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Fiscal Fitness: How States Cope
Arizona's Medicaid program struggles to maintain itself in face of 'fiscal challenge'
Thomas J. Betlach, director of the Arizona Health Care Cost Containment System (AHCCCS), Arizona's Medicaid program, says he has these goals for the program: To keep providers in the system, to keep an integrated model, to maintain competition among health plans, to pay appropriately, and to ensure access to care.
"We are dealing with a problem of a magnitude that has never been faced in the state before," says Mr. Betlach. "But even though the state is facing this incredible fiscal challenge, I think there is a general recognition that the program that we have works well. And we need to keep the core fundamentals of that program in place."
"The legislature has been dealing with a structural imbalance that they have largely used one-time funding sources to address. It's almost $5 billion in shortfalls that they need to deal with," says Mr. Betlach. "That may seem like a small amount of money compared to California, but it's a huge percentage of our overall revenue."
The state has just eliminated coverage for its CHIP parents program, which it had implemented through waivers. This resulted in about 10,000 people losing coverage. A "cap and freeze" was implemented for the CHIP program, which currently covers about 45,000 kids. "We are projecting that by the end of the fiscal year on June 30, we'll be down to below 30,000 just in terms of attrition with that program," says Mr. Betlach. "Another area that has taken a hit is administrative resources. We have gone from a staff that manages Medicaid programs in Arizona of about 1,350, to below 1,100."
MOE is an issue
As for funding from the American Recovery and Reinvestment Act (ARRA), Mr. Betlach says this has been "a double-edged sword" for AHCCCS. "The $2 billion we are receiving to support our Medicaid program has been instrumental in allowing the legislature to deal with the deficit," he says. "But at the same point in time, the maintenance of effort requirements, in conjunction with the constraints that the voters have approved, limits the legislature's ability to do much with regard to eligibility."
Due to those requirements, a number of discretionary cuts were taken off the table. For example, Arizona is one of only six states that cover up to 100% of the FPL for childless adults. "So, we do have a bit of discretionary spending with regards to optional spending at the federal level," says Mr. Betlach. "But between maintenance of effort and what we call voter protections, the legislature's hands are relatively constrained with regards to eligibility."
Some minor changes were made to benefits during the last round of budget cuts, most of them involving tightening up of medical necessity requirements. "But to a large extent, when the legislature has talked about benefits, there hasn't been the political will with regards to making any significant changes. That would have required making statutory changes," says Mr. Betlach.
Already, the state's governor has recommended a change for the FY 2011 budget involving the program's expansion of up to 100% of the FPL. This was originally funded with tobacco settlement money, but state general funds ended up being used to supplement that funding. The governor plans to ask the voters to revert back to the tobacco settlement as the sole funding source.
"That would drop about 300,000 people from coverage, after the maintenance of effort requirement from the stimulus dollars goes away on Jan. 1, 2011," says Mr. Betlach. "Obviously, health care reform is a whole separate discussion that could potentially impact that policy decision."
Provider rates were reduced about 5% across the board for the most part, with hospitals and nursing home rates maintained. While access is being closely monitored, no particularly troubling issues have been detected as yet. This is possibly due to a lot of effort made to keep providers apprised on the status of the state's fiscal status.
"To a large extent, they understand and recognize the situation. Or in some areas, Medicaid may be the majority source of their funding, and they may not have a lot of options," says Mr. Betlach. "I think that overall, people recognize that they are having to make similar decisions to the type of decisions we have had to make, in terms of staffing levels and those types of things. At the same time, you still have to continue to meet the workload requirements."
Meanwhile, Medicaid enrollment continues to grow. In 2008, recipients increased by 100,000, and in 2009, an additional 210,000 individuals were enrolled. The most recent four months saw increases ranging from 12,000 to 25,000.
"It has been occurring over the last 24 months on a pretty steady basis; then it really accelerated in this last year," says Mr. Betlach. "We've had a lot of growth across the board. The biggest growth area is in childless adults." The only exception is the CHIP program, which even before the "cap and freeze" was implemented, had shrunk by about 12,000 members. This is attributed to individuals moving into the Medicaid program as their income drops off.
As for the state's revenue, "I think we're down almost 40% now in terms of our general fund collections revenue over the last three years. We are back to our FY 2004 revenue collections," says Mr. Betlach. "And we've got 140,000 more kids in the K-12 system and 470,000 more people on Medicaid. So, that is the balancing act that the legislature is trying to address. We are seeing poor revenues, along with significantly increased demand for state-funded services."
Program is at crossroads
While Mr. Betlach sees HITECH funding as an opportunity for Medicaid to reduce costs and improve quality, considerable challenges remain. "It's a matter of marshaling the resources necessary to make that happen. We need to make sure we can pay the providers the incentive payments they have earned when they can demonstrate they have met meaningful use," he says. "We need to be sure that providers understand what type of opportunities exists under the law."
A major worry is the ARRA "cliff" when funding ends on Jan. 1, 2011. "That is a huge issue for states. It has a significant impact on our program," says Mr. Betlach. "That funding was put in there to try and help states during this difficult economic time, but unemployment is still at 10% nationally. And states are continuing to try and deal with the structural deficits that they have."
On the health care reform front, Mr. Betlach says he's concerned that both the House and Senate bills require states to maintain the programs that were in place as of 2008, before the full impact of the recession was felt.
"That is an incredible challenge for states. How you bridge that time frame and how you make that work, given the budget challenges we're facing, is something that our policy-makers will really struggle with, especially if there [are] no additional funds during that bridge period," says Mr. Betlach. "Then, when you get to the expansion period, especially under the Senate bill, Arizona is really negatively impacted."
The concern is that states that have pursued expansion policies will be unfairly penalized. "We are basically told to continue to fund the expansion that we started a decade ago. Even though we pursued a policy that Congress is now trying to pursue, we're told that we need to continue to fund it at traditional match, instead of getting the increased funding that other states will," says Mr. Betlach.
When it comes to its expansion programs, such as covering childless adults, Arizona is at a crossroads. "We will either have the federal government coming in and mandating a program that we can't afford without additional assistance from them, or the governor talking about the need to roll this back, because we can't afford this program," says Mr. Betlach. "The next several months will be very interesting for the state of Arizona, in terms of shaping the future of health care coverage."
There is little doubt that Arizona, in comparison to other states, is in for a slower recovery in terms of the rebalancing of the real estate market, both commercial and home, he notes. "This recession, as compared to others, has been incredibly deep," says Mr. Betlach. "With just about every other recession, at this point in time we were back to employment levels seen as pre-recessionary; whereas, the impact now is just staggering."
The direction the AHCCCS program goes is dependent on what transpires over the next six months, says Mr. Betlach. "It depends on how the state responds to its fiscal crisis, and potentially, what the fed[eral] government dictates to the states. It is a very serious situation."
Despite these fiscal challenges, the hope is for Arizona's Medicaid program to remain as unchanged as possible. "That is the main thing we are focused on," says Mr. Betlach. "With regards to managed care, it has been a model that has served this state well in terms of our ability to contain costs, while providing good services to members and good reimbursement to providers. Our goal, over these next challenging few years, is to maintain that core model."
Contact Mr. Betlach at (602) 253-2570 or Thomas.Betlach@azahcccs.gov.