2012 HHSC Operating Budget

November 10, 2011 | News & Policy

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The Health and Human Services Commission, as with all state agencies is facing a deadline of December 1, 2011 to submit their operating budget for the 2012 / 2013 biennium.  Work has already begun on an HHSC budget that totals $13.9 billion General Revenue (GR) and $33.9 billion All Funds (AF).  This figure does not include the impact of Article IX (General Provisions) reductions and any funding changes enacted during the First Called Session.

From the current 2012 / 2013 biennium, H.B. 1 provides an increase of $0.9 billion GR and a reduction of $6.9 billion AF.   The All Funds reduction is primarily due to the expiring ARRA Medicaid federal funds that provided the enhanced FMAP in the 2010 / 2011 biennium.  All state agencies will be assessed a 1% surcharge on payroll during the 2012 / 2013 biennium in an effort to maintain employee health and insurance benefits.   All state agencies are subject to contribute to a reduction of $250 million GR in FY 2013 that can be mitigated by the certification of new revenue by the Comptroller.  The fiscal and budget situation is  not clear largely due to the numerous interactive budgetary changes that have been made along with the policy decisions that impact revenue.  Provisions have been made in the Appropriations Bill, if revenue increases, for the Comptroller to certify an additional $950 million in new revenue that will be used to reduce the Medicaid budget shortfall by $700 million.  However there are other provisions, that are still being evaluated by HHSC that could have the effect of reducing expenditures.   This uncertainty on both the revenue and expenditure sides of the budget equation makes developing a biennial budget very challenging.

Contributing to the $6.9 billion All Funds reduction referenced above  is the fact that Medicaid is not fully funded for caseload or cost growth which is estimated to produce a shortfall of $4.8 billion in General Revenue.  Initial savings assumed in the introduced version of the appropriations bill included rate reductions to many provider types, but the final bill restored the savings to nursing facilities, community care, physicians, dentists and home health providers.  Rate reductions to other providers were maintained and for those rates with expedited timelines, HHSC has been moving the rates through an expedited hearing process.  The rates and timeframes can be found at HHSC rate proposals .

While the Legislature had discussed premium rate reductions for managed care, in the final bill, no premium reductions were made.  This is largely because the premium taxes collected as revenue are derived from the premium rates paid by managed care entities.  While premiums were not reduced, reductions to HMO administrative costs were made.

Insurance premium tax revenue provides for a considerable contribution to health and human services funding.  The majority of the savings attributed to the various managed care initiatives is found in premium tax revenue.  With the  uncertain fiscal environment it is possible that premium tax estimates from these initiatives and current premium tax generators will produce tax revenue in excess of predictions.  If this occurs, and the Comptroller can certify additional premium tax revenue above the biennial revenue estimate and / or additional General Revenue, the increases will result in  HHSC and the Department of Aging and Disability Services (DADS) receiving an additional $500 million (GR) for Medicaid services in fiscal year 2013, with HHSC receiving $387 million and DADS receiving $113 million.

In general, HB 1 maintains the 10% reductions to agency programs and operations that were included in the bill as introduced.  These reductions will be managed on a program by program basis, with the Executive Commissioner having the authority, with Legislative Budget Board approval, to transfer dollars between programs.

In addition to the 10% across the board reductions, HB 1 includes three major cost containment riders for Article II agencies focusing on producing savings in Medicaid through service utilization efficiencies, reimbursement policy adjustments, and other targeted efforts to reduce costs.  HHSC Rider 59, HHSC Rider 61 and Article II, Special Provisions, Sec. 17 reduces general revenue funding by $700 million, $450 million and $705 million respectively, for a total of almost $1.9 billion.  Rider 59 instructs HHSC to seek flexibility from the federal government in providing services through the Medicaid program, Rider 61 establishes Medicaid Funding Reductions and lays out a process by which the reductions are to be made.  It provides 30 suggestions for possible reductions and establishes a target of $450 million for those reductions.  Special Provisions, Section 17, provides direction to implement 13 additional cost containment initiatives.  In addition the bill provides savings of $367 million in Medicaid Managed Care Expansions.

Managed Care expansion to contiguous counties has begun and payment strategies for providers have been put in place.  Effective September 1, 2011, Primary Care Case Management (PCCM) clients in 28 of the counties contiguous to existing STAR and STAR+PLUS service areas receive services through one of these two Medicaid managed care programs. However, Supplemental Security Income (SSI) children remain voluntary enrollees in managed care, and SSI adults remain voluntary STAR enrollees if STAR+PLUS is not available in their county.  The expansion also brings boundary changes to the current STAR and STAR+PLUS geographic service areas.

The payment transition strategy was created by HHSC to transition services to clients and payment to providers.  Durable medical equipment (DME), home modification (HM), and dental services authorized under the DADS service plan and completed prior to September 1, 2011, will be paid for by DADS.  DME, HM, and dental services authorized under the DADS service plan and completed on or after September 1, 2011, will be paid for by the member’s managed care organization (MCO).  DME, HM, and dental providers will be required to contact the MCO to coordinate the completion of the services.  MCOs are required to instruct providers on how to submit claims for adjudication.

STAR and STAR+Plus Medicaid managed care is expanding to South Texas  and provides acute care services in a managed care delivery system focusing on early intervention. STAR expands to the newly created Hidalgo service area (which consists of 10 counties) and new Medicaid Rural Service Areas (MRSA) that consists of 164 counties. Medicaid services currently being delivered through PCCM in these areas will be delivered instead through the STAR program effective March 1, 2012. In addition, the PCCM program is eliminated as of March 1, 2012. Strategies for the other geographic expansions are still being developed.

Other managed care initiatives that will be effective March 1, 2012 include: Hospital Services included in STAR+Plus, prescription drug carve into Managed Care, and dental managed care for children.  All of these measures are included in the projected savings anticipated in the Appropriations Bill and subsequent budget developed by HHSC.

And finally, the HHSC appropriation is reduced by $200 million (GR) in fiscal year 2013 in B.1.4. Children and Medically Needy. Funds could be restored contingent on the Comptroller certifying additional GR above the Biennial Revenue Estimate.