S&P Maintains Connecticut Rating Pending Medicare Review

The federal government's review of Medicaid reimbursements will not affect Connecticut's AA general obligation bond rating for now, said Standard & Poor's.

The Centers for Medicare & Medicaid Services, citing questions about procedure and eligibility, told state officials last month that it was withholding $249 million in first-quarter reimbursements for programs and services provided by the departments of Social Services, Developmental Services and Mental Health and Addiction Services. It is conducting similar reviews in six other states, including California and New York, and the District of Columbia.

The revenues in question, according to S&P, stem from a change in state reimbursement practices to request 100% of some costs under new Medicaid regulations -- based on Connecticut's interpretation of new federal health care regulations -- instead of a previous practice of requesting 50% reimbursement.

"The delay affects current health-care provider reimbursements, but does not have an immediate effect on state general fund revenue," Standard & Poor's said in a report late Wednesday. An adverse federal decision, though, could hurt Connecticut indirectly, as it would eventually have to fully pay health care providers within the state whole for lost reimbursement.

"Due to the uncertain nature of the timing of the final outcome of the federal review, and the amount that could potentially be denied, we are maintaining our ratings on Connecticut at this time," said S&P, which also maintained its stable outlook.

State officials are monitoring the review, Office of Policy and Management Secretary Benjamin Barnes wrote in a memo to Comptroller Kevin Lembo. "OPM and the agencies are actively engaged with the federal government in addressing issues relating to claiming methodologies and allowable costs," said Barnes.

Barnes expects final resolution, which is the federal government's call, by the end of the fiscal year.

S&P calculated that if the feds reverted to 50% reimbursement, the effect would be half the amount in question, or $124.5 million, per quarter and just under $500 million for the year on a budgetary basis. "This would still be relatively modest in relation to the overall $17.5 billion size of the state's general-fund budget, although potentially significant in relation to the size of Connecticut's rainy-day budget absent corrective budget actions," the rating agency said.

Connecticut now projects its fiscal year-end 2015 budget stabilization fund - the so-called rainy day fund - will have $392 million, or 2.3% of fiscal 2014 expenditures on a budgetary basis. S&P considers that level modest.

Fitch Ratings and Kroll Bond Rating Agency also rate Connecticut AA. Moody's Investors Service rates its GO bonds Aa3. The agencies reaffirmed their ratings in July, all with stable outlooks.

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