Medicaid, budget woes on the horizon in Montpelier

MONTPELIER — Lawmakers are facing another daunting budget gap as high as $90 million in the 2017 fiscal year that is driven largely by Medicaid costs after tackling a $113 million problem this year, according to the Legislature’s Joint Fiscal Office.

There are still two and a half months before the next legislative session commences, but the fiscal challenges are already on the radar of lawmakers and the Shumlin administration. The Legislature’s Joint Fiscal Office outlined those challenges for lawmakers last week.

According to JFO, the state must find an additional $38 million for its Medicaid program for the current fiscal year. Another $58 million hole is projected for the 2017 fiscal year. And the total general fund budget gap, right now, is projected to be between $80 million and $90 million.

Vermont, like many other states, chose to expand its Medicaid program under the federal Affordable Care Act. As a result, the state now has more than 200,000 residents enrolled in Medicaid, including about 70,000 children.

Nobody seems to have a real firm grasp on why there is such a spike in Medicaid spending. Some of it is likely due to more enrollees. The state currently is not checking eligibility requirements but will begin doing so again early next year, according to Lawrence Miller, Gov. Peter Shumlin’s chief of health care reform.

Other factors include increased drug prices, changes to the state’s accountable care organizations under the federal health care reform law and increases in costs for those with disabilities.

Democratic House Speaker Shap Smith, a candidate for governor in 2016, said expanding Medicaid is likely part of the increase in costs to the state.

“The Medicaid numbers and the Medicaid gap is a direct response to the fact that more people are getting an opportunity to get care. So those are real people. When we hear these numbers we tend to think about them in the abstract. We don’t think about the people who get to go to the doctor, who didn’t get to go before,” Smith told the Vermont Press Bureau.

House Speaker Shap Smith on the Capitol Beat podcast.

House Speaker Shap Smith on the Capitol Beat podcast. (VPB/Neal Goswami)

But lawmakers do not yet have a clear understanding of additional impacts, he said, and solutions cannot be crafted until they do.

“I think it’s too early to say because the challenge for us is that we don’t even understand why these numbers are going up in the way that they are. Is it because people are using more care? Is it because of increased drug costs? What is it?” Smith said.

He said lawmakers are counting on the administration to explore the issue and identify the cost drivers.

“My view is it’s really important for the administration, and this is what I would do if I was the administration, is to dig into the number, understand why these costs are going up, because without understanding what’s happening you can’t really make any decisions,” Smith said. “If we are to just cut services that were available and you find out that’s not what’s going on with the budget, that’s not going to help you in the long run.”

So far the picture remains fuzzy for the Shumlin administration, which will present its annual budget adjustment plan in December that addresses the Medicaid gap.

“We’re still scrubbing that one,” Shumlin said in an interview.

The governor proposed a payroll tax in January as a sustained revenue sources for the state’s share of Medicaid, which is a joint state and federal program. He argued that the payroll tax would generate funds for the program and drive down the cost of private insurance premiums by paying providers more for Medicaid.

But the Legislature rejected his proposal and opted not to implement a new revenue source for the state’s share of Medicaid.

Smith said he personally supported the payroll tax “because I thought that it allowed the cost of Medicaid to be shared throughout the community.” But a majority of the House didn’t buy Shumlin’s argument that it would lower private insurance premiums when Shumlin presented the plan. Subsequent iterations were an improvement, Smith said, but “by that point in time people had lost confidence in what that funding source would do.”

“Over time, I do believe that we are going to have to find a dedicated source of revenue for Medicaid,” he said.

Gov. Peter Shumlin in his ceremonial State House office earlier this year.

Gov. Peter Shumlin in his ceremonial State House office earlier this year. (VPB/Neal Goswami)

Shumlin is clearly frustrated that lawmakers rejected his plan. He said it would have generated a $30 million surplus in the current, 2016 fiscal year that would have helped address the Medicaid gap in the 2017 fiscal year.

“You’re turning to the governor who proposed new taxes so we wouldn’t be in this mess and then saying, ‘How come we don’t have the revenue we need to fund state government?’ So, I think you’re asking the wrong person,” Shumlin said.

He indicated that he is not likely to propose another revenue source in January as he enters his final year in office.

“I’m not naive to how politics works. I don’t think legislators running for re-election are going to adopt a tax package that wouldn’t sell in a non-election year,” the governor said. “Republican and Democratic governors have bumbled through this for years. I personally believe that until we come up with a dedicated revenue source for Medicaid we’re going to continue to make unhappy choices,” he said.

Shumlin said he continues to believe that expanding Medicaid was the right choice for Vermont, noting that the state has the lowest uninsured rate in the country. But now the state must take the next step and identify a sustainable way to cover the additional costs, he said.

“Every time we expand Medicaid you’re doing great things for Vermonters but you’re creating a bigger budget challenge,” the governor said. “I don’t think we overreached. I think we made the right choice and then refused to fund it.”
Without a long-term, sustainable revenue source for Medicaid, the administration will have to find ways to reduce costs in the way it delivers services, Shumlin said.

“That’s the first thing we do — find efficiencies, find where we can get some savings knowing that we’ve got more pressure in this area than we envisioned that we would have. And then from there, there’s not new magic. You know what the choices are and we’ll consider them all,” he said.

Those choices are cutting back the services available to those on Medicaid and raising the income level at which people are eligible.

Outgoing Finance Commissioner Jim Reardon, who leaves his post Oct. 31, said it’s too early for the state to begin making that kind of decision.

“You’re just finishing up the first quarter of the state fiscal year. That’s not much to work on,” Reardon said. “First of all, the numbers are still moving around, but directionally, I do expect that we are going to have to have an increase in the Medicaid program. The amount is still uncertain.”

Meanwhile, the administration must also develop a 2017 fiscal year budget that is currently facing a gap as high as $90 million. That’s because payroll costs are expected to increase, as well as health care costs for state employees. The state also has debt and pension obligations that much be paid for, among other things.

“I always come in with budgets that are both balanced and fiscally responsible and make the choices that are necessary to take care of our most vulnerable Vermonters. We’ll do it again,” Shumlin said. “This is not new for me. This will be number six.”

Smith said he looks forward to a budget plan from Shumlin that also address the Medicaid gap.

“I think that the administration, to balance the budget this year, is going to have to put forward a plan that addresses many of the Medicaid issues and it’s going to have to dig into why we’re seeing the spike in spending in Medicaid. I don’t see how the administration could put a budget plan on the table that balances without really taking a serious look at Medicaid,” he said. “Certainly the Legislature has its own obligation to do its own work there, but at the end of the day, we have a staff of about 30 and the administration has a staff of about 8,000, so my hope is that they can do the work that’s necessary to prepare for the session.”


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