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States Forced to Make Tough Choices on Medicaid
Already 2005 is proving to be a tough year financially for many states, forcing governors to make difficult decisions about Medicaid, which in 2004 surpassed elementary and secondary education as the largest component of state spending. Faced with significant budget shortfalls and rapidly increasing costs, several governors have proposed reforming their Medicaid programs—either through changing eligibility or limiting covered services—to address the program's financial burden on the state.
Governors in Missouri and Minnesota, for example, have proposed reductions in current eligibility levels in their Medicaid programs that would result in a loss of coverage for 90,000 beneficiaries in Missouri and 33,000 beneficiaries in Minnesota. Tennessee Governor Phil Bredesen (D) in 2004 announced his plan to eliminate coverage for 323,000 adults enrolled in TennCare, the state’s Medicaid managed care program. The move would reduce costs by about $1.7 billion annually. He has also called for restrictions on coverage for 396,000 adults who would remain in the program.
Other states have proposed more significant reforms to address Medicaid’s increasing financial burden on the state.
California
Governor Schwarzenegger’s (R) FY 2004–05 budget calls for a redesign of the California’s Medicaid program—called Medi-Cal. The Medi-Cal redesign initiatives include:
- Expanding managed care programs to families, children, seniors, and persons with disabilities.
- Seeking a new five-year hospital financing waiver that will allow the state to continue contracts with selected hospitals serving low-income and vulnerable populations.
- Modifying the Medi-Cal benefit package by placing an annual limit of $1,000 on dental services provided to adults.
- Establishing new beneficiary cost sharing based on income levels, which will affect about 550,000 Medicaid beneficiaries.
- Improving eligibility processing for Medi-Cal applications for children.
Florida
In January, Governor Jeb Bush (R) released a new Medicaid reform proposal that allows the state's 2.2 million Medicaid participants to direct the use of Medicaid resources allocated on their behalf. It also allows provider networks established by community health plans, hospitals, non-profits and managed care companies to offer competing benefit plans to the participants. Under the proposal, beneficiaries would choose the plan that best meets their needs and the state would pay that network a "risk-adjusted premium" based on the beneficiary's individual health conditions and needs. The plan is based on the idea that competition between provider networks and financial incentives for people to adopt healthier lifestyles would reduce inefficiencies and bring predictability to costs.
The Medicaid benefit structure would be changed to include comprehensive care, enhanced benefits, and catastrophic coverage up to the maximum benefit established per beneficiary. As a part of the enhanced benefits, beneficiaries would be offered a flexible spending account that could allow them to purchase additional health care services or retain the funds to opt out of Medicaid and purchase employer-based insurance.
New Hampshire
A November 2004 redesign of GraniteCare, the state’s Medicaid program, proposed by officials from the New Hampshire Department of Health and Human Services is being considered by newly elected Governor John Lynch (D) who has announced plans to host a series of public conversations with the state's community partners and citizens about their ideas for improving Medicaid. "We can and should improve Medicaid for the people we serve and our taxpayers. But I am committed to make sure we approach any Medicaid reforms thoughtfully and with full public involvement," Gov. Lynch said.
The proposal from the Department of Health and Human Services would move eligible individuals with incomes greater than 133 percent of the federal poverty level into health service accounts, which are similar to the health savings accounts (HSAs—personal accounts that are coupled with catastrophic coverage endorsed by President Bush).
Additionally, the proposal would use a catastrophic pool to manage high-cost individuals, encourage greater use of community-based services for the elderly and individuals with disabilities, and pay for behavioral health services and developmental disabilities services under an individual budget. The state would outsource several activities to manage care and create a single point of entry for individuals with behavioral health care needs, developmental disabilities, or elderly individuals in need of long-term care.
Following the public conversations, Gov. Lynch plans a series of working sessions between his office, the Department of Health and Human Services, and the state's community partners to decide which ideas are worth pursuing further, and to develop pilot projects and initiatives. Additionally, a special state House subcommittee will hold a series of public hearings on bills that detail aspects of the GraniteCare Medicaidreform proposal. The hearings will address the proposals for health service accounts, long-term care, and Healthy Kids.
Vermont
In response to the state’s $78 million deficit in the Medicaid program, Vermont Governor Jim Douglas’s (R) administration has presented a multi-pronged reform plan to reduce the state’s spending on Medicaid. The major components of this plan include:
- A five-year agreement with the federal government known as the “Global Commitment” that would allow the state to negotiate a set annual increase in federal funding and maintain more control over the use of federal Medicaid money;
- Full implementation of the Governor’s Chronic Care initiative, known as the “Vermont Blueprint for Health;”
- Program restraints and modifications, premium increases, and provider savings that are expected to save $63.2 million;
- Premium subsidies to beneficiaries who are offered but cannot afford employer-sponsored insurance;
- Offering incentives for beneficiaries who switch from brand-name to generic drugs; and
- Malpractice insurance reform.
According to the administration, the proposals would reduce Vermont's Health Access Trust Fund deficit to $615,607 in 2010.
Federal Outlook
Medicaid reform discussions at the state level are inextricably linked to federal budget discussions in Washington. The Bush administration has announced plans to work with governors to develop changes in Medicaid in addition to those included in his budget proposal, which includes a plan to save $60 billion over 10 years in Medicaid funds through state reimbursement “loopholes” and tighter eligibility requirements.
Department of Health and Human Services (HHS) Secretary Mike Leavitt said that the administration will not limit federal expenditures for mandatory Medicaid beneficiaries. However, there are still concerns regarding whether the administration would consider a limit on federal expenditures for optional Medicaid beneficiaries and services, which account for about two-thirds of Medicaid costs.
In response to the President’s Medicaid funding recommendation in the FY 2006 budget, the the National Governors Association (NGA) urged the administration to avoid imposing federal restrictions on Medicaid. NGA said in a statement, "We hope the Administration and Congress will work with states to develop program efficiencies and other policies that can save both the states and federal government money, as opposed to shifting costs to the states through budget cuts, caps or other mechanisms. The Medicaid program is growing rapidly because health care inflation is running two to three times the general inflation rate and the case load has grown 33 percent over the last four years, including increases in elderly and disabled populations who are responsible for the majority of Medicaid spending."
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