Hole lies ahead for Medicaid

Legislators cut inflation from the budget - twice - adding to a shortfall of $100 million or more.

lbonner@newsobserver.comOctober 27, 2011 

As state officials struggle to cut Medicaid expenses to meet this year's savings targets, they're already staring at a budget hole of $100 million or more next year.

State legislators decided in their budget not to pay what's called "inflationary increases" in the government health insurance program for the poor and disabled. That amounts to about $62.8 million this year. But the budget lawmakers passed in June mistakenly cuts inflationary increases twice in the budget year that begins in July 2012.

Health care advocates are worried about more limits on health services as legislators look to fill the looming budget gap.

But Rep. Nelson Dollar, a Cary Republican who helped assemble the health and human services budget, said he wasn't worried about balancing the Medicaid budget next year, and said legislators don't want to slash medical care to hit savings targets.

Budgets are always adjusted in the second year of the two-year budget cycle, he said, and by then, the state will realize the full effect of cost-saving measures that are being implemented gradually this year.

"Our priority is saving money by better using medical care as opposed to making cuts or reductions in services," he said.

Jennifer Mahan, a lobbyist for the Autism Society of North Carolina, said that all the choices about changing or cutting Medicaid services are going to be difficult. "I don't think there's anything fluffy left," she said.

The legislature cut Medicaid by $350 million in this year's budget by reducing the rates paid to doctors and other medical providers and by limiting some services for adults. State health officials are looking for up to $118 million in additional reductions to compensate for the time it takes to have money-saving changes approved by the federal government.

Medicaid has been the fastest-growing area of state spending, accounting for about 15 percent of this year's budget. Lawmakers have searched for years for ways to control Medicaid costs, and are more focused on the task this year given the tight budget and expectations of growing enrollment. The state has about 1.5 million Medicaid recipients.

The legislative staff that helps compile the budget noticed the problem in May. "Inflation is being cut twice from the Medicaid budget," according to a staff budget note given to legislators.

Sen. Richard Stevens, a Cary Republican and chief budget writer, said legislators talked about the cut as they were negotiating the final document. Stevens said he thought the problem had been fixed. But it ended up in the final budget.

Governor's warnings

In a letter to legislative leaders dated May 27, Gov. Bev Perdue said the Medicaid budget contained "technical errors and over-estimates of savings" of well over $100 million, though she did not specifically mention inflation.

"The governor warned the legislature repeatedly since May that their Medicaid numbers didn't add up," Perdue spokeswoman Chris Mackey said in a statement Wednesday. "Unless this is addressed, the state will be forced to eliminate services such as mental health care and respiratory therapy for the most vulnerable in our society."

Mahan, the Autism Society's lobbyist, said problems with the Medicaid budget pop up year after year.

"They always play with the Medicaid budget," she said. "They throw numbers in there, targets they can't meet. ... Accounting errors in Medicaid add up to big money."

Karen Schaede, a Greensboro lawyer on an advisory committee looking at Medicaid cuts, said she can see the group talking about more changes next year.

"Common sense would say that unless the economy really picks up and things really change, it's going to be the same scenario," she said. "Hopefully, because of what we had to do this year, we can plan a little better and it won't sneak up on us."

Bonner: 919-829-4821

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