Medicaid, which funds more long-term care supports and services than any other payer–$115 billion in 2008–is about to crash. Like a head-on train wreck, we can see it coming. The question is: What are we going to do about it?

The Kaiser Family Foundation, in an extensive new survey of all 50 state Medicaid programs, tells the grim story. Medicaid is actually two programs: acute health care for young mothers and their kids, and long-term care for frail seniors and younger people with disabilities. According to Kaiser, enrollment rose a staggering 8.5 percent in fiscal year 2010, mostly because high unemployment drove young families to Medicaid for their acute care.

Even as enrollment rose, state spending on Medicaid fell for the second year in a row. Combined, the two years of cuts mean that states that spent $1.00 on Medicaid in 2008, spent only 83 cents in 2010–even though enrollment rose in both years.

Medicaid was kept from cratering thanks only to a huge slug of extra federal aid included in the big stimulus Congress passed last year. That federal help, according to Kaiser, more than made up for cuts in the state share of the program.

Still, 20 states cut benefits in 2010, twice the number in 2009. It would surely have been worse except that extra federal aid came with some strings, including a requirement that states not reduce their eligibility standards.

The problem is that federal help is drying up, and unemployment is not falling. Facing a bigger financial squeeze in the coming year, it is very likely that even more states will cut Medicaid services, both for acute and long-term care.

That will make the future of Medicaid long-term care services grim. It will be especially tough for those home and community based services that most seniors want. The reason: States must provide long-term care in nursing homes, but there is no such obligation for home care. As a result, states will cut where they can–in the home care program. 

The other victims: providers such as nursing homes. While states must provide skilled nursing benefits to those who are both medically and financially-needy, they are not obligated to pay those facilities that provide such care any minimum amount. In the coming year, while 22 states expect to increase rates for nursing homes, 29 will cut them. And I suspect that those that do raise them, will do so by very small amounts.

Consumers should care because these continued reductions in Medicaid payments are likely to drive some providers out of the long-term care business. And that will be bad news for those seniors who need care in a nursing facility, either because of their health status or because they have no one at home to care for them. 

The new health reform law makes matters even more complicated. It provides states with new incentives to improve Medicaid long-term care, but it also will add 16 million new low-income acute care patients to the Medicaid roles. Washington will provide states with some temporary financial assistance to help pay for those extra beneficiaries, but that aid won’t last long. As long as Medicaid must provide both acute and long-term care out of the same pot, low-income seniors will never get the services they need.