2.25.26 Senate DHS Budget Hearing: part 1

Pennsylvania Department of Human Services Budget Hearing Overview

Total DHS Budget: $67.2 billion (All Funds)
State Funds: $21.9 billion

The Senate convened to examine the Department of Human Services’ proposed budget and policy direction, with testimony led by DHS Secretary Valerie Arkoosh and senior leadership. The hearing covered program integrity, federal funding impacts, enrollment changes, Medicaid reforms, workforce shortages, and long-term fiscal sustainability.

Below is a comprehensive issue-by-issue summary of the discussion, including legislative questions and agency responses.

1. Childcare Oversight and Fraud Prevention

Legislative Concern

The Chairman opened with questions about national headlines regarding childcare fraud, specifically referencing issues in Minnesota. He asked how Pennsylvania’s oversight differs and what protections are in place to prevent fraud.

DHS Response

Secretary Arkoosh emphasized several key differences between Pennsylvania and Minnesota:

• Only licensed providers may participate in ChildCare Works.
• Pennsylvania maintains high licensing standards.
• Providers undergo at least annual inspections, with more frequent visits if complaints arise.
• DHS regulates 6,510 licensed providers serving approximately 408,000 children statewide
• Attendance records are required and must match parent-certified schedules.
• Only parents—not providers—can modify attendance schedules.
• Monthly reconciliation of attendance records occurs before payment.
• Pennsylvania continues paying providers based on attendance, not enrollment (despite federal encouragement to move to prospective enrollment-based payments).
• Fraud in childcare was described as “extremely rare.”
• Suspected fraud is referred to the Office of State Inspector General or the Attorney General’s Office for investigation.

Key Policy Clarification

Federal rules allow removal from the ChildCare Works program if a child accumulates 40 days of non-attendance, as prescribed by federal guidance

Takeaway: DHS defended Pennsylvania’s childcare system as tightly regulated, data-driven, and structurally resistant to the types of fraud seen in other states.

2. Budget Growth and Cost Drivers

Legislative Concern

The Chairman questioned the department’s projected growth rate (approximately 1% annually in planning years), noting that historically the DHS state fund budget has increased by roughly $900 million per year over 12 years. He raised concerns that projecting only $200 million annually in growth may underestimate future spending by as much as $7 billion over planning years.

DHS Response

Key budget drivers discussed:

• $1.4 billion increase in the general fund request.
• Federal legislation (H.R.1 / “One Big Beautiful Bill”) shifted SNAP administrative costs from 50% state share to 75%, adding:
  • $87 million this fiscal year.
  • Approximately $120 million annually once fully annualized
• FMAP (Federal Medical Assistance Percentage) changes produced approximately $570 million in savings due to a slight increase in federal match
• Planning year projections assume roughly 1% growth in major capitation programs (e.g., Community HealthChoices).
• Other appropriations are largely held flat.

DHS Explanation for Conservative Projections

DHS argued that:

• Significant federal uncertainty makes historic growth assumptions unreliable.
• Medicaid enrollment changes due to new eligibility rules could reduce costs.
• Federal reforms could significantly alter future spending trajectories.

Legislative Concern: Lawmakers expressed unease that underestimating growth could lead to large future budget gaps.

3. Federal SNAP and Medicaid Policy Changes

A substantial portion of the hearing focused on federal policy changes and their impact on Pennsylvania.

SNAP Work Requirement Changes

Secretary Arkoosh reported:

• Since June 1, approximately 89,000 individuals have lost SNAP access.
• Of those, roughly 59,000 lost benefits after September 1 due to expanded work requirement changes
• The 75% SNAP administrative cost shift applies to all states and is unrelated to Pennsylvania’s SNAP error rate.

DHS emphasized that many individuals losing SNAP benefits may still be eligible but fail to meet new reporting requirements.

4. Medicaid Expansion and Continuous Eligibility Requirements

Upcoming Changes (Effective January 2027)

The Medicaid expansion population currently includes approximately 767,000 individuals

Under new federal rules, this population must:

• Redetermine eligibility every six months.
• Meet community engagement/work requirements (unless exempt).

DHS Modernization Efforts

To prepare, DHS is implementing:

• Enhanced online document upload systems.
• Automated application status tracking.
• Consent-based wage verification tools allowing real-time paystub retrieval.
• Simplified password resets and online eligibility tracking.
• Additional oversight to reduce caseworker processing errors.

DHS noted that other states that implemented work requirements saw benefit losses primarily due to reporting barriers, not eligibility failures.

Broader Coverage Impacts

Secretary Arkoosh testified that:

• Between 90,000–100,000 individuals have already lost Pennie coverage due to affordability concerns.
• Lawful immigrants who were previously eligible for Medicaid are being disenrolled.
• Increased uninsured rates are expected.
• SNAP loss historically correlates with increased Medicaid spending, particularly for individuals with diabetes and other food-sensitive conditions.

Takeaway: DHS anticipates increased uninsured and food insecurity rates, even as administrative burdens increase.

5. Section 1115 Waiver

The Chairman confirmed that DHS will not implement any 1115 waiver components without legislative approval.

Secretary Arkoosh affirmed that commitment, noting the waiver is included in the Governor’s budget proposal for legislative consideration

6. Workforce Development & GrowPA

Discussion shifted to workforce shortages and the GrowPA program.

Legislative Highlights:

• 11,000+ applications.
• 5,700 recipients.
• Nursing and allied health were the top enrolled programs.

DHS Workforce Priorities:

• Licensing pathway reform for social workers.
• Interstate licensure compacts for:
  • Physician assistants
  • Licensed social workers
• Rural Health Transformation funding to:
  • Train local healthcare workers.
  • Provide scholarships and short-term housing support.
  • Encourage rural workforce retention.

DHS acknowledged significant workforce shortages, particularly in behavioral health and rural healthcare systems.

7. Department Performance Updates (Past Year)

At Senator Haywood’s request, Secretary Arkoosh provided major updates:

• 30% reduction in the adult emergency waiting list for individuals with intellectual disabilities or autism since February 2024
• Telehealth barriers fully eliminated statewide.
• Secure juvenile treatment center waiting list reduced from ~170 to single digits.
• 79% of nursing-facility-eligible individuals now receive home- and community-based services
• Ongoing IT modernization efforts across DHS systems.

Overall Themes from the Hearing

1. Federal Uncertainty is the Dominant Budget Risk

Nearly every fiscal discussion referenced federal cost shifts, eligibility changes, or funding volatility.

2. Work Requirements and Administrative Burden Are Major Concerns

DHS emphasized that reporting complexity—not lack of eligibility—often drives benefit loss.

3. Long-Term Budget Growth Remains a Legislative Flashpoint

Lawmakers expressed skepticism about projecting 1% growth when historical increases have been far higher.

4. Workforce Capacity is a Structural Challenge

From nursing to social work to rural providers, workforce shortages remain central to DHS operations.