chopping block

Photo by Eric Tastad used under a Creative Commons license.

As the Oklahoma Legislature enters the final months of session, state agencies and the populations they serve are bracing for another round of painful budget cuts. A stark example of the high stakes involved in this year’s budget shortfall is the state’s Medicaid program, which provides health care to over 800,000 low-income children, pregnant women, seniors, and persons with disabilities. There is no plausible scenario under which Medicaid will avoid cuts. But unless legislators are willing to take action to boost revenues substantially, the cuts to Medicaid providers, and the impact on the people they serve, could be enormous.

While there has been much discussion this year of the state’s $611 million budget shortfall, this number actually understates the situation because it simply compares available funds for next year to what was available this year. For many state agencies, additional funding is needed from one year to the next simply to operate existing programs at existing levels due to increased caseloads or enrollment, new responsibilities, loss of matching funds, or other factors . This is especially the case for the Oklahoma Health Care Authority (OHCA), which administers the Medicaid program. It needs over $100 million in additional state appropriations in FY 2016 to avoid cuts.

There are three main components to OHCA’s funding needs:

  • an additional $45.5 million is needed due to the decline in the federal share of Oklahoma’s Medicaid expenditures. A state’s federal matching share, known as FMAP, is determined automatically each year based according to a formula based on a state’s personal income. Oklahoma’s FMAP has declined steadily for the past decade as the state’s economic growth has exceeded the nation’s;
  • $26.0 million is needed for projected growth in Medicaid enrollment and utilization;
  • $31.0 million is needed to replace carryover funds used in this year’s budget.

The agency also requested $14.4 million to cover the potential loss of federal funds for the Children’s Health Improvement Program (CHIP);  however, a proposal to extend CHIP has gained bipartisan approval in the U.S. House and appears likely to make it into law. In that case, Oklahoma would receive an enhanced CHIP federal match of 95.69 percent, which translates into a $42 million reduction in the agency’s budget request.

Last year, the Legislature provided OHCA flat funding, which left the agency with a shortfall of over $80 million. With the loss of accompanying federal funds, the agency was forced to enact cuts of over $200 million. These included eliminating and restricting covered benefits, hiking co-payments on Medicaid recipients to the maximum extent allowable under federal law, and reducing reimbursement rates for most Medicaid providers by 7.75 percent (nursing homes, emergency transportation, and private transport were exempted).

Faced with another shortfall, the agency has few options other than to slash provider reimbursement rates more deeply. At a recent Senate budget hearing, it presented several budget scenarios:

  • A 5 percent cut in state appropriations (-$50 million) would create a $170 million state shortfall, which would require 17.95 percent rate cuts to all providers;
  • Flat funding would leave a $120 million shortfall, which would require 12.68 percent rate cuts to all providers;
  • A 5 percent funding increase (+$50 million) would still leave a $70 million shortfall and rate cuts of 7.42 percent to all providers.

Note that CHIP reauthorization should reduce the prospective cuts by about 4 percentage points.

Large rate cuts, on top of last year’s 7.75 percent cut, will have a serious impact on health care providers’ bottom lines and their willingness and capacity to serve Medicaid patients. Many health care providers are also struggling with tight operating margins. This past week, for example, Craig General Hospital in Vinita  become the seventh rural Oklahoma hospital to declare bankruptcy in the past five years. The state’s community health centers, which provide indigent care in over 70 locations in Tulsa, are staggering under the burden of uncompensated care.

To avoid dramatic cuts that could inflict serious harm on health care providers and endanger access to care for patients, the Legislature must give serious consideration to all reasonable options for filling the budget hole, especially those that would provide longer-term stability to the state’s fiscal outlook. Given the dire Medicaid outlook, it would be particularity beneficial to reconsider accepting federal funds to expand health insurance coverage to low-income working adults, which would allow Oklahoma to shift state health care costs to the federal government. The Leavitt report commissioned by OHCA and Gov. Fallin estimated some $450 million in state budget savings over a decade if we expand coverage. This would also lift some 150,000 Oklahomans out of a coverage gap and provide a critical boost to employers and health care providers.

Medicaid is critical to the state’s health care infrastructure, to the viability of local businesses,  and to the health of hundreds of thousands of Oklahoman. It is up to our elected officials to make the right choices to preserve this critical program.