Arizona Medicaid needs $1 billion to fund current program for FY2012

Arizona will have to spend $11.6 billion in general fund monies from fiscal years 2011 through 2020 to serve expansion and "woodwork" populations, as well as maintain previously optional groups that are now mandated by the federal government, according to an analysis of the impact of the Patient Protection and Affordable Care Act (PPACA) that was completed by Arizona's Medicaid program.

"The biggest issue for Arizona is that we cannot afford the program we have, once the federal stimulus funds expire on July 1, 2011," says Thomas J. Betlach, director of the Arizona Health Care Cost Containment System (AHCCCS), Arizona's Medicaid program.

"Significant" intangible costs

Currently, Mr. Betlach says, "We need $1 billion in fiscal year 2012, just to fund the current program. That is in a state where we have cut state government spending by over $2.2 billion since the start of the recession, and have had to raise taxes by over $1 billion."

This means more than $1 billion a year in new unfunded federal mandates, says Mr. Betlach, adding that there are significant intangible costs to health care reform. "Just about every component of health care reform will require added complexity," he says.

For example, Arizona has 18 different health plans, and the law requires that Medicaid reimburse certain professional fees at 100% of Medicare, says Mr. Betlach.

"We currently reimburse at 95%, on average, on our fee scales. Plans may literally have hundreds of different negotiated rates with providers," says Mr. Betlach. "Do we need to somehow track all of that to ensure that they each all get up to 100%, and then account for it financially so that we can get some additional federal match?"

Mr. Betlach questions how the state will be able to get this done, especially since over 30% of staff has been lost since the start of the recession due to budget cuts. "In addition, 35% of the remaining staff are eligible for retirement over the next five years," he adds. "That is a lot of institutional knowledge and expertise being lost at a critical time."

Mr. Betlach says that there were "no significant surprises" in the analysis provided to the governor. "The analysis largely mirrored the evaluation that had been completed throughout the legislative process, which served as one of the main reasons Gov. [Janice] Brewer strongly opposed the legislation," he adds.

The biggest challenges for AHCCCS currently, says Mr. Betlach, involve both short-term and long-term finances.

"The biggest challenge is, what do we do when the stimulus funds expire?" he asks. When that happens, the state match requirement for the Arizona General Fund will go from $2 billion to $3 billion, he says.

"This is in a state that has already had to enact budget reductions throughout state government in excess of $2.2 billion and had the voters pass a tax increase that approaches $1 billion," says Mr. Betlach.

Some difficult decisions

Since the start of the recession, says Mr. Betlach, the state has made budget policy decisions that have reduced spending by $875 million from a Medicaid program that is regularly ranked as having one of the lowest per member/per year costs in the country.

These reductions have come from provider rate reductions, benefit changes, reductions in eligibility in the Children's Health Insurance Program (CHIP), and increased cost sharing.

"States have limited options, given the maintenance of eligibility [MOE] requirements imposed by ARRA [the American Recovery and Reinvestment Act of 2009] and the Affordable Care Act," adds Mr. Betlach.

To date, says Mr. Betlach, Arizona has imposed provider rate reductions ranging from 5% to 10% and has frozen payments to hospitals and nursing homes for two years. On April 1, 2011, payment to Arizona Medicaid providers will be reduced by an additional 5%, he adds, including hospital payments.

Coverage was eliminated for many optional benefits, including emergency dental procedures, insulin pumps, and orthotics, says Mr. Betlach, and mandatory copays were imposed on roughly 225,000 adults.

"These are difficult decisions that are being made," says Mr. Betlach. "One that has grabbed attention is the decision to eliminate certain transplants."

Currently, about 100 transplants are covered each year, Mr. Betlach says, and after benefit changes were made, this will be reduced to roughly 85 transplants, saving $800,000 in the current fiscal year. In 2009, AHCCCS had both internal and external clinicians review medical research and outcome results for the program, he reports.

"Ultimately, policy-makers approved the proposed changes," says Mr. Betlach. "Of course, the decisions made at the state level are largely shaped by federal policy. Congress has clearly established transplants as an optional service."

Mr. Betlach says that "ultimately, this is a decision made by voters about what level of services they are willing to support with their tax dollars. To date, we have not seen a campaign launched by the voters or provider community to address the $1 billion problem."

In light of this, Mr. Betlach says that further reductions to the AHCCCS program and other state-funded programs are inevitable. "After the benefit changes were made, Arizona has very few optional benefits remaining," he notes. "At the same time, we face incredible fiscal pressure in the upcoming year."

MOE requirements

Mr. Betlach notes that as a result of the MOE requirements in health care reform, Arizona restored its CHIP program, KidsCare, which was eliminated in the FY 2011 budget.

Prior to the passage of the PPACA, the Centers for Medicare & Medicaid Services (CMS) approved a freeze on new enrollment for KidsCare as of Jan. 1, 2010, explains Mr. Betlach.

"The legislature took action and restored the CHIP program, when it was apparent the state would lose $7 billion in federal participation if the program was eliminated," says Mr. Betlach.

The biggest challenge of health care reform, according to Mr. Betlach, will be meeting the MOE and financial match requirements. "Arizona is one of just a handful of states that provides coverage to childless adults up to 100% of the federal poverty limit," he notes.

One week before the passage of health care reform, the Arizona legislature enacted a budget that would have eliminated coverage for 300,000 adults, reports Mr. Betlach, which would have resulted in annual savings to the state of roughly $1 billion.

"Once health care reform was enacted, this option was eliminated," he says. "Given that Arizona is trying to manage a program it cannot afford, meeting the MOE requirements are a massive challenge."

Growth is continuing

Mr. Betlach says that once health care reform is initiated, meeting the continued fiscal pressures will continue to place a strain on the state.

"Our estimates show the projected state match that will be required between now and fiscal year 2015 will only grow," says Mr. Betlach. "The state continues to face significant growth associated with the Medicaid program."

The additional resources required to support Medicaid means more reductions in K-12 and university funding, says Mr. Betlach, as the Medicaid program continues to take up a bigger percentage of state government spending. This percentage has increased from 18% in fiscal year 2007 to 30% in fiscal year 2011, he reports.

While it won't result in immediate fiscal gains, Mr. Betlach says that one of the best long-term opportunities he sees under health care reform is the new authority provided to states to address coordination issues for dually eligible members.

"Arizona is interested in leveraging our mature managed care model, and applying for assistance being offered by the new Center for Medicare and Medicaid Innovation and the Coordinated Health Care Office," says Mr. Betlach. "The Affordable Care Act provides new flexibility for states to develop new demonstration proposals."

Arizona has about one-third of the 100,000 dual eligible members enrolled in the same plan for both Medicare and Medicaid, notes Mr. Betlach. "Arizona is looking to eliminate regulatory confusion and improve the experience for this frail population," he says.

Arizona is exploring other areas for potential improvements in the delivery of care and cost containment relating to patient-centered medical homes, adds Mr. Betlach.

"We look forward to working with CMS to see what opportunities states may have to improve outcomes for dual-eligibles and to better manage the health of the broader Medicaid population," he says.

Contact Mr. Betlach at (602) 253-2570 or