DES MOINES — Gov.-elect Terry Branstad said Iowa faces a “scary” prospect of a $587 million shortfall in the state Medicaid program next budget year and the possibility of 100,000 more Iowans coming onto the program when federal health-care reforms take effect in 2014.

“There’s no question that this is the biggest challenge we’ve got in putting the budget together,” Branstad said. “It’s pretty sobering to recognize a big a hole we have to try to dig out of here.”

He made the statements at the close of an hour-long briefing Thursday on the state Medicaid program by his choice to be the next head of the Iowa Department of Human Services, Chuck Palmer.

The good news, Palmer said, is that the projected gap for fiscal 2012 — which requires replacing $460 million in one-time money from federal stimulus, state cash reserves and other sources — has come down slightly from a previous projection of $600 million. The bad news is the projections factor in nearly $80 million of expected savings from cost-containment measures already being implemented for the program that covers nearly 379,000 Iowans.

“There is no silver bullet, so it may be lots of little pellets and see if each one can help us out,” Palmer said.

He noted there is “lots of uncertainty churning” around Medicaid funding and federal health-care reform issues right now. For starters, the federal changes may force Iowa to install a new information-processing system to track the new eligibility and income requirements for recipients under the reforms.

Various program requirements also have taken some cost-containment options off the table, Palmer said, such as lowering eligibility levels, increasing premiums or enrollment fees and imposing more restrictive eligibility procedures. State officials can look at changing the amount, duration or scope of some services, reduce optional services, change co-payment requirements, change provider reimbursement rates or take a more aggressive approach to utilization management as ways to rein in rising costs.

State Medicaid spending has experienced double-digit increases in three of the past five fiscal years, including a projected 11.5 percent jump in the current year that will require another $5 million supplemental appropriation before June 30 to balance out expenditures. Much of those increases related to bad economic conditions and rising medical costs.

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Palmer said the future cost of the program may not be sustainable without good management practices and effective cost-containment strategies.

Branstad said he would like to require annual health risk assessments, at least initially for people facing chronic illnesses, to give them a sense of ownership in improving their health status. He hoped to achieve a new round of cost-containment measures similar to reforms enacted in the 1990s that brought the Medicaid program under better control.

“It’s a big shortfall to deal with,” said Branstad, who will launch his fifth term as governor when he is inaugurated Jan. 14. “We’ve got a lot of work to do. We’re just at the beginning of the process.”


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