Monday, January 23, 2012

DHS Contends Wisconsin Has a Deficit (Despite Governor’s Statements to the Contrary)

Certification of a Deficit Would Allow State to End or Modify BadgerCare Eligibility for 53,000 Adults

Governor Walker and many Republican legislators have said repeatedly that the biennial budget bill brought the state budget into balance. I agree with that assessment. However, the Department of Health Services (DHS) sent a letter to federal officials in late December asserting that Wisconsin’s budget is now in the red.

The matter of whether Wisconsin has a deficit is more than a rhetorical debate. The federal health care reform law contains provisions known as “maintenance of effort” (MOE) standards, which require states to maintain their current Medicaid eligibility standards and enrollment procedures. However, states that can certify that they have a deficit in either the current fiscal year or the next one may reduce eligibility of adults (specifically parents and childless adults) to 133 percent of the federal poverty level (FPL).

If Wisconsin is able to certify that it has a deficit, DHS can eliminate about 53,000 adults from BadgerCare, saving an estimated $60 million per year of state funding, beginning on July 1, 2012. Alternatively, such a certification would enable DHS to change BadgerCare for those adults (over 133% of FPL) by either increasing their premiums or by making them ineligible if they have an offer of employee-sponsored coverage where the premiums would cost less than 9.5 percent of family income.

As Jason Stein reported in an article posted online by the Journal Sentinel Sunday evening, DHS contends that Wisconsin has a $3 billion deficit based on Generally Accepted Accounting Procedures, know as GAAP.  However, Wisconsin uses cash accounting, rather than GAAP.  If our state employed the more conservative GAAP methodology, we wouldn’t meet the constitutional requirement to have a balanced budget.

I’m surprised that DHS chose to base its assertion of a state deficit on GAAP calculations.  I had guessed the state would argue that cash accounting would put the state budget into the red if one assumed that DHS did not get federal approval to make any of the proposed changes to BadgerCare. A month or two ago that would have been a reasonable assertion.  However, after lower Medicaid deficit calculations were released by DHS earlier this month, it appears that the state’s Medicaid budget could be put into balance without the proposed BadgerCare cuts that require a waiver of the federal MOE requirements. The state’s improved Medicaid budget picture may have been a factor in the DHS decision to use GAAP, rather than cash accounting, to make the case that the Wisconsin budget is in the red.

It’s not clear to me whether federal officials will approve the DHS argument that GAAP accounting illustrates that Wisconsin’s Medicaid budget has a deficit, when our state routinely uses cash accounting. The exception to the MOE requirement for adults over 133 percent of FPL was intended by Congress to apply to states who are facing significant fiscal hardship because of the recession. By switching to GAAP accounting, Wisconsin’s budget would be in the red regardless of whether the current fiscal year was a tight one or one with tremendous revenue growth.

The Journal Sentinel article notes that the Assembly co-chair of the Joint Finance Committee, Rep. Robin Vos (R-Rochester), pointed out the GAAP deficit stretches back more than a decade. That's correct, and I hardly think it was the Congressional intent to create a definition of a “deficit” so loose that Wisconsin could have met the test any time in the last decade.

Jon Peacock

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