by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
North Carolina’s Department of Health and Human Services (DHHS) has a history of breaking budgets with lax controls over Medicaid spending. It took nearly three years under Gov. Pat McCrory to get spending in check and reserves replenished to prevent a repeat of the $500 million holes that had become routine under Gov. Bev Perdue.
While getting finances under control, McCrory and the Republican-led General Assembly set Medicaid on a path to move from fee-for-service to managed care this fiscal year. Gov. Roy Cooper’s budget veto delayed the transition. Secretary of DHHS Mandy Cohen confirmed in November that managed care, even value-based care, was not as important as Medicaid expansion and halted activity on implementation indefinitely.
Democrats’ insistence on Medicaid expansion led Cooper to veto a “mini-budget” for DHHS that would have provided funding for the agency, including the transition to managed care and continued upgrades of NC FAST. The McCrory administration also got the long-planned enrollment system for social services operating in 2013, though not without difficulties. Since then, legislators have used one-time appropriations to pay contractors to add functions and features and ensure the system continues to function properly.
For Fiscal Year (FY) 2020, contract personnel for NC FAST were to be paid $76 million in one-time funds from the Medicaid Transformation Reserve. Only a portion of that sum was for the actual transition to managed care. Other projects included document management, round-the-clock access to the system, case management, and operations and maintenance.
With a recent federal court decision quashing the false hope that Medicaid work requirements would stick, Republican legislators have given up on finding a compromise. John Hood declared that Medicaid expansion is dead unless and until Democrats gain a legislative majority.
DHHS staff at a recent oversight hearing offered a tale of two Medicaids. Staffers showed appropriations actually about 1.1% less than budgeted because federal funds have also come in more quickly. Any appearance that Medicaid spending was out of control was explained simply. First, appropriations came in $60 million less than budgeted in FY 2019. Second, the month of December had an extra payment period in FY 2020. Once accounting for the extra pay period, spending is on track and within budget.
On the other hand, they also complained that it is “unprecedented” to anticipate administrative savings that would result from private insurance companies taking on that work as part of their $30 billion in state contracts to manage Medicaid. Their presentation stated flatly, “there is NO [sic] scenario where it will not greatly impact service delivery.” DHHS must have an extremely low opinion of those with whom they have entrusted the care of two million North Carolinians and to whom another 600,000 people would be entrusted if the state were to expand Medicaid.
Medicaid’s $3.9 billion in state appropriations is second only to public schools and touches 500,000 more lives than the schools do. When adding in federal and other sources of funding, the program accounts for one-fourth or $14 billion of the $55 billion North Carolina state government budget. A small mistake in Medicaid can cost more than other state agencies spend in their entirety. It is essential for this program to operate within budget.