Changes in Medicaid:

1. Changes in Medicaid: Protecting Medicaid Beneficiaries NAMI Convention June 30, 2006 Judith Solomon, Senior Fellow, CBPP

2. Topics • How states are using waivers and the Deficit Reduction Act of 2005 (DRA) to change: • How Medicaid provides benefits • The benefits Medicaid provides • Strategies to protect beneficiaries

3. Deficit Reduction Act: Key Changes • Requires citizens to supply documents proving their citizenship • Provides states new flexibility to increase cost-sharing and reduce benefits • Provides states with several other new options: • Health Opportunity Accounts demonstration program • Family Opportunity Act • Home and community-based services

4. State Flexibility on Cost-Sharing and Premiums • New flexibility to impose premiums and cost-sharing (co-payments and co-insurance) • Primarily affects beneficiaries with income above the poverty line • Charges can vary across/within groups • State option to allow providers to deny care when families are unable to pay • States can require pre-payment of premiums before coverage begins • Special rules for non-preferred drugs and use of the emergency room for non-emergency care

5. State Flexibility on Benefits • State option to provide a limited package of benefits (“benchmark” benefits) to children and some parents • People with disabilities exempt but CMS allowing states to allow them to “opt-in” • For children, benchmark benefits must be supplemented with an EPSDT “wrap-around” • New option allows different groups to be provided with different benchmark benefits • Geographic location • Health status • Access to employer-based coverage

6. “Section 1115” Waivers • Permit states to use federal program funds in ways not otherwise permitted • Coverage beyond federal options for eligibility and services • Coverage below federal minimum standards • Law says 1115 waivers must be experimental, pilot, or demonstration project(s)” that promote the objectives of the program • Must be “budget neutral” to the federal government

7. Waiver Process • Minimal requirements for public input • Details often worked out in negotiations between state and CMS even before proposal submitted • Recent waivers raise process concerns, e.g.: • Quick approval – 16 days in FL • Minimal information available to public • Public statements may not match what’s on paper

8. But DRA is Even Worse. . . • No explicit requirements for public input • WV state plan amendment approved in 8 business days without any public input • ID state plan amendment approved on May 25 but entire state plan amendment not made public until ??

9. Changing Medicaid: Waivers • Recent state waiver proposals look to private market solutions to contain costs • Defined contribution plans • “Opt-out” to employer coverage • “Tailored” benefits • Personal accounts/incentive accounts

10. Changing Medicaid: DRA State Plan Amendments So Far • West Virginia (Parents and most children) • Some benefits (mental health services, diabetes care) conditional on signing and complying with Medicaid member agreement • Appears to limit EPSDT benefits for children • Kentucky (All beneficiaries) • 4 benefit packages • Many “soft” limits on benefits • Idaho (All beneficiaries) • 3 benefit packages • Analysis difficult without release of state plan amendments

11. Faulty Assumptions Underlying These Changes in Medicaid • Private coverage is cheaper • Medicaid beneficiaries use more care than needed because Medicaid provides comprehensive benefits and because beneficiaries don’t pay for their care • Accounts/contributions can be individually adjusted to match health care needs

12. Faulty Assumption #1: The Facts Medicaid Costs Less than Private Coverage

13. Medicaid Costs 30% Less for Adults and 10% Less for Children Than Private Health Insurance Estimated 2001 per capita costs of serving Medicaid enrollees with Medicaid vs. private insurance, after adjusting for health differences. Source: Hadley and Holahan, Inquiry, 2004

14. Medicaid Spending Per Person Grew More Slowly than Spending Under Medicare and Private Insurance, 2000 - 2003 Average Annual Growth, 2000-2003 Medicaid Spending Per Enrollee1 Monthly Premiums For Employer- Sponsored Insurance3 Private Health Insurance Spending Per Enrollee2 Medicare Spending Per Enrollee2 1 Holahan and Ghosh, Health Affairs, 2005. 2 CMS Office of the Actuary, National Health Accounts, 2005. 3 Kaiser/HRET Survey, 2003.

15. Faulty Assumption #2: The Facts Medicaid’s Benefit Package Does Not Itself Increase Program Costs Medicaid Beneficiaries Already Have Out-of-Pocket Costs for Health Care

16. 4 Percent of Medicaid Population Accounted for 48% of Expenditures in 2001 <$25,000 in Costs 96% <$25,000 in Costs 52% >$25,000 in Costs • >$25,000 in Costs • Children (.2%) • Adults (.1%) • Disabled (1.6%) • Elderly (1.8%) Children 3% Adults 1% Disabled 25% Elderly 20% Total = 46.9 million Total = $180.0 billion SOURCE: Kaiser Commission on Medicaid and the Uninsured from Urban Institute estimates based on MSIS 2001 data.

17. Poor Adults on Medicaid Already Spend More of Their Income on Out-of-Pocket Medical Expenses Than Higher Income Privately-insured People 5.6% Source: Ku and Broaddus, 2005, Analyses of 2002 Medical Expenditure Panel Survey

18. Out-of-Pocket Medical Expenses Already Rising Faster than Income, Especially for Medicaid Average Annual Growth Rate, 1997-2002 9.4% Source: Ku and Broaddus, 2005, Analyses of Medical Expenditure Panel Surveys

19. Faulty Assumption #3: The Facts Risk adjustment does not work on an individual level.

20. Fixed Funding Based on Average Expenditures Will Put Many Beneficiaries at Risk The “average” amount would not cover the full medical expenses of about 30% of adult women, those with greater health needs. The “average” amount would provide more money than is actually used by about 70% of adult women. Average Expenditure = $2,119 Women’s Medicaid expenditures in 2002, based on Medical Expenditure Panel Survey

21. Strategies: Improving the Process • State laws that require public notice and comment for both waivers and state plan amendments • Model legislation at http://www.nachc.com/advocacy/state-policy_modelleg.asp • Current state laws compiled at www.healthlaw.org (Role of State Law in Limiting Medicaid Changes) • Require consultation with state Medical Care Advisory Committee • Federal waiver process legislation (introduced in 2002 and 2003) • Expand to DRA state plan amendments

22. Strategies: Addressing the Substance • Coalitions of beneficiaries, advocates, provider groups can: • Demonstrate potential impact of changes on beneficiaries, health care providers, state budget and economy • Use research, grass roots organizing, media, meetings with policymakers • Develop alternatives that can save money without harm to beneficiaries

23. For more information: Judith Solomon solomon@cbpp.org (202) 408-1080