Obama Administration Releases FY2014 Budget

By Tara Mancini

President Obama (finally) released his budget recommendations for fiscal year 2014.  Although the budget was postponed for two months, there aren’t too many surprises here as we’ve heard many of his considerations during the delay.  The good news is that as promised the budget does not contain any significant cuts to Medicaid, nor does it shift any costs to states.

In brief, here are the FY 2014 funding requests for Medicaid, CHIP, and ACA related programs and implementation:

Medicaid: $303.8 Billion – This is an increase of $37.2 billion from FY 2013. Legislative proposals are estimated to save $126 million in FY 2014 and $22.1 billion by FY 2023. These savings are achieved by limiting the reimbursement of DME, clarifying Medicaid drug rebate and payment definitions and calculations, and by strengthening program integrity measures.

CHIP: $10.1 billion – This $70 million net increase results from an additional $95 million in CHIP allotments and a $25 million reduction to the CHIP enrollment contingency fund from prior year funding levels. (The CHIP enrollment contingency fund was established by CHIPRA to reduce funding shortfalls that result from higher than expected CHIP enrollment.)

ACA:  $7.3 billion – This is the total request related to health insurance programs and insurance reforms. The request represents an increase of $3.2 billion from FY 2013, and is the result of an additional $604 million for affordable insurance exchange grants and almost $4 billion for cost-sharing reductions that will reduce the out-of-pocket health care costs for individuals with income below 250% FPL. Funding for cost-sharing reductions was not included in the FY 2013 budget. In regard to program management, $803.5 million is requested to support the operation of Exchanges.

Overall, this budget underscores the Administration’s strong commitment to Medicaid, CHIP, and the ACA. One vanishing act that is surely welcome by many is the disappearance of the proposal for a single blended matching rate to states for Medicaid, CHIP and the ACA Medicaid expansion. While it has made several appearances in the past, this budget, “seeks to preserve the existing partnership between States and the Federal government . . .”  In addition, it extends funding for Transitional Medicaid Assistance, delays ACA related cuts to Disproportionate Share Hospital Payments (DSH), and continues to invest in program integrity measures. The most noticeable cut to the affordable insurance programs is the proposal to rebase DSH allotments in FY 2023 and after on ACA-reduced payment levels. You can find more details on each of these ideas below.

Transitional Medicaid Assistance (TMA)

As in last year’s budget proposal, the Administration proposes extension of TMA, which provides 6 to 12 months of transitional Medicaid coverage to low-income families leaving welfare for work. Currently, it is set to expire on December 31, 2013. Following the recommendations of the Medicaid and CHIP Access and Payment Commission (MACAPC), the FY 2014 budget requests the extension of TMA funding through December 31, 2014. This extension will allow for the continuity of care for families in states that are wavering on the Medicaid expansion. States that adopt the Medicaid expansion may opt out of TMA.

Disproportionate Share Hospital (DSH) Payments

This budget proposes pushing back the ACA’s scheduled reductions to the DSH payments of safety-net hospitals to 2015, reasoning that this one-year delay will better align the DSH payments with expected levels of uncompensated care. The proposal would have no budget impact, because the cuts that would have taken place in FY 2014 would instead be spread out between fiscal years 2016 and 2017.

In addition, the budget calls for a change in how DSH payments will be allocated in FY 2023 and thereafter. Rather than having DSH payments revert back to their pre-ACA levels in FY 2023, as current legislation has it, the Administration proposes that future allotments be based on state’s actual DSH allotments as reduced by the ACA. If adopted, this change is estimated to save $3.6 billion over 10 years.

Program Integrity

“Waste, fraud, and abuse,” is a popular refrain among many policymakers, especially when it comes to discussing healthcare programs.  At yesterday’s briefing, Secretary Sebelius noted that HHS continues “. . . aggressively reducing [it] in all our programs.”  She added that almost $8 in savings is achieved for every $1 spent on program integrity. The CMS budget calls for almost $2 billion in program integrity investments in FY 2014, which is expected to achieve $6.7 billion in savings over a 10-year period. Medicaid specific proposals include among others: expanding the Medicaid Fraud Control Unit Review to care settings outside of traditional institutions and strengthening Medicaid third-party liability would save $156 million in FY 2014 and $3.7 billion over 10 years, according to budget projections.  The budget also proposes codifying federal regulations that prohibit states from using federal funds to pay state share of Medicaid or CHIP.

Other Good News

There are some other good legislative proposals included in the budget, which have no budgetary impact, but would improve Medicaid and CHIP for families. These include preventing inflation-based reductions in the federal poverty guidelines and giving states flexibility to provide benchmark benefits to adults over 133 percent of the federal poverty line, both of which were also included in last year’s budget proposal. You can read more about them in our previous blog.

What will become of the President’s budget recommendations? It is hard to say at this point. However, as Edwin Park at CBPP points out, it should be a clear signal to states wavering on ACA implementation that the federal government is serious about its promise to avoid shifting costs to states.