As healthcare costs go up and the number of uninsured Americans rises, Medicaid funding is an ongoing concern, especially for providers such as nursing homes and teaching hospitals who have a large number of Medicaid patients. States now spend more on Medicaid than they do on elementary and secondary education, according to a report released last month by the State Coverage Initiatives program, which provides technical support to help states broaden health insurance coverage. The states spent 21.9 percent of their revenue on Medicaid in fiscal year 2004, while elementary and secondary education made up about 21.5 percent of states' budgets. At the same time, says the group, states have been aggressive in containing Medicaid costs. Every year, state Medicaid advocates must fight proposed cuts in the budget. "I've been doing this for 25 years, and there hasn't been a year when it has not been an issue," says Carol Herrmann-Steckel, commissioner of the Alabama Medicaid Agency. One problem, says Mike Jordan, spokesman for the Alabama Nursing Home Association, is that Medicaid is funded out of the general fund, which grows at a slower rate than, for instance, the education budget. "Where the education budget may have grown at seven percent this year, the general fund grew just under one percent," he says. Yet healthcare costs are rising at a much faster rate – about four percent for nursing homes, he says, and much higher for pharmaceuticals. "Growth of the general fund budget is a challenge; making sure Medicaid funding is stable is always a priority." Last year, for instance, Gov. Bob Riley recommended several changes in the Medicaid program, including reducing hospital reimbursements by $8.4 million, reducing the cap on the number of doctor visits from 14 to 12, and implementing a 10-prescription limit on the pharmacy program. Riley's office noted at the time that in two years, state Medicaid spending had increased from $203 million to $427 million. The cuts did not become a reality. "Our legislature has been good about realizing Medicaid's a big safety net, and we hope that continues to hold," says Rosemary Blackmon, spokesperson for the Alabama Hospital Association. In fact, there was good news for Medicaid reimbursements for physicians this year. Starting in January, Alabama's Medicaid Agency raised rates for physicians for the first time in five years. The biggest raises went to doctors affiliated with the state's two teaching hospitals (UAB in Birmingham and the University of South Alabama in Mobile), including those who practice at Children's Hospital. Specialists outside those hospitals got the next largest jump in pay. The change was spearheaded by the teaching hospitals, where a large percentage of patients are on Medicaid. The hospitals are putting up additional state matching money to draw down federal dollars to fund the increase. The state gets 70 cents in federal money for every 30 cents that it contributes, so the schools will be able to recover their investment and still leave money for higher rates. The practice of hospitals pitching in to help the state draw down more federal Medicaid dollars is nothing new, but in the past Alabama had run into trouble with the federal government about it. Last year, the state settled its differences with the Centers for Medicare & Medicaid Services, paving the way for these increases. The increase in rates was needed to recruit and retain physicians at the teaching hospitals, which has been difficult because of the low pay compared to other states. In addition, the change should help the state attract private specialists whose practices are made up of a high percentage of Medicaid patients, as in most pediatric specialties. Besides teaching hospitals and pediatric specialists, another group that is significantly dependent on Medicaid reimbursement is nursing homes. About three-quarters of the state's 24,000 nursing home residents rely on Medicaid. Of concern to the nursing home industry are federal changes that will clamp down on patients transferring assets to their children or others in order to qualify for Medicaid. "We are concerned about it," says Louis Cottrell, executive director of the Alabama Nursing Home Association. "It certainly would affect the beneficiaries as well as the nursing homes." Herrmann-Steckel welcomes the changes, because it may help keep the state's Medicaid costs down. "I wish I could get a lot of money from my parents," she says, "but that's not what their money is for – their money is to pay for their care." In another federal change, many patients who had gone through Medicaid for their prescriptions have been moved to the controversial and confusing Medicare Part D prescription program. The change in the prescription drug coverage has meant a reduction in federal Medicaid dollars to states, explains Patrick Johnson, senior policy analyst from the Health Policy Tracking Service. "Instead of Medicaid getting matchable funds for the amount the state spent on prescriptions, the federal government will actually provide that. In addition, states are required to pay a fee to help the government pay for it. Alabama, like a lot of states, isn't quite certain how much that fee is going to be. I think at one point they thought they would see about $50 million less in federal Medicaid matching funds. Add that to regular increases in the Medicaid program from services and demographics and whatnot, and they're a little worried about how they'll meet their budget next year." The Health Policy Tracking Service published a report titled "State Medicaid Actions 2005: What the States Said, Did and Plan to Do." That report found that a lot of states were threatening last year to make drastic changes in their Medicaid plans, but didn't. However, Johnson predicts increasing emphasis in the future on states, including Alabama, which are trying to control Medicaid costs. Alabama's Medicaid program is constantly challenged with "too many needs and not enough money," Herrmann-Steckel says. "We're trying to balance doing the most with our dollars for the most number of people." She notes that one of the factors in rising Medicaid costs is the fact that fewer employers are providing insurance. Nationwide, the number of uninsured reached an all-time-high of 45.8 million people in 2004 – nearly 16 percent of the population, according to the State Coverage Initiatives program. In Alabama, the group reports, 13.5 percent of the population is uninsured. "What we do in the Medicaid program is we pick up the kids (of the uninsured), so we've got over 4,700 children of Wal-Mart employees on Alabama Medicaid," says Herrmann-Steckel. Johnson says the pressure on states to control their Medicaid costs is only going to increase. "Medicaid costs just swallow up more and more of budgets each year," he says. Looking into the future, he sees more states looking at enrollment caps, shifting to lower-cost services, and trying to move more patients from nursing homes to assisted living or stay at home care.