Issue Paper

To: Interested Legislators

From: John Sauer, Executive Director and Tom Ramsey, Director of Government Relations

Subject: January 2002 Special Session Assemblly Bill 1: Support for the Budget Reform Bill's Medicaid Provisions

The Wisconsin Association of Homes and Services for the Aging (WAHSA) is a statewide membership organization of not-for-profit corporations principally serving elderly and disabled persons. Membership is comprised of 197 religious, fraternal, private and governmental not-for-profit organizations which own, operate and/or sponsor 154 private and 47 county-operated nursing facilities, 65 community-based residential facilities, 32 residential care apartment complexes, 95 senior housing complexes, 26 facilities for the developmentally disabled, 10 licensed home health agencies, and over 300 community service agencies which offer programs ranging from Alzheimer’s support, child and adult day care, hospice and home care to Meals on Wheels.

WAHSA’s not-for-profit members urge your support for the Governor’s position in the budget reform bill to exempt from budget cuts the Medicaid program in general and specifically the 4.73% Medicaid rate increase for nursing facilities contained in Act 16 for FY 2002-03.

We thank the Governor for his courageous stand to spare the Medicaid program from budget cuts. The Governor has looked at Medicaid not as a nearly $3 billion state/federal program which could be tapped to help address a $1.1. billion deficit but rather as a program which provides needed health care services to over 466,000 individuals, including over 25,000 nursing home residents, who are unable to pay for those services themselves. We respectfully request members of the Legislature to also look past the “program” and focus on the people who are served by Medicaid and spare them from bearing the burden of the State’s budget deficit.

According to Legislative Fiscal Bureau Information Paper #43 “Medical Assistance and Badger Care,” dated January 2001, Title 19 of the federal Social Security Act (“Medical Assistance” or “Medicaid”) establishes an entitlement program that pays for health services provided to certain groups of low-income persons. Medicaid supports the costs of providing acute and long-term care to persons who are aged, blind, disabled, children, members of families with dependent children and pregnant women who meet specified financial and nonfinancial criteria. Persons enrolled in the Medicaid program are entitled to have payment made by the State for covered, medically necessary services furnished by certified providers.

In other words, Medicaid provides payment of medically necessary services for low-income persons with acute or long-term care needs. And cuts in the Medicaid program could result in the denial of medically necessary services to those who are least able to pay for those needed services. Since there are over 460,000 Medicaid recipients in Wisconsin, nearly one out of every ten Wisconsin residents could face the prospect of denied access to health care if the Medicaid program is cut. That in itself should spare Medicaid from budget cuts.

At a time when the State faces a $1.1 billion deficit, however, the loss of federal funds due to a cut in Medicaid may be of even greater importance. States receive matching payments from the federal government for expenditures made for Medicaid covered services and program administration. The federal matching rate, or federal financial participation (FFP), is estimated to be 58.5025% in FY 2002-03. In other words, for every $1 the state spends on the Medicaid program, the federal government provides $1.41 in matching funds. If Medicaid is cut, therefore, state expenditures will decline but so will federal matching funds as well. While a Medicaid cut would improve the condition of the State’s general fund, it will significantly decrease the dollars available to provide Medicaid services and could adversely effect the health of those unable to pay for their own care.

We urge you to spare the Medicaid program, including the Community Options Program (COP), the Medicaid home- and community-based waiver programs and Family Care, from budget cuts.

As noted above, Act 16 provides for a 4.73% Medicaid rate increase for nursing facilities in fiscal year 2002-03. We also urge your continued support for that rate increase for the following reasons:

  1. According to Legislative Fiscal Bureau (LFB) Paper #466 “Nursing Home Reimbursement,” dated June 4, 2001, nursing home costs historically have increased at a rate of 4% to 5% annually (Page 9, Discussion Point #26). The 4.73% rate increase contained in Act 16 is consistent with historical cost increases. However, future nursing home costs may exceed those historical cost increase levels because nursing homes are not immune from the skyrocketing health care costs that currently are rocking the marketplace.

  2. According to the LFB, 76% of the nursing homes in Wisconsin did not have their costs fully reimbursed under Medicaid in fiscal year 1999-00. While that figure may have decreased slightly due to the 6% Medicaid rate increase nursing homes received in fiscal year 2001-02, it is still true that the vast majority of nursing facilities in Wisconsin are not being fully reimbursed for the Medicaid costs they have incurred. (See LFB Paper #466, Page 4, Discussion Point #10).

  3. According to a study on Medicaid nursing home reimbursement conducted by the national consulting firm BDO Seidman, LLP and issued in late summer of 2001, the average Wisconsin nursing facility is losing $10.28 a day for each Medicaid recipient it serves. Once again, the 2001-02 Medicaid rate increase for nursing facilities contained in Act 16 most likely lowered that figure but not significantly.

  4. According to the LFB, the intent of the 4.73% Medicaid rate increase in 2002-03 was to maintain the direct care targets and other targets under the nursing home formula at the level anticipated in 2001-02. According to LFB Paper #466, the anticipated 2001-02 direct care target was 104% of the statewide median; for support services and administration and general (A & G), the anticipated 2001-02 targets both were 95% of the statewide median. While the 2001-02 nursing home formula set the A & G and support services targets at 95% as anticipated, Act 16 only could fund a direct care target at 99.8% of the statewide median, rather than the anticipated 104%. Since the intent of the 4.73% rate increase in 2002-03 was to fund a direct care target of 104% but the MA rate increase in 2001-02 was only sufficient to fund a direct care target of 99.8%, a significantly lower number of nursing homes will be fully reimbursed for their direct care costs in 2002-03 under the budgeted 4.73% rate increase than was anticipated by the LFB in Discussion Paper #466. (See LFB Paper #466, Page 9, Discussion Points #25 and #26).

  5. According to the DHFS Bureau of Quality Assurance, 23 nursing facilities have closed over the past 24 months. Almost all blamed their decision to close on inadequate Medicaid reimbursement. A cut in the budgeted 4.73% rate increase in 2002-03 poses the potential of exacerbating that problem. The situation is particularly acute in the City of Milwaukee, where six nursing homes have closed in the past 18 months, a seventh facility has announced it is closing and five other facilities have indicated they might be forced to do the same if reimbursement does not improve. If those facilities do close, an access to care problem is a virtual certainty. The loss of jobs would be almost as devastating.

  6. Staff recruitment and retention remains a serious concern of nursing facilities despite the recession. Cutting Medicaid funds which could be used to hire additional staff and/or to pay current staff better obviously won’t help solve the recruitment/retention dilemma.

  7. The 4.73% MA rate increase for nursing facilities in 2002-03 would have no impact on the general fund because the rate increase funds are generated by intergovernmental transfer program (IGT) revenues, not general purpose revenues. Providing the budgeted 4.73% rate increase would not adversely impact the budget deficit facing the State.

  8. The dollars that would fund the 4.73% rate increase were generated by two IGT wire transfers performed by Sheboygan, Walworth and Rock Counties. It is anticipated that future wire transfers will fund future nursing home rate increases. However, if IGT funds are diverted for purposes that are contrary to the wishes of those three wire-transfer counties, future wire transfers might be in jeopardy. A cut in the 4.73% rate increase for nursing facilities in 2002-03 might be construed as “contrary to the wishes” of one or all of the wire-transfer counties.

WAHSA not-for-profit members again respectfully urge you not to reduce the 4.73% rate increase for nursing facilities in 2002-03 that is contained in Act 16. Thank you for your consideration.

NOTE: We recognize this position statement outlines what should not be cut from the current state budget but provides little guidance on how our not-for-profit members believe the state’s $1.1 billion deficit should be addressed. That is because, not surprisingly, our diverse membership is unable to form a consensus on a budget deficit solution. Some members support a one-time income tax surcharge; others support the elimination of a number of state sales tax exemptions; still others oppose any form of tax increase and support either the Governor’s proposal or further cuts in state and local government spending programs.

WAHSA 204 South Hamilton Street Madison, WI 53703
Telephone: (608)255-7060 FAX:(608)255-7064