South Dakota DSS asks legislature to cover FMAP drop, trims Medicaid staffing after expansion rollout

The Department of Social Services told the Joint Committee on Appropriations on Jan. 24, 2025, that the state must replace federal Medicaid dollars after a drop in South Dakota’s FMAP and the end of a temporary expansion FMAP boost.

DSS Cabinet Secretary Matt Althoff and Chief Financial Officer Jason Simmons presented the agency’s FY2026 request, saying the department’s total budget request is $1.84 billion and that about 35% of that is state general fund. "Our request this year is $1,840,000,000," Jason Simmons said. Simmons told the committee a 2.02% decline in the federal medical assistance percentage will force the state to add roughly $15 million in general funds for DSS programs.

Why it matters: The FMAP shift and the expiration of a 5% expansion FMAP boost together require additional state general funds if the department is to maintain current services. At the same time, DSS recommended reductions in several budget areas and proposed removing temporary positions added during the expansion launch because enrollment and application volumes fell below earlier actuarial projections.

DSS emphasized the human side of the numbers. "These numbers represent South Dakotans that are in the balance, South Dakotans that are extremely vulnerable or in need of government assistance," Secretary Matt Althoff told the committee, urging members to remember service outcomes when weighing budget decisions.

Key budget drivers and proposals - FMAP: DSS said the regular FMAP decline and the end of an expansion FMAP enhancement together reduce federal support and increase the required state match. Simmons said the net FMAP changes represent a multi‑million dollar general fund need for DSS. - Provider inflation: The governor recommended a 1.25% inflationary increase for contracted providers statewide; DSS estimates that costs roughly $6 million–$17 million across Medicaid and other programs, with federal match where available. - Medicaid expansion and FTEs: When the state planned for expansion it budgeted for roughly 52,000 enrollees (with a built-in contingency). Actual enrollment and application patterns have been lower than that actuarial projection. DSS proposed reducing 27 expansion‑related FTE (previously funded 50% state/50% federal), saving just over $2 million in combined funds. - Technology and systems: DSS has transitioned to a modern benefits eligibility and enrollment system (BEES/"BEES"/"BEES" in testimony). Simmons said BEES changes the way the agency processes applications and supports ex‑parte renewal work; the department also noted ongoing system modernization costs and licensing fees tied to moving to hosted solutions.

Medicaid enrollment trends and continuous‑enrollment unwind DSS described a complex pattern of Medicaid caseloads after the federal public health emergency ended and the state implemented continuous‑enrollment unwinding and expansion. Althoff and staff said South Dakota intentionally kept client contact information current during the unwinding, which allowed them to close or renew cases more efficiently. DSS cautioned that application volume and churn (people moving, gaining or losing eligibility) complicate projections.

Simmons and Medicaid Director Heather Peterman stressed that enrollment is only one driver of cost; utilization per enrollee and the mix of covered populations (children, pregnant people, newly eligible adults) also determine spending. "Utilization is what we're really monitoring," Althoff said, noting new adult enrollees frequently have higher per‑person costs.

Budget reductions and one‑time funds DSS proposed utilization‑based reductions where claims and trends support lower ongoing spending; examples included reductions in certain DD and long‑term services projections. Separately, the department proposed spending down TANF carryover funds in FY2025 as a one‑time offset to general fund needs; DSS said the carryover is legally available and has been maintained for multiple years.

What the department declined to assume DSS told lawmakers it was not proposing to convert a broad set of positions to contractor roles despite long‑running recruitment challenges at institutions such as the Human Services Center. "I don't think all contracted staff is the route to go," Althoff said, adding contracted labor can be more expensive.

Ending note DSS asked appropriators to weigh where state dollars should be used to replace reduced federal support and recommended targeted utilization adjustments where claims and enrollment data support lower ongoing budgets. The department requested more work‑group analysis on certain topics, including the BEES implementation and expansion staffing levels, before making final determinations.