Some federal government relief on the issue of Medicaid, as well as some overdue diligence in the program, could help Louisiana address tightening budget conditions.

Last week, the state’s Revenue Estimating Conference essentially reaffirmed projections for the next few fiscal years. With tax cuts coming unless the Legislature lengthens the duration of the sales taxes set to roll off, revenues are projected essentially to remain flat for fiscal years 2028-30. That means unless the Legislature reduces spending and/or consents to use of the Budget Stabilization Fund at least in FY27, the general fund budget may go into deficit given the impact of price inflation.

Use of the BSF may not be all that bad, as it sits at a near-record amount, but legislators can’t treat it as a recurring solution. Happily, final budget production last year by the federal government invites reductions in Medicaid spending, as does better diligence by states.

As previously noted, reforms encapsulated in that budget process will give the states a strong incentive to cut back on this spending, with the federal government limiting certain extra payments to states that encourage Medicaid reimbursement rates above Medicare levels. They also create disincentives to levy taxes on providers that are used as a device to grab more federal dollars, which, if applied to Louisiana, would make the presumed deficit a bit worse independently of the fewer dollars spent on Medicaid because of lower rates.

But the state has to help itself, and over the past several years Louisiana has ranked among the worst at doing this, at least through 2024. Research from the Paragon Health Institute estimates that since 2019, under its mid-range 70 percent take-up assumption (the proportion of Medicaid expansion-eligible clients who do enroll in it), the state has one of the highest rates of improperly enrolled expansion recipients, an estimated 62 percent, with that share nearly doubling from 32 percent in 2019, during the final term of Democrat former Gov. John Bel Edwards, who practically begged anybody and everybody to sign up except the obviously wealthy. Paragon estimates Louisiana’s rate increased from 32 to 62 percent between 2019 and 2024 and estimates roughly 497,000 improper expansion enrollees in 2024. Paragon Health Institute

Worse, this includes even the first year of unwinding after the artificial inflation of rolls during the pandemic period. Not all of this comprised people flat-out ineligible for Medicaid; many eligible under regular Medicaid likely were misclassified as expansion-eligible, and given the perverse incentive that the expansion population receives a 90 percent federal match while those with lower incomes and greater medical needs receive a federal match about 25 percentage points lower in Louisiana, states pay less through carelessness in categorizing recipients. The Paragon analysis likewise distinguishes between people wholly ineligible for Medicaid and people who may qualify through traditional Medicaid pathways but are placed in the expansion category. Paragon Health Institute

In part, that explains why Louisiana in 2024 paid out only an estimated $90 million extra. But if all of the ineligibles were otherwise qualified in no way – and remember the winding-down had already been largely accomplished by the end of that period for those who were ineligible under regular standards – it would have been closer to $250 million. It’s not difficult for that figure to be zero – several states managed that, and neighboring Oklahoma had an estimated improper enrollment rate of only one percent.

Using data for the upcoming 2028 rate equalization, assuming Louisiana will make up two percent of the total Medicaid population nationally and that it has an approximately 65 percent regular federal reimbursement rate, among the highest of the states (it varies among states), the state, with great diligence in eligibility determinations, could save $600 million annually by then. That would solve for any predicted budgetary shortfall and then some. It’s low-hanging policy fruit and should be pursued.