The Consequences for Minnesotans in the HHS Budget

Last week, Governor Dayton signed the Health and Human Services (HHS) budget bill, despite serious reservations about some of the provisions. Conservatives claim that the bill saves up to $510 million in the coming biennium; however, hundreds of millions of dollars claimed as savings are based on faulty assumptions, pilfering revenues from other funds, and pushing expected costs into the next biennium.

The HHS bill states that the commissioner of human services can limit the trend increase in medical assistance payments by an amount equal to the value of a 0.5% reduction of medical assistance spending. This means that lawmakers assume that Medicaid costs will go down, but this assumption is dubious. In the past 25 years, the share of state funds (at the national level, not specific to Minnesota) that contribute to Medicaid grew from 6.9% in 1990 to 15.3% in 2014, and never dropped by more than half a percentage point from year to year (excluding 2010, when Medicaid spending was shifted from the state level to the federal, not an actual drop in the cost of Medicaid services), according to the Medicaid and CHIP Payment and Access Commission (MACPAC).

Source: MACDAC, 2016

Currently, the state of Minnesota pays for half of the Medicaid costs in Minnesota, with the federal government covering the other half. Minnesota also covers children through the Children’s Health Insurance Program (CHIP), although enrollment is low in Minnesota because most children eligible for CHIP are enrolled in MinnesotaCare. Finally, new enrollees in Medical Assistance are mainly paid for by the federal government; Minnesota only has to contribute 10% of those patients’ costs, while the federal government covers the other 90%. If costs are going to drop, then the state will need to change the regulations for these programs. It could mean tightening eligibility requirements, implementing more thorough income verification, capping payments to providers to make them stop taking Medicaid patients, or simply kicking Minnesotans off Medical Assistance entirely. None of those paths are palatable for most Minnesotans.

Furthermore, if the American Health Care Act (AHCA) passes into law at some point in the next four years, Minnesotans can expect a 400% increase in Medicaid costs if they are newly eligible, according to Senator Bill Cassidy’s (R-LA) office, per Axios. His office estimated that Minnesota, which would pay $151.6 million for Medicaid expansion enrollees in 2020 under Affordable Care Act (ACA) regulations, would have to pay as much as $758.2 million under the AHCA. This spike is mainly attributed to reductions in federal funding for Medicaid. Since Minnesota implemented the Medicaid expansion under the ACA, the federal government covers 90% of costs for newly eligible patients. Under the AHCA, the federal government would reduce those federal funds to match the share of all Medicaid patients, which is 50%. Minnesota could suddenly be on the hook to cover hundreds of millions of dollars of insurance costs if the AHCA passes in its current form. Given that lawmakers in Washington will likely pass something in the coming months or years regarding health care, any assumption that costs will go down is misguided.

The use of the Health Care Access Fund (HCAF) to fill gaps and other obligations also is a cause for concern as we approach 2020. Earlier in the legislative session, a bill passed authorizing a $500 million payment to insurance providers to create “invisible risk pools” for Minnesota’s most expensive patients. This was mostly paid for out of the HCAF, using nearly half of the annual budget to pay for this measure. This fund usually covers the costs of MinnesotaCare, a basic health plan covering 100,000 low-income Minnesotans. This fund was repeatedly used in the HHS budget bill to fill gaps in funding for other resources, but it is not a viable long term solution for several reasons. First, the main source of revenue for this fund, a 2% tax on health care providers, is set to end on December 31, 2019. This means that the fund might cease to exist after those revenues are spent in 2020. Any programs that receive revenues from this fund (especially MinnesotaCare) would require a new revenue source or face elimination. Additionally, there is no guarantee that legislators won’t look to use another reinsurance payment in 2018 or beyond. There is now a precedent of pilfering the Health Care Access Fund for reinsurance, so if the first payment is used up by insurance companies, lawmakers might only keep this fund alive to continue these payments at the expense of funding for other health resources for low-income and isolated Minnesotans.

Finally, there is also a provision in the HHS bill that would push the payments to Medical Assistance (MA) providers out into the next biennium. This could adversely harm the financial status of Federally Qualified Health Centers (FQHCs) and Rural Health Centers (RHCs) that rely on MA payments, especially if a significant portion of their patients are uninsured. It also is a dubious way to claim savings because those payments need to be processed eventually, and lumping the payments into a future year when we might not have a budget surplus could require cuts elsewhere to cover what is due.

Governor Dayton successfully removed bad provisions in the bill, like dismantling MNSure and cutting the base DHS budget, and protecting the vast majority of jobs for Health and Human Services employees; however, this bill includes savings that needlessly imperil the long-term viability of Medical Assistance by using faulty logic to pay for cuts while pilfering the Health Care Access Fund. In his letter to legislators on signing the bill, the Governor wrote:

“I am signing the Omnibus Health and Human Services budget bill even though I believe it fails to sufficiently fund the urgent and ongoing needs in our state. In order to balance out the Legislative majority’s unsustainable tax bill, leaders insisted on a drastic cut of $463 million from Health and Human Services Budget for Fiscal Years (FY) 2018-2019.”

Without Governor Dayton to insist on removing some of the worst provisions in this bill, Minnesota would be far worse off, but conservatives were still able to slash spending on Minnesota’s safety net and force the state to assume savings that will force incredibly difficult decisions for health and human services programs in 2020.