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BOISE — There was big news at Thursday’s Medicaid budget hearing at the state Legislature: Gov. Brad Little has withdrawn a recommendation in his budget proposal for next year to find $30.2 million in state general fund savings in the Medicaid budget, which would come to a cut of $118.4 million in total funds including federal matching funds, because the state has been informed it’ll get much more than that in Medicaid funding from the federal government due to the COVID-19 pandemic.

The Biden administration notified the state two weeks ago that it will continue a significantly higher federal matching rate for Medicaid throughout calendar year 2021, according to state Health & Welfare Director Dave Jeppesen and Alex Adams, Little’s budget director.

The “cost containment” proposal had aroused big controversy, at a time when Idaho’s health system is struggling with the COVID-19 pandemic.

Idaho also is seeing increased numbers of its residents take advantage of its Medicaid expansion program, which voters authorized in November of 2018 and which started covering Idahoans who earn up to 138% of the federal poverty level just over a year ago, on Jan. 1, 2020. The federal government picks up 90% of the cost of that program.

Joint Finance-Appropriations Committee members expressed concerns over future Medicaid costs. Sen. Jeff Agenbroad, R-Nampa, said although the increased federal funding can “fill in some of the holes,” it’s a temporary fix. “We have to look beyond this year,” he said. “This is an anomaly.”

Once the pandemic is over, he noted, Idaho could see its federal matching rate for traditional Medicaid drop because of the state’s strong economy; that’s part of the federal calculation for the non-expansion portion of Medicaid in normal times.

Agenbroad said long-term reforms, including moving Idaho’s Medicaid program to a value-based, rather than fee-for-service, payment system, are “probably the longer-term solution.”

Jeppesen agreed. He noted that the Legislature last year enacted significant cost-containment moves for Medicaid that are underway, including shifting more and more of Medicaid onto value-based, rather than fee-for-service, payment models, in which payment is based on good health outcomes rather than number of services provided. Contracts with major hospital systems and nursing homes to accomplish that change are set to be signed by July 1, he said.

“We will continue to look at other cost containment efforts and will be back next session,” Jeppesen said, possibly proposing other cost-containment legislation.

Earlier in this year’s legislative session, the department proposed legislation to allow it to cut reimbursements to providers at its discretion to achieve savings; lawmakers rejected it.

Jeppesen said the administration is recommending that rather than cut $30 million in in state funds from Medicaid next year to achieve cost savings, the Legislature tap the additional federal matching funds to cover that amount, and funnel additional savings from the boost in federal funding into a “stabilization account” to hedge against future Medicaid cost increases.

Because of the COVID-19 pandemic, the federal government has temporarily increased the amount of Idaho’s regular Medicaid costs it covers from about 70 percent to about 76%, through an increase in the Federal Medical Assistance Percentage, or FMAP. Now, that increase will last through the end of the year. Jeppesen said that means $28.7 million more in Medicaid funds for Idaho this year, “and additional savings of $56 million in fiscal year ’22 that was not otherwise built into the governor’s budget recommendation.”

In addition to the direct impact of the pandemic on Idaho’s health care system, Idaho has been seeing significantly increased costs in Medicaid in part because of pent-up demand for medical care among new enrollees in Medicaid expansion, and in part because the federal government has cut off disenrollment of those who no longer qualify during the pandemic. That’s led to roughly 32,000 Idahoans currently staying on the Medicaid rolls who otherwise wouldn’t be eligible, including more than 13,000 in Medicaid expansion.

Legislative budget analyst Jared Tatro told lawmakers, “As of Jan. 27, it was 32,914 individuals, and of those, 13,217 were related to Medicaid expansion. … When the public health emergency ends, the department knows who they are, and they’re ready to start the process of disenrolling effective immediately.”

JFAC members had lots of questions about how much Medicaid expansion has actually cost the state and how much the state has saved in offsets in existing programs that now are 90% federally funded, rather than 100% state-funded as they were previously. Tatro said, “There are cost offsets.” For the first year, the net cost to the state was zero, he said, due to about $32 million in cost offsets in Corrections, courts, Health & Welfare and the Catastrophic Health Care program. Since then, Tatro said, estimates forecast by Milliman, an actuarial consulting firm, now appear to be off and costs are expected to be higher than anticipated, “basically almost double.” But there still are offsets, he said, “And we know there are more offsets coming.”

Initial Milliman projections put the state’s cost for the first full year of Medicaid expansion, this current year, at around $41 million, which is where it was budgeted; all of those costs were offset through a combination of savings in existing state programs and an allocation of $12.6 million from the Millennium Fund, a state fund that holds tobacco settlement proceeds. But now Milliman has issued a revised report projecting costs this year will be nearly 66% higher than it originally projected, based on higher medical and pharmacy costs, COVID-19 impacts and economic conditions. That would mean another $22.8 million in state costs this year.

Tatro said the new report bases its projections on just a few months of Idaho experience during a pandemic, while the original forecasts were based on experiences of other states, so there are still plenty of unknowns.

“With hospitals shut down, it’s going to be hard to realize what is the cost of these individuals,” he said, “so we won’t know the net impact this session.” Longer term, additional savings from Medicaid expansion are expected in the state’s Catastrophic Health Care fund, mental health services and psychiatric hospitals, child welfare and public health, he said.

“We’re just going to have to be a little patient before we fully realize the actual net. But right now about half is being offset,” he said.

Rep. Ron Nate, R-Rexburg, called the increased Milliman projections “a disturbing increase,” and said, “These costs are outrageous, and I wonder if the voters who voted for Medicaid expansion really knew what it was going to cost us and all the trouble it’s causing with budgeting, (if they) would have voted for it.”

Idaho voters approved Medicaid expansion by a more than 60% margin in 2018, after the Legislature discussed it but didn’t act for six straight years. The expansion covers Idahoans who previously fell into an insurance gap: They made too much to qualify for Medicaid, but not enough to qualify for subsidized health insurance through the Your Health Idaho insurance exchange.

Sen. C. Scott Grow, R-Eagle, noted the way Medicaid expansion costs doubled from the first year of enactment to the second, and asked whether that’s likely to continue. Tatro responded, “If we double again I’ll take you to lunch. … We don’t anticipate doubling year after year after year. That is six months compared to one year.” That’s because expansion started halfway through Idaho’s state fiscal year, which runs from July 1 to June 30.

Jeppesen told lawmakers, “I just wanted to close by reminding the committee that the department exists to serve the people of Idaho and specifically to promote their health safety and independence. I remain committed to working as I have been for the last three years in a collaborative, transparent way, and I only know of one way to solve problems, and that’s to talk through them.”

JFAC is scheduled to start setting agency budgets Feb. 19.

Betsy Z. Russell is the Boise bureau chief and state capitol reporter for the Idaho Press and Adams Publishing Group. Follow her on Twitter at @BetsyZRussell.

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