KYHEALTH CHOICES A LOOK AT THE ISSUES: MEDICAID WAIVER PROPOSAL SUBMITTED PREPARED FOR: THE FOUNDATION FOR A HEALTHY KENTUCKY

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1 KYHEALTH CHOICES A LOOK AT THE ISSUES: MEDICAID WAIVER PROPOSAL SUBMITTED TO CMS IN NOVEMBER 2005 PREPARED FOR: THE FOUNDATION FOR A HEALTHY KENTUCKY BY: HEALTH MANAGEMENT ASSOCIATES JANUARY N. LASALLE STREET SUITE 2305 CHICAGO, IL TELEPHONE: (312)

2 KyHealth Choices A Look at the Issues January 2006 Medicaid Waiver Proposal Submitted to CMS in November 2005 This paper discusses major issues related to Kentucky s Medicaid Section 1115 waiver submission to the federal Centers for Medicare and Medicaid Services (CMS) and is intended to raise critical issues that warrant careful evaluation as the waiver negotiation process continues. The State has made an effort to be transparent in working with the community, to outline the changes to be undertaken in the proposed Waiver. This document underscores areas in which further clarification will be very helpful, to make the waiver document more accessible to interested lay audiences. Executive Summary KyHealth Choices, Kentucky s draft Medicaid Section 1115 waiver proposal, would bring unprecedented changes to Kentucky s Medicaid program. The comprehensive set of benefits currently provided to all Medicaid beneficiaries would be reconfigured into benefit packages tailored toward groups of beneficiaries, and cost sharing would increase, both in amount, and in the number of services to which cost sharing is applied. The program design for the demonstration has great potential; still, the draft waiver proposal raises a number of issues for which clarification is needed. Kentucky Waiver in Context Given the increasing costs of Medicaid and the changing nature and availability of employer-sponsored health insurance coverage, states across the nation are exploring fundamental changes to their health insurance systems. States are experimenting to an unprecedented extent with broad Medicaid reforms and other initiatives that could expand coverage, or at least access to care, while curbing public expenditures. Many of these proposals challenge some of the long-held tenets of Medicaid and could be indicative of measures other states will seek to implement in the near future. While most of these proposals are still under federal review, the initial reception from the federal government has been positive. Vermont is poised to implement a Medicaid waiver that effectively block grants the state s Medicaid program in exchange for a guaranteed level of federal funding and extensive flexibility in program design. South Carolina has proposed a far-reaching waiver that gives some beneficiaries the option of using personal health accounts similar to Health Savings Accounts. Florida has proposed and received federal approval for a demonstration that would put the majority of Medicaid beneficiaries into managed care plans but would risk adjust premiums paid to those plans to encourage plans to take on beneficiaries with complex conditions. The model also includes an opt-out that allows those with access to private insurance to use their premium toward purchasing that coverage

3 A survey recently released by the Kaiser Commission on Medicaid and the Uninsured indicated that 13 states plan to submit an 1115 waiver designed to limit or reduce program costs and 14 states plan to submit an 1115 waiver to increase the number of insured individuals in Though each of the waivers is unique most waivers are focused on acute care. 1 What s New in Kentucky s Waiver Kentucky s waiver proposal represents a fundamental overhaul of the state s Medicaid program. In general, the waiver raises three major issues, including: (1) the timeline for implementation; (2) the financial impact of the waiver; and (3) lack of clarity on benefits. The Centers for Medicare and Medicaid Services (CMS), which will review and approve the waiver, may have specific concerns that need to be addressed, while other aspects of the waiver may only require clarification for the public s understanding. 1. Timeline Chapter 5 of the proposed waiver lays out an aggressive implementation plan that establishes January 2006 as the target to begin the new program. Since the state describes KyHealth Choices as a complete transformation of the Kentucky Medicaid System, it is unclear why the state does not build in more time to accomplish this important task. The period of time allotted to state agencies to prepare for the waiver s implementation is extremely short, with less than one month elapsing from the appointment of a project manager to the transition of Medicaid members to the new program. While savings are expected to be derived from the program changes described in the waiver, proper implementation of the changes is likely to be the key contributor to such savings. If quality is truly the most important aspect of the revamped Medicaid program, getting it right should take precedence over speed. In addition to the logistical problems the state may face in meeting its January 2006 implementation goal, external factors present a number of other challenges for the state. Since the new Medicare Part D prescription drug benefit begins in January 2006, Medicaid recipients who are also eligible for Medicare (dual eligibles) are likely to be focused on understanding and enrolling in the drug benefit. It may be difficult for the state to coordinate all of these activities and for beneficiaries to absorb major changes to their Medicaid benefits at the same time. While the Part D benefit clearly has the potential to improve access to prescription drugs for low-income beneficiaries, details of the transition are critical and early reports related to operational elements of the transition to Part D indicate mixed signals (Start of Medicare Drug Plan Sees Successes and Struggles, New York Times, January 3, 2006) The federal government s current focus on Part D implementation and the often months-long process involved in state waiver negotiations with CMS may prevent the state from having the necessary approvals in place to begin in January Vern Smith et al. Medicaid Budgets, Spending and Policy Initiatives in State Fiscal Years 2005 and 2006: Results from a 50 State Survey, Kaiser Commission on Medicaid and the Uninsured, October

4 As the waiver has not yet received approval from CMS, it is unclear how the state s anticipated timeline will be affected, and whether a delay will help or hinder implementation. The timeline as proposed raises a number of questions: Has the state released an updated timeline that builds in an estimate of CMS s consideration of the waiver? How has the state begun laying the groundwork for implementation of the waiver? What progress has the state made in restructuring the Department for Medicaid Services? What new positions have been established within the Department? Have interagency agreements that define new roles and responsibilities been negotiated and implemented? What impact does the state expect Part D implementation to have on its ability to implement the waiver? 2. Financial Impact One of the stated goals of the KyHealth Choices waiver is to stretch resources to most appropriately meet the needs of recipients. A key way to determine the extent to which this goal is attainable is to examine the financial underpinnings of the proposal. Gaining an understanding of the financials is the best way to understand the policy behind the waiver and its effect on Medicaid beneficiaries. CMS regulations require that Section 1115 waivers meet budget neutrality standards under which the state must show that, over the five-year period of the waiver, federal Medicaid spending under the waiver will not exceed what the federal government would have spent in Kentucky in the absence of the waiver. Given budget neutrality requirements, a state can only fund new policy initiatives under a waiver by finding savings within their existing Medicaid programs. As a result, it is critically important to get a better understanding of the state s savings projections, including both the impact of the savings measures in the different service and eligibility categories, relative to total spending in those categories, and the assumptions that were made in generating the savings projections. Critical questions that need to be clarified include: Are there a financial reason and/or a policy reasons why nearly every eligibility category of Medicaid beneficiary is included in the waiver? For example, some beneficiaries are already served under home and community based waivers such as the Supports for Community Living waiver. Does the state expect to save more by including such populations in the new waiver? Can the impact of increased beneficiary co-payments on the budget be detailed? Will increased co-payments be reflected in the payment rates of pharmacists and other providers (either subtracted from the rate, or taking the place of rate increases?) - 3 -

5 What is the breakdown of projected costs by category of service for the categories for which cost savings measures are proposed? What are the projections for both with waiver costs and without waiver costs? What assumptions were made in projecting the impact of the cost savings measures on spending in the various service and eligibility categories? For example, where a co-payment is being added, it would be helpful to know what, if any, assumptions are being made around utilization or behavior changes, are pharmacy usage rates being affected, will brand to generic ratio change, did cost neutrality assume utilization changes varying by therapeutic class? Since most of the existing home and community based waiver (HCBS) services will be rolled into KyHealth Choices, how will the current home and community based services (HCBS) waiver costs figure into the historical and projected budget? Is it possible to see a breakout of HCBS waiver expenditures? How does the financial plan for the waiver address the state s long-term Medicaid financing issues concerns about the growing overall costs of the program, and per-member costs in certain groups, as overall enrollment continues to rise? 3. Benefits KyHealth Choices establishes new benefit packages for most Medicaid beneficiaries, and sets limits on many services. While the waiver proposal repeatedly refers to the choices available to beneficiaries, it is unclear what choices actually exist, as it appears the benefits available are determined by the eligibility category in which participants are enrolled. The state seeks to assure that no medically necessary service will be denied; however the impact that benefit changes and prior authorization rules will have on Medicaid beneficiaries is unknown at this time. The waiver proposal leaves a number of questions unanswered: How are mandatory benefits changing? Will optional beneficiaries receive different benefits from mandatory beneficiaries? A crosswalk from current mandatory and optional benefits to the benefits packages proposed under the waiver would be particularly helpful in understanding the waiver s impact. What provisions are there for beneficiaries to move from one category to another, particularly for long-term care services? Where limits are applied, what role does medical necessity play? How easily can a beneficiary obtain services beyond the benefit limit (i.e. 20 therapy sessions instead of 15)? Is the state planning to use a drug formulary? Are drugs that are currently listed as excluded (e.g., non-sedating antihistamines) actually excluded, or will they require more stringent prior authorization? - 4 -

6 Potential CMS Concerns/Questions Mental Health: It is unclear how CMS will react to the proposal to allow each of the 14 regional mental health planning authorities to develop a set of services unique to their region. Is there concern that not all planning authorities would be able to perform adequately? Is the state oversight strong enough? Parent Buy-in: If parents are allowed to pay the differential between the children s and a family premium and buy in to obtain coverage for themselves, what happens if they subsequently stop paying? CMS will want an assurance that the children will not be dropped. Has the State modeled what the premium differential would be? How have they evaluated the adverse selection possibilities (for example, if parent only paying the premium long enough to have a medical problem taken care of, and then drop out until the next episode)? Get Healthy Accounts: CMS will likely want more detail on these. Requests for Clarification It would be helpful to have a chart depicting the entire current and proposed Medicaid and SCHIP programs that shows which groups are in and which groups are out of the waiver. HIPP: The narrative indicates that wraparound for employer-sponsored insurance (ESI) will be dropped in Phase II, but it not clear which populations this would apply to. Is the intent that this policy would apply to mandatory populations? How will the state determine if ESI provides an appropriate level of coverage? Income Eligibility: There is a statement that Revised eligibility requirements include an increase in counting income to ensure copays and premiums What does this mean (examples)? Covered Service Limitations: Are provisions of existing HCBS waivers incorporated into the new structure? This section refers to comprehensive care plans are these similar to existing plans? How often are plans reviewed? How difficult will it be to move from one category of services to another? Co-payments: There is quite a range of co-payments but it is not clear what would determine the exact amount is it tied to the cost of the service, or is there a sliding scale according to income? KCHIP Redesign: Residents may need clarification, to understand how the new program differs from the current program, and particularly, the role of the commercial carrier. Does the state expect the commercial carrier to contract with a disease management plan? - 5 -

7 Case Management: There is a statement regarding a goal to have a completely independent case management system. What does this mean? How does this work? Education and Counseling: There is mention of enrollee counseling regarding the different benefit packages that are available, but it appears that the benefit package an enrollee receives will depend upon their eligibility category so it is not clear what counseling would be involved. Evaluation Objectives: Can the evaluation questions be re-phrased to present more neutral questions? The questions appear designed to elicit certain responses. The evaluation would be more effective if the questions were more neutral. Waivers Requested: The list of Title XIX sections the state is seeking to be waived should be more specific so it does not raise more questions than it answers. It would be helpful to see specific examples indicating when the waived sections apply and to whom they apply