Old battle lines resurface over federal Medicaid expansion

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Parties fight over implementation timeline, cost

With Mark Dayton’s timely ascent to the governor’s office now assured, the most visible and protracted legislative drama of 2010 has erupted again in the past week. Dayton said throughout the campaign that one of his first acts as governor would be to sign an executive order enrolling Minnesota in an expanded federal Medicaid program.

That’s his prerogative under the terms of a 2010 deal between Gov. Tim Pawlenty and DFL legislative majorities to extend funding at a reduced level for the state’s indigent health care program. Opting into the program will mean over $1 billion in federal dollars to cover costs associated with serving Minnesotans who make 75 percent or less of federal poverty guidelines (about $8,100 a year).

But as a House committee hearing on the matter last week demonstrated, there are still hard feelings on both sides, as well as lingering arguments over how long it will take to implement the program – not to mention ongoing spats, mostly semantic, about its budget implications.

Testifying before Rep. Tom Huntley‘s final meeting as chair of the House Health Care and Human Services Finance Division on Tuesday, State Medicaid Director Brian Osberg said the full expansion is anticipated to be complete October 1. Under that scenario, the federal government would retroactively cover costs incurred by individuals and providers going back just 90 days for services covered by the state-funded program. For the first six months of the year, things would operate as they do now.

There were audible groans in the hearing room when Osberg said the expansion would take so long to implement. “In the 2010 session, the Legislature made some very difficult decisions and cut provider reimbursement rates,” said David Renner, a lobbyist with the Minnesota Medical Association. “We made the sacrifices. We made the cuts to be able to do it. Now it’s time to get this up and going.”

Osberg blamed the long lead time on the onerous process of making the systemic and operational changes the expansion requires. He also reminded the panel that the transition would not get underway until Dayton actually signs his executive order.

Some DFLers at the Tuesday hearing hinted that the outgoing Pawlenty administration is purposefully trying to delay the Medicaid expansion even further into next year, a charge Osberg flatly denied.

“It’s ridiculous,” said Huntley of the delay, which he estimated would cost the state’s medical care providers about $880,000 a day in lost reimbursements. “It better not take nine months.”

DFL Sen. Linda Berglin, the outgoing chair of the Senate’s Health and Human Services Budget Division, called the delay an issue of “great concern.”

“What the forecast says isn’t going to come true if the department can’t get it implemented in the first quarter of the year,” Berglin said. “If we don’t have it implemented, the feds won’t give you the money.”

The cost argument

The federal program matches state dollars on a one-for-one basis. But Democrats at the Tuesday hearing called it a cost-neutral, win-win proposition for the state. Osberg himself agreed in testimony that it involved little additional cost to the state. But after the hearing, interim Minnesota Management and Budget Commissioner Steve Sviggum, who is one of Pawlenty’s closest allies, charged that it wasn’t cost-neutral at all where the general fund was concerned.

Sviggum was correct, strictly speaking. If you’re looking at the general fund alone, the early Medicaid expansion costs the $384 million that Pawlenty and others have claimed. But if you include other dedicated funds that the state is statutorily obliged to maintain, then the DFL math is correct.

Here’s how it breaks down: According to the latest figures, the state is slated to spend $1.07 billion on the Medical Assistance expansion in the next biennium. Nearly $235 million of that will come from terminating the state’s General Assistance Medical Care program. (Those clients will now make up the heart of the low-income population served under the Medicaid expansion.)

Another $475 million will come via transfers from the state’s Health Care Access Fund, a dedicated pool of dollars created to pay for the state’s MinnesotaCare insurance program. That leaves $384 million unaccounted for.

But the expansion also removes costs from the dedicated Health Care Access Fund and adds them to the state’s general fund, and under the new system, the federal government will foot half that bill. Almost $890 million of the $1.07 billion in Medical Assistance expansion is money the state would have spent on MinnesotaCare through HCAF in the next biennium regardless.

Without the expansion, HCAF would be facing a $615 million deficit in fiscal year 2013. The expansion reduces that to $151 million, saving $464 million.

The bottom line? Once all the fund interactions are accounted for, a fiscal analyst told Capitol Report, the final net cost of the expansion for the next biennium is expected to be around $119 million under current law and projections.

The state’s November budget forecast – complete with its $6.2 billion budget deficit – already assumed the early opt-in would take place, and the money required for the expansion has been appropriated, so the cost will not add to the already steep deficit.

Impact on the ground

The starkest differences wrought by the expansion will be felt by the system’s users and by hospitals. Under the 2010 GAMC compromise, just 17 regional Minnesota hospitals were approved to receive grants to provide care for the low-income, mostly single adults in the program. Under the expanded federal program, former GAMC clients will have access to any hospital and any doctor that accepts Medicaid, and a greater range of services will be covered.

For providers, the expansion will mean dramatically higher reimbursement rates.

But Republicans counter that the federal program will do nothing to arrest the rate of growth in health care costs. (According to state budget director Kristin Dybdal, 70 percent of the general fund’s adjusted $2 billion in growth next biennium – after you’ve taken away the federal stimulus dollars and one-time moneys employed in 2010-11 – can be attributed to rising Medicaid/Medical Assistance costs.)

And they bemoan the red tape that will come with the federal money. Deviations from the rules of federally financed programs typically require waivers from Washington.

Incoming House Health and Human Services Finance Chairman Jim Abeler wants no part of it.

“Medicaid as a program is absolutely sick,” he said. “It’s not doing the good you want to do. To put more people into a program that is as terminally ill as this one does not seem prudent.”

He dissents from the widespread judgment that last session’s GAMC compromise deal was a failure. Providers “are doing things they wouldn’t have done unless they had to,” Abeler said. “It’s working, the reform is working. The idea is an idea that we must pursue.”