Oklahoma Medicaid costs growing

February 25, 2013

This legislative session, policymakers are focused on a number of government functions, including a major focus on spending, as usual. As a former budget analyst for the Office of Management and Enterprise Services (OMES) — formerly the Office of State Finance — and a former fiscal and research analyst for the Oklahoma House of Representatives, I have extensive experience analyzing state spending. I am encouraged that our political leaders are giving state spending the attention it clearly needs.

When analyzing state spending, it is important to compare “apples to apples” and to look at all sources of revenue used by the state, regardless of the source. The Oklahoma House of Representatives, the Oklahoma Senate, the Office of Management and Enterprise Services, the U.S. Government Accountability Office, the Internal Revenue Service, credit rating agencies, investors, the Census Bureau, and numerous others focus on total state spending when analyzing the financial position of the state.

While state “appropriations” have historically received more scrutiny from policymakers, this trend is changing. Both the House and Senate have created “non-appropriated” committees for the purpose of better monitoring revenue that is directed by state law but not discriminately distributed by lawmakers annually. In fact, an “appropriation” is just one method for lawmakers to distribute state revenue, and appropriations comprise only about 39 percent of total state expenditures/revenue. An “appropriated” dollar is no more a part of state funds than a “non-appropriated” dollar. State taxes, fees, grants (both federal and private), interest on funds invested, and other revenue are all equally considered a part of state revenue.

A basic understanding of government finance is that any lawfully collected amount of revenue by the state, to be expended for a state program or function, carries the lawful state requirements and characteristics for those funds. This is why, for example, the Oklahoma Attorney General prosecutes fraud in the Oklahoma Medicaid program, regardless of the source of those funds fraudulently misused.

The U.S. Government Accountability Office understands and operates as if all funds used for Medicaid, including grants made by the federal government, are state funds. According to an Associated Press story, a GAO report says billions of dollars are annually given to thousands of Medicaid providers who are tax cheats:

… the Government Accountability Office says Medicaid payments to doctors, hospitals and other providers aren't technically considered federal funds, since they're funneled through state health care programs. Because of that glitch, the IRS can't just shut off the payment spigot to collect tax debts. Investigators only looked at three states, so the full extent of the losses is even greater.

… While the IRS can block Medicare payments to scofflaw providers using something called a "continuous levy," it is precluded by law from using the same strategy to go after Medicaid payments — even though the federal government pays about 60 percent of the costs of Medicaid.

Some Oklahoma lawmakers are studying our state Medicaid program, whose chief agency is the Oklahoma Health Care Authority (OHCA). A thorough review of the OHCA annual report demonstrates that state spending on Oklahoma’s Medicaid program (SoonerCare) has continued its upward trend and has increased from FY-2011 to FY-2012. According to the report, total state spending (prior to GAAP adjustments by OMES) by the OHCA and the Medicaid program grew from approximately $4.4 billion to $4.8 billion (page 29 of the OHCA annual report). Analysis of the state’s most recent Comprehensive Annual Financial Report, (CAFR) which is the primary means of reporting the state government's financial activities, confirms this growth in total state spending by the OHCA and the Medicaid program.

Conversely, one recent analysis of Medicaid spending asserted that state spending on Oklahoma’s Medicaid program actually declined from FY-2011 to FY-2012. This analysis is flawed.

For a more complete and thorough analysis of state spending on Medicaid, one need only look at the state’s CAFR and three pages from the last two annual reports of the OHCA, including the footnotes.

On page 29 of the OHCA’s annual report is a compressed chart which summarizes total state spending on the Medicaid program, as well as expenditures by category — total expenditure, federal share, other revenue, state share OHCA (predominantly appropriations), and state share other agencies (predominantly appropriations). Simply adding the totals in the last two columns — “state share OHCA” and “state share other agencies” — would produce the flawed conclusion that state spending on the Medicaid program declined since the prior year. But, a thorough analysis would necessarily include what comprises state spending. The footnote at the bottom of the page directs the reader to page 62 of the annual report, which has a detail of revenue supporting the expenditures.

Analyzing the revenue detail from the last two OHCA reports (page 62 of the FY-2011 annual report and page 62 of the FY-2012 annual report) and understanding the definition of state spending proves that state spending/revenue on Medicaid program has grown over the prior year.

Below is a chart which compares the last two years using data from the revenue detail. If an analysis considers all funds (the accurate way to analyze total spending/revenue), the only mathematical conclusion is that state spending/revenue has increased for the Medicaid program.

Below is a chart which compares the last two years using data from the revenue detail. It would be misleading and lead to flawed conclusions to analyze only state-originated appropriated funds (federal stimulus funds would not be included because they are federal funds required to be used for Medicaid type programs just like other federal Medicaid grants; state taxes and fees would be excluded as well). Even if this flawed approach were used, the only mathematical conclusion is that state spending/revenue has increased for the Medicaid program.

Below is a chart which compares the last two years using data from the revenue detail. Again, it would result in flawed analysis to look only at “all” state-originated funds (state originated revenue appropriations, taxes, and fees), but even if this flawed approach were used, the only mathematical conclusion is that state spending/revenue has increased for the Medicaid program.

Some in Oklahoma will continue to concoct a false definition of state spending. Some in Oklahoma will continue to produce flawed analysis by ignoring the reality that state spending is growing and that, in particular, Medicaid spending is comprising a larger and larger share of state spending, crowding out funding for other services. Missouri lawmakers understand this problem and the need for reliable analysis: the Show Me State’s credit rating received a negative outlook for its ballooning Medicaid program and its disproportionate use of federal funds, thought by some to be “free money.” Oklahoma is not immune, according to the most recent state CAFR; total state spending on Medicaid now comprises 28.79 percent of total state spending compared to 23.45 percent in FY-2005. State spending on the Medicaid program now exceeds state spending on both common education and higher education.

A thorough review of the OHCA annual report demonstrates that state spending on Oklahoma’s Medicaid program (SoonerCare) has continued its upward trend and has increased from FY-2011 to FY-2012.