Gov. Kristi Noem’s proposed cuts to the state’s Social Services and Human Services departments need scrutiny to make sure they don’t endanger the budget and don’t undermine Medicaid expansion or other programs for South Dakotans in need, some lawmakers and health advocates said.

Noem wants to adjust parts of the departments’ budgets downward by a combined $42 million for the current fiscal year, and also wants to reduce their combined budgets for the next fiscal year by $38 million compared to the budget adopted last winter.

“We’ll right-size funding for programs in the Department of Social Services and Department of Human Services to match utilization,” Noem said in her Dec. 3 budget address. “These programs had been reverting money at the end of the fiscal year over the last several years.”

Over the last two years, the Department of Social Services gave a combined $77 million back to state coffers, primarily due to less-than-anticipated caseloads and utilization of departmental programs, according to the state Bureau of Finance and Management year-end summaries. The state Department of Human Services gave back a combined $30.2 million, primarily within long-term services, which includes programs focused on home services, nursing homes and assisted living for older adults and adults with disabilities.

Economic volatility caused by the COVID-19 pandemic, federal protections during the pandemic that temporarily protected people from losing Medicaid coverage, and voter approval of Medicaid expansion made budget forecasts difficult and may have contributed to the large reversions during the last two years, said Rep. Tony Venhuizen, R-Sioux Falls, who serves on the Legislature’s budget committee.

Lawmakers will begin considering Noem’s budget proposals when they convene Tuesday for their annual legislative session at the Capitol in Pierre.

Medicaid expansion cuts scrutinized

Beyond the overall cuts, Noem is proposing additional, specific reductions in some of the two departments’ programs, including a combined $25 million reduction for current fiscal-year Medicaid enrollments. Medicaid is a joint federal-state health insurance program for low-income adults, children, pregnant women, elderly adults and people with disabilities.

South Dakota voters approved expanded income eligibility for Medicaid in 2022. The Department of Social Services planned and staffed for 57,000 expansion enrollees, but enrollment has been slower than projected. Noem’s budget for the next fiscal year predicts expansion enrollment to reach 32,296. She’s proposing the elimination of 27 state positions due to that slow pace.

That concerns Ben Hanson, North and South Dakota government relations director the American Cancer Society Cancer Action Network

“I think it’d be shortsighted to make those cuts right now,” Hanson said. “I think they need to give it a little bit more time to continue.”

Less-than-anticipated enrollment so far could be due to “lack of awareness,” according to Hanson. He said the state has done little to no advertising about Medicaid expansion, instead relying on hospitals or advocacy organizations to connect patients. The state Department of Social Services has also received criticism from some lawmakers about a lack of outreach and advertising.

The Community HealthCare Association of the Dakotas works to guide potential enrollees through the process, in addition to its advocacy and policy work. Shelly Ten Napel, the association’s CEO, said “it would be a great thing” for the state to invest in an enrollment marketing campaign — especially targeted at young adults. One of the most uninsured demographics in South Dakota and the nation are adults aged 19-26. 

But Ten Napel is withholding judgment on Noem’s proposed cuts. With today’s technology, Medicaid departments may not need as many employees to enroll patients as they once did, Ten Napel said.

She’d like to see the Department of Social Services work toward proactive enrollment steps: simplifying the application, automatically enrolling eligible South Dakotans if they use other income-based programs, and using continuous eligibility for patients, which allows Medicaid recipients to stay enrolled for a set amount of time even if their income changes. 

“We want a larger conversation about how to make this process more efficient for the state and easier for consumers,” Ten Napel said.

The department has indicated it hopes to connect eligible patients when they seek other help from the department. Over two-thirds of South Dakotans eligible for expanded Medicaid are also eligible for the Supplemental Nutrition Assistance Program, known as SNAP. The department launched its online enrollment portal, meant to make it easier to apply for programs, last spring.

Legislators debate spending

Despite the slow expansion enrollment, the state’s share of Medicaid expenses is growing. That’s due to expiring federal bonus payments awarded for the eligibility expansion, and due to a federal formula that raises the state’s share of costs in accordance with increases in the state’s per capita income. Noem said her proposed budget includes about $60 million in mandatory ongoing spending increases for the state’s share of Medicaid.

Venhuizen wants to make sure Noem’s proposed cuts don’t underestimate Medicaid costs.

The state typically estimates the costs “very conservatively,” leading to reversions and surpluses most years, he said. If Noem estimates too aggressively, it could land the departments in a deficit.

“You want to have a surplus. You want to have a reversion,” Venhuizen said. “In a perfect world, we would end right on the money. But that’s not possible, so the next best thing is to be conservative and end up in the black.”

Venhuizen also plans to propose a state constitutional amendment this year alongside Sen. Casey Crabtree, R-Madison, that would allow the Legislature to eliminate Medicaid expansion if the federal government ever reneges on its promise to cover 90% of the expansion costs. 

If the Legislature approves the amendment, it would go to voters in 2026. Voters already approved a Venhuizen-backed amendment last year that will allow legislators to consider imposing work requirements on Medicaid expansion enrollees. 

Sioux Falls Democratic Rep. Linda Duba, whose service will end this month because she did not seek reelection, said it’s “irresponsible” to cut funding for social and human services while proposing new spending in other areas. 

Noem’s new spending proposals include $4 million to create education savings accounts that would provide public funds for private school tuition or other alternative instruction costs, and $182 million to continue saving money for the replacement of the aging penitentiary in Sioux Falls with a new prison south of the city.

“You want to grow government over here but you want to cut it over here,” Duba said.

Venhuizen said the cuts proposed by Noem essentially reallocate money back into Medicaid to cover the state’s rising costs.

“Every dollar you spend, you have to find a dollar somewhere else,” he said.