The 2015-17 budget proposal recently submitted by the Wisconsin Department of Health Services (DHS) illustrates very clearly why balancing the state budget is extremely difficult when the state is going into the next biennium with a large “structural deficit.”

In terms of the funding needed for the Medicaid and BadgerCare Plus programs, DHS submitted a request of $760 million in state funds simply to maintain the status quo. The new “cost-to-continue” projections make it clearer than ever why Wisconsin should accept the federal funding for expanded BadgerCare coverage, which the Legislative Fiscal Bureau (LFB) estimated could save at least $261 million during the 2015-17 biennium. In fact, specific elements of the DHS document indicate that expanding BadgerCare to 138% of the federal poverty level is likely to save significantly more than the LFB estimated a month ago.  (Read more about that in this WI Budget Project Blog post.) 

The DHS request highlights a number of factors and assumptions contributing to the increased costs.  The following are a few of particular interest:

Caseload changes

• In light of the higher-than-anticipated enrollment of childless adults in BadgerCare Plus this year, the DHS budget request anticipates that enrollment of childless adults will reach 145,000 by June 2015. That’s almost 50% more than the 2013-15 budget bill assumed, and it is 10,000 more than the department projected just a couple of months ago.
• The DHS request notes that BadgerCare participation by parents and children is lower than expected, but despite that trend the latest caseload estimates are expected to cause a net cost increase in 2015-17 of $136.4 million in state General Purpose Revenue (GPR).

Federal financing changes

• Another very significant factor is the federal share of Medicaid spending in Wisconsin will be considerably lower.  That share, known as the federal medical assistance percentage (FMAP), is based on a federal formula and it automatically declines in states where median income is growing.  DHS projects that the FMAP decrease in Wisconsin will cost the state $188.2 million GPR over the next two years.
• While the Medicaid FMAP will be decreasing, DHS also bases its request upon an Affordable Care Act provision increasing the matching rate for the Children’s Health Insurance Program (CHIP) by 23 percentage points from October 1, 2015 to September 30, 2019. This CHIP increase is expected to yield a savings of almost $85 million GPR in the 15-17 biennium (assuming, of course, that Congress decides to reauthorize CHIP funding, which needs to be done by September 2015).

Other factors

• Long term care services, while serving a relatively small fraction of people served by Medicaid, make up a disproportionate amount of the Medicaid budget.  The funding needed to continue these services is slated to increase state costs by approximately $248 million GPR in the next biennium.
• A small factor in the increased costs is the assumption that the Joint Finance Committee will approve an expansion to seven additional counties of the Family Care program, which provides community-based long-term care services.  This expansion is expected to cost $3.7 million GPR.

Additional cost increases

The following cost increases are on top of the $760 million increase described above:

• SeniorCare, the popular prescription drug assistance program for elderly Wisconsinites, is estimated to cost the state nearly $6 million GPR more over the next two years.
• The department requests almost $30 million GPR more to fund the cost of administering the food stamp employment and training requirement approved in the last budget bill, which is on top of $11.1 million GPR more for other Medicaid and FoodShare administrative costs.

The 2015-17 budget request assumes that DHS will be able to close the 2014-15 Medicaid deficit, which was most recently estimated to be $93 million GPR, and won’t carry over any of that shortfall to the new biennium.  That will be quite a challenge; when the next quarterly report is released in a week or two, don’t be surprised if the continuing rapid growth in childless adult enrollment has made the 2014-15 funding gap even larger.

In light of the current Medicaid shortfall, the $760 million GPR increase needed in the next biennium, and the state’s structural deficit – it will be interesting to see what types of cost-cutting choices DHS and the Governor endorse, in lieu of taking a large bite out of those budget shortfalls by accepting enhanced federal funding to extend coverage to more parents and childless adults.

Sashi Gregory and Jon Peacock