An Overview of the Kentucky Medicaid Program and Discussion of the Federal Medicaid Landscape

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1 An Overview of the Kentucky Medicaid Program and Discussion of the Federal Medicaid Landscape Prepared For: The Foundation for a Healthy Kentucky By: HEALTH MANAGEMENT ASSOCIATES September North LaSalle Street Suite 2305 Chicago, Illinois Telephone: (312)

2 KENTUCKY MEDICAID PROGRAM As the joint state-federal health insurance program for low-income populations, Medicaid must, at a minimum, provide a specific array of services to a defined set of beneficiaries. Outside of these guidelines, states are given wide latitude to design programs that fit their particular needs and budgets. To varying degrees, all states have expanded Medicaid beyond the required populations and benefits, and they have the freedom to eliminate such expansions with little intervention from the federal government. States seeking to alter required program elements; however, can only do so under a waiver of federal law. As Kentucky explores its options for Medicaid reform, it is important to understand the parameters of its existing program, and what changes can and cannot be made without express federal permission through the waiver process. Demographics Kentucky has one of the lowest median incomes in the country, and has a significantly higher than average proportion of people living in poverty. In 2003, Kentucky ranked 47 th in the nation in median household income ($34,368 compared to the national median household income of $43,564.) The state also had one of the highest percentages of residents living below the poverty level ($15,260 for a family of three in 2003), with 17.4 percent of residents living in poverty, compared to the national average of 12.7 percent. Elderly individuals and children represented a large portion of those living in poverty, ranking Kentucky 4 th and 6 th in the nation on these measures. While 9.8 percent of the nation s elderly population lived below poverty, 14.2 percent of elderly Kentuckians lived below poverty. Percentage 25% 20% 15% 10% 5% 0% Population Living Below Poverty Level 12.7% 17.4% Total Population 9.8% 14.2% Elderly Population 17.3% 23.7% Children under 18 National Average Kentucky Similarly, an average of Figure 1 (Source: US Census Bureau, 2003 American Community Survey) 17.3 percent of children under 18 lived in poverty across the country, while 23.7 percent of children in Kentucky lived in poverty. (Refer to Figure 1.) An additional 20 percent of the state s children were considered low income, meaning that they lived in families with incomes below 200 percent of the federal poverty level, or $30,520 for a family of three. 1 Poverty, poor eating and exercise habits and smoking all help to make Kentucky one of the least healthy states in the nation. The state ranks at or near the top of all states in cancer and cardiovascular deaths per 100,000 residents, and ranks second in overall 2

3 mortality, which is considered a reliable measure of the effects of poor health. 2 While Kentucky residents are covered by health insurance at rates similar to other states, the high costs of treating chronic diseases ripple throughout the state, driving up the costs of healthcare in both the public and private sectors. Medicaid is often on the leading edge of trends in health spending, as it serves many of the sickest, most vulnerable members of the community. Health Insurance Status Kentucky s health insurance coverage rates are fairly close to the national average, although the distribution of coverage among various programs indicates that government sponsored health insurance programs play a key role in the state. According to the U.S. Census Bureau, 84.4 percent of the U.S. population was covered by some form of health insurance in 2003, while 86 percent of Kentuckians were covered. Private insurance covered roughly 68.5 percent of the population, both in Kentucky and across the country, and a smaller proportion of Kentuckians went without health insurance for all of 2003 (14 percent compared to 15.6 percent nationally.) The proportion of state residents covered by Medicaid and Medicare was higher than the national average, with 13.4 percent enrolled in Medicaid and 16.1 percent enrolled in Medicare. Nationally, 12.4 percent of the population is covered by Medicaid and 13.7 percent by Medicare. Kentucky has an above average proportion of residents receiving their health insurance through the military, with 6 percent covered by military health insurance, compared to 3.5 percent nationally. 3 (Refer to Figure 2.) Health Insurance Coverage Percentage 80% 60% 40% 20% 0% Private Insurance Medicare Medicaid Military No Health Isurance Insurance Type National Average Kentucky Figure 2 (Source: US Census Bureau, 2003 American Community Survey) Still, more than half a million Kentuckians have no health insurance. Lack of health insurance results in substantial societal costs and jeopardizes the health and financial stability of the insured, as well as the uninsured. The uninsured are less healthy and are at greater risk of dying prematurely, often as a result of receiving too little care, too late. Higher costs, lower productivity and lower lifetime earnings associated with being uninsured diminish the economic vitality of communities and threaten the viability of their health care systems. 3

4 Brief Overview of Kentucky Medicaid In any given month this year, Kentucky s Medicaid program will provide health care for approximately 690,000 low-income children, pregnant women, elderly and disabled residents, representing more than 15 percent of the state s total population. Over the course of the current year, more than 800,000 Kentuckians will use Medicaid to meet their health care needs. More than half of the state s Medicaid recipients are children under age 18, and one quarter of all recipients are disabled. Combined federal and state spending on Medicaid in Kentucky is expected to reach roughly $4.7 billion in 2005, with the state paying about 30 percent of this amount. Federal Medicaid law requires states to cover certain mandatory populations and benefits, and allows states to cover other optional populations and benefits. Beyond the mandatory minimums, coverage levels for both populations and benefits vary widely by state. Prescription drugs Percentage 30% 25% 20% 15% 10% 5% 0% Non-elderly Adults Medicaid Population Blind & Disabled are an optional benefit provided by every state, while Kentucky is one of only 22 states providing primary care case management services. Kentucky covers a significantly smaller proportion of non-elderly adults than do other states (13 percent of total recipients, compared with the national average of 25 percent). The state s proportion of blind and disabled Medicaid recipients is substantially higher than the national average, 24 percent compared to 15 percent. 4 (Refer to Figure 3.) The greater enrollment of this population reflects the significantly higher than average percentage of Kentucky s population that is eligible for federal Supplemental Security Income (SSI) benefits for the blind and disabled. (Approximately four percent of the state s population is eligible for SSI blind and disabled benefits, while the national average is 1.9 percent.) 5 Economic Impact of Medicaid National Average Kentucky Figure 3 (Source: Kaiser Family Foundation, statehealthfacts.org) In addition to providing essential health care services for millions of low-income beneficiaries, Medicaid also has a powerful impact on state economies. Kentucky Medicaid covers the cost of one in every three births in the state, and pays for 70 percent of all nursing home care in the state. Each dollar that the state spends on Medicaid is matched by the federal government, bringing in revenue that would not otherwise flow to the state. This revenue has a multiplier effect, as Medicaid health care dollars move from hospitals, doctors and other providers to employees salaries and out into the general state economy. While the magnitude of the multiplier effect varies from community to community, the overall impact of Medicaid spending is much greater than the value of services purchased directly by the program. (Refer to Figure 4.) 4

5 Economic Multiplier Effect Federal Medicaid $$$ TOTAL Medicaid $$$ Providers State Medicaid $$$ It is significant that one of Kentucky s great assets may lie in its Medicaid matching rate, one of the nation s highest. With the nearly 70 percent federal matching rate, each Medicaid dollar spent for health care directly brings $2.33 in federal funds to the state. To further illustrate the economic impact, Families USA estimated the impact of Medicaid spending on new Employees business activity, jobs and wages in In Kentucky, it is estimated that each dollar increase in state Medicaid spending would generate $4.49 in new business activity, well above the national average of $3.35 Local Economy for every dollar spent. Figure 4 Similarly, Families USA estimates that for each additional $1 million of state funds spent on Medicaid in Kentucky, 45 jobs would be created, again, well above the national average of 34 jobs per $1 million in new spending. Wages associated with the new jobs would total $1.6 million for each new $1 million in state Medicaid spending in Kentucky, compared to the national average of $1.2 million in wages for each $1 million spent. 6 Basic Eligibility Groups Federal Medicaid law requires states to cover certain mandatory populations and gives states the option to cover additional populations above the mandatory minimum levels. Because they are not federally mandated, optional populations are often targeted by states looking to limit Medicaid eligibility and spending. 5

6 Children Kentucky Medicaid covers children above the mandatory minimum levels, but coverage varies by age and income: Infants ages 0 to 1 in families with incomes up to 185 percent of the federal poverty level, or $29,767 for a family of 3 in Kentucky is one of 35 states covering infants in families with incomes at or above 185 percent of poverty, with 22 of these states covering infants at or above 200 percent of the federal poverty level. The mandatory minimum for this age group is 133 percent of poverty. o In 2004, Kentucky covered 40,043 infants ages 0 to 1 in the mandatory eligibility group and 17,671 infants in the optional eligibility group. o Total Medicaid spending for infants was $48.8 million for the mandatory group and $33.6 million for the optional group. Children ages 1 to 6 in families with incomes up to 150 percent of the federal poverty level, or $24,135 for a family of 3 in Kentucky, like half the states in the nation, covers children in families with incomes above the mandatory minimum level of 133 percent of poverty. o The state covered 102,748 children ages 1 to 6 in the mandatory eligibility group and 8,657 children in the optional eligibility group in o Total Medicaid spending for this age group was $80.7 million for the mandatory group and $6.6 million for the optional group. Children ages 6 to 19 in families with incomes up to 100 percent of the federal poverty level, or $17,064 for a family of 3 in 2005 are covered by the Medicaid program. Children in this age group in families with incomes between 100 and 150 percent of poverty also receive Medicaid benefits; however, program expenses for this group are paid through the KCHIP program. (See more detail on KCHIP below.) The mandatory minimum coverage level for children ages 6 to 19 is 100 percent of poverty. KCHIP o In 2004, Kentucky covered 8,266 children ages 6 to 19 in the optional eligibility group between 100 and 150 percent of poverty. Total spending for this group was $14.8 million. 7 (Data was not available for children in the mandatory eligibility group.) Like every other state, Kentucky also provides health insurance coverage to children in families with incomes above Medicaid eligibility levels through the State Children s Health Insurance Program (SCHIP). Kentucky s program, known as KCHIP, covers children from birth through age 18 in families with incomes between 150 percent and 200 percent of the federal poverty level, or $32,180 for a family of 3 in Children in this 6

7 eligibility group receive benefits that are less comprehensive than those provided under Medicaid, but include health screenings and checkups, prescription drugs, immunizations, doctor visits, eye exams and eyeglasses, hearing services, dental care, hospital care and mental health services. As noted above, children ages 6 to 19 in families with incomes between 100 and 150 percent of the federal poverty level receive Medicaid benefits, paid with SCHIP funds. Kentucky is one of 21states covering children up to 200 percent of the federal poverty level through SCHIP, while nine states cover children in families above 200 percent of poverty. Of the 14 states that chose to use SCHIP funds to expand Medicaid coverage to SCHIP-eligible, children, eight states cover children in families with incomes equal to or above 200 percent of poverty. The federal government pays a higher matching rate for children enrolled in SCHIP than for children enrolled in Medicaid, although the amount of SCHIP funding available is capped annually. While Kentucky s 2005 Medicaid expenditures are matched at 69.6 percent, the state s 2005 KCHIP expenditures are matched at 78.7 percent, one of the highest matching rates in the country. KCHIP monies are received in the form of an annual allotment. Some states have expended or obligated the full amount of their allotments. These states, including Kentucky, have received additional funds transferred from the unspent allotments of others states. As a result, they may have unspent allotments available for program expansions at enhanced federal matching rates. Pregnant Women Kentucky Medicaid covers pregnant women with incomes up to 185 percent of the federal poverty level, or $17,704 for an individual and $29,767 for a family of 3 in 2005, which is above the federal mandatory minimum of 133 percent of poverty. Once enrolled in Medicaid, women maintain eligibility through 60 days post-partum, regardless of any changes in income. Kentucky is one of 35 states covering pregnant women with incomes at or above 185 percent of poverty. Fifteen of the 35 states cover pregnant women with incomes above 185 percent of poverty, while only nine states offer coverage at the mandatory minimum level. The remaining six states provide coverage to women at various income levels between 133 and 185 percent of poverty. Kentucky also uses the presumptive eligibility option that allows women to receive prenatal care under Medicaid while their eligibility is determined. Kentucky enrolled 92,015 pregnant women through the presumptive eligibility determination in 2004, and spent $5.8 million covering them during the presumptive eligibility period. 8 Adults in Families with Dependent Children States are required to cover parents in low-income families with children at the state AFDC levels as of July 16, 1996, and have the option to use higher income levels. (The federal TANF program replaced AFDC on this date. Concern that states might cut TANF eligibility prompted Congress to lock-in the existing AFDC eligibility levels for 7

8 Medicaid.) For Kentucky, Medicaid eligibility levels are 40 percent of the federal poverty level, or $6,436 for family of 3 in 2005, for non-working parents and 70 percent of poverty, or $11, 263 for a family of 3 in 2005, for working parents. The state s income eligibility level for non-working adults ranks in the lower half when compared with other states, as 28 states provide coverage to non-working parents with incomes above 40 percent of poverty and 21 offer coverage to parents with incomes below this level. Kentucky ranks slightly better in its coverage of working parents, with 25 states offering coverage to parents with incomes above 70 percent of poverty, and 24 states covering parents below this level. The state does not cover parents above the mandatory minimum level; however, the state does extend Medicaid benefits to the medically needy. This optional population becomes Medicaid eligible by spending down to the state income and resource levels for regular Medicaid by incurring high medical expenses. In 2004, Medicaid spent $1.7 million covering 250 adults (non-elderly) under the medically needy designation. 9 Elderly Eligibility for the elderly is set at the mandatory minimum level, which equals the SSI eligibility level of 74 percent of the federal poverty level ($7,082 in 2005). Kentucky has not implemented the option to extend Medicaid benefits to elderly persons with incomes up to 100 percent of poverty; however, the state does extend Medicaid benefits to the medically needy. Full Medicaid coverage is generally not available in Kentucky to elderly individuals with incomes above the federal poverty level, unless they qualify as medically needy by incurring large medical expenses. Since Kentucky uses the SSI eligibility level, full Medicaid coverage is not available for anyone above 74 percent of poverty. Medically needy individuals must spend down to that level in order to qualify for Medicaid benefits. In 2004, Medicaid spent $1.0 million covering 193 elderly individuals under the medically needy designation. 10 QMBs, SLMBs and QIs Federal law requires states to provide assistance to Medicare beneficiaries who are not sufficiently poor to qualify for full Medicaid benefits, but who need assistance with Medicare premium and cost-sharing requirements. Like other states, Kentucky pays all Medicare premiums and cost sharing for Qualified Medicare Beneficiaries (QMBs) with incomes below the federal poverty level. Medicare cost-sharing payments are made for individuals below 74 percent of poverty who also receive full Medicaid benefits, as well as individuals between 74 percent and 100 percent of poverty who do not qualify for full Medicaid benefits in Kentucky. Similarly, the state pays Medicare Part B premiums only for Specified Low-Income Medicare Beneficiaries (SLMBs) with incomes between 100 percent and 120 percent of poverty. The state is allocated a fixed amount of funding each year to cover the full cost of Medicare Part B premiums for Qualifying Individuals (QIs) with incomes between 120 percent and 135 percent of poverty, and may cover as many individuals as funding allows. QMBs, SLMBs and QIs are allowed to have resources up to twice the limit allowed under SSI. 11 8

9 Blind or Permanently Disabled Kentucky Medicaid eligibility for persons who are blind or permanently disabled is set at the mandatory minimum level, which equals the SSI eligibility level of 74 percent of the federal poverty level, or $7,082 for an individual in The state has not implemented the federal option to extend Medicaid benefits to blind and disabled persons, up to 100 percent of poverty; however, the state does allow the medically needy option for the blind and disabled. In 2004, Medicaid spent $11.6 million covering 897 disabled individuals under the medically needy designation. 12 Income and Resource Limits In general, states are required to use the income and resource definitions of eligibility for persons who are elderly, blind and disabled that are used for SSI purposes, although they also have the option to use either more or less restrictive definitions. While the majority of states (31), including Kentucky, use the SSI standard for determining eligibility, eleven states have opted to use the more restrictive Section 209(b) option. Under this option, states may use the standards for eligibility in effect in their own state Medicaid plan in January Resource Limits for Nursing Home and Other Institutional Care States may also set special income standards of up to 300 percent of the SSI standard for individuals in nursing homes and other institutions. Kentucky employs this option under a home and community based services waiver, allowing individuals who would otherwise be institutionalized to remain in the community. Every state except one (Arizona) has at least one home and community based waiver. States have the option to use resource tests when determining Medicaid eligibility for most populations; however, they may not use resource tests that are more restrictive than the minimum standards set by federal law. Depending on the mandatory eligibility group, states must use resource tests that are no more restrictive than either the state AFDC levels as of July 16, 1996 (which are less than or equal to $1,000 in countable resources) or the SSI resource test (which is less than $2,000 in countable resources for an individual and $3,000 for a couple.) 13 In general, Kentucky uses a less restrictive resource test than is required by federal law. An individual may have resources of $2,000 and a couple may have resources of $4,000 and still be eligible for Medicaid. Resources include checking and savings accounts, cash on hand, stocks, bonds, CDs, etc. Exclusions include: a home; a burial reserve up to $1,500 for one person; equity in income-producing non-homestead property up to $6,000; an automobile used for employment or for transportation to medical treatment or if specially-equipped for disabled persons; and equity in other automobiles up to $4,500. (Refer to Figure 5.) 9

10 Includes: Checking/Savings Accounts Cash on Hand Stocks Bonds CDs, etc. Excludes: Home Burial Reserve (up to $1,500 for one person) Equity in Income Producing Non-Homestead Property (up to $6,000) Automobile (for use of employment or for transportation to medical treatment, or if specialty equipped for disabled persons) Equity in other Automobiles (up to $4,500) Benefits Figure 5 (Source: Kentucky Cabinet for Health and Family Services) No state Medicaid program restricts benefits only to those mandated federally. Optional benefits vary by state. Federal law requires states that extend Medicaid coverage to optional populations to offer the same benefits package to those populations that it provides to its mandatory populations, so that any optional benefit covered is provided to all Medicaid recipients. Mandatory benefits: Inpatient hospital services, excluding services for mental disease; Outpatient hospital services; Federally qualified health center services; Rural health clinic services (if permitted under state law); Laboratory and x-ray services rendered outside a hospital or clinic; Nursing facility services for beneficiaries age 21 and older; Physician services; Certified pediatric and family nurse practitioner services (when licensed to practice under state law); Nurse mid-wife services; Early and Periodic Screening, Diagnosis and Treatment (EPSDT) services; Family planning services and supplies; Home health services for beneficiaries who are entitled to nursing facility services under the state s Medicaid plan, including intermittent or part-time nursing services, home health aide services and medical supplies and appliances for use in the home; and Pregnancy-related services and services for other conditions that might complicate pregnancy, as well as postpartum care for 60 days. 10

11 Optional benefits provided by Kentucky include, but are not limited to: Prescription drugs; Dental care; Hospice; Inpatient psychiatric services; Outpatient mental health services; and Primary care and targeted case management. All states offer targeted case management and prescription drug coverage, while 45 states offer dental care and 48 states cover hospice care. Inpatient psychiatric care is provided by 44 states and outpatient mental health services are offered by 47 states. While providing coverage for prescription drugs, Kentucky limits the number of brand name prescription drugs a beneficiary may receive to three prescriptions in each month. There is no limit imposed on the number of prescriptions for generic drugs in a month. Kentucky does not offer optional benefits such as psychologist services, occupational therapy, physical therapy, services for speech, hearing and language disorders, eyeglasses for adults, dentures, hearing aids for adults, personal care services or private duty nursing. More than 30 states do offer coverage for physical therapy, speech, hearing and language disorders, eyeglasses, hearing aides and personal care services, while more than 25 states offer psychologist and occupational therapy services. More than 20 states provide private duty nursing services. Like 48 other states, Kentucky has chosen to participate in the Breast and Cervical Cancer Treatment Program, which provides full Medicaid coverage to uninsured women under age 65 who are diagnosed with breast or cervical cancer under the Kentucky Women s Cancer Screening Program and found to need treatment. Kentucky does not allow presumptive eligibility for this program, although 22 other states do. Federal Cost Sharing Parameters Federal law allows states to charge nominal co-payments to certain Medicaid beneficiaries for certain Medicaid services. States are prohibited from imposing costsharing on children under 18 for any service; pregnant women for any service related to the pregnancy or any medical condition that might affect the pregnancy; any service provided to individuals receiving hospice care; and inpatients in hospitals, nursing homes or ICF/MRs who are required to apply most of their income to the cost of care. Federal law also States may not impose cost sharing on children under age 18 or pregnant women. prohibits states from imposing cost sharing on any Medicaid recipient for emergency services and family planning services and supplies, although states are allowed to charge cost-sharing for non-emergency services provided in emergency departments. 11

12 Under federal regulations, nominal co-payments may range from $.50 to $3.00 for noninstitutional care, and may be no more than 50 percent of the Medicaid payment for the first day of institutional care per admission. States must seek waivers from the federal government to charge cost-sharing beyond these amounts. Recent Cost Sharing Changes in Kentucky Kentucky began phasing in increased co-payments for Medicaid recipients on July 1, A new 3-tier prescription drug co-payment system was implemented on July 1 to promote the use of generic drugs. Medicaid recipients in mandatory eligibility groups are now required to pay $1 for generic drugs, $2 for preferred brand drugs and $3 for nonpreferred brand name drugs. (Previous copayments were $1 per prescription.) New prescription drug copayments for optional eligibility groups were scheduled to take effect on July 15; however, Providers may not deny care to Medicaid beneficiaries unable to pay cost-sharing. Prescription Drugs: o Generic Drugs = $1.00 o Preferred Brand Drugs = $2.00 o Non-Preferred Brand Drugs = $3.00 Emergency Room Visit = $3.00 Physician Office Visit = $2.00 Outpatient Hospital Services = $3.00 Inpatient Hospital Stays = $50.00 Figure 6 (Source: Kentucky Cabinet for Health and Family Services) implementation was delayed in response to feedback received at public forums. Under the delayed plan, optional eligibility groups would have been required to make copayments of $3 for generic drugs, $10 for preferred brand drugs and $20 for nonpreferred brand name drugs (assuming federal approval was given for co-payments greater than $3.) The state is now exploring the option of placing a cap on total copayment amounts over a certain time period. As of August 1, all Medicaid recipients are required to pay $3 for emergency room visits, $2 for physician office visits, $3 for outpatient hospital services and $50 for inpatient hospital stays. The state had previously announced that the emergency room co-payment would be $6, but it was reduced to $3 to comply with federal regulations. 14 (Refer to Figure 6.) Providers are not required to participate in the Medicaid program; however, those choosing to participate must accept the amounts that Medicaid pays for a service as payment in full. Providers may collect allowable cost sharing amounts from beneficiaries, but they may not deny care or services to 12

13 Medicaid beneficiaries who are unable to pay cost-sharing. The beneficiary does remain liable to the provider for the required cost-sharing. 15 Beneficiary cost-sharing provisions cannot be waived under Section 1115, although the Secretary of HHS does have narrow authority to waive cost-sharing under certain circumstances. Following public notice and opportunity for comment, the Secretary may grant a waiver that will test a unique and previously untested use of co-payments, and test a reasonable hypothesis in a methodologically sound manner that includes the use of control groups. The waiver must be limited to two years, and participation must be voluntary, unless provision is made for the state to assume liability for preventable damage to the health of beneficiaries. 16 Since providers are not required to serve all Medicaid recipients, cost-sharing obligations can effectively impede access for recipients who have failed to make co-payments. This is an on-going issue with Medicaid programs. Spending Kentucky s Medicaid program is expected to cost approximately $4.7 billion in The federal government will pay 69.6 percent of this amount, or $3.3 billion, while the state will pay the remaining $1.4 billion, or 30.4 percent. Kentucky s nearly 70 percent federal matching rate is significantly higher than the national average, which is roughly 57 percent, giving the state a much higher than average return on its Medicaid spending. (Refer to Figure 7.) Like most states, the correlation Kentucky Medicaid Resources between Medicaid enrollment and spending in each category is relatively low. While Kentucky 30.4% has a significantly higher proportion of disabled enrollees Federal Share and a substantially lower State Share proportion of adult recipients than the national average, the distribution of spending across all eligibility groups follows the 69.6% national trend fairly closely. Children represent half of all Figure 7 (Source: Kaiser Family Foundation, statehealthfacts.org) Medicaid enrollees in Kentucky, yet account for only 20 percent of spending, while the elderly represent 12 percent of enrollees and account for 27 percent of spending. About one quarter of the state s Medicaid recipients are disabled, but they account for nearly 44 percent of spending. Adults not part of the previously discussed categories comprise 12 percent of enrollees and 8 percent of spending. 17 (Refer to Figure 8.) 13

14 Kentucky Medicaid Enrollment vs. Spending Percentage 100% 80% 60% 40% 20% 0% Adults Disabled Elderly Children Enrollment Adults Disabled Elderly Children Spending Figure 8 (Source: Kaiser Family Foundation, statehealthfacts.org) Just as high enrollment in an eligibility group does not necessarily correspond to higher spending, mandatory populations and benefits do not necessarily account for the majority of Medicaid spending. National trends indicate that optional benefits and optional populations account for a large portion of Medicaid spending. Over half of total optional spending is for long-term care services provided to the elderly and disabled. Prescription drugs, an optional benefit offered by all states, accounted for 16.9 percent of total Medicaid acute care spending in 2003, and 22.2 percent of acute care spending in Kentucky. Other optional benefits accounted for nearly 12 percent of acute care spending, both nationally and in Kentucky. 18 (Refer to figure 9.) United States Expenditures on Acute Care Services, 2003 Kentucky Outpatient Services 11.3% Medicare Payments 41% Other Services 11.8% Physician 6.3% Outpatient Services 15.1% Medicare Payments 40% Other Services 12.0% Physician 10.9% Managed Care 25.0% Prescription Drugs 16.8% Inpatient Hospital 23.1% Inpatient Hospital 17.0% Prescription Drugs 22.2% Managed Care 18.8% Figure 9. (Source: Urban Institute estimates based on data from CMS.) 14

15 According to the National Association of State Budget Officers (NASBO), enrollment increases over the past few years have played a major role in the increase in Medicaid spending. While children and families comprise the largest component of the enrollment increase, care for the elderly and disabled contributes the most to the increased cost from enrollment changes. The average cost per recipient varies widely across enrollment groups in Medicaid, with per capita costs for the elderly and disabled roughly seven times the per capita cost for children and adults. Enrollment increases over the past few years have played a major role in the increase in Medicaid spending. Nationwide, enrollment increased by 4.2 percent from 2003 to 2004 and is estimated to increase by 4.1 percent in 2005 and 3.8 percent in In Kentucky, Medicaid enrollment grew by 2.8 percent from 2003 to 2004, but is estimated to increase by 5.4 percent in 2005 and 3.3 percent in Kentucky attributes its enrollment growth to adult enrollment, and expects them to contribute the most to Medicaid expenditures. 19 Managed Care Most people enrolled in Medicaid in Kentucky receive services through the Kentucky Patient Access and Care Program (KenPAC), a primary care case management program. Under KenPAC, a Medicaid recipient chooses a participating primary care provider who coordinates the recipient s health care services. More than 339,000 Medicaid beneficiaries participated in KenPAC in Some populations are excluded from KenPAC, including persons receiving both Medicaid and Medicare (dual eligibles), children receiving SSI, children in foster care, enrollees in Passport Health Plan (a managed care plan in counties including and surrounding Louisville and Elizabethtown), individuals in nursing homes, ICF/MRs or mental hospitals, people in the community based waiver program, the medically needy and individuals in the Kentucky Health Insurance Premium Program. Medicaid recipients in Jefferson County (Louisville), Hardin County (Elizabethtown) and the fourteen surrounding counties receive services through a traditional managed care plan known as the Passport Health Plan. More than 132,000 Kentuckians received their health care through the Passport Health Plan in Existing Waivers Comprehensive Statewide Health Reform Demonstration under Section 1115 While originally intended as a statewide managed care program, Kentucky s current 1115 waiver affects only the cities of Louisville and Elizabethtown, and the fourteen surrounding counties, an area comprising 20 percent of the state s Medicaid population. Medicaid recipients served under the waiver, which excludes persons covered by other waivers, QMBs, SLMBs, nursing home, mental hospital and ICF-MR residents, receive 15

16 their health services through Passport Health Plan, a private, not-for-profit managed care plan. This waiver does not include the provision of mental health services. Home and Community Based Waivers under Section 1915(c) Aged/Disabled Kentucky has three waivers serving this population. One provides personal care and case management services to fewer than 500 people. Two others provide a range of services, including attendant care, environmental modifications, case management, homemaker services, personal care, adult day health and respite care services to two separate populations, the larger of which includes more than 5,000 people and the smaller of which covers fewer than 500. MR/DD Adults The state offers a range of services, including residential care, physical, occupational, speech, hearing and language therapies, supported living, psychologist services, behavior management, respite care, support coordination and rehabilitation to more than 5,000 recipients. This waiver is commonly referred to as the Supports for Community Living (SCL) waiver. Traumatic Brain Injury Medicaid provides range of services to persons with acquired brain injury, including neuropsychological evaluations and rehabilitation services, companion services, respite care, personal care, case management, medical equipment and supplies, residential care, day program, occupational therapy, environmental modifications and behavior management. Fewer than 500 people receive services through this waiver. Technology Dependent Individuals Medicaid provides nursing and respiratory therapy services to technology dependent individuals, including those who are ventilator dependent who would otherwise require inpatient care in a skilled nursing facility. Fewer than 500 people receive services through this waiver. Program Changes Kentucky Can Make Without a Waiver States have considerable flexibility to alter their Medicaid programs without seeking waivers of federal statute or regulations. Through the state plan amendment process Kentucky could: Change eligibility, add or eliminate coverage altogether for children and pregnant women above the mandatory minimum income levels of eligibility. Eliminate or add coverage for medically needy children, pregnant women, parents, the elderly and disabled. Add, reduce or eliminate optional benefits such as prescription drugs, inpatient and outpatient mental health services, hospice care, dental and vision care. Increase cost-sharing for non-exempt categories of beneficiaries and services by raising co-payments or imposing premiums or co-insurance within allowable 16

17 limits. (Beneficiaries exempt from cost-sharing include children, pregnant women for services related to their pregnancies, hospice patients and inpatients in institutions who, as a condition of eligibility, are required to apply most of their income to the cost of care. Emergency and family planning services are also exempt from cost-sharing.) Change provider reimbursement rates. Current Federal Landscape Medicaid Cuts Recently, the message from Washington has been very clear with respect to the financial goals for the Medicaid program. Both the executive and legislative branches have committed to budget reductions, and Medicaid has been specifically targeted by Congress and by the Department of Health and Human Services. The Congressional Budget Resolution that was adopted in the spring of 2005 assumes a spending reduction of between $10 billion and $15 billion in the Medicaid program between 2006 and Similarly, U.S. Department of Health and Human Services Secretary Mike Leavitt appointed a Medicaid Commission responsible for recommending how to save $10 billion over the next 5 years, and reform the program in both the short and long term. The Commission s short term savings recommendations were submitted on September 1, 2005 and included recommendations related to prescription drug reimbursement and rebates, asset transfers, co-payments for prescription drugs and provider taxes for Medicaid managed care organizations. The budget reduction efforts come at a time when the number of people covered by Medicaid is projected to steadily increase. Additionally, continued pressure for more adequate reimbursement comes from virtually all health providers. While most Medicaid reductions will likely not take affect until federal fiscal year 2007 due to a Congressional agreement, the shorter timeframe to achieve the savings may accelerate the impact of any reductions. Closing Off Loopholes The Centers for Medicare and Medicaid Services has repeatedly warned states about certain elements of health care financing. CMS indicates that certain special financing arrangements will be phased out. Preparing for the known and unknown aspects of federal financing is important as CMS has taken an aggressive position on this issue. Earlier this year, CMS rejected two creative financing proposals from Kentucky. California, Iowa, and other states have actively worked with CMS to add predictability to their financial relationship. Locking in a long-term agreement may be the preferred route for states to take, rather than waiting for CMS to make an example of a state Medicaid program. States that engage in early discussions with CMS often negotiate a more beneficial financial arrangement. If a state waits for CMS to act, the precedent established is often not to the state s advantage. 17

18 Potential Impact of Medicare Part D With the implementation of the Medicare Part D prescription drug benefit, Medicaid will undergo the biggest program change in its 40 year history. While Part D could potentially have a positive financial impact on states, the woodwork effect (in which a program change attracts people eligible for the program who would not otherwise have enrolled) and increased administrative costs could negate any anticipated savings. Some states believe that the overall effects of Part D will increase costs, while others expect to see a reduction in costs. According to NASBO, persons who are dually eligible for both Medicaid and Medicare account for approximately 50 percent of all Medicaid drug spending, even though they comprise less than 7 million of the 53 million beneficiaries. Savings that would otherwise accrue to states as these individuals move to Medicare Part D will be recouped by the federal government through the clawback. Under the clawback, states will continue to finance the majority of drug costs for persons who are dually eligible for Medicare and Medicaid, even though states will no longer be providing the coverage. States will be required to contribute 90 percent of baseline costs in 2006, declining to 75 percent in 2015 and beyond. The baseline for clawback payments will be based on per capita costs of coverage for Medicare covered drugs in 2003, multiplied by the number of persons who are dually eligible in a state, inflated by a series of national growth factors. Kentucky is adversely affected by this provision, as the state implemented a pharmaceutical management program after the base year, and the federal projections overstate Kentucky s repayment obligation to the federal government. Nationally, one compelling issue not receiving much attention is the number of elderly and disabled Medicaid beneficiaries who will not move to Medicare Part D because they are not enrolled in Medicare. Kentucky has the lowest percentage in the nation of elderly and disabled Medicaid enrollees who are not dually eligible; however, the state would still stand to benefit by moving more individuals into Medicare, and allowing the federal government to assume a great share of their health care costs. Closing Employers, commercial insurers, and public insurers are all struggling to meet health care costs with the resources available to them. State Medicaid programs will be front and center as the struggle continues to unfold. Medicaid has direct responsibility for the health care of more than 800,000 Kentuckians and indirectly affects the health care safety net for all Kentuckians. The Medicaid program has always been seen as a laboratory for health care changes and will continue to be one into the foreseeable future. Clearly, many states are engaging in experiments with their existing Medicaid programs, as has been demonstrated by recent waiver proposals from a number of states with large Medicaid populations. As the changes are considered, designing a system that is attentive to access, quality, and costeffectiveness, as well as one that provides the appropriate fit for Kentucky, is important in moving forward. 18

19 Endnotes: 1 U.S. Census Bureau, 2003 American Community Survey. 2 United Health Foundation, America s Health: State Health Rankings-2004 Edition. 3 U.S. Census Bureau, 2003 American Community Survey. 4 Kaiser Family Foundation, statehealthfacts.org. 5 Kaiser Family Foundation, statehealthfacts.org 6 Families USA, Medicaid: Good Medicine for State Economies, 2004 Update. May Commonwealth of Kentucky, Cabinet for Health and Family Services, Department for Medicaid Services. 8 Commonwealth of Kentucky, Cabinet for Health and Family Services, Department for Medicaid Services. 9 Commonwealth of Kentucky, Cabinet for Health and Family Services, Department for Medicaid Services. 10 Commonwealth of Kentucky, Cabinet for Health and Family Services, Department for Medicaid Services. 11 Society Security Act, Section 1902(a)(10(e), 12 Commonwealth of Kentucky, Cabinet for Health and Family Services, Department for Medicaid Services. 13 Society Security Act, Section 1902(a). 14 Commonwealth of Kentucky, Cabinet for Health and Family Services, Press Release Cabinet Health Officials Discuss Medicaid Budget Shortfall with Kentuckians July 21, Social Security Act, Section 1916(e). 16 Social Security Act, Section 1916(f). 17 Kaiser Family Foundation, statehealthfacts.org. 18 Urban Institute estimates based on data from CMS (Form 64). 19 National Association of State Budget Officers, Fiscal Survey of States: July