State looks to trim Medicaid costs by $30M

The Alaska Department of Health and Social Services is trying to cut $30 million out of its Medicaid program budget this year.

Even without the added pressure of a Legislature deadlocked without a fiscal year 2018 budget, the DHSS has been concerned about the growing cost of the Medicaid program. Currently, about 25 percent of Alaska is covered under Medicaid, or about 185,139 lives, according to the department’s May 31 report.

So far, the proposed budget for the department does not include a funding increase to cover program growth. In the last two years, the Medicaid program has picked up an additional approximately 33,000 people after Gov. Bill Walker authorized the acceptance of the Medicaid expansion under the Affordable Care Act, also known as Obamacare, effective September 2015. On top of that, as Alaska’s economy has contracted and more people have lost jobs, more qualify for Medicaid.

In addition to the new enrollees, costs for existing enrollees have increased, and the state is left trying to figure out how to cover those costs. Medicaid expenditures compose about 64 percent of the department’s budget, said Shawnda O’Brien, the acting assistant commissioner, in testimony to the Legislature in January.

“As our (unrestricted general fund) funding had declined, our services have stayed at the same levels, largely due to the increase in federal authority,” she said. “… These services are critical safety net programs, and it’s important to note that we have been able to maintain all of those services.”

The department is somewhat hamstrung on how to reduce costs. Because Medicaid is a federal program, if someone meets the income requirements, they are entitled to services. The Affordable Care Act provides federal reimbursement for the cost of enrollees under the expansion and splits the cost with the state for the rest of the program, but the costs have continued to increase over the years. Alaska’s Medicaid program also reimburses providers at a significantly higher rate than other states, said DHSS Commissioner Valerie Davidson in testimony to the Legislature in January.

It isn’t the first year of cuts, so DHSS has been looking at places to cut for a while. Next year, the department is planning to freeze reimbursement rates and reduce payments for inpatient hospitals, outpatient hospitals and ambulatory surgery centers by 5 percent, and for professional services by 10.3 percent, both effective in fiscal year 2018, said DHSS Public Information Officer Sarana Schell in an email.

“(The cut) is specifically to avoid asking for an increment to the Medicaid budget in (supplemental) FY18,” she wrote.

One area proposed for significant cuts is the Medicaid home and community-based waiver program for individuals with developmental disabilities. In particular, DHSS is proposing a soft cap for 8-12 hours per week of day habilitation under the waiver program, which provides individuals with development disabilities with assistance in daytime activities that promote the development or maintenance of skills outside the home. The soft cap means some people could get more hours than that, but there would have to be additional documentation to prove they need it.

Eight hours per week may work for some people, but it is significantly less than some people rely on now, said Millie Ryan, president of Alaska’s Key Coalition, a statewide group advocating for disability services.

“This is particularly skills that are out in the community,” she said. “The other kinds of services that people might receive are (like) respite care, but that’s really for the family, to give the family a kind of break from taking care of the individual all the time.”

The 8-12 hour cap was developed using average utilization data for all day habilitation recipients through Medicaid payment data, according to a document issued by DHSS on June 8 answering question submitted in public comments. However, many people use more than that, and the effect of the cap will fall differently on those living in group homes as compared to those living at home, Ryan said. Those living with family members who have to work during the day will have to look for another service, try to qualify for services under another waiver program or may have to consider moving into residential care, which costs the state significantly more, Ryan said.

She credited DHSS for convening a stakeholder group before proposing the change, gathering feedback from providers that resulted in recommendations. The workgroup produced the proposed cap, according to the June 8 document.

Ryan said she appreciated that the Senior and Disability Services Division had taken cuts internally rather than impacting services in the past several years of budget cuts and said she knew there is little left to cut but services this year. However, she said she was concerned about the potential impacts of reducing the day habilitation hours.

“With some folks, it’s really hard to believe that they’re going to get by with just 8 hours,” she said. “… We’re looking at each individual, looking at how many hours they have now, if they’re considerably above that eight (hours), can we justify and make the case for more? Are there other services that might meet their needs? “

In a set of public comments, the provider trade group the Alaska Association on Developmental Disabilities wrote that the group supports the concept of the soft cap but suggested a sunset provision that would eliminate the soft cap once a more flexible system is established. The comments also raised concerns about the data leading to the average and about the potential loss of federal matching dollars through a too-restrictive annual cap.

“Data collected from varying providers suggests than an annual 416 hour cap is more aggressive than necessary to produce the budgetary savings,” the group’s comments state.

Reach Elizabeth Earl at

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