Why Medicaid Provider Rates Matter

Jan 12, 2023

With the legislative session in full swing, Montanans will soon hear lots of discussion on big picture topics, like affordable housing and tax cuts for the wealthy.

But plenty of discussions fly under the radar. One of the wonkier topics – Medicaid provider rates – nevertheless has big picture implications for access to healthcare, our economy, and how we prioritize spending in our state budget.

What is the provider rate study?

Last session, the Montana Legislature commissioned a “provider rate study.” This study looks at the rates at which Medicaid providers are reimbursed. The study focused on four areas – addictive and mental disorders, developmental services, children’s mental health, and senior and long-term care. These services are used heavily by people on Medicaid, and an adequate reimbursement rate is necessary to make sure the care is available to people who need it.

The study, conducted by an outside consulting firm, examined the various ways that provider rates could be adjusted. For example, similar services had different rates depending on the population receiving the service. The study also recommended standardizing assumptions for geographic areas and the size of the provider offering the healthcare service. Another factor studied was the current labor market to see what workers, such as those who provided in-home assistance, earned when not being paid via Medicaid.

All in all, the study recommended that the state invest $27.7 million more into its Medicaid program. Because Medicaid is funded with both state and federal funds, increasing the state’s spending on Medicaid would bring in roughly $54 million in federal funds. During a time when our healthcare system has been stretched to its limit, bringing funding up to adequate levels is key to making sure everyone has the care they need.

So, did it get fully funded?

After investing years, listening to stakeholders' input, and spending $2.7 million on the study, Governor Gianforte’s office has proposed to fund roughly one-third (36%) of what the study recommended.

The details are complex, and much will undoubtedly change when the Legislature starts addressing the budget. For now, the Governor’s budget proposes funding 10 percent of the recommended increase in 2024. In 2025, the governor’s budget calls for funding 36 percent of the recommendations in the study.

The budget also contains a $25 million unrestricted pool of money in the director’s office, purportedly to be used for a temporary boost in provider rate increases during 2024. But because these funds were not put in the base budget, they will go away after 2024. The next year, in 2025, providers will receive less in reimbursements than they had the year before.         

The Governor’s office has argued this will help “stabilize” the system. In reality, by making the bulk of the increase temporary and by failing to fully fund the recommendations, Montana will find itself in the same position of needing to readdress provider rates in just a couple of years.

Why is it essential to fund provider rates at the recommended level?

When reimbursement rates for Medicaid are too low, it limits access to health care and risks poor health for tens of thousands of Montanans. Closing the gap between Medicaid reimbursements and private pay insurance would reduce disparities in access among adults and eliminate access disparities for children. Provider rates are a racial justice issue, as well.

Provider rates are not simply in-the-weeds Medicaid policy. Fundamentally, they determine Montanans’ access to health care. Children in need of residential psychiatric treatment, for example, are routinely sent out of state due to low provider reimbursement rates in Montana.

Sufficient provider rates are also an investment in the Medicaid system by allowing for community-based care rather than high-cost hospitalizations down the road. Adequate reimbursement rates will also help stabilize Montana’s healthcare workforce at a time when there is a shortage of healthcare workers across the state.

Montana should fund healthcare, not tax cuts for the wealthy.

Montana is sitting on a $1.9 billion surplus. The state can and should invest in the health of Montanans as well as our healthcare workforce. Instead, the Governor’s budget is calling for large tax cuts for the wealthy.

After spending two years studying the pay Medicaid providers receive, the Legislature and the governor fully understand the gaps in our healthcare system. Montana has the ability to address these inequities. The Legislature should fully fund the provider rate study and help ensure everyone has access to adequate healthcare.

Montana Budget & Policy Center

Shaping policy for a stronger Montana.

MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.