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MEDICAID BASICS

William D. Hayes, Ph.D.


drbillh1@aol.com
hayes.331@osu.edu
614-736-0102
February 17, 2011
Role of Medicaid
• Began as a poverty program for children and women
• Has become a high risk pool
• Has become a support for holes in the Medicare program
for low income seniors
• Has become a support for public policy goals
• Has become a major financing solution for public health
care systems
• Serves as a counter-cyclical safety net support (its
caseload increases during economic downturns, a time
when state revenues also decline)
• Should/can it be a leader in health system transformation
or a follower?
Medicaid’s Role for Selected Populations

Percent with Medicaid Coverage:

Poor 40%

Near Poor 23%


Families

All Children 27%

Low-Income Children 51%

Low-Income Adults 20%

Births (Pregnant Women) 41%

Aged & Disabled

Medicare Beneficiaries 19%

People with Severe Disabilities 20%

People Living with HIV/AIDS 44%

Nursing Home Residents 65%

Note: “Poor” is defined as living below the federal poverty level, which was $17,600 for a family of 3 in 2008.
SOURCE: Kaiser Commission on Medicaid and the Uninsured, Kaiser Family Foundation, and Urban Institute
estimates; Birth data: NGA, MCH Update.
MEDICAID/SCHIP HEALTH PLAN
2 Benefit Plans through 4 delivery systems

Long-term
Care

Managed Facility- Community


Care Based
Mandatory and Optional
• Medicaid has mandatory and optional benefits &
eligibility levels, including
Eligibility Category Ohio Mandatory Optional
Pregnant Women 200% 133% 185%***
Infants 200% 133% 185%***
Children 1 to 5 200% 133% 185%***
Children 6 to 19 200% 100% 185%***
Working Parents 90% State's AFDC rate 285%
SSI recipient or more
ABD** 64% restrictive* 100%
Uninsured with Breast or
Cervical Cancer 200% no 250%
Medicaid buy-in for workers
with disabilities*** 250% no 250%

*Ohio has more restrictive ABD income test than using SSI ** Also includes resource test
*** Ohio’s child income levels are above optional Medicaid level because of CHIP eligibility level option
Mandatory Benefits
• Physicians’ services
• Hospital services (inpatient and outpatient)
• Laboratory and x-ray services
• Early and periodic screening, diagnostic, and treatment (EPSDT)
services for individuals under 21
• Federally-qualified health center and rural health clinic services
• Family planning services and supplies
• Pediatric and family nurse practitioner services
• Nurse midwife services
• Nursing facility services for individuals 21 and older
• Home health care for persons eligible for nursing facility services
• Transportation services
Optional Benefits
• Prescription drugs
• Clinic services
• Care furnished by other licensed practitioners
• Dental services and dentures
• Prosthetic devices, eyeglasses, and durable medical equipment
• Rehabilitation and other therapies
• Case management
• Nursing facility services for individuals under age 21
• Intermediate care facility for individuals with mental retardation (ICF/MR) services
• Home‐ and community‐based services (by waiver)
• Inpatient psychiatric services for individuals under age 21
• Respiratory care services for ventilator dependent individuals
• Personal care services
• Hospice services
Federal – State Relations
• Federal government sets mandatory requirements
and optional opportunities
• Key federal expectations include statewideness,
comparability, and freedom of choice
• HHS may grant waivers to tailor program
Federal – State Relations
• State Plan is the contract with the federal government
• Federal government matches state expenditures
(FMAP): 50% for most Medicaid administrative
activities; 64% for Medicaid services; 72% for
SCHIP administrative activities and services, 75% for
some Medicaid administrative tasks related to IT or
medical services, and 90% for some IT planning
activities
• ODJFS is the Single State Agency
Importance of FMAP
• FMAP makes Medicaid only open-ended source of
federal funds for states
• FMAP means that for each $1 spent on Medicaid, 50%
or more comes from federal funds
• FMAP means that for each $1 cut from Medicaid’s
budget, 50% or more goes back to the federal
government, not to other uses in Ohio’s budget
• The percent of funds that would go back to the federal
government is higher for medical services than for basic
administration, which administration only accounts for
about 3% of total Medicaid spending
State - Local Relations
• Interagency agreements with MR, MH, Aging, DADAS,
Health, ODE, Auditor of State, Attorney General
• Medical Care Advisory Committee
• Consumer and provider stakeholder groups
• Administrative support from other ODJFS Offices, such as
MIS
• County DJFS - eligibility
Medicaid’s Portion of Ohio’s Budget
• There are 4 calculations that different people use to
describe the portion of the Ohio budget that Medicaid
consumes. For SFY 2008 these are:
– 35.2% of total GRF, but this calculation includes the federal
match as state GRF (which is not done with any other federal
funds or not done by other states)
– 26% of state-generated GRF
– 23% of all funds spending (state and federal)
– 21% of all funds spending for ODJFS-only Medicaid spending
Different Ways to Think About
Medicaid Spending – SFY 2008
• By eligibility group: children and parents (30.2%),
seniors and people with disabilities (69.8%)
• By Medicare eligibility – dual eligibles 33%, non-dual
eligibles 67% (does not include state’s contribution to
federal government for Medicare Part D)
• Delivery system – managed care 40% and fee-for-
serivce 60%
• Ohio Departments – ODJFS 85% and all other state
agencies 15%
% of State Agency Spending Tied to
Medicaid in Ohio
• ODADAS 44%
• Aging 91%
• Mental Health 50%
• DD 87%
• JFS 81%
Source: SFY 2010 estimated, LSC “Greenbook” (September 2009) from HPIO Interim Director Greg Moody’s
presentation to the Joint Legislative Budget Planning and Management Commission July 20, 2010
http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/moody_ohio_budget_testimony_medicai
d.pdf
Ohio Medicaid Enrollment and Spending by
Managed Care and FFS
• Managed Care
– 72% of total Medicaid enrollment, 34% of total Medicaid
spending
– For children, parents, pregnant women, and some disabled,
non-elderly adults
• Fee-for-Service
– 28% of total Medicaid enrollment, 66% of total Medicaid
spending
– For disabled children, Medicare eligible, those in institutions or
on HCBS waivers, and those eligible through spenddown
Source: ODJFS SFY 2010 estimates, “Projected Medicaid Expenditures SFY 2010-2011,” pages 3 and 30, from HPIO Interim
Director Greg Moody’s presentation to the Joint Legislative Budget Planning and Management Commission July 20, 2010
http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/moody_ohio_budget_testimony_medicaid.pdf
Medicaid Expenditure Drivers
• Caseload
– Economy
– Outreach
– Coverage Policy Decisions
• Price
– Provider Rates
– Medication Prices
• Utilization
– Demographics
– Earlier Diagnosis
– Increase in Chronic Conditions
– New Technology
– Marketing
Ohio Medicaid 2009 Enrollment By
Population Type
Per ODJFS 2009 actual Medicaid Enrollment:
Children 956,524
Pregnant Women 25,448
Adults 339,611
Disabled 259,447
Elderly 108,055
Source: HPIO Interim Director Greg Moody’s presentation to Joint Legislative Budget Planning and Management
Commission July 20, 2010
http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/moody_ohio_budget_testimony_medicai
d.pdf
Ohio Medicaid Enrollment as a Distribution of All Ohioans
2003/04, 2008, 2010 Administrative Data
(Source: Ohio Medicaid)
Age 18-64 Years, 0-17 Years, ≥ 65 Years, Count
45.00%

39.5%
40.00%

35.3%
35.00%

30.3%
30.00%

25.00% Adults
Children
20.00% Seniors

15.00%
11.4%
9.8% 9.4% 9.7%
10.00% 8.5% 9.0%

5.00%

0.00%
2003/04 2008 2010
Medicaid enrollment has increased for all age categories. Medicaid enrollment as a percentage of all children rose 9.2% from
2003/04 to 2010 (227,161 children). Note: the OFHS Research Team recommends using Medicaid Administrative Data to better
track Medicaid trends for these time periods. 18
JFS Medicaid Spending 2008-2011
• 32% overall increase in spending from $10.8 billion to
estimated $14.3 billion
• State GRF spending from $3.8 billion to $3.4 billion, a
9.4% decrease (decrease due to temporary increase in
federal match rate, not available for upcoming budget)
• Federal share increased from $5.6 billion to $7.1 billion
(because of enhanced FMAP)
• State non-GRF spending* increased from $0.6 billion to
$1.2 billion), while federal share increased from $0.9
billion to $2.6 billion
* Ohio Non-GRF funding sources include, tobacco funds (SFY 2010 and 2011), IMD DSH Offset,
Revenue/Collections, Drug Rebates, Health Plan Fee, Hospital Fee, ICF-MR fee, and Nursing Home Fee; 2010-
2011 budget included one time funds from tobacco dollars, new hospital fee, increased bed fees, and loss of health
plan fee in 2011 due to federal rule change

Source: 2008-2011 estimated by ODFS, “Projected Medicaid Expenditures, SFY 2010-2011” from HPIO Interim Director Greg Moody’s
presentation to Joint Legislative Budget Planning and Management Commission July 20, 2010
http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/moody_ohio_budget_testimony_medicaid.pdf
ODJFS Medicaid Spending by State
Fiscal Year 2004-2011
• Spending increased from $9.8 billion in SFY 2004 (actual) to
$14.3 billion in 2011 (estimated)
• ODJFS spending per year increased as follows:
– 5.9% SFY 2004 to 2005 (actual)
– 2.4% SFY 2005 to 2006 (actual)
– 1.7% SFY 2006 to 2007 (actual)
– -0.6% SFY 2007 to 2008 (actual)
– 13.9% SFY 2008 to 2009 (actual)
– 7.2% SFY 2009 (actual) to 2010 (estimated)
– 9.3% SFY 2010 (estimated) to 2011 (estimated)
Source: ODJFS, “Projected Medicaid Expenditures, SFY 2010-2011” from HPIO
Interim Director Greg Moody’s presentation to Joint
Legislative Budget Planning and Management Commission July 20, 2010
http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/moody_ohio_budget_testimony_medicaid.pdf
Ohio Medicaid Spending By
Eligibility Compared to US (FY 2007)
FY 2007 FY 2007
Annual Per Annual Per
Eligibility Person Person
Group Spending Ohio Spending U.S.
Total $5,781 $5,163
Children $1,672 $2,135
Adults $2,844 $2,541
Elderly $18,087 $12,499
Disabled $15,674 $14,481
Ohio Medicaid $13 Billion All Fund
Spending SFY 2008 By Service Category
• Hospitals 26%
• Nursing Homes 20%
• All Other* 16%
• HCBS 11%
• Physicians 9%
• Drugs 9%
• ICM-MR 6%
• State Administration 3%
* All other includes managed care administration (about 3% of total), dental, hospice, home health, durable medical equipment, and
Medicare premium assistance

Source: HPIO Interim Director Greg Moody’s presentation to Joint Legislative Budget Planning and Management Commission July
20, 2010 http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/moody_ohio_budget_testimony_medicaid.pdf
The challenge of the pre-Medicaid
consumer
• If people between ages 55 and 65 had better health,
Medicare and Medicaid would save around $10 billion a
year on care to 66-68 year olds. (Hadley, 2003)
• In SFY 2003, 8,163 Medicaid consumers (half of one
percent of all consumers) accounted for $1.1 billion in total
ODJFS Medicaid spending (over 11% of total spending)
• Many of these people were not on Medicaid at the time of
their illness that put them into the Medicaid system
• A study on Medicaid spending in SFY 1999 found that
75% of all new Medicaid nursing home spending was for
people not on Medicaid at the time of the event that put
them in the nursing home (Glavin et al., 2004)
SFY 2012-2013 Ohio Medicaid Budget Challenges
• Medicaid caseload projected to increase by 99.580 in 2012 and
another 58,148 in 2013
• Monthly per member costs projected to increase by 4.8% in 2012
and 5.7% in 2013 for the CFC population and by 2.3% in 2012 and
2.4% in 2013 for the ABD population (increase is for utilization
and other factors, not for any increase in benefits or provider rates)
• Therefore, Medicaid’s budget forecasted to increase by 11.4% n
SFY 2012 and 7.6% in SFY 2013
• Enhanced federal FMAP goes away dropping from 71.7% in 2011
to 63.81% in 2012, requiring a $900 million increase in state share
GRF for SFY 2012
• Total Medicaid state share will need to increase by $1.44 billion for
SFY 2012 (45.9%) and $380 million for SFY 2013 (8.2% increase)
• Other one-time funds for Medicaid in SFY 2010-2011 budget are
gone (tobacco funds) or in question (new hospital fee)
Source: Susan Ackerman, “Medicaid Budget Poses Additional Challenges in the FY 2012-2013 Budget.” State Budget Matters. February
2011, The Center for Community Solutions.
http://www.communitysolutions.com/assets/1/Page/sbmv7%201_MedicaidBudgetPosesAddlChallenges_020211.pdf
Options to reduce Medicaid spending

• One time reductions that lower baseline


spending, but likely do not affect the annual
growth trend
• Changes aimed at reducing the rate of
growth in per person spending
• Medicaid’s budget based on expected
enrollment, not potential enrollment
Options to reduce Medicaid spending:
eligibility cuts
• Reduce eligibility to mandatory levels
– Mostly applies to children and parents, who are
lowest cost categories to cover per person
– Applies to few high cost, aged or disabled
persons; only uninsured women with breast and
cervical cancer or working people with
disabilities
Options to reduce Medicaid spending:
eligibility change
• Should we change how Ohio covers the
spenddown population, such as continually
covering a person who is likely to regularly
meet spenddown each month?
– Might allow for better care coordination that
could result in fewer high cost events, such as
hospitalizations
– Could allow bringing this population into care
management system
Options to reduce Medicaid spending:
benefit change
• Eliminate coverage of optional benefits
– Optional benefits likely make up more than 40% of total
Medicaid spending
– Much of that spending is for prescription drugs, whose
coverage helps keep people out of hospitals, or for HCBS
waivers
– Most likely targets are adult dental and vision
– Do such reductions create unintended increases in spending
elsewhere, such as ER or affect provider capacity for other
Medicaid consumers who still have this coverage, such as
children?
Options to reduce Medicaid spending:
increase consumer cost sharing
• Medicaid rules allow for small levels of cost sharing
for adults on specific services
• Ohio has implemented some cost sharing
• Can Ohio implement additional cost sharing?
• Does cost sharing save money, from lower utilization
of unneeded care?
• Does cost sharing increase consumers sense of value of
care and engagement in their care, a view held in
mental health community?
• Does it increase utilization of more expensive care
because people skipped needed care and got sicker?
Options to reduce Medicaid spending:
reduce provider payments per service
• Provider payment reductions create larger savings
than benefit changes, at least on paper
• May reduce capacity, forcing more people to ERs
or other higher cost settings
• With fee-for-service payment structure, often
results in some providers billing for more services
to make up loss in income per service
• May be selective provider payments to consider
targeting, such as facility fee for seeing hospital-
based provider in outpatient setting
Options to reduce Medicaid spending:
prescription medication changes
• 2011 report for the Pharmaceutical Care Management
Association says Ohio could save $135 million (state
share) over 10 years, which would equal a $13 PMPM
reduction in 2011
• Changes to achieve these savings would include:
– More generic dispensing
– Reduce dispensing fee to retail pharmacies from $3.70 to $2.00
– Reduce payment rate to pharmacies for ingredient costs
– Better review number of medications per person, which is
higher in Medicaid FFS than Medicaid managed care plans
Source: Lewin Group. February 2011. Potential Federal and State-by-state savings if Medicaid Pharmacy Programs Were
Optimally Managed. http://pcmanet.org/images/stories/uploads/2010/12/Medicaid_Pharmacy_Savings_Report.pdf
Options to reduce Medicaid spending:
prescription medication changes
• Medicaid managed care plans can now get access
to same rebates as FFS Medicaid can, unless that
section of federal reform goes away. Should they
get to manage that benefit again for their
patients?
• Reports on Medicaid generic rate may overstate
savings if Medicaid has negotiated better rebates
on brand drugs that makes them cheaper
• Is there a risk of loss of retail pharmacy capacity,
especially in underserved areas?
Options to reduce Medicaid spending:
health system transformation
• With most spending on a small group of high cost
patients and with some of that spending for
preventable hospitalizations or hospital
readmissions, with some additional spending
because of drug-drug interactions and other
patient safety issues, and with a growing amount
of chronic care among the population is there a
better way to pay for care and create lower
spending trends over time and delays the onset of
a worsening health status among the Medicaid
population?
If Ohio's performance improved to the level of the 2007 2007 2009 2009
best-performing state for this indicator: Number $ saved Number $ saved
fewer preventable hospitalizations for ambulatory
care sensitive conditions would occur among $256,621,0
Medicare beneficiaries (65+) 54,822 00 44,865 $276,103,274
fewer hospital readmissions would occur among $93,701,00
Medicare beneficiaries (ages 65 +) 9,794 0 13,124 $162,254,116
fewer long-stay nursing home residents would be $60,763,00
hospitalized 7,394 0 6,630 $49,213,233
fewer premature deaths (before age 75) might
occur from causes that are potentially
treatable or preventable with timely and
appropriate health care 4,495 4,385
more adults (ages 18 +) would have a usual
source of care to help ensure that care is
coordinated and accessible when needed 409,691 404,013
more adults (ages 18 +)/diabetes would receive 3
recommended services (eye exam, foot
exam, and hemoglobin A1c test) to help
prevent or delay disease complications 177,454 200,731

From the Commonwealth Fund’s State Scorecard on Health System Performance, 2007 and 2009
http://www.hpio.net/pdf/OhioHCQualityBrief.July2007.pdf and http://www.commonwealthfund.org/Charts-and-Maps/State-
Scorecard-2009/DataByState/State.aspx?state=OH

34
Options to reduce Medicaid spending:
health system transformation
• Health system transformation would require:
– Greater use of HIT and HIE among providers
– Greater provider and consumer engagement in
creating an affordable and sustainable system
– Multiple payers working together to foster change at
the practice level, that includes provider participation
in designing change that works
– Changing the current payment approach:
• from the FFS payment system to a system that is more
outcome and event-based
• to promote care coordination and team-based care
Options to reduce Medicaid spending:
health system transformation
• Health system transformation may require:
– Changing payment arrangements with Medicaid managed
care plans to share savings differently; currently savings
would go entirely to the plans until the next rate setting
period
– Looking at new options, such as contracting with
accountable care organizations, that may or may not be
managed care plans
• Payback period is more than 2 years and requires
some investment upfront, though may be some
savings in this budget if move fast and can share
them with plans
Options to reduce Medicaid spending:
long term care rebalancing
• Ohio’s long term care system:
– spends more per person for elderly and people with disabilities than nation as a
whole
– has higher portion of spending on institutional care than nation as a whole
– is trying to rebalance long term care spending to increase the community-based
care
• Will these changes create general savings for spending elsewhere in
Medicaid or the budget overall or will they simply fill unmet needs of
people needing long term care services?
• What, if any, additional changes in payment to nursing homes make
sense while maintaining adequate capacity and quality for those
services?
• Is Ohio paying for nursing home care for people it shouldn’t?
• Does it make sense for Ohio prisons to release older prisoners with
health issues who are not safety risks to nursing homes to get
Medicaid federal funds for their care versus state only dollars?
Options to reduce Medicaid spending:
dual eligibles
• Over 33% of Ohio Medicaid spending is for the elderly,
who also have Medicaid, and make up less than 14% of the
program’s population
• Medicare creates financial obligations on Ohio that
policymakers cannot control, such as state’s Part D required
contribution and Medicare Part B premium increases
(federal maximization of state dollars)
• Coordinating care between Medicare and Medicaid is
difficult, with conflicting incentives on how to save money
• Can Ohio get permission to better coordinate this care?
• Can states get a change in the deal of how to handle the
elderly on Medicaid, perhaps making them entirely covered
by the federal government?
Medicaid and Ohio’s Economy
• Medicaid spending has an economic development
dimension as it brings federal revenue to the state at a
rate not available by other spending
• All Medicaid service spending is revenue to some
provider
• Each $1 of state Medicaid spending equals $2.40 in total
spending; each $1 in reduction in state Medicaid
spending reduces total spending by $2.40 for health care
services
• That spending then produces a multiplier effect that
increases it value
• Yet some of that spending is wasteful and can be better
used in the program and other programs need funds and
the state needs lower spending
• Someone’s cost is someone’s revenue
Additional information sources
• Health Policy Institute of Ohio – www.hpio.net
– Ohio Medicaid Basics 2009
– HPIO testimony to the Join Legislative Budget and
Management Commission on Medicaid
– 2010 Ohio Medicaid Atlas
– Ohio Medicaid Reform: Key Issues to Consider (2005)
– Estimating Local Effects of Medicaid Expenditure Changes
http://a5e8c023c8899218225edfa4b02e4d9734e01a28.gripelements.com/pdf/publications/medicaidexpendreport.pdf

• Kaiser Commission on Medicaid www.kff.org


– Key Questions About Medicaid http://www.kff.org/medicaid/upload/8139.pdf
– Ohio Medicaid Facts At-A-Glance
http://www.statehealthfacts.org/comparecat.jsp?cat=4&rgn=37&rgn=1 and
http://www.statehealthfacts.org/mfs.jsp?rgn=37&rgn=1&x=14&y=3