Next year’s state budget deficit could worsen by hundreds of millions of dollars if  state social services officials are correct that Connecticut’s Medicaid costs will skyrocket by nearly $1 billion starting in July.

A preliminary budget request from the Department of Social Services particularly tosses a fiscal wrench into Republican gubernatorial nominee Tom Foley’s plans to balance the budget without tax hikes. The Greenwich businessman has said he could save more than $500 million by reducing state health care costs by at least 10 percent.

The primary health care expenditures in this fiscal year’s $19.01 billion budget include:

  • $3.85 billion for Medicaid, which primarily provides health coverage for poor individuals and nursing home care for low- and moderate-income elderly.
  • And $1.05 billion for health coverage for about 47,000 state workers, 42,000 retirees and roughly 100,000 dependents.

And though Gov. M. Jodi Rell’s administration still is developing the final budget recommendation state law requires her to submit to the next governor-elect on Nov. 15, agencies recently began submitting estimates designed to project the cost of maintaining all programs and staffing provided this year — at next year’s prices.

Social Services Commissioner Michael Starkowski submitted projections for next year that would boost the Medicaid budget by $956.9 million or 25 percent.

The $3.26 billion deficit that the legislature’s nonpartisan Office of Fiscal Analysis projected for the coming fiscal year anticipated a $286.5 million jump in Medicaid costs, leaving an extra $670 million to be resolved, based on the initial projection.

Department spokesman David Dearborn declined to offer specifics about the Medicaid budget, but said the plan is very preliminary and could be subject to major revisions before it is completed.

But one source said a major factor behind the nearly $957 million increase, about $450 million, involves the decision of Rell and the legislature and this past April to move the health benefits within General Assistance, the state-funded welfare program for single adults without children, under the Medicaid umbrella.

The preliminary budget also included about $70 million to cover suggested rate hikes for nursing homes, and for the managed care organizations that oversee health coverage programs for the poor, such as the Husky plan.

The remaining Medicaid increase was due to a combination of inflation and other economic factors including increased demand, and a few changes to eligibility rules.

There already have been signals that Medicaid costs are on the rise.

The Rell administration reported on Sept. 20 that the current Medicaid budget is facing about $140 million in projected cost overruns before the fiscal year ends on June 30.

The Department of Social Services confirmed in late September that enrollment in Husky, which covers children and parents from low-income households, rose by 8.5 percent between December 2008 and December 2009, and now stands at nearly 400,000.

At least half the cost of increased Medicaid spending would be offset by increased federal funding. That’s because Medicaid is a cooperative program between the federal government and the states, and Connecticut would receive, on average, a little more than 50 percent reimbursement for most Medicaid expenses in 2011-12.

Still, that leaves a potential expansion in net Medicaid costs between $200 million and $300 million, if the department’s projected demand for services is correct.

And because Medicaid is operated under federal “entitlement” rules, any client who meets income and other program guidelines is entitled to service, regardless of whether the state has budgeted sufficient funds for the program. For that reason, preliminary cuts to Medicaid budgets don’t save any money, since the state ultimately has to provide the services.

Foley has said he can cut health care spending dramatically by tightening benefits for the poor and by securing health coverage concessions from state employee unions.

But Sen. Paul Doyle, D-Wethersfield, co-chairman of the legislature’s Human Services Committee, said the next governor will be hard pressed simply to deal with the projected cost increases, let alone find huge savings in programs that serve the poorest households.

“We know we’re going to have to make changes next year, but we already have trimmed Medicaid,” he said. “We’ve been struggling with this for two years, and there’s no indication that the economy is dramatically turning around in the near future. But we know there is a need for services, and it’s growing.”

In a brief written statement, Foley campaign spokeswoman Liz Osborn didn’t address the potential challenges of an inflated Medicaid budget, but again stressed that “Tom has committed to balancing the budget without raising taxes and he will keep that commitment.”

Osborn added that regardless of that fiscal challenges the next governor faces, Foley’s Democratic rival, former Stamford Mayor Dan Malloy, will not be able to resolve them without a “massive tax increase” because of his “commitments to state employee unions.”

Malloy, who has insisted his labor support will not stop him from seeking concessions from public-sector unions, repeatedly has charged that Foley cannot close a $3.3 billion budget deficit solely with spending cuts — and has failed to produce a detailed plan showing where those cuts would be made

Malloy added Wednesday that Foley has been irresponsible in pledging to deliver a major reduction to the state’s health care budget while the current Republican administration is warning of a massive potential increase.

“It’s one of the reasons I have refused to do what most politicians do, which is make promises,” Malloy said. “I don’t know what I’m going to inherit.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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