With the legislature perhaps only days away from adjourning for 2013, legislative leaders are busy making decisions on final agenda items for the year.   One of the more significant pending matters involves a supplemental appropriation to address a budget shortfall that developed following enactment in August of legislation that expanded Michigan’s Medicaid program.

The issue first came to light in October, when the Department of Community Health (DCH) revealed that the failure to garner immediate effect on the Medicaid expansion legislation created a $70 million shortfall in the FY2014 budget.  A number of news outlets reported that the Legislature would need to “re-vote” on the contentious Medicaid expansion, and some opponents of the expansion suggested that this “re-vote” presented a second opportunity to block the expansion.

With the Senate signaling that action on the supplemental is possible this week, CRC looks at a three key questions related to the vote and what it means (and doesn’t mean) regarding the state’s Medicaid expansion.

Question 1:  What exactly happened?   Why does the Legislature need to vote again in the first place?

After contentious debate in both the House and Senate, the legislature passed House Bill 4714 in late August.   The bill authorized the expansion of Medicaid eligibility to adults less than 65 years of age with annual incomes up to 133% of the federal poverty guidelines.   The expansion is contingent on the eventual approval by the federal government of two waiver requests that would essentially: (a) require the establishment of enrollee cost-sharing account; (b) increase cost-sharing requirements for enrollees with incomes between 100% and 133% of federal poverty guidelines (with offsetting credits for meeting healthy behavior standards); and (c) require these same enrollees to either leave Medicaid and purchase health insurance through the health care exchange or face a further increase in their cost sharing once they have received Medicaid coverage for 48 months.

The bill also made adjustments to the state budget to reflect the Medicaid expansion, including $1.7 billion in new budget authorization to spend the federal funds that will cover the actual costs of the expansion as well as another $192 million in statewide GF/GP savings tied to the expansion.   These savings arise within programs that currently use state dollars to provide medical and mental health services to adults who will now be shifted into federally-funded Medicaid under the expansion.

However, both the federal costs and state savings assumed in the bill were based on 9 months of expanded Medicaid in FY2014 starting this January.   The Senate withheld immediate effect from the bill, which delayed implementation until late March.   With that, both the budgeted costs and assumed savings from the expansion were no longer accurate; thus the need for corrective action.

Question 2:  So, if there’s no “re-vote” or the “re-vote” fails, does that stop the Medicaid expansion?

No.   The actual shortfall in the budget isn’t related to the appropriation of federal dollars to support the Medicaid expansion.   In fact, there’s more than enough money appropriated to take care of the added Medicaid caseload.   With only six months of expanded enrollment during FY2014, total costs of the Medicaid expansion in FY2014 will be smaller than what were anticipated when the bill was passed by the legislature.

So, in an odd twist, the corrective action needed on the budget may well reduce the appropriations to cover Medicaid expansion, effectively eliminating the surplus appropriations that won’t be needed because the Medicaid expansion will be pushed back.  Of the $1.7 billion included in HB 4714 to finance the expansion, CRC calculations suggest that only $1.1 billion will actually be needed.  Fortunately, this surplus isn’t really much of a problem.  If these excess federal appropriations aren’t directly reduced through a supplemental, they’ll simply go unused and lapse at the end of the fiscal year.

The real budget problem isn’t the excess federal appropriation; it is the lost state GF/GP savings from the delayed expansion.   As illustrated in the table below, House Bill 4714 assumed $168 million in net savings within the DCH budget and another $24 million in savings within the Corrections budget.  The bulk of the savings in the DCH budget is related to adults who receive state-funded mental health services, who will now instead be eligible for Medicaid services funded with federal dollars.   Likewise, the costs of off-site medical services for prisoners as well as substance abuse and other health services provided on behalf of parolees exiting the correctional system will now be met using federal funds under Medicaid, reducing GF/GP costs within the Corrections budget.   With only six months of expansion, however, these savings are reduced by $73 million in total according a recent House Fiscal Agency memo.   It is this GF/GP shortfall that must eventually be addressed to put the state budget back into balance.

Medicaid savings 2

But the key fact is this:   Regardless of whether or when any budgetary adjustment is implemented, there is more than enough appropriation authority to facilitate the added spending of federal funds that will be needed to cover the new Medicaid enrollees under the expanded eligibility provisions.

Question 3:  If the Medicaid expansion isn’t at risk, what’s the hurry on “re-voting”?

Strictly from a budgeting standpoint, there is no particular hurry.   The Legislature had added intent language to HB 4714 earmarking the expansion-related GF/GP savings to a new Roads and Risks Reserve Fund to help finance road repairs.   While the reduced savings mean less will be available in the fund, it also means other program cuts won’t be needed in order to fill the budget hole.   In the end, budget adjustments of some form to clear up the GF/GP shortfall are needed prior to the end of the fiscal year.  Technically, action could wait until closer to book closing next fall.

However, from a political perspective, action this year has one important advantage: an immediate effect vote is no longer relevant to passing the budget legislation.   If a supplemental appropriation bill is passed this week without immediate effect, it will still become effective in late March, well before the end of FY2014.   However, if the budget adjustments are implemented next year through an appropriations bill, immediate effect will become necessary once again.   Without it, the supplemental budget act wouldn’t actually become effective until late March 2015, months after state closes its books on FY2014.

If both the House and the Senate are prepared to grant immediate effect to whatever corrective action hits their desks, then the “hurry” goes away.   But if proponents of Medicaid expansion still have reason to worry about getting the votes needed for immediate effect, they’d be well advised to take care of this issue in 2013.




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