COLUMBIA If left unchecked, government-run health insurance for the poor in the state will start draining the cash South Carolina has to pay for its other top priorities, including public schools and law enforcement.

The state's Medicaid program is projected to cost $228 million more than lawmakers budgeted to spend on it this fiscal year. And the shortfall at the state Department of Health and Human Services is just a preview of the budget crisis awaiting the state in July. That is when the $1 billion in federal stimulus cash that's propping up this year's $5 billion spending plan runs out.

So what happens next? Lawmakers said they will have to find some way to balance the books after they return to session in January, cutting unnamed programs and services to keep the Department of Health and Human Services afloat.

Senate President Pro Tem Glenn McConnell said the Medicaid program will overrun the budget without some cost-controls put in place at the Health and Human Services Department.

'The reality check of this whole thing is, what can the taxpayers afford?' said McConnell, a Charleston Republican. 'We've got demands in education, law enforcement and other core areas of government. This program is growing faster than the ability of the people of South Carolina to pay for it.'

Lawmakers could decide to start issuing IOUs on March 4 to doctors and hospitals that treat Medicaid patients. Or, they could thumb their noses at the federal government for passing the expensive new health care law that is intended to eventually result in insurance coverage for all Americans. But such an action would risk coverage for hundreds of thousands of poor people, including children, and jeopardize the $4 billion in cash from Washington that keeps the state's health care industry in business.

Outright rejecting the Medicaid program and the federal cash or issuing health care providers IOUs are unlikely scenarios. Instead, lawmakers told The Post and Courier they will have to juggle the growing needs with the limited resources as the prolonged economic downturn continues to take a toll on South Carolina families. Raising taxes to cover the demand also is not likely.

McConnell and House Speaker Bobby Harrell, R- Charleston, said they will work with the state GOP leadership and South Carolina's congressional delegation to petition for change in the new health care law, which is helping to run up the Medicaid costs because it limits the state's ability to cut the program. And the costs will continue to rise as other elements of the new law become effective and increase the number of people who qualify for Medicaid.

The foremost way the new law restricts how the state can cut costs is by prohibiting the agency from changing who qualifies for Medicaid, a condition also imposed on South Carolina when it accepted federal stimulus cash. Since the economic downturn first hit three years ago, more than 100,000 people have come onto Medicaid. The program now covers 820,000 people, or nearly 19 percent of the state's population. Lawmakers also can back off their decision to prohibit the agency from cutting the rates paid to health care providers when they treat Medicaid patients.

Sen. Tom Davis, R-Beaufort, said the cost drivers for Medicaid are the rates paid to providers, the number of people on the rolls and the services provided. The only way the state can control costs at this point is with provider rates, and he said that health care professionals already have been squeezed by the economy. The state can only lower their rates so much before they would stop accepting Medicaid patients because it would no longer be cost effective for them to treat them, he said.

'It's ridiculous the straitjacket the federal law places on the state,' Davis said.

In the meantime, as the state waits to see what the newly elected Congress will do to change the health care law, South Carolina lawmakers will have to figure out how to balance the budget. They have a few options. Tax revenue is up slightly more than projected, providing $229 million more than was budgeted. The state also is expecting to collect $136 million more in cigarette taxes, after the 50-cents-per-pack hike went into effect in July. Of the extra cigarette tax revenue, $125 million was earmarked to go toward Medicaid costs.

The shortfall at the Health and Human Services Department isn't the only immediate budget woe facing the state. The state departments of Corrections and Social Services also are projecting deficits.

The Medicaid agency and the Social Services Department are expected go before the state Budget and Control Board on Dec. 14 to ask permission to run a deficit. Whether the board authorizes the agencies to operate with a shortfall, Harrell said lawmakers will have to make cuts to keep spending in the black, a constitutional requirement in the state.

Harrell said lawmakers will have to go through spending at each state agency and prioritize. He said he expects the Legislature will find very little wasteful spending, especially with the state budget cut by more than $2 billion since 2007. As for what programs will have to go, Harrell said he couldn't say right now. Reviewing spending will be a process, he said.

'We can't spend money we don't have,' Harrell said.

Lawmakers brainstorm on ways to pay for health insurance for the poor

Reach Yvonne Wenger at 803-926-7855.