Medicaid Uncertainty Drives North Carolina Budget Bloat

Medicaid Uncertainty Drives North Carolina Budget Bloat
September 2, 2014

For fiscal year 2014-15, North Carolina’s General Fund budget rose 2.2 percent to $21.1 billion, below the combined rates of population growth and inflation. Although this budget includes a number of key policy changes, spending adjustments compared to last year’s budget were relatively small with two exceptions – public school and Medicaid spending.

After multiple committee hearings and numerous budget proposals from the Senate and the House, legislators agreed to significant changes to both policy and funding changes in these two areas, including a $282 million teacher compensation increase and a $227 million increase for Medicaid.

Legislators promised teachers a pay increase since the end of the last legislative session.  Many rallies made national headlines, such as the ‘Moral Monday’ protests, supporting a pay increase to public educators. 

Agreement was reached, giving an average teacher salary increase of 7 percent — one of the largest pay raises for North Carolina teachers, in a generation. While this was not the only spending change to occur in the education budget, this is where the media and majority of the citizens placed their focus. 

This year, North Carolina’s enacted elementary and secondary education budget exceeded $8.1 billion, an increase of nearly $240 million, or 3 percent, over last year’s education budget.

Root Causes

While the media focused on the size of the teacher salary increase, the true driver of North Carolina’s budget this year was Medicaid. One of the largest expenditures in state government, no other items in the budget were able to be decided upon until the Medicaid figure was accounted for.  

This year’s Medicaid budget accounts for 18 percent of the General Fund, and 72 percent of the Health and Human Services budget. A detailed assessment of the Medicaid budget suggested that existing forecasting methods, based on previous years’ actual spending levels, would not be sufficiently accurate for the upcoming fiscal year.

Budget writers found that multiple extenuating factors were affecting the cost of the program, impeding their ability to budget accurately for Medicaid without fear of a shortfall in the upcoming year.

Providers of medical services across North Carolina have submitted claims for reimbursement for the cost of providing health care to Medicaid patients, producing a large backlog of unpaid claims. The exact sum of unpaid claims is difficult to estimate.

Uncertainty

There has also been a large increase in enrollment for Medicaid, with a backlog of applications due to changes to federal regulations, and the implementation of the Patient Protection and Affordable Care Act (Obamacare).

The backlog of unpaid claims and increase in enrollment has caused uncertainty with the final budget figure for Medicaid. Since 2011, North Carolina has experienced budget shortfalls to its Medicaid program, some reaching near half-a-billion dollars. To be cautious, legislators decided this year to create a Medicaid contingency fund of $186.4 million for any unexpected shortfalls.

As in previous years, Medicaid and K-12 education set the course for budget negotiations. When a budget has a small number of programs that consume a large share of total appropriations, other areas of the budget must fight for the scarce revenue that remains.

Sarah Curry (scurry@johnlocke.org) is Director of Fiscal Policy Studies at the John Locke Foundation..

Internet Info:

“North Carolina State Budget Overview: Teacher Compensation and Medicaid Drive the 2014-15 Budget,” Sarah Curry, John Locke Foundation: http://heartland.org/policy-documents/north-carolina-state-budget-overview-teacher-compensation-and-medicaid-drive-2014-1