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What impact on the mentally ill would there be if the federal government carries out its Medicaid reform strategy by making the program a block grant?
The Bazelon Center for Mental Health Law says the results could include making more people with mental illness homeless; denying early mental health treatment for children; and increasing the number of adults and juveniles with serious mental illnesses who are in jails, juvenile detention centers, and prisons because of lack of access to community mental health care.
The report was written by Bazelon’s Chris Koyanagi to analyze proposals to change Medicaid from the perspective of adults and children with mental illnesses. The issue is important, she says, because low-income children and adults must rely heavily on Medicaid, having nowhere else to turn for mental health care. In addition, many of those with mental illnesses also have significant overall health care needs and depend on Medicaid for medical and surgical care.
Proposals that have been floated for Medicaid reform include plans to reduce the array of services that states must provide and reduce the number of beneficiaries entitled to services by (1) replacing the current entitlement program with one or more block grants to states; (2) giving states greater flexibility to reduce the benefit package for some or all eligible individuals; and (3) permitting states to create separate programs within Medicaid, with a lower level of coverage, higher co-payments, and fewer protections for individuals who fall within optional eligibility populations.
Ms. Koyanagi says that other suggested reforms would:
"Drastic changes that curtail access to mental health care could have the unintended consequences of increasing overall state, local, and federal spending while leading to poorer outcomes, wasted lives, and even death," Ms. Koyanagi warns.
She says that drastic and fundamental change to Medicaid could unravel the safety net for low-income individuals with mental illness, and it is important to maintain what works while modernizing and improving other aspects. "Recent proposals to substantially restructure Medicaid would undermine that goal," she says.
Ms. Koyanagi cautions that going to a block grant would dismantle the uniform federal standards and safeguards that ensure quality and accountability in Medicaid. She says it would eliminate federal requirements, such as the requirement that recipients receive sufficient services to treat their condition effectively and that all residents of a state have the same coverage, regardless of where they live. Instead, it would allow for services to be covered in one part of a state but not others, or for services to have arbitrary limits on mental health care such as 20 visits per year.
A block grant also eliminates the federal match for state spending, replacing the current flexible funding with a capped amount of resources that cannot increase if people need more services or if the state wants to expand its program. On average, according to Ms. Koyanagi, states receive 57 cents from the federal government for every 43 cents they spend on a Medicaid service to a covered person.
"Over time," she says, "if health costs increase but federal matching funds do not because the federal contribution has been capped through a block grant, states would be forced either to pay 100% of the costs or to deny services even to those currently eligible."
A third issue raised by the report is that a block grant would undermine one of Medicaid’s most important features — its ability to compensate automatically in times of need. Ms. Koyanagi points out that Medicaid is countercyclical, meaning that when unemployment rises and more individuals have low incomes or are uninsured, coverage becomes available to them. Under a block grant, states could not claim the necessary federal match for such fluctuations, but would be given the flexibility to deny coverage during the economic downturns, compounding the adverse impact of such events.
The report also looks at the State Children’s Health Insurance Program (SCHIP), noting that every state that covers any level of mental health disorders through a separate SCHIP plan applies limitations and exclusions that would not be permissible in Medicaid. Many of the services needed by children with special health care needs are those that are omitted or subject to limits under SCHIP, according to Ms. Koyanagi, including case management, rehabilitation therapies, and behavioral health services.
She says that a shift to SCHIP or a private insurance model of benefits also would have the effect of eliminating access to many rehabilitative and other optional Medicaid services needed by adults and children with more serious disorders. People with disabilities, including psychiatric disabilities, rely heavily on the Medicaid optional services.
Significant home- and community-based mental health services are widely available under Medicaid, in part, because they are optional services and do not require a special federal waiver. Included are things such as social and independent living skills training and assertive community treatment for adults, as well as behavioral aides and therapeutic foster care for children.
Proposals not cost-effective
Ms. Koyanagi says that the rationale for Health Insurance Flexibility and Accountability (HIFA) waivers and proposals to block grant Medicaid is that by reducing benefits and increasing cost sharing for those currently eligible, savings can be redirected to provide some level of coverage for some people who are uninsured. However, significant numbers of children and adults with serious disorders who need mental health services currently are on Medicaid, and the package of benefits in the program is critical to maintaining them in the community. Covering more of the uninsured by reducing their benefits is neither cost-effective nor humane, she says.
"A study of the fiscal impact of reducing coverage by amending current eligibility and benefit rules in the manner recently proposed by the Bush administration shows that an estimated 3.8 million children and 1.2 million people with disabilities could lose coverage they would otherwise have," the report says. "If the policy question at hand is expanding access to health insurance coverage, a combination of Medicaid expansions for very low income people and access to other health policies for others would address the issue directly, without detriment to the most needy, who depend on the comprehensive array of services Medicaid provides them."
Ms. Koyanagi also makes the point that states already are moving to cut back their Medicaid programs using the flexibility that already exists in federal law. And these cost-savings measures will have a dramatic impact on the fragile mental health safety net, she says, unless they can be reversed. With the severity of state budget shortfalls, she sees a need for federal intervention.
"In times of economic downturn, it is critically important to protect both the population in need of Medicaid mental health services and the states’ mental health systems," the report says. "Individuals with serious mental illnesses will use some form of services — whether early and effective community services or high-cost institutional placements. Medicaid provides a strong mechanism for states to secure federal support for their community mental health systems. Once these funds are capped or cut (or eligibility and benefits are reduced), cost shifting occurs. These cost shifts are almost entirely into state- and local-funded systems such as state psychiatric hospitals, jails, and prisons. While such reductions save the federal government money, they save the states resources only in theory. Medicaid expenditures may fall, but other costs rise at even higher rates. A better mechanism is needed to aid both states and low-income individuals."
Rather than what has been proposed, Ms. Koyanagi calls for changes to Medicaid such as giving states greater flexibility in service definitions; covering the uninsured with the lowest incomes directly, without reducing benefits to Medicaid recipients; and providing fiscal relief for states. Federal rules, she says, should allow states to:
Speaking out in support of the concerns raised in the Bazelon paper, National Alliance for the Mentally Ill president Michael Faenza says that rather than propose a rescue plan for the millions of people with mental illness who are dependent on public services, the administration and Congress are considering budget plans that would cut mental health funding.
"Not only are state and local mental health systems in crisis," Faenza says, "but states across the country are wrestling with severe, record budget shortfalls, currently estimated to total $85 billion. Forced to balance their budgets, states are cutting mental health and other services. Congress needs to provide relief to the states and meet other pressing national needs, including making mental health a national priority."
[To see the Bazelon report, go to: www.bazelon.org. Contact Ms. Koyanagi at (202) 467-5730; and Mr. Faenza at (703) 524-7600.]