Sen. Brett Hill

Sen. John Cullerton

Sen. Thomas Alexander (SC)

Sen. Eduardo Bhatia

Tom Finneran

Sen. Ginny Burdick

Ann Schwartz

JULY 2017 CONFERENCE

Medicaid Policy and Funding

Anne Schwartz

Medicaid Policy and Funding

Anne Schwartz, PhD, is the Executive Director of Medicaid & CHIP Payment and Access Commission (MACPAC) a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the US Department of Health and Human Services, and the States on issues affecting Medicaid and the State Children’s Health Insurance Program (CHIP).

Dr. Schwartz reminded the Forum that Medicaid is a major part of the US health system with more than one quarter of the US population enrolled for at least part of the year. The $556 billion program represents 16.4% of all US health-care spending. The Medicaid program covers 1 in 5 Americans, including many with complex and costly health and long-term care needs. Most Medicaid beneficiaries would be uninsured or underinsured without it.

Program Design

Medicaid is an entitlement to individuals whose income falls below 138% of the Federal Poverty Level (see sidebar), and includes children, pregnant women, parents, people with disabilities, the elderly, and the new adult group in the Expansion Program. The program provides both federally mandated services and optional services determined by each State. Services include Early and Periodic Screening, Diagnostic and Treatment (EPSDT) -- the child health component of Medicaid, long-term services and supports, and enabling services. The program wraps around Medicare and employer-sponsored coverage.

Distribution of Medicaid Spending by Eligibility Group, FY 2014

NOTE: Totals may not sum to 100% due to rounding.

SOURCE: KFF estimates based on analysis of data from the FFY2014 Medicaid Statistical Information System (MSIS) and CMS-64 reports. Because FF2014 data was missing some or all quarters for some states, we adjusted the data using secondary data to represent a full fiscal year of enrollment.

Source: http://www.kff.org/medicaid/fact-sheet/medicaid-pocket-primer/

State vs Federal Responsibilities for Medicaid

States run the day-to-day operations and make policy decisions for Medicaid within federal parameters. The States decide on optional populations and benefits; they raise non-federal share of funds (at least 40% from state), design the delivery system, and determine payment methods and rates. Federal authority establishes Medicaid’s mandatory populations and benefits, approves State plan amendments and waivers of federal rules, provides oversight, and grants matching funds.

What Problems are Legislators Seeking to Solve?

The Medicaid program has evolved over decades with programs, services, and accountability being cobbled together out of existing programs. As a result, it has led to a tug-of-war over Federal and State partnership and division of responsibilities. In addition, the high level of flexibility allowed to the States has resulted in a very complex and non-standardized system across the country, including debates about the level of personal responsibility Medicaid recipients should be expected to take, and how this influences eligibility and program services. A significant problem to be solved is the growth of the Medicaid program in size and spending, Dr. Schwartz reported.

Medicaid Spending

The Medicaid program is jointly funded by the federal government and states. The federal government pays states for a specified percentage of program expenditures, called the Federal Medical Assistance Percentage (FMAP). FMAP varies by state based on criteria such as per capita income. The regular average state FMAP is 57%, but ranges from 50% in wealthier states up to 75% in states with lower per capita incomes. Despite federal matching funds, Medicaid accounts for a growing share of state budgets and consumes, on average, 19.3% of all State general funds. As a result, Medicaid expenses may crowd out other services States want to finance.

Most of the growth in Medicaid spending is driven by increasing number of enrollees, eligibility expansion, economic downturns, and the aging US population, accounting for 70.7% of real growth. Spending per enrollee accounts for 29.3% of real growth, and is a function of the enrollment mix, the volume and mix of services used, and the prices paid for items and services.

Growth in Medicaid Enrollment and Spending (1965-2015)

SOURCE: MACPAC - slides

The Future of Medicaid

Dr. Schwartz reviewed the details of proposals to address these problem and reduce the burden of healthcare spending, including changing Medicaid financing via block grants and per capita caps, eliminating retroactive eligibility, creating work requirements, and requiring more frequent eligibility determinations. The proposed changes in Medicaid would deeply affect the States, Dr. Schwartz warned.

Caps on Spending

While Congressional strategies to repeal and replace Affordable Care Act including Medicaid provisions are still under debate, some of the options being considered to reduce the rate of growth in federal spending include setting per enrollee limits on federal payments to states with separate caps for different eligibility groups, and making States responsible for any spending above the fixed per capita payment. In addition, proposed changes would eliminate retroactive eligibility, create work requirements, and require more frequent eligibility determinations.

Base Year and Caps Calculations

A key provision of the proposed legislation would be how the Federal funding match would be calculated. Growth in federal funding would be calculated starting from a Base Year, which the proposals treat differently. The House bill takes FY 2016 and trends forward to FY 2019 using the medical care component of consumer price index, while the Senate bill allows states to pick 8 consecutive quarters between FY 2014 and FY 2017 as the base.

Dr. Schwartz pointed out that States could be at risk from these calculations, as State spending varies widely from year to year. Currently, there is State adjustment for risk profile, which would be terminated. And supplemental payments to hospitals that serve a disproportionate share of Medicaid patients would be limited to 2016 levels.

Basing future spending on current spending locks in existing State variation and how States have responded to current program rules, she pointed out. States with either more efficient or less generous programs that spend less per person under current law would have lower future caps. Some variation in spending could be smoothed out using multi-year averages or periodic rebasing.

Block Grants

The Block Grant Option, starting in FY 2020, would provide a fixed dollar amount to provide health care assistance to narrowly defined groups, leaving the States responsible for any additional spending above the grant. Under the block grant option, States could impose conditions of eligibility and not comply with key provisions in current law like comparability and are applied state-wide.

Phase Out Medicaid Expansion

The proposed bill would phase out the enhanced federal financing for the adults funded under the ACA Medicaid Expansion. The House bill eliminates enhanced match at end of 2019 with exception of existing enrollees without breaks in eligibility, while the Senate bill phases down the enhanced match gradually until 2024.

Impact on Medicaid Coverage and Spending

The Congressional Budget Office predicts that the proposals will result in a decrease in coverage for 14 to 15 million people and a potential reduction in Medicaid spending of 26% by 2026, and 35% by 2036. But Dr. Schwartz pointed out that it would be impossible to achieve this while still purchasing medical care in the marketplace. This will require new models, she said.

State Level Effects

The Base Year starting point for each State would have a significant effect on future spending and program services. Changes to eligibility and benefits would force States to re-engineer their programs and potentially either raise revenues to fill the gaps, or reduce services. The reductions in Federal support for Medicaid are likely to squeeze State budget and exert to ripple effects on other services beyond Medicaid including schools, criminal justice system, and behavioral health, Dr. Schwartz concluded.

Sen. Rich Wardner (ND) and Sen. Thomas Alexander (SC) considered the impacts of changes in Medicaid on their States’ budgets.

Discussion

Sen. Brent Hill (ID): Would the proposed per capita cap on spending affect only expansion States or all Medicaid? What choices or legislation options do they States have?

Dr. Schwartz: The caps and the growth-rate restrictions apply to all Medicaid populations. I recommend you work with your Medicaid agency so that you are well informed on which people you cover and what services you provide.  Identify who you cover currently and which of these beneficiaries could lose coverage, such as those covered under Expansion and some of the disabled. All children will remain covered.

Sen. John Cullerton (IL): In Chicago, 25% of our population qualify for Medicaid because their income is less than 138% of the Federal Poverty Rate. A risk adjustment for the poverty level or the severity of illness of the population  seems like a reasonable modification.

Dwayne Kratt (Diageo): Is getting people out of the hospitals faster saving enough money to make a difference? Are more people going to doctors instead of the Emergency room?

Dr. Schwartz: There now are Medicare penalties for readmission, that are perceived as a surrogate for poor quality of care. As a result, hospitals are re-engineering the bedside care to improve patient care, to accelerate discharges appropriately, and avoid readmissions. Healthcare providers are relearning how to do their jobs with greater constraints. This model is flowing down to Medicaid. But diagnosing and treating patients appropriately is an even greater challenge under these constraints.

Emergency Room charges (national average = $1,233 per visit) are significantly higher than a doctor’s visit, because a highly trained staff is equipped and has access to the technology to handle major emergencies. The goal is to get people to access medical care at the most efficient and least expensive location. But are those sites open when people need them? Many people on Medicaid have multiple jobs and are also caring for children and elders. Those who are homeless, or who have chronic diseases, mental illness, or substance abuse may not be capable of scheduling and attending a doctor’s office visit.

Sen. Thomas Alexander (SC): Will the proposed bills affect special services such as autism programs? Also how will providers be affected? Our provider rates are already very low.

Dr. Schwartz: Children will continue to be covered by the Early and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit, which defines mandatory services. However, the States may have to be more restrictive in the amount, duration, or scope of services provided for children in order to stay under the Federal spending cap.

Sen. Eduardo Bhatia (PR): How does US healthcare spending and health status compare with the rest of the world?

Dr. Schwartz: US healthcare spending is the highest in the world; however, we rank 36th in health status. The US focus has been on high technology, rather than primary or preventive care, or population health. Further, resources are not distributed evenly across all populations, with the wealthy having access to superb care, but often not the poor.

Moderator Tom Finneran: You presented data showing that Medicaid growth is actually slower than that of private insurance and of Medicare until the year 2020, after which they all track very close. I would have anticipated greater spending discipline in the private insurance sector, but your data show this is not the case. What drives this?

Dr. Schwartz: On the private insurance side, employers are purchasing care in the public market. They do not have the power to drive down provider charges. About 9% of Americans chose healthcare under ACA, because private insurance often charges a higher deductible and higher co-pay.

Sen. Ginny Burdick (OR): How will State access to the provider tax be affected in the proposed healthcare legislation? If these proposals fail and the focus becomes improving ACA instead of repeal and replace, how will this affect the States?

Dr. Schwartz: Provider taxes are an integral source of Medicaid financing for most States. Provider taxes allow States to receive revenue from providers and then spend that revenue on healthcare services that the Federal government is required to match.  Currently, provider tax collections are limited to 6.0% or less of net patient revenues. The proposed bills would phase down the limit to 5.0 % of net patient revenues by FY 2025. Limitations on provider taxes would have more impact in those states that are heavily dependent on provider tax revenues to fund their state share of Medicaid spending. If provider taxes are limited, states would need to increase state funds to maintain current programs or make program cuts.

Medicaid Spending by State

Location                      Total Spending

United States            $553,453,647,756

California                     $81,963,494,431

New York                     $62,858,761,866

Texas                             $40,329,673,422

Pennsylvania              $27,562,165,896

Florida                          $21,841,384,373

Ohio                               $21,744,648,983

Illinois                           $19,298,315,096

Massachusetts           $17,121,704,904

Michigan                      $16,881,112,468

New Jersey                 $14,546,679,583

North Carolina           $12,382,079,896

Minnesota                   $11,163,948,754

Arizona                         $11,112,248,057

Washington                $10,935,089,585

Maryland                     $10,478,883,019

Indiana                         $10,446,713,815

Missouri                       $9,904,675,663

Georgia                        $9,837,218,481

Kentucky                     $9,664,001,530

Tennessee                   $9,517,026,811

Louisiana                    $8,637,261,244

Virginia                         $8,564,487,079

Oregon                         $8,398,103,515

Colorado                     $7,934,761,868

Connecticut               $7,886,642,781

Wisconsin                    $7,741,793,637

South Carolina          $6,240,129,313

Arkansas                      $6,009,822,333

Alabama                      $5,461,151,125

Mississippi                  $5,413,140,387

New Mexico                $5,364,140,357

Oklahoma                   $4,813,304,816

Iowa                              $4,797,453,707

West Virginia              $3,693,853,210

Nevada                         $3,363,512,975

Kansas                          $3,274,359,345

District of Columbia $2,773,098,123

Maine                            $2,581,657,130

Rhode Island              $2,424,403,571

Hawaii                          $2,205,594,725

Utah                              $2,140,678,188

Nebraska                     $2,006,615,023

New Hampshire        $1,975,716,666

Delaware                     $1,888,440,200

Alaska                           $1,798,434,564

Idaho                            $1,710,240,712

Vermont                       $1,679,754,722

Montana                      $1,381,900,546

South Dakota             $839,857,490

Wyoming                     $580,911,047

The Henry J. Kaiser Family Foundation

Speaker Biography

Anne Schwartz, PhD

Anne Schwartz is executive director of the Medicaid and CHIP Payment and Access Commission (MACPAC), a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the U.S. Department of Health and Human Services, and the states on a wide array of issues affecting Medicaid and the State Children’s Health Insurance Program (CHIP).

Dr. Schwartz previously served as deputy editor of the journal Health Affairs; vice president at Grantmakers In Health, a national organization providing strategic advice and educational programs for foundations and corporate giving programs working on health issues; and special assistant to the executive director and senior analyst at the Physician Payment Review Commission, a precursor to the Medicare Payment Advisory Commission. Earlier, she held positions on committee and personal staff for the U.S. House of Representatives. Dr. Schwartz holds a doctorate in health policy from the School of Hygiene and Public Health at The Johns Hopkins University.

Who qualifies for Medicaid (2017)

      # in                Max Annual
Household          Income*

           1                  $ 16,643

           2                  $ 22,411

           3                  $ 28,780

           4                  $ 33,948

           5                  $ 39,716

           6                  $ 45,485

*138% of Federal Poverty Level – 48 states

The States decide on optional populations and benefits; they raise non-federal share of funds (at least 40% from state), design the delivery system, and determine payment methods and rates.

Medicaid accounts for a growing share of state budgets and consumes, on average, 19.3% of all State general funds.

The proposed changes in Medicaid would deeply affect the States ...

... options being considered to reduce the rate of growth in federal spending include setting per enrollee limits on federal payments to states ... and making States responsible for any spending above the fixed per capita payment.

The Block Grant Option, starting in FY 2020, would provide a fixed dollar amount to provide health care assistance to narrowly defined groups, leaving the States responsible for any additional spending above the grant.

... the States may have to be more restrictive in the amount, duration, or scope of services provided for children in order to stay under the Federal spending cap.

CONTACT

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

 

Tel: 914-693-1818

Copyright © 2018 Senate Presidents' Forum. All rights reserved.

JULY 2017 CONFERENCE

Medicaid Policy and Funding

Anne Schwartz

Medicaid Policy and Funding

Anne Schwartz, PhD, is the Executive Director of Medicaid & CHIP Payment and Access Commission (MACPAC) a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the US Department of Health and Human Services, and the States on issues affecting Medicaid and the State Children’s Health Insurance Program (CHIP).

Dr. Schwartz reminded the Forum that Medicaid is a major part of the US health system with more than one quarter of the US population enrolled for at least part of the year. The $556 billion program represents 16.4% of all US health-care spending. The Medicaid program covers 1 in 5 Americans, including many with complex and costly health and long-term care needs. Most Medicaid beneficiaries would be uninsured or underinsured without it.

Program Design

Medicaid is an entitlement to individuals whose income falls below 138% of the Federal Poverty Level (see sidebar), and includes children, pregnant women, parents, people with disabilities, the elderly, and the new adult group in the Expansion Program. The program provides both federally mandated services and optional services determined by each State. Services include Early and Periodic Screening, Diagnostic and Treatment (EPSDT) -- the child health component of Medicaid, long-term services and supports, and enabling services. The program wraps around Medicare and employer-sponsored coverage.

Distribution of Medicaid Spending by Eligibility Group, FY 2014

NOTE: Totals may not sum to 100% due to rounding.

SOURCE: KFF estimates based on analysis of data from the FFY2014 Medicaid Statistical Information System (MSIS) and CMS-64 reports. Because FF2014 data was missing some or all quarters for some states, we adjusted the data using secondary data to represent a full fiscal year of enrollment.

Source: http://www.kff.org/medicaid/fact-sheet/medicaid-pocket-primer/

Who qualifies for Medicaid (2017)      # in                Max Annual
Household          Income*
           1                  $ 16,643           2                  $ 22,411           3                  $ 28,780           4                  $ 33,948           5                  $ 39,716           6                  $ 45,485*138% of Federal Poverty Level – 48 states

State vs Federal Responsibilities for Medicaid

States run the day-to-day operations and make policy decisions for Medicaid within federal parameters. The States decide on optional populations and benefits; they raise non-federal share of funds (at least 40% from state), design the delivery system, and determine payment methods and rates. Federal authority establishes Medicaid’s mandatory populations and benefits, approves State plan amendments and waivers of federal rules, provides oversight, and grants matching funds.

The States decide on optional populations and benefits; they raise non-federal share of funds (at least 40% from state), design the delivery system, and determine payment methods and rates.

What Problems are Legislators Seeking to Solve?

The Medicaid program has evolved over decades with programs, services, and accountability being cobbled together out of existing programs. As a result, it has led to a tug-of-war over Federal and State partnership and division of responsibilities. In addition, the high level of flexibility allowed to the States has resulted in a very complex and non-standardized system across the country, including debates about the level of personal responsibility Medicaid recipients should be expected to take, and how this influences eligibility and program services. A significant problem to be solved is the growth of the Medicaid program in size and spending, Dr. Schwartz reported.

Medicaid Spending

The Medicaid program is jointly funded by the federal government and states. The federal government pays states for a specified percentage of program expenditures, called the Federal Medical Assistance Percentage (FMAP). FMAP varies by state based on criteria such as per capita income. The regular average state FMAP is 57%, but ranges from 50% in wealthier states up to 75% in states with lower per capita incomes. Despite federal matching funds, Medicaid accounts for a growing share of state budgets and consumes, on average, 19.3% of all State general funds. As a result, Medicaid expenses may crowd out other services States want to finance.

Medicaid accounts for a growing share of state budgets and consumes, on average, 19.3% of all State general funds.

Most of the growth in Medicaid spending is driven by increasing number of enrollees, eligibility expansion, economic downturns, and the aging US population, accounting for 70.7% of real growth. Spending per enrollee accounts for 29.3% of real growth, and is a function of the enrollment mix, the volume and mix of services used, and the prices paid for items and services.

Growth in Medicaid Enrollment and Spending (1965-2015)

SOURCE: MACPAC - slides

The Future of Medicaid

Dr. Schwartz reviewed the details of proposals to address these problem and reduce the burden of healthcare spending, including changing Medicaid financing via block grants and per capita caps, eliminating retroactive eligibility, creating work requirements, and requiring more frequent eligibility determinations. The proposed changes in Medicaid would deeply affect the States, Dr. Schwartz warned.

The proposed changes in Medicaid would deeply affect the States ...

Caps on Spending

While Congressional strategies to repeal and replace Affordable Care Act including Medicaid provisions are still under debate, some of the options being considered to reduce the rate of growth in federal spending include setting per enrollee limits on federal payments to states with separate caps for different eligibility groups, and making States responsible for any spending above the fixed per capita payment. In addition, proposed changes would eliminate retroactive eligibility, create work requirements, and require more frequent eligibility determinations.

... options being considered to reduce the rate of growth in federal spending include setting per enrollee limits on federal payments to states ... and making States responsible for any spending above the fixed per capita payment.

Base Year and Caps Calculations

A key provision of the proposed legislation would be how the Federal funding match would be calculated. Growth in federal funding would be calculated starting from a Base Year, which the proposals treat differently. The House bill takes FY 2016 and trends forward to FY 2019 using the medical care component of consumer price index, while the Senate bill allows states to pick 8 consecutive quarters between FY 2014 and FY 2017 as the base.

Dr. Schwartz pointed out that States could be at risk from these calculations, as State spending varies widely from year to year. Currently, there is State adjustment for risk profile, which would be terminated. And supplemental payments to hospitals that serve a disproportionate share of Medicaid patients would be limited to 2016 levels.

Basing future spending on current spending locks in existing State variation and how States have responded to current program rules, she pointed out. States with either more efficient or less generous programs that spend less per person under current law would have lower future caps. Some variation in spending could be smoothed out using multi-year averages or periodic rebasing.

Block Grants

The Block Grant Option, starting in FY 2020, would provide a fixed dollar amount to provide health care assistance to narrowly defined groups, leaving the States responsible for any additional spending above the grant. Under the block grant option, States could impose conditions of eligibility and not comply with key provisions in current law like comparability and are applied state-wide.

The Block Grant Option, starting in FY 2020, would provide a fixed dollar amount to provide health care assistance to narrowly defined groups, leaving the States responsible for any additional spending above the grant.

Phase Out Medicaid Expansion

The proposed bill would phase out the enhanced federal financing for the adults funded under the ACA Medicaid Expansion. The House bill eliminates enhanced match at end of 2019 with exception of existing enrollees without breaks in eligibility, while the Senate bill phases down the enhanced match gradually until 2024.

Impact on Medicaid Coverage and Spending

The Congressional Budget Office predicts that the proposals will result in a decrease in coverage for 14 to 15 million people and a potential reduction in Medicaid spending of 26% by 2026, and 35% by 2036. But Dr. Schwartz pointed out that it would be impossible to achieve this while still purchasing medical care in the marketplace. This will require new models, she said.

State Level Effects

The Base Year starting point for each State would have a significant effect on future spending and program services. Changes to eligibility and benefits would force States to re-engineer their programs and potentially either raise revenues to fill the gaps, or reduce services. The reductions in Federal support for Medicaid are likely to squeeze State budget and exert to ripple effects on other services beyond Medicaid including schools, criminal justice system, and behavioral health, Dr. Schwartz concluded.

Sen. Rich Wardner (ND) and Sen. Thomas Alexander (SC) considered the impacts of changes in Medicaid on their States’ budgets.

Discussion

Sen. Brent Hill (ID): Would the proposed per capita cap on spending affect only expansion States or all Medicaid? What choices or legislation options do they States have?

Dr. Schwartz: The caps and the growth-rate restrictions apply to all Medicaid populations. I recommend you work with your Medicaid agency so that you are well informed on which people you cover and what services you provide.  Identify who you cover currently and which of these beneficiaries could lose coverage, such as those covered under Expansion and some of the disabled. All children will remain covered.

Sen. John Cullerton (IL): In Chicago, 25% of our population qualify for Medicaid because their income is less than 138% of the Federal Poverty Rate. A risk adjustment for the poverty level or the severity of illness of the population  seems like a reasonable modification.

Dwayne Kratt (Diageo): Is getting people out of the hospitals faster saving enough money to make a difference? Are more people going to doctors instead of the Emergency room?

Dr. Schwartz: There now are Medicare penalties for readmission, that are perceived as a surrogate for poor quality of care. As a result, hospitals are re-engineering the bedside care to improve patient care, to accelerate discharges appropriately, and avoid readmissions. Healthcare providers are relearning how to do their jobs with greater constraints. This model is flowing down to Medicaid. But diagnosing and treating patients appropriately is an even greater challenge under these constraints.

Emergency Room charges (national average = $1,233 per visit) are significantly higher than a doctor’s visit, because a highly trained staff is equipped and has access to the technology to handle major emergencies. The goal is to get people to access medical care at the most efficient and least expensive location. But are those sites open when people need them? Many people on Medicaid have multiple jobs and are also caring for children and elders. Those who are homeless, or who have chronic diseases, mental illness, or substance abuse may not be capable of scheduling and attending a doctor’s office visit.

Sen. Thomas Alexander (SC): Will the proposed bills affect special services such as autism programs? Also how will providers be affected? Our provider rates are already very low.

Dr. Schwartz: Children will continue to be covered by the Early and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit, which defines mandatory services. However, the States may have to be more restrictive in the amount, duration, or scope of services provided for children in order to stay under the Federal spending cap.

... the States may have to be more restrictive in the amount, duration, or scope of services provided for children in order to stay under the Federal spending cap.

Sen. Eduardo Bhatia (PR): How does US healthcare spending and health status compare with the rest of the world?

Dr. Schwartz: US healthcare spending is the highest in the world; however, we rank 36th in health status. The US focus has been on high technology, rather than primary or preventive care, or population health. Further, resources are not distributed evenly across all populations, with the wealthy having access to superb care, but often not the poor.

Moderator Tom Finneran: You presented data showing that Medicaid growth is actually slower than that of private insurance and of Medicare until the year 2020, after which they all track very close. I would have anticipated greater spending discipline in the private insurance sector, but your data show this is not the case. What drives this?

Dr. Schwartz: On the private insurance side, employers are purchasing care in the public market. They do not have the power to drive down provider charges. About 9% of Americans chose healthcare under ACA, because private insurance often charges a higher deductible and higher co-pay.

Sen. Ginny Burdick (OR): How will State access to the provider tax be affected in the proposed healthcare legislation? If these proposals fail and the focus becomes improving ACA instead of repeal and replace, how will this affect the States?

Dr. Schwartz: Provider taxes are an integral source of Medicaid financing for most States. Provider taxes allow States to receive revenue from providers and then spend that revenue on healthcare services that the Federal government is required to match.  Currently, provider tax collections are limited to 6.0% or less of net patient revenues. The proposed bills would phase down the limit to 5.0 % of net patient revenues by FY 2025. Limitations on provider taxes would have more impact in those states that are heavily dependent on provider tax revenues to fund their state share of Medicaid spending. If provider taxes are limited, states would need to increase state funds to maintain current programs or make program cuts.

Medicaid Spending by State

Location                      Total Spending

United States            $553,453,647,756

California                     $81,963,494,431

New York                     $62,858,761,866

Texas                             $40,329,673,422

Pennsylvania              $27,562,165,896

Florida                          $21,841,384,373

Ohio                               $21,744,648,983

Illinois                           $19,298,315,096

Massachusetts           $17,121,704,904

Michigan                      $16,881,112,468

New Jersey                 $14,546,679,583

North Carolina           $12,382,079,896

Minnesota                   $11,163,948,754

Arizona                         $11,112,248,057

Washington                $10,935,089,585

Maryland                     $10,478,883,019

Indiana                         $10,446,713,815

Missouri                       $9,904,675,663

Georgia                        $9,837,218,481

Kentucky                     $9,664,001,530

Tennessee                   $9,517,026,811

Louisiana                    $8,637,261,244

Virginia                         $8,564,487,079

Oregon                         $8,398,103,515

Colorado                     $7,934,761,868

Connecticut               $7,886,642,781

Wisconsin                    $7,741,793,637

South Carolina          $6,240,129,313

Arkansas                      $6,009,822,333

Alabama                      $5,461,151,125

Mississippi                  $5,413,140,387

New Mexico                $5,364,140,357

Oklahoma                   $4,813,304,816

Iowa                              $4,797,453,707

West Virginia              $3,693,853,210

Nevada                         $3,363,512,975

Kansas                          $3,274,359,345

District of Columbia $2,773,098,123

Maine                            $2,581,657,130

Rhode Island              $2,424,403,571

Hawaii                          $2,205,594,725

Utah                              $2,140,678,188

Nebraska                     $2,006,615,023

New Hampshire        $1,975,716,666

Delaware                     $1,888,440,200

Alaska                           $1,798,434,564

Idaho                            $1,710,240,712

Vermont                       $1,679,754,722

Montana                      $1,381,900,546

South Dakota             $839,857,490

Wyoming                     $580,911,047

The Henry J. Kaiser Family Foundation

Speaker Biography

Anne Schwartz, PhD

Anne Schwartz is executive director of the Medicaid and CHIP Payment and Access Commission (MACPAC), a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the U.S. Department of Health and Human Services, and the states on a wide array of issues affecting Medicaid and the State Children’s Health Insurance Program (CHIP).

Dr. Schwartz previously served as deputy editor of the journal Health Affairs; vice president at Grantmakers In Health, a national organization providing strategic advice and educational programs for foundations and corporate giving programs working on health issues; and special assistant to the executive director and senior analyst at the Physician Payment Review Commission, a precursor to the Medicare Payment Advisory Commission. Earlier, she held positions on committee and personal staff for the U.S. House of Representatives. Dr. Schwartz holds a doctorate in health policy from the School of Hygiene and Public Health at The Johns Hopkins University.

JULY 2017 CONFERENCE

Medicaid Policy and Funding

Anne Schwartz

Medicaid Policy and Funding

Anne Schwartz, PhD, is the Executive Director of Medicaid & CHIP Payment and Access Commission (MACPAC) a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the US Department of Health and Human Services, and the States on issues affecting Medicaid and the State Children’s Health Insurance Program (CHIP).

Dr. Schwartz reminded the Forum that Medicaid is a major part of the US health system with more than one quarter of the US population enrolled for at least part of the year. The $556 billion program represents 16.4% of all US health-care spending. The Medicaid program covers 1 in 5 Americans, including many with complex and costly health and long-term care needs. Most Medicaid beneficiaries would be uninsured or underinsured without it.

Program Design

Medicaid is an entitlement to individuals whose income falls below 138% of the Federal Poverty Level (see sidebar), and includes children, pregnant women, parents, people with disabilities, the elderly, and the new adult group in the Expansion Program. The program provides both federally mandated services and optional services determined by each State. Services include Early and Periodic Screening, Diagnostic and Treatment (EPSDT) -- the child health component of Medicaid, long-term services and supports, and enabling services. The program wraps around Medicare and employer-sponsored coverage.

Distribution of Medicaid Spending by Eligibility Group, FY 2014

NOTE: Totals may not sum to 100% due to rounding.

SOURCE: KFF estimates based on analysis of data from the FFY2014 Medicaid Statistical Information System (MSIS) and CMS-64 reports. Because FF2014 data was missing some or all quarters for some states, we adjusted the data using secondary data to represent a full fiscal year of enrollment.

Source: http://www.kff.org/medicaid/fact-sheet/medicaid-pocket-primer/

Who qualifies for Medicaid (2017)      # in                Max Annual
Household          Income*
           1                  $ 16,643           2                  $ 22,411           3                  $ 28,780           4                  $ 33,948           5                  $ 39,716           6                  $ 45,485*138% of Federal Poverty Level – 48 states

State vs Federal Responsibilities for Medicaid

States run the day-to-day operations and make policy decisions for Medicaid within federal parameters. The States decide on optional populations and benefits; they raise non-federal share of funds (at least 40% from state), design the delivery system, and determine payment methods and rates. Federal authority establishes Medicaid’s mandatory populations and benefits, approves State plan amendments and waivers of federal rules, provides oversight, and grants matching funds.

The States decide on optional populations and benefits; they raise non-federal share of funds (at least 40% from state), design the delivery system, and determine payment methods and rates.

What Problems are Legislators Seeking to Solve?

The Medicaid program has evolved over decades with programs, services, and accountability being cobbled together out of existing programs. As a result, it has led to a tug-of-war over Federal and State partnership and division of responsibilities. In addition, the high level of flexibility allowed to the States has resulted in a very complex and non-standardized system across the country, including debates about the level of personal responsibility Medicaid recipients should be expected to take, and how this influences eligibility and program services. A significant problem to be solved is the growth of the Medicaid program in size and spending, Dr. Schwartz reported.

Medicaid Spending

The Medicaid program is jointly funded by the federal government and states. The federal government pays states for a specified percentage of program expenditures, called the Federal Medical Assistance Percentage (FMAP). FMAP varies by state based on criteria such as per capita income. The regular average state FMAP is 57%, but ranges from 50% in wealthier states up to 75% in states with lower per capita incomes. Despite federal matching funds, Medicaid accounts for a growing share of state budgets and consumes, on average, 19.3% of all State general funds. As a result, Medicaid expenses may crowd out other services States want to finance.

Medicaid accounts for a growing share of state budgets and consumes, on average, 19.3% of all State general funds.

Most of the growth in Medicaid spending is driven by increasing number of enrollees, eligibility expansion, economic downturns, and the aging US population, accounting for 70.7% of real growth. Spending per enrollee accounts for 29.3% of real growth, and is a function of the enrollment mix, the volume and mix of services used, and the prices paid for items and services.

Growth in Medicaid Enrollment and Spending (1965-2015)

SOURCE: MACPAC - slides

The Future of Medicaid

Dr. Schwartz reviewed the details of proposals to address these problem and reduce the burden of healthcare spending, including changing Medicaid financing via block grants and per capita caps, eliminating retroactive eligibility, creating work requirements, and requiring more frequent eligibility determinations. The proposed changes in Medicaid would deeply affect the States, Dr. Schwartz warned.

The proposed changes in Medicaid would deeply affect the States ...

Caps on Spending

While Congressional strategies to repeal and replace Affordable Care Act including Medicaid provisions are still under debate, some of the options being considered to reduce the rate of growth in federal spending include setting per enrollee limits on federal payments to states with separate caps for different eligibility groups, and making States responsible for any spending above the fixed per capita payment. In addition, proposed changes would eliminate retroactive eligibility, create work requirements, and require more frequent eligibility determinations.

... options being considered to reduce the rate of growth in federal spending include setting per enrollee limits on federal payments to states ... and making States responsible for any spending above the fixed per capita payment.

Base Year and Caps Calculations

A key provision of the proposed legislation would be how the Federal funding match would be calculated. Growth in federal funding would be calculated starting from a Base Year, which the proposals treat differently. The House bill takes FY 2016 and trends forward to FY 2019 using the medical care component of consumer price index, while the Senate bill allows states to pick 8 consecutive quarters between FY 2014 and FY 2017 as the base.

Dr. Schwartz pointed out that States could be at risk from these calculations, as State spending varies widely from year to year. Currently, there is State adjustment for risk profile, which would be terminated. And supplemental payments to hospitals that serve a disproportionate share of Medicaid patients would be limited to 2016 levels.

Basing future spending on current spending locks in existing State variation and how States have responded to current program rules, she pointed out. States with either more efficient or less generous programs that spend less per person under current law would have lower future caps. Some variation in spending could be smoothed out using multi-year averages or periodic rebasing.

Block Grants

The Block Grant Option, starting in FY 2020, would provide a fixed dollar amount to provide health care assistance to narrowly defined groups, leaving the States responsible for any additional spending above the grant. Under the block grant option, States could impose conditions of eligibility and not comply with key provisions in current law like comparability and are applied state-wide.

The Block Grant Option, starting in FY 2020, would provide a fixed dollar amount to provide health care assistance to narrowly defined groups, leaving the States responsible for any additional spending above the grant.

Phase Out Medicaid Expansion

The proposed bill would phase out the enhanced federal financing for the adults funded under the ACA Medicaid Expansion. The House bill eliminates enhanced match at end of 2019 with exception of existing enrollees without breaks in eligibility, while the Senate bill phases down the enhanced match gradually until 2024.

Impact on Medicaid Coverage and Spending

The Congressional Budget Office predicts that the proposals will result in a decrease in coverage for 14 to 15 million people and a potential reduction in Medicaid spending of 26% by 2026, and 35% by 2036. But Dr. Schwartz pointed out that it would be impossible to achieve this while still purchasing medical care in the marketplace. This will require new models, she said.

State Level Effects

The Base Year starting point for each State would have a significant effect on future spending and program services. Changes to eligibility and benefits would force States to re-engineer their programs and potentially either raise revenues to fill the gaps, or reduce services. The reductions in Federal support for Medicaid are likely to squeeze State budget and exert to ripple effects on other services beyond Medicaid including schools, criminal justice system, and behavioral health, Dr. Schwartz concluded.

Sen. Rich Wardner (ND) and Sen. Thomas Alexander (SC) considered the impacts of changes in Medicaid on their States’ budgets.

Discussion

Sen. Brent Hill (ID): Would the proposed per capita cap on spending affect only expansion States or all Medicaid? What choices or legislation options do they States have?

Dr. Schwartz: The caps and the growth-rate restrictions apply to all Medicaid populations. I recommend you work with your Medicaid agency so that you are well informed on which people you cover and what services you provide.  Identify who you cover currently and which of these beneficiaries could lose coverage, such as those covered under Expansion and some of the disabled. All children will remain covered.

Sen. John Cullerton (IL): In Chicago, 25% of our population qualify for Medicaid because their income is less than 138% of the Federal Poverty Rate. A risk adjustment for the poverty level or the severity of illness of the population  seems like a reasonable modification.

Dwayne Kratt (Diageo): Is getting people out of the hospitals faster saving enough money to make a difference? Are more people going to doctors instead of the Emergency room?

Dr. Schwartz: There now are Medicare penalties for readmission, that are perceived as a surrogate for poor quality of care. As a result, hospitals are re-engineering the bedside care to improve patient care, to accelerate discharges appropriately, and avoid readmissions. Healthcare providers are relearning how to do their jobs with greater constraints. This model is flowing down to Medicaid. But diagnosing and treating patients appropriately is an even greater challenge under these constraints.

Emergency Room charges (national average = $1,233 per visit) are significantly higher than a doctor’s visit, because a highly trained staff is equipped and has access to the technology to handle major emergencies. The goal is to get people to access medical care at the most efficient and least expensive location. But are those sites open when people need them? Many people on Medicaid have multiple jobs and are also caring for children and elders. Those who are homeless, or who have chronic diseases, mental illness, or substance abuse may not be capable of scheduling and attending a doctor’s office visit.

Sen. Thomas Alexander (SC): Will the proposed bills affect special services such as autism programs? Also how will providers be affected? Our provider rates are already very low.

Dr. Schwartz: Children will continue to be covered by the Early and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit, which defines mandatory services. However, the States may have to be more restrictive in the amount, duration, or scope of services provided for children in order to stay under the Federal spending cap.

... the States may have to be more restrictive in the amount, duration, or scope of services provided for children in order to stay under the Federal spending cap.

Sen. Eduardo Bhatia (PR): How does US healthcare spending and health status compare with the rest of the world?

Dr. Schwartz: US healthcare spending is the highest in the world; however, we rank 36th in health status. The US focus has been on high technology, rather than primary or preventive care, or population health. Further, resources are not distributed evenly across all populations, with the wealthy having access to superb care, but often not the poor.

Moderator Tom Finneran: You presented data showing that Medicaid growth is actually slower than that of private insurance and of Medicare until the year 2020, after which they all track very close. I would have anticipated greater spending discipline in the private insurance sector, but your data show this is not the case. What drives this?

Dr. Schwartz: On the private insurance side, employers are purchasing care in the public market. They do not have the power to drive down provider charges. About 9% of Americans chose healthcare under ACA, because private insurance often charges a higher deductible and higher co-pay.

Sen. Ginny Burdick (OR): How will State access to the provider tax be affected in the proposed healthcare legislation? If these proposals fail and the focus becomes improving ACA instead of repeal and replace, how will this affect the States?

Dr. Schwartz: Provider taxes are an integral source of Medicaid financing for most States. Provider taxes allow States to receive revenue from providers and then spend that revenue on healthcare services that the Federal government is required to match.  Currently, provider tax collections are limited to 6.0% or less of net patient revenues. The proposed bills would phase down the limit to 5.0 % of net patient revenues by FY 2025. Limitations on provider taxes would have more impact in those states that are heavily dependent on provider tax revenues to fund their state share of Medicaid spending. If provider taxes are limited, states would need to increase state funds to maintain current programs or make program cuts.

Medicaid Spending by State

Location                      Total Spending

United States            $553,453,647,756

California                     $81,963,494,431

New York                     $62,858,761,866

Texas                             $40,329,673,422

Pennsylvania              $27,562,165,896

Florida                          $21,841,384,373

Ohio                               $21,744,648,983

Illinois                           $19,298,315,096

Massachusetts           $17,121,704,904

Michigan                      $16,881,112,468

New Jersey                 $14,546,679,583

North Carolina           $12,382,079,896

Minnesota                   $11,163,948,754

Arizona                         $11,112,248,057

Washington                $10,935,089,585

Maryland                     $10,478,883,019

Indiana                         $10,446,713,815

Missouri                       $9,904,675,663

Georgia                        $9,837,218,481

Kentucky                     $9,664,001,530

Tennessee                   $9,517,026,811

Louisiana                    $8,637,261,244

Virginia                         $8,564,487,079

Oregon                         $8,398,103,515

Colorado                     $7,934,761,868

Connecticut               $7,886,642,781

Wisconsin                    $7,741,793,637

South Carolina          $6,240,129,313

Arkansas                      $6,009,822,333

Alabama                      $5,461,151,125

Mississippi                  $5,413,140,387

New Mexico                $5,364,140,357

Oklahoma                   $4,813,304,816

Iowa                              $4,797,453,707

West Virginia              $3,693,853,210

Nevada                         $3,363,512,975

Kansas                          $3,274,359,345

District of Columbia $2,773,098,123

Maine                            $2,581,657,130

Rhode Island              $2,424,403,571

Hawaii                          $2,205,594,725

Utah                              $2,140,678,188

Nebraska                     $2,006,615,023

New Hampshire        $1,975,716,666

Delaware                     $1,888,440,200

Alaska                           $1,798,434,564

Idaho                            $1,710,240,712

Vermont                       $1,679,754,722

Montana                      $1,381,900,546

South Dakota             $839,857,490

Wyoming                     $580,911,047

The Henry J. Kaiser Family Foundation

Speaker Biography

Anne Schwartz, PhD

Anne Schwartz is executive director of the Medicaid and CHIP Payment and Access Commission (MACPAC), a non-partisan legislative branch agency that provides policy and data analysis and makes recommendations to Congress, the Secretary of the U.S. Department of Health and Human Services, and the states on a wide array of issues affecting Medicaid and the State Children’s Health Insurance Program (CHIP).

Dr. Schwartz previously served as deputy editor of the journal Health Affairs; vice president at Grantmakers In Health, a national organization providing strategic advice and educational programs for foundations and corporate giving programs working on health issues; and special assistant to the executive director and senior analyst at the Physician Payment Review Commission, a precursor to the Medicare Payment Advisory Commission. Earlier, she held positions on committee and personal staff for the U.S. House of Representatives. Dr. Schwartz holds a doctorate in health policy from the School of Hygiene and Public Health at The Johns Hopkins University.