The latest quarterly report from the Department of Health Services (DHS) has some very good news on Wisconsin’s Medicaid budget. The report released yesterday projects that the state share of Medicaid spending will be $72.6 million less than previously expected over the course of the current biennium.

The substantial savings in state general purpose revenue (GPR) aren’t a big surprise. Although there are a number of factors that contribute to the savings, the two primary reasons are developments that I explained in a blog post a few weeks ago:

• Reduced enrollment of childless adults – The number of childless adults participating in BadgerCare was growing very rapidly in 2014 and for the first several months of 2015, and that made it difficult to estimate where it would peak. However, we can now see that the number of childless adults in BadgerCare is about 10,000 below the assumption made last spring for the budget bill. By my estimate, that change will save the state roughly $45 million (GPR) during the biennium.
• Slow Wisconsin income growth will increase the federal matching rate – The federal share of Medicaid spending varies from state to state, based on a formula that provides more assistance to states with less income. Apparently, Wisconsin personal income has been growing a bit slower relative to other states than was expected when the state budget bill was developed last spring. As a result, the federal share of Medicaid spending in Wisconsin will climb in October 2016 – a 0.38 percentage point increase. Although that might not sound like much, DHS estimates that it will save the state $23 million GPR during the last 9 months of this biennium.

Another significant factor relates to premiums for Medicaid enrollees who are also in Medicare. This variable is a bit more complicated because it represents a big savings relative to the previous quarterly report, but not compared to the projections in the budget bill. State Medicaid programs must pay the Medicare premiums for those Medicaid enrollees, and the September DHS report assumed a very large increase in those premiums. However, Congress recently passed legislation capping the premiums, and that change is expected to save Wisconsin $30 million compared to the estimates made in September.

A much smaller factor in the savings is that costs per enrollee in managed care are now expected to be slightly lower than budgeted.  In addition, spending in certain areas of fee-for-service care, such as personal care and prescription drugs, have been less than budgeted.

The DHS report cautions that there is generally a large degree of uncertainty in Medicaid spending estimates, which means that it’s premature to bank on any savings. Nevertheless, it’s a relief to see an estimate of a potential surplus in the appropriation for Medicaid and BadgerCare.

If the estimates hold up, I hope that will allow the state to build up its meager budget reserves. I also hope the improved budget outlook will encourage DHS to consider options for how they could use a small portion of the savings for initiatives to bring down Medicaid spending in future years. A few examples include initiatives for reducing obesity, improving screening and early intervention for substance abuse, and investing in “medical homes” to provide cost-effective care coordination for children.

The positive Medicaid news makes this a great time to think creatively about the types of health reforms that improve preventative care in order to improve outcomes, while also holding down long-term spending.

Jon Peacock