Just after the governor told reporters the Medicaid program was a mess, the head of the program outlines budget problems that have lead to at least a $70 million shortfall for the year.

By Rose Hoban

The state’s Medicaid director told legislators Tuesday morning that she’s getting a handle on the expenses for the program that covers health care for 1.5 million low-income and disabled North Carolinians, and then went on to outline a projected budget shortfall of between $70 million and $132 million for the fiscal year.

Medicaid head Carol Steckel’s presentation to the Joint Appropriations Subcommittee on Health and Human Services came just days after Gov. Pat McCrory released a memo telling state agency leaders to limit expenses for their departments in order to cover a shortfall in the Medicaid budget.

Data courtesy NC General Assembly Fiscal Research Division
Data courtesy of N.C. General Assembly Fiscal Research Division

“Why can’t we predict this?” Steckel said to the committee. “Part of the problem is that it’s an entitlement program. And while we try to predict and anticipate changes, it is an entitlement program.”

Under entitlement programs, the state is required to provide services for people who qualify, and must continue providing those services even if budget allocations have been spent.

Steckel said this year’s shortfall could be accounted for by several factors that were hard to predict, including a flu season that she called “horrific.”

“The flu season both started earlier and the vaccine was not as effective as we were hoping for in the elderly or disabled population,” she said. “We have seen a 300 to 400 percent increase in the utilization for physicians and ER visits attributed to flu diagnoses … over the 2012 flu season versus the last two flu seasons.”

Payouts for the end of February were also unusually high, Steckel said. Although she did not predict those high payouts to continue, projecting a higher rate of utilization for the rest of the fiscal year would bring the program to a total overrun of $132 million by the end of the fiscal year, in June.

Steckel told the committee that more than 20,000 fewer recipients were enrolled in the Medicaid program than were budgeted for. “Had that been the only change that we were seeing,” she said, “we actually would have had a savings of $47.4 million.”

Data courtesy of N.C. General Assembly Fiscal Research Division

But Steckel said many of the people who remained on the rolls were often expensive recipients: pregnant women, people with disabilities, working parents and other high-cost adult recipients. “The people who were under budget were children, and those are our lowest cost.”

As a result, she said, the program was $46.6 million over budget.

She also said the program was seeing higher than expected utilization of hospitalization, emergency services, dental care, personal-care services and adult-care services.

All told, Steckel said that the lowest projected overrun for Medicaid for the fiscal year would be $70 million, assuming payouts return to normal levels.

No reserves

McCrory told reporters last Friday that the Medicaid program was a “mess” and predicted total cost overruns of up to $260 million – a number that includes $132 million of a rebate for prescription drugs owed to the federal government and rolled over from last year’s budget.

“It is a mess, in that … the predictability, the being able to forecast it forward, is lacking,” Steckel said after the meeting.

“We’ve got to get better at communicating and analyzing our data, at making sure that [the legislative staff] understand our data and that we’re all on the same page.”

To that end, Steckel said she will be meeting with staff members from the legislative Fiscal Research Division each Thursday to review spending and issues with the Medicaid program.

Medicaid head Carol Steckel
Medicaid head Carol Steckel

“As we really start forecasting in a fine-tuned way, we may not be able to quantify what the impact will be. But at least if you all know that we’ve got the following five issues on our radar screen that we either can’t quantify or we’ll quantify with a reasonable estimate, at least you’re aware,” Steckel told the committee. “Some of it we won’t be able to predict.”

An auditor’s report released in January showed Medicaid has had overruns running into the hundreds of millions of state dollars over the past three years. It’s had to be bailed out by the General Assembly each year. Part of that problem was that DHHS officials left problematic expenditures out of the budget.

Rep. Jim Fulghum (R-Raleigh) asked if a reserve fund that could cover some of Medicaid overspending would be useful.

“Obviously, there needs to be a reserve fund if there’s been overspending over the last three years,” Fulghum said. “I think that takes into account some of the unexpected disease categories that we’re seeing.”

The state’s Medicaid program has little reserve funding to cover variances in costs. Legislators withheld about $26 million of potential spending during last year’s budget that could cover cost overruns in this fiscal year.

Insurance companies, on the other hand, maintain reserve funds to cover the costs of unexpectedly high utilization of services, medical inflation or unforeseen events such as epidemics and outbreaks. The State Health Plan, which covers more than 650,000 state employees, retirees and their dependents, has more than $100 million in reserve.

“Very few states have reserve funds for Medicaid,” Steckel said. “But that is not the panacea to solving the Medicaid problem.”

She said the program needs to be reformed internally, with improved administration and business practices. Steckel also said it might be hard to get legislators to agree to setting aside between 2 to 5 percent of the cost of Medicaid as a reserve.

Currently, the Medicaid overrun accounts for about 1 percent of Medicaid’s estimated $13 billion annual spending.

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Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...