If you look closely at our budget, it becomes quite 3. Medicaid s challenge.

Thank you for this opportunity to begin our agency s budget presentations. Before I begin, I would like to introduce members of our Board of Health and Welfare who have joined us, Dr. Richard Roberge and Mr. Quane Kenyon. We greatly appreciate everything they and other board members do for our agency and state. Idaho Department of Health and Welfare Richard M. Armstrong Director January 17, 2011 Today, I would like to review a number of issues with you. First, I would like to address the current impact economic conditions are having on our budget requests, and on our workforce. 2. Budget reduction impacts on staff. If you look closely at our budget, it becomes quite 3. Medicaid s challenge. evident the increases we are requesting for FY 2 2012 are all going to one thing benefits to Idaho citizens. You will see that we held or reduced expenses in personnel and operating over the last three years. Even with these efforts, our budget request is 30 percent higher than our 2008 expenses. This is because Medicaid benefit costs are the main cost driver, and will be our major challenge for FY 2012. There are strong indicators the economy is rebounding. But even with this good news, I think all of our enthusiasm has to be somewhat guarded. I know that our agency s 2012 budget is the biggest challenge I personally have faced as an agency director. Our budget is driven by two things; the economy and program eligibility criteria. When economic times are tough, demand for our services goes up. Both poverty and unemployment impact our benefits. Eligibility criteria are set by the federal government or the state, or a combination of the two. We do not limit the number of people Presentation Agenda 1. Current economic conditions drive budget requests: Increasing poverty; Benefit payments to Idaho citizens. Human Services Cost Drivers 1. Economic conditions: Poverty and unemployment. 2. Eligibility criteria for programs: Set by federal and/or state. People meeting eligibility criteria are entitled to benefits. who are eligible; the eligibility criteria sets the parameters. If people meet eligibility standards, they are entitled to program benefits. The problem we face today is that enrollments are still on the increase. Both Medicaid and Food Stamps provide good examples of this. 3

Food Stamps eligibility is based on income if you are under 130 percent of poverty, you qualify for Food Stamps. The maximum income limit for a family of four is approximately $29,000 annually to qualify for benefits. Benefits are paid 100 percent by the federal government. The state s role is sharing the cost of administration; we determine initial eligibility and continue overseeing each case. People Served 100,000 50,000 0 $8.0 M. 87,104 Food Stamp Growth Food Stamp enrollments increased 200,000 by 256%. Monthly payments increased by 366%. 150,000 $23.1 M. $9.1 M. 95,433 $14.3 M. 124,826 179,074 $29.3 M. 223,347 SFY 2007 SFY 2008 SFY 2009 SFY 2010 Dec. 2010 Average Individuals Served Benefits Provided $30.0 M. $20.0 M. $10.0 M. $0.0 M. Monthly Benefits in Millions 4 For a family of four with income at the upper end of the eligibility limits, their monthly benefit would be approximately $225 per month, or about $7.50 per day. If a family of four earned minimum wage with an annual income of $15,000, their monthly benefit would be approximately $552/month, or a little less than $18.50 per day. I believe the Food Stamp program is a good barometer of the number of people living near poverty. During FY 2007, Idaho had a monthly average of 87,100 people on Food Stamps, with the federal government spending an average of $8 million a month to supplement Idaho citizens nutritional needs. As of December, we had 223,300 people receiving Food Stamps, with the federal government paying $29.3 million in benefits to Idaho citizens. As you are probably aware, Idaho led the nation in Food Stamp growth during 2010. We attribute this phenomenal growth to two factors. First, we were 48 th in the nation for Food Stamp participation in 2007. What this means is that only 50% of Idahoans who qualified for Food Stamps actually ever applied for benefits. This tells us there were a very large number of people who qualified for assistance, but were getting by and did not seek help. That changed with the latest economic downturn. Many people could no longer get by on their own. Factors of Idaho s Food Stamp Growth Missouri Maine Michigan Tennessee Oregon Food Stamp Participation in 2007 (latest data available) 100% 91% 89% 87% 87% Utah 52% Nevada National Average: 52% 66% Idaho 50% California 48% Wyoming 47% 0% 20% 40% 60% 80% 100% Top 5 States Bottom 5 States

The other factor playing into this growth is the number of people living near the poverty level. In 2009, 14.4% of Idahoans were living in poverty, according to the census bureau. This is one in seven Idaho citizens. In 2009, 40,000 more Idahoans were living at poverty levels than there were in 2007. If you look at 2009 county data, Idaho County had 21% of its population at poverty levels, while Latah, Lemhi and Factors of Idaho s Food Stamp Growth Increasing poverty: In 2009, 40,000 more Idahoans were living at poverty levels than in 2007 Idaho County had 21% of population at poverty levels. Latah, Lemhi and Canyon Counties all had poverty levels exceeding 18% in 2009, almost one in five residents. Canyon Counties all had poverty levels of 18% or more. That is almost one in five people living in poverty in many of our counties. We believe this situation has further eroded in 2010. These are the economic realities that we currently deal with. Idaho families are pushed to the point they can no longer get by on their own and need help, seeking assistance through our programs. 6 Every June we take a regional snapshot of people receiving assistance through four self-reliance programs: cash assistance, Medicaid, Food Stamps and child care assistance. In June of 2008 we had 215,300 people receiving services in one or more of these programs. This was a little over 14 percent of our total population. Regional Breakdown of Service Levels: June 2010 Regions 3, 5, 6 and 7 had more than 20% participation in cash assistance, Food Stamps, Medicaid or child care assistance. Participation increased 41% over two years. Region 1 2 3 4 5 6 7 Totals Estimated Population 213,662 13.8% 104,496 6.8% 251,013 16.2% 429,647 27.8% 179,994 11.6% 164,526 10.6% 202,463 13.1% 1,545,801 100% Receiving Cash Payments 2,968 1.4% 1,634 1.6% 3,966 1.6% 3,855 0.9% 1,837 1.0% 2,207 1.3% 1,640 0.8% 18,107 1.2% Medicaid 27,753 13.0% 12,229 11.7% 47,129 18.8% 44,449 10.3% 29,605 16.4% 26,011 15.8% 30,364 15.0% 217,539 14.1% Food Stamps 27,137 12.7% 10,337 9.9% 48,856 19.5% 45,137 10.5% 23,715 13.2% 23,922 14.5% 25,890 12.8% 204,994 13.3% Child Care Assistance 743 0.3% 258 0.2% 1,238 0.5% 1,437 0.3% 799 0.4% 639 0.4% 698 0.3% 5,812 0.4% Totals 40,157 18.8% 16,540 15.8% 67,181 26.8% 64,990 15.1% 38,992 21.7% 36,028 21.9% 40,526 20.0% 304,414 19.7% Fast forward through two years of economic challenges, and we find 304,400 people receiving these same services. This is almost 20% of our state s population, and a 41 percent increase from June 2008. If you look at the regional breakdown in 2010, Region 3, which includes Nampa and Caldwell, had more than one in four residents accessing services, 26.8%. Our regions that include Twin Falls, Pocatello and Idaho Falls all had 20 percent or more residents doing the same. Region 4, which includes Boise and Meridian, had the lowest participation rate in the State.

From a state budget perspective, Medicaid is the dominant story for our agency. Last year, Medicaid enrollments increased about nine percent. This is pretty remarkable growth from our perspective, but not like Food Stamps. This is because we have more control over eligibility in Medicaid than we do with other programs. Idaho Medicaid has some of the most restrictive eligibility criteria in the nation. Medicaid: Restrictive Eligibility Criteria Limits Growth 220,000 Medicaid enrollments grew by 21%. 200,000 180,000 223,198 210,015 160,000 192,006 184,508 185,039 140,000 120,000 SFY 2007 SFY 2008 SFY 2009 SFY 2010 Dec. 2010 Medicaid Enrollees 7 But even with this restrictive eligibility, you can see that the percentage growth in Idaho exceeds the national growth rate in eight of the last nine years. For those of you who have been around for while, you will recall the 2001 spike was influenced by a tremendous growth in children due to expanded SCHIP, corresponding with media promotion that was done by the Robert Wood Johnson Foundation. Idaho Medicaid Growth Exceeds National Average Other than that, our growth rate has been running about one or two percent higher than the national average. If you look at our budget request for 2012, it is pretty evident that Medicaid benefits drive the costs. Medicaid Trustee and Benefits are the only budget expenditures that are increasing. 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% 15.1% 9.7% Kaiser Report: Point in time growth sampled in December of each year, showing percentage increase. 8.6% 7.5% 7.8% 5.1% 6.8% 3.6% 2.9% 2.7% 1.7% 0.8% 1.1% -0.7% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Idaho US Average 6.1% 4.8% 9.1% 8.4% 9 In FY 2008, before the economic downturn, our total agency expenditures were $1.7 billion. Medicaid accounted for $1.3 billion of that. The remainder of our agency, which includes programs such as welfare, child protection, mental health, substance abuse and public health, accounted for $442 million in expenses. Jump ahead to today. Our 2012 request is $2.3 billion. Medicaid accounts for $1.8 billion and the rest In millions Medicaid budget increases 39%. Rest of DHW holds line. $2,000 M. $1,500 M. $1,000 M. $1,301 M. $1,436 M. $1,469 M. $1,805 M. $1,813 M. $442 M. $472 M. $459 M. $471 M. $442 M. SFY 2008 SFY 2009 SFY 2010 SFY 2011 Estimate SFY 2012 Request of the agency s request remained flat. Despite the unprecedented growth in demand for many of our services, we have held the line everywhere, except Medicaid trustee and benefit payments. $500 M. $0 M. Medicaid Drives Budget Increase Rest of DHW Medicaid 10

In FY 2010, our employees took furlough, which amounted to a 5.2 percent pay cut for the year. As we entered FY 2011, we closed nine field offices. Today, we have 10% fewer workers than we did in 2008, due to layoffs and insufficient funding for positions. At this moment, we have 325 positions open that will not be filled. Budget Reductions Impact Employees SFY 2010 DHW employees took 108 furlough hours, 5.2% pay reduction. SFY 2011 Closed nine of 29 field offices. Operating with 10 percent fewer employees due to funding. 9 Here is what it looks like for a Food Stamp eligibility worker due to budget reductions and increased workloads. In FY 2008, a Food Stamp worker had a caseload of 185 cases. Today, they each carry over 600 cases. To cope with this, we redesigned our business processes to streamline their ability to handle higher caseload volumes. When someone walks in our door today Caseload Increases vs. Smaller Workforce to apply for food assistance, we try to process their application that same day. Currently, we handle over 75 percent on the same day. We do not want the process to get drawn out and be time-consuming. We also use technology to redistribute the workload. As an example, we recently added Cloud web technology to our phone system which routes a consumer call from an office in which all the phone lines are busy, to another office that has phone lines and workers available to answer. The caller never knows they are talking to a worker in Idaho Falls, even though they were calling our Boise office. But even with better management and technology improvements, we are struggling. If you look at our personnel budget, in FY 2008, it was $177.8 million. In our 2012 request, it is $174 million. Our agency is under tremendous stress due to the loss of personnel, coupled with continued record demand for services. 600 500 400 300 200 100 0 Management Strategies 1. Business processes streamlined; 2. Expanding use of technology. 1:185 1:259 1:450 SFY 2008 SFY 2009 SFY 2010 July-Sept. SFY 2011 Food Stamp Caseload/Per Worker 1:627 10

Let me give you an example from a human resources perspective. The economy is recovering and the private sector is hiring again. In the last few months, we lost two of our top IT people, our chief financial officer in Medicaid and a number of other top performing employees. In employee exit interviews, they tell us they are leaving due to workload stress, job insecurity, lack of pay increases, and loss of salary through furlough. Increased Workload Takes Toll Private sector is rebounding and expanding workforce. Many top performing employees are leaving. Exit interviews reveal pay and workload/stress as the primary reasons. 11 In eastern Idaho, we had a very respected employee resign, listing his primary reason for leaving as preserving his personal health. In southwest Idaho, we had a six year employee leave, saying the first years on the job were great, but the last seven months had been, quote, hell. She left for a new job that did not increase her pay. She said she would have stayed, but does not see an end in sight to the unreasonable workload and stress. We have asked a lot of our employees because of budget reductions. Despite this, they continue to rise to the challenge of increasing demands. My greatest fear today is losing these top performing workers during this critical time. The citizens of Idaho still expect to receive quality and timely service. Our employees want to meet those expectations and grow very frustrated with the lack of resources. As the private sector rebounds, our experienced people are being recruited. From our employees view, the furloughs, layoffs, and increased workloads are weighing heavily on their decisions to leave. I don t think any of our staff looks at positions in our agency as being secure. That being said, I was pleased Governor Otter is not looking at further workforce reductions to balance the FY 2012 budget. We have to look at the real cost drivers. In 2008, our Medicaid trustee and benefit payments were $1.3 billion. In 2012, they are $1.8 billion, a 39 percent increase. We held the line or reduced expenses everywhere else in our agency, despite the pressures of record growth. However, Medicaid trustee and benefits continues to grow. $1,800.0 M. $1,600.0 M. $1,400.0 M. $1,200.0 M. $1,000.0 M. Medicaid T&B Drives Budget Millions Medicaid T&B budget increased 39%. Medicaid enrollments expanded by 21% over same time period. Carryover expenses from 2010. $18.5 M. GF; $89.5 M. Total Funds $1,259.5 M. $1,376.5 M. $1,409.6 M. Total: 1,751.1M. $89.5 M. $1,666.1 M. SFY 2008 SFY 2009 SFY 2010 SFY 2011 Estimate Medicaid Trustee & Benefits Carryover Expenses from FY 2010 $1,758.9 M. SFY 2012 Request 14 I don t want you to think our Medicaid budget problems are unique; almost every state is struggling with unsustainable Medicaid trustee and benefit expenses. We are all in the same leaky boat. I worked for Blue Cross for over 30 years, and I can tell you that the problems go far beyond Medicaid. Both private healthcare plans and Medicaid are paying for increased utilization. We need health care reform that uses a managed care approach and leverages the use of health

information technology. In the end, we should all be striving for improved quality and outcomes, rather than paying for more procedures and services. That is what we are doing today. But that is long term. In the short term we have two options. Appropriate additional money to Medicaid, or reduce costs. Or a combination of the two. SFY 2012: Options to Balance Request 1. Increase appropriation. Reducing costs means reducing pricing, services, or the number of people enrolled in Medicaid. I mentioned earlier that Medicaid enrollments increased nine percent last fiscal year. However, most of the new enrollees were children from lowincome families. The costs to Medicaid for covering these relatively healthy children is about $170 a month. We have been fairly successful in managing the costs for most of the recently added participants. Our challenge is containing costs for people who are elderly or who have a developmental or mental health disability. For these populations, the average cost for a child is $1,200 a month and average adult costs range from $1,500 to $1,800 a month. 2. Reduce costs. Reduce services and/or pricing. Reduce enrollees. Medicaid T&B Cost Drivers Healthy child in Basic Plan: $170/month Child with Disability: $1,200/month Adult with Disability: $1,800/month Elderly adult: $1,500/month 15 14 We cannot change eligibility criteria to manage expenses for two reasons. First, when we accepted federal enhanced funding in Medicaid from October 2008 through June of this year, we agreed not to change eligibility criteria. Federal Healthcare Reform continues that condition until 2014. Second, as I mentioned earlier, we already have one of the most restrictive Medicaid programs in the nation when it comes to eligibility. Changing Eligibility Criteria is Not an Option 1. Enhanced FMAP funding and Healthcare Reform restrict any changes in eligibility criteria. 2. Idaho eligibility is already restrictive. Further tightening eliminates children from low-income families, not enrollees whose services are the cost drivers. Further tightening would not gain us much, even if we could. Most of the recent growth has been children who are relatively economical to cover tightening eligibility criteria would not affect the more expensive enrollees that are driving the costs. 17

We also would caution against any further reductions in pricing. Today, our reimbursement rates in many areas are dangerously low. If we further erode reimbursement rates, medical providers will stop treating Medicaid patients. This will severely impact their ability to receive medical care. This leaves us with one realistic option to trim benefits. This is not going to be easy, nor is it going to be painless. We are going to have to focus on preserving the core services that protect public health and safety; services that literally are a matter of life and death. Preserve Core Services to Protect Health and Safety Focus on mission to protect health and safety. Evaluate support services that can be provided by families or communities. Preserve critical, core services for the most vulnerable. To preserve essential medical services, we are going to have to 18 consider reducing certain community support services. This goes back to Governor Otter s message in his State of the State Address we need to look to families, churches, volunteer organizations and other entities to help enhance the quality of life for citizens that we no longer have the resources to fully serve. We need families and communities to step up for their loved ones. For an adult with a developmental disability, this may mean a family member or community volunteer takes this special person out shopping or to a community event, something Medicaid has been paying for. By doing this, we can preserve the vital Medicaid services that same person with a developmental disability needs medical care, mental health services, therapy services. Communities and family members cannot provide these services. We need to preserve the core, critical services for all people who rely on Medicaid. To do this, we must enlist families and communities to provide the social and skill building services we don t have the resources to continue funding.

Our Medicaid Administrator, Leslie Clement, will provide much greater detail on the Medicaid budget request shortly. As she gives her presentation, one thing we must all keep in mind: Medicaid is the only healthcare safety net for many participants and their families. They don t have the option of enrolling in commercial health plans. State Medicaid programs across our nation are often the sole payer for long-term care supports, Medicaid is a Safety Net Most enrollees do not have commercial insurance option for coverage. Medicaid covers conditions other insurance typically does not: long-term care, developmental disabilities, mental illnesses. Medicaid is the lifeline for many families. developmental disability services, and services for people with serious and persistent mental illnesses. Medicaid is the lifeline for these people and their families, making DHW a vital component of the public safety network in Idaho. As budget decisions are made, we must not lose sight of that factor as we work to preserve the most critical, core services. 19 Our other appropriations will come before you over the next two weeks. Please let me know if you need assistance or have questions we want you to have the most accurate information available as you make your decisions. Thank you for your time, and I will now stand for questions. Joint Finance-Appropriations Committee Idaho Department of Health and Welfare Richard M. Armstrong Director January 17, 2011 17