Budget cuts rely on Medicaid savings that will be difficult to achieve

Gov. Mike Dunleavy has made cutting government a centerpiece of his administration.

But much of the biggest cut he made to this year’s budget may not be a cut at all. That’s because it’s a cut to Medicaid. And federal law limits how deeply the state can cut Medicaid, which provides health care to lower-income Alaskans.

It’s hard to cut state government spending without cutting Medicaid, since Medicaid is such a large chunk of the state budget. But that doesn’t mean it’s easy to cut Medicaid. That’s because, except for a few optional services, it’s an entitlement under federal law. Once a state makes someone eligible for Medicaid, they’re entitled to receive health care — and their provider is entitled to be paid.

When Dunleavy announced his budget proposal in February, his administration said it would cut $249 million from Medicaid, more than third of what the state spends on the program.

Becky Hultberg, president and CEO of the Alaska State Hospital and Nursing Home Association, emphasized that Medicaid is where the money is at.

“If the governor wants to make meaningful reductions in state spending, he almost has to cut Medicaid and education,” she said.

A month after the governor released his budget proposal, the first details about Medicaid were announced, and about half of the cut to the program was put off to the future. And policy experts said portions of the proposed cut were either not fully sketched out or were unrealistic to achieve in the time frame laid out by the Dunleavy administration.

The final Medicaid reduction is $159.9 million — a majority of the $259.8 million overall cut to state agencies.

Hultberg said those numbers may not hold up, which will require the Legislature passing a supplemental budget next year.

“We’re concerned that the governor’s Medicaid cuts are not transparent and that they’re not real,” she said. “They’re not transparent because the department has not identified how it is going to achieve these savings.”

And, she’s said, the cuts aren’t real, because they don’t change who’s eligible for health care services. Hultberg said if you’re really going to cut Medicaid, that’s what you have to do.

Dunleavy’s proposal to cut Medicaid includes roughly $20 million the administration said it will achieve by finding efficiencies working with President Donald Trump’s administration. But the Dunleavy administration hasn’t released any specifics on how that will happen.

Dunleavy’s office didn’t respond to a request for comment before the deadline for this story.

And there are specific cuts the state has identified that it’s already acknowledged aren’t possible this year, like a switch to a new system for paying providers based on standardizing payments to encourage efficiencies. There’s a problem: The budget counts on saving $4.5 million this year from it. And the state has already said the switch won’t happen until next year. Hospital leaders think it will take even longer.

And that’s not the only reduction like that. Another delayed change is related to paying nursing facilities based on the acuity of their patients, which is projected to save $2 million.

Hultberg said providers want to work to make Medicaid more efficient. But she said that shouldn’t start with an immediate budget cut in mind.

“Responsible governing means you identify a goal; you create a plan to achieve that goal; and then you develop a budget to accomplish that plan,” she said. “The governor is not following that logical process. He’s going to the end, which is, ‘Let’s take the budget reduction first, and then let’s back our way into a plan.’ And, unfortunately, the dollars in Medicaid affect people’s lives. That’s an incredibly irresponsible way to govern.”

Two Medicaid cuts that have occurred are a 5% reduction in payments to many providers, and the elimination of preventive dental care to adults.

The consequences of these changes are starting to ricochet around Alaska’s health care system.

For example, the Anchorage Neighborhood Health Center provides care to lower-income Alaskans. They’re not hit with the 5% cut. And they may be able to continue to provide dental care to adults with Medicaid.

But if other providers either can’t or won’t provide care due to the cuts, they may not have the capacity to pick up the slack.

Tammy Green, CEO of the Anchorage Neighborhood Health Center, said her clinic can’t provide dental care to everyone losing access due to the elimination of Medicaid adult preventive dental.

“What I do know is, that at this point, there’s no way that we could meet that capacity,” she said.

Green said how the state approaches Medicaid payments in the long term could have a big effect on the number of doctors and other providers who take Medicaid patients.

“That’s part of our angst a little bit — is just the unknown,” she said. “We just don’t know where things are going. And to be honest, I don’t think the state does exactly, either.”

Green said health centers like hers have a good relationship with the state and are eager to be partners. But she hopes future spending cuts begin with a focus on what’s best for the health of those who’ve been served by Medicaid — and that the state then seeks input from providers.