Medicaid: Change is on the horizon; states prepare for turning point in health program

Stateline Midwest ~ May 2013

Since its inception in 1965, Medicaid has been a critical part of our nation’s safety net. And as both enrollment and spending have been steadily increasing — and a new federal health law is poised to take full effect — the strength of that net is being tested.

Nationwide, Medicaid has seen a relatively modest but steady increase in enrollment over the past couple of decades, according to John Holahan, director of the Urban Institute’s Health Policy Center. In the general population, the program — a joint venture between states and the federal government — has seen about a 1 percent increase each year.

But enrollment has increased much faster in Medicaid’s most fragile and most expensive population: the disabled. That group has seen a 3 percent annual increase.

That’s because modern medicine has found more ways to treat life-threatening conditions, Holahan says.

And the aging “baby boomer” generation has created a spike in the population of people currently aged 55 to 65, who are more likely to have health conditions but are not yet eligible for Medicare. Medicaid, too, pays for long-term care, which accounts for about one-third of program spending — or $122 billion in fiscal year 2010.

Many states have also chosen to increase coverage for parents and children.

“Overall, most states have been aggressive about adding populations to get more coverage and controlling spending,” Holahan says. “Cost increases have actually been pretty low compared to private insurance.”
Holahan points out that states have done “everything they can think of” to cover the most people at the lowest cost. For example, states have ramped up the use of managed care, a health care delivery system designed to control costs.

States have also negotiated over drug prices and controlled provider payments more tightly. Home- and community-based care initiatives have sought to keep long-term-care patients out of nursing homes and place them in less-costly settings.

And in recent years, states have relied more heavily on taxes on hospitals and other medical facilities to fund the state share of Medicaid costs. Thanks to a federal match, states can typically reimburse hospitals as well as compensate them for other services, such as care for the uninsured.

“It’s a way of bringing in money to support Medicaid without increasing state spending,” Holahan notes.
So what’s next for this nearly 40-year-old program?

In the coming year or so, states will be focused on preparing for and signing up new participants: those currently eligible but not enrolled, as well as those newly eligible. And policymakers will be preparing information technology systems to handle the demands of a 21st-century insurance marketplace.

States expect influx of enrollees

In the next 10 years, the 11 Midwestern states combined are expected to see nearly 1 million more people on Medicaid — even without accounting for the bump in states that expand program eligibility to people with incomes under 138 percent of the federal poverty level.

Finding new ways to control costs and improve care, then, are likely to be top priorities across the region.
Since a landmark U.S. Supreme Court decision in June 2012, states have been weighing whether to participate in the Medicaid expansion proposed under the Affordable Care Act. 

As of early May, two Midwestern states (Minnesota and North Dakota) had passed legislation to go ahead with the expansion in 2014. Governors in another three states (Illinois, Michigan and Ohio) have expressed support of expansion, and legislation is pending. Governors in the six other states have said their states will not participate. 

From 2014 through 2016, the federal government will pay for the entire cost of covering the new enrollees. After that, the states will gradually begin to pick up some of the tab, capped at 10 percent in 2020 and beyond.

Minnesota was one of only a handful of states, and the only one in the Midwest, to implement the Medicaid expansion early. In 2011, Gov. Mark Dayton expanded Medicaid to all Minnesotans earning up to 75 percent of the federal poverty level.

For now, the federal government is paying half of the cost of covering these new enrollees (under the state’s pre-existing federal matching rate). So why would the state choose to expand early?

According to Sen. Kathy Sheran, the move was a win-win for her state. On the one hand, expanding Medicaid helped Minnesota draw federal dollars to support coverage for people who were already being insured in two state-funded public programs.

“Now we can draw down funds from the federal government to cover costs we were paying for anyway,” says Sheran, who is chair of the Health, Human Services and Housing Committee. 

The decision to expand early also fits nicely with the state’s broader goal of promoting preventive care.

“When people have coverage, their behavior changes,” says Sheran, a registered nurse. “They seek out preventive care instead of waiting for more-serious symptoms, when they need interventions or care in highly expensive places, like emergency rooms.”

The state, meanwhile, is working with the federal government to set up a Basic Health Plan (another option offered in the Affordable Care Act), which would be available to individuals just above Medicaid’s income threshold: with incomes from 138 percent to 200 percent of the federal poverty level. 

The goal is to make insurance affordable for this population and to help manage “churn” — the movement of recipients on and off Medicaid as their incomes change. States are expected to be able to use funds for a Basic Health Plan that the federal government would otherwise spend on providing premium subsidies through the ACA’s health insurance exchanges. 

Minnesota policymakers are also working on applying about six years’ worth of positive results from pilot projects designed to enhance care, improve quality and cut costs in its Medicaid program. 

This year, for example, the program has started using “accountable care” organizations. These providers enter into an agreement with the state to treat high-risk patients. They are then rewarded for quality outcomes by keeping the cost savings they achieve by integrating teams of specialists to treat patients with chronic diseases.

The idea, Sheran says, is to encourage a shift from a “siloed” approach to a team-based philosophy of care delivery, and to pay providers based on quality rather than on the number of procedures performed.

Some IT systems in need of upgrade

In October, enrollment in the new state-based health insurance exchanges will begin. In part, these online marketplaces must allow users to determine their eligibility for Medicaid.

A simpler, streamlined application process will be available, and states will now need to use a standardized method of determining income eligibility.

In order to meet these new requirements, many states must upgrade or entirely replace their information technology systems. Federal matching funds (90 percent) are available to help defray the cost.

Illinois, for example, is using the match to replace its system for determining Medicaid eligibility in order to be ready for enrollment this fall. The $150 million project will make “desperately needed” updates to the state’s 30-year-old system, says Kelly Jakubek, a spokesperson for the Illinois Department of Healthcare and Family Services.

Meanwhile, the state has launched a major initiative to review its current Medicaid rolls. One of the provisions in an Illinois Medicaid reform law passed last year was to create a better system of determining whether current beneficiaries should still be enrolled.

The state hired a private firm to review all of the state’s 2.7 million Medicaid cases, starting with about 294,000 that had a high probability of being determined ineligible.

As of April 29, the firm had looked at about 50,000 cases and recommended that the state rescind coverage in about two-thirds of the cases. In most instances, income was too high or the beneficiary had moved out of the state. Those cases are being passed on to caseworkers who will make the final decision on whether or not to cancel the accounts.

“Once those high-priority cases have been reviewed, we expect to see the percentage of ineligible cases decrease,” Jakubek says. “Our goal is to do timely, accurate redeterminations, and we are committed to doing so on an ongoing basis.”

Future holds new Medicaid challenges

Regardless of whether a state plans to expand Medicaid eligibility, outreach efforts and the simplified enrollment process will be critically important to ensure that needy people have care. 

Holahan adds that states planning to expand eligibility must also make sure the program’s system of providers is up to the task of caring for the new population of enrollees, mostly childless adults.

For example, because a large proportion of current Medicaid recipients are mothers and children, states’ programs are likely to include a high number of prenatal and pediatric specialists. But the new population of adults is likely to have different needs.

“There will be some small percentage that have substance abuse issues and mental health needs that will be a challenge to deal with,” Holahan says. “But most of them are quite young and healthy.”

He predicts that the largest cost for states will be covering “acute care,” such as trips to emergency rooms and hospital stays. 

States will have to rely on current cost-containment tools — and likely find new ones — to keep spending from rising too fast. And while policies may change over time, the need for a program like Medicaid will never go away, Sheran says.

“There are those difficult-to-treat populations — such as the homeless, those with chemical dependence issues, mental illness or chronic and persistent conditions — that will always need a safety net,” she says.