# Presentation: 220748

## Medicaid ReformCurrent Issues and the Implications for People Living with HIV/AIDS

- Jeffrey S. Crowley, M.P.H.
- Project Director
- Health Policy Institute, Georgetown University
- (202) 687-0880
- jsc26@georgetown.edu
- July 17, 2003

## I.  Medicaid’s Role for People Living with HIV/AIDS

## Medicaid is the single largest source of financing for HIV/AIDS care

**Federal HIV/AIDS Spending for Care, 2002**

**Total = $8.75 Billion**

- Source: Alagiri, P., Summers, T., and Kates, J., *Spending on the HIV/AIDS Epidemic*, Henry J. Kaiser Family Foundation, July 2002.

## II.  The Way Medicaid Works

## Medicaid serves as a critical health care safety net for specific groups of low-income people

- Provides health care coverage to 52 million low-income people in the United States
- Serves over 8 million people with disabilities
- Covers more than 1 in 5 children and pays for 40% of all births in the United States
- Largest source of financing for long-term care and covers nearly 70% of nursing home residents and pays for nearly half of all nursing home spending
- Largest funder for state and local spending on mental health services

## Medicaid has both mandatory and optional eligibility groups

-  Children under age 6 ≤ 133% FPL
-  Children age 6 - 18 ≤ 100% FPL
-  Children in foster care
-  Pregnant women ≤ 133% FPL
-  Parents with incomes below state-established minimums (median = 60% FPL)
-  People with disabilities and the elderly receiving SSI (incomes ≤ 74% FPL)
-  Low-income Medicare beneficiaries

-  Children and parents above minimum requirements
-  Pregnant women 133% FPL
-  People with disabilities and the elderly  74% FPL, including those in nursing homes
-  Disabled and elderly people served under Home and Community Based waivers
-  Women with breast and cervical cancer
-  Certain disabled people who are employed and buy into coverage
-  People who are “medically needy”

**Medicaid has both mandatory and optional eligibility groups**

## Medicaid also has both mandatory and optional services

**    ****Mandatory Services****	****	****	****   Optional Services**
***	******	******	***

*Acute Care*
-  Physician, nurse practitioner and nurse midwife services
-  Laboratory and x-ray services
-  Inpatient and outpatient hospital services
-  Screening and treatment services for children (EPSDT)
-  Family planning services
-  Federally-qualified health center (FQHC) and rural health clinic (RHC) services

-  Prescribed drugs
-  Medical care or remedial care furnished by licensed practitioners under state law
-  Diagnostic, screening, preventive, and rehabilitative services
-  Clinic services
-  Dental services, dentures
-  Physical therapy and related services
-  Prosthetic devices
-  Eyeglasses
-  TB-related services
-  Primary care case management services
-  Other specified medical and remedial care

- Source: Kaiser Commission on Medicaid and the Uninsured, “The Medicaid Resource Book”, July 2002

*Long-term Care*
-  Nursing facility services for people 21 years of age or older
-  Home health care services (for people entitled to nursing facility care)

-  Intermediate care facility for people with mental retardation (ICF/MR) services
-  Inpatient and nursing facility services for people 65 or over in an institution for mental diseases (IMD)
-  Inpatient psychiatric hospital services for children
-  Home health care services
-  Case Management services
-  Respiratory care services for ventilator-dependent individuals
-  Personal care services
-  Private duty nursing services
-  Hospice care
-  Services furnished under a “PACE” program
-  Home and community-based (HCBS) services (under budget neutrality waiver)

**Medicaid also has both mandatory and optional services**

## Federal Medicaid financing is a good deal for states

- The federal government matches state spending.
- Depending on the per capita income in the state, the federal government’s share of Medicaid costs ranges from 50% up to a statutory maximum of 83%.
- In 2003, 12 states had a 50% Federal Medical Assistance Percentage (FMAP) of 50% (CA, CO, CT, DE, IL, MA, MD, MN, NH, NJ, NY, WA).  In these states, $1 of state Medicaid spending produces $1 of federal Medicaid support for the state.
- In 2003, Mississippi had the highest FMAP of 76.6%.  In MS, $1 of state Medicaid spending produces $3.28 of federal Medicaid support for the state.
- Matched financing has led states to shift health care spending to Medicaid to maximize federal support.

## Most Medicaid spending is for optional eligibility groups or optional services (1998)

- NOTE: Expenditures do not include disproportionate share hospital (DSH) payments, administrative costs, or accounting adjustments.
- SOURCE: Urban Institute estimates, based on data from federal fiscal year 1998 HCFA 2082 and HCFA-64 reports, 2001.

**Mandatory Services for**
** ****Groups States are**
**Required to Cover**
**35%**

**Optional Services**
** ****for Groups States **
**Are Required **
**To Cover**
**21%**

**All Services for**
**Optional Groups**
**44%**

**Optional **
**Expenditures**
**65%**

**Total = $154 billion**

## Medicaid plays a major role in the health care system and is a major contributor to state economic activity

- Program is projected to be larger than Medicare in 2003
- $155 billion in federal dollars, $116 billion in state dollars in 2003
- Accounts for nearly 17% of the nation’s health care expenditures
- Single largest source of federal financing to states (43%)
- Provides key financial support to safety net health centers and hospitals
- Economic engine in many communities

## Medicaid is a significant source of national health spending

- SOURCE: Heffler, S. et al., 2002.  Based on National Health Care Expenditure Data, Centers for Medicare and Medicaid Services, Office of the Actuary.

**Total **
**National Spending**
**(billions)**

**$1,130**

**$412**

**$422**

**$92**

**$122**

**Medicaid as a share of national**
**spending (2000):**

**Notes:**
What that role translates into in the health system is that it’s a major purchaser of health care  Biggest role is for nursing home care, but also almost one in five hospital dollars

## III.  The Problem

## States are in their worst fiscal crisis since World War II

- In January 2003, projected state spending for the state budget year that started on July 1 (in all but 4 states) was $70 billion greater than projected tax revenues
- Shortfall required states to either cut spending or increase revenues
- State budget shortfalls are due to:
- Increases in Medicaid costs ($6.9 billion);
- Drops in revenue collections ($61.8 billion)
- a weak economy;
- tax cuts in the 1990s that cut too deeply; and
- State tax systems that are outdated—from year to year, costs rise faster than taxes and growing parts of the economy are not adequately taxed

## State budget problems are leading to Medicaid cuts

- 49 states and the District of Columbia cut Medicaid spending in the last fiscal year
- 32 states had to cut Medicaid spending twice during the year
- States are:
- Freezing or cutting payments to providers
- Controlling prescription drug costs
- Reducing Medicaid benefits
- Restricting Medicaid eligibility
- Increasing beneficiary co-payments

## Looking to the future, statesare worried

- Many states say they cannot continue to afford Medicaid if costs rise as projected
- 35% of Medicaid spending is for services for “dual eligibles”, persons who receive both Medicaid and Medicare
- Prescription drug costs are increasingly rapidly
- With an aging population and the baby boom generation nearing retirement, the need for long-term services and supports will increase significantly

## States face short-term andlong-term challenges

- States need short-term funding so that they can maintain their commitment to Medicaid and avoid further cutting services and eligibility  (Through tax legislation, Congress provided $20 billion to states, $10 billion to be provided through Medicaid)
- Current recession means that since more people are out of work, more people count on Medicaid for health care coverage
- Long-term challenges include:
- Addressing counter-cyclical nature of Medicaid
- Relieving Medicaid of the overwhelming burden of providing services to Medicare beneficiaries
- Broadening opportunities for receiving long-term care services and supports in the private market and Medicare to relieve the burden on Medicaid
- Controlling the growth in pharmaceutical costs

## IV.  The President’s Proposal

## The President’s Medicaid proposal is a radical departure from the way Medicaid currently works

- States choose to participate – if they don’t however, they get no fiscal relief.
- States that choose to participate receive capped federal payments that they have to pay back in later years.
- The proposal is “budget neutral” to the federal government – offering $12.7 billion over 7 years that must be paid back through reductions in Medicaid financing in years 8-10.
- Eliminates the State Children's Health Insurance Program (SCHIP) as a stand-alone program.
- No required state matching payments/ a “maintenance of effort” system instead
- “Carte blanche” flexibility

## It is difficult to project future Medicaid costs

**It is difficult to project future Medicaid costs**

***Variance**** in actual 2002 expenditures vs. projections is ****$17 billion ****or ****12% of all 2002 federal payments.***

- Source: Congressional Budget Office historical budget tables, previous editions of its Economic and Budget Outlook.

*(billions of dollars)*

## Bush plan would allow for “complete” flexibility for “optional” beneficiaries

- What does this mean?:
- Some services could be covered in some parts of the state but not others
- Benefits for optional groups would no longer have to be comparable—states could decide to provide more generous benefits to one group than to another
- States could adopt closed formularies for drugs:  high cost drugs could be excluded even if needed
- Federal standards on cost sharing could be relaxed or eliminated
- Current “mandatory” services, such as mental health care or hospital care, could be cut out of the benefits package for “optional” people
- States might not have to meet nursing home quality standards
- Impact on mandatory beneficiaries is unclear

## Capped funding inevitably results in inequities across states

**Base year differences** — If a state has already made deep cuts in its Medicaid program, it would have a lower base than a state that has not cut as deeply
**Differences in growth rates** — If people with disabilities and the elderly represent the major source of cost growth, then states with larger than average populations of people with disabilities and the elderly could be disadvantaged.  It is unclear how growth rate will be determined
**Locks in state programs as they currently exist** — eliminates the uncapped federal match that gave states security and which has enabled them to incrementally expand Medicaid coverage
**States are less able to respond to unforeseen events** — such as responding to a new epidemic like HIV or responding to devastating events, such as New York’s Disaster Relief Medicaid Program, implemented after 9/11

## Most “Optional” Spending is for the Elderly and Disabled 

- (Optional Spending by Eligibility Group, 1998)

- Source: Urban Institute estimate, based on data from federal fiscal year 1998 HCFA2082 and HCFA-64 reports, 2001

**Optional Spending = **
**$100 billion**

*Note: Expenditures do not include disproportionate share hospital (DSH) payments, administrative costs, or accounting adjustments.*

**People with disabilities and the elderly could be big losers under the Bush plan**

## Long-term care services and supports and prescription drug coverage are a significant source of optional spending

- Source: Urban Institute estimate, based on data from federal fiscal year 1998 HCFA2082 and HCFA-64 reports, 2001

**Mandatory Spending = **
**$54 billion**

**Optional Spending = **
**$100 billion**

*Note: Expenditures do not include disproportionate share hospital (DSH) payments, administrative costs, or accounting adjustments.*

**Long-term care services and supports and prescription drug coverage are a significant source of optional spending**

## States could dramatically decrease their commitment to Medicaid

- Federal dollars would no longer be paid as a (federal and state) “match” to state spending.  State and federal streams of spending would separate.
- States would get their full federal allotment (up to the cap) as long as they met a “maintenance of effort” (MOE) requirement
- MOE would grow at a slower rate than under current law
- Potential for supplantation could further shrink state spending.  For example, states could count non-Medicaid health spending in order to meet its MOE requirement (such as spending on state psychiatric facilities)
- Secretary Thompson stated that states could cut as much as 2/3 of state spending and continue to receive full federal Medicaid support

## Bush plan could lead to lost state support for Medicaid

**Amount of federal dollars lost if a state reduces state Medicaid spending by $125 million, at different match rates**

**Federal**
**Dollars**
**Lost**
**(millions)**

**$125**

**$232**

**$375**

**Match Rate**

**State**
**Funds**
**Saved**
**(millions)**

**50%**

**65%**

**75%**

**$125**

**$125**

**$125**

**Under The Proposal, A State Could Cut State Spending Without Losing Federal Funds (as long as it meets the MOE requirement) **

**Federal**
**Dollars**
**Lost**
**(millions)**

**$0**

**State Funds Saved (millions)**

**$125**

**Amount of federal dollars lost if a state reduces state Medicaid spending by $125 million**

**Bush plan could lead to lost state support for Medicaid**

## V.  Alternative Solutions

## There are alternatives

- Provide states fiscal relief/ Increase the Medicaid federal matching payment rate (“FMAP”) automatically during economic downturns
- Federalizing “duals” (those eligible for Medicaid and Medicare)
- Providing a Medicare prescription drug benefit—**that relieves the burden from Medicaid **
- Increasing the federal Medicaid Drug Rebate and other measures to lower the cost of drugs

## VI.  Building on Medicaid Coverage for People with HIV/AIDS

## The Early Treatment for HIV Act is an important community priority

- Could save and improve lives of people living with HIV by providing for earlier access to Medicaid
- Follows model of Breast and Cervical Cancer expansion
- Provides a state option to expand Medicaid to people living with HIV who do not meet the Social Security Administration’s standard for severe disability
- Would not require states to demonstrate strict budget neutrality—a current administrative requirement to operate this type of program through a waiver
- Provides an enhanced match (increased federal support) for state expenditures under this option