Coming Up Short: Hurricane, Budget Veto Create Medicaid Shortfall

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Legislative Affairs Feature - January 2006

By  Ken Ortolon
Senior Editor  

Even though fewer Texans are signing up for Medicaid than lawmakers expected when they appropriated nearly $38 billion for the program last year, the legislature still will face a shortfall of more than $500 million when it returns to Austin in January 2007. That means legislators will have to make an emergency appropriation for Medicaid to prevent the program from running out of funds sometime in the summer of 2007.

Officials say the shortfall is driven by unanticipated costs related to Hurricane Katrina evacuees from Louisiana who were still drawing Texas Medicaid benefits months after the storm and Gov. Rick Perry's veto of more than $400 million intended to cover Texas' share of the new Medicare Part D prescription drug benefit.

While Governor Perry hopes federal officials will reduce the amount Texas will owe under the Medicare drug plan, state health and human services officials say they've seen little evidence the state won't have to pony up those funds or see federal dollars withheld. 

Missing the Mark  

Don Green, director of budget and policy for House Speaker Tom Craddick, says Texas Health and Human Services Commission (HHSC) officials gave lawmakers several different projections for Medicaid caseload and costs during the budget-writing process in 2005. The projections were based on varying estimates of how the state's economy might fare during the two-year budget cycle.

Mr. Green says lawmakers picked one of the "lower mid-range" forecasts when they budgeted $37.8 billion for Medicaid for 2006-07.

But early enrollment figures indicate those forecasts were too pessimistic about the state's economy. During a presentation to the Senate Finance Committee in November, HHSC officials said Medicaid enrollment likely will be substantially below levels forecast in the budget bill.

Budget writers predicted a total Medicaid enrollment of nearly 2.97 million Texans per month for fiscal 2006 and more than 3.1 million per month for 2007. Current projections indicate enrollment likely will only reach 2.85 million for 2006 and 2.95 million for 2007.

"The current forecast dropped more than $600 million off of our deficit," said Tracy Henderson, HHSC chief financial officer. She says HHSC began seeing evidence that caseloads in Medicaid would be smaller than predicted, even before lawmakers adjourned last May, but the trend was not confirmed until after the budget was set.

HHSC now expects lower enrollment not only among children, but also among low-income elderly. Enrollment of patients with disabilities or who are blind, however, likely will be higher than predicted, Ms. Henderson says, adding that those beneficiaries are among the heaviest users of services. 

Weathering the Storm  

Despite lower enrollment, HHSC officials predict Medicaid still will be $558 million short for the biennium. A little more than $125 million of that is expected to be spent on Hurricane Katrina evacuees.

HHSC expects total Medicaid spending related to Katrina to exceed $767 million for 2006 alone. Under a waiver approved by the U.S. Centers for Medicare & Medicaid Services (CMS), however, the federal government is going to pick up the full tab for Louisiana Medicaid recipients in Texas for five months. It is uncertain how many of those evacuees may still be drawing Medicaid benefits in Texas when the waiver expires at the end of January.

"The costs to the Medicaid program associated with Hurricane Katrina are somewhat unknown right now," Mr. Green said. "In the case of people from Louisiana, you've got people without jobs, many of them Medicaid eligible. What we don't know is how many will go back, how many will stay here, how many will get a job. Those factors are all wild cards that we can't predict."

HHSC says that more than 9,000 Louisiana evacuees were receiving Medicaid in Texas as of Oct. 21. The agency plans to ask CMS to extend the waiver so the federal government will pay 100 percent of additional hurricane-related costs, but it is far from certain whether that request will be approved. 

Clawback Time  

Meanwhile, HHSC officials are still waiting to see whether Texas will have to pay an estimated $444 million associated with the new Medicare Part D prescription drug benefit.

Before Medicare Part D began Jan. 1, low-income elderly Americans received prescription drug benefits through Medicaid. Those costs have been rolled into Medicare, meaning that states no longer bear the burden for paying their share of such costs.

But Congress decided that states shouldn't get that windfall and mandated that states kick back the amount they save to the federal government in "clawback" payments. HHSC estimated Texas' clawback payment at slightly more than $444 million for 2006-07, and lawmakers appropriated those funds in the budget.

Governor Perry, however, vetoed that item from the budget bill, claiming the CMS interpretation of the clawback formula penalized states such as Texas that tried to control drug costs.

"I am also concerned about new state administrative costs associated with the Medicare benefit and believe the federal government must clarify the federal-state roles and responsibilities in providing eligibility determination," the governor said in a June 18 veto proclamation. "Therefore, it is my intention to seek further changes at the federal level as soon as possible to ensure that the calculation of the clawback amount appropriately recognizes the aggressive efforts by Texas to reduce the rate of growth on prescription drug spending."

HHSC officials say several other states also are looking at challenging the constitutionality of the clawback provision. Still, CMS has not indicated it is likely to reduce Texas' clawback payment, and Ms. Henderson says it may be even higher than anticipated.

Barring court or congressional action, lawmakers will have to come up with that money in a special appropriation next year, Mr. Green says. "We haven't seen anything yet that says we are not going to owe that money to them. So that's an appropriation we're going to have to come up with."

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at  Ken Ortolon.  


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