LITTLE ROCK — Facing a potential $400 million shortfall in the state’s Medicaid program, Gov. Mike Beebe and state health officials are becoming more blunt in the warnings about the tough choices they face for closing the gap. To put it simply, none of the choices will make anyone happy.

As they prepare to roll out reforms aimed at curbing Medicaid’s costs, Beebe and state Human Services Director John Selig are warning lawmakers that the changes — plus other efforts to keep expenses down — won’t be enough to eliminate the deficit predicted to hit in July 2013.

"It’s not a magic wand that’s automatically going to remove all the need for Medicaid funding," Beebe said last week.

That leaves only a few other options: Raise taxes, direct more general revenue toward the program or cut Medicaid services. Stopping short of ruling out tax increases, Beebe said he’s not planning on any tax increase and hasn’t talked with lawmakers about that as an option. Instead, Beebe and Selig say the program will likely face service cuts and need more revenue directed toward it in the budget.

"Without significant new revenues, there’s just not any way to not make some really deep cuts in this program," Selig told lawmakers last week.

The debate offers a preview of the fight lawmakers will face when they return to the Capitol in January for the regular legislative session. No matter who wins control of the House and Senate in November’s election, the Medicaid shortfall is on track to dominate the session with a protracted debate similar to the school funding battles legislators have faced in the past.

Beebe and lawmakers briefly stepped into that debate during this year’s fiscal session, when a group of Republican lawmakers called for setting aside one-time money from Medicaid. Republican lawmakers ended the session claiming they were blindsided in the final days when DHS increased its estimate on the expected deficit, which they said could be between $250 million and $400 million.

Beebe and DHS officials say they’ll have a better idea of the deficit later this year, especially after the Supreme Court rules on the federal health care law that could add even more to that shortfall.

"I’d rather warn them about the worst case scenario and hope it’s better than that than surprise them at the 11th hour by not having told them," Beebe said last week.

But what Beebe and lawmakers are talking around is what exactly the tough choices they face will mean for the program. Beebe and Selig haven’t said what services could be affected by any reductions in service. Incoming Senate President Larry Teague, a Democrat, has also talked about "tightening" the program without specifying what that would mean for services.

Republicans have said they want to focus on eliminating waste, fraud and inefficiency in the agency. But details are scant on what exactly would be targeted with that effort, and how much could be saved on an annual basis with their focus.

The debate will heat up over the coming months as the state prepares to roll out its initiative to change the way Medicaid pays for services in a handful of areas. Republicans are skeptical of the effort to move from a fee-for-service model to one that bundles payments for "episodes" of care rather than individual treatments.

It’s a reform that Selig and Beebe hope will slow costs in the program, but won’t eliminate the problem they face next year.

Republican Senate Whip Michael Lamoureux said he believes that initiative should be set aside so the state can instead focus on the looming shortfall. He said targeting waste and inefficiency wouldn’t close the gap completely, but could help.

Lamoureux said the Legislature will likely have to take a number of unpopular options, but said a tax increase is essentially off the table.

"If you think there’s a really easy solution, it means you don’t know what you’re talking about," he said.

Andrew DeMillo has covered Arkansas government and politics since 2005. He can be reached at