AUGUSTA – Maine’s increased per capita income has triggered a cut in the Medicaid matching rate for the state, adding to the red ink lawmakers must resolve in the January session.

“We are focusing first on solving this years Medicaid problem,” Finance Commissioner Rebecca Wyke said last week. “Next year’s problem is about the same as this year, but we have more time to deal with it.”

By the end of June 30, a $113 million Medicaid shortfall needs to be funded. Wyke said the shortfall stems from accounting errors and increased costs. Next year’s shortfall is also about $113 million, but it is primarily caused by a reduction in the federal matching rate.

That means the state budget shortfall attributable to Medicaid alone is about $226 million over the next 18 months. That does not include other budget demands like increased aid to local schools, overcrowded jails or tax relief proposals.

“The first supplemental we are proposing will just deal with the $113 million problem this year,” Wyke said. “There will have to be a second supplemental budget.”

Medicaid has been a problem in all 50 states. Each, according to a study by the National Conference of State Legislatures, made significant changes to their Medicaid programs that closed what would have been a nationwide $200 billion gap.

Adam Thompson, a special assistant in the Governor’s Health & Fiscal Policy office, said Friday the reduction in the Medicaid match will come in stages. In July, the fed match drops from 69 percent of Medicaid to 67 percent. It further drops to 65 percent in October. He said that rate should hold for a year.

“The feds refigure the match rate every year,” he said, “so we could see a change either way for the following year.”

Gov. John Baldacci has ordered a series of cuts, co-pays and cost control efforts to reduce state Medicaid spending by $7.6 million over the next six months. One time surpluses, revenue re-projections, and cuts in other state programs will make up the rest of this year’s shortfall. The governor said recently those changes in the program will help with the second year budget problem.

“We need to get the savings now for this year, because hopefully they will be there for next year,” he said, “for a whole year, and we need that.”

The cuts, from adjusting chiropractic rates to capping the number of hospital and doctor visits, have generated bipartisan concern, and some outright opposition.

Trish Riley, director of the Health & Fiscal Policy Office, defended the cuts as needed to keep the maximum number of people covered by the second largest health insurance system in the state.

Many changes implemented or proposed by Baldacci have been used in other states. In the past two years, 45 states have enacted legislation to lower prescription drug costs. Thirty states implemented or increased co-pays for services, including prescription drugs.

Mainecare, the state’s most recent name for Medicaid, covers more than 240,000 Mainers including one in every three children in the state. Dirigo Health, scheduled to start in July, will use Medicaid funds as well for part of its funding.

Sen. Mary Cathcart, D-Orono, co-chairs the Legislature’s Appropriations committee. She predicts budget decisions this session will be the toughest in years. She is not alone in her prediction.

“We have too many demands on money and not enough money to go around,” said Sen. Karl Turner, R-Cumberland, also a member of the Appropriations Committee. “We are going to have to make some tough choices, and it will not be easy.”