Fiscal Fitness: How States Cope

Good intentions gone bad? Budget-control waivers cause patient fallout in Oregon

While the federal government and states alike tout the flexibility state Medicaid programs get through use of waivers, a Kaiser Commission on Medicaid and the Uninsured study of the impact of Oregon’s Medicaid waiver raises red flags for states to consider as they implement waiver provisions to control Medicaid spending.

"Like a number of recent waivers, Oregon’s waiver included both coverage expansions and reductions," the Kaiser analysis said. "However, the waiver agreements between states and the federal government have not required states to move forward with the expansion as a condition of implementing the reductions.

"As such, while a waiver itself may represent a trade-off between expansions and cutbacks, actual implementation can strike a very different balance."

The study found that while the waiver application predicted 60,000 people would gain coverage through expansions, in fact, only 2,000 people were added to the rolls, while 50,000 lost coverage.

Oregon’s restructuring of its Medicaid program through a Section 1115 waiver and other changes was brought about by serious budget problems and was intended to contain costs and operate the program in ways that parallel commercial health plans, according to the application.

Following the changes, the Office of Oregon Health Policy and Research, with assistance from the Office of Oregon Medical Assistance Programs, established a research collaborative to help inform state and national policy-makers about the impact of the changes in the Oregon Medicaid program. That collaborative produced several reports, research briefs, and research presentations that now have been summarized and disseminated by the Kaiser Commission.

Goal not to drop people

Oregon’s waiver did not change Medicaid eligibility levels, and its stated intent was not to cut off people from coverage. But the research indicates that in the months following implementation of the waiver, enrollment dropped by about 50,000 people. Those hardest hit had chronic illnesses and other significant health problems.

"Care appears to have been compromised both for those who lost their coverage as well as for many who remain enrolled," Kaiser concluded. "People have been unable to fill prescribed medications, some have had to forgo buying food to afford their copayments, and the number of uninsured patients seeking care through the emergency room of a major hospital has risen. Many of the research findings are preliminary, and important questions remain unanswered, but the enrollment data and the studies undertaken to date show that the changes have contributed to an increase in the number of uninsured people, compromised access to care, and resulted in new strains on the health care delivery system."

The waiver gave the state authority to make reductions and expansions in coverage, as well as to refinance an existing state-funded premium-assistance program. It permitted the state to reduce benefits, increase premiums and cost-sharing, and cap enrollment for previously eligible poor parents and other adults. It authorized a small expansion for pregnant women and children (from 170% to 185% of the federal poverty level) and a larger expansion for parents and other adults (from 100% to 185% of poverty) — the state only implemented the expansion for pregnant women and children.

In contrast to the expansions, all of the benefit reductions and new beneficiary costs were implemented. The changes were accomplished by dividing people who had been covered by the Oregon Health Plan (OHP) into two different types of coverage: OHP Plus and OHP Standard.

OHP Plus covers children, pregnant women, parents who receive TANF cash payments (below 52% of poverty), elderly and disabled people, and other adults who receive state-funded general assistance welfare payments (below 43% of poverty) who were eligible for Medicaid in Oregon prior to the waiver. It also covers children and pregnant women who became eligible under the waiver expansion (between 170% and 185% of poverty). Because OHP Plus remains an entitlement program, the state cannot cap or freeze enrollment for eligible individuals. Adults, other than pregnant women, are charged nominal copayments of $2 to $3 if they are not enrolled in a managed care plan (most are in managed care). The waiver allows the state to reduce OHP Plus benefits through a new streamlined process without having to seek new waiver authority, and the state has made use of this provision.

Cuts for OHP Standard

OHP Standard covers poor parents and other adults who are not receiving TANF or general assistance, all of whom were eligible for Medicaid in Oregon before the recent changes. Under the new waiver, the state gained authority to cap enrollment for this group, to increase premiums and cost-sharing, and to reduce their benefits.

The ability to cap enrollment permits the state to limit coverage on a first-come, first-served basis rather than based on income or medical need. The state planned to close enrollment July 1, 2004, and new applicants would not be able to enroll. Also, current enrollees who lose their coverage for any reason will not be able to re-enroll.

All OHP Standard enrollees, including those with no income, pay monthly premiums ranging from $6 to $20, based on income. The state also has implemented stricter payment policies, including dropping people if they miss one premium payment, not waiving nonpayment for good cause, and making those who are dropped wait six months to re-apply (a provision that becomes moot after the July 1, 2004, permanent end to enrollment). Copayments are charged for most services except preventive care. OHP Standard enrollees can be denied service if they can’t afford the copay. Under a court order, copays were dropped as of June 19, 2004.

Benefits have been reduced significantly below OHP Plus levels, the researchers say. OHP Standard enrollees had no coverage for mental health and substance abuse services, durable medical equipment, and dental and vision services. Prescription drug coverage was dropped by the state legislature in March 2003, but later was restored.

Kaiser’s analysis of the research reports found that individuals affected by the waiver had limited incomes and significant health needs. Some of the affected adults had no regular sources of income, while others had incomes just above the cash assistance eligibility levels. And although people who fall into the "disabled" eligibility category were not subject to the benefit, premium, and cost-sharing changes under the waiver, many of those affected by those changes had significant health care needs.

Kaiser said preliminary results from a statewide survey found that almost half reported a chronic condition other than depression or anxiety, such as high blood pressure, asthma, or diabetes, and 36% reported suffering from depression or anxiety.

Thousands lost coverage

The waiver also resulted in thousands of people losing Medicaid coverage, and the majority of those who lost coverage became uninsured. "Although the waiver was advanced as a way to stretch limited dollars to retail and even expand coverage," the report said, "enrollment among those moved into OHP Standard has fallen sharply. In less than one year, the OHP Standard population fell by about one-half — from over 100,000 enrollees in early 2002 to about 50,000 in late 2003. Most of the change came from disenrollments, although researchers also observed a decline in new enrollments. Preliminary survey results showed that nearly 75% of OHP Standard disenrollees became uninsured."

According to Kaiser’s research review, premium increases and stricter premium payment policies appear to be largely responsible for the drop in enrollment. Premiums are not new in Oregon, and all of the adults who were moved into OHP Standard had been charged premiums under the original OHP waiver. Under the new waiver, premium amounts were increased to $6 to $20 per month, based on income, and stricter payment policies were implemented.

Researchers have concluded that both the changes in the premium amounts and payment policies, along with some confusion about the changes, contributed to the loss of coverage. Kaiser said Oregon’s premium experience was mirrored in Massachusetts, where enrollment declined by 34% to 48%, as a result of new premium charges.

While there were significant Medicaid coverage losses among all those subject to premiums, the study said, the lowest income people experienced the greatest losses.

"Oregon’s experience demonstrates how difficult it is for low-income people to manage premiums, even premiums that appear to be relatively modest," the Kaiser report declared. "OHP Standard covers individuals with incomes below 100% of poverty, and enrollment declined among every income group in OHP Standard. . . . The decline was particularly steep for those at the very bottom of the income scale. More than half (59%) of people with no incomes, who had to pay a $6 monthly premium, lost their OHP coverage. New enrollments among all income groups also dropped sharply after the new payment policies were implemented. Ten months after implementation, new enrollments for the lowest income group were a little above half the level they were prior to the recent waiver changes."

Access barriers created

The researchers also found that copayments have created barriers to care and reduced access. Physicians in the Portland metropolitan area have reported instances in which people have avoided seeking needed care because of the cost. They report that patients are choosing not to schedule needed follow-up visits, and as a result their health outcomes are getting progressively worse. They also described situations in which patients have stopped taking or have cut back on prescribed medications because they cannot afford to fill the prescriptions.

One study found that most of those who lost their coverage had an unmet health care need, including some self-reported urgent needs. They were more likely than those who remained in the program to have not filled a prescription due to cost, to report unmet need, and to have unmet mental health needs. Disenrollees also were more likely to identify the emergency department as their usual source of care.

As a result of the waiver changes, the reports said, pressures have shifted to other areas of the health care system. Increases in emergency department visits by uninsured patients have been reported, along with increases in emergency department visits for substance-abuse treatment. There also have been increased pressures on safety-net clinics, and resources for the uninsured have been stretched.

While short-term savings may have been achieved, the researchers said, it was not through premium collections. Before the changes, the state collected about $900,000 a month in premiums. As a result of lower-than-projected enrollment, premium receipts dropped to about $500,000 per month by the end of 2003. Kaiser said the state has seen its spending under OHP Standard fall, but that change is due to lower enrollment rather than higher premium collections. At the same time, with a 61% federal match rate, Oregon has had a substantial loss in federal funding for Medicaid.

Although much of the Oregon research is preliminary, the report said, the real-time studies still offer valuable information. Medicaid serves a particularly vulnerable population — people with low incomes, including many with considerable medical needs.

Basic features of the program were designed with such people in mind, and changes to the program’s core elements have significant implications.

"Changes in the Medicaid program, prompted largely by rising costs and the aging population, need to take into account the particular needs of the people served in the program," the report concluded. "Medicaid beneficiaries have low incomes and generally are in poorer health than the rest of the population. Benefit restrictions and higher costs that people with more income or better health might be able to manage can result in major access barriers, sometimes with devastating results, for the Medicaid population. The early evidence from Oregon suggests the changes that many states are undertaking or considering will likely create a range of new problems with significant consequences for people and the health care delivery system."

Identifying needed changes

Office of Oregon Health Policy and Research deputy administrator Jeanene Smith tells State Health Watch the surveys documented what state officials feared was happening in terms of people leaving Medicaid.

One advantage of the research, she adds, is that it pointed the way to changes that needed to be made in the program modifications. For instance, mental health and substance abuse benefits were restored for OHP Standard beneficiaries after the research studies demonstrated the heavy reliance those patients had on the services.

Still to be determined, she says, is whether to modify the strict premium payment policies that drop people for nonpayment more quickly than had been the case.

The next biennial session of the Oregon legislature does not convene until January 2005, so no major modifications can be considered until then. Thus, the July 1 deadline for OHP Standard enrollment remained in effect.

Smith says the state recently received a Robert Wood Johnson Foundation grant to expand an emergency department study statewide to get a better handle on utilization. They also are trying to obtain funding for additional waves of the studies that track particular populations over time so they can better determine the impact of the changes on them.

[The report can be downloaded from the Kaiser Commission at www.kff.org. Contact Ms. Smith at (503) 378-2422, ext. 420.]