Medicaid update: Some positive news, some not so positive news

The fifth annual Kaiser Commission on Medicaid and the Uninsured surveys of Medicaid status produced mixed results, according to commission executive director Diane Rowland, with "some positive news and some not so positive news."

At an Oct. 19 Washington, DC, briefing, Ms. Rowland noted that the surveying was done before Hurricane Katrina and before congressional budget reconciliation activities affecting Medicaid, and thus did not reflect the effect of those events on states.

Health Management Associates principal Vern Smith identified three key themes from the budget survey results for 2005. In contrast to the previous four surveys, there was good news to report in that state budgets are rebounding somewhat and Medicaid spending and enrollment growth are slowing. "More states than in the past are able to enact positive changes in provider rates, benefits, and eligibility," he said.

There still are challenges. Economic recovery has been uneven across the states and Medicaid continues to grow faster than the state revenues that help support it.

The outlook for the future is mixed. While they have some optimism about the future, state Medicaid directors still are very concerned about factors that are beyond their control but have an impact on their spending and enrollment growth, such as continuing growth in health care costs, increasing poverty rates, continued erosion in employer-sponsored health insurance, declining federal matching rates, and the possibility of changes at the federal level that could shift more costs to the states.

Mr. Smith reported that for each of the past three years, Medicaid spending growth has been slightly less than that for the previous year, and the 7.5% rate of growth in 2005 was the slowest since 1999. "Even though Medicaid spending has been growing faster than state revenues, both on an overall basis and on a per-person basis, Medicaid spending has been growing considerably slower than that which has occurred in the private health insurance marketplace," he said.

Slow spending growth reasons

He said Medicaid spending growth has been slowing not just because enrollment growth has slowed, but also because states have been very aggressive in their cost containment actions "and when you look across the range of actions that states have taken, it's very impressive. Every possible thing that held a hope of slowing the rate of growth in Medicaid spending, states have undertaken."

Georgetown University Health Policy Institute project director Jeff Crowley's presentation focused on prescription drug policy, which Mr. Smith reported has been one of the key cost-containment actions states have pursued.

He showed that prescription drugs represent 10% of overall Medicaid program spending and nearly half of that amount is spent on prescription drugs for dual eligibles. "When the Medicare prescription drug program is implemented, essentially half the drug spending in Medicaid will be transitioned into Medicare Part D," he said. "That will have a fairly significant impact potentially on the Medicaid program."

He said the overarching survey result was that states have many tools available to them to manage the pharmacy benefit and are using many, if not all, of them. Thus, nearly all states have dispensing limits on the quantity of drugs they will dispense at one time. And there has been a significant increase since 2003 in the number of states with preferred drug lists. Of the 37 states that responded to the survey, all require prior authorization for at least some drugs, and nearly all require use of generic drugs where appropriate.

Donna Cohen Ross reported on survey results tracking eligibility rules, enrollment and renewal procedures, and cost-sharing policies in Medicaid and SCHIP programs for children and families.

"Last year, with only very few exceptions, our findings were pretty bleak," she said. "States were still in the thick of their fiscal crisis and while they had received federal fiscal relief funds that helped stave off Medicaid eligibility cuts, we saw for the first time last year that states were beginning to unravel some of the progress that they had made on making Medicaid and CHIP more accessible to children and families. They were rescinding simplification procedures, freezing enrollment, putting financial barriers in place. We called these actions 'beneath the surface cuts.' The obstacles that states were putting in the way of accessing coverage amounted to cuts; they were ways for states to curtail spending. But this year, while there are still problems, we do have some encouraging news from a number of states."

Medicaid, SCHIP doing their job

Ms. Ross said that while the nation's efforts to reduce the number of uninsured people suffered a setback in 2005, once again Medicaid and SCHIP stepped in, especially for children. Some 20 states took steps to increase access to health coverage and nine states actually reopened doors to health coverage they had previously closed. "This is a new development, a significant development," Ms. Ross declared. "Essentially, these nine states restored eligibility, reversed procedural barriers, or relaxed financial barriers."

But there also were some setbacks because 14 states took actions making it more difficult for children and families to get covered and remain covered.

With respect to children's coverage, 11 states took some action to make it more difficult for eligible children to enroll in or retain coverage. Ms. Ross said that approach to managing caseloads still persists after last year, but it was not as prevalent an approach as it was in 2004 when 23 states used methods like increasing premiums, making procedures more complicated, and freezing enrollment.

"Most of these actions took place in the SCHIP programs since Medicaid beneficiaries are protected from some of these premiums and freezes, except under waivers," she said. "Each of the types of actions we looked at was a bigger problem last year than this year, although increasing the cost to families through increased premiums, for example, is still the most common action that states took and this is something to keep an eye on. All the states that had frozen enrollment last year reopened their programs except for Tennessee, which has frozen enrollment for children under its Medicaid waiver. This is a finding that continues to be a problem. Low-income parents are still less likely to qualify for coverage than children, and this year the disparity between the level of parent eligibility and children's eligibility actually widened."

Looking at what happened in states that reversed earlier decisions to restrict coverage, Ms. Ross said their stories give an optimistic outlook for the future. "In some states," she explained, "a brighter financial picture helped drive the decision to restore coverage, but in others, even when the budget was still under pressure, states were persuaded to change course when they saw that previous decisions had led to some very serious drops in enrollment, much bigger than they had projected."

In Wisconsin's BadgerCare, she said, the state implemented a new verification process in which applicants and beneficiaries who wanted to keep their coverage for the first time had to get their employer to complete and return a form verifying the employee's income and also a form verifying that the employer does not offer health insurance. Employers weren't returning it turned out the forms and enrollment plummeted. Ms. Ross said a state report on reasons for the decline found the new procedure was the key reason that health coverage was being denied and also found that those being denied appeared to be eligible. Wisconsin has made some changes to the process, she said, but hasn't removed the form so it still isn't clear whether the procedure will remain a barrier.

In Washington state, officials implemented some restrictive procedures and saw enrollment of children plummet. The changes put additional verification requirements in place and also required that families renew children's coverage twice a year rather than annually. They also eliminated 12-month continuous eligibility that guaranteed a full year of coverage.

"When they put these measures in place for budgetary reasons, they anticipated that they were going to see a fall-off in enrollment, but in fact the drop was more than twice as much as they had projected," according to Ms. Ross. "Concerned about the ramifications for children's health, Gov. Greg Warr ordered a return to 12-month continuous eligibility that guaranteed first-year coverage, so they have reversed some of the procedures based on the concern they had about this enrollment drop. Washington also studied the reasons for the drop and found that more than half of the decline was due explicitly to the new procedures."

The state also determined that among the children who lost coverage, 90% still were eligible. They looked at the experience of children who left the program and found that those who were uninsured were less likely to have seen a doctor and twice as likely to have used a hospital emergency room than children who were insured.

In Texas, she said, budget cuts led to increased SCHIP premiums. The state has since eliminated premiums for families with children below 133% of the federal poverty line and reduced the amount of premiums for other families. Again, it was the cost to families that was largely responsible for the drop in enrollment and so the decision was reversed, Ms. Ross said.

She said New Jersey provides probably the most optimistic story, dealing with leadership and setting priorities. The legislature approved restoring parent coverage that had been cut in 2002, and over the next three years, eligibility is scheduled to increase so that 75,000 patents will be able to benefit from health coverage. They also have a new package that includes making it easier for children and families to apply, making it easier for them to keep their coverage, including guaranteeing a full year of coverage for kids, and they are once again investing very heavily in outreach, which is a new development.

Four overall themes

National Academy of State Health Policy president Alan Weil tried to pull all the survey results together, saying he saw four major themes:

  • Medicaid is working precisely as designed. The program has functioned in a countercyclical way. Spending on Medicaid increased when the economy turned down, coverage increased as people lost employer-sponsored coverage, and losses in private coverage were offset, particularly for children, by increased public coverage.
  • The core problem in Medicaid today is financing. "Obviously, this is a problem in the aggregate," Mr. Weil said. "Medicaid costs are rising as are health care costs in general, but I am struck by the share of the financing problem in Medicaid that is really about allocation of costs between the federal government and the states, and to be blunt about it, I am struck in these reports by how much the federal government is doing to make the problem worse. The federal government's decision to supply a prescription drug benefit to Medicare eligibles would have been an opportunity to alleviate some of the budget stress that states experience, and that opportunity did not come into place.
  • We are perilously close to the breakdown of a national framework and a national model for what the Medicaid program should look like. Mr. Weil said although states demanded flexibility on eligibility when Medicaid was first approved, over the years the federal government has played a larger role in defining a federal floor, and in recent years there have been many more areas of variability in how states are looking at and administering their programs. "We have the traditional variability of income eligibility, but we are now seeing variability around benefits, around delivery systems, around the relationship to the employer-sponsored insurance system, and more and more, and so we are losing, I believe, some of the sense of this being a national program," Mr. Weil said. "The rhetoric has been we are protecting the core mandatory populations and mandatory benefits and that federal commitment is intact, but…the mandatory core of this program is quite small relative to the optional components and therefore if that is the entirety of the federal commitment, it is much smaller than it would have been viewed of as in the past."
  • We have to ask what proposed Medicaid reforms will yield. He said reform is going on in two very distinct ways: 1) state-by-state waivers under the name of research and demonstration that still are yielding fundamental long-term changes in the program; and 2) there are a series of federal proposals for modifying the Medicaid program.

"If the mantra today is that the costs of this program are unsustainable and we choose a new design in which public costs are sustainable but health care cost growth is not, how is that gap going to be bridged?" Mr. Weil asked. "Who is the burden going to fall upon in filling the gap between sustainable public costs and unsustainable private costs? Finally, what degree of interstate variability are we willing to experience, do we want to experience as a nation? How much does interstate variability help improve the program through experimentation as clearly some of it does?"

(Watch the briefing on-line at Also at that site are a transcript and PowerPoint slides.)