Medicaid: Current and Future Challenges

for the

19th Princeton Conference Council on Health Care Economics and P0licy

Princeton, New Jersey May 23, 2012

Kathleen D. Gifford

Health Management Associates

kgifford@HealthManagement.com

Medicaid Today: America’s Largest Health Program

– Average enrollment (person-year equivalents): 57 Million (2012)

– 68 million “ever enrolled”; 1 in 5 Americans annually

– Projected total spending: $457 billion (2012)

– 40% for dual eligibles

– Federal share = 50% to 74%

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Sources: HMA projections, based on: CBO, Medicaid Baseline, March 2011; and CMS, Office of the Actuary, August 2011.

Sources: CBO, Medicaid Baseline, 2012; and CMS Office of the Actuary, “2011 Actuarial Report on the Financial Outlook for

Medicaid,” March 2012.

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Primary Issues for Medicaid Now

• Unrelenting fiscal pressure: Continuous search for new options to control spending growth. • “Medicaid growth is simply unsustainable and threatens to consume the core

functions of state government.”

• AZ Gov. Jan Brewer signing MOE waiver request to cut Medicaid adults.

• “ We must act quickly to save the entire Medicaid system from collapse, and protect providers and the millions of Illinois residents that depend upon Medicaid for their healthcare.. . ”

• IL Gov. Pat Quinn announcing $2.7 billion Medicaid cost containment plan (4/19/12)

• Quality improvement: Making Medicaid a more effective, higher value program

• Health reform: Preparing for a significant role in an uncertain political environment.

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SOURCE: Vernon Smith, Kathy Gifford, Eileen s, Robin Rudowitz and Laura Snyder, “Moving Ahead Amid Fiscal Challenges: A Look at Medicaid

Spending, Coverage and Policy Trends,” The Kaiser Commission on Medicaid and the Uninsured, October 2011. http://www.kff.org/medicaid/8248.cfm

Medicaid has been unsustainable for a long time . . .

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

17.4%

8.4%

SOURCE: NASBO State Expenditure Reports, 1988, 2001 and 2011.

Medicaid as a Percent of State General Fund Budgets, FY 1988 – FY 2011

— 23.6% of Total State Expenditures (K-12=20.1%) — Largest source of federal funds (42.3% in FY 2010)

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4

Total Medicaid Spending Growth Rates, All Funds, FFYs 2007 - 2020

5.4% 5.9%

7.6% 6.0%

7.6%

5.9% 7.2%

14.8%

9.0% 8.0%

7.2% 6.7% 7.1%

7.4%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

SOURCE: HMA based on CMS Office of the Actuary, “2011 Actuarial Report on the Financial Outlook for Medicaid,” March 2012. .

Average Annual Rate of Growth State Costs 2015 to 2020 = 7.6%

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State Share of Medicaid Spending Growth Rates, FFYs 2007 - 2020

5.4 5.9

-12.8

-0.5

20.9 23.4

5.8 6.6 7.1 7.0 7.6

6.9 7.3 8.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Average Annual Rate of Growth State Costs 2015 to 2020 = 7.4%

Calendar Years

SOURCE: HMA based on CMS Office of Actuary, March 2012. 2011–2020 are projections.

States Continue to Look for New Ways to Slow Medicaid Cost Growth, But …

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• Easy actions have been taken

• Eligibility reductions currently restricted by ACA MOE

• Provider reimbursement cuts could jeopardize access; disproportionately impact safety-net providers

• Optional benefit cuts may shift utilization to higher cost mandatory services/settings

Also:

• Medicaid patients are sicker

• Medicaid costs are already lower than other payers’

• Medicaid cost growth has been lower

Smith 6

Can Medicaid Absorb the New Enrollment Expected in 2014 and Beyond?

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53.9 56.1 57.0 57.3

72.0

78.7 81.4 82.8 83.8 84.4 85.1

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Millions of U.S. Medicaid Beneficiaries during year. Unduplicated, person-year equivalents annually.

SOURCE: CMS Office of the Actuary, “2011 Actuarial Report on the Financial Outlook for Medicaid,” March 2012.

— 25.7% enrollment increase expected in 2014

• Medicaid added 19.2M enrollees between 2001 and 2011 (+52%) — Health Care Reform Will Add 15M in 2014

State Implementations Enrollees

2011

Mississippi Expansion 52,500 South Carolina Expansion of current contracts 80,000

Illinois ABD Expansion 40,000 California ABD Expansion 380,000

Arizona LTC Rebid 25,000 Kentucky Rebid/Expansion 460,000

2012

Virginia Expansion 68,000 Texas Rebid/Expansion 3,200,000

New York LTC Rebid/Expansion 200,000 Louisiana Expansion 870,000

Washington Rebid/Expansion 800,000 Nebraska Expansion 75,000

Missouri Rebid 425,000 New Hampshire Expansion 130,000

Hawaii Rebid 225,000 Pennsylvania New West Zone – Expansion 175,000

Managed Care to the Rescue?

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Recent Upsurge in Medicaid MCO RFP Activity

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State Implementations Enrollees

2013 Kansas Rebid/Expansion 313,000

Ohio Rebid 1,650,000

Pennsylvania New East Zone – Expansion 290,000

Florida LTC Rebid/Expansion 90,000

2014 Georgia RFP Release Expected July/August 2012 – Rebid/Expansion

1,500,000

Arizona

Florida

Acute Care RFP Release Expected November 2012 — Rebid TANF/CHIP RFP Release Expected 1/1/13 – Rebid/Expansion

1,100,000

2,800,000

More expected in 2013 and 2014

States Turning to Other Care Management, Delivery System and Payment Reforms

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• Patient-Centered Medical Home Initiatives

• ACA Health Homes for Persons with Chronic Conditions

• New Integrated Delivery System Models (ACOs, etc.)

• P4P/Other Reimbursement Reforms

• Dual Eligible Integration Initiatives

Smith 10

Conclusion: Historic but Uncertain Time for Medicaid

– Significant state and federal budget issue • Extended economic downturn and rising health care costs add to

challenge

– Primary health reform coverage expansion vehicle • States face major system, financial, administrative resource and

political challenges

– Medicaid will increasingly rely on managed care • Helps to assure access, quality, cost savings

• Focus now is on innovations and quality in serving dual eligibles, persons with disabilities, long term care

– Future is clouded by political uncertainty

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