Health care officials alarmed by proposed Medicaid cuts

Gov. Michael J. Dunleavy’s plan to cut upwards of $270 million from the state’s Medicaid budget would drastically reshape Alaska’s health care system and be a major blow to the broader economy, according to state health care leaders and economists.

In his fiscal year 2020 budget released Feb. 13, Dunleavy is proposing to reduce the state’s portion of Medicaid funding, which is expected to be $677 million in the current 2019 fiscal year, by nearly 40 percent based on detailed Department of Health and Social Services budget documents.

Dunleavy has pledged to eliminate the state’s $1.6 billion budget deficit without new taxes while restoring Permanent Fund dividend payments to their statutory calculation. The PFD payment for the upcoming budget year is expected to be about $3,000 per Alaskan for a total appropriation of roughly $1.9 billion.

“This budget is going to impact all Alaskans; it’s too big not to,” Dunleavy said during a Feb. 13 press conference to announce his budget plan.

Dunleavy has repeatedly said he wants to reduce state spending on Medicaid to a sustainable level.

As of October, 210,276 Alaskans were enrolled in Medicaid or the Children’s Health Insurance Program, or CHIP, according to the Centers for Medicare and Medicaid Services, or CMS.

Administration officials said immediately after the budget was released that they are proposing a $225 million cut to the state’s Medicaid appropriations. The $225 million figure is also cited in a 27-page informal budget summary provided by the governor’s office. That document also lists an additional $27 million savings by cutting Medicaid coverage for adult dental services, which is the optional service the state covers but one health care providers say is an important primary care service that can prevent more costly emergency procedures.

A more detailed breakdown of the Department of Health and Social Services budget proposal shows a $271 million general fund cut to the state’s Medicaid services program.

Office of Management and Budget Policy Director Mike Barnhill said in a press briefing following the release of the budget that most of the Medicaid cuts would come through reducing provider reimbursement rates.

Barnhill emphasized that the administration is not proposing to eliminate coverage for anyone currently enrolled in the state’s Medicaid program; it’s working with the federal CMS on new ways of providing Medicaid coverage at a reduced cost to the state.

“Alaska reimburses providers under the Medicaid program at a higher rate than any other state in the country so we’re taking a close look at that and then we’re looking at different ways of treating and providing access to the expansion (Medicaid) population for medical care,” Barnhill said.

State Budget Director Donna Arduin said DHSS Commissioner Adam Crum is also working on legislation “to revise our entire Medicaid program.”

A spokesman for DHSS referred a request to interview Crum on potential Medicaid policy changes to a phone line in OMB dedicated to press inquiries about the budget. The phone line was unattended.

Medicaid reimbursement rates are set through regulations, meaning a rate reduction is one way the administration could potentially cut the Medicaid budget without the getting legislative approval needed to make major changes to the program.

However, state Medicaid funds are tied to large sums of federal money. Costs from traditional Medicaid recipients are split 50-50 by the state and the federal governments, while Medicaid expansion recipients are covered 93 percent by the federal government and 7 percent by the state this year. The Medicaid expansion cost share will shift to 90 percent federal and 10 percent state for calendar year 2020 and beyond.

Alaska Native Medicaid claims are paid 100 percent by the federal Indian Health Service for care provided at a Tribal health facility.

According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million, which includes a $15 million supplemental budget request, in the current fiscal year.

Those state savings have largely been attributed to shifting state costs to the federal government through Medicaid expansion and the Medicaid reform package the Legislature passed in 2016 with broad bipartisan support.

Arduin said Feb. 13 that it’s unclear at this point exactly how much federal money the state would forgo with a major cut to the Medicaid program because the underlying details of the state’s plan are still being worked out.

The department-specific breakdown of the budget lists a $477 million reduction in federal funding as a result of the proposed state cuts.

Alaska State Hospital and Nursing Home Association CEO Becky Hultberg said in an interview the approximately $750 million cumulative cut to Medicaid funding would “fundamentally restructure” Alaska’s health care system.

Hultberg was a commissioner of Administration under former Gov. Sean Parnell’s administration.

While the proposed cuts may improve the state’s bottom line, they would be extremely damaging to hospitals, particularly rural hospitals, if they are implemented through provider reimbursement rate reductions, according to Hultberg.

“There’s really no way that the health care system can absorb a cut of this magnitude and not look dramatically different. I feel very confident in saying we will have hospital closures. Our rural communities are particularly vulnerable, but even our mid-sized communities — hospitals outside of the Anchorage and Mat-Su area — don’t have big margins,” she said.

“It means services and facilities won’t be available for everyone.”

Alaska health care providers are reimbursed by Medicaid at some of the highest rates in the country because the state’s reimbursement rates are set to cover the cost of the service provided — which in Alaska are the highest in the country — while other states pay less than the cost to cover individual services, Hultberg said.

Longtime Alaska economist Jonathan King wrote via email that the proposed cuts would likely result in at least 8,000 job losses in the state.

Medicaid spending has helped insulate the health care sector from Alaska’s ongoing recession that has touched nearly every other industry in the state.

According to King’s calculations, Alaska would lose one job for every $33,000 it doesn’t spend on Medicaid given the significant federal match every state dollar generates.

The Hospital and Nursing Home Association also commissioned King to analyze the economic impacts of repealing Medicaid expansion in Alaska. Many political observes anticipated the Dunleavy administration would propose repealing expanded Medicaid coverage in the budget plan, but that proposal has not been made and the governor’s authority to do so unilaterally has been questioned by legislative attorneys.

The state reduced Medicaid payment rates for professional services and hospitals by 5 percent to 8 percent in 2017. Further drastic reductions to provider payment rates would also result in fewer physicians and health care facilities accepting Medicaid patients, Hultberg added.

“I think there’s either a lack of understanding of reality (by the Dunleavy administration) or a willingness just to make Alaska a poorer and less safe place,” Hultberg said.

She added that while provider reimbursement rate changes can be done through regulation, CMS must also sign off on the reductions.

“Essentially, you could cut provider rates to 25 percent and have a Medicaid program but no providers that take Medicaid and CMS won’t let you do that,” Hultberg said.

“They don’t have a plan,” she concluded.

Alaska Regional Hospital CEO Julie Taylor said significant Medicaid cuts would just exacerbate the current challenges Alaska’s health care system faces: extremely high costs and a lack of providers.

Alaska Native Tribal Health Consortium CEO Roald Helgesen suggested that provider rate cuts could lead to higher local taxes in areas with community-owned hospitals if the rates don’t at least cover procedure expenses.

“It’s a huge cost-shift to the community from the state,” Helgesen said, a view that has been echoed by many critics of varying aspects of Dunleavy’s budget plan.

“What’s been presented just doesn’t make sense,” he added.

A Legislative Research Services report dated Feb. 13 and conducted for House Democrats on the impacts of repealing Medicaid expansion and thus pulling $420 million — roughly 90 percent of which is federal money — out of the health care sector could lead to a 17 percent increase in private insurance premiums across the state.

That’s because much of the care provided to the roughly 50,000 Alaskans covered under the expanded class of Medicaid recipients would then go uncompensated and hospitals would seek to cover those costs through other patients.

“Big cuts to Medicaid don’t just affect Medicaid; they affect what the system looks like and they affect people with private insurance because when you consider health care as a system and you extract that much money from the system without a glide path there will be significant consequences to everyone,” Hultberg said. “That includes people who might feel like this doesn’t affect me because I have (private) insurance.”

Other Alaska health care leaders have emphasized a similar sentiment.

Alaska Primary Care Association Policy Director Jon Zasada said his organization is focused on the apparent consolidation — based on budget documents — of behavioral health, senior and disability services into the general Medicaid Services classification. APCA officials want to know if it is simply a budget reporting technique or an attempt to change or repeal the services.

Zasada noted that Medicaid reimbursement rates for the federally qualified health care centers the APCA represents are calculated differently than rates for hospitals or private practice physicians; however, those rates have been frozen for four years, he added.

APCA officials are also concerned about the cut to optional adult dental care coverage. Zasada said eliminating coverage for a preventative care program often just leads to more costly emergency care, which would then be covered by emergency service Medicaid funding.

Critics of Alaska’s Medicaid program have often highlighted the fact that the state provides coverage for more optional services than nearly every other state as well.

Elwood Brehmer can be reached at elwood[email protected].

02/20/2019 - 10:20am