States, caught between the approaching expiration of American Recovery and Reinvestment Act (ARRA) funding and implementation of the Patient Protection and Affordable Care Act (PPACA), are balancing cost-cutting and cost-containment strategies with healthcare reform initiatives, according to a survey by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. The 11th annual survey provides a snapshot of Medicaid spending, enrollment and policy initiatives in each state based on data for fiscal year (FY) 2011 and FY 2012.

“Unemployment remains high with increasing numbers of poor and uninsured keeping pressure on state budgets and Medicaid programs to meet growing needs,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of the foundation’s Commission on Medicaid and the Uninsured, in a statement. “But the cumulative effect of two recessions since 2001 and a decade of constrained spending has left no cushion and many of the latest cuts will hit at the core of the Medicaid program.”

A sluggish economy continued to put pressure on state Medicaid programs. According to the survey, Medicaid spending increased on average by 7.3 percent across all states, and enrollment growth averaged 5.5 percent. State legislatures earmarked an average 2.2 percent increase in spending for FY 2012, prompting almost a quarter of the Medicaid state administrators who responded to the survey to project “an almost certain” budget shortfall for the year.

The phase-out of ARRA funding over the last two quarters of FY 2011 led to an average 10.8 percent increase in state general fund spending. With federal matching funds set to resume to statutory levels for FY 2012, states were facing an average 28.7 percent rise in Medicaid spending for the fiscal year. As a result, most were looking at policies designed to cut and control costs, according to the survey. Fifty states planned to implement measures to control spending in FY 2012, and 47 states had launched at least one cost-control initiative in FY 2011.

Some 39 states restricted provider rates in FY 2011 and 46 planned to do so in FY 2012. Eighteen states reportedly eliminated, reduced or limited prescription drug-related benefits in FY 2011 and FY 2012. Five states in FY 2011 and 14 states in FY 2012 imposed new co-payments or increased co-payments.

The PPACA was helping to create opportunities for states to enhance quality of care, according to the report. Seventeen states in FY 2011 and 24 states in FY 2012 said they were expanding managed care programs. Several states were working with the Medicare-Medicaid Coordination Office and the Center for Medicare and Medicaid Innovation to improve care for dual Medicare-Medicaid eligibles.

Many states also were seeking waivers to change delivery system and provider payment reforms to serve dual eligibles, people with disabilities and patients with special needs.

The report also noted that state programs are looking beyond 2012 as they prepare to implement health IT initiatives, PPACA-related reforms and be involved in innovations in payment and and delivery models.

The complete report and state-by-state appendices are available here.