They say health care is recession-proof. But, that's not exactly the case. The health and human services sector has proven to be both recession-resistant and a recession laggard. And—if U.S. governors are right—the start of the ‘recession’ in the health and human service sector will begin on July 1, 2011. The fiscal year that begins in July will be “the most difficult to date,” according to a survey of 45 states released at the winter meeting of the National Governors Association.

States must find a cumulative $18.8 billion to balance their budgets in remaining months of the current fiscal year, and in fiscal 2011, an estimated $53.6 billion in shortfalls awaits, according to the survey. For governors, Medicaid is one of the top budget issues. Medicaid spending for fiscal year 2009 was $335 billion, an increase of 7.8 percent over the previous year. Enrollment increased 5.4 percent in fiscal year 2009 and will grow 6.6 percent in fiscal 2010. Additionally, 3.3 million more people were enrolled in Medicaid in June 2009 compared to the previous year—the largest one-year increase to date.

If you haven't started your management strategy for this time of economic freefall, now is the time. For starters, employ a three-prong recession management strategy consisting of short-term cash management, business development, and preparing for the post-recession marketplace.

For more, check out:

• Prepare for the Emerging Post-Recession Marketplace: Five Management Best Practices for Organizational Sustainability
• Anticipating Emerging Post-Recession Market Models: Consumer & Payer Demands for Behavioral Health & Social Services

I was heartened to see that the Senate version of the health care reform bill would set the medical loss ratio for health plans at 85% for large group plans and 80% for small group and individual plans, and that the House set everyone's rate at 85%. The original proposal by Senator John D. Rockefeller of West Virginia had the ratio at 90%—a number rejected as unrealistic.

And, the reform bills have a penalty clause built in for insurers failing to hit the prescribed medical loss ratio (MLR)—they have to rebate the difference to their customers. See "To Your Health: How Congress plans to get insurers to spend money on actual health care" by Slate writer Christopher Beam. For major insurance companies, this wouldn't change much. The average MLR of for-profit insurance plans offered to large employers is about 84%. Small employers, or companies with 50 or fewer workers, have an average MLR of 80%. But, in the individual insurance market, the MLR is around 70%.

While this is a great start, I think 80% is too low. And, the devil is in the details, so to speak. The reform bills are still defining what exactly 'health care spending' is—a critical set of definitions. Stay tuned

An article in the November 30, 2009 issue of The New York Times sparked my thinking, once again, about the high attrition rate of behavioral health and social service organizations. The article, "Less Diversity in Supervisors of Foster Care” cites the statistic that under the watch of John B. Mattingly, appointed in 2004 to head New York City’s Administration for Children’s Services, the number of foster care agencies has dropped from 43 to 33.

A little later in the article, Fatima Goldman, executive director and chief executive of the Federation of Protestant Welfare Agencies, observed that the cause was just a lack of time for agencies to develop the management infrastructure needed for the current environment. “There just hasn’t been time for some agencies to build the core infrastructure to survive such a dramatic shift that’s occurred over the last few years, especially the overall economic downturn…That is the nail in the coffin for so many organizations.”

Talking about ‘time’ alone as the demise of many of the non-profit organizations isn’t dealing with the ‘whole picture’. There are a few other factors:

• Inability (or unwillingness) of public purchasers to measure and compare the performance of their contract organizations—have transparency in performance and make future referral, rate, and contracting decisions on that performance data
• View of the leadership of the organizations in the field that management capabilities are not integral to continuing their service mission; this has been permitted to exist by public purchasers for years and reinforced by the good intentions of management teams.

Time is now an issue for many organizations in the field. They have, indeed, waited too long to put in the management systems—financial, IT, planning, development, etc.—that they need to make it through the next decade.

The report in USA Today was brief, but its implications leapt off the page for me:

“In the eight states that report monthly tax figures, collections from July through September declined an average of 8.3 percent from a year earlier. Even in places where there's been an income tax increase, such as New York, collections still declined. This comes after there was a 15 percent nationwide drop in tax collections during the first six months of the year.”

With health care in general (and behavioral health and social services in particular) dependent on state financing, I think the ‘end of the recession’ is nowhere in sight – despite the pronouncements of economists. Look for reductions in Medicaid (reduced eligibility, reduced service coverage, reduced provider fees, and more risk-based contracts) and cuts in state-funded services (mental health, addictions, child welfare, juvenile justice, prison health, senior support services, etc.) as the reality of tax collections cause state governments to open up their budgets once again.

If you’re a manager of an organization providing health services or social services – or a county commissioner – the pending tax shortfalls will have the biggest impact on your work. Now would be the time to develop a contingency plan.

For more on planning and managing in these harsh economic times, check out:

• On the Money - The Key Financial Challenges Facing Nonprofits Today - and How Grantmakers Can Help
• The Wolf is at the Door: The Global Economic Crisis and the Public Sector
• Surviving & Thriving in a Recession: A Management Blueprint for Health & Human Services
• Changes in Health Care Financing & Organization: Impact of the Economy on Health Care