The ink has dried on the Division of Medicaid’s (DOM) budget bill for fiscal year (FY) 2017. We asked the Legislature for $1.03 billion in our budget proposal and they approved $948 million, which is roughly $82 million below DOM’s FY 2017 request.
Unfortunately, this comes as no surprise. At the same time, lawmakers passed a deficit appropriations bill of $52 million to cover a funding gap for FY 2016. This has been the trend since I became executive director of Medicaid in 2012: We accurately predict our budget needs based on various fluctuating parameters only to be underfunded and later the Legislature has to scrounge up the difference, which we knew we would need in the first place.
There is no getting around the fact that Medicaid comes with a big price tag, one that would give any lawmaker sticker shock. However, as state agencies go, DOM arguably has the best return on investment thanks to the amount of federal matching dollars it can draw down. More importantly, it provides health coverage for almost 800,000 Mississippians who otherwise would go without it.
Hands Tied
The reality is that DOM has little control over how much funding it requires to be sustainable and fulfill its mission. The largest expenditure to the agency (and state) is medical services costs for taking care of beneficiaries. Medicaid is a jointly funded state and federal government program providing health coverage for eligible, low-income populations. States are not required to have a Medicaid program, yet all 50 states, five territories and the District of Columbia participate in it.
Although each state runs its own Medicaid program, the eligibility of beneficiaries is determined by household income based on the Federal Poverty Level (FPL) and family size, and Supplemental Security Income (SSI) status. As its name suggests, the FPL is set by the Department of Health and Human Services, and DOM is obliged to adhere to this indicator.
In short, if Mississippi wants to keep a Medicaid program, it must receive enough funds to cover all qualified residents based on federal eligibility guidelines. As of the end of May, 778,894 beneficiaries were enrolled in Medicaid and the Children’s Health Insurance Program (CHIP).
The good news is the federal government, through the Centers for Medicare & Medicaid Services (CMS), supports state programs by matching their Medicaid costs at varying levels. This is called the Federal Medical Assistance Percentage (FMAP), and Mississippi currently has the highest FMAP in the country.
Our current FMAP is 74.17 percent, which is for medical services. It is re-determined each year and fluctuates up and down because it is based on several economic indicators each state has relative to each other, such as household income and level of poverty. Since we have the highest poverty indicators and low household income, we have the highest FMAP.
To put it into perspective, DOM’s total budget in FY2015 was $5.9 billion and $4.10 billion of that came from the federal government.
Cost Predictability
Each fall DOM presents its budget request to the Legislative Budget Committee. The governor also submits his budget proposal, the Executive Budget Request, and during the session the two legislative chambers debate, amend and pass an appropriations bill, which they did this year on April 18.
Because DOM knows exactly how many beneficiaries are enrolled at any one time and can estimate the growing costs of medical services, the agency’s financial team can make very accurate budget projections for the next fiscal year. In fact, over the last two years, we have only been off by 0.2 and 0.3 percent in our projections, even though we have many factors influencing our needs. However, the agency is continually underfunded. That is the reason why the agency had a deficit of about $52 million for FY2016 (which the Legislature justpatched up).
Administrative Costs
The agency’s administrative costs are among the lowest in the country. The vast majority of DOM’s annual budget goes toward reimbursing health-care providers for treating the health-care needs of our beneficiaries. Specifically, only 3.82 percent went toward administrative costs the last fiscal year.
Out of a state budget of nearly $1 billion, we run the entire agency on about $79 million of state dollars. The rest of that money goes to reimbursing providers for the care of our beneficiaries. We are doing the best we can on a very limited budget and we turn our nearly $1 billion into almost $6 billion, most of which goes to providers.
Generating Money
Since DOM’s managed-care program, MississippiCAN was launched in 2011, it has grown to the point where it now covers 65 percent of Medicaid beneficiaries, including children and inpatient services. It has been estimated that MississippiCAN has saved the state about $211 million, according to the actuarial firm Milliman, which analyzed coverage costs of beneficiaries before implementation and enrollment in MississippiCAN and after. About 60 percent of that figure is due to the premium tax.
The Department of Insurance views the managed care organizations (MCO) as insurance providers, and as such they charge them a 3 percent tax on their revenue. Medicaid has two MCOs, Magnolia Health and UnitedHealthcare Plan. The MCOs do not pay that tax themselves; we include that three percent into rates DOM pay them to manage our beneficiaries. Because our footprint for managed care has increased dramatically and we have transitioned the upper payment limit (UPL) payments into the Mississippi Hospital Access Payments (MHAP) program the premium tax has increased.
This premium tax is paid by the MCOs and deposited into the state general fund. Next year, the premium tax for managed care is estimated to be $89 million. Because the premium tax is included in the rates we pay the MCOs, we are able to leverage the FMAP and generate funds for the state through this process. The aggregate amount in state dollars paid to the MCO to cover the premium tax is about $23 million, but this generates the $89 million for the general fund, which is a net increase of $66 million.
Not only does managed care save the state money, it actually generates money for the state. Ultimately, another budget battle has been settled for one more year, and DOM will continue to stretch every dollar we receive to make sure our beneficiaries are covered.
