Fiscal Fitness: How States Cope

Washington Medicaid facing additional cuts: What's next for recipients?

After last year's round of budget cuts, Washington Medicaid seemingly exhausted all opportunities to achieve savings through purchasing initiatives. Now, the program faces another round of budget cuts, threatening its progressive state-only programs and possible benefit reductions to its Medicaid program. To what extent will the state's successful cost-containment programs mitigate this dire situation? That remains to be seen.

"Like many, if not all, states, we are experiencing a historic increase in eligibility," says Roger Gantz, policy director for Washington Medicaid. "That is happening in three areas that we would have anticipated, and another area where we are not quite sure what it means."

In recent years, caseloads for families covered by the state's Temporary Assistance for Needy Families (TANF), or those who qualify for TANF but elect to get Medicaid coverage, has drifted downward slightly. About six months ago, though, the caseload began increasing sharply, a trend that is expected to continue at least through June 2011.

The other area that has seen a major increase in enrollment is coverage for children. Two years ago, Washington implemented the Apple Health For Kids program, a commitment to provide affordable coverage for all children in the state. As part of this initiative, Children's Health Insurance Program (CHIP) coverage was increased from 250% to 350% of FPL. "Also, Apple Health is available to both citizen and noncitizen kids. Our legislature made a commitment that kids are kids, and we're going to provide health coverage for all children," says Mr. Gantz.

The Apple Health program continues to grow quickly, more than anticipated. "The rate of increase was a little surprising to us," says Mr. Gantz. "It reflects the deterioration in the economy, loss of access to employer-sponsored coverage, and the lack of affordability of group markets in the state. It is a challenging dilemma."

If caseloads continue to increase at the current rate, by 2011, the Apple Health program would cover about 46% of all children in the state. "What Medicare is to seniors, Apple Health will be for children," says Mr. Gantz.

The other two areas of growth are Medicaid coverage for the elderly and people with disabilities. "Beginning in late 2008, we began to experience an increase in growth rates for Medicaid coverage for the elderly," says Mr. Gantz. "This increase in growth rates is not yet tied to the anticipated increase due to the baby boomers. It also appears to be for persons in the 65-69 age range, which may be tied to the economy as younger, low-income elderly lose employment."

Washington is experiencing a significant growth rate in Medicaid coverage for persons with disabilities. "We believe this is also attributable to the recession and to efforts on the part of the Social Security Administration to expedite the SSI and SSDI application and approval process," says Mr. Gantz.

All of these populations are "very high cost," adds Mr. Gantz. "And this is coupled with a significant dampening in our revenue base in our state. Again, this is not unique to Washington, but it is certainly going to be very impactful."

Pressure on safety net

The possibility of inadequate capacity for Medicaid clients is a definite concern. "The increased number of enrollees is putting a lot of pressure on our system from a capacity perspective, including our providers and the safety net system," says MaryAnne Lindeblad, Medicaid division director.

Back in 2007, some significant rate increases were given to primary care providers for children, followed by a smaller increase for adults. Most of those increases were rolled back in July 2009. "We are still looking at what effect that had, in terms of maintaining provider capacity," says Ms. Lindeblad. "But certainly, it was a significant hit to our program. Anecdotally, we have heard of providers who a year ago were willing to open their doors to Medicaid kids but are now back to limiting the numbers of kids or only seeing them through a managed care plan."

A total of $9 billion was cut from state services in the 2009-2011 biennial budget. This resulted in a major reduction in the state's Basic Health program, a state-sponsored program providing low-cost health care coverage through private health plans. The reduction will decrease Basic Health enrollment from about 104,000 to 65,000 individuals.

Since then, Gov. Chris Gregoire announced a supplemental budget proposal to address another $2.6 billion deficit in state revenue. Under the proposal, the Basic Health program would be eliminated effective June 30, 2010, which would save the state $160 million. Other programs targeted for elimination are Apple Health for children, which provides health care coverage to 16,000 low-income children and costs $11 million, and the General Assistance Unemployable program, which provides cash grants for 35,000 adults and medical services to nearly 17,000 adults at a cost of $188 million.

The new $2.6 billion deficit, says Mr. Gantz, "is coming at a time when we have already made a variety of other cuts. For the most part, we were able to avoid not having to reduce coverage for individuals or benefits. Most of the cuts were around what we called purchasing opportunities. But we have exhausted most of those opportunities."

The first round of cuts is expected to reduce the number of individuals covered under Basic Health to about 60% of the current number. "And this next round of cuts could result in complete elimination of the program," says Mr. Gantz.

Due to the ARRA's Maintenance of Effort requirements, states like Washington, which have been progressive in coverage for non-Medicaid populations, may be forced to reduce or eliminate those programs. "And in turn, that puts pressure on the safety net system, in terms of their capacity to respond to that need," says Ms. Lindeblad. "Because if, in fact, these programs are eliminated, that would increase the uninsured rate overnight by about 100,000 families."

A number of these individuals have been receiving their medical care and their medical home through their FQHC [Federally Qualified Health Center] system," says Mr. Gantz. "If the Basic Health and General Assistance medical programs go away, it's the same individual, with the same demands on services, and the same provider community. Now, these people are uninsured."

The state recently went through a revamping of the way FQHCs and rural health clinic providers are reimbursed. "Part of it was as a result of how we were paying the providers in the past. We have moved to an alternative payment system that will serve our safety net providers better than our older system in the long run," says Mr. Gantz. "We did this as an acknowledgement of the critical role they play, not only for our Medicaid program, but for our low-income community in general."

Since many of the cuts so far involved state-only programs, the number of services available for people not eligible for Medicaid is getting "narrower and narrower," says Ms. Lindeblad. "And as we are facing some additional cuts, these may be eliminated almost in their entirety. That is a public safety issue. There are a variety of other problems related to that." For instance, the situation also affects the infrastructure of county governments, in terms of their capacity to provide services to indigent individuals and those without insurance.

Long-range vision

With national health reform on the horizon, and the possible expansion of Medicaid to 133% or 150% of the FPL, Mr. Gantz says it would be possible to provide health insurance coverage including behavioral health, to individuals who did not have it in the past. "The challenge, though, is that we could see a drawing back of coverage and the delivery system now, then in [a] couple of years, turning around for a major ramp-up," he says.

Currently, Washington Medicaid is placing a lot of hope on person-centered medical homes as a long-term cost-containment strategy. A multipayer approach will be used, including most of the health plans in the state, and the health care authority that runs the Basic Health plan. "We are looking at coming up with some different payment strategies and payment reform initiatives, to advance that concept across the whole state," says Ms. Lindeblad. "We are looking at how we can really revamp and revitalize the primary care delivery system."

Unfortunately, the state's current fiscal situation may slow this progress. "There is no new money, so we are looking at doing major system reforms, such as doing a better job of managing chronic disease, with existing resources. And frankly, with declining resources," says Ms. Lindeblad.

Another approach involves targeted copayments. These are viewed not as a strategy to share the cost of coverage, as with coinsurance or deductibles, but rather, as a way to influence people's behavior patterns. "Copayment and coinsurance strategies work, but the problem is that they don't discriminate well," says Mr. Gantz. "With a low-income population, the strategy is to use them in very carefully targeted areas." For example, copayments are never put on anything that is related to prevention or primary care. Instead, these are used to promote generics or preferred drugs and to reduce avoidable emergency department use.

Already, there is evidence that targeted copayments are effective. Since the Basic Health plan requires that a family is under 200% of FPL to enroll, families on the program are similar demographically to Medicaid families. However, their ER utilization is significantly lower. "Basic Health has a copayment on ER use and Medicaid does not," says Ms. Lindeblad. "You have to find the right incentives. That is a good example of where a copay strategy seems to have worked."

Contact Mr. Gantz at (360) 725-1880 or gantzrp@dshs.wa.gov and Ms. Lindeblad at (360) 725-1630 or lindem@dshs.wa.gov.