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Capacity could shrink by 15-25% when cuts, new enrollees, and inflation are accounted for

There is no magical solution except to restore the $168M cut and make sure wages keep pace with the market.

The budget proposal approved by the House on June 5th included a $168M cut in waiver-funded programs for adults with IDD in the budget originally proposed by Governor Shapiro in March 2023. In this post, we outline the factors contributing to a 10-14% drop in services: (a) the $168M (or almost 7%) cut negotiated from the Governor's proposed budget; (b) a 2-4% increase in the population actively using waivers, and; (c) DHS' possible failure to account for 5% inflation over the past year in projecting average annual costs . Our analysis suggests that there is no rabbit DHS can pull from its hat to stave off this potential impact from budget cuts... there is no fluff in the Governor's March budget proposal for IDD services and no fat to be trimmed from an already skeletal system. Given the 11% decrease in services reported in our earlier post, the total decrease in services could top 20-25%. As described elsewhere, the most significant source for the gaps in services is the difficulty hiring and retaining Direct Support Professionals (DSPs), the backbone of every program in Pennsylvania. These difficulties are directly related to low wage rates for DSPs set by DHS. So where do all these figures come from?

1. The $168M cut WILL decrease services by almost 7%: Through HB 611, the House cut $168M from the budget Governor Shapiro proposed in March. A quick look at the Governor's budget might lead one to conclude that services would have increased because the budget for the IDD Community Waiver program would have increased by $384M (those interested in more details can scan ahead to E27-38 on p. 480 of the Governor's Budget Book). But looks are deceiving: the Governor's proposed increases, bringing IDD Waivers up to about $2.5B for the coming year, would only have maintained the current levels of services. The biggest increase in the waiver program (S268M) backfills federal funds not available next year. Thus the proposed 6.8% cut by the House, bringing total IDD waiver funding down to $2.33B, can only be achieved if adults use 6.8% fewer services. Virtually every other dollar in the Governor's proposed budget for IDD waivers would also have maintain existing service levels.

2. Do the budgets account for a 2-4% increase in the population actively using waivers? The Governor's proposed budget also included a $17.5M line item designed to make room for the 850+ adults aging into the system this year. As described elsewhere, this would have shifted 850 adults on entry-level (Person-Family Directed Services or PFDS) waivers into the more expensive Consolidated or Community Living waivers. This would have made a small but symbolically important dent in the list of 12,000 adults with IDD who wait for years for more intense, specialized, and desperately needed services than the PFDS waiver (with an annual cap of $41,000) can fund. But this would also have functioned to free up 850 PFDS waiver slots for the adults aging up into the system this year. It is not clear how these new enrollees - who would increase the number enrolled in waivers by 2.2% - would be accommodated given the cuts proposed by the House.

And there is another source of pressure that does not appear to have been accounted for in the Governor's March budget: the fact that most if not all of last year's 936 enrollees - an increase of 2.2 % - have probably not yet tapped into their PFDS waivers funds. We project that most eligible graduate from last year took advantage of the extra year made possible through Act 55. Those on waivers - typically those with relatively greater needs - were especially likely to take advantage of the extra year. These 2022 graduates would have had little need to draw on waiver funding until after the end of the current school year later this summer. Given that the average adult with IDD spent about $28,000 of the PFDS waiver last year, the 936 2022 graduates could add another $28M in projected costs. It is also not clear if the projected expenditures in the Governor's March budget accounted for this.

3. Did DHS' account for 5% inflation over the past year in projecting average annual costs? As reported elsewhere, the Consumer Price Index in the Mid-Atlantic region increased by 5% between April 2022 and April 2023. But the Governor's budget does not project any increase in the average annual cost of each of the three specific waivers between April 2023 and April 2024.

Finally, it should be clear that any expectation that providers could absorb even more cuts is completely unrealistic given the overwhelming evidence of service gaps and program closures. As described elsewhere, many service providers closed their doors during COVID as a result of increased costs and lost revenue that approached 30% of their annual budget. Those who hung on have already wrung every possible efficiency out of their operations. Consider the fact that providers continue to report an 11% drop in services despite long waiting lists for every program: they simply cannot recruit the staff they need because of low pay rates set by DHS. Providers probably pulled the last cost-saving rabbit out of their hat years ago. We therefore project that the combination of the 14-17% decrease in service capacity resulting from 1, 2, and 3 above, when combined 11% decrease in services reported in our earlier post, the total decrease in services could top 20-25%.

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