Rapid Growth in Wisconsin’s Medicaid Program Could Cause Strain on State Budget

In depth look at the Department of Health Service’s budget request reveals continuing increases in Medicaid enrollment and higher costs to continue

MacIver News Service | September 22, 2014

[Madison, Wisc…] The Department of Health Services (DHS) has requested a $2.78 billion increase in funding for the 2015-17 biennium. The new dollars would grow the agency’s total budget to nearly $23 billion, or roughly one-third of the entire state budget.

Almost half of the new money, $1.25 billion, would come from the federal government, which already provides $10.5 billion to the agency for federally sponsored programs. Another $831.5 million would come from Wisconsin’s General Fund, made up of state tax dollars paid by the average Wisconsinite.

What is driving such an increase in costs for the agency? The answer lies mostly in its massive Medicaid program.

Of the $831.5 million in additional state dollars requested by DHS, $760 million would be added to Wisconsin’s Medicaid program and its outcrop, BadgerCare.

Medicaid is an important program that requires federal, state and local government to partner in providing health care for Wisconsin’s poorest residents. But as DHS’ formal budget request details, rapidly increasing costs will continue to cause strain on government budgets.

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Medicaid costs were over $16 billion In the 2013-15 biennium. The program currently serves nearly one in five Wisconsinites – around 1.1 million people – and 53,000 more enrollees are expected to be added by 2017.

Per member costs for Medicaid in Wisconsin jumped 4.8 percent in 2014 compared to 2013, totaling $6,792 per enrollee.

Total Medicaid Appropriations

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A deeper analysis of DHS’ 2015-17 formal budget request submitted last week brings to light some of the major programs and policy changes within Medicaid that are accelerating costs.

Earlier this year, the state’s Medicaid program removed its cap for childless adults, expanding coverage to all such individuals at or below the Federal Poverty Level (FPL). At the same time, the opening of the federal health exchange marketplace allowed all households between 100% and 400% of the FPL to shop for their own government subsidized health insurance.

These changes have radically altered initial DHS projections on the amount of childless adults that will be utilizing Medicaid in the coming years. Estimates from the 2013-15 budget cycle for the number of childless adults enrolled in Medicaid predicted 98,641 by June 2015. Adjusted estimates now peg that total at 137,642, a 40 percent increase from assumptions made just over a year ago.

This change will cost an extra $91 million in General Purpose Revenue (GPR) for Fiscal Year (FY) 2015.

Another unexpected cost-driver is a decrease in the federal medical assistance participation rate (FMAP) that was projected to be higher during the 2013-15 budget cycle. The way federal funding for Medicaid works is that state funding is matched by federal dollars using the FMAP rate. During the 2013-15 budget process, the FMAP rate for FY15 was expected to hold at 59.16 percent, meaning federal money would cover 59.16 percent of the costs. Instead, the actual FY15 rate was just 58.47 percent, forcing Wisconsin to use more of its own money for Medicaid.

Though the percent change seems small, the FY15 decrease in FMAP rates will cost Wisconsin $52 million more in GPR for that year alone.

DHS projects the FMAP rate will continue to decline in FY16 and FY17 to 57.99 percent with more state money needed to cover the gap. DHS Secretary Kitty Rhoades describes the decreased matching rates as a “significant reduction” in her budget request cover letter to the State Budget Office.

One of the larger drivers in Medicaid spending is the Long Term Care program. Long Term Care is designed to help people whose physical or medical conditions limits their ability to perform everyday tasks such as bathing, eating, or going shopping for groceries.

80,000 Wisconsinites are currently enrolled in Long Term Care, a number that is projected to increase to 83,000 by 2017. Though Long Term Care participants make up 7 percent of overall Medicaid enrollees in Wisconsin, the program is responsible for 40 percent of the state’s Medicaid costs.

DHS has requested $248.2 million in new funds to keep up with Long Term Care costs for the next few years, a 9.5 percent increase for the program’s $2.5 billion budget. The increase in state funds for Long Term Care is attributed to lowered FMAP rates and increased “managed care” utilization, as well as bumps in personal care card services and growth in Family Care and IRIS, a program for adults with disabilities.

Now that each state agency has submitted its budget request to Gov. Scott Walker, the governor and his staff will decide what he wants to include in his 2015-17 budget proposal. Whoever is elected governor will formally submit his or her budget proposal to the legislature in February of next year. Stay tuned to MacIverInstitute.com for up-to-the-minute information about the 2015-17 budget and every legislative development as it makes its way through the budget process.