DHS Projects State Share of Medicaid Spending to be $312 Million Less than Budgeted

Medicaid spending in Wisconsin has been far less than state lawmakers anticipated when they approved the 2015-17 budget bill 18 months ago.  The sharply reduced estimates of Medicaid spending undercut the argument that state policymakers will have to make Medicaid cuts in the next biennium.

The new spending estimates released this week indicate that the Department of Health Services (DHS) now projects that total state and federal spending for Medicaid during the current biennial budget period will be $744 million less than what the state budget bill assumed – a reduction of 4.0%.  The state share of the projected savings is expected to be $312.5 million or 5.5% below the anticipated spending. Although the new estimates still represent a spending increase relative to prior years, the new projections indicate an increase of about half the budgeted increase in state funding.

For state budget writers, the latest quarterly report from DHS is very good news for a number of reasons, including the following:

• State tax collections have lagged well below what was anticipated, which has created a risk of a budget deficit during the current fiscal year. The lower-than-expected Medicaid spending helps reduce the risk of a new round of cuts in the coming months or budget gimmicks that merely postpone the fiscal problems.
• Similarly, the Medicaid savings improve the chances of finishing this fiscal year with a budget balance that can be carried forward into the next biennium, notwithstanding the very disappointing growth in tax revenue.
• The substantial savings this year mean that the amount needed for Medicaid in the next biennium should be far less than the increase DHS projected in September.

The new figures increase the projected Medicaid balance at the end of the current fiscal year (June 30^th) by $44 million compared to the DHS estimate three months ago. The department attributes the continued decline in the spending estimates to a number of factors, including lower-than-expected enrollment growth. In fact, BadgerCare participation has been steadily declining in recent months and was 2% lower in November than in the summer of 2015, when the current budget period began.

Other factors contributing to the cost savings include:

• A higher federal match rate than previously anticipated;
• Larger than expected decreases in nursing home utilization; and
• Lower than expected increases in fee-for-service and managed care costs per enrollee.

We worry that the reductions in BadgerCare participation might reflect the need for improved outreach and the removal of barriers to enrollment and renewals. But putting those concerns aside for the moment, the savings ease the pressure for budget cuts, and that’s welcome news.

Later this month, the Legislative Fiscal Bureau will release updated estimates of state revenue and spending for the current fiscal year. We will learn then whether the much-lower-than expected Medicaid spending will be enough to offset tax revenue shortfalls and keep the state budget in the black.

Jon Peacock