The Free Press, Mankato, MN

State budget: a closer look

June 19, 2011

Medical Assistance at heart of budget dispute

An intense clash over the state’s health and human services budget was virtually inevitable after Minnesota voters last November picked Democrat Mark Dayton as their new governor and elected Republican majorities in the House and Senate.

The HHS budget finances protective services for abused and neglected children, cash assistance to adults in poverty, incarceration and treatment of people deemed mentally ill and dangerous, child care subsidies for low-income workers, group homes for people with developmental disabilities, and dozens of other programs.

But most of the HHS budget is state payments for Medical Assistance, the bulk of it for long-term care for elderly Minnesotans. In the current two-year budget, health care for seniors, the disabled and the poor totals $7.3 billion — nearly 73 percent of total HHS spending.

Under current policies, the spending just for Medical Assistance would increase to $9.7 billion and would consume 79 percent of the HHS budget.

About half of the jump in costs is due to the aging population, which is creating an ever-growing number of elderly citizens in need of care, and growth in the number of low-income Minnesotans eligible for state-provided medical insurance, according to a nonpartisan legislative fiscal analyst. The other half of the skyrocketing price of Medical Assistance is inflation in the cost of medical services.

Now the bad news. The current two-year budget includes a major chunk of money from the federal government for health and human services funding — part of the American Recovery and Reinvestment Act, better known as the economic stimulus bill. And that money is disappearing.

“We were given about $1.5 billion in stimulus dollars last time to help us weather the storm,” said Sen. Kathy Sheran, a Mankato Democrat who serves on the Senate Health and Human Services Committee.

So the state has $12.3 billion in spending obligations for that part of the state budget for the two years starting July 1. And the state is currently spending just $8.6 billion of its own money on health and human services.

The bottom line? The HHS budget is a big contributor to the $5 billion shortfall that Dayton and the Legislature must eliminate in any budget agreement negotiated to keep the state operating past July 1. And they disagree almost completely on how to deal with it.

Cuts, or less growth?

Sen. David Hann, the chairman of the Senate HHS panel, said spending for health and welfare programs is growing faster than any other part of the state budget and needs to reined in. It would grow more than 21 percent over the next two years if changes aren’t made.

“You just can’t do that forever,” said Hann, R-Eden Prairie. “And we’ve been doing it a very long time.”

Democrats offer a similar theme on that point: current growth rates in the HHS budget are unsustainable.

“We have to cut the budget,” Sheran said. “So the argument is really over how deep.”

That’s where the state’s voters come in. They elected a governor who campaigned on the need to raise taxes on the wealthy to reduce the severity of cuts in high-priority parts of the budget — including health care services to the poor, the elderly and the disabled.

Voters also gave majority-control of the House and Senate to Republican candidates who had made campaign promises to reform state government, to oppose tax increases, and to balance the budget by focusing on priorities rather than asking taxpayers to contribute more.

The inherent conflict between those two messages is starkly apparent in the HHS budget proposals by Dayton and the Republican Legislature.

The end-of-session budget passed by Republicans — and vetoed by Dayton — would have boosted HHS spending by 8 percent over two years. An increase, but substantially less than the 21.3 percent biennial growth that would occur if current policies were kept in place.

Dayton, by contrast, would increase the budget by 20 percent over two years — cutting spending by little more than 1 percentage point from the projected amount. Since releasing his March budget plan, Dayton has offered to make $1.6 billion in additional cuts in an effort to “meet Republicans half-way” — but he hasn’t detailed where he wants the reductions to occur across the state’s $34 billion to $37 billion budget.

A reform or a ruse?

Because most Republican lawmakers oppose steep cuts to nursing homes, even their budget plan increases Medical Assistance spending by 10 percent over two years compared to current levels.

But that part of the budget would need to increase by nearly a third over two years if existing eligible Minnesotans — and newly eligible elderly and low-income residents — are to retain their state-provided health care. The Republican proposal deals with the gap by repealing a Medical Assistance program, funded by the state and federal governments, and replacing it with “coordinated care delivery systems” at a savings of nearly $600 million.

“It was an attempt to try to fund basic commitments we’ve made in health and human services and also to bring about reform to stem the growth in costs we’ve been seeing the last few years,” Hann said.

Dayton and Democrats say the Republican approach would leave about 105,000  Minnesotans uninsured — individuals whose annual incomes are $8,000 or less.

“Curtailing health care cost growth by throwing people off the system is not health care reform,” Sheran said.

Republicans say the coordinated care delivery systems — which involve hospitals volunteering to provide care for the poorest Minnesotans in return for a set annual payment — will provide coverage for those newly uninsured people.

When a similar program was attempted in the past, only four hospitals — all in the Twin Cities — agreed to participate. The latest proposal is worse, according to the Minnesota Hospital Association, because it provides an even smaller annual payment per patient.

“This is really a preposterous proposal,” said association President Lawrence Massa earlier this month. “It is disingenuous to claim that you are providing health care coverage for this population when your funding amounts to about $660 per individual per year. That isn’t health coverage; it’s window dressing.”

Other parts of the Republican legislative plan would move low-income working Minnesotans from the MinnesotaCare subsidized insurance program into the private insurance marketplace — with a voucher to help them cover the premium costs. The voucher program would affect adults without children earning between $13,000 and $27,000 a year.

Sheran said that change is essentially an insurance company subsidy because the insurance industry will accept only the healthiest former MinnesotaCare recipients, take their taxpayer-provided voucher, and then offer only a high-deductible/high co-pay policy that the recipient won’t be able to afford to use for routine medical care.

The former MinnesotaCare recipients who are poor risks for insurance companies will be rejected, Sheran said.

The Department of Health and Human Services estimates that those and other changes will bring the total uninsured to 138,000.

Hann said the MinnesotaCare changes are a strategic effort to move more of the state’s residents from government health care to the private insurance marketplace, something Republicans believe is crucial in holding down health care inflation.

As for the proposed plan’s high deductibles — $3,000 dollars or more — Hann compares it to automobile insurance.

Most Minnesota adults, even those with low incomes, typically drive cars, said Hann, a businessman and theology graduate of Gustavus Adolphus College. Car owners spend hundreds or thousands of dollars each year paying for gasoline, tires, oil changes and repairs. Their automobile insurance policies are in place to cover unexpected and highly expensive costs associated with a crash — not routine fuel and repair bills.

“Nobody expects your insurance policy to pay for those things,” Hann said. “Nobody expects you to go to the state (with the bills).”

Conflicting forecasts

When it comes to health,  small repairs and preventative maintenance are essential to keeping a body from developing serious — and seriously expensive — chronic conditions, according to Sheran, a nurse and former nursing instructor at Minnesota State University.

Too much of the Republican approach fails to recognize the essential role that prevention must play in curing the rising cost of health care, she said.

That’s also the recurring flaw in other parts of the HHS budget the Legislature passed on a party-line vote, according to Sheran. Smaller programs in the HHS budget would have taken actual cuts in spending from current levels under the Republican legislative plan — even programs that save money in the long run.

The final legislative budget would have spent less in the upcoming two years for child care assistance grants that help keep low-income Minnesotans employed, child abuse and neglect investigations and services, and grants supporting and treating people with mental illness.

Inadequate support for other programs that keep elderly and disabled Minnesotans in their homes will drive up costs in the long run as more people end up in nursing homes and other institutions, according to Sheran.

County budgets, and the property-tax-payers who support them, will be left to deal with the state’s poorest residents who were previously receiving state-funded services, she said.

Many of the changes allow for a smaller bottom line on the HHS budget, but it’s an illusion that will be exposed when future state budget forecasts show the real costs of eliminating preventative health care and community-based support for the poor, according to Sheran.

“All of this that looks like short-term savings is going to show up as a deficit in the next forecast,” she said.

Hann said Republicans are willing to negotiate with Dayton on the HHS budget, but he wants its core provisions maintained. If they are, Minnesota will no longer be promising more than it can afford to deliver and it will be taking a first step toward reforming how health care is delivered in Minnesota.

“What I hope is that we can begin the process of reform that will end up with everybody in a better place,” he said.

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