Issue Paper

IGT/ Medicaid Trust Fund History

Governor Scott McCallum and Department of Health and Family Services (DHFS) Secretary Phyllis Dube announced on February 25th that all outstanding issues between the DHFS and the U.S. Department of Health and Human Services (DHHS), Centers for Medicare and Medicaid Services (CMS), have been resolved concerning Wisconsin’s claiming of federal Medicaid matching funds under the intergovernmental transfer program (IGT).

The resolution of these issues means the following for the State of Wisconsin:

• The State will be able to claim an estimated $1.06 billion in federal IGT revenues through 2010.
  
  
• Wisconsin is determined by the CMS to be a “Tier 3” state, which qualifies the state for the longest phase-down period for IGT claiming permitted under federal law and regulation. Designation as a “Tier 3” state allows Wisconsin to maximize its IGT claims in state fiscal years 2002 ($351.7 million) and 2003 ($350 million) and to phased-down claims through 2008-09 based on the amount claimed in 1999-00 (a total of $358.2 million).
  
  
• Act 16 assumed $77.8 million annually in federal IGT revenues. This resolution represents an increase of approximately $483.5 million over budgeted levels in 2001-03.
  
  
• The $83.2 million disallowance in federal funds facing Wisconsin for IGT claims made in 1999-00 was reduced to $61.7 million. The DHHS objected to the State’s IGT federal claim that year because it was not supported by nursing home expenditures made by either the State or local units of government and because the State only provided $37.1 million in IGT payments.
  
  

1. The State is facing a $1.1 billion deficit.
2. None of the suggested “solutions” to address that deficit could be categorized as appealing.
3. An unanticipated infusion of federal IGT dollars “suddenly” has appeared.
4. The State has used those dollars in the past to help balance a budget.
5. Why not do so now?
   
   

Keep IGT Dollars in the Medicaid Trust Fund

Here’s why federal funds generated by IGT wire transfers now and in the future should remain in the Medicaid Trust Fund and be used to reimburse current and future nursing home services:

1. The DHFS announcement that a resolution has been reached with the federal government on IGT issues indicated that deliberations on new IGT regulations at the federal level included an expectation “that states use federal IGT revenues solely to support Medicaid expenditures.” While supplanting GPR funds with IGT revenues to pay for Medicaid services, which the Legislature has done in the past, may meet the “letter of the law,” will it meet the “spirit of the law” as interpreted by the CMS? How will CMS view the use of IGT revenues in Wisconsin if the Legislature chooses to use IGT revenues to help balance January 2002 Special Session Assembly Bill 1?
   
   
2. Current state law requires any excess IGT revenues to be deposited in the Medicaid Trust Fund and to be expended only for nursing home per diem payments and supplemental payments to county- and municipal-owned facilities. This language was added to Act 16 in response to the negative reaction from some to the use of the $108.9 million Trust Fund balance to fund Medicaid base expenditures rather than retaining this amount in the Trust Fund. Indeed, much of that negative reaction came from county representatives from the three counties which have performed the wire transfers. If the law is changed to permit the Trust Fund to be “raided” again, as would be required, how will those county representatives react? How will it affect their future willingness to perform the wire transfers that will be needed to generate IGT revenues in the future?
   
   
3. That last concern must be taken seriously because regardless of what the federal government permits and regardless of whether the Legislature decides to use Trust Fund dollars to balance the budget, there will be no new IGT revenues unless future wire transfers are performed. And without county cooperation, there will be no future wire transfers. To balance the budget based on anticipated, future wire transfers, and to do so without assurances of county cooperation, is an open invitation for fiscal brinkmanship.
   
   

Nursing Home Financial Crisis

In addition to the aforementioned reasons why IGT federal funds should remain in the Medicaid Trust Fund, perhaps the most compelling reason is to address the severe financial crisis facing nursing homes today. Consider these facts:

1. Based on July 2000 Medicaid rates, nursing home costs to serve Medicaid recipients exceed Medicaid reimbursement for those costs by $166 million statewide. For that period, only 5% of the nursing homes statewide were fully reimbursed for the Medicaid services they had provided. Only 44% of the 402 homes in the WAHSA database received full payment for their direct care costs (nursing assistants and licensed nurses) and only 34% received full payment for their support services costs (dietary, housekeeping and laundry).
   
   
2. At least twenty-three nursing homes have closed in the past 24 months and several more are assessing their continued viability.
   
   
3. The Medicare program is scheduled to implement rate cuts effective October 1, 2002. If Congress does not restore these cuts, facilities could experience per diem rate cuts averaging $56.25 (Source: Centers for Medicare and Medicaid Services). The projected Medicare rate decrease for a resident requiring extensive skilled nursing care would exceed $107/day, while the rate cut for residents requiring therapy services would range from $38/day to $73/day. While Medicare only accounts for approximately 8% of the nursing home revenue stream, the impact of these proposed rate cuts could be devastating for facilities with a significant Medicare census.
   
   

IGT Medicaid Trust Fund - - Structural Deficit and Ongoing Funding Needs

The Medicaid Trust Fund was established to help the State address current and future nursing home needs. As noted above, those needs are significant and they aren’t going away. What may be of even greater concern is the perception that the recent IGT announcement creates a financial windfall for the State of Wisconsin. That perception ignores the reality of the IGT Medicaid Trust Fund’s future structural deficit. The truth is, under the best of circumstances, the Trust Fund’s projected closing balance will be in the red as of June 30, 2005. As shown by Table I, the projected fiscal condition of the Trust Fund for the 2005-2007 biennium is even bleaker. During that period, there will be a deficit ending balance in the Medicaid Trust Fund of $260.1 million in 2005-06 and that shortfall is projected to increase to $499.2 million by June 30, 2007.

		Table I
	IGT Medicaid Trust Fund
	Projected Balance (in millions)
	Fiscal Year 2002 through 2007
	FY 2002	FY 2003	FY 2004	FY 2005	FY 2006	FY 2007
Opening Balance	275.3	363.2	427.5	208.5	-22.8	-260.1
Closing Balance	363.2	427.5	208.5	-22.8	-260.1	-499.2

Source: Division of Health Care Financing, Department of Health and Family Services

Table I figures do not reflect the cost of rate increases nursing homes most assuredly will require in future years to meet the needs of their residents and staff. If one assumes that nursing homes will be granted a modest 4% annual increase through the 2005-2007 biennium, the Trust Fund’s negative balance is even more startling. As shown by Table II, budgeting for a 4% annual nursing home rate increase results in a projected June 30, 2005 deficit of nearly $103 million, with the structural deficit reaching $659 million by the end of the 2005-07 biennium.

		Table II
	IGT Medicaid Trust Fund
	Projected Balance (in millions)
	Fiscal Year 2002 through 2007
	FY 2002	FY 2003	FY 2004	FY 2005	FY 2006	FY 2007
Opening Balance	275.3	363.2	427.5	168.5	-102.8	-380.1
Closing Balance	363.2	427.5	168.5	-102.8	-380.1	-659.2

Conclusion

What neither table reflects is how massive the Medicaid Trust Fund deficit will be in FY 2005 and beyond if Trust Fund dollars are used to help balance this budget reform bill and any future budgets. Will we be able to properly care for our elderly loved ones at that time if we have not planned for that care today?

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. For more information, please contact the WAHSA staff at (608) 255-7060: John Sauer, Executive Director; Tom Ramsey, Director of Government Relations; or Brian Schoeneck, Financial Services Director.

February 27, 2002

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