Medicaid agencies brace for impact of health care reform legislation

Medicaid directors, who have struggled to meet surging demand for services with plummeting revenues since the onset of the recession, are now faced with an additional 15 million Americans becoming eligible for the program. The newly passed Patient Protection and Affordable Care Act means major changes for programs, which, in the eyes of some, appear to be "mission impossible."

In part, this is because states will not only be paying for the state share for millions of additional enrollees, but also will have to bear the administrative costs without additional federal help.

"Right now, I'm thinking about all we have to get done by 2014, and how we will be able to afford it. And I just don't know how we can," says Carol Steckel, MPH, Commissioner of Alabama's Medicaid Agency.

Limited resources and reduced staff prevented Medicaid programs from doing detailed analyses of all of the possible scenarios involving health care reform. "We, like a lot of states, are under a hiring freeze. With resources as scarce as they are, there is not a lot you can do in terms of planning for something this controversial getting passed," says Ms. Steckel.

For the past few months, however, Ms. Steckel has attended meetings with the Centers for Medicare & Medicaid Services (CMS) along with other representative states. In walking through various scenarios, they discussed how health care reform would be implemented by the various state Medicaid agencies, and how CMS would start the rulemaking process. One issue in particular stood out — the lack of funding of administrative costs.

"CMS recognized that one of the biggest issues in the health care reform legislation that passed is that it does not finance the infrastructure costs that are going to come to the states," says Ms. Steckel. "We are going to have to change our MMIS systems and our eligibility systems. And none of that was projected in any of the costs."

Thus, in addition to having to eventually pay the state share for the newly eligible, Ms. Steckel says "there are a lot of other things that we are going to have to do that are not paid for, other than the traditional 50/50 match."

Some states, including New York, New Jersey, New Mexico, Massachusetts, and Wisconsin, have already expanded coverage to childless adults. "So, their increased population will not be as significant," says Ms. Steckel. "We are going to have to absorb, just in Alabama alone, over 400,000 new people."

Patricia MacTaggart, a lead research scientist/lecturer at George Washington University's Department of Health Policy in Washington, DC, says that the landmark legislation is "exciting, demanding, and an opportunity for real change. It will require expansive, strategic thinking." There are various requirements and opportunities of the Children's Health Insurance Program Reauthorization Act, the American Recovery and Reinvestment Act, and health care reform, all of which need to be considered.

A great deal of budgetary, policy, and legal analysis is also required. The fiscal program and administrative implications need to be determined, says Ms. MacTaggart, along with what state legislative and regulatory changes are required, and what information system technology and contracting support is going to be needed.

Medicaid directors, says Ms. MacTaggart, will need to use "focused, operational strategies that include regulatory, standardization, partnering, consumer, provider, payment, coverage, and rewarding performance," she says. "It will require managing expectations and addressing competing priorities."

Impact on FY 2011

For some states, FY 2010 ends June 30, while for others it ends Sept. 30, 2010. "For those state provisions that have an effective date of six months after enactment or later, there is very little potential impact in state FY 2010. But there is potential impact for state FY 2011," says Ms. MacTaggart.

However, as of April 2010, states have the option to cover childless adults up to 133% FPL under a state plan amendment at their current FMAP rate. "Some states that operate state-only funded programs for childless adults may choose to take that option and save state dollars, while other states may choose to wait," says Ms. MacTaggart. "Decisions on optional items will be very state-specific. Actions on required activities have a later implementation date."

Questions such as how Medicaid will be linked to the state health insurance exchanges, and whether Medicaid or the exchanges will determine the eligibility for the premium assistance population, though, need to be answered in the short term. "The development process will have to start in 2011 in order to get it done, through the competitive bid process, before 2014," says Ms. Steckel.

Alabama Medicaid was seeing an increase of about 5,000 recipients per month for some time, though that is starting to level off, with about half that number added onto the program in January 2010. However, Ms. Steckel expects to see a sudden surge due to the newly passed legislation.

"If I were projecting, I would project that it is going to bump up," she says. "One of the things I'm nervous about is that everybody thinks that as soon as the president signs this bill, they are eligible for Medicaid or some other kind of insurance. We'll see a lot of people come in, most of whom will not be eligible for Alabama Medicaid, but some who will be."

Two eligibility systems

"We are basically going to have to set up two eligibility systems," says Ms. Steckel. "We still have to walk someone through the existing eligibility system to determine whether they would have been eligible under our rules as they exist today."

If the individual is not eligible under the existing rules, he or she will then be run through the new eligibility rules based on the modified adjusted gross income. If they are eligible based on that criteria, they will need to be tracked separately, because the state receives a higher federal match for that population.

"So, we need to revise our financial systems to reflect that tracking, and our eligibility system will need to reflect these new eligibles," says Ms. Steckel. In addition, all of those systems will have to key into the state health insurance exchanges,which will allow individuals who don't get health insurance through their employers to purchase plans. These will be operational by 2014, and data will need to go back and forth between the exchanges for those individuals receiving premium assistance and for Medicaid eligibles.

"You are going to have people who bounce back and forth between premium assistance and Medicaid," says Ms. Steckel. "Not only that, but you have the exchanges that have the capacity to make Medicaid determination. So, you're going to have Medicaid workers making eligibility determinations, but you're going to have the exchanges making eligibility determinations, so those systems will need to link with each other."

"Almost too much"

The bottom line, says Ms. Steckel, is that the newly passed health care legislation will require significant resources and staff, "for which we do not have either one."

Despite the recession, Alabama Medicaid has remained largely intact, including minimal optional services such as non-institutional hospice care, home health visits, and renal dialysis for adults. "But if you were to ask the state finance director or the governor, they would say the reason that Medicaid has survived the way we have is that we had $60 to $100 million dollar increases every year from the general fund," says Ms. Steckel. "That is good for me, but it's bad for public safety and mental health and public health and prisons and every other agency that is funded out of the general funds."

In Medicaid's FY 2011 budget, cuts include changes to the pharmacy reimbursement system. "We are proposing limiting the number of prescriptions per month for each recipient," says Ms. Steckel. "We also changed reimbursement for psychologists and ambulances."

Rather than make an across-the-board rate cut for its providers, Alabama Medicaid sought to save money by operating more efficiently. A meeting was held for providers, and the state's finance director outlined budget projections. "So, everybody understood what the numbers were for our state general fund," says Ms. Steckel. "We asked not only our providers but also our contractors to come up with 10% savings. We have had a lot of good ideas." Some of these involved health information technology (HIT).

Ms. Steckel says, however, that Alabama's status as a 'front runner" state in terms of HIT will do nothing to offset the infrastructure costs that will be necessary as a result of the new legislation. "It helps our providers, but I don't know that it helps Medicaid," she says. "For the eligibility system upgrades that we really should be doing in line with our MMIS systems, I think it will help on the margins. But the biggest benefit of the whole [Health Information Exchange] effort is information to our providers about their patient." While money will be saved in the long run due to less duplication of testing and better diagnoses, the main impact will be on quality of care, she says.

Ms. Steckel notes that the National Association of State Medicaid Directors in Washington, DC, had been talking with Congressional leadership "from the very beginning, about the fact that the legislation did not include administrative costs. And the response that we consistently got is yes, we know that, but we can't put it in, because it would score too high."

The fraud and abuse initiatives contained in the legislation are another concern. "That is the flip side," says Ms. Steckel. "If we don't set up the systems correctly, then we get hit on the back side of it, because our systems aren't able to determine accurately both the financial side and the eligibility side."

Previously, Ms. Steckel was a Medicaid director in the late 1980s and early 1990s, "and I've been paying attention to Medicaid since then. I have never seen it as challenging, as difficult, as trying as we are seeing now, across the country. You have states like Arizona having to make the painful decision to eliminate their SCHIP program."

Ms. Steckel says she is firmly convinced that money will be wasted in the short term, because changes are being made too broadly and quickly to consider how to do this most efficiently.

"I've never been pessimistic about this program, because I know most of the people who work on it are dedicated and want to do the right thing," says Ms. Steckel. "But it has become almost too much. I don't know how we are going to get through it. We will continue to work with CMS and other states, though, to do what we have to do to get this done."

Contact Ms. MacTaggart at (202) 994-4227 or, and Ms. Steckel at (334) 242-5600 or