Gov. Pat McCrory's administration revealed Thursday it expects this year's Medicaid shortfall to be more than double what was previously estimated. A legislative budget-writer said tax collections should help fill the immediate gap but the disclosure accentuates long-term challenges for the health insurance program.
The Department of Health and Human Services and state budget office announced the shortfall through June 30 is now estimated at $248 million, or $135 million more than what the agencies said was previously expected.
The agencies attributed the difference to a forecasting model error that overestimated the amount of federal money coming to the state. A statement said the mistake was made in May 2012 during the administration of Gov. Beverly Perdue.
The Medicaid program spends about $13 billion annually, of which $3.1 billion this year comes from the state to serve 1.5 million North Carolina residents, most of them poor children, older adults and the disabled.
The shortfall means higher-than-expected April 15 tax collections will likely have to go to narrow the gap before the fiscal year ends. Data on those revenue levels are expected soon. The forecast mistake also means higher estimates for Medicaid spending for the next two years as legislators draw up a new state government budget.
The two agencies calculate Medicaid needs $434 million more during new fiscal year starting July 1 to meet current needs, compared to $185 million in McCrory's two-year budget released last month. The Medicaid "rebase" also must be $587 million in the 2014-15 fiscal year, compared to $390 million in McCrory's spending plan.
Sen. Pete Brunstetter, R-Forsyth and co-chairman of the Senate Appropriations Committee, said he and other budget-writers have anticipated the need for more Medicaid money this year and already have a bill ready to address the issue. The measure would allow McCrory to tap into the extra collections and pool unspent funds from state agencies to pay Medicaid bills to providers. McCrory already directed agencies under his authority last month to trim costs to cover Medicaid.
The size of the shortfall is a little higher than senators anticipated, "but not anything that's going to throw us off at any great degree," Brunstetter said. The Senate will roll out its budget version in the next couple of weeks.
Health and Human Services Secretary Aldona Wos said her agency has recently brought in outside consultant to help Medicaid evaluation methodologies and retained former State Auditor Les Merritt for assistance on financial issues for mental health, which also receives Medicaid funds.
A recent state audit found the state Medicaid division used flawed or incomplete budget forecasting methods, helping contribute to a $418 million shortfall last year. The report said Medicaid had annual shortfalls going back to 2009.
"We have been taking a close look at previous Medicaid forecasting practices in order to create a more transparent and accurate process going forward," Wos said in a prepared statement.
However, long-term concerns remain with annual spending increases in Medicaid approaching $500 million annually, according to Brunstetter. A state audit found
"Medicaid eats up every bit of revenue growth that the tax system creates, and takes away money from every other priority in state government," he said. "It continues to be a problem that we have to wrestle to the ground."
Brunstetter said state policymakers can change Medicaid reimbursement rates or scale back services.
McCrory also has proposed long-term cost savings by shifting patient management and risk of the Medicaid system to a few managed-care organizations, which would specific monthly allotments from the state for each patient it serves. Legislators, however, have expressed skepticism about the proposal, as have doctors and hospital groups.