Gov. Mike Dunleavy’s proposed cuts to the Department of Health & Social Services (DHSS) actually underfund it by hundreds of millions of dollars because so many of the cuts would require legislative or federal approval.

The largest cuts in Dunleavy’s FY 2020 budget are to DHSS.  Unrestricted general funds (UGF) for DHSS are reduced by $337 million.

Medicaid bears the brunt of the cuts.  Because the federal government funds roughly half of Medicaid, and 90 percent for the Medicaid expansion population through the Affordable Care Act (ACA), total funding for Medicaid would be reduced by $710 million.

The loss of federal funds to DHSS totals $453 million.

However, many of the reductions are speculative and assume adoption of bills in the legislature or waivers from the federal Centers for Medicare and Medicaid Services (CMS).

“An 1115 waiver is an option that states can put together a budget request to CMS for an innovative way to look at covering their eligibility groups or additional services that needs to be approved by CMS,” Sana Efird, administrative service director for DHSS, explained in a Senate Finance hearing.

Efird acknowledged that the last 1115 waiver process Alaska completed took over two years.

“Again, I think the administration has the cart before the horse in several cases, but this is a huge one.  It would seem that you would get those waivers first before the reduction,” Sen. Lyman Hoffman (D-Bethel) recommended.  “What happens if you don’t get the waivers and the funds aren’t in the budget?“

“It seems as though we’re taking a major gamble here, and I don’t believe that people’s health care in the state of Alaska should be gambled with,” Hoffman added.

“The intention is not to harm current Alaskans, if possible, in any way.  We want to provide the most sustainable Medicaid program to cover our low income Alaskans.  But with the policy direction of the current administration, we need to match our revenues to our expenditures, and as you know, Medicaid is one of the largest general fund spends for the State,” Efird responded.

“You cannot balance this budget with federal funds,” Hoffman declared.  “You say ‘may not affect peoples lives,’ but they may affect people’s lives.  That is the other flip side in your equation.  You are, with this proposed budget, playing with people’s lives.” 

Sen. Peter Micciche (R-Soldotna) served as the DHSS subcommittee chair when Efird was assistant commissioner of the department.  He said that during that period, DHSS was reluctant to make structural changes, like program eligibility, yet now it suddenly expects massive savings.

“You talk about significant reductions, but I’m not hearing about any of the policy changes that would take a couple of years to be approved.  We’re interested in real reductions.  We’re not interested in reductions on a piece of paper that really don’t result in those reductions,” he told Efird. “Are you going to take the real steps that I don’t see on this page that will actually reduce spending?”

Efird simply responded that the Dunleavy administration is open to proposals.

Artificially Low DHSS Budget Would Drain SBR Savings Account

Without action from CMS, the $337 million in cuts Dunleavy has proposed for DHSS would go unrealized in FY 2020, artificially shrinking the budget.  Office of Management and Budget (OMB) Budget Director Lacey Sanders acknowledged that they may seek a supplemental increase if DHSS can’t realize those reductions.

Section 13 of the operating budget (SSSB 20) also contains language that would spend $172 million from the Statutory Budget Reserve (SBR) account to cover the unrealized reductions.  The language would empty that savings account.

“It seems out of the ordinary of historical practices to access the savings account in this type of mechanism,” commented Senate Finance Co-chair Bert Stedman (R-Sitka).  “I would expect the committee to take a jaundiced look at the accessing of the SBR.”

Even if legislators did approve draining the SBR, it wouldn’t cover Dunleavy’s cuts, meaning they would have to find money elsewhere or make alternative reductions.

“In the event that these large reductions for FY ’20 do not go through due to any number of factors, what is your plan to make up for it?  Where else are you going to cut to balance the budget?” asked Senate Finance Co-chair Natasha von Imhof (R-Anchorage).

von Imhof is the current DHSS subcommittee chair.

“I’m going to be asking her not to deliver to my desk unallocated reductions,” Stedman said of von Imhof.  “The committee wants to actually see what’s going to impact this citizenry that we represent.”  

Stedman said an unallocated reduction would mean legislators would learn of the impacts to Alaskans during the summer after DHSS decides how to compensate.

“Again, this is a tax shift,” Micciche complained.  “This is a shift from the State picking up the cost to my community-owned hospitals taking up the cost in emergency care when those services are not provided.  My taxpayers will pay the difference.  Are you making those changes, or are we just sort of picking up numbers and putting them on a piece pf paper that won’t result in actual reductions?” 

Efird told committee members a more formal plan to realize the reductions would be provided later.

The Senate Minority published a Legislative Research Services paper Friday that shows Dunleavy’s education cuts alone would increase Anchorage median property tax rates from $5,572 to $7,119.

Long Shot to Change Maintenance of Effort Means Budget At Least $34 Million Short

Under Dunleavy’s budget, the Medicaid Adult Preventative Dental Benefit would be eliminated.  The program costs $8.3 million UGF, but brings in $18.7 million in federal funds.

“This was a policy decision,” Efird said without further explanation.

She told the committee emergency Medicaid dental services will still be provided.

After speaking with dental providers, von Imhof said that preventative dental care often provides an opening to other types of care because a toothache is hard to ignore.  When the patient is in the room with the dentist, she can ask about other health care issues that could keep them from growing more expensive.

“If we lose that, we might lose that access point to people,” von Imhof worried.

Sen. Donny Olson (D-Golovin) referred to a February report by Navigant that shows six of Alaska’s 15 rural hospitals at high financial risk.  All of those hospitals are deemed critical to their communities.

Olson asked if the administration’s cuts to Medicaid would cause those hospitals to close.

While Efird hadn’t read the report, she assured, “There is no intention under this reduction to close any of our critical care access hospitals.”

“I understand that we’re not intending to close anything, but that may be the stark reality of what happens under this budget program,” countered Olson.

OMB is seeking to save $34 million through an amended maintenance of effort (MOE), a term referring to eligibility and procedures for services.  DHSS would like to return to 1983 level of service.

“Has the federal government ever approved a state change of their maintenance of effort due to economic hardship?” von Imhof asked.

Efird admitted she didn’t know of any.

$17 million of the cut would come from tribal Temporary Assistance for Needy Families (TANF).

“What is the justification for this reduction?  Is the program not working?” Hoffman asked.  “Are there any tribes that are lining up in droves behind you to implement this reduction?”

Efird admitted it was simply a cut to match revenue and that no tribes have contacted DHSS supporting TANF reduction.

“I would venture to say there will be no support for this proposal,” Hoffman told her.

“What services are going to be reduced?” Olson asked of the cut to tribal TANF.

Efird didn’t know.

Bishop worried that cutting TANF and other public assistance could hurt student performance.

“We have a number of schools in the Fairbanks North Star Borough School District that over 50 percent of the families are at the poverty level, so the kids qualify for the federal lunch and breakfast programs.  If we were to do this, wouldn’t that just exacerbate the problem for these kids coming to school more hungry?” he asked

“I cannot speak to that,” replied Efird, saying she would ask the program director.

Micciche noted that Efird previously told him a change to MOE wasn’t possible.

“If this does not get approved as a change, the State will still be required to meet this maintenance of effort requirement,” she acknowledged, further supporting senators’ concern about a supplemental.

“I don’t think many of these things can occur July 1,” said von Imhof.  “Some of them I just think is a Zorro cut.  I don’t really see a rationale.”

Dunleavy’s budget zeroes out Community Initiative Matching Grants, which Sen. Bill Wielechowski (D-Anchorage) noted help nonprofits like Covenant House and Catholic Social Services shelter homeless women and victims of domestic abuse.

The budget also proposes to eliminate the Permanent Fund dividend (PFD) Hold Harmless provision, despite the fact that it would not impact the deficit.  The statute protects 36,000 low-income Alaskans from being kicked off public assistance when they get a sudden boost of income from the PFD.

Efird acknowledged the administration has not yet filed a bill to change the Hold Harmless statute, even though Friday was Day 39 of the 90-day legislative session.

The administration has filed a bill (SB 58) to repeal the $20 million Senior Benefits Payment Program, which provides cash payments to more than 11,000 low- to moderate-income Alaskans over the age of 65.

The legislature has already reduced payments in the budget for the highest bracket of Senior Benefits recipients.

Micciche said DHSS has historically prioritized seniors and disabled people.

“What I see here are suggestions that require a significant multiyear effort in order for any of them to be delivered that no longer prioritize those individuals,” Micciche said.  

Dunleavy Moves to Raise Rates at Pioneer Homes

Another hit to senior Alaskans is a proposed cut to the Alaska Pioneer Homes.  Dunleavy’s budget would cut $33 million in State funds from the Pioneer Homes and raise rates to compensate.

Pioneer Home rates are set in statute.

Micciche drew criticism in 2017 when he tried to cut the Pioneer Homes by $5.7 million, a move for which he issued an apology on the Senate floor.

“Is there going to be an increase for residents who are currently in a bed in the Pioneer Homes?” Bishop asked.

Yes, Efird testified.  The administration wants the true cost of the Pioneer Homes to be reflected, though the change must still go through the regulatory process, including public comment.

In FY 2018, 567 Alaskans received care in a Pioneer Home, an increase of 44 residents over the prior year, according to a report to the legislature.  There were 215 active applicants on a waitlist.

The majority of residents are designated Level III in all the Pioneer Homes except Anchorage, meaning they require “a great deal of assistance with eating, toileting, bathing, dressing and mobility.”

Level III residents currently pay about $7,000 per month.

“You’re not going to evict the current members of the Pioneer Homes, correct?” asked Stedman.  “What do you do with the resident that’s in there for three years and then runs out of resources under your new proposal?”

Dunleavy has proposed a $15 million grant program to help residents adjust to the rate increases, which have not been published.

“We are not proposing to evict Pioneer Home residents based on their income,” Efird said.

However, the grants would not help applicants.

Stedman said he is sensitive to issues at the Pioneer Homes because he has had four family members who have been residents.

“The State and the current residents in this state have taken care of their elderly for a long, long time,” he said.  “The first Pioneer Home was constructed halfway through territorial days.” 

Stedman said DHSS has been helpful working with residents to sell their homes so they can pay their Pioneer Home bill.

“Can they get into the Pioneer Home if they have no resources?” Stedman asked of new applicants.

Efird told him applicants will be required to provide a statement of income, but it will not affect their application if they have no resources under current regulations.  DHSS merely wants to be able to bill those who can afford it.

“What you’re explaining is already in place.  I’m dealing with it,” Stedman responded.

A dissatisfied Stedman told Efird to provide more information on the Pioneer Home changes to the DHSS subcommittee.

“I don’t see a lot of extremely wealthy people as residents,” he worried.  “I see people that have basically liquidated their homes and turned them over to the State so they have a roof over their head.”

Efird says there are no plans to privatize the Pioneer Homes, though they may contract out some laundry or hospitality services, like the Juneau Pioneer Home currently does.

Budget Confirms API Workers Will Lose Their Jobs

DHSS privatized the Alaska Psychiatric Institute after DHSS Commissioner Adam Crum declared an emergency in February.  (More on that in detail here.)

Efird said privatization talks were already taking place when the budget was being drafted.

“Since that time, there has been a number of emergency situations,” she said.  “Therefore, the commissioner did make the determination to declare an emergency at the Psychiatric Institute.”

DHSS turned operation of API over to for-profit Wellpath Recovery Solutions.

The DHSS change record detail moves all personal services costs — salary and benefit payments for employees — over to the services line.

“We have entered into a contract currently for management services through the end of June 30 with the option of continuing that contract.  This reflects the policy decision to do that within the budget,” Efird explained.

This means that API will remain under Wellpath’s management, and all State workers at API will lose their State employment.  The workers will have to apply to become Wellpath employees if they wish to continue working at API.

Efird said 268 positions at API will be eliminated.  She didn’t know how many of those positions are filled.

Dermot Cole reports that the Alaska State Employees Association (ASEA), which represents most of the union workers at API, has filed a grievance to prevent privatization from continuing into the new fiscal year.

Efird said that the State has already conducted a feasibility study, per the union contract, prior to privatization.  Though it shows privatization will be more expensive, she said, “The department does not contend that privatization of API will be a cost savings.  The basis of this policy decision was for the safety and security of the patients and the staff.”

Dunleavy chose not to simply fill vacant positions at API, which would have made the facility safer without the involvement of Wellpath.

“As I read the statutes… it looks like there are very clear violations of your procurement laws.  Have you had any legal analysis done on whether the department has followed procurement laws?” Wielechowski asked.

“This contract was procured under a sole-source procurement.  It was based on a declaration of an emergency, but it was a sole-source procurement,” 

Wielechowski responded that he is interested in the withdrawal liability of privatization.

The State would be required to pay out employee benefits if they’re severed.  If there is a lawsuit, the State could be responsible for wages while State employees are out of work during proceedings.

As with so many of the topics covered Friday, Efird promised more detail in subcommittee.

Senate Finance will examine the departments of Labor, Administration, Commerce, and the Office of the Governor on Monday.  If there is time, they will look into the Department of Revenue.

The Legislative Finance Division will present its analysis of the budget on Tuesday.

OMB Economist Ed King will present to the committee later.

On February 14, OMB Director Donna Arduin testified in Senate Finance that, prior to release of the budget, King had conducted an analysis showing Dunleavy’s cuts would be offset by growth in the private sector. Yet Thursday in House Finance, she testified that King has not completed that analysis.

“I’m really curious the date of when his analysis started and worked through timing of the budget announcement.  We’ll have some interesting discussions,” Stedman concluded with just a hint of menace.

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