OK Policy has argued repeatedly that next year’s budget outlook, with shortfalls equal to cuts of 12 percent across all agencies of state government above those already enacted this year, threatens to have catastrophic consequences for the state’s economy, businesses, and families (see our budget page for an op-ed, issue brief and fact sheet, or this blog post). Here we examine the especially grim options for dealing with budget shortfalls faced by the Oklahoma Health Care Authority (OHCA), the state agency responsible for administering the state Medicaid program that serves nearly 700,000 low-income Oklahomans, primarily low-income children, seniors, pregnant women, and persons with disabilities.
At recent legislative hearings, the agency outlined next year’s budget situation. This year, the agency’s state funding – after budget cuts and including $33 million in additional funds that were authorized as part of the mid-year “supplemental” approved by the Legislature – is $980 million. As a result of increased enrollment and utilization, OHCA estimates that it will need $1.098 billion in state appropriations to maintain the Medicaid program in FY ’11 at its current levels. If, as is possible, the Legislature were to remove the supplemental from OHCA’s base and cut funding by an additional 10 percent, its appropriation for FY ’11 would be some $850 million. Thus, OHCA anticipates that it could be facing a shortfall for the coming year of some $250 million in state funds. With the corresponding loss of federal matching funds, the program would face the challenge of enacting total cuts of at least $1 billion.
The agency faces a very limited range of options for addressing funding shortfalls. As a result of the maintenance-of-effort provisions in the federal Recovery Act and the new federal health care law, the state is precluded from adopting more restrictive eligibility standards for Medicaid than were in effect as of July 2008. Similarly, states participating in Medicaid must cover a comprehensive set of benefits for children and certain benefits for adults, including hospital and nursing home care.
The only options on the table, then, are the elimination of optional benefits for adults and cuts to provider reimbursement rates. To address mid-year revenue shortfalls during the current budget year, OHCA reduced coverage of optional benefits and adopted stricter limits on access to prescription drugs and behavioral health services. It also cut provider reimbursement rates by 3.25 percent effective April 1st.
What more can OHCA do? The options it presented if faced with an additional 10 percent cut for FY ’11 included:
- Doing away with all optional adult benefits, including prescription drug coverage ($55.5 million in reduced expenditures), behavioral health services ($12.3 million), durable mental equipment ($12.4 million), dental care ($6.4 million), end state renal disease treatment (4.9 million), and others, for a total “savings” of $92.5 million; AND
- A provider rate reduction of 19 percent ($162.5 million).
OHCA clearly acknowledges that these cuts would cause far-ranging harm. Eliminating such core medical benefits as prescription drugs, behavioral health services, diabetes supplies, and kidney dialysis treatment will severely impact the medical condition of tens of thousands of low-income adult Oklahomans without providing any real budgetary savings as more people turn to hospitals and nursing home for care. Cuts in provider rates approaching anywhere near 19 percent would lead some health care providers to stop seeing Medicaid patients (OHCA cites a survey that found that more than two-thirds of physicians said they would stop seeing Medicaid patients if rates are cut 10 percent) and drive some practitioners, businesses, and facilities out of business entirely. This would have a serious impact on the access to timely and appropriate health care for the entire Medicaid population, and potentially, all Oklahomans. Meanwhile, the lost jobs, income, and tax revenues that would be caused by these cuts in state spending – with their concurrent loss of $3 federal for every $1 cut in state funding- would have an enormous economic impact on businesses, communities, and local governments across the state.
Overall, major cuts to Medicaid would weaken health care for this entire population, and adults with chronic health conditions in particular, threaten the economic viability of the state’s health care infrastructure, and likely only shift costs to other lines in the state budget. But as we argued last month, “closing the budget gap through an exclusive reliance on deeper cuts is a choice, not an inevitability.” The alternative is to find other revenue sources. We continue to hope our elected leaders will make the right choice.