Half of the thirty-two million. Ready, Set, Plan, Implement: Executing The Expansion Of Medicaid. Medicaid Expansion & State Roles

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1 By Leighton Ku Ready, Set, Plan, Implement: Executing The Expansion Of Medicaid doi: /hlthaff HEALTH AFFAIRS 29, NO. 6 (2010): Project HOPE The People-to-People Health Foundation, Inc. ABSTRACT Federal and state governments must soon begin planning and developing systems to implement the expansion of Medicaid for low-income adults, as prescribed in the Patient Protection and Affordable Care Act of States will have to establish enrollment and coordination procedures, determine benefit packages, and update arrangements with providers. Federal estimates indicate that states will bear relatively little of the new cost, but some states disagree. State planning efforts will be challenged by current budget shortfalls and, in many states, political opposition. Paradoxically, many of the states opposing expansions are those whose Medicaid-eligible patient populations have the most to gain from health reform. Leighton Ku (Leighton.Ku@ gwumc.edu) is a professor of health policy and director of the Center for Health Policy Research, School of Public Health and Health Services, George Washington University, in Washington, D.C. Half of the thirty-two million Americans expected to gain insurance by 2019 under the Patient Protection and Affordable Care Act of 2010 will obtain coverage through the expansion of Medicaid eligibility. The eligibility expansion applies to nonelderly adults with incomes up to 133 percent of the federal poverty level a group that is largely ineligible under current Medicaid rules. 1 A surprising aspect of the yearlong debate that preceded passage of the health reform act was how little controversy, aside from concerns about state budget impacts and federal matching rates, was stirred by a major expansion of Medicaid. Policy makers appeared to accept that although it is not perfect, Medicaid has been successful and innovative in covering tens of millions of low-income people at a low cost to the public and recipients alike. 2,3 The Scope Of Expansions Although Medicaid expansion is not required until 2014, the new law is already having an impact. States must maintain eligibility and enrollment policies between the date of enactment and 2014 for adults or 2019 for children. Thus, Arizona must undo the planned termination of its Children s Health Insurance Program (CHIP). 4 Temporary exceptions may be possible for adults. States may now begin to expand coverage on an optional basis. Effective in January 2014, adults with incomes below 133 percent of poverty plus a standard five-percentagepoint deduction, raising the total level to 138 percent of poverty will be eligible for Medicaid nationwide, except for certain immigrants. No asset test will apply. Eligibility will expand for low-income adults without dependent children and for parents. Childless adults who are not disabled or not pregnant are now ineligible in most states, and the median income level across states for parental eligibility for Medicaid stands at 64 percent of the federal poverty level. 5 Children ages 6 18 whose family income is between 100 percent and 133 percent of poverty must enroll in Medicaid; some are now enrolled in separate CHIP programs. Our analyses of data from the U.S. census indicate that as of 2008, fourteen million uninsured nonelderly adults and children would be eligible for Medicaid under the new criteria excluding three million ineligible immigrants JUNE :6 HEALTH AFFAIRS 1173

2 who are undocumented or have been legal residents for less than five years. Most newly eligible adults and children will probably enroll in Medicaid. However, some could be deterred by enrollment barriers or the belief that they do not need insurance or are not eligible. The new health care reform law s mandate that individuals purchase insurance should encourage enrollment in Medicaid. However, many poor adults have incomes too low to be subject to the new tax penalties for lacking insurance. Benefits Coverage for newly eligible adults will be narrower than the standard comprehensive Medicaid package. The law calls for benchmark or equivalent coverage based on private health insurance plans in each state or secretaryapproved coverage (referring to the secretary of health and human services, or HHS). Longterm care and some other benefits will be excluded. Most of the newly eligible will be relatively healthy young or middle-aged adults. But some, such as the homeless or chronically unemployed, will have serious mental or physical health problems and may need services that are not included in benchmark benefits. The Centers for Medicare and Medicaid Services (CMS) and states should carefully consider how to structure the new benefit packages. Coordinating Enrollment The new health reform law calls for streamlined and coordinated enrollment between Medicaid, CHIP, and the new state-based insurance exchanges created by the law. This is a logical, but challenging, extension of current requirements to coordinate screening and enrollment for children enrolled in Medicaid or CHIP. States would be smart to give a lead responsibility for this role to Medicaid and CHIP agencies, which have years of experience in developing coordinated enrollment systems and gathering input from community organizations. Critical steps are to design simple application forms and procedures, including online systems, that can operate across multiple points of enrollment; to develop systems to enroll applicants in the right programs; and to share data securely across programs. Before January 2014, states will need to test and adjust the systems, train staff, and begin public communication and outreach. The federal government must provide cross-program guidance so that states have enough planning time for this complex operation. The new law establishes consistent income definitions for Medicaid and the insurance exchanges, based on modified adjusted gross income, which should help coordinate enrollment. States should not simply rely upon existing enrollment procedures. Massachusetts success in reducing uninsurance was not only attributable to its expansion of eligibility and individual mandate. The state also simplified enrollment using an online virtual gateway and invited partners to help with enrollment, including community health centers, hospitals, and community-based organizations. 6 Although simplification is essential, caution is appropriate in one area. As noted earlier, some newly eligible adults will have serious chronic mental or physical health problems and are likely to be deemed disabled. It would be useful to include some basic screening that could trigger more-detailed disability assessments. If people are determined to be disabled, they may require more-comprehensive health benefits than those provided under the reform law. Will The Health Care System Be Ready? A major question for health reform is whether there will be enough health care providers particularly primary care physicians to care for the newly insured. 7 Low physician participation has often been an issue for Medicaid. The law takes steps to bolster the supply of those who will care for the poor by raising primary care reimbursement rates in Medicaid to equal Medicare rates in and by boosting funding for community health centers and the National Health Service Corps. Policies such as increasing medical and nursing school classes or residency programs could help in the long run, but they will have little immediate impact. States should consider other approaches to reduce clinician shortages in a timely and cost-effective fashion. These could include expanding the scope of practice for health professionals who are not physicians or dentists, and emphasizing the use of team-based care. Elevating Medicaid primary care physician payments to Medicare levels should increase physicians willingness to serve Medicaid patients. Many states and Medicaid managed care plans will need to adjust their physician reimbursement systems because they are not aligned with Medicare s payment system. The CMS should promptly issue guidance to clarify and simplify policies, so that states can modify their systems by October Low reimbursement is not the only barrier. Administrative problems, such as payment 1174 HEALTH AFFAIRS JUNE :6

3 State budgets ought to be in better shape when the Medicaid expansion unfolds. delays, also hinder physicians participation. 8 States should consider how to expedite physician payments and reduce other administrative barriers. Managed Care Plans In most states, new or revised Medicaid managed care contracts will be needed for the millions of new enrollees. Contracts will need to be modified because benefits for newly covered adults will differ from current Medicaid benefits. The risk profile of the newly eligible, as well as those who are already eligible but not participating, differs from that of existing enrollees. The increase in volume and the changes in patients needs will necessitate new rate structures and the expansion of plan networks. As exchanges start up, more insurers may want to participate in Medicaid. However, states and insurers may lack the actuarial data to assess new populations use and costs. The CMS could help find data or provide technical assistance from states that have already expanded coverage or other sources to improve planning. The Costs Of Expansion Governors Concerns The most controversial element of Medicaid expansion was concern that it will cost states too much. 9 Governors were successful in their efforts to boost federal matching support in the final version of the law. States that expand coverage will receive 100 percent federal funding for those newly eligible in the first three years; the percentage will phase down to 90 percent by States that earlier expanded coverage for low-income adults will also gain enhanced matching for childless adults, gradually equaling matching rates for states that did not expand coverage before the law was passed. The additional costs of bolstering Medicaid primary care physician payments will be 100 percent federally financed. All told, the Congressional Budget Office estimates that federal Medicaid and CHIP expenditures will rise above the baseline by $434 billion during the next decade, while states will incur just $20 billion in higher expenditures. 1 Nonetheless, many state officials who already view Medicaid as the Pac-Man of state budgets believe that the new law will dig deeply into states pockets. They worry that the expansion will draw many of those already eligible out of the woodwork and into state-run programs. For that population, the federal match rate remains at the nonenhanced level of percent. Of course, whether people are newly eligible or were already eligible, those gaining coverage will reduce the number of uninsured people, which is a primary goal of health reform. Estimates Of State Impact Some governors assert that the expansions will cost their states billions of dollars, while others expect to save money. 10 Some states projections of new costs appear to be overstated. They have not accounted for factors such as the reduced costs of serving the newly eligible. The uninsured are, on average, healthier than current Medicaid enrollees, so they should have much lower average medical expenses even after gaining insurance. 3,11 Also, the newly eligible will have more limited benefits than those of current Medicaid enrollees. Estimates of future enrollment may be overstated if states fail to account for the fact that many of the income-eligible residents are ineligible as a result of their immigration status. Finally, states will still have flexibility to save money by adjusting other elements of their Medicaid programs. Improved Economic Picture Most economists expect the economy and employment to brighten by 2014, so there should be fewer income-eligible people and higher state revenues than today. The influx of billions of new federal funds into states from the Medicaid expansion and the insurance subsidies will further boost states economies and generate a beneficial multiplier effect for overall economic activity. 12 State budgets ought to be in better shape when the Medicaid expansion unfolds. Nonetheless, states will need to continue to be watchful in containing Medicaid costs. In the future, as today, a principal concern ought to be managing costs for the subset of beneficiaries with very serious health problems. Fewer than 8 percent of enrollees incur two-thirds of Medicaid expenditures. 13 Many states are already testing innovative approaches to managing care for high-cost populations, particularly those who are aged or disabled. JUNE :6 HEALTH AFFAIRS 1175

4 EXHIBIT 1 Percentage Of Medicaid-Eligible Adults Who Are Uninsured In States Opposed To Health Reform And In Other States, 2008 Perce nt uninsured Opposing states Other states SOURCE Author s analysis of March 2009 Current Population Survey data. NOTES: Opposing states are Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Idaho, Indiana, Louisiana, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, and Washington State. Estimates are for people ages with incomes below 138 percent of poverty, adjusted for immigrant status. Will States Be Ready? To those who are uninsured and cannot afford care, the 2014 expansions are in the distant future. To the federal government and states, they are just around the corner. This paper has outlined a number of the key issues regarding the planning and implementation of Medicaid expansions. The new law authorizes $1 billion in new funding for HHS to implement health reform, and the Obama administration is eager to start. Different Readiness Among States But although some states are ready and able, it is wishful thinking to believe that all states are equally prepared. One key problem is that the recession continues to cause budget difficulties for states; state deficits could equal $100 $180 billion in Many states are already short-staffed and lack the funds needed for the major planning and systems development required. Congressional extension of Medicaid fiscal relief for another six months would ease, but not solve, states fiscal problems. Political Opposition Another problem is opposition to the federal legislation by some states political leaders. As of mid-may 2010, twenty-one states have engaged in lawsuits to block the new law as being unconstitutional. 15 Paradoxically, the opposition in these states appears to run contrary to the economic and health interests of their residents. On average, 39 percent of the Medicaid-eligible adults in the twenty-one opposing states were uninsured, compared to 26 percent in the rest of the nation (Exhibit 1). Because opposing states have relatively more eligible-but-uninsured adults, their residents have much more to gain from the Medicaid expansions, and these states would draw down far more federal funding. Additional Sources Of Funding In the meantime, funding from the federal government, private foundations, or other sources is needed to support state planning efforts and to hire new staff. Despite political concerns, many state agencies should be willing to accept grants to plan for the implementation of the new legislation. As an alternative, grants to community organizations, universities, provider associations, or other groups could help fill gaps in state-level planning and development. Implementation of CHIP showed how nongovernmental organizations can help shape state programs. Conclusion Health reform contained in the Patient Protection and Affordable Care Act marks a shift in our paradigm for medical assistance. Medicaid eligibility was rooted in welfare-based traditions regarding the categories of people worthy of financial aid; thus, parents and those without children received scant help. Health reform creates a new national paradigm of near-universal coverage, including support for those with insufficient incomes. This broader vision encompasses not only the poor on Medicaid, but also low- and moderateincome people eligible for health insurance tax credits. These reforms will narrow long-standing gaps in access to affordable health care. It will take years to plan and execute the changes needed to expand coverage and transform the health care delivery system. The federal government, state and local governments, insurers, health care providers, and other organizations can and should begin the monumental task of implementing these reforms. The author appreciates the helpful suggestions and advice provided by Sara Rosenbaum and Brian Bruen of George Washington University and Judy Solomon and Edwin Park of the Center on Budget and Policy Priorities HEALTH AFFAIRS JUNE :6

5 NOTES 1 Cost estimate from the Congressional Budget Office to Speaker Nancy Pelosi, U.S. House of Representatives, 2010 Mar Rosenbaum S. Medicaid and national health reform. N Engl J Med. 2009;361(21): Ku L, Broaddus M. Public and private health insurance: stacking up the costs. Health Aff (Millwood). 2008;27(4):w Memo from Tom Betlach, director of Arizona Health Care Cost Containment System, to Gov. Jan Brewer, 2010 Mar Ross DC, Jarlenski M, Artiga S, Marks C. Foundation for health reform: findings of a 50 state survey of eligibility rules, enrollment and renewal procedures, and cost-sharing practices for Medicaid and CHIP for children and parents during Washington (DC): Kaiser Commission on Medicaid and the Uninsured; 2009 Dec. 6 Dorn S, Hill I, Hogan S. The secrets of Massachusetts success: why 97 percent of state residents have health coverage. Washington (DC): Urban Institute; 2009 Nov. 7 The May 2010 issue of Health Affairs (vol. 29, no. 5), a special issue titled Reinventing Primary Care, explored issues related to the adequacy of primary care. 8 Cunningham P, O Malley A. Do reimbursement delays discourage Medicaid participation by physicians? Health Aff (Millwood). 2009;28(1):w Weisman J. States fight Medicaid expansion. Wall Street Journal Jun Roll S, Gregory G. Reform inspires anger, fear, praise amid projections of impact on states. BNA s Health Care Daily Report Apr Holahan J. Health status and the cost of expanding insurance coverage. Health Aff (Millwood). 2001;20(6): Kaiser Commission on Medicaid and the Uninsured. The role of Medicaid in state economies: a look at the research. Washington (DC): Kaiser Commission; Jan Sommers A, Cohen M. Medicaid s high cost cases: how much do they drive program spending? Washington (DC): Kaiser Commission on Medicaid and the Uninsured; 2008 Mar. 14 McNichol E, Johnson N. Recession continues to batter state budgets; state responses could slow recovery. Washington (DC): Center on Budget and Policy Priorities; updated 2010 Feb Brown T. States joined in suit against healthcare reform. Reuters [Internet] May 15 [cited 2010 May 17]. Available from: idustre64d6cj JUNE :6 HEALTH AFFAIRS 1177