Medicaid at the Crossroads

Cindy MannResearch Professor

Institute for Health PolicyGeorgetown University

Washington DC

Grantmakers in HealthJanuary 24, 2005

The Federal Budget Process

• 1: THE PRESIDENT’S BUDGET– Released early February

• 2: CONGRESSIONAL BUDGET RESOLUTIONS (HOUSE, SENATE & JOINT)– March/April– Sets overall funding, revenue, and deficit targets– Will likely include reconciliation directive to cut

entitlements– Could include budget process changes, e.g.,

entitlement caps or overall spending caps

Federal Budget Process, cont.

• 3: BUDGET RECONCILIATION – If required in budget resolution, creates fast-track

legislative vehicle for entitlement cuts by authorizing committees.

– Committees could accommodate cuts thru block grants or other mechanisms

– Timeframe probably May to July.

• 4: APPROPRIATIONS– Sets funding levels for appropriated (discretionary)

programs. – Overall limit on appropriations set in budget resolution

Why The Attention to Medicaid?

• Rising health care costs, slow state revenue growth, and an aging population has created stress at the state level

• Federal interest in reducing/capping federal spending

• It’s a big program

Medicaid’s Role

• Largest single source of coverage in the nation– covers 53 million people, including children, parents, pregnant women, elderly, disabled

• Largest source of financing for long term care• Supports many other priorities, such as special

education, early intervention, Head Start, child welfare system

• Accounts for 17% of all health spending; major source of revenue for providers, particularly public hospitals, children’s hospitals, community clinics

• Economic engine in state and localities; largest source of federal funds to states

7.7%

-0.3%

2.9%

6.6%

Children Adults Blind/Disabled Elderly

Medicaid Per-Person Costs vs. Private Healthcare Premium Costs, Annual Growth 1999-2004

Source: Georgetown Health Policy Institute’s Analysis based on Kaiser/HRET Survey of Employer-Sponsored Health Benefits 1999-2004, CBO Medicaid Baselines 2000-2004. Growth rate for private premiums based on family coverage.

11.6%

4.5%

Growth

Premiums Medicaid

Elementary and

Secondary Education

35.5%

Transportation0.6%

Public Assistance

2.2%

All Other26.1% Corrections

7.0%

Higher Education

12.1%

Medicaid16.5%

Medicaid as a Percent of Expenditures, 2003

Source: Georgetown Health Policy Institute analysis based on National Association of State Budget Officers, 2002 State Expenditure Report, November 2003.

Total = $499.4 billion

($82.3 billion)

Corrections3.5%

Higher Education

10.8%

Elementary and Secondary Education

21.7%

All Other32.2%

Medicaid21.4%

Transportation8.2%

Public Assistance

2.2%

Total = $1.137 trillion

($243.6 billion)

State General Fund Expenditures

Total Expenditures

(State and Federal)

Medicaid Program

Federal funding provided on an “as needed” basis – based on actual costs

Eligible people are guaranteed coverage

State matching payments are required

Federal minimum benefit and cost sharing standards

Capped Program

Key Features

Federal funding is capped - federal funds paid to states based on a pre-set amount or formula

No federal guarantee of coverage (for some or all people)

State matching payments may or may not be required

Fewer (perhaps none for some populations) benefit and cost sharing standards

Risk #1:

Costs no longer fully shared between states and federal government

- States bear the risk of higher-than-projected enrollment (global cap)

- States bear the risk of higher-than-projected costs per person (global cap and per capita cap)

105

115

125

135

145

155

165

1999 2000 2001 2002 2003

CBO 1998 Projections

Actual Expenditures

CBO Federal Medicaid Spending Projections for Fiscal Year 2003

Variance in actual 2003 expenditures vs. projections is $19.7 billion or 12.3% of all 2003 federal payments.

Source: Congressional Budget Office Medicaid Baselines, 1998-2004.

(billions of dollars)

2,778 4,638

5,8126,481

7,346 7,7098,539

18,689

12,13611,134

9,610

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Health Care Costs Can Rise without Warning:AIDS Incidence in California Grew Rapidly Once the Epidemic Hit

(1986-1996)

Source: CDC HIV/AIDS Annual Surveillance Reports, 1986-1996. Persons included with vital status "alive" reported; excludes persons whose vital status is unknown. Data from December of each year.

Risk #2:

Any funding formula will necessarily affect different

states in different (and somewhat arbitrary) ways

Total Medicaid Expenditures per Low-Income Individual, FY 2002

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000

DC

New York

Rhode Island

Alaska

Maine

Utah

Texas

Florida

Colorado

Nevada

US Avg.

Acute Care

Long-Term Care

Sources: Urban Institute estimates based on data from CMS (Form 64). Population counts from the March Current Population Surveys, 2001, 2002; Holahan J, Weil A. "Block Grants Are the Wrong Prescription for Medicaid." Urban Institute, May 2003.

Risk #3:

If the state matching requirement is replaced by an “MOE” requirement, states might be able to withdraw a significant portion of their funding

Current Law

Federal dollars lost if state reduces Medicaid spending by $125 million, at different match rates

FederalDollars

Lost(millions)

$125

$232

$375

Match Rate

StateFundsSaved

(millions)

50%

65%

75%

$125

$125

$125

Proposal

FederalDollars

Lost(millions)

$0

State Funds Saved

(millions)

$125

Federal dollars lost if a state reduces Medicaid spending by $125 million (assuming state meets “MOE”)

Matching System Creates Incentives to Maintain Investment in Optional Coverage

Source: Georgetown Health Policy Institute analysis. Lower estimate shows the difference between MOE and state spending projections under current law assuming program expenditures grow at 5.51% (CT’s Medicaid expenditure growth rate from 1998-2002). Higher estimate shows the difference between MOE and state spending projections under current law assuming program expenditures grow at 8.15% (CBO 2004 Medicaid baseline growth rate for the years 2004-2013). MOE growth is based on 2002 state expenditures from CMS-64’s, adjusted by the Medical CPI projected by HHS.

$221$529$571

$1,580

$3,083

$7,963

LowerEstimate

HigherEstimate

2007 2013 10-year loss(2004-2013)

2007 2013 10-year loss(2004-2013)

(millions of dollars)

Potential Reduction in State Medicaid Spending Under MOE in CT

Risk #4:

With less funding, what will be the impact of new flexibility?

Impact of Premiums in OHP Standard

• Caseload fell by about half in less than a year; main cause was premiums.

• Reductions particularly deep for those with the lowest incomes.

59%46% 47%

40% 43% 44%

0% 0-10% 10-50% 50-65% 65-85% 85-100%

Income as Percent of Poverty Line

Source: Oregon Health Research & Evaluation Collaborative 2004

% Caseload Reduction from 2002 to June 2003

Capped Federal Funding Creates a “Zero Sum” Game

Adults 7.6% Children

19.4%

Elderly 23.5% Blind/

Disabled 48.8%

National Medicaid Expenditures, 2002

Expenditure distribution based on CBO data that includes only spending on services and excludes DSH, supplemental provider payments, vaccines for children, and administration. Source: Kaiser Commission estimates based on CBO and OMB data, 2003.

Risk #5:

Long term implications?

- Historically, block grant funding declines over time in real value

Real Reform?

Address some issues in the “FMAP” Realign some costs to the federal government; e.g.

“duals” Address rising pharmacy costs generally and within

Medicaid Other tools/new areas of flexibility to help states control

costs Broader health care reform (e.g., drug costs)

Medicaid Fills in for Medicare’s GapsOver 42% of Medicaid Benefit Spending Nationwide -- $91 billion – is for

Services for Medicare Beneficiaries (2002)

Adults 11.2%

Group Unknown

4.0%

"Dual Eligibles"

42.4%

Children 16.1%

Other Aged and Disabled,

26.3%

Source: Bruen B, Holohan J. “Shifting the Cost of Dual Eligibles: Implications for States and the Federal Government.” Kaiser Commission on Medicaid and the Uninsured, November 2003.

Total Expenditures = $214.9 billion

Moving Forward without Moving Backward

• Match solutions to the real problems• Identify and work with those who should care about

Medicaid– broad range of interests • Need for education-- Medicaid matters

Coverage Trends for Nonelderly Americans, Percentage Point Change from 2000-2003

0.5%

-2.3%

-4.4%-3.7%

5.5%

0.9%

-0.5%

2.3%

Children (0-18) Nonelderly Adults (18-64)

Total Employer-Sponsored Medicaid Uninsured

Notes: 2000 data included implementation of a 28,000 household sample expansion.Source: Georgetown Health Policy Institute analysis based on March 2001-2004 Current Population Survey.

1.5 Million Children

2.4 Million Children

4.3 Million Children

244,000 Children

1.0 Million Adults

2.3 Million Adults

2.0 Million Adults

5.4 Million Adults