Government-paid health services for low-income Hawaii residents will be reduced due to rising Medicaid costs, cutting about 4,500 people from the system, the state Department of Human Services announced Tuesday.

The plan calls for Medicaid eligibility requirements to be tightened by removing from the system healthy adults who earn more than $34,194 for a family of four in Hawaii. Currently, the limit is $51,420 for a family of four.

The change will focus Medicaid on the neediest people in the state, said Human Services Director Pat McManaman.

“It’s a reduction that focuses on the core services that meet the most important needs of our recipients,” said Dr. Kenny Fink, Med-QUEST Administrator for the department.

Medicaid services for the disabled, children and pregnant women would be maintained at current levels.

In addition, benefits for healthy adults under 65 would be trimmed, with the new services imposing limits of 20 outpatient visits, 10 inpatient days and three outpatient surgical procedures a year. 

The new benefit levels affect about 100,000 Medicaid recipients, but Fink said they’ll meet the needs of 99 percent of the people served by the state.

“This is going to be a tough deal. Everybody knows that,” said Democratic Gov. Neil Abercrombie. “We have to overhaul eligibility.”

The Medicaid changes were expected to save the state about $75 million over the next two years as enrollment has risen to about 271,000 residents, which represents about one in every five people in Hawaii.

Demand for Medicaid has jumped with the economic downturn, with the number of beneficiaries increasing by about 60,000 people since January 2008. Meanwhile, Medicaid costs to the state have increased, from $606 million in the current fiscal year to $800 million budgeted for the 2013 fiscal year.

During a question-and-answer session as the changes were announced, Dr. Stephen Kemble questioned why the state wasn’t doing more to ease time-consuming requirements to use generic drugs and for service approvals.

“I don’t see any effort to reign in these kinds of burdensome and costly aspects of the Medicaid program,” he said. “There’s no change in that fundamental structure.”

The new eligibility standards mean only those earning less than 133 percent of the federal poverty level would qualify, down from current rules that allow people making up to 200 percent of the federal poverty level to participate. The federal poverty level for a family four in Hawaii is $25,710 this year.

“This is going to have an impact on the safety net,” McManaman said. “It’s a regrettable, difficult decision that the department made, but given the fiscal reality that we’re confronting, this was a decision we needed to make.”

By reducing about $75 million in costs to the state government, Hawaii officials would also lose at least as much money in federal matching funds. The Medicaid funding was cut in the new state budget passed last week by the Legislature.

The changes were planned to take effect Jan. 1, following community meetings and creation of new program rules.