(Bloomberg) Dwight Sublett has seen a lot of busts in his 33 years as a pediatrician in Stillwater, Oklahoma, but this year ranks among the worst. With oil hovering at $35 a barrel, the state is facing a $1.3 billion budget shortfall for the fiscal year starting on July 1.
On March 29 the Oklahoma Health Care Authority warned it would have to cut 25 percent from reimbursements to physicians, hospitals, and other medical providers under the state's Medicaid program, SoonerCare. The program covers a million poor Oklahomans each year, more than a quarter of the state's population. "For the rural physicians, this is going to be a devastating blow," Sublett says.
See also: Medicaid changes sought by Arkansas
Across the country, Medicaid covers 71 million low-income Americans. Medicaid is jointly funded by the federal government and states, and it typically accounts for 20 percent to 35 percent of a state's annual budget. The crash in oil prices has made it harder for energy-dependent states to come up with their share. "These states that have had fairly stable budgets—Oklahoma would be the classic example—suddenly they're running really big deficits," says Gregory Hagood, senior managing director of Solic Capital, an investment and advisory firm that works with hospitals in financial distress.
Oklahoma has declined to expand Medicaid, leaving uninsured an estimated 91,000 people who might have qualified for federally subsidized coverage under the Patient Protection and Affordable Care Act of 2010 (PPACA). "You mention 'Medicaid expansion,' that's dirty words in this state" because of the link to Obamacare, Sublett says. About 16 percent of Oklahomans had no health insurance in 2014, compared with 10 percent of the national population, according to the Kaiser Family Foundation.
Years of tax cuts in Oklahoma have contributed to the budget hole. The top state income tax rate declined from 6.65 percent in 2004 to 5 percent this year, eliminating $1 billion in annual revenue, according to the nonprofit Oklahoma Policy Institute. Tax revenue will come in about 7 percent below the level expected for the budget year ending on June 30, says Nico Gomez, chief executive officer of the Oklahoma Health Care Authority, which oversees Medicaid. He's preparing for a 15 percent cut in state funding next year, though the precise amount is uncertain. For every 40¢ the state cuts from Medicaid, Oklahoma loses 60¢ in federal matching funds.
Gomez says the program has already reduced benefits to stay ahead of budget cuts, including dental care for pregnant women. Last year he agreed to take a pay cut, but he acknowledges that has mostly symbolic value, saying, "12 percent of my salary is not going to save the budget." The state has also lowered reimbursement rates for doctors and other treatment providers several times. "We've been through this before, boom and bust. It feels different this time," Gomez says. "Right now it's difficult to see when we're coming out."
