Medicaid costs are a ‘shock’ to Delaware lawmakers

DOVER — Delaware lawmakers say they are facing the prospect of cutting services or hoping for a jump in revenue after updated Medicaid projections have the state in a $28.5 million hole.

Appearing before the Joint Finance Committee on Wednesday, officials from the Division of Medicaid and Medical Assistance detailed the shortfall which the committee first heard about the day before.

The governor’s January budget recommendations include $40.1 million for increases in the state’s Medicaid spending, the largest portion of which comes from increased enrollment and higher costs.

However, new calculations from the division predict a total cost of $68.6 million, putting pressure on legislators to find money elsewhere to ensure services are funded.

That hike makes up about 1.7 percent of the total recommended budget.

The budget does not have to be finalized for another four months, giving legislators a chance to wait for four additional revenue

Senator Harris McDowell by The News Journal/BOB HERBERT.

Harris McDowell III

predictions. However, JFC Chairman Sen. Harris McDowell, D-Wilmington, said he is unwilling to simply hold out hope for a better outlook from the Delaware Economic and Financial Advisory Council.

“The governor’s recommended budget already took a rosy look at the DEFAC going into the end of the fiscal year,” he said. “I think that we had a September, October, November blip up in this fiscal year and I think the governor’s budget projected that as a trend. I’m very worried that it’s not a trend. So I don’t want to hope, I don’t think we can hope for a DEFAC jump. If we get it, great.”

Medicaid is a massive expense for Delaware: At $698 million, it makes up about 18 percent of the state’s current $3.91 billion. The state works with Highmark and United for the program.

The $28.5 million increase come from increased enrollment and higher costs, as well as a negotiated risk agreement with a managed care organization resulting from a larger population of children needing special care.

“So first of all, we negotiate rates based on what we think the makeup of the population looks like,” division Director Stephen Groff said. “One MCO may get higher rates, one may get low rates. In a situation where there is some uncertainty, which is what we face not only because of this in-network, out-of-network, but also because Highmark is a new plan, without their own medical experience in the Medicaid population.

“We negotiated a risk mitigation strategy that is relatively common, called a risk corridor. So what that means is there is a certain portion of the rate that is full risk, the managed care organization takes on the full risk, but once you reach a certain point as far as a medical loss ratio, if the MCO has incurred costs that exceed the threshold, then the state shares in those costs. On the other side of this risk corridor, should the MCO incur costs that are far below the revenue that we’ve paid them, then they would pay back some of that revenue.”

Skeptical lawmakers questioned the increase, with Sen. Karen Peterson, D-Stanton, wondering if Delaware could see an additional jump from now to June. Mr. Groff replied that he did not expect it but would not rule out an additional “worst-case scenario.”

Sen. McDowell expressed unease with the increase and, echoing comments he made during a budget hearing three weeks ago, blasted insurance companies and health care providers, saying they sometimes apply a markup of up to 400 percent.

“It’s still suspicious to me in that the governor’s carry-over was just swallowed up by that, because it was $40 million before that,” he said. “And $40 million, I know it’s a big system and a lot of money in there, but $40 million is a lot of money. It’s a lot of money, and it seems to me it shouldn’t be happening.

“Either we should be better analysts in the beginning and not have that big a bump unexpectedly or … I have suspected for some time now, part of the problem is that the people who are setting us the bills have a lot of expertise at their disposal to make it look like the bills are just when maybe they’re not.”

After the session, he shied away from offering specific options to fill the current gap.

Delaware is, on balance, an unhealthy state. Department of Health and Social Services Secretary Rita Landgraf said officials working to incentivize healthy behavior and develop outcome-based treatment before the state hits “the tipping point.”

Delaware is receiving a boost from the Affordable Care Act expansion, freeing up $123 million this year, officials said.

“We’re saving over $100 million so that we can serve 10,000 more people a month,” Mr. Groff said.

Lawmakers will hear from officials on the success of program aimed at reducing Medicaid fraud, waste and abuse today, although Sen. McDowell said he does not expect to generate serious savings from that.

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