Implications of Federal Medicaid Reform on
States, Beneficiaries, and Providers
TrendWatch
April 2005 Vol. 7 No. 1
1
Pressure to reduce the federal deficit…
Chart 1: Growth of Federal Deficit
2000 – 2010*
$236
In Billions
$128
-$158
-$278
-$378
00
01
02
03
-$250 -$246 -$229
-$332
-$412 -$394
04
05
06
07
08
09
10
*2005 - 2010 CBO’s estimate of the president’s budget, projected March 2005
Source: CBO, The Budget and Economic Outlook: Fiscal Years 2006 to 2015, January 2005 and CBO, Preliminary Analysis of the President’s Budget
Request for 2006, March 4, 2005
2
…and rising Medicaid expenditures…
Chart 2: Total Medicaid Spending*
2000 - 2010
$449
$414
In Billions
$380
$202
00
$222
01
$249
02
$267
03
$288
04
$314
$319
05
06
$349
07
08
09
10
* State and federal expenditures include medical services, DSH payments and administration, calculated using calendar year data;
2005 – 2010 projected
Source: CMS, Form CMS-64
3
…have made Medicaid a target for federal spending cuts.
Chart 3: Medicaid as a Percentage of Total Mandatory Federal Spending
2004
Total Spending
$2,241 billion
Total Mandatory Spending*
$1,346 billion
Other
Retirement &
Disability
10%
Discretionary
Spending
40%
Mandatory
Spending*
60%
Other**
4%
Social
Security
36%
Income
Security
14%
Medicaid
13%
Medicare
22%
*Does not include offsetting receipts or net interest
**Includes other programs (e.g., TRICARE, Student loans, SCHIP, Social Services)
Source: CBO, The Budget and Economic Outlook: Fiscal Years 2006 to 2015, January 2005
4
Enrollment in Medicaid continues to rise…
Chart 4: Medicaid Enrollees
1990 – 2004*
57.3
60
55
50.8
50
Blind &
Disabled
46.2
45
42.5
40
In Millions
Elderly
52.4
35.6
35
Adults
30
25
24.1
20
15
10
Children
5
0
1990
1995
2000
2001
2002
2003
2004
*Does not include SCHIP population
Source: CMS. For 2002 – 2004 data, CBO’s March Baseline, 2003 – 2005; Other Title XIX data – 1990 = 1.1 million and 1995 = 0.6 million
5
…surpassing Medicare in 1999…
Chart 5: Medicaid and Medicare Enrollment
1990 – 2010*
70
Medicaid
60
In Millions
50
40
Medicare
30
20
10
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
*1990 – 2003 historical CMS data; 2004 – 2010 projected CBO data
Source: CBO, March 2005 Baseline; CMS, Medicare Enrollment, National Trends 1966-2003; and CMS, Medicaid Enrollment and Beneficiaries, Selected Fiscal Years 6
…with the bulk of the dollars going to nursing home and
hospital care....
Chart 6: Medicaid Spending by Service
2003
Total = $266.1 billion*
Medicare
Physician, Payments
2.3%
Lab & X-Ray
5.5%
Intermediate Care
Facility for People
with Mental
Retardation
(ICF/MR)
6.2%
Prescription
Drugs
12.0%
Home
Health &
Personal
Care
14.2%
Other
7.4%
Hospital
Services
30.1%
Nursing
Facility
Services
16.9%
DSH
Payments
5.4%
* Includes medical services and DSH payments, not administration, calculated using fiscal year data
Source: CMS, Form CMS-64; Payments to Managed Care entities have been allocated among providers receiving MCO payments per CMS methodology; Hospital services include
inpatient hospital services, outpatient hospital and clinic services, payments made to rural health clinics and federally qualified health centers
7
…and to the elderly and disabled populations.
Chart 7: Percentage of Medicaid Enrollees vs. Medical Expenditures by Enrollment Group
2003
9%
16%
26%
Elderly
43%
Blind &
Disabled
12%
Adults
19%
Children
27%
48%
Medicaid Enrollees
Medical Expenditures
Total = 52 million
Total = $252 billion*
* Includes medical services, not DSH payments and administration, calculated using fiscal year data
Source: Kaiser Commission on Medicaid and the Uninsured, The Medicaid Program at a Glance, January 2005, estimates based on CMS, CBO
and OMB data, 2004
8
Close to two-thirds of Medicaid spending is for “optional” services
and/or populations.
Chart 8: Distribution of Medicaid Mandatory and Optional Spending (Length of bar
is proportional to amount of Medicaid spending)
1998
Elderly
Disabled
Parents
Children
17%
83%
34%
45%
66%
55%
65%
35%
Mandatory Services
for Mandatory Groups
Optional Services /
Population Groups
Source: Kaiser Commission on Medicaid and the Uninsured, Key Facts, May 2003; Urban Institute estimates based on data from 1998 HCFA 2082 and HCFA
64 reports, 2001
9
Many “optional” services are viewed by states as medically
necessary.
Chart 9: Number of States & District of Columbia with Selected Types of Optional Services
2003
Pharmacy Benefits
51
Emergency Transportation Services
51
ICF/MR
51
Optometric Services (excludes eyewear)
50
Targeted Case Management Services
49
Durable Medical Equipment
49
46
Dental Services
Clinic Services
45
Inpatient Psychiatric Services (< age 21)
45
Inpatient Psychiatric Services (> age 65)
44
Mental Health & Other Rehabilitative Services
44
Non-Emergency Transportation Services
44
Hospice Services
44
Eyewear
41
Physical Therapy
31
Chiropractic Services
25
Occupational Therapy
25
Source: The Lewin Group, Opportunities and Observations for Indiana Medicaid, September 2004
10
Federal savings from Medicaid proposals vary.
Chart 10: Estimated Federal Savings from Selected Medicaid Reform Options and
Cost Containment Measures
FY 2006 - 2010
$60.7
In Billions
$7.1
$6.1
$5.4
$4.2
$2.0
Block
Grant for
Acute Care
Services
Allotment
for State
Admin.
Costs
Increase
the Flat
Rebate for
Prescription
Drugs
Restructure
Pharmacy
Reimbursement
Reduce
Spending
on Admin.
Costs
$1.7
Increase
Restrict
Allowable Allocation of
Copayments Common
Admin. Costs
$1.5
Asset
Transfers
for Longterm Care
Source: CBO, Budget Options, February 2005; CRS Report for Congress, Medicaid and SCHIP: The President’s FY 2006 Budget Proposals, February 15,
2005
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Chart 11: Medicaid Reform Proposals Focusing on State Flexibility and Enrollee Choice
Reform Efforts
Global Caps
(Block Grants)
Pros
Cons
•
Provides incentives to states to spend cost-effectively
•
•
Encourages state innovation and flexibility in program
design
Shifts financial risk for eligibility & cost growth solely
to states
•
States may limit or eliminate medically necessary
services to fit under the cap
•
States not at risk for fluctuations in enrollment growth
•
•
Re-investment of savings can be used for expanded
coverage of the uninsured
States may limit or eliminate medically necessary
services to fit under the cap
Tiered Programs
(e.g., UT)
•
Covers more people
•
Enrollees may lack means to pay higher cost sharing
•
Provides states more flexibility in benefit design for
various populations
•
Narrow benefits for expansion group may not
adequately meet health care needs of enrollees (e.g.,
no inpatient care)
Vouchers
(e.g., FL)
•
Provides choice to enrollees
•
•
Enrollees would go into mainstream health plans
Enrollees may lack the knowledge to make informed
decisions
•
Weakens safety net if private providers deny
coverage
•
Enrollees manage a portion of own health care dollars
•
•
Creates incentives for patients to help control costs
Shifts some financial risk to Medicaid consumer
increasing the likelihood that care may be delayed
due to increased cost sharing
•
Enrollees may lack the knowledge to make informed
decisions
Per Capita Caps
Health Spending Accounts
(e.g., NH)
Source: The Lewin Group
12
Medicaid spending growth remains high…
Chart 12: Percentage Growth in Medicaid Spending
1997 - 2004
12.9%
10.9%
9.4%
8.5%
6.8%
9.5%
7.1%
3.9%
1997
1998
1999
2000
2001
2002
2003
2004
Source: Rockefeller Institute of Government analysis of data from the Bureau of Census, Bureau of Economic Analysis, and the National Association of State
Budget Officers. 2004 is a preliminary estimate
13
…which state tax revenues seem unlikely to cover…
Chart 13: Percentage Growth in State Tax Revenue
1997 - 2004
5.0%
5.9%
5.0%
4.9%
3.4%
1.0%
-3.4%
-6.8%
1997
1998
1999
2000
2001
2002
2003
2004
Source: Rockefeller Institute of Government analysis of data from the Bureau of Census, Bureau of Economic Analysis, and the National Association of State
Budget Officers. State tax revenue data is adjusted for inflation and legislative changes. 2004 is a preliminary estimate
14
…potentially forcing states to make cuts, leading to
weakened state economies.
Chart 14: Potential Impact of Cuts to State Medicaid Programs
Cuts Made
Jobs Lost
Economic Impact
South Carolina: If State
Medicaid funding  10%
6,181
$150 million in lost
wages
Missouri: If State
Medicaid and SCHIP
funding  by $43 million
2,049
$73 million in lost wages
$150 million in lost
economic activity
$5.4 million in lost tax
revenue
Source: Division of Research, Moore School of Business, University of South Carolina. Economic Impact of Medicaid on South Carolina, January 2002;
Ferber JD, et al., The County Level Impact of Medicaid and SCHIP in Missouri, February 2, 2005
15
Loss of Medicaid coverage has led to more uninsured…
Chart 15: Distribution of Transitions from Medicaid to Other Sources of
Coverage (Under Age 65)
During 1996-1999
Individual
2%
Other
2%
Employer
28%
Uninsured
65%
Medicare
4%
Source: Short, PF, Graefe, D, and Schoen, C, Churn, Churn, Churn: How Instability of Health Insurance Shapes America’s Uninsured Problem, The
Commonwealth Fund, November 2003
16
…while program cuts have decreased benefits, increased
beneficiary costs…
Chart 16: Examples of Benefits Covered and Not Covered Under
Utah's Three Medicaid Programs
Waiver Coverage
Traditional
Medicaid
Utah's Non-traditional
Medicaid
Utah's Primary Care Network
(PCN)
X
($220 coinsurance
per admission)
X
($220 coinsurance
per admission)
Not Covered
X
X
Not Covered
Emergency Room
X
($6 copayment)
X
($6 copayment)
X
($30 copayment)
Physician Services
X
($2 copayment)
X
($3 copayment)
X
($5 copayment)
Specialty Care
X
X
Not Covered
Long-term Care
X
Not Covered
Not Covered
Prescription Drugs
X
($1 copayment/
prescription)
X
(limited to 7 drugs/
month, with exceptions
$2 copayment/prescription)
X
(limited to 4 drugs/month,
no exceptions
$5 copayment/prescription, generics)
Mental Health and
Chemical
Dependency
X
X
(30 outpatient &
30 inpatient days/year)
Not Covered
Covered Services
Inpatient Hospital
Outpatient Hospital
Source: Adapted from Kaiser Commission on Medicaid and the Uninsured, Overview of the Utah Section 1115 Waiver, July 2004
17
…and reduced access to care for the neediest populations.
Chart 17: Oregon Health Plan, Number of Medicaid Enrollees, Before
& After Premiums Implemented
October 2002 – 2003
Premiums Implemented*
98,828
95,701
50,938
Oct
02
Nov
02
Dec
02
Jan
03
Feb
03
Mar
03
Apr
03
May
03
Jun
03
Jul
03
Aug
03
Sep
03
Oct
03
*The state also implemented a policy where people were disenrolled if they missed one premium payment
Source: McConnell, J and Wallace, N, Impact of Premium Changes in the Oregon Health Plan, Office for Oregon Health Policy and Research, February
2004
18