Maryland will have to pay the price next year for a rate-setting mistake that led to $202 million in state overpayments to health maintenance organizations that treat Medicaid recipients, officials said yesterday.

Neil Bergsman, state budget director for Gov. Parris N. Glendening (D), said the payment errors will require the state to dip into its nearly $700 million surplus to cover a $100 million deficit in the Medicaid program.

The erroneous payments were made in the 1998 and 1999 fiscal years because of miscalculations by the state's actuarial consultants at the University of Maryland at Baltimore County and Johns Hopkins University in Baltimore. The Maryland Department of Health and Mental Hygiene, which runs the Medicaid program, didn't spot the problem until last year.

"There's some embarrassment on all sides," Bergsman said. "We have a problem, we recognized it and we're trying to manage it soundly and professionally."

He said that "accounting maneuvers" have carried the unbudgeted spending into the current fiscal year but that such budgetary gimmicks cannot continue. Maryland splits the costs of its $2.3 billion Medicaid program with the federal government.

There have been adjustments and rate revisions over the past two years to recoup some of the erroneous payments, but the HMO rate problem must now be cured by a $100 million debit from the state general fund, Bergsman said.

Unlike the federal government, the state does not permit deficit spending. State officials have been reluctant to demand repayment for fear the HMOs would refuse to continue covering patients.

State House of Delegates Speaker Casper R. Taylor Jr. (D-Allegany) said yesterday that officials have no choice but to close the gap, adding that the embarrassment about the miscalculations is minor compared to what would have happened if care to patients was cut.

"I think there would have been horrible political fallout had we not been able to meet these unmet health care needs for poor people," he said. "I think we're handling it in a very responsible way."

Since the HealthChoice program began in 1997, the state has moved 350,000 of the state's 460,000 Medicaid recipients into HMOs. The change was an attempt to assert financial control over the health insurance program for the poor and disabled, which had become one of the fastest-growing elements of the state budget.

HealthChoice was designed to tame spiraling costs and motivate patients to develop regular relationships with family doctors who are required to promote preventive care.

If Glendening aides were surprised when they discovered the mistake in mid-1998, the HMOs gave them another jolt by saying that the overpayments still left them stretching to operate profitably.

State officials refrained from dropping rates dramatically in order to keep the HMOs from quitting the program. Instead, rates were frozen last summer, then cut by 4.5 percent in the spring.

With a new rate year to begin Nov. 1, the HMOs have been negotiating intensively with state officials to increase annual total HealthChoice payments beyond the current $980 million.

The state's latest offer is about $40 million more than that. That sum would cover extra payments for rural HMOs, inflation and improvements in dental care, HIV benefits and prenatal care for women who receive their first medical treatment late in their pregnancies, said health department Deputy Secretary Deborah I. Chang.

The new rates are close to being finalized. "Five [of the eight] plans support it," she said. "We believe that we have a viable program."

CAPTION: Gov. Parris N. Glendening's budget office will use $100 million in surplus funds to cover HMO overpayments.