State Medicaid, Economic and Revenue Forecast – December 2023

The State Budget Committee met on December 19 to hear presentations on the Medicaid, revenue and economic forecasts. Following is a summary of these presentations provided by the Krieg DeVault Governmental Affairs Team.

Medicaid Forecast

Dr. Daniel Rusyniak, Secretary of the Family and Social Service Administration, along with Jeremy Palmer and Cora Steinmetz, presented an updated Medicaid revenue forecast, indicating a roughly $984 million shortfall from the April forecast. They acknowledged a significant unanticipated variance in projected costs and expressed commitment to work with the legislature to reduce forecasted budgetary needs and ensure forecasting data is more accurate in the future. The presentation dove into specific factors impacting the forecast, which they attributed to changes in enrollment due to redeterminations, expenditures related to long term services and supports, pharmacy rebates, and other drivers.

Medicaid Director Cora Steinmetz highlighted the importance of real-time data in forecasting and outlined proposed cost containment solutions. Additionally, the Office of Management and Budget had reverted $525 million in Medicaid funds to the general fund based on the data that was inaccurate, so some of those funds will be re-reverted to cover the shortfall. Challenges and opportunities for improvement in forecasting were presented to the committee, including the need for better real-time data and internal budget monitoring, more robust prospective policy change review and approval processes, and regular reporting, and the need for ongoing evaluation and adjustment to manage current and future Medicaid program expenditures. During the question-and-answer portion of the presentation, Representative Ed Delaney (D-Indianapolis) asked and FSSA confirmed that even with a net reduction of 400,000 Medicaid enrollees, the agency was now projecting a roughly $1 billion increase in expenditures, due to drivers like the aging population and changes in home and community-based services. Committee members on both sides of the aisle expressed concerns about the budget shortfalls, retroactive adjustments, transparency and the accuracy of forecasting.

Additional information on the Medicaid forecast can be found in this article from the Indiana Capital Chronicle, which notes, “… the single-biggest difference in forecasts came from an unanticipated demand for Home-and Community-Based Services (HCBS) and other Long-Term Supports and Services, which includes institutional care like nursing homes and assisted living facilities …”

Economic Forecast

Tom Jackson, Principal Economist at US Regional Economics, discussed various factors influencing the state’s economy, such as inflation, labor market conditions, and consumer spending. The speaker mentioned that inflation has eased but is not yet at the desired level. A gradual reduction in inflation is anticipated, and Indiana’s economic forecast is mirroring the broader U.S. trends.

Mr. Jackson also spoke about consumer spending, noting a potential weakening in growth rates after a period of high demand post-pandemic. He discussed the impact on durable goods, especially with changes in financing rates. Infrastructure projects and construction have provided a boost to the economy, but sustained growth is not expected. The speaker introduced the concept of a “soft landing” in the economic forecast, acknowledging potential risks such as commercial real estate struggles and global conflicts affecting supply chains. Additionally, High mortgage interest rates have not slowed homebuilding as expected.

During the question-and-answer session, a question was raised by Representative Greg Porter (D-Indianapolis) about the decline in manufacturing jobs in Indiana. The speaker attributed this to the expected pullback in recreational vehicle manufacturing and a leveling off in the auto industry after disruptions, but overall the pullback was portrayed as part of the natural cycle of manufacturing employment. The shift to electric vehicles and changes in consumer demand for goods are also discussed.

Revenue Forecast

Ben Tooley, Director of Fiscal Policy for the House Republican Caucus, and Hari Razafindramanana, Chief Economist at the Indiana State Budget Agency, presented the revenue forecast for fiscal years 2024 and 2025. Overall, Indiana’s total revenue is projected to increase by 2.1% in FY2024 and 3.8% in FY2025 over FY2023 revenue. These projections are lower than the April 2023 revenue forecast, largely due to changes made by the legislature during the last legislative session.

Key takeaways from the forecast:

  1. Sales tax revenues and corporate income tax revenues were below the April 2023 forecast target, while individual income taxes exceeded the target.
  2. Total general fund performance was better than the big three revenue sources of sales tax, individual income tax, and corporate income tax, partly due to higher interest rates and interest revenues.
  3. Major policy changes that had not become law at the time of the April 2023 revenue forecast, such as individual income tax rate reductions, changes to the Indiana income tax credit, and exemptions, are now incorporated.
  4. Gaming tax revenues are expected to decline due to competition from neighboring states, especially Illinois.

After the State Budget Committee received these presentations, Senate Appropriations Chair Senator Ryan Mishler (R-Mishawaka) released the following statement:

Senate Republicans and other Republican leaders at the Statehouse have consistently advocated for fiscally responsible policies that maintain healthy reserves so our state can withstand unforeseen circumstances. Though we are projecting revenues to come in lower than in April and are projected to spend more on Medicaid than we expected, our reserves will enable us to weather this shortfall and protect taxpayers.

“However, I continue to have serious concerns about the increasing rate of our state’s Medicaid spending and its impact on our state budget, and I will be monitoring this issue closely as we go forward.”

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