Two Reports Bring Wisconsin Good News about the Medicaid Budget

The projected savings in Wisconsin’s current Medicaid budget have grown even larger since the last estimate was released just a couple of weeks ago. In addition, it now appears that the federal share of Medicaid spending will increase more than expected in Wisconsin during the next budget period (2017-19), which should also slow the growth in that part of the state budget.

The Department of Health Services (DHS) said yesterday that it expects total state and federal spending for Medicaid in Wisconsin to be $638 million below the amount projected when state policymakers passed the biennial budget bill in 2015. Here’s the good news for state taxpayers:

• Of that total reduction in anticipated Medicaid spending during the 2015-17 budget period, about $268 million is in the state share of Medicaid spending.
• That amounts to $8 million less spending from the state General Fund than DHS estimated in mid-September, when the department submitted its budget request for the next two fiscal years, and it is $92 million less than DHS estimated three months ago.

The Medicaid savings, which will be lapsed to the General Fund, help the state budget in two ways. First, if we don’t have more bad news on revenue growth, these savings will bolster the state’s inadequate budget reserves. Second, because the lower-than-expected Medicaid spending is not the result of one-time factors, it reduces the amount of additional funding needed for Medicaid in the 2017-19 budget (relative to the amount appropriated for the current fiscal year).

The lower spending estimate released yesterday is the second of two developments in the last week that are good news for Wisconsin’s Medicaid budget.  The other bit of good news came late last week when we learned that the federal reimbursement rate, known as the Federal Medical Assistance Percentage (FMAP), will increase for Wisconsin in the 2018 federal fiscal year.

The FMAP for each state is based on a formula that provides higher reimbursement to states with lower per capita incomes relative to the national average. An issue brief released last week by an organization known as Federal Funds Information for States (FFIS) shows that even though estimates of  2014 and 2015 personal income have just been raised for Wisconsin, the upward revision in our state is below the national average. That disappointing news is a cloud with a silver lining because it means that our FMAP for FY 2018 will be higher than expected.

The increase in the FMAP for Wisconsin, relative to what DHS was anticipating just a few weeks ago, is 0.2 percentage points. That may not sound like much, but it will reduce Wisconsin’s share of Medicaid costs by roughly $1.5 million per month, beginning in October 2017. If Wisconsin’s FY 2019 FMAP is also that much higher than DHS assumed, we estimate that our state’s share of Medicaid costs would be roughly $32 million less in the 2017-19 budget than DHS estimated in its mid-September budget request.

The combined effect of the reduced spending this year and the increased federal matching rate in FY 2018 is that Wisconsin’s next Medicaid budget should be much easier to balance than has been the case during the last three or four biennial budgets. If Congress and the next president do not repeal the Affordable Care Act, almost all of the increased revenue needed to maintain Medicaid could be obtained by a modest expansion in BadgerCare eligibility that would yield a net savings for Wisconsin taxpayers of at least $15 million per month.

You can find our Sept. 21 analysis of the DHS budget request here: “Balancing the Medicaid Budget: Opportunities and Challenges.”

Jon Peacock