Legislative Budgets Play Shell Game with Medicaid

May 13, 2010

Investigative Reports

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The NerveA lot of South Carolina lawmakers apparently like to go cliff diving.

Funding cliff diving, that is.

Consider it an extreme fiscal sport, a high-stakes budget bet that puts a big chunk of the Palmetto State’s coffers in play – up to $213.5 million.

Although, in the House, members’ taste for the game would seem to be more daring than that of their colleagues in the Senate.

Here’s how funding cliff diving works:

Pass a budget based on speculation that you will receive more money than you have to work with at the time, factoring in those extra dollars.

Then, if and when you get that supplemental funding, plug it into your spending plan and take an equal amount of your original revenue, or a large percentage of it, and allocate that money to whatever you’d like.

Extra funding in, extra funding out, but from a different pot.

And, oh yeah – prepare for the cliff.

If the additional dough doesn’t roll in, uh, plan B: Break out the paring knife.

That’s essentially what both the House and Senate have done, to different degrees, with what’s called Part Four of their proposed spending plans for the 2010-11 fiscal year.

House and Senate leaders are working on a compromise budget that could be presented to their respective chambers for approval any day. The new fiscal year begins July 1.

In both versions, Part Four spends all or part of South Carolina’s share of renewed extra federal Medicaid funding for the states – if that money materializes.

Whether it will remains in question as Congress heads toward a weeklong break beginning Memorial Day.

Timing is of the essence given the approaching start of the state’s new fiscal year, just seven weeks from today.

“A lot of times things happen at the very last minute, especially prior to a recess,” says Stacey Mazer, who monitors Medicaid and other issues for the nonprofit National Association of State Budget Officers in Washington, D.C. “I know it’s something that a lot of budget offices are looking at very, very closely.”

The money, know as enhanced Federal Medicaid Assistance Percentage, or FMAP, began flowing to South Carolina and other states under the stimulus.

But the FMAP boost will run out Dec. 31 absent congressional reauthorization.

Both houses of Congress have approved variations of a six-month extension totaling about $26 billion, and President Obama has included a similar reauthorization in his proposed federal budget for 2011, according to Mazer.

A six-month renewal of enhanced FMAP would extend it through the end of the state’s 2010-11 budget calendar.

Indicating the importance of the issue to state budgets, 219 of the 435 members of the U.S. House signed a May 7 letter to the majority and minority leaders of the chamber urging them to get it done.

Rep. John Spratt, a Democrat, was the only signatory among South Carolina’s six-member U.S. House delegation.

Citing the recession, the letter says “states still need support in order to meet the elevated demand for Medicaid services.”

Medicaid is a health care program for the needy. The federal and state governments fund it jointly under a matching formula. For South Carolina, the split usually is 70/30, respectively.

The extra FMAP raised the feds’ share for the Palmetto State to 80 percent.

“Without this funding,” the letter continues, “our states will be forced to make severe cuts to Medicaid providers and benefits, and the ensuing budget shortfall would have grave consequences for school funding and other essential state programs.”

South Carolina has indeed experienced greater demand for Medicaid services, consistently, amid the recession, according to Jeff Stensland, spokesman for the S.C. Department of Health and Human Services, the agency that administers the program for the state.

“Eligibility has been growing at about 12 percent, and we’re adding about 3,000 people per month,” Stensland says in an e-mail. “Most of those are children, but there’s also been growth in adults, as well.”

One wouldn’t necessarily infer as much, however, in dissecting Part Four of the Legislature’s budget proposals for next year.

It is true especially of the House’s spending plan.

Contingent upon a re-upping of extra FMAP, the House would reallocate tens of millions of dollars in state Health and Human Services funding to other agencies and programs.

In many cases, those proposed allocations are completely unrelated to Medicaid and would not qualify for federal matching dollars under the program. Examples include:

  • Operating funding for certain agencies, such as the Department of Motor Vehicles ($7.5 million);
  • Programs like rural hospital grants, which have been criticized as pure political patronage ($5 million); and
  • Health insurance for S.C. Budget and Control Board employees ($7.5 million).

The House’s version of Part Four totals $174.9 million and keeps just $28.3 million of that, about 16.2 percent, in core Medicaid funding.By contrast, the Senate’s Part Four, at $213.5 million, maintains most of an enhanced FMAP reauthorization for the state in Medicaid – $144.1 million, or some 67.5 percent.

But the Senate also proposes to redirect millions of HHS dollars to non-Medicaid, non-matching expenditures if the additional FMAP dollars come in, only on a lesser scale.

“Both the House and Senate budgets employ the same dynamic of using the temporary FMAP increase to free up money for other purposes, but just a little differently,” Stensland says.

In addition, all of the increased FMAP funding constitutes one-time money. But the Legislature is spending it on recurring expenses.

That process, called annualizing, creates the funding cliff: The costs continue, but the temporary revenue stream dries up – and over the edge it leads.

Les Boles, director of the Office of State Budget, and others knowledgeable in the matter estimate that South Carolina will face a $1 billion funding cliff in annualizations in 2011-12 because stimulus revenue for the state will run out.

That’s why Gov. Mark Sanford wrote to the General Assembly’s top two budget writers on May 3 asking them to nix Part Four and instead put $175 million in reserve to lessen the size of the funding cliff.

“First, it is obviously unwise to plan on funding core government functions with money that we don’t actually have,” Sanford wrote to Senate Finance Committee Chairman Hugh Leatherman, R-Florence, and House Ways and Means Committee Chairman Dan Cooper, R-Anderson.

Elaborating, the governor said, “We all now recognize that when the budget is being prepared this time next year we will have roughly $1 billion less to work with, due to the loss of stimulus funds. The $175 million that is included in Part IV will make next year’s budget hole $175 million deeper, and we have grave reservations about this.”

The letter marks the second time Sanford has written to lawmakers urging them to abandon Part Four.

But declining to do so, perhaps legislators are sending him a message to, well, go jump off a cliff.

Reach Ward at (803) 779-5022, ext. 117, or eric@scpolicycouncil.com.