A publication of the Kentucky Center for Public Service Journalism

Analysts tell health advocates Medicaid budget ‘shortfall’ described by state officials premature

By Melissa Patrick
Kentucky Health News

The warning from the administration of Republican Gov. Matt Bevin that some Medicaid benefits may need to be cut because of a budget shortfall over the next two fiscal years has caused unnecessary alarm, a research and policy analyst for the Kentucky Center for Economic Policy, said at the Kentucky Voices for Health annual meeting in Lexington Oct. 19.

Dustin Pugel referred to a presentation the Cabinet for Health and Family Services made in August to the legislature’s Budget Review Subcommittee on Human Resources, predicting that over the next two fiscal years the state will be $300 million short in what it needs to pay for Medicaid.

“There’s some problems with their math,” Pugel said.

Analysts Jason Dunn and Dustin Kugel gave an update on health policy at the Kentucky Voices for Health meeting. (Photo from KHN)

He said the cabinet based its estimate on its initial forecast of expenses, though there is almost always a gap between what an agency requests and what the legislature puts in the budget.

“To call that a shortfall is strange,” Pugel said. “And if, in fact, you add up all of the agency requests in the entire budget versus what was enacted, then we would say that we have a $2 billion shortfall in the general fund, which of course we don’t.” He said the projected “shortfall” would be only 1 percent of the state’s total budget.

Medicaid is a joint state and federal health insurance program that spends about $11.5 billion a year to cover 1.4 million Kentuckians, nearly one in three. Before its expansion under the Patient Protection and Affordable Care Act in 2014, by Democratic Gov. Steve Beshear, the program was mainly limited to very poor pregnant women and children, disabled people and low-income elderly in nursing homes.

Asked in September to respond to the KCEP report on this topic, cabinet spokesman Doug Hogan said cabinet officials explained to the legislators that their overall concern is about a shortfall in the state’s General Fund because the state must have money in the fund to get federal matching money.

“The state General Fund shortfall is 6.61 percent in FY19 and 5.61 percent in FY20,” Hogan said in an e-mail. “This is significantly more than 1 percent, and not easy to adapt to, since Medicaid spending is primarily driven by two things: (1) the number of eligibles and (2) benefits costs, much of which are mandatorily required under federal law.”

Pugel said the cabinet’s own data shows that benefit costs and Medicaid enrollment are declining, which “should indicate that Medicaid expenditures will come in under the initial expectation.”

Pugel told the roomful of health advocates that the cabinet’s proposed solution to this “shortfall” is to eliminate dental, vision and pharmacy benefits to those on Medicaid, or even to end the expansion of the program to those who earn up to 138 percent of the federal poverty level. The expansion added about 500,000 people to the Medicaid rolls.

“Even if it were true, we have a lot of time,” Pugel said. “We’ve got a fiscal year and a half to be able to figure this out and there’s really not a lot of cause for alarm — and alarm in this case would be threatening to remove very important benefits.”

The center’s report adds that the cabinet failed to explain the context for the projected shortfall and ignored additional resources that were already appropriated to deal with some of the costs.

For example, the report says the cabinet’s shortfall spreadsheet includes higher fees for dispensing drugs and increases in the Supports for Community Living and Traumatic Brain Injury programs without showing that $91 million was appropriated to offset those costs.

Hogan said the cabinet did not “ignore” those resources. He wrote, “This demonstrates that KCEP does not understand or chooses to ignore CHFS testimony about how the shortfall was projected, which was to take the Consensus Forecast Group projection, add additional costs not anticipated by CFG that occurred after CFG made projection, and then look at the difference in the enacted budget amount.”

Asked about this, Pugel held to his center’s claim. “To add those as additional costs without any indication that they are also paid for is erroneous,” Pugel said in an e-mail. He added that the financial director tried to make this point clear at one point in the meeting, “but it was a short explanation and the point didn’t come across to the lawmakers.”

Hogan wrote, “KCEP is an agenda driven left leaning organization that inaccurately interprets data to support its narrative. KCEP lives in a fictional land where money and resources are unlimited and solutions typically involve simply throwing more money at whatever issue they are looking at that particular day, while ignoring that the money must come from somewhere else.”

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