DHS revises pharmacy carve-out timetable, updates housing-stabilization eligibility and reports $160M–$264M repricing swings

The Department of Human Services told the Senate Health and Human Services Committee that changes in timing and technical corrections altered projected savings in the governor’s revised budget.

Elise Bailey, DHS budget director, said the department postponed the effective date for the proposed pharmacy benefit carve-out — moving the start from Jan. 1, 2026 to July 1, 2026 — because more time is needed to establish the sole administrator model and account for payment timing between managed care organizations and fee-for-service administration. The timing change reduces savings in the near term and requires the state to “buy back” a withhold payment timing difference. Bailey also said DHS clarified that MinnesotaCare is not affected by the carve-out; the change applies to Medical Assistance only.

DHS reported the updated savings estimates for the carve-out as $3.7 million in FY 2026–27 and $15 million in FY 2028–29. The department also corrected an earlier omission: when it increased a surcharge on health maintenance organizations, the corresponding increase needed to be included in capitation payments to managed-care plans. Accounting for that raises managed-care payments and reduces net savings. DHS presented updated net savings figures of about $136 million in FY 2026–27 and roughly $128.5 million in FY 2028–29 after the repricing adjustments.

Bailey described a third change related to housing stabilization services. Federal guidance for 1915(i) state plan amendment services requires financial eligibility at or below 150 percent of the federal poverty level (FPL). Minnesota statute, as written, tied eligibility to Medical Assistance enrollment, which creates a small discrepancy for pregnant people who may qualify for MA up to 278 percent of FPL. DHS said the amendment is budget neutral and clarifies state law to align with the federal rule.

Committee members asked detailed questions about the pharmacy carve-out timeline, the mechanics of managed-care withhold and buy-backs, and the housing-stabilization eligibility change. Bailey said revised administrative costs for the sole administrator are being updated and that timing changes explain why savings booked on spreadsheets differ from cash flows.

DHS said it had identified about six grants affected by the CDC cancellations referenced earlier in the hearing; two had been scheduled to expire soon and showed no net fiscal impact, while four that were expected to continue through Sept. 30, 2025 totaled about $24 million and included about 100 contracts with grantees for mental health and substance-use programs. Bailey said DHS is continuing to analyze the impacts and that a follow-up to the committee will be required.

Senators took no final action on DHS proposals; Senate File 2669 (MDH/DHS combined bill) will be laid over for possible inclusion in an omnibus, and DHS staff agreed to return with more detailed fiscal accounting as requested.

Ending: DHS committed to follow-up on the fiscal implications of the CDC grant cancellations and to provide more detailed numbers on the managed-care payment adjustments and projected administrative costs associated with a pharmacy carve-out.