Key Concepts To Consider Before Cutting Medicaid

Hawaii, like nearly every state, is facing a significant budget shortfall. Given that the Medicaid program is second only to education as the biggest ticket item in the budget, it naturally seems a target for cuts.

In his State of the State speech in January, Governor Neil Abercrombie said: "We must acknowledge, without flinching, the fact that the rising cost of health care also requires that we cut back on benefits provided to Medicaid patients.”

Subsequently the administration has suggested cuts of approximately $100 million dollars over the next two-year period to the State Medicaid budget. Talk thus far has focused on primarily on cutbacks to those on the Medicaid Quest program, which serves low income residents who are not aged, blind or disabled.

I believe that a proper consideration of cuts to the Hawaii Medicaid program should begin with an understanding of Medicaid itself, and then a careful consideration of ways that money might be saved without sacrificing the health of the recipients. Let me first suggest several key concepts relating to Medicaid itself that might guide the Administration's thinking about the program.

  1. Medicaid is the single largest source of federal revenue to the states. In 2009, Federal support of the Hawaii Medicaid program amounted to $884 million dollars out of a total state Medicaid budget of $1.331 billion.1 That is $884 million dollars of federal money coming in to Hawaii to create good local jobs in the health-care industry. Put another way, it takes more than $2 of Medicaid cuts to save the state $1. And for every dollar cut, local jobs are lost.

  2. 67 percent of all Medicaid spending is on the elderly and disabled. In fact, the single largest category of Medicaid spending is on long-term care and more than three quarters of nursing home residents are on Medicaid. Meanwhile, it is the burgeoning enrollment in the Medicaid program due to people losing their jobs and their health insurance coverage that is driving the recent increases in expenditures. Adjusting Medicaid plan benefits without consideration of the real drivers of program costs is unlikely to either make the program sustainable or improve the health of those most in need of services. Tinkering with the Quest Program (which covers low income non-disabled, non-elderly Medicaid recipients) without also considering the QEx program (which covers the aged, blind and disabled) makes no sense given which program is the real driver of costs.

  3. Medicaid is the single most important source of revenue for the State of Hawaii’s Community Health Centers, which provide quality, comprehensive primary care services to nearly one in 10 Hawaii residents. Cutbacks to the Medicaid program that undermine primary care services therefore risk jeopardizing the long-term financial viability of the health centers, of whom Governor Abercrombie’s own platform said this : “Hawaii has an outstanding array of Community Health Centers that are providing much more than physical health services to people. Their success is even more remarkable when you consider the tremendous fiscal constraints they are having now, coinciding with a huge increase in demand for services.” Hopefully spending cuts will not worsen these already enormous fiscal contraints.

In a future article I will discuss some of the range of ideas that are being debated locally and nationally as ways to make the Medicaid program more sustainable.


About the author: Dr. David Derauf, Master of Public Health, is Executive Director of Kokua Kalihi Valley, Board member of the Hawaii Primary Care Association (HPCA), Association of Asian Pacific Community Health Organizations (AAPCHO), and AlohaCare, a non-profit health plan founded in 1994 by Hawaii’s community health centers. The views represented here are his own and not those of these organizations.


  1. This and other figures are taken form the Kaiser Commision on Medicaid and the Uninsured Report.  

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