“Fiscal accountability” rules could leave Janet Mills facing $525M budget shortfall after surplus spent

Governor Janet Mills poses with three legislative allies. Left to right: Rep. Seth Berry, Rep. Christopher Kessler and Rep. Deane Rykerson. Photo courtesy Governor Janet Mills official Facebook page.

WASHINGTON D.C. & AUGUSTA – After Governor Janet Mills increased state spending by nearly $1 billion in her first two-year budget cycle, Maine could be facing a budget shortfall of up to $525 million in the near future, a watchdog group revealed this week. The group called it the Mills Administration’s “half-a-billion dollar secret.”

In November of 2019, a draft federal rule change around state Medicaid programs was announced that could have a major financial impact on the state of Maine’s Medicaid program. Governor Janet Mills’ administration didn’t plan for the impact of the rule change in her proposed supplemental budget, despite knowing about the rule change for nearly two months. The Mills administration went so far as to submit comments on the rule change to the feds.

“DHHS submitted public comment on this before the deadline earlier this month. DHHS told the Appropriations Committee that they will ‘need access to contingency funds.’ Yet Governor Mills made no provision for this shortfall in her supplemental budget released last week. Instead, Janet Mills proposes to spend all the surplus revenue,” said Maine People Before Politics, a non-profit that closely monitors policy changes and government spending in Augusta.

The rule change is designed to increase transparency and prevent certain billing gimmicks from being used by states to draw down excess federal dollars, would impact Maine’s practice of using taxes on services at nursing homes and health care providers to increase bills to get more federal dollars.

According to Maine People Before Politics, on Tuesday, February 11th, Maine’s Director of MaineCare Services from Maine DHHS briefed the Legislature’s Appropriations Committee on the change, saying it will cost between $400 and $525 million in the next two-year budget.

The rule change won’t be finalized until at least August 2020 but that could mean it ends up impacting the current budget as well.

The section summarizing the tax changes in the public release from CMS says that the rule change:

– Clarifies the prohibition on financial arrangements designed to mask impermissible donations.

– Proposes to prohibit states from structuring health care-related taxes that unduly burden the Medicaid program (e.g., higher tax rates on Medicaid services than non-Medicaid services). This change would close an existing inadvertent regulatory loophole.

– Clarifies the statutory prohibition on states circumventing health care–related tax requirements by masking health care-related taxes in a tax program that also taxes non-health care items and services, codifying existing policy.

– Proposes to allow health insurers to be considered a permissible tax class. This would help modernize the regulatory list of permissible classes.

– Seeks to strengthen oversight and monitoring of approved tax waivers. This would help ensure that states’ health care related taxes are transparent and continue to meet federal requirements over time.

A document provided by the Mills administration and published on the Appropriations Committee web page says that the state of Maine submitted comment on the rule changes.

The document also confirms that the impacts Maine faces include impact from healthcare taxes and the practice of allowing taxes to be classified as costs for the purpose of reimbursement rates. The fact sheet for the rule change says that over a three year period from 2013 to 2016, Medicaid spending increased by $120 billion overall, and of that increase, $100 billion was in the federal government’s share of spending.

Independent analysis by oversight agencies including the Government Accountability Office (GAO), the Office of Inspector General (OIG) and the Medicaid and CHIP Payment and Access Commission (MACPAC) led CMS to implement the rule changes with concern for sound stewardship of the program given the rising costs.

In the same time period that the Mills Administration would have learned of the proposed rule changes and potential impact, Governor Janet Mills prepared and introduced a supplemental budget that spends the entire state surplus for the second consecutive year. In addition to spending the surplus, Mills has proposed taking $20 million from a fund used to secure the revenue bonds that Governor Paul LePage used to pay off Maine’s hospital debt in 2013.

“Governor Mills has grown government and spent all the money in her gargantuan $8 billion budget. Although we have record revenues, we already have a shortfall of $232 million dollars a year in transportation funding. DHHS now anticipates a new huge shortfall in the Medicaid program, putting at risk our savings in the rainy day fund,” said Maine People Before Politics.

Read the document provided to the Legislature’s Appropriations Committee

Read the fact sheet for the Medicaid Fiscal Accountability Regulation

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