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In a significant departure from the regular schedule of producing budget forecasts in November and February, Minnesota Management and Budget (MMB) and the Department of Human Services (DHS) released an updated budget projection in response to the COVID-19 pandemic in May, 2020. This forecast factored in the unprecedented macroeconomic forces that have impacted the state, federal and global financial outlooks in the last 2 months, such as surging unemployment, shut-downs of businesses and sectors of the economy, and the resulting drop in consumer confidence and spending. Also, due to the still-emerging nature of this response, and the level of uncertainty over the long term, this state forecast only looked at the current biennium (FY 2020-21) and left the outlook for next biennium (FY 2022-23) for the regularly scheduled November forecast.

The May interim budget projection focused its analysis of changes in state expenditures on the Health and Human Services (HHS) sector, because the other sectors of the budget are not expected to experience immediate impacts related to the pandemic and associated economic downturn.

Despite the overall change to the state forecast of a $3.611 billion (7.4%) reduction in revenues and $391 million increase in expenditures, the HHS portion of the budget is projected to net a $160 million decrease in expenditures from the General Fund.

The factors that DHS identified as contributing to this net positive impact include:

Projected Increases:

• Increased program caseloads due to higher unemployment and/or waivers to state and federal laws adopted in response to the COVID-19 pandemic.

• Increased nursing facility costs of care due to the COVID-19 pandemic.

Projected Decreases:

• Enhanced Federal Medical Assistance Percentage (FMAP) during the COVID-19 emergency period which provides additional federal funding in certain forecasted programs.

• Lower nursing facility caseloads due to higher mortality rates and reduced new placements.

• Reduced day services provided in congregate settings for Intermediate Care Facility (ICF) residents and HCBS waiver recipients due to the COVID-19 pandemic.

Other Items:

• Assumption that new COVID-19 treatment costs are offset by other expected health care costs that are not being provided.

Of particular interest to our disability services stakeholders are the projected changes to HCBS waiver programs and long-term care facilities, which include ICFs/IID. The Governor’s executive order that forced the interruption in day services applies to both HCBS and institutional settings, and is projected to continue through FY2021 for an aggregate reduction in expenditures of 3.7%. Other executive orders gave the DHS commissioner authority to suspend certain requirements and seek federal waivers to allow flexibility in supporting vulnerable populations, which contributed to increases in expenditures for some programs. The Minnesota Department of Health (MDH) was also given additional appropriations to cover emerging healthcare needs and mitigation activities, and respond to outbreaks.

Long-term care facilities, including ICFs/IID are projected to experience increased costs per individual due to additional healthcare services related to the pandemic, but these will be more than offset by reductions in case loads (residents) due to increased numbers of deaths and slowed recruitment of new residents.

Other factors that impact the broader healthcare sector include enhanced federal matching funds from the federal government for people served by public programs, including HCBS waivers, significantly higher unemployment rates that eventually add to the number of people served by public insurance programs, and lower costs due to providers and consumers putting off elective procedures and preventive care while concerns about the virus are dominating the system.

For more details and numbers, open the spreadsheet under the COVID-19 Information heading here.

-Ken Bence, Director of Research, Analysis and Policy