2005 Testimony

Testimony Before The Senate Appropriations Committee

Senator Ray Holmberg, Chairman

Regarding House Bill 1012 - Department of Human Services Budget

March 1, 2005

Chairman Holmberg and members of the Senate Appropriations Committee, I am Brenda Weisz, Chief Financial Officer for the Department of Human Services. I will be providing you with an overview of the Department's 2005 - 2007 budget request along with the changes made by the House.

Current Budget / Budget Request / House Changes / Budget to Senate

The Executive Budget request for the 2005 - 2007 biennium as it compares to the current 2003 - 2005 biennial budget is as follows:

Description	2003 - 2005 Budget	Increase / Decrease	2005 - 2007 Request	Increase / Decrease	Request to Senate
Salaries and Wages	32,841,541	780,549	33,622,090	(338,856)	33,283,234
Operating Expenses	70,834,766	28,366,515	99,201,281	(30,149,218)	69,052,063
Capital Assets	334,722	(298,102)	36,620	-	36,620
Grants	305,962,552	28,093,441	334,055,993	(795,850)	333,260,143
HSCs and Institutions	192,271,444	15,814,615	208,086,059	(2,635,702)	205,450,357
Loan Fund - DD	3,261,556	(3,261,556)	-	-	-
Grants-Medical Assistance	921,677,174	79,097,595	1,000,774,769	(7,737,495)	993,037,274
	1,527,183,755	148,593,057	1,675,776,812	(41,657,121)	1,634,119,691
General Funds	411,081,823	79,291,218	490,373,041	(9,924,722)	480,448,319
Federal Funds	1,029,055,667	67,944,019	1,096,999,686	(31,490,924)	1,065,508,762
Other Funds	87,046,265	1,357,820	88,404,085	(241,475)	88,162,610
	1,527,183,755	148,593,057	1,675,776,812	(41,657,121)	1,634,119,691
FTE	2,051.42	(2.99)	2,048.43	(1.00)	2,047.43

Beginning first with the Executive Budget: As requested the budget reflects three policy changes from the current policies in place. Those changes are as follows:

• Rebasing of Nursing Facilities using 2003 as the base year - $8.1 million total funds; $2.9 million general funds;
• Implementing payments to Nursing Facilities based on the Median Plus methodology as recommended in the Nursing Facility Payment Study completed in the fall of 2002. The recommended levels of payment are provided at 20/20/10. (Median cost plus 20 percent for direct expenses - nursing care and therapies; median cost plus 20 percent for other direct expenses - food, laundry, social service, activities; and median cost plus 10 percent for indirect - support / administration.) - $634,000 total funds; $228,000 general funds; and
• Increasing the amount allowed under the Medicaid program for funeral set-aside. In the current budget, that level is set at $3,000. The proposed budget would raise that level to $5,500. The estimated impact on the Medicaid budget is $1.3 million total funds; $.5 million general funds.

Major Budget Changes

As mentioned in Carol Olson's testimony and displayed above, the increase in the general fund is $79.3 million. Forty percent of this increase, $32 million, is attributed to the decrease in the Federal Medicaid Matching Percentage (FMAP). The FMAP for the upcoming biennium is as follows:

• FFY 2005 - 67.49% Final
• FFY 2006 - 65.85% Final
• FFY 2007 - 63.23% Estimated (preliminary number usually issued in April)

Bottom line - North Dakota's increase in per capita income was higher than the increase in other states, which is good news. The downside is this results in a decline in the percentage the federal government will contribute toward a Medicaid eligible expenditure and thus requires the state to contribute a greater share toward the costs just to keep services level.

At this point I would like to discuss major funding changes reflected in the Executive Budget. The funding changes take into account the FMAP change, caseload changes, cost changes, etc. Please refer to Attachment A (56kb pdf), which breaks down each change by category.

Traditional Medicaid payments - increase of $48.1 million total funds; $25.7 million general funds when excluding the IGT payments that are in the current budget but are not included in the upcoming biennium due to changes in the federal regulations. IGT payments are currently budgeted at $27.5 million total funds; $8.6 million general funds. This brings the net increase to $20.6 million total funds; $17.1 million general fund. Caseload is based on approximately 53,000 eligibles. Includes the increase in the amount allowed for funeral set-aside funds along with a provider increase of 2% for each year of the biennium. It was our intent to include an inflationary increase to the Prescription Drug budget with 13.8% inflation for both years of the biennium. During our work with the House Appropriations Subcommittee we noted that year one inflation had inadvertently been excluded which could result in our budget request being short as much as $5.7 million in general funds for this Medicaid category.

The Children's Health Insurance Program (CHIP) includes an increase of $500,000 total funds; $300,000 general fund. This incorporates a 17.9% premium increase passed on by Blue Cross / Blue Shield. Funding is proposed for 2300 children each month.

DD grants - increase of $15.7 million total funds; $11.4 million general funds. Includes a provider increase of 2% for each year of the biennium.

The Long Term Care Continuum, which includes Home and Community Based Services, Basic Care and Nursing Facilities incorporates the following changes:

Nursing Homes - increase of $30.3 million total; $20.5 million general funds. The Executive Budget includes the statutory increases of CPI / DRI of 3.52% year one and 3.92% year two, rebasing and the new payment methodology. Based on a budget of 3631 beds per month.

Basic Care - increase of $4.4 million, which is all general funds. Includes the statutory increases of average CPI of 1.5% both years of the biennium with rebasing every year and changes made by the federal government in what expenditures they would allow in the federal reimbursement. Based on a budget of 457 beds per month.

Home and Community Based Care - reflects an increase of $7.8 million total funds; $3.2 million general funds. Includes a provider increase of 2% each year of the biennium and continues the increased case management fee approved during the last legislative session. The main increase in this area includes the Personal Care option, which was a service approved last biennium by the Legislature. In January the Department finally received approval from the federal government for the Medicaid plan amendment to include personal care as one of the optional services offered by the Medicaid program.

Attachment B (56kb jpg) displays the share of the budget for each of the three categories under the continuum.

Attachment C (48kb pdf) provides the amount proposed in the Executive Budget request for each individual program for Home and Community Based Services along with the House changes.

Foster Care grants - increase of $9.5 million total funds; $2.5 million general funds. Includes funding for family homes, Residential Treatment Centers (RTCs), Residential Child Care Facilities (RCCFs), Group Homes (GHs), Foster Care Services, Subsidized Guardianship and Therapeutic Foster Care. Also included is a provider increase of 2% each year of the biennium. The proposed funding is based on monthly averages as follows:

• Family foster homes - 675 children with an average cost of $712 per child
• RTC / RCCF / GH - 450 children with an average cost of $2,928 per child
• Foster care services - 250 children with average cost of $378 per child
• Subsidized Guardianship - 44 children with an average cost of $505 per child
• Therapeutic foster care - 230 children with average cost of $2,392 per child

Subsidized Adoption grants - increase of $2.0 million total funds; $.9 million in general funds. The budget was developed based on an average of 782 subsidized adoption payments each month with an average monthly cost of $584 per child.

Indian County Allocation was increased by $186,000 in order to comply with the NDCC requirement of reimbursing Indian counties at 90% of their costs based on the average mills statewide.

HSCs overall - the general fund request is held even before considering the recommended salary and health insurance package, however, the Executive Budget includes an increase of $2.3 million in the Substance Abuse Prevention and Treatment Block funds to address targeted populations across the state.

State Hospital Traditional Services includes an increase in the general fund request of $1.4 million before incorporating the salary package due to the reduction of collection dollars seen for the services provided to individuals being treated at that facility. The budget is based on a population of 214 individuals when you consider the Tompkins program.

State Hospital - Secure Services includes an increase in the general fund request of $2.8 million due to the increase in referrals of sexual offenders. Again this is before incorporating the recommended salary package. The budget is based on 42 beds for this service.

The Executive Budget request for technology proposes to replace the current MMIS, which processes claims and provides payments of over $950 million to providers in a given biennium. The estimated cost to replace this system is $29.2 million total funds; $3.7 million general funds. David Zentner, Director of Medical Services, will provide testimony specific to the project following my presentation.

Also included in the Executive Budget request is the addition of $1.2 million; 50 percent of that coming from the state general fund to implement proposed federal legislation known as Payment Error Rate Measurement (PERM) regulations. These proposed regulations require state Medicaid agencies to expand their review of eligibility determinations and review actual claims data to estimate over and under payments processed by MMIS.

Lastly, department-wide, the proposed Executive Budget includes an additional $11.8 million of which $6.8 million is from the general fund to support the salary and health insurance package recommended by the Governor.

Other Areas of Interest

Administration costs for the Department including the subdivisions of Administration / Support, DoIT, Central Office salaries and operating costs, HSC administration and Institution business office operations is 5.8% of the total budget. The Department took seriously the budget adjustments regarding administration, which were reflected in SB 2012 of the previous legislative session. Overall the Department reduced administrative FTE in response to that budget change. Granted the general funds were removed during the last legislative session, the Department did not replace these general funds from other areas of the budget but instead left the positions vacant in the following areas:

• 7.7 FTE in Administration / Support
• 3 FTE in DoIT
• 2 Deputy Director positions - Mental Health and Substance Abuse and Aging Services
• 1 HSC Regional Director position

The Child Support area of the Executive Budget continues to fund the Devils Lake Regional Child Support Enforcement Unit - $215,000 general funds along with the federal match dollars as intended by section 4 of SB 2012. The House did reduce this area by a $65,000 due to performance in that region.

Mill Levy funding is held even at $1.7 million - with the budget being built on 52.8 cents on the dollar.

House Changes

Attachment D (kb pdf) summarizes the changes made by the House Appropriations Committee.

Other Bills and Legislation

The following bills, while not inclusive of all legislation would have an impact on the DHS budget:

• SB 2213 - Provides for increase in dental fees without an appropriation
• SB 2301 - Provides for state administration of Child Support
• SB 2373 - Commitment law for individuals addicted to meth and other controlled substances.

The President's FFY 2006 budget proposal contains a few areas that could significantly impact DHS and these areas are as follows:

Food Stamp program -

• Proposes to restrict categorical eligibility to those receiving TANF cash grant or SSI. (Currently includes recipients of all TANF-funded programs.) Asset testing would need to be reinstated if change becomes law. Estimated 1320 households per month would no longer be eligible.

Medicaid program -

• Proposes to establish a cap for Medicaid Administrative funding. This could be a hardship for DHS if the MMIS rewrite project is required to be completed within that allotment. The project (and any future projects) would need to be funded within the cap - no 90/10 or 75/25 funding. If costs are in excess of cap then funding will need to come from the general fund.
• Targeted Case Management - reduces reimbursement to 50% instead of FMAP reimbursement. May also be considered in the administrative cost containment proposal. Impact on DHS - $1.7 million increased general fund need in 2005 - 2007 biennium.
• Phase down of Provider Tax - currently 6% of revenues - 3-year phase down to 3% of revenues. Impact on DHS - $1.5 million increased general fund need in 2005 - 2007 biennium.

Conclusion

Lastly, I would like to direct your attention to Attachment E (112kb jpg). Just as we did last session this attachment displays "Where the Money Goes" in the Department. As you can see over 80% of this budget goes directly "out the door" as Carol Olson previously mentioned in her testimony. Another 11% is used to provide direct services to clients through the regional HSCs or the Institutions.

There are times that we, in the Department, hear the words "with a budget that size surely you can find a way to pay this particular expenditure or provide a small increase to this provider group." The reality is that our $1.6 billion budget is really 21 individual budgets that serve a unique client base or serve individuals under various programs housed by the Department. Either way, each area of the budget is developed at the division level based on the client need for that area of service. The funds are clearly defined in regard to their purpose.

This concludes my testimony. I do realize that what I have provided you in this document is truly an overview of our Executive Budget request along with the House changes. The Division Directors within the Department will present to you an overview of their area of specific responsibility by first covering the Executive Budget proposal and then the changes made through House action. At this time I would be willing to address any of your questions. I am also available to respond to your budget questions that may arise during the review of the DHS budget.

Thank you.

 

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