Medicaid turns into budget battleground

A disagreement over state funding for Medicaid has exposed deep problems with the way the Alaska Legislature budgets for the unexpected.

With Alaska facing a $2.5 billion budget deficit and with state savings dwindling, the issue of the state’s annual supplemental budget has become a thorny one that could draw bloody red ink. Financial experts say lawmakers are using the supplemental budget to artificially shrink the size of the deficit. Lawmakers have fired back, saying they have been misinformed about the costs of Medicaid and other programs.

“I don’t think people paid attention to the supplemental budget, probably at all, until recently,” said Rep. Cathy Tilton, R-Wasilla and a member of the House Finance Committee. “I think the budget overall is more prominent in people’s minds than ever before because they’re feeling it, particularly in the reduction of the Permanent Fund Dividend.”

This year, Gov. Bill Walker has asked lawmakers for almost $218 million in extra funding to cover unbudgeted expenses in the current fiscal year. Of that figure, some $40 million will come from fees or the federal government. The remaining $178 million must come from the state’s general fund. With the state taking in much less revenue than it spends, that figure will seem to balloon the deficit.

In reality, it was always there.

Lawmakers approved the budget for this fiscal year in June 2017; they’re now working on the budget for the next fiscal year, which starts July 1. In the world of state budgets, Alaska’s is a guidance document rather than stone-written law. Oil prices are inevitably different than expected, wildfires blaze across the boreal forest, and ferries break down. The annual supplemental budget is what brings the budget from the previous year into line with reality.

This year, the biggest single item in the supplemental budget is $93 million for Medicaid. According to information provided by the Alaska Department of Health and Social Services to the Legislature, the average spending per Medicaid recipient is down in the current fiscal year, but with the state in recession, more Alaskans have lost their medical insurance and have turned to Medicaid. As of Feb. 1, 198,000 Alaskans — more than one in four people living in the state — are on Medicaid.

Lawmakers in the House and Senate have declaimed the rise in Medicaid costs amid the significant budget deficit, but in a remarkable January hearing, the Legislature’s own nonpartisan finance director said lawmakers were themselves at least partially to blame.

“The driver on this big supplemental is … we knew we underfunded Medicaid when we left last year,” said David Teal, director of the Legislative Finance Division, in a Jan. 23 House Finance Committee hearing. “There were some people who thought it was underfunded by $30 (million), maybe $40 million.”

Tilton, who was in that hearing, said she believes lawmakers are deliberately manipulating the supplemental budget.

“I absolutely see us budgeting through supplemental, which I don’t think is the right way to budget,” she said.

Rep. Les Gara, D-Anchorage and vice-chair of the House Finance Committee, said he doesn’t see it.

“The Legislature’s almost always off. The governor’s almost always off,” he said, adding that the state agency in charge of Medicaid told lawmakers shortly before they adjourned that a supplemental would be needed.

“I don’t think it was bad faith by anybody’s part,” he said.

Senate President Pete Kelly, R-Fairbanks, flatly denied that lawmakers have been deliberately manipulating the supplemental budget to artificially reduce the deficit.

“No,” he said. “That has always been frowned upon since the time I came in.”

Pat Pitney, director of the Alaska Office of Management and Budget, said lawmakers — and she took pains to not point at any specific lawmaker or say that the practice is somehow bad — have two principal strategies.

“There’s two things going on. You can put supplemental funding (in the previous year) for the next year, so the budget is lower. You can artificially underfund something in the budget year that you’re working on, knowing that you can add it back in with a supplemental,” she said.

According to a March 2017 memo obtained by the Empire and addressed to Sen. Peter Micciche, R-Soldotna and a member of the Senate Finance Committee, the state was already planning to request approximately $15 million in supplemental funding at that time.

Subsequent to that memo, Micciche sponsored amendments that cut approximately $16 million from the state’s Medicaid budget. At the time, he said the amendments were to take advantage of expected savings from a Medicaid reform bill passed the previous year.

Those savings either didn’t materialize to the extent forseen or were eaten by the need to care for more Alaskans. In either case, they reduced the apparent deficit in that year’s budget but exacerbated the problem for the state.

Micciche said by phone late Monday that he expected a $30 million supplemental request, not something three times that.

“Did we think it was going to be $92 million? No,” Pitney said, but added that the state had increased its estimate of the gap to $65 million by the end of the session. By December, it had risen to $92 million.

Medicaid isn’t the only instance where budget maneuvering has caused problems. The third-largest appropriation in the supplemental budget is $23.9 million for Alaska Marine Highway operations. That appropriation exists because lawmakers intended to take money from a special fund reserved for the highway. Doing so would have reduced the appearance of the deficit.

The strategy failed because the fund had been emptied by a previous, similar strategy.

Back in January, Teal warned lawmakers that there will always be disasters and unforseen events that require a supplemental budget. The open question: How else will the Legislature spend it?

“I don’t think you’ll ever get to the point where supplementals can be eliminated, but they can certainly be reduced,” he said. “All of these things will come back to haunt you and distort your year by year comparisons.”

• Contact reporter James Brooks at or call 523-2258.

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