State officials are scrambling to close a Medicaid shortfall that could be as high as a quarter-billion dollars, or risk being unable to deliver services to recipients and make payments to providers.
“We begin having cash problems about two weeks from now,” state budget director Andy Willis said April 17.
State lawmakers are pushing to inject more fiscal discipline and better forecasting into Medicaid budgeting to end a series of annual overruns that have required tapping into the state’s General Fund. The shortfall was $200 million two years ago and $600 million last year.
Much of this year’s deficit is a cash-flow problem caused by a federal delay in approving several cost-saving Medicaid plan amendments North Carolina officials have proposed. This delay has held up money owed to the state. Willis is confident the changes will be approved, but many may not be finalized before the June 30 end of the fiscal year.
Some of the shortfall is due to higher-than-anticipated utilization of the entitlement program.
“We’ve had three years that I’m aware of where we’ve had year-end Medicaid problems, where we’re not meeting what we need to meet as far as the appropriations amount,” Willis said. “This year our shortfall is between $150 million and $250 million.”
Medicaid is “a beast” that is “driving the structural integrity of the budget in a way that I have not seen,” Willis said. “When we don’t have the funds for it, providers run the risk of not getting paid. It’s the doctors, it’s the hospitals, it’s the nursing home operators.”
The Joint Legislative Commission on Governmental Operations has “pressed the governor’s budget staff” to bridge the cash-flow issue by using internal Department of Health and Human Services money “and whatever funds the governor can get her hands on until we get back in session,” said state Sen. Peter Brunstetter, R-Forsyth, a member of the commission.
“They’re confident they can find ways to do that,” he said, starting with pulling money out of other agencies under the DHHS umbrella.
Brunstetter said granting the governor authority to redirect money from departments outside of DHHS will be “one of the first bills we will deal with when we get to the short session” on May 16.
“Regardless of what happens, there seems to be this recurring theme where we’re missing our Medicaid targets,” he said. And the legislature is still paying for past overdraws from the federal government, for negative audit findings, and other issues while shelling money out of the General Fund to close year-end budget gaps.
“Getting Medicaid to the point where the amounts are predictable … is in everyone’s best interests,” Brunstetter said.
“Anything we can do to get closer on the numbers is better,” agreed Sen. Martin Nesbitt, D-Buncombe, also a member of the Governmental Operations Commission.
“But you’re going to have a 1- or 2- or 3-percent fluctuation in the Medicaid budget that … no person on Earth can project,” Nesbitt said.
Projecting within 5 percent on an entitlement program “is pretty good” because it’s impossible to predict how many will use it and for what services, Nesbitt said. A $150 million gap would be roughly 1 percent of the $12.9 billion budget.
“We think the department has done a very good job of using a fast forecasting model that they purchased several years ago,” Willis said.
“But one thing we’re not doing very well is sharing the information,” Willis said. “You don’t have a second and third set of eyes looking at the forecast model” similar to what is done in projecting revenues for the general fund, universities, or public schools.
Willis advocates a similar teamwork approach for Medicaid, with a person in the Office of State Budget and Management and another in the Division of Fiscal Research. They could help review the numbers, better identify potential challenges, promote different solutions, and work to avoid surprises late in the budget year.
There also have been cash management issues that can be addressed on the executive side.
“Our side should be looking at that. We’ve not been for the past three years,” Willis said. “We don’t have a plan typically until there’s a problem in March. I’d much rather know that in August.”
“I can’t think of a state, maybe a small state like North Dakota that’s having an oil boom,” that’s getting control of its Medicaid spending, said Scott Pattison, executive director of the National Association of State Budget Officers in Washington, D.C.
“Everybody has been saying the same thing. Every new dollar, with few exceptions, is going to Medicaid,” Pattison said. Rigid federal guidelines prevent states from implementing flexible solutions, he said. “North Carolina is not at all unusual.”
Lacking flexibility, states are shedding optional populations they don’t have to cover under Medicaid, looking for tighter managed care, trying to get generic medications approved, or trying to get prescription prices lowered.
In Arkansas, cost-control focus is being placed on populations with chronic diseases and expensive treatments. Ensuring patients take their medications and get seen early in a doctor’s office if a problem erupts cuts down on more costly emergency room visits or long hospitalizations.
The fee-for-service model doesn’t create the best incentives for reducing costs because people just show up at a provider’s office and the bill gets paid, Pattison said. Some states are being more aggressive, with some degree of cost-control success, in developing health management initiatives.
“The states are definitely realizing that they have to talk to each other, they have to share information that’s becoming available,” Pattison said.
Brunstetter said getting a grip on Medicaid is essential to prevent it from consuming all of the cost savings elsewhere in the state budget and gobbling up the unbudgeted tax revenues that come in above projections.
“You get into the second year of the biennium, and there are a number of things legislators might like to do” in education or capital projects spending, Brunstetter said. Taking care of the Medicaid shortfall “crowds out any ability to do something in the second year of the biennium,” he said.
“That takes away any money available to pay bills when another part of the budget goes over,” Nesbitt said.
Medicaid is “one of the fastest-growing pieces of our budget,” Nesbitt said. “We’ve got to get the costs under control, and you can’t get the costs under control as long as you’re doing cost shifting because a portion of your population is uninsured and therefore not paying.” Nesbitt says universal health care is necessary to make costs more predictable.
Brunstetter disagrees, saying North Carolina could be forced to add between 400,000 and 500,000 new Medicaid recipients in 2014 if the federal Affordable Care Act survives a Supreme Court challenge.
“It looks to me like this is going to be potentially a budget buster if this goes through,” he said.
Dan Way is a contributor to Carolina Journal.