Medicaid… Pay Me Now or Pay Me Later.

14th Jun 2017

Now that the dust has cleared on the 85th legislative session everyone is looking at the impact of decisions made. This is especially true with regard to Appropriations… and when it comes to Medicaid and CHIP, the picture looks grim.  Texas Insight had reported that the odds were that when the 86th legislature convenes in January 2019; the supplemental appropriations bill would be substantial.  Just how substantial?  Well it is looking like it will be close to $7 Billion (with a “B”) All Funds, just for Medicaid.  The other part of this bad news scenario is that the short fall will most likely occur very early in 2019 not giving the Legislature a lot of time to mess around.

There are numerous reasons this will definitely occur:

  • The Legislature funded 2018 Medicaid off revised caseloads (smaller) and then funded 2019 at the same 2018 level of funding. This assumes little to no growth to a program that has seen steady growth since its inception.  The result is that HHSC now has to make their funding fit the case load.  Medicaid is an entitlement so HHSC cannot turn eligible individuals away.  With or without the funding, the state must serve all eligible individuals if the state is going to stay in the program.
  • The Legislature did not fund cost growth for Medicaid. This is not unusual as cost growth in recent years has rarely been funded. What happens is that the Legislature assumes that they will come in and back fill for the cost growth after the fact with a supplemental appropriation, and just in the nick of time, provide the necessary funding to keep the program solvent through the last part of the biennium.   But now, because of the case load issues and holding 2019 funding at 2018 levels, this issue is compounded.
  • HHSC has lost federal funds that were associated with Rehabilitation Services since these services were transferred to the Workforce Commission. This limits the flexibility HHSC had impacting cash-flow.
  • All these changes result in losses, as well, impacting cost allocation planning used to attract additional federal dollars. The system is a delicate balance and up-ending any piece will change the cost allocation abilities of HHSC, limiting options.

As if Medicaid shortages were not enough, similar issues exist in both the Children’s Health Insurance Program (CHIP) and Early Childhood Intervention Services.  This means in addition to the $7 billion in Medicaid there will be other shortages in other programs.

Oh, we’re not done yet…Now would be a good time to bring up Rider 34.  As with other years, the Legislature assumes that savings can be found within the programs if HHSC just tries a little harder, so they add language and remove funding to inspire HHSC to do just that through “Cost Containment” initiatives.  Rider 34 partially reads:

  1. Medicaid Funding Reduction and Cost Containment. The Health and Human Services Commission (HHSC) shall develop and implement cost containment initiatives to achieve savings throughout the health and human services system. These initiatives shall include…”… and then 18 “suggestions” are made.

The rider concludes with the following statement:

“HHSC shall achieve savings of at least $350,000,000 in General Revenue Funds and $480,000,000 in Federal Funds for the 2018-19 biennium through the initiatives identified above.”

As mentioned, this effort at cost containment is not new and has been used for many years.  However, having gone through this exercise on a regular basis, the well of saving possibilities is running dry.  Failure to reach the $350 million General Revenue savings target will simply add to the $ 7 billion plus short fall.

The reader may ask how such a thing can happen.  The issue is that there are several constitutional limitations on spending that control the appropriations process.  One of the major issues is crafting an appropriation’s Bill that falls within the amount of revenue projected by the Comptroller to be available to the state.  SB1 does just that, but by putting the Medicaid tab on a very large post-dated check.

There, of course, was another option that had been kicked around… the use of the Economic Stabilization Fund (ESF) or “Rainy Day Fund.”  The Legislature did dig into the fund, using $988.9 million for mostly one-time expenses like state hospital and state supported living center infrastructure improvements but stayed clear from using the fund to provide direct services, like Medicaid. To provide some focus, the state’s ESF balance at the close of fiscal 2016 was $9.7 billion.  A recent study by the National Association of State Budget Officers (NASBO) found that the state’s ESF is equivalent to about 18 percent of Texas’ annual general revenue expenditures and nearly three times more than other similar funds in other states where a nationwide average of 6.5 percent among states with similar funds was found… So, the money was there but the will to spend was not…. the Legislature just chose to save it for a rainier day.  That day looks like it could very easily be early in 2019.

Thomas Valentine

Texas Insight