March 29, 2011

The Honorable David Hann

Minnesota Senate
75 Rev. Dr. Martin Luther King Jr. Blvd., Room 328
St. Paul, MN 55155

Dear Senate Hann,

I write to express my strong concerns regarding certain budget provisions in the proposed Senate Health
and Human Services budget bill (Senate File 760).

Defined contribution program

The Senate’s bill contains a significant level of savings associated with just one proposal – the Healthy
Minnesota Defined Contribution Program. This proposal improperly assumes $603 million in savings
($218 million general fund and $385 million health care access fund) associated with a federal waiver to
extend this policy to both adults without children and low-income families with children. A waiver of the
federal maintenance of effort (MOE) requirement in the Affordable Care Act also is required to apply this
policy to families with children. Federal approval of such waivers is at the discretion of the federal agency
for Medicaid. Longstanding DHS policy is that if the department is uncertain of federal waiver approval,
we do not book savings for such proposals until receiving approval. The likelihood and timing of federal
waivers are too uncertain to put the state budget at risk. This policy differs for Medicaid state plan
amendments, where the federal agency for Medicaid has a legal obligation to approve proposals
consistent with federal law.

Assuming such a waiver was approved, the Senate’s savings estimates are premised on the waiver being
implemented by January 1, 2012. This timeline is unrealistic as past Minnesota waiver approvals have
required 12 to 16 months on average. Our concerns go beyond timing, however. If implemented by July
1, 2012, DHS estimates that 86,000 people, including families with children, would become uninsured in
FY 2013 due to the complexity and significantly higher cost-sharing associated with the proposal.

In summary, DHS does not believe Minnesota will receive a federal waiver to apply the Healthy
Minnesota Defined Contribution Program to families with children. Given that uncertainty, we cannot
recognize the Senate’s savings for this item. We note that without a waiver, violating the MOE
requirement would put $9.7 billion in current federal funding in jeopardy as well as risk the federal match
directly associated with the defined contribution program.

Repeal of early Medical Assistance

Senate File 760 also proposes the complete elimination of early Medicaid opt-in and reinstating of the
General Assistance Medical Care program, delivered via the Coordinated Care Delivery Systems
(CCDS). The repeal would eliminate high quality health coverage to 105,000 people all of whom earn

PO Box 64998 • St. Paul, MN • 55164-0998 • An equal opportunity and veteran-friendly employer
less than $8,000 per year (or $11,000 if married). According to forecast estimates, replacing early MA
with a state-only funded program would mean the loss of $1.5 billion in federal funding over three years.

Notably, the bill also eliminates all MinnesotaCare coverage for adults without children incomes below
75 percent of poverty, meaning enrollment would need to be more than triple the prior CCDS program.
Since the Senate bill’s appropriation for the CCDS program would be just one third of the FY 2010
appropriation (on a per person basis), we seriously doubt that any hospital would agree to participate as a
provider. We note that only four metro area hospitals participated in the past, leaving many enrollees in
Greater Minnesota without effective health care. Without hospital participation, these 105,000
Minnesotans would lose all access to health care with the repeal of early MA.

Failure to fund federal compliance provisions

DHS is also concerned that the Senate bill does not provide sufficient funding to meet required spending
levels in several other areas. Failure to provide this funding will place the state in violation of two
different federal laws:

• Adoption Assistance. We have a federal obligation to maintain our existing agreements with
adoptive parents. The amount needed to fill the funding gap for these existing contracts is $3.4
million in FY 2012-13. The Senate bill’s reduction of base funding for adoption grants by $5.3
million in FY 2012-13 also violates this federal obligation.

• Federal maintenance of effort compliance in Medicaid. We are required to delay the nursing
home level of care reforms (enacted in 2009) for two years. The costs of delaying this and other
eligibility changes are not paid for in the Senate bill. Given the best information we have from
the federal government to date, failing to delay these eligibility changes will put the state in
violation of federal Medicaid maintenance of effort requirements.

We may disagree on the wisdom of certain policies, but we jeopardize the fiscal stability of our state if we
ignore the realities of federal funding. Minnesota accepted federal dollars for our Medicaid program.
With those dollars came restrictions and obligations. We should not base a budget on unrealistic
assumptions that these restrictions and obligations will be quickly waived.

Thank you for your willingness to work with DHS on the various proposals included in Senate File 760.
We look forward to continuing to work with you in the coming weeks.

Sincerely,

Lucinda E. Jesson
Commissioner
Department of Human Services

cc: Governor Mark Dayton Representative Steve Gottwalt

Representative Jim Abeler Representative Tom Huntley
Senator Linda Berglin Representative Tina Liebling