How a ballooning Medicaid program in Pa. is looming over state budget talks — no matter what federal lawmakers decide

HARRISBURG — Pennsylvania’s state budget fight this year will largely be dictated by the rising cost of caring for an aging and sicker population — totaling $2.5 billion in increases to the state’s Medicaid programs — no matter whether cuts to Medicaid are enacted by the federal government in the coming weeks.

If Pennsylvania lawmakers fulfill Gov. Josh Shapiro’s request to increase state spending for the Department of Human Services, which mainly administers the state’s several forms of Medicaid programs, from $19 billion to more than $21 billion — funding the ballooning program that Republicans want to contain — they will be hamstrung from making other major investments in the state, top GOP legislators said.

Meanwhile, top state health officials estimate they nee at least a $2 billion increase in spending as a bare minimum to keep the programs afloat.

Shapiro sought the Medicaid funding increase during his $51.5 billion dollar state budget pitch to state lawmakers in February. The proposed boost to Medicaid would mean a 10% increase in spending on the programs compared to the prior fiscal year, but many of the caretakers around the state — from home care to nursing homes — say there’s more to be done. Pennsylvania’s Medicaid reimbursement rates are not competitive when measured against neighboring states, they say, leading to major lapses in care for the state’s most vulnerable populations.

» READ MORE: Pennsylvania’s home care industry is in crisis, with low pay and unfilled shifts driving it toward collapse

Medicaid is a federally and state-funded health program for low-income families and individuals with disabilities. The total cost of funding DHS topped $55 billion last year including federal contributions, with the state covering $19 billion of the cost. It’s the single largest cost driver for the state and makes up a large portion of Pennsylvania’s nearly $50 billion annual budget.

Pennsylvania is one of many states now feeling the effects of how old and sick its residents are post-pandemic, as the commonwealth resumed annual Medicaid eligibility checks and has used up much of its federal recovery funds that covered much of the program’s expansion in recent years.

With days left until their June 30 deadline, top lawmakers — led by Shapiro, House Majority Leader Matt Bradford (D., Montgomery), and Senate Majority Leader Joe Pittman (R., Indiana) — are currently meeting behind closed doors to reach a budget deal, due by the end of the fiscal year. Pittman told reporters last week that lawmakers would miss the deadline, still lack a framework for a deal, and will try to reach one in the coming weeks, with Medicaid as one of the main sticking points.

» READ MORE: Pennsylvania lawmakers will miss the June 30 budget deadline as state faces $5.5B shortfall, top Republican says

While it is not uncommon for state leaders to blow past the budget deadline with little issue, they are in for a particularly tough fight at the negotiation table this year, as Pennsylvania is on track to spend $5.5 billion more than it collects in revenue next fiscal year — requiring leaders to tap into the state’s reserves or emergency funds to pay for any new spending, including the whopping $2.5 billion increase Shapiro has proposed for Medicaid.

“If that number really is a $2 billion increase, I can tell you that there’s not going to be a lot to talk about otherwise,” Pittman told reporters last week. “If we have to carry that kind of increase, which then parlays into an even greater increase the following year, we have no capacity to do anything in this budget, and it makes our structural issues even more difficult.”

State Sen. Scott Martin (R., Lancaster), who chairs the Senate’s powerful appropriations committee said he and other top Republicans are trying to convince Democrats to adopt new “guardrails” like those being considered by the U.S. Congress, such as requiring co-pays or removing coverage of expensive medications for weight loss, to help shrink the state’s ever-growing Medicaid programs.

“We just need to be smarter with how we’re doing it,” Martin added. “Now there’s no free federal money coming from Washington, D.C., and it’s kind of forcing our hand that we have to do things better.”

Shapiro said at a news conference Tuesday that he knows additional restrictions to Pennsylvania’s Medicaid program are important to Senate GOP leaders, and that it is one of the sticking points leaders are “working through” in budget negotiations.

A spokesperson declined to comment further on budget talks.

But even with restrictions in place, Martin echoed his Republican colleagues, saying that if lawmakers approve Shapiro’s desired $2.5 billion Medicaid increase, it will limit any other new investments the state will be able to make in this year’s budget, including funding mass transit, as SEPTA and other systems across Pennsylvania face major financial challenges that could result in steep service cuts for millions of residents.

» READ MORE: Not just SEPTA: Public transit is in trouble all across Pennsylvania, including in GOP districts

“You can’t be all things to all people all the time, and in divided government, we expect we have to negotiate,” Martin said. “So what is your top thing to negotiate? You can’t have like, eight top things. We literally can’t afford that.”

Medicaid covers about 3 million people in Pennsylvania, including 1.3 million children. About a quarter of residents statewide and 40% of people in Philadelphia rely on Medicaid. About a third of births and 59% of nursing home residents are covered by Medicaid. Roughly 13% of seniors over age 65 are covered by Medicare and Medicaid.

People are eligible for Medicaid if their income is within 138% of the federal poverty level — $21,597 a year for an individual.

Shapiro and Department of Human Services Secretary Valerie Arkoosh have said the escalating expense is unavoidable. In budget appropriations hearings earlier this year, Arkoosh pointed to a range of issues contributing to a sharp increase in Medicaid costs:

Pennsylvania has realized how much more expensive its Medicaid population is following the COVID-19 pandemic, now that eligibility checks have resumed.

Typically, people with Medicaid must renew their coverage once a year by submitting paperwork to show they are still eligible. States were barred from discontinuing Medicaid services during the COVID-19 pandemic.

When states resumed annual eligibility checks, enrollment numbers began to drop. Some people were no longer eligible, while many others lost coverage because they didn’t realize they needed to take action or struggled to complete the renewal process.

The issue is twofold: People with multiple chronic health conditions or who regularly see doctors for a medical problem were more likely to renew their Medicaid coverage than those who were healthy and rarely went to the doctor. What’s more, people were sicker — and more expensive to treat — when they returned to the doctor after the pandemic, having delayed routine scans, elective surgeries, and other needed care.

“Budgeting healthcare can be unpredictable year to year,” said Edwin Park, a research professor at the McCourt School of Public Policy at Georgetown University. “And when there’s a lot of uncertainty, it becomes really difficult.”

As closed-door budget negotiations continue, lawmakers on both sides of the aisle seem to agree that the state should restrict access to GLP-1 inhibitors to only people with diabetes, and not to be used as a weight loss drug, as one way to cut back its costs.

Arkoosh estimated earlier this year that the state will spend an additional $1.2 billion on GLP-1 inhibitors this calendar year. Her department made changes effective in May to the state’s medical necessity guidelines to require pre-authorizations for GLP-1 medications that consider certain diagnoses beyond just body-mass indexes for approval.

» READ MORE: Some Philly patients worry about affording their medications as insurers cut coverage for weight-loss drugs

Shapiro’s request to increase state Medicaid funds also does not account for how Pennsylvania will handle potentially crushing federal cuts to Medicaid spending, proposed by President Donald Trump — which has led some top leaders to float the idea of a six-month stopgap budget until it’s more clear how much the state will receive from the feds in the next fiscal year.

The federal budget proposal, titled the “One Big Beautiful Bill Act” by Trump that passed the House last month, includes unprecedented cuts to Medicaid totaling $880 billion over the next decade. Proposed rules for monthly employment checks and twice a year eligibility checks would cost Pennsylvania millions more to implement, and could lead to 300,000 residents losing Medicaid.

“There is enormous fear out there. Every time I step outside of the door, someone comes up to me, terrified,” Arkoosh told lawmakers at a hearing in March. “I don’t even want to speculate on how this program might change. I don’t want to contribute to what is already an incredibly fearful 23% of our Pennsylvanians who are very worried about this.”

In the event of those federal cuts, Shapiro has said the state would not be able to backfill coverage for these residents, citing Pennsylvania’s own financial predicament.