KY Spirit - Managed Care Update

There was a lot of activity on the Medicaid Managed Care front on Wednesday. Here are the highlights:

- The day started with KY Spirit, the MCO that is a subsidiary of Centene, notified the state that they would be terminating their managed care contract with the state effective July 5, 2013 via this press release. The assertion in this press release is that the state "provided erroneous information related to medical cost experience and non-standard program policies during the RFP process." Due to these errors KY Spirit has filed a formal complaint for damages from the state. The closing of their Lexington offices will cost the state 200 jobs as well.

- The initial reaction from the state was this joint press release from the Governor and CHFS Secretary Audrey Haynes. The release says two important things: 1. The state considers this a breach of contract and will enforce the contract provisions, and 2. The state will work to transition the lives managed by KY Spirit will be moved to the other existing statewide MCO's Wellcare and Coventry. So the state basically is putting KY Spirit on notice that they will be counter-suing for breach of contract.

- This afternoon at the Interim Joint Health & Welfare Committee, members were treated to an impromptu briefing from Secretary Haynes in regards to the KY Spirit situation. Secretary Haynes gave a very detailed account of the situation and came across as very transparent to the committee. Here are the highlights:

1. This dispute is about money. Secretary Haynes had been in discussions with KY Spirit over the past two weeks over a change in their capitation rate. The facts are that their initial rate was roughly $70 on average per member per month less than the other two MCO's in year 1. Further, KY Spirit had only asked for a 1% increase for year two when the contract was signed, when the other two MCO's have contractual increases of 3-5% respectively. This has widened the gap in capitation payments between KY Spirit and the other two MCO's to nearly $90-100 pm/pm. So in essence, KY Spirit bid too low though Secretary Haynes acknowledged that their losses were real and that they were struggling to make money.

2. Secretary Haynes confirmed what the press release from the Cabinet hints at, the state will try and recover damages from KY Spirit for breach of contract. She mentioned that it would trigger the contract provisions requiring loss of KY Spirit's performance bond and a 10% provision for liquidated damages. Secretary Haynes went as far to say that any extra funds this costs the state, the state will try to recoup from KY Spirit.

3. Secretary Haynes took the gloves off a little in her remarks on two occasions: 1. Pointing out that the increase in Centene's stock price in one day was enough to cover the costs they were losing in the state. 2. She also said that Centene was announcing earnings soon and that they may "take their foot off the gas" once that passes.

Legislators on the Health & Welfare Committee had several concerns from the loss of jobs to the transitioning of patients and continuity of care. However, the biggest concern was expressed over the potential cost this could mean to the state. As KY Spirit's lives are moved to one of the other two MCO's the state will incur costs for those lives at a higher capitation rate, as stated above almost $100 per member per month more. Based on some quick math in the committee members calculated the potential cost at $168 million. Secretary Haynes said that it was early in the process, but the state's intent is that any extra costs to the state will be paid by Centene.

One thing is for sure, more litigation is likely to follow.

September Receipts - General Fund Up, Road Fund Down

The Budget Director released the September Tax Receipts today, and you can download a copy of her release and attachments HERE. The highlights are:

- General Fund receipts were up 5.3% in September 2012 over September 2011. This brings 1st quarter revenues up 2.1%. The official revenue estimate, which the budget is based on, calls for 2.4% revenue growth for this fiscal year, so revenues need to grow at least 2.5% for the remaining 3 quarters to achieve that growth.

- Road Fund revenues on the other hand were down in September 2012, 3.9% less than September 2011. This is new territory for the Road Fund revenues, which have posted their second consecutive monthly decline after 25 months of increasing revenues. To meet the forecasted estimate for this fiscal year of a 3.9% increase, revenues need to increase 4.7% the remainder of the fiscal year.

NCSL Paper on Sequestration

NCSL recently published THIS paper on sequestration and the impact on the states. Examples of what states can expect in terms of reduced funding:

- $1 billion plus for Title One education programs.
- Nearly $1 billion in special education (IDEA) funding, moving the federal government even further
from its decades-old promise to provide up to 40 percent of special education costs.
- Eight of 11 block grants are reduced, including four health, two human services and two community
development block grants.
- Programs with unfunded or underfunded mandates—including Real ID, No Child Left Behind Act,
homeland and border security programs, Individuals with Disabilities Education Act, and the state
criminal alien assistance program—would be further underfunded or remain unfunded.
- $200 million or so in Clean Water and Safe Drinking Water Revolving Fund infrastructure loan
support would be lost.
- Head Start would experience an approximate $600 million reduction.
- Unemployment Insurance administrative support would decline by more than $200 million.

Tax Amnesty Program Annouced; Begins Oct. 1

Commonwealth of Kentucky

Finance and Administration Cabinet

Steven L. Beshear, Govenor

Lori H. Flanery, Secretary

CONTACT:   

Pamela Trautner, 502-564-4240; 502-545-1440

pamela.trautner@ky.gov

FOR IMMEDIATE RELEASE

Kentucky Announces Tax Amnesty Program

Delinquent taxpayers can avoid fees, penalties and prosecution;

needed revenue generated for the Commonwealth

Frankfort, Ky. (Sept. 20, 2012) – Kentucky is launching a Tax Amnesty program allowing people or businesses who owe back taxes to the Commonwealth of Kentucky to pay with no fees or penalties.  The threat of prosecution will be waived, and only half the interest owed will be due. 

"This program will generate much-needed revenue for vital services in Kentucky at a time when dollars are hard to come by," said Finance and Administration Cabinet Secretary Lori H. Flanery.  "At the same time, we are making sure that delinquent taxpayers pay their fair share." 

The 61-day program kicks off October 1, 2012.   Delinquent taxpayers will soon receive mailed notifications stating the known amount of back taxes.  They have until the end of November 2012 to apply for amnesty and pay their overdue taxes.

However, if taxpayers fail to take advantage of the amnesty program, penalties get more severe and the interest escalates.  An additional 2 percent interest will be charged on unpaid amnesty-eligible taxes.  Taxpayers taking advantage of amnesty must remain current over the next three years or face reinstated penalties, fees and interest. 

The General Assembly authorized the amnesty program in the 2012 legislative session.  Kentucky conducted a similar tax amnesty program in 2002.  More than 23,000 taxpayers participated, netting more than $40 million in back taxes.

"We're making it as easy as possible for people to determine if they owe back taxes and to create multiple ways to pay," said Tom Miller, Commissioner, Kentucky Department of Revenue.  "They can mail in the payment or use a credit card.  They can pay at any of our 10 offices around the state, or they can pay online using a website we have created just for Tax Amnesty."

The website – amnesty.ky.gov provides news and information about the program, online payment options and a way to search for all persons and businesses on the delinquent tax roll. Anyone with questions can also call the Tax Amnesty toll-free hotline at 855-KYTAXES (855-598-2937). 

The amnesty program applies to taxes owed only to the Kentucky Department of Revenue for eligible tax periods ending after December 1, 2001 and prior to October 1, 2011.  While most on the delinquent taxes roll reside in Kentucky, the list includes people in all 50 states plus several other countries. 

"This is a great opportunity for delinquent taxpayers to reestablish themselves as compliant," according to Mack Gillim, Executive Director, Office of Processing and Enforcement with the Kentucky Department of Revenue.  "It's not only a fresh start for them, but it also helps those who comply every day with all the tax laws by creating an equitable distribution of the tax burden.  We're all in this together." 

While the current database shows nearly 170,000 individuals and businesses qualifying for tax amnesty, others may also owe back taxes.  The list of delinquent debtors includes those businesses and individuals who have a tax lien on file, but does not include those who may owe taxes and have not filed.  The state is continuously gathering taxpayer information to discover non-filers and under-reporters.

To spread the word about Tax Amnesty, an advertising and public relations campaign will take place across the Commonwealth.  Governor Beshear will hold a news conference in Frankfort revealing more details on the kickoff day, October 1, 2012.  Ads will appear in newspapers and magazines and on websites.  TV and radio commercials will generate awareness and Department of Revenue officials will make presentations to numerous groups and public events.

"It's safe to say that if you owe taxes, you will hear about the amnesty program," said Secretary Flanery. 

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Governor's Blue Ribbon Commission on Tax Reform Meeting Summary

By Rachel Phelps

As you know the Governor's Tax Reform Commission met today to receive the independent report from their consultants.  Their report is to be used as a tool in the Commission issuing a final report but is not to be taken as a final recommendation by any means.  There are still several meetings left in the coming weeks before the Commission will issue a report and any recommendations.  We have been at the meeting all afternoon and they just released the report to the public so aside from our notes, we haven't had the opportunity to digest the report and that is true for the Commission members, as well.  The consultants were very strong in their statements that they are presenting options and not recommendations.

As you can see from the article and from the executive summary, a lot is put on the table - just about every option is covered in some way.  For that reason, we would caution getting too excited or exercised over any one piece of it until the Task Force and all other interests have an opportunity to absorb.  It is one thing to write it and another to consider it as a recommendation, and still another to try and pass it through the General Assembly. 

We would point out a couple of options that may be of interest--a gross receipts tax to replace the corporate income tax and the LLET.  It is shown as revenue neutral, stating it could be set at 1/3 of 1% to generate the same as the corporate income taxes.  The report lists the local option sales tax as an option to consider.  In addition some services are also listed that could be brought under the sales tax.  The report suggests as an option moving to a single sales factor.  In response to questions from the Commission the consultants noted they did not include some revenue raisers, like the cigarette tax, because it increases a set rate but does not broaden the base.  They also did not address issues related to the road fund.

Download the Executive Summary from the report which includes the options and the scoring on those options HERE.