DHS Budget Bolsters Case for BadgerCare Expansion

Monday, September 22, 2014 at 5:05 PM by

Without intending to do so, the Department of Health Services (DHS) budget request has substantially strengthened the arguments for expanding BadgerCare and taking federal funding available for that purpose, which would  erase much of the state’s currently projected Medicaid funding shortfall.  There are many compelling reasons to accept the federal funding, and the DHS budget request unveiled last week adds to that list.  

The following are four aspects of the budget request that bolster the arguments for expanding BadgerCare eligibility for adults up to 138% of the federal poverty level (FPL).  Although the first point noted below is reason enough to take the federal funding, a closer reading of the DHS budget request reveals other reasons why the strong arguments for expanding BadgerCare are now even stronger.  

1)  The $760 million in additional state revenue needed simply for a cost-to-continue budget – The DHS budget request seeks an increase of $760 million in state General Purpose Revenue (GPR) simply to maintain current Medicaid and BadgerCare benefits.  A WCCF summary of the DHS document explains the primary reasons for that increase, and the next two items in this blog post also shed light on a couple of the factors.  Finding that much additional funding will be extremely difficult at a time when the state is facing a $1.8 billion structural deficit (which means that $1.8 billion of new revenue is needed in 2015-17 before the state can set aside any funding for spending increases).  Expanding BadgerCare would take a very large bite out of the Medicaid shortfall and would help avoid deep cuts in Medicaid eligibility or services.  

2) A large increase in projected enrollment of childless adults – The budget request indicates that DHS now expects the number of childless adults enrolled in BadgerCare to reach 145,000 by the end of the current fiscal year.  That’s almost 50% more than DHS projected during budget deliberations, and 10,000 more than DHS assumed when the department revised its enrollment projections in late June!  As that number grows, so do the potential savings from expanding BadgerCare and taking the increased federal funding (which would finance 100% of spending for childless adult coverage in 2015 and 2016, and 95% in 2017).  Based on the assumptions made in the budget bill about average per member costs, we calculate that the state share of covering 10,000 additional childless adults will be roughly $41 million GPR in 2015-17, which is a factor that the Legislative Fiscal Bureau didn’t take into consideration in its August estimate of the potential savings of a BadgerCare expansion.  Expanding BadgerCare to 138% of the federal poverty level would cut that incremental cost to about $1.3 million if the expansion is in effect by July 1, 2015, or to about $11 million GPR if the change were delayed until January 2016. 

3) A widening gap between the regular Medicaid match rate and the federal match for expansion states – In contrast to the federal matching rate for Medicaid expansions, which is fixed by statute, the regular federal match rate for each state fluctuates and is declining in Wisconsin.  That federal share, known as the federal Medical Assistance percentage (FMAP), is determined by a formula and automatically declines when a state’s median income is increasing. According to the DHS budget request, the federal Medical Assistance percentage (FMAP) for Wisconsin is falling from slightly over 59% in federal fiscal year (FFY) 2014 to slightly under 58% in FFY 2017. A 1.1 percentage point drop might not sound like much of a difference, but the DHS document indicates that it is expected to cost Wisconsin $188 million during the next biennium.  The FMAP decline in 2015-17 was only partially accounted for in the LFB’s August calculation of the substantial savings from expanding BadgerCare to 138% of FPL.  I estimate that the latest FMAP estimate will increase the potential savings of a Medicaid expansion by roughly $1 million more in 2015-17 than the LFB calculated.  

4) Demonstrating flaws in the logic behind the Governor’s rejection of the Medicaid funds – The Governor contends that it would be risky to accept the increased Medicaid funding, but the DHS request illustrates one of the flaws in that line of argument. The much higher federal match rate for expansion states is locked in by statute, and that helps make the federal share of Medicaid expansion spending more secure than the regular federal match rate, which is gradually declining. In addition, the Governor’s alternative plan relies on another source of federal funding – the subsidies for Marketplace insurance plans – to finance coverage of parents the state cut from BadgerCare.  As I noted in a previous blog post, over the next couple of years there are more reasons to fear the elimination of that subsidy funding than the federal funds for Medicaid expansions.  

To sum up, the Fiscal Bureau estimated in August that expanding BadgerCare to 138% of the federal poverty level would save state taxpayers $261 million to $315 million in the next biennium, even if the expansion doesn’t take effect until January 2016.  Based on the latest enrollment estimates in the DHS budget request and their assumptions about the federal match rate, we estimate that the lower end of the potential savings is $31 million GPR more than the LFB indicated (or $41 million more if the change took effect by July 1, 2015).  To close the $760 million hole in the Medicaid budget, it’s critically important for Wisconsin to expand BadgerCare and accept the increased federal funding. 

Jon Peacock  

One Response to “DHS Budget Bolsters Case for BadgerCare Expansion”

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