State Medicaid Program

Almost three years ago a task force of Arkansas legislators submitted its final report on how to control the growing costs of the state Medicaid program.

Since then the state Human Services Department (DHS) has adopted a series of reforms recommended by the legislative task force and the governor.

The goal was to reduce spending from projected levels and save $835 million in Medicaid costs by the end of Fiscal Year 2021. DHS administers Medicaid.

At a recent meeting of the Legislative Council, the director of DHS reported that the Department was “on track to achieve the five year savings target of $835 million.”

Every agency in state government has a stake in the issue. The legislative task force concluded that Medicaid was on an unsustainable path, even if analysts used a conservative growth estimate of five percent for the next five years.

“Medicaid in Arkansas’s annual growth of 5 % represents a pathway that requires reform, as it is the largest program in state government and on its current trajectory, threatens the future viability of other critical programs across the state,” the legislative task force reported.

For example, over the past four years state spending on prisons has grown by a total of about 9 percent, from $322 million to $353 million. In comparison, state spending on DHS has grown by 33 percent over the same four-year period, from $1.3 billion to $1.7 billion.

State funding of education is protected from budget cuts, and less vulnerable to competition for state revenue from other agencies, because the legislature is mandated by the Arkansas Constitution to support public education.

In lawsuits over state funding of schools, the state Supreme Court has upheld the constitutional mandate.

The priority placed on education funding has resulted in what legislative budget officials call the “doomsday clause.”

If the chief fiscal officer determines there are not adequate funds in the public school accounts, all other agencies would have their budgets reduced proportionately by the amount needed to restore the school fund.

Because spending on kindergarten through grade 12 is protected under the Constitution, the growth in Medicaid spending has an inordinate impact on other areas of state government that are not protected, such as prisons and local aid to cities and counties.

Also, funding of higher education is affected because it does not enjoy the same Constitutional priority that K-12 does.

Controlling Medicaid is complex, because it has many components that drive growth in spending. For example, 74 percent of traditional Medicaid claims are for people who are elderly, blind or disabled. Those categories are sometimes referred to as “high risk, high cost” and mostly fall under institutional care provided by hospitals and nursing homes.

DHS has begun controlling costs for people with developmental disabilities and mental illness, through a program called PASSE. That stands for provider led Arkansas shared savings entities. DHS pays a fixed monthly amount for each patient, and the health care companies that receive the payments are responsible for treatment.

Medicaid pays for prescription drugs, and as the task force noted that spending on the pharmaceutical component was growing faster than other medical expenses.