Tuesday’s budget hearing for the Department of Human Services (DHS) was definitely eventful. The largest state agency, with more 7,500 employees, DHS serves more than 1.2 million Arkansans each year. Most of its budget (80%) goes to provide health care to low-income folks with disabilities, the elderly, or children. Earlier this year, DHS announced Arkansas was facing a projected Medicaid budget shortfall of almost $400 million in state funding. Tuesday, we learned more about how the state may handle this shortage of funds.

(For more information on Medicaid, watch our video and check out the rest of our Medicaid Toolkit here).

Overall, the hearing was full of questions as legislators examined proposed SFY 2014 budgets across 12 divisions at DHS. The shortfall garnered the lion’s share of attention throughout the day, although most agencies received executive recommendations for budgets at or close to their requests. After review by the committee, several budgets were sent to the Human Services subcommittee for further examination, including Aging and Adult Services, County Operations, Developmental Disabilities, Medical Services, and Youth Services.

Big picture for Medicaid
As stated above, the Medicaid shortfall was the big story of the day. Due to improved revenue outlooks, growth below projections, and a better matching rate (FMAP) projection, DHS budgeted the Medicaid shortfall to be $298 million in fiscal year 2014. Adding in the Governor’s recommendation of $90 million in new state general revenue (SGR) and $70 million in one-time general improvement funds (GIF) still leaves $138 million short. This is a reduction in services of $460 million with the federal match. Similar projections leave the state short $75 million ($250 million in services) in 2015, too. DHS suggested cuts that would close this gap, reducing or eliminating services for 75,000 adults. (DHS released their “top-level budget projections” at the meeting which you can see here).

The Details
DHS’s Division of Medical Services, led by Andy Allison, suggested a three-pronged approach to cutting $130 million out of his budget. His approach had guiding principles, including avoiding cuts that would cause immediate harm or death, restrict adult behavioral health services, eliminate services for the “medically needy,” or affect children. Suggested budget savings include the following:

1) “Efficiencies and Enhanced Medical Management”

• Instating prior authorizations for dental care, therapies beyond 6 hours per day for children, and prescription drugs for children on ARKids First who have more than 6 prescriptions
• Limiting new facilities and increasing audits for community mental health centers, developmental day treatment centers, respite services for persons with mental illness (RSPMI), and other therapies
• Changing accounting procedures for school-based Medicaid and payments for “dual eligibles” enrolled in both Medicaid and Medicare.

2) “Provider Rate Freezes and Reductions”

• Delaying an inflation increase for “institutions”
• Cutting provider payment rates by 3%

3) “Service Eliminations and Coverage Freezes”

• Eliminating adult dental care (40,000 adults affected)
• Dropping ARHealthNetworks coverage for working adults July 1, 2013 (20,000 adults affected)
• Freezing eligibility for home and community based waiver services for the aged and those with disabilities (currently thousands on the wait list)
• Cutting “level 3” nursing care for those not wholly dependent on help for activities of daily living (up to 15,000 adults affected)

We are still examining the detailed impact of each of each item in the above list. Services for children were spared, for the most part, from direct cuts, thanks to the “Maintenance of Effort” required by the Affordable Care Act. Adults were only protected by the MOE until 2014, hence the cuts to nursing care that will kick in January 1, 2014. The fact that children on Medicaid must receive all services a doctor says they need (part of Early Periodic Screening Diagnosis and Treatment, or EPSDT) limited the impact of cuts on our youngest neighbors.

Everyone served by Medicaid could face more difficulties in finding providers – rate decreases often mean providers take fewer Medicaid patients, limiting access to care. Overall, up to 75,000 adults could be affected by service cuts, and even more children or adults with disabilities or elderly Arkansans could be denied access to home and community-based services. Many legislators expressed concern that the popular ARHealthNetworks could be cut as it serves uninsured adults who are working and helps small businesses provide health coverage to employees.

What’s next?
On the bright side, new and improved projections were made for the impact of the Affordable Care Act in Arkansas, should the legislature decide to extend Medicaid coverage as the law allows. Because of some updated assumptions, the new health law, if fully implemented in Arkansas, would save the state $44 million in 2014 and $115 million in 2015. What a help this would be in closing the budget gaps without cutting services!

We are still looking into the details and impacts of the suggested budget reductions and service cuts. You can read about our support for extending coverage to 250,000 uninsured Arkansans, including 80,000 parents, here. Stay tuned for more – this is just the prequel to the 2013 legislative session that begins in January!