By Stephanie Armour 

State leaders are weighing possible cuts to Medicaid services and health-care benefits to offset rising costs due to a surge of enrollees who have lost jobs and need health coverage as the coronavirus pandemic has intensified.

Congress boosted federal matching funds to states for Medicaid as part of its first coronavirus relief package, but many states are still struggling to afford the increasing pace of sign-ups in the program for low income and disabled people. Enrollment for the fiscal year ending Sept. 30, 2021, is expected to jump 8.2%, with state spending accelerating by 8.4%, compared with 6.3% growth in the previous fiscal year, based on data from 42 state Medicaid directors compiled by the Kaiser Family Foundation.

Medicaid has grown to become one of the largest portions of state budgets, from about 21% in fiscal 2008 to about 30% in fiscal 2018, according to the National Association of State Budget Officers.

State leaders working on budgets that must be finalized in July are confronting budget crises. Tax revenues have tumbled since March because of restrictions on businesses, social distancing and high unemployment related to the pandemic, economists have found. Most states have constitutional or statutory requirements that they maintain balanced budgets.

Some state leaders may try to narrow the gap between the revenues they need to balance the budget and the shortfalls they face by cutting vision and dental benefits, or payments to doctors and other providers. Cuts to other programs, such as education, could also be in the mix.

"We are starting to hear as states put budgets together that they're looking at cuts," said Joan Alker, executive director of the Center for Children and Families at Georgetown University. Cuts to health-care providers are typically at the top of the list, she said.

The Medicaid burden on state budgets will pose a challenge for President-elect Joe Biden, who wants to expand Medicaid and reduce the number of uninsured people in the U.S. Amid the coronavirus pandemic, a politically divided Congress faces pressure to further increase federal matching funds to states, a proposal that Mr. Biden has also said he would support. Currently, Congress has been at loggerheads over additional stimulus legislation.

Congressional Republicans and the Trump administration have sought to reduce Medicaid enrollment. Republicans say Medicaid costs must be reined in and states should have more flexibility in controlling the program. The Trump administration has imposed work requirements and pursued block grants to those ends.

Washington state's health authority submitted an operating budget for 2021-2023 that proposes Medicaid cuts, including dental benefits, as one scenario. Ohio cut $200 million from its Medicaid budget for the fiscal year ended June 30 and is facing a budget shortfall for the current fiscal year.

Colorado Democratic Gov. Jared Polis, in an Oct. 28 statement, cited expectations for lower-than-expected Medicaid enrollment this year as a means of paying for unemployment stimulus checks, but at a Nov. 12 budget meeting some state lawmakers raised concerns about a possible jump in sign-ups.

Wyoming Republican Gov. Mark Gordon's supplemental budget proposal released Nov. 16 could lead to cuts for health-care providers who are already seeing their revenues drop due to a decline in elective medical treatment. The general fund had a shortfall of $451.1 million in October, about 15% of Wyoming's total expenditure of $4.7 billion in fiscal 2019, state data show.

"These are challenging cuts for the state," Mr. Gordon said at a news conference the day he released the proposal. The reductions could include a drop in funding for services to the elderly and community mental health services.

Medicaid has served as a critical safety net during economic downturns: During the 2007-2009 recession, monthly enrollment rose by nearly 6 million people, according to the Kaiser Family Foundation.

The federal government picks up 90% of the cost for people covered under the Affordable Care Act's Medicaid expansion, but it matches state expenditures for other beneficiaries in the program. Under pandemic legislation, states have been getting a 6.2 percentage-point increase in federal funds that match state expenditures on the program.

Under the public-health emergency declared this year, the extra provisioning expires at the end of March 2021. Some states and advocacy groups lobbying Congress say the increase falls far short of what states need.

"Increasing the federal medical assistance percentage to help cope with increases in Medicaid costs for states is among the top issues we've been hearing from governors during the pandemic," said James Nash, a spokesman for the National Governors Association.

Nationwide, the U.S. state budget shortfall from 2020 through 2022 could amount to about $434 billion, according to data from Moody's Analytics. The estimates assume no additional federal fiscal stimulus, further coronavirus-related restrictions on business and travel, and extra costs for Medicaid amid high unemployment.

States are limited when it comes to cutting Medicaid enrollment as a way to curb spending. Federal legislation bars states from making such changes while getting the current boost in federal matching funds. The Trump administration in late October granted states some flexibility to change coverage or enrollment while receiving the funding.

Cuts to provider payments could sting because doctors and hospitals may already get reimbursements from Medicaid that are less than the cost of the services provided or commercial rates.

"There is no good answer. This is the reason there needs to be congressional action," said Matt Salo, executive director of the National Association of Medicaid Directors, a nonprofit that represents state Medicaid leaders. "This is why we have a federal government. To support states in a time of crisis. We're not going to be able to get out of this on our own."

Write to Stephanie Armour at stephanie.armour@wsj.com

(END) Dow Jones Newswires

November 27, 2020 10:14 ET (15:14 GMT)