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What does the Bush Administration’s Medicaid Reform Proposal Mean for

Home and Community-Based Services?

Joan AlkerSenior Researcher

Institute for Health Care Research and PolicyGeorgetown Universityjca25@georgetown.edu

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

Provides health care coverage to 47 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 Largest source of coverage for HIV/AIDS care Largest funder for state and local spending on mental health services

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Medicaid is a federal/state matching program

Federal government matches state spending on an open-ended basis Formula for reimbursement depends on states per capita income Matching rates vary from 50 percent in high per capita income states to 77

percent in low per capita income states like Mississippi

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Medicaid Fills Medicare’s GapsOver One-Third of Medicaid Benefit Spending -- $68 billion – is

for Services for Medicare BeneficiariesThis Grows Over Time with the Baby Boomers’ Retirement

Spending onMedicare

Beneficiaries35%

Spending onAll Other

Beneficiaries65%

Source: Secretary’s Advisory Committee on Regulatory Reforms, June 2002. Data for 1999.

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Medicaid Long Term Care Spending (1998)

Other3%

ICF/MR15%

Nursing Facility

53%

Mental Health5%

Home Care24%

Source: Urban Institute estimates, based on HCFA-2082 and HCFA-64 reports.

Total = $58.7 billion

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“Mandatory" Groups “Optional” 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

Medicaid has both mandatory and optional eligibility groups

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Care for Older People and People with Disabilities is the Most Costly

(Medicaid Expenditures Per Enrollee, 2001)

$1,447$2,283

$11,238

$12,322

$0

$3,000

$6,000

$9,000

$12,000

$15,000

Children Parents Disabled Elderly

Source: CBO January 2002 Baseline.

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Mandatory Services Optional Services

• 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

Medicaid Statutory Services

Acute Care

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)

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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, hospitals and other

providers Economic engine in many communities

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Medicaid is a significant source of national health spending

17% 17%

11%

17%

48%

Total PersonalHealth Care

Hospital Care ProfessionalServices

Nursing HomeCare

PrescriptionDrugs

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):

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States are experiencing severe fiscal challenges

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State budget problems are leading to Medicaid cuts

49 states and the District of Columbia will cut Medicaid spending in the current fiscal year

32 states have 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

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Looking to the future, statesare worried

Many states say they cannot continue to afford Medicaid if costs rise as projected

Medicaid pays for costs that should be covered by Medicare—35% of Medicaid spending is for services for “dual eligibles”, persons who receive both Medicaid and Medicare

Prescription drug costs are increasingly rapidly The need for long-term services and supports will increase significantly

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States need immediate help

States need short-term funding so that they can maintain their commitment to Medicaid and avoid further cutting services and eligibility – Congress has been debating a temporary increase in the “FMAP”

Current recession means that since more people are out of work, more people count on Medicaid for health care coverage

After fixing short-term problems, there are long-term challenges to be addressed

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Bush Administration’s response

The Administration has consistently opposed a temporary increase in the FMAP

The President’s FY2004 budget includes a radical restructuring of the way Medicaid is paid for and run

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The President’s Medicaid proposal

At least 2/3 of the spending (and possibly all) will be “block granted”. 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” – offering $12.7billion over 7 years that is paid back in years-8-10.

Eliminates the SCHIP program as we know it. No required state matching payments/ a “maintenance of effort” system instead “Carte blanche” flexibility

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How does block grant proposal work? States would receive 2 annual, capped

allotments from federal govt; one for acute care and one for LTC

States could move some portion of the funds between 2 accounts (10%?)

Up to 15% of each allotment for DSH and admin

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Key features of the President’s proposal

Capped federal payments to states

Payments front loaded to provide fiscal relief, but reductions in later years - $12.7 billion over 7 years; “budget neutral” over 10 years.

In comparison 80 Senators voted for a Sense of the Senate in March which would provide states with at least $15billion in increased FMAP over 1 year.

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Capped Federal Payments

Based on 2002 spending, adjusted forward using 10-year growth projections

Funding no longer based on actual changes in enrollment Funding no longer based on actual changes in health care costs,

utilization, new technology

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

What does this mean?:

Optional services could be provided for some groups of people but not others Some services could be covered in some parts of the state but not others 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

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Risk #1:Difficult to predict spending changes in Medicaid over time

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105

115

125

135

145

1999 2000 2001 2002

Actual 2002

CBO 2002

CBO 2001

CBO 2000

CBO 1999

CBO 1998

CBO 1997

CBO Federal Medicaid Spending Projections, 1999-2002

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)

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Medicaid Long Term Care Average Annual Expenditure Growth Rates 1990-1998

9.1%

18.2%

8.2%

3.4%

4.7%

0%

5%

10%

15%

20%

All LTC Home Care Nursing Home ICF/MR Mental Health

Source: Urban Institute estimates, based on HCFA-2082 and HCFA-64 reports.

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Risk #2: Capped Funding Inevitably Results In Winners and Losers Among States

Base year differences Differences in growth rates States do not have to take the block grant option

But states may not be able to predict if they will be a winner or a loser No fiscal relief if state does not opt in

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Risk #3: States likely to withdraw a significant portion of their funding

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Under Current Law When A State Cuts State Spending, It Loses Federal Funds

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

FederalDollars

Lost(millions)

$125

$232

$375

Match Rate

StateFundsSaved

(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)

FederalDollars

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

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Under Current Law When a State Invests State Funds to Expand Coverage, Federal

Funds Grow

Amount of federal dollars gained if a state expands state Medicaid spending, at different match rates

Match Rate

New StateInvestment(millions)

50%

65%

75%

$125

$125

$125

Additional Federal Funds

(millions)

$125

$232

$375

Under The Proposal, If A State Invests State Funds To Expand Coverage, Federal Payments

Do Not Grow (assuming the state is receiving its full federal allotment)

Additional Federal Funds

(millions)

New State Investment(millions)

$125 $0

Amount of federal dollars gained if a state expands state Medicaid spending

Bush plan would diminish state incentives to invest in Medicaid

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What Spending Would be Under the Cap?

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Most Spending in Medicaid is “Optional” (1998)

Mandatory Expenditures For Mandatory Groups

35%

Optional Services forMandatory

Groups21%

All Services forOptional Groups

44%

Optional Expenditures

65%

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

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

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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

Disabled45.0%

Parents9.0%

Children8.0%

Elderly38.0%

Optional Spending = $100 billion

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

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ElderlyDisabled

Mandatory Services for Mandatory Groups

Optional Services for Mandatory Groups

All Services for Optional Groups

Children Parents

Distribution of Medicaid Spending by Eligibility Group and Type of

Service, 1998

15%

20%

65%

41%

14%

45%34% 34%

32%73%

17%

10%

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

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Optional Spending for Long Term Care (1998)

Home and Community-

Based Waivers

16%

Mental Health5%

Nursing Facility

51%

Other Home Care10%

ICF-MR17%

Home Health Care1%

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

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

Total = $58.7 billion

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Other solutions?

Increasing the Medicaid “FMAP” Medicare prescription drug benefit Increasing the Medicaid Drug Rebate Other controls on prescription drug costs Federalizing “duals”/federalizing LTC