Plans for the Surplus Neglect the $93 Million Medicaid Hole

Thursday, January 30, 2014 at 7:48 PM by

Higher Income and Revenue + More Tax Cuts = Less Funding for Medicaid

Growth in personal income is positive in many ways.  It helps Wisconsin families, boosts our economy, and lifts tax collections.  However, there is also a smaller downside; growth in personal income can also boost the share of Medicaid spending that a state is responsible for.  Lawmakers should take that into account as they develop their plans for using the projected state surplus of $912 million. 

Because personal income has rebounded a bit in Wisconsin in recent years, and has gained a little ground on the national average, Wisconsin’s share of Medicaid spending is growing by about one percentage point in October.  That’s the result of a longstanding formula for Medicaid cost-sharing that looks at the relative income levels in each state. Higher income states like Minnesota get the lowest federal match, 50%, whereas Wisconsin’s rate is now 59.2%, and that will drop to 58.3% this fall.     

The 0.9 percentage point decline might not sound like much, but it will reduce the federal share of Medicaid spending by about $52 million in the current biennium.  That’s the largest single factor in causing a Medicaid deficit for 2013-15 that DHS recently estimated was close to $93 million (in state GPR funds). 

Thankfully, the fact that the estimated balance for the state’s total General Fund budget has grown by $912 million provides an easy way to close the Medicaid hole; lawmakers would only need to set aside one tenth of the increased revenue for that purpose.  Unfortunately, the Governor’s plans for the projected surplus use every bit of it for tax cuts and other purposes, leaving nothing to address the Medicaid shortfall (unless the legislature later decides to tap the rainy day fund for that purpose, instead of preserving that funding until there’s truly a rainy day).  

Thus far, I haven’t heard the Walker Administration say anything about how they plan to close the Medicaid deficit.  That’s very disappointing because the lack of transparency makes it much more difficult to have an informed public debate about the pros and cons of different options for using the surplus.  Even if the Governor and other lawmakers are hoping that DHS can find savings to close the Medicaid shortfall, they should outline the plans for those cost savings, and should also set aside money in the budget balance to be ready to close the gap later in the biennium, if necessary. 

Another simple way to close the Medicaid budget hole would be to provide BadgerCare coverage to all parents and childless adults below 133% of the federal poverty level (rather than just to 100% of FPL), thereby making the state eligible for enhanced federal matching funds under the Affordable Care Act (ACA).  That would save state taxpayers over $100 million in the current biennium (not to mention the $30 million being provided to hospitals because rejecting the enhanced funding is expected to increase uncompensated care).

The Governor sometimes points to recent and upcoming reductions in the share of federal spending for Medicaid as a rationale for rejecting the enhanced federal funding, because he contends that it shows the federal government is reneging on its commitment to states.  However, that argument doesn’t hold up to scrutiny for a number of reasons.  For one, the current decline in the federal share results primarily from the longstanding federal formula; it doesn’t demonstrate a weaker resolve to honor the federal government’s cost-sharing partnership with states. Second, taking the enhanced federal funding for covering childless adults would lock into place the enhanced matching rate percentages set in the statutes (for that subset of spending), rather than allowing the match rate to decline in 2014 and 2015, as it does under the current formula.  Third, Wisconsin could follow the lead of some other states with GOP governors by making the expansion contingent upon continuation of the federal contribution rates set by the ACA. 

Perhaps it’s unrealistic to think that the $93 million Medicaid shortfall will prompt current lawmakers to reconsider their decision to reject the enhanced federal funding.  But is it too much to expect that they will at least provide some insights on the plans to close that budget hole before they enact a special session bill that uses every dollar of the projected $912 million surplus?  

Jon Peacock

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