Idaho’s Department of Health and Welfare has requested an additional $108 million in federal funds to cover unexpected costs associated with the state’s Medicaid mental health contract.
The supplemental budget request comes months after the Idaho Health and Welfare Department entered into a new $1.2 billion contract for Medicaid mental health services. If approved by the Idaho Legislature, the additional funds would allow the department to exceed the originally approved budget for fiscal year 2024.
The request stems from a post-pandemic surge in demand for Medicaid mental health services, which was not anticipated when the contracts were initially planned. The funds will primarily go to pay private companies, known as managed care organizations, which provide mental health services under the Medicaid program.
Higher Care Demands Prompt Request
The Idaho Medicaid program, which serves low-income individuals, children, people with disabilities, and pregnant women, saw a significant increase in demand for mental health care that wasn’t factored into previous cost projections. The Health and Welfare Department specifically pointed to increased acuity and utilization of behavioral health services, which led to unanticipated costs.
In particular, the request includes funds to cover an additional $44 million paid to Optum, the company that previously managed the Medicaid mental health contract. In July 2024, Magellan of Idaho took over the contract, which had initially been estimated at $1.2 billion and is now the largest state government contract in Idaho’s history.
Magellan’s Role and Long-Term Solutions
While the new contract with Magellan is expected to reduce long-term care costs, Idaho health officials are optimistic that the expanded focus on preventive mental health care will eventually decrease the need for more intensive services, such as inpatient care and residential treatment.
“We anticipate that, over the next couple of years, Magellan’s services will help reduce the need for crisis-level care by providing more intensive community-based care,” said Juliet Charron, Deputy Director of Idaho Medicaid and Behavioral Health. “The goal is to intervene early and prevent escalation, which should reduce overall health care costs in the long run.”
Budget Shortfall and Legislative Approval
The supplemental budget request for $108.8 million is entirely federally funded and is intended to be spent in Idaho’s 2025 fiscal year, which ends in July 2025. If the Idaho Legislature does not approve the request, the state’s mental health providers may face payment delays, and Medicaid patients could experience reduced access to mental health services and substance abuse treatment. Furthermore, Idaho would fail to meet federal requirements to reimburse contractors based on “actuarially sound capitation rates,” as stipulated by Medicaid guidelines.
Health and Welfare Director Alex Adams explained that the original budget, which was set in early 2024, did not account for the surge in demand. In an August letter to the Idaho Legislature’s Joint Finance-Appropriations Committee, Adams noted that when actuaries recalculated the numbers for the Medicaid mental health contract, they found that both Optum and Magellan were serving a higher-needs population than initially projected.
Budget Options for Legislators
In addition to the $108 million request, the supplemental budget raises the projected capitation rate for fiscal year 2025 from $284 million to $510.3 million. However, the capitation rate is expected to decrease to approximately $498.6 million in fiscal year 2026, when Optum will no longer be entitled to an additional payment.
To assist lawmakers in making decisions, Director Adams has pledged to present a variety of budget options in January, providing a comprehensive overview of potential priorities and trade-offs for the state’s Medicaid budget. He emphasized the importance of informed legislative discussions, given the complexity of the budget challenges.
Adams, who became the director of Idaho’s Department of Health and Welfare in June, has already made interim budget cuts in two social service programs facing projected fiscal shortfalls. As part of his leadership approach, Adams has stressed transparency and collaboration with state policymakers.
A “No Surprises” Approach
“We want to equip policymakers with all the information they need to make informed decisions,” said Charron. “We are committed to a ‘no surprises’ approach under Director Adams’ leadership. While these decisions are never easy, it’s important that legislators have all the data to evaluate the best course of action for Idahoans.”
As Idaho navigates the challenges of managing a growing Medicaid program, the outcome of the supplemental budget request will be critical in ensuring continued access to mental health services and avoiding disruptions in care for vulnerable populations.
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