Executive Summary
The 2020 Legislature directed the Joint Legislative Audit and Review Committee (JLARC) to review the Health Care Authority (HCA) budget and accounting structures. The HCA budget includes Medicaid, health benefits for state and school district employees, and the health benefit exchange. The largest component is Medicaid, which is the focus of this study.
MedicaidMedicaid is called Apple Health in Washington. provides health coverage to eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Coverage includes medical assistance (physical health) and behavioral health services. Medicaid is funded by the state, with a match from the federal government.
Complexity of HCA’s accounting structure reflects changes in service delivery and helps the agency meet reporting requirements
Number of accounting codes increased to reflect service changesSource: Figures represent counts of three types of codes that are key to reporting and budgeting. |
In 2011, the Legislature transferred the Medicaid medical assistance program from the Department of Social and Health Services (DSHS) to HCA. Changes to the medical assistance program since then include expansion of the eligible population, introduction of the Medicaid Transformation Waiver, Pilot projects intended to test new ways to deliver and pay for health care. and the transfer of Medicaid behavioral health services to HCA in 2018.
With each change, HCA added codes to its accounting structure to tie expenditures to information such as program, eligibility groupExamples include adults eligible through Affordable Care Act (ACA) Medicaid expansion and people who are blind/disabled., and federal match rate. HCA uses combinations of codes to compile data for budget monitoring and state and federal reporting.
Another change is increased enrollment in managed care plans instead of fee-for-service. Under managed care, HCA pays a flat per member per month rate to managed care organizations for all covered medical services, whereas fee-for-service involves direct payments to healthcare providers for each covered medical service. As a result, HCA's accounting structureThe chart of accounts used in the Agency Financial Reporting System (AFRS). has little information about specific service or administrative costs for managed care. HCA's approach is consistent with national trends in managed care, which place greater emphasis on measuring quality of care and patient outcomes than on the cost of specific services. Other HCA systems collect available data about service use.
HCA’s Medicaid medical assistance budget is based on actuarial rate setting and expenditure forecasting
This report focuses on HCA's Medicaid medical assistance budget. The budget for behavioral health is developed separately.
The Medicaid medical assistance budget has two major components: the rate the state pays to managed care organizations (MCOs) and an expenditure forecast.
- Independent actuaries develop a per member per month (PMPM) rate for groups of eligible people enrolled in managed care. Federal rules govern rate development.
- The Office of Financial Management (OFM), with substantial input from HCA, develops an expenditure forecast based on historical managed care and fee-for-service costs and expected enrollment. Legislative fiscal staff participate in an expenditure forecast work group and translate the forecast into the medical assistance budget. This process takes place at the staff level. Legislators may also introduce policy proposals that change the medical assistance appropriation.
Washington legislative staff have more opportunities for involvement in Medicaid medical assistance budgeting than their counterparts in some other states
Legislative staff in Washington are involved in PMPM rate setting, expenditure forecasting, and budget development. This level of involvement is uncommon in the six other statesArizona, Indiana, Louisiana, Minnesota, Oregon, and Virginia that JLARC staff reviewed, where state Medicaid agencies have greater responsibility and control over the rate and budget development processes. In two of the states JLARC staff reviewed (Oregon and Virginia), legislative staff are involved in forecasting and the process is more formally defined.
The expenditure forecast work group lacks a formal structure, which could improve the utility of and confidence in the forecast
An expenditure forecast work group reviews OFM's development of the medical assistance expenditure forecast. The work group includes HCA, OFM, and legislative staff. The work group is not defined in statute and does not have formal by-laws. Other forecasting entities in Washington have more formal structures. Literature suggests that a structured process can build confidence in the forecast among decision makers. Substantial variations between the forecast and actual costs led to calls to evaluate or change the work group process. For example, a significant variation in 2016 led to the Legislature transferring responsibility for the forecast from HCA to OFM.
Legislative Auditor Recommendations
OFM should lead the medical assistance forecast work group in developing a charter that specifies its purposes, structure, and decision-making protocols.
HCA and OFM concur with this recommendation. You can find additional information in Recommendations.
Committee Action to Distribute Report
On December 1, 2021 this report was approved for distribution by the Joint Legislative Audit and Review Committee. Action to distribute this report does not imply the Committee agrees or disagrees with Legislative Auditor recommendations.