No state budget this year means Medicaid could remain low

This story was originally published by North Carolina Health News on July 18, 2024.

NC Medicaid costs fluctuate each year. The state Department of Health and Human Services forecasts how costs might change and asks the legislature for funding adjustments based on those predictions.

For the 2024-25 fiscal year, the department requested nearly half a billion dollars more to cover higher costs — an adjustment known as a “rebase.” Of that, about $136 million is needed because the state will receive less money as federal reimbursement decreases for the program, according to DHHS.

But lawmakers left Raleigh last month without making a budget adjustment for the second year. Without it, Medicaid funds could begin to dry up in the spring, said Rep. Donny Lambeth (R-Winston-Salem).

Both the House and Senate proposed budgets would have given DHHS about $100 million less than they requested, said Melanie Bush, deputy director of Medicaid at DHHS.

The agency is counting on lawmakers to appropriate the proposed amount, likely in November, but that would still leave the department with that $100 million shortfall through the end of this fiscal year in early 2025, she said.

Higher prices everywhere

The federal government typically pays about two-thirds of every dollar North Carolina spends on regular Medicaid patients. Next year, that number is 65.06 percent of every dollar. That’s a slight bump from previous years: Federal dollars accounted for 65.91 percent of state costs for Medicaid recipients in 2024. During the pandemic, that number was even higher, with the federal government picking up more than 73 percent of tab from 2020. to 2023.

The percentages might seem small, but in a program as large as Medicaid, even a tenth of a percent change can add up to millions of dollars.

(Medicaid expansion beneficiaries have 90 percent of their costs covered with federal dollars, while North Carolina hospitals pick up the rest of the costs for these patients.)

People enrolling in the program, expensive drugs, increased payments to managed care companies and increased services are other factors in the number of relapses, Bush explained.

The department also requested money to plan to move people who are eligible for both Medicare and Medicaid into managed care, Bush said. In addition, funding is also needed for the NC Healthy Opportunities Program and to update the Medicaid Enterprise system – IT support for Medicaid and related public benefits – according to DHHS.

Because state lawmakers failed to agree on a budget overhaul this summer, those requests were not met. The Medicaid program will be funded at the same level as last year’s budget.

That’s not enough, according to DHHS.

Bush noted that this does not affect Medicaid expansion.

Cutting costs

To save money, DHHS could limit services or reduce payments to the managed care companies that administer the program, Bush said. But the department hopes to first reduce administrative costs, such as large vendor contracts and delayed IT infrastructure programs, she said.

DHHS is “working around the clock” to make sure people with Medicaid don’t see changes to what they get, Bush said.

“It’s not our intention to cut services or limit anything they might have access to today, but there is a real impact on lives of being underfunded,” she said.

One such impact could be the NC Healthy Opportunities pilots, where people on Medicaid can receive food, transportation or housing services, Bush said. Plans to roll out the program nationally may have to take a back seat, she said.

Until recently, there was still hope for funding, she said.

“This is the first year that they’re really not funding even close to the level that we’ve requested,” Bush said.

Cutting Medicaid reimbursement rates to providers would be unpopular because health care is a huge part of the state’s economy, said Adam Searing, an associate professor at the Center for Children and Families at Georgetown University’s McCourt School of Public Policy.

“Nobody wants to say we’re cutting payments to rural hospitals,” he said.

Health care costs typically go up every year, Searing said. When making a responsible budget, lawmakers need to anticipate that, he said.

Budget hopes have been dashed

These types of Medicaid budget shortfalls should not happen again.

In 2015, state lawmakers passed changes to Medicaid that mandated the program shift from being run by the state to run by large insurance companies.

So North Carolina made the switch in 2021 from a fee-for-service regime, where Medicaid pays for every doctor visit, test and therapy session, to managed care, which pays a monthly amount for each beneficiary and then the big insurers must stay within budget to provide all care to beneficiaries. Lawmakers argued that one of the stated reasons for the change was for “budget certainty,” where they could predict at the beginning of the year what Medicaid is spending, rather than tracking cost overruns.

But if not enough money is allocated, shortages will occur.

There is a pot of money set aside for situations like this, when the Medicaid program needs less or more money than expected. This is called the Medicaid Emergency Reserve and currently holds about $750 million in non-recurring funds, according to DHHS. Legislators must appropriate this money for DHHS to use.

But lawmakers would prefer not to use that money unless they have to, Searing said. It is likely that lawmakers will allocate some money to keep Medicaid afloat before the next session, he said.

“The political consequences of not adequately funding the Medicaid program are huge,” he said.

Rep. Larry Potts (R-Lexington) said that in the budget negotiations, the House wanted to use the money from the reserve, while the Senate did not. Managed care providers may have to “share some of the pain” by reducing administrative costs if lawmakers do not pass any funding for DHHS, he said.

Medicaid could run out of money in the spring of 2025 if it grows at the expected rate, Lambeth said in an email. But the legislature will then be back in session, he said.

Lambeth said there are currently no plans for lawmakers to return to Raleigh and work on the budget. There are some “to do’s” he could address in November, but those are still up in the air, he said.

In the meantime, DHHS can’t rest on that hope, Bush said.

“We have no guarantee that the Legislature will come back and pass another budget in the spring, so we can’t just run out of the budget and hope they bail us out,” she said.

Planning ahead for children in foster care

Without the requested funding, DHHS may have to delay the specialty plan for children and families, which was supposed to be released in December 2024. It’s still a priority, but one that must be weighed among others, Bush said.

The long-sought plan would consolidate children in foster care statewide under a Medicaid plan run by a managed care company. Currently, the services those children can receive depend on the counties in which they live and the local mental health managed care organization (known as LME-MCO) that provides services in those counties.

That means children can receive widely divergent services depending on where they live, so the statewide plan aims to provide consistent and equitable services for children in the welfare system, said Karen McLeod, who runs Benchmarks, an organization umbrella nonprofit that advocates for groups that provide care. for children and families.

Children must receive services from LME-MCO accredited providers in their region. So for children who are placed in foster care with a relative who lives outside the LME-MCO home’s catchment area, it can be difficult to access services, McLeod said.

Creating a statewide plan could help address this.

In the second year of the new plan, families of children at risk of being placed in foster care would also be able to access Medicaid, said Gaile Osborne, executive director of the Foster Family Alliance of NC. Currently, only the child can access Medicaid in that situation, she said.

In many cases, supporting the family as well as the child helps keep the family together, Osborne said. For example, helping a parent deal with their substance use problems could prevent the child from having to go into foster care.

“We’re breaking up families or putting them together, and that’s how big this lift is,” she said.

The department is still in a bidding period for the company that will administer the plan, according to McLeod. The December deadline would have already been a tight turnaround, but the lack of that funding “pretty much confirms” the plan won’t be implemented on time, she said.

If DHHS has to delay due to a lack of funding, the momentum around putting this plan together could falter, McLeod said. A new governor in the fall will also mean a change in the department and possible additional delays, she said. Or the new administration may not consider it a priority.

Osborne said he hoped that would mean more time to learn from any setbacks in the customized plans that were launched on July 1. Until then, there will be no change for children and families involved in child welfare, she said.

Correction: An earlier version of this story quoted DHHS as saying the Medicaid Emergency Reserve held $250 million in non-recurring funds. The actual amount is $750 million.

Rose Hoban contributed to the reporting of this story.

This article first appeared on North Carolina Health News and is republished here under a Creative Commons license.