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Really the budget debate comes down to two major components: what Medicaid is going to cost and how much money will be left over for a teacher pay raise.   Lets look at this from a personal finance perspective.  Each year you create your budget.  You account for a mortgage, food, gas, cell phones, etc.  After all of those expenses are taken out, you know how much you have to spend on more discretionary items such as entertainment and vacations.  When a change occurs in your family, such as the birth of a child, a job change, a return to school, a new car, or anything else requiring a large financial commitment, you must rework your budget to account for that change.  That is exactly what is happening in state government right now, the Medicaid program is changing and before the rest of the budget can be agreed upon, lawmakers must have a clear picture of Medicaid’s financial requirements.

Medicaid is the largest expenditure in state government.  Last fiscal year Medicaid made up 20 percent of the General Fund and 69 percent of HHS spending.  Due to the Affordable Care Act, there have been federally mandated changes that increase costs as well as the complication of the program, which is funded through a mix of state and federal match funds.  Legislators want to give teachers a salary increase, but before they can spend more money in that area, they must determine the amount necessary for Medicaid.

The Medicaid issue was highlighted in a Senate Appropriations meeting last Thursday that included the legislature’s Fiscal Research Division and the Governor’s State Budget Director.  Both explained their methodology and their concerns over the Medicaid budget.  Again, lets look at this from a personal finance perspective.  Last time you purchased a new car, you adjusted your finances to account for the car payment.   The next time you purchase a new car, you will immediately think back to your previous behavior as a base for evaluating your budget to include the new expense.  Medicaid works the same way.  OSBM took previous years’ actual spending data on Medicaid and used this to forecast what they expected the program to cost for the rest of FY 2013-14 and into FY 2014-15.  This was looking at the macro impact, analyzing overall budget expenditures and figuring out what it would be in the future.

Concern and disagreement between lawmakers and staff is on the micro level, about what each component of Medicaid is costing and why costs are changing.  There are multiple factors that affect those things:

  • Woodworking effect – Many citizens who were eligible for Medicaid but not participating are now required to join due to the expansion of the program through the ACA.  This term was coined because these people are "coming out of the woodwork."
  • Claims Backlog – There are 97,000 providers in North Carolina that submit claims to Medicaid.  This includes hospitals, certain physicians, nursing facilities, dentists, behavioral health facilities, etc.  All of these providers must submit claims to be reimbursed for the cost of providing healthcare to a Medicaid patient.  There is a large backlog of unpaid claims, and the exact amount remains is unclear. 
  • Enrollment/Applications Backlog – Due to the ACA, there are more people eligible to enroll in Medicaid.  There was also a requirement to move 71,000 children from the Health Choice program onto Medicaid, which further increased enrollment.  There has been a large increase in the enrollment numbers for Medicaid, and with that has come a backlog of applications.  The complicated budget problem is that there is not consensus on the exact cost involved with each enrollee to the program.
  • Rebase – In 2013, the budget included $557 million as the Medicaid rebase for FY 2014-15, or the estimate of funds needed to continue the program under existing law.  Any changes to the Medicaid budget will also need to take into account the already approved rebase figure from last year’s enacted budget.

All these things combined have given fiscal analysts different numbers on which to base a budget. Medicaid is a very complicated government program and one that is causing many states difficulty, not just North Carolina.  So before lawmakers go home from Raleigh, they need to find an agreement on Medicaid and how much it will cost in the budget.  No other budget negotiations can be taken seriously until the largest part of the budget, Medicaid, is agreed upon.

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