowa to enhance the prospects of a faster recovery. For the Medicaid match alone, IFP reported in Just What the Doctor Ordered:
Every federal dollar of economic stimulus invested in Medicaid yields about $1.68 in total output for the state of Iowa. Out of that dollar, 76 cents is returned to Iowa workers in the form of wages and salaries and incomes of small business owners.
ARRA — by providing dollars for Medicaid, unemployment insurance and food assistance — has come through with important resources for vulnerable Iowa families at a time they are most needed. At the same time, it has boosted the economy by increasing or maintaining spending by Iowans on goods and services, keeping people employed and spending their money in the economy.
Understanding these benefits and the consequences of losing them needs to be paramount in congressional decisions moving forward on temporary, targeted extensions of ARRA funding.
Posted by Andrew Cannon, Research Associate
Iowa Policy Points 
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