Early projections indicate that the state Medicaid budget will come up $139 million short this year, a state health official told legislators Thursday.
The state is not going to save as much as anticipated by cutting provider rates, reducing medical services and increasing use of the Medicaid managed-care program. The ambitious savings projections, money that the state had to repay the federal government for past mistakes, and cuts the legislature wanted but aren't allowed under federal rules contribute to the budget gap.
"These numbers could change," said Michael Watson, deputy secretary for health services in the state Department of Health and Human Services.
"What it points out is the difficulty associated with making large-scale change in a program like Medicaid."
Medicaid is the state and federal health insurance program for the poor and disabled. It has been the fastest-growing area of state spending and this year accounts for 15 percent of the state budget. The state will pay about $3 billion for Medicaid this year, with the federal government paying $9 billion. About 1.5 million residents are enrolled in Medicaid.
State officials have faced Medicaid budget overruns year after year, but there's more attention to the bottom line now because if Medicaid can't reach the $350 million savings the legislature outlined, the health and human services department is authorized to reduce the rates it pays doctors and other health providers and cut medical services to make sure it hits the budget target.
Legislators also will be staring at a Medicaid budget hole of at least $100 million next year because of an accounting error. Budget writers are hoping that savings plans put in place this year will make up for any potential shortfall.
Legislators did not say specifically how the this year's budget shortfall would be filled but indicated they have ideas for addressing the problem without more rate or service cuts. The Medicaid budget will be discussed again at a legislative meeting early next month.
"We're going to look for every possible option for savings, and cost savings within the department, before cutting optional services," said Rep. Nelson Dollar, a Cary Republican who helped write the Medicaid budget. Compared with $12 billion in expected spending, the budget gap is small, he said.
The state is accumulating a budget surplus, so some of that money could be used to shore up the Medicaid budget rather than making more cuts, said House Speaker Thom Tillis.
DHHS Secretary Lanier Cansler did not attend the meeting but sent a letter to legislative leaders saying the department has done all it can to reach savings that are "unreasonable and unobtainable."
Here are details behind the shortfall:
The federal government must approve provider rate reductions and medical service cuts before they're implemented. Not all have been approved so the state will save $26 million less than expected.
Legislators told Community Care of North Carolina, the managed-care program for Medicaid, to save $90 million this year. CCNC will only be able to save around $51 million. Over two years, the program will save at least $204 million, Watson said.
The state will save $27 million by eliminating inflationary increases instead of the expected $62.8 million.
The state limited some health services for adults this year expecting to save $16.5 million but will likely save about $9.6 million instead.
Medicaid has $126 million in federal paybacks and other liabilities that were not in the budget. Those include nearly $41 million to continue to pay down a $300 million debt it owes the federal government for accounting and billing errors in 2008. The department has to find nearly $42 million this year to make up for improper billings or inadequate provider documentation for personal care services, the result of a federal audit of claims from 2005 to 2008. The state is going to get $28 million less than expected for federal drug rebates. The paybacks are offset by about $83 million in receipts.
Republican legislators said the $139 million estimate is inflated because the department counted federal repayments and costs that are not included in the budget.
