Gov. Bill Richardson’s administration is proposing to overhaul Medicaid, the government’s low-income health insurance program, to cope with a projected budget shortfall of $300 million next year, the Associated Press is reporting.

Human Services Department officials told lawmakers on Thursday that Medicaid benefits and eligibility probably would be limited to minimum federal requirements, such as covering low-income pregnant woman and some children.

The message is consistent with what the administration has been saying for months: the state may need to cut Medicaid drastically to address the potential budget gap.

New Mexico Human Services Department said much the same thing in September when they appeared before the Legislature’s Health and Human Services Committee.

At that time, officials said thousands of low-income New Mexicans could lose medications, vision and dental services, hospice care and physical therapy because of the potential huge shortfall.

Here’s an excerpt from an earlier Independent story:

Officials said they were eying many previously off-the-table scenarios, including eliminating many, if not all, optional Medicaid services, because of the severity of the situation.

The potentially extreme measure is part of the mix this year because mandatory Medicaid services — such as hospital stays and physician services — are projected to grow to $550 million in early 2011. That’s compared to a projected $340 million for optional services, Hyde said.

If the state cuts $300 million to close the shortfall, very little money would be left for services that aren’t mandatory.

The implications of such deep cuts are potentially dire for New Mexico, where one in four residents gets health coverage in whole or part through some form of public assistance.

It’s difficult to gauge whether the state actually plans to cut Medicaid drastically or if it’s a way for the administration to help create momentum among legislators for tax-raising bills or other solutions to avert such deep cuts.

A confluence of factors is contributing to the state’s projected $300 million shortfall in Medicaid next year. But one of the biggest reasons is the disappearance of around $140 million in federal stimulus Medicaid dollars as of Dec. 31, 2010. The state must replace that money.

There’s a question of whether the federal government will step in to help New Mexico and other states dealing with the same issue of a ‘revenue cliff’ and, if so, how to go about it.

The AP reported Thursday that while New Mexico is looking at scaling back medical care services and eligibility to only those individuals that must be covered by federal law, such as lower-income pregnant women and children, others would have an option to obtain health services by paying premiums and copays, depending on their income.