Many unknowns mean long-term fiscal uncertainty for Medicaid
Many unknowns mean long-term fiscal uncertainty for Medicaid
During Utah's last legislative session, a decision was made to commit a minimal amount of dollars to Medicaid expansion, since it was unknown whether the enrollment growth surge the state was seeing would continue.
"And what's happened since that point in time has been a tremendous growth in the program," says Michael Hales, the state's Medicaid director. "We were approaching the budget with a 'wait-and-see' approach. Now, we're going to have to see whether we can get some ongoing funds in really large dollar amounts to keep the program going as it currently is."
Despite signs that the economy is recovering, the number of Medicaid enrollees continues to rise in many states, in some cases to unprecedented levels. In 2009, Medicaid spending grew 7.9%, well above the projected growth at the start of the year, according to the September 2009 Kaiser Commission on Medicaid and the Uninsured (KCMU) report, "The Crunch Continues: An Update on Medicaid Spending, Coverage and Policy in the Midst of a Recession-Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2009 and 2010." Three-quarters of Medicaid directors surveyed said there was a 50% likelihood that their budgeted amount for 2010 was not going to be sufficient.
"Our income tax and capital gains revenue has gone down. We've taken a hit in every segment of the economy," says Michael P. Starkowski, commissioner of Connecticut's Department of Social Services. "The question now is, how quickly can we rebound? And how can we do it with as little damage as possible?"
For FY 2010, states are already starting to make some programmatic restrictions, particularly in the area of benefits and provider payment rates. "Should states run into Medicaid budget shortfalls, they will be back at the table looking to trim costs more," says Robin Rudowitz, one of the authors of the KCMU report. Ms. Rudowitz is a principal policy analyst for the Washington, DC-based KCMU and former Medicaid director in the Office of Legislation at the Centers for Medicare & Medicaid Services (CMS).
Lillian Koller, director of Hawaii's Department of Human Services, says the state's revenue has fallen by about $3 billion since last year, mainly due to a sudden and substantial drop in tourism activity caused by the global economic recession. "Hawaii is required by law to enact a balanced budget, meaning state officials must make some very difficult decisions during this troubled economic period," she reports.
The number of recipients of Hawaii's Medicaid programs has increased by about 10% over the past year, adding about 1,500 to 1,700 new recipients per month. "Government officials are working hard to maintain benefits in the face of declining state revenues and increasing Medicaid caseloads," says Ms. Koller.
Larry Iversen, director of South Dakota's Division of Medical Ser- vices, says the state's Medicaid program has seen an increase of more than 500 new enrollees each month since November. "This is the largest growth pattern the state has seen in Medicaid enrollment," he says. "Higher enrollment increases overall program costs, and South Dakota does not have the funding to keep up. Potential changes in FMAP are also a challenge for our state, as South Dakota's personal income has remained more stable than other states."
South Dakota has not made cuts to the Medicaid program. "However, before the stimulus, we would have had to consider cutting some optional services," says Mr. Iversen. "At this time, we do not know if South Dakota will have to look at cuts when the stimulus funding runs out. We are looking for state funds to fill the hole."
Tremendous growth continues
When surveyed in the summer of 2008, state Medicaid directors projected a growth of 3.6% for 2009 on average. The KCMU survey revealed that in fact, enrollment grew 5.4%. "We knew that enrollment and spending were going up," says Ms. Rudowitz. "But this provided numbers and showed how much higher enrollment and spending were from what states had budgeted for fiscal year 2009."
Mr. Hales says Utah Medicaid's biggest challenge at the moment is "tremendous growth in the program during a very difficult budget status for the state. We have seen, for our state fiscal year 2009 that ended in June, a 19% increase in enrollees in the program. That, in a climate where state revenues are down, is putting tremendous pressure on funding for the program."
While Utah Medicaid had about 165,000 monthly enrollees in June 2008, that number had climbed to 195,000 by June 2009. "We are at an all-time high in terms of absolute number of enrollees. We just crossed the 200,000 enrollee mark in September 2009 for the first time ever," says Mr. Hales. "Even going back and looking at our percentage growth rates during the budget down cycles of 2002 through 2004, we only saw a 10% or 11% annual growth rate."
Utah Medicaid saw only a 3% growth rate in FY 2008, with some months going up and others down, but enrollment has gone up steadily since December 2007. In 2009, the program has seen a 19% growth rate, "For the first three months of the FY 2010, we saw a 17% growth rate. So it may be slowing down a little, but I wouldn't say a lot," says Mr. Hales.
Connecticut's projected deficit of about $8 billion in its two-year budget resulted in the longest legislative session for the passage of its appropriations act in the state's history. "And a lot of the reason for that deficit is the burgeoning costs of health care in our state systems, especially in our Medicaid program and what we call our State Administered General Assistance (SAGA) program," says Mr. Starkowski. "The numbers have been increasing exponentially every month."
In the state's Husky-A program, its basic Medicaid managed care program covering the non-fee-for-service and non-ABD populations, enrollees increased by about 20,000 people in the past year, going from 330,000 to over 350,000. "That is a significant increase. That really is a strain when the state is having a difficult time trying to make ends meet," says Mr. Starkowski.
Enrollment in the state's CHIP program has stayed pretty constant for the past year, in the 15,000- to 16,000-person range. However, its new Charter Oak program for uninsured adults is now serving more than 11,000 newly covered people. In SAGA, the increase was from 34,000 to 42,000.
"Our numbers have been going up out of sight, like the numbers in other states," says Mr. Starkowski. "People are losing their jobs and their health benefits. And if you have no income coming in, you will be eligible for Medicaid if you have kids. So, we are trying to keep the system we have in place. We are trying to make sure we have sufficient providers, who are all crying out for rate increases in order to meet their additional expenses. So, it's a real challenge, just trying to keep the program viable."
Concern over the 'cliff'
Before the financial help came through from the federal government through the American Recovery and Reinvestment Act (ARRA), Utah Medicaid was looking at a number of eligibility groups for possible reductions. "I don't know what those eventual decisions would have been, because we didn't have to make them, given the timing of when the stimulus package was approved," says Mr. Hales.
"Our big concern, going into our next appropriation process, is that a lot of the money in our budget is one-time money, whether that is coming from the stimulus package or just appropriations for our program right now," says Mr. Hales. "We will have to see what our state revenue situation looks like. But we could be back to looking at a full range of reduction options again, possibly including eligibility."
According to the KCMU survey, state Medicaid directors are expecting a 6.6% enrollment growth on average for 2010. "So, there is still a feeling that enrollment is growing. There is an expectation that even if the recession officially 'ends,' the impact on state Medicaid programs will linger, for at least a year or two," says Ms. Rudowitz. "States are already now starting to think about their budgets for 2011. And midyear through state FY 2011 is when the ARRA funds for Medicaid will expire. States are not expecting their economies to be in full recovery by then. So, I think there is quite a bit of concern about that cliff."
As for what was done with the ARRA funds, 38 states said they avoided or reduced the level of planned provider rate cuts, and 36 said they avoided cutting some benefits. "So, certainly, they might have to come back and look at those again," says Ms. Rudowitz.
Ms. Koller says the budget picture for Hawaii Medicaid is unclear for both the current and upcoming fiscal years, primarily because contract negotiations are still ongoing with some of the public sector employee unions. "Uncertainties about future revenues and expenses make it difficult to conduct long-range planning at this point," she adds.
Ms. Rudowitz notes that since this recession is coming pretty quickly after the last economic downturn in 2001 to 2004, there was a short recovery period before states were again faced with another downturn. "States implemented a lot of cost-containment during the last downturn. So, if there were any easy places to go to get efficiencies or reduce program spending, then it's already been done," she says.
Will planned expansions survive?
Due to the ARRA funding requirement that states maintain eligibility levels, "states can't go backwards right now," says Ms. Rudowitz.
A number of states still are moving forward with expanding coverage for children, as plans were in the works, and they were able to move forward once CHIP reauthorization occurred. "But there is a combination of uncertainty with what's happening with health care reform and the economic situation. That is causing states to put other expansion plans on hold," says Ms. Rudowitz.
Utah's 1115 waiver, called the Primary Care Network Program, pays a limited benefit package for an expansion population, including a premium subsidy program. A waiver amendment that's before CMS right now would allow the current subsidy program, which only subsidizes employer-sponsored insurance, to be a subsidy for privately purchased health plans, COBRA insurance plans, and the state's insurance high-risk pool.
"We recognize that a lot of people are losing their employer-sponsored insurance, so we would like the subsidy available in different circumstances than just employer-sponsored insurance," says Mr. Hales. "We are still moving ahead with that, because the budget is already there for our primary care network or the premium subsidy. If we expand our subsidy, we will just limit enrollment in our primary care network."
Mr. Starkowski attributes soaring Medicaid enrollment in his state largely to job losses in the economic downturn, noting that the state has significant wealth but also a significant number of low-income families and individuals. "For the past 10 or 12 years, we have done things to make sure we have not only appropriate programs to serve the indigent, but we also have instituted a number of programs for working people," he says. "We've been doing a lot of progressive things in Connecticut. We do try to take a chance and a risk and do different things for our population."
He points to the state's CHIP program, which provides coverage regardless of income. "If you hit 300% of the FPL, you pay the negotiated rates with the managed care program, but your child gets good, unsubsidized coverage for about $195 a month. We kept with that same mantra when Gov. [M. Jodi] Rell initiated the Charter Oak program, which covers single adults 19 through 64 who aren't eligible for other programs. If you're eligible for Charter Oak and you hit 300% of FPL, you pay the unsubsidized, negotiated premium, currently $259 a month," says Mr. Starkowski.
"We recognize that even working people have a difficult time paying for coverage, even if it's offered by an employer," says Mr. Starkowski. "That's why we put in the Charter Oak program. And it's worked out well for thousands of previously uninsured individuals, especially for a brand-new program. It's a reasonable program that provides affordable access to health care."
This year, the state added the option of a primary care case management (PCCM) program to its Husky program. "So, we not only have three managed care entities, but also two pilots going on in the state with PCCM. And we will be expanding that to more areas of the state," says Mr. Starkowski.
In addition, Connecticut has appropriated funds to put its Medicaid fee-for-service population under care management. "It could be anything from an ASO [Admini- strative Services Organization] to a partially capitated arrangement to a managed care arrangement. But we are trying to provide some care management, instead of just a freestanding population without any assignment to a primary care physician or anybody working on disease management," says Mr. Starkowski.
The budget also authorized funding for Special Needs Plans (SNPs) for dual-eligibles, with two entities in the state currently participating. "We've always been kind of reluctant, because I personally think the jury is out on whether the state saves money or not," says Mr. Starkowski. "These were originally put in place to save Medicare money, and we don't know if those states that have joined together with SNPs for Medicaid and Medicare have really saved any state money or enhanced the quality of life for individuals. But we'll find that out."
Provider rates take a hit
Although Utah Medicaid didn't have to face the unappealing prospect of reducing eligibility categories, fairly large reductions were made to provider reimbursement.
"That's where most of our reductions have come," says Mr. Hales.
The strategy was to roll back the equivalent of about three years worth of inflationary appropriations that had been given to providers. In addition, some provider groups had some targeted reductions. Inpatient hospitals were one of the groups targeted for bigger reductions, because of a perception that their reimbursement was comparatively favorable to other providers in the Medicaid program.
While pediatric dentists received a large increase in October 2007, they took a 25% reduction in their reimbursement for FY 2009. Hospitals took a 15% reduction, pharmacy took a 10% reduction, and most other providers were given a reduction of 5% or less.
"In terms of access, we haven't seen a lot of dentists disenroll from the program yet. We've seen about a 4% drop in our dentist enrollment since it went into effect, which is not a huge amount," says Mr. Hales. "But we have seen them become very politically active in terms of trying to explain the consequences of what's happened. We've received a lot of letters saying they are going to give us a couple of months to restore the cuts, going into our next legislative session."
Primary care physicians were given only minimal reductions of about 1%. "Our physician rates were already pretty low, and we feel like they are the backbone of the program," explains Mr. Hales. "In the past, they have taken cuts or not gotten as much new funding as other providers." Adult dental services have been funded on and off over the past five years, "so that one's usually a casualty of down times in the economy," says Mr. Hales. "It was offered as a benefit in 2009, but we didn't get additional funding to keep it going in 2010. So, it was not technically a budget cut, because it was funded only for one year."
Eyeglass coverage, hearing aids, chiropractic services, and speech therapy were cut. "We did eliminate a number of optional services, although we didn't really have very many in the state of Utah to begin with," says Mr. Hales. Two other optional services, occupational and physical therapy, were cut temporarily in 2009, but these were restored for FY 2010 with one-time funding. All of the cuts in optional services saved Medicaid only about $550,000, however, compared with $25 million in provider reductions.
Hawaii's Medicaid program scaled back adult dental benefits on Aug. 1, 2009, to the level they were prior to December 2006, when only emergency procedures such as tooth extractions were covered. "Medicaid began covering preventive and restorative dental services in December 2006, but those costs became unsustainable due to the current recession," says Ms. Koller. "Needy parents can still receive free preventive and restorative dental services, however, as part of Hawaii's welfare-to-work programs. Also, all children in our Medicaid programs continue to receive full dental benefits."
Rates increased in FY '08 & '09
For FY 2008 and 2009, Connecti- cut gave significant increases to many of its Medicaid providers, including hospitals, primary care physicians, and pediatricians. "A lot of those rate increases were actually designated by the legislature and governor to try to increase participation of the providers needed to take care of our population," says Mr. Starkowski. "And those rate increases actually worked out well, because we did have a significant increase in the number of providers."
This year, however, few - if any - of the state's Medicaid providers will receive rate increases. "That's pretty much across the board. Whether it's a nursing home, a specialist, or a primary care physician, their rates have all been frozen," says Mr. Starkowski. "We tried everything possible to keep the provider rates where they were."
However, a number of initiatives reduced provider rates to pharmacies. These include reducing the maximum allowable cost for generics, decreasing the dispensing fee paid to pharmacies, and increasing requirements for prior authorizations for pharmaceuticals.
In addition, a copay of $15 maximum per month for pharmacy was added for dual-eligibles, the annual enrollment fee was increased for the ConnPACE prescription drug program for elderly and disabled individuals who aren't eligible for Medicaid, and enrollment was limited in a Medicare Part D plan to a benchmark plan. Individuals used to be allowed to go into any plan with the state paying the monthly Part D premium.
"So, there are places where we increased the client's financial participation. We recognized that if we reduced the rates to our providers, we would be in jeopardy of not having access for our clients," Mr. Starkowski says.
Since Connecticut's budget was just passed, whether these changes will have a negative impact on access is not yet known. "When I talk to nursing homes and provider groups, every one of the groups is disappointed. All of them felt that their particular group should have gotten an increase. But I think that they all understand what is going on with Medicaid," says Mr. Starkowski. "The problem wasn't one that could be solved by just raising income taxes in order to provide everybody with the increase they were looking for."
The increased FMAP percentage, says Mr. Starkowski, "really helped the revenue position in the state of Connecticut. Our FMAP is normally 50%, and we went to 60.19% with the ARRA bump, and recently to 61.59% with another ARRA adjustment, based on our unemployment rate. When you consider we are spending $4 billion on an annual basis, an increase of 10 percentage points means a lot."
Elimination of adult dental services was considered, but a softer approach was taken by adding the requirement for prior authorization for some dental services, in order to try to limit abuse, overuse of services, and encourage the use of less costly procedures.
There also was a major adjustment in the budget to reduce the capitation rates paid to managed care programs that serve 350,000 family members under the Husky program, the state's Medicaid managed care program, amounting to a 6% cut on that program.
"But after all of these cuts, we still have a Medicaid line item that is the single largest expenditure in the state of Connecticut, and I think that's the way it is in a number of states," says Mr. Starkowski. "Right now, our agency has about $4.9 billion in our appropriation, and about $4 billion goes to Medicaid services. We have our waiver programs, home care, fee-for-service programs, and the list goes on and on."
Contact Mr. Hales at (801) 538-6689 or [email protected], Mr. Iversen at (605) 773-3495 or [email protected], Ms. Koller at (808) 586-4997 or [email protected], Ms. Rudowitz at (202) 347-5270 or [email protected], and Mr. Starkowski at (860) 424-5054 or [email protected].
During Utah's last legislative session, a decision was made to commit a minimal amount of dollars to Medicaid expansion, since it was unknown whether the enrollment growth surge the state was seeing would continue.Subscribe Now for Access
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