Supplemental budget agreement complicated by rising healthcare costs; foreshadowing 2017 budget challenges

Whatever else lawmakers accomplish this session (yesterday we wrote of low expectations), they will have to adopt a supplemental budget. Washington State Wire today has an account of how that basic task is made more difficult by rising healthcare costs. 

“Just to put this into perspective, the state had 375 million dollars coming in in additional revenues but low income health erases all of that,” Senator Andy Hill (R-Redmond) remarked. During the 2015 budget negotiations a combination of savings and unexpected increases in revenue left the state with almost 400 million dollars, yet now increases in spending (partially driven by Medicaid expenses) have changed the picture dramatically.

The story links to a couple (here and here) of Washington Research Council policy briefs documenting growth in projected spending that needs to be addressed in the supplemental budget: firefighting, mental health, Medicaid and more. Washington State Wire points out legislators are particularly concerned with health care costs that have come in higher than projected.

Cost management is one thing. Forecasting is another. Whether or not the HCA should have been able to more accurately predict managed care rates is a point of contention between legislators and the HCA.

It’s complicated, as the article makes clear. Forecasting and controlling the costs of entitlement programs is critical to assuring budget stability. In our foundation report, we wrote,

Even with the ongoing economic recovery, the state budget will face stress for the foreseeable future as a result of court-mandated increases in basic education funding, increased health care expenses, negotiated public employee compensation increases, and increases in other required state spending.

Given these pressures, special emphasis must be placed on controlling key budget drivers, including health care…

The implications are clear.

As for this session, any bill with appropriations now faces an uphill battle. In a quote to the Washington Research Council, Senator Hill said “The Legislature will have to find a way to cover the increased costs while balancing the four year budget, with an eye toward spending more on education in 2017-2019.”

A new revenue forecast will be released February 17, but it’s doubtful that it will change the current fiscal dynamic. An already challenging 2017-2019 budget session appears likely to be further complicated by healthcare forecasting and cost control. And, if State Treasurer Jim McIntire has his way, the coming months may also feature another discussion of state tax reform (including an income tax and a constitutional amendment).