Wisconsin’s Medicaid Deficit Grows to $93 Million, as Cost of Rejecting Federal Funds Rises Sharply

Enrollment of childless adults in BadgerCare is far above the anticipated level, and that’s having a significant effect on the state budget.  The much higher than anticipated cost of covering that population means Wisconsin could save far more than previously estimated by taking the enhanced federal funding for Medicaid expansions. That option authorized by the Affordable Care Act would finance 100% of the cost in the current biennium for covering childless adults.

The new BadgerCare enrollment and fiscal projections are contained in the latest quarterly report on the Medicaid budget, which was sent to legislators on Friday by the Department of Health Services (DHS).  Here are a few key facts from the new DHS report:

    • The department now assumes that the number of childless adults will grow to 135,000 by June 2015, from a little over 103,000 in May of this year.
    • The new projection is an increase of 40,400 compared to the department’s estimate in the previous quarterly report.
    • DHS now projects a potential Medicaid deficit at the end of the 2013-15 biennium of $93 million (in state General Purpose Revenue, or $232.5 million in state and federal funds combined) , which is almost $73 million GPR more than their estimate three months ago.

The new report cites a couple of other factors that are also affecting the Medicaid deficit, though it doesn’t specify the costs and savings attributable to each of those variables.  Among those factors, the one other development that is increasing the projected Medicaid hole is a counterintuitive effect.  Lower-than-expected spending in 2012 by county nursing homes has decreased some retroactive federal reimbursement that the budget bill assumed would flow into the state treasury, and DHS expects that to add $35 million to the Medicaid deficit in the current biennium!

The report says there are also cost-saving trends, and it specifically identifies one of those – lower than projected enrollment growth for BadgerCare parents and children.  Although DHS doesn’t spell out its new assumptions about that area of enrollment and the projected savings, the report says this about the net effect:

The combined fiscal effect of the higher childless adult trend, offset by smaller growth for parents and children, is $59 million GPR for the biennium, compared to our March projection.”

It’s unclear how the state will close the widening gap in the state’s Medicaid budget.  I suspect DHS will try to find some non-controversial ways to save $93 million GPR, but I think that will be very difficult to do.  I believe the far more logical way to go is to expand Medicaid eligibility for adults to 138% of the federal poverty level (FPL), as about 25 other states have done.  That would generate 100% federal financing for childless adult coverage, and it would more than offset the $93 million hole.  Although the Governor has shown little willingness to consider that option, any cost-cutting alternatives proposed by the Walker administration should be weighed against the option of taking the enhanced federal funding.

Perhaps another option would be to use some of the state’s General Fund balance to close the Medicaid gap.  However, the surplus that was predicted in January was quickly committed to state tax cuts – well before the money was in the bank.  And as I wrote in a WI Budget Project Blog post on Friday, new figures from the Dept. of Revenue show that tax collections are well below the projected level, which begins to raise questions about how the state will manage to finish the biennium in the black.

In short, taking the federal Medicaid funding is by far the easiest way to pay for the much greater than anticipated BadgerCare growth; however, it’s an option that some lawmakers are very reluctant to entertain.

Jon Peacock