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What does the Bush Administration’s
Medicaid Reform Proposal Mean for
Home and Community-Based
Services?
Joan Alker
Senior Researcher
Institute for Health Care Research and Policy
Georgetown University
[email protected]
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Medicaid serves as a critical health
care safety net for specific groups
of low-income people
 Provides health care coverage to 47 million low-income people in the
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United States
Serves over 8 million people with disabilities
Covers more than 1 in 5 children and pays for 40% of all births in the
United States
Largest source of financing for long-term care and covers nearly 70%
of nursing home residents
Largest source of coverage for HIV/AIDS care
Largest funder for state and local spending on mental health services
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Medicaid is a federal/state matching program
 Federal government matches state spending on an open-ended basis
 Formula for reimbursement depends on states per capita income
 Matching rates vary from 50 percent in high per capita income states to 77
percent in low per capita income states like Mississippi
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Medicaid Fills Medicare’s Gaps
Over One-Third of Medicaid Benefit Spending -- $68 billion – is
for Services for Medicare Beneficiaries
This Grows Over Time with the Baby Boomers’ Retirement
Spending on
Medicare
Beneficiaries
35%
Spending on
All Other
Beneficiaries
65%
Source: Secretary’s Advisory Committee on Regulatory Reforms, June 2002. Data for 1999.
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Medicaid Long Term Care Spending (1998)
ICF/MR
15%
Other
3%
Mental Health
5%
Nursing
Facility
53%
Total =
Home Care $58.7 billion
24%
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Source: Urban Institute estimates, based on HCFA-2082 and HCFA-64 reports.
Medicaid has both mandatory and optional
eligibility groups
“Mandatory" Groups
“Optional” Groups
• Children under age 6 ≤ 133% FPL
• Children and parents above minimum
• Children age 6 - 18 ≤ 100% FPL
requirements
• Children in foster care
• Pregnant women 133% FPL
• Pregnant women ≤ 133% FPL
• People with disabilities and the elderly  74%
• Parents with incomes below state-
FPL, including those in nursing homes
established minimums (median = 60% FPL) • Disabled and elderly people served under
Home and Community Based waivers
• People with disabilities and the elderly
receiving SSI (incomes ≤ 74% FPL)
• Women with breast and cervical cancer
• Low-income Medicare beneficiaries
• Certain disabled people who are employed
and buy into coverage
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Care for Older People and People with
Disabilities is the Most Costly
(Medicaid Expenditures Per Enrollee, 2001)
$15,000
$12,322
$12,000
$11,238
$9,000
$6,000
$3,000
$2,283
$1,447
$0
Children
Parents
Disabled
Elderly
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Source: CBO January 2002 Baseline.
Medicaid Statutory Services
Mandatory Services
Optional Services
Acute Care
• Physician, nurse practitioner and nurse midwife
services
• Laboratory and x-ray services
• Inpatient and outpatient hospital services
• Screening and treatment services for children
(EPSDT)
• Family planning services
• Federally-qualified health center (FQHC) and rural
health clinic (RHC) services
Long-term Care
• Nursing facility services for people 21 years of
age or older
• Home health care services (for people entitled to
nursing facility care)
• Prescribed drugs
• Medical care or remedial care furnished by licensed
practitioners under state law
• Diagnostic, screening, preventive, and rehabilitative services
• Clinic services
• Dental services, dentures
• Physical therapy and related services
• Prosthetic devices
• Eyeglasses
• TB-related services
• Primary care case management services
• Other specified medical and remedial care
• Intermediate care facility for people with mental retardation
(ICF/MR) services
• Inpatient and nursing facility services for people 65 or over in
an institution for mental diseases (IMD)
• Inpatient psychiatric hospital services for children
• Home health care services
• Case Management services
• Respiratory care services for ventilator-dependent individuals
• Personal care services
• Private duty nursing services
• Hospice care
• Services furnished under a “PACE” program
• Home and community-based (HCBS) services (under budget
neutrality waiver)
Source: Kaiser Commission on Medicaid and the Uninsured, “The Medicaid Resource Book”, July 2002
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Medicaid plays a major role in the health care
system and is a major contributor to state
economic activity
 Program is projected to be larger than Medicare in 2003
 $155 billion in federal dollars, $116 billion in state dollars in 2003
 Accounts for nearly 17% of the nation’s health care expenditures
 Single largest source of federal financing to states (43%)
 Provides key financial support to safety net health centers, hospitals and
other providers
 Economic engine in many communities
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Medicaid is a significant source of
national health spending
48%
Medicaid as a share of national
spending (2000):
17%
17%
17%
11%
Total
National
Spending
(billions)
Total Personal
Health Care
Hospital Care
Professional
Services
Nursing Home
Care
Prescription
Drugs
$1,130
$412
$422
$92
$122
SOURCE: Heffler, S. et al., 2002. Based on National Health Care Expenditure
Data, Centers for Medicare and Medicaid Services, Office of the Actuary.
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States are experiencing severe fiscal
challenges
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State budget problems are leading
to Medicaid cuts
 49 states and the District of Columbia will cut Medicaid spending in the
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current fiscal year
32 states have had to cut Medicaid spending twice during the year
States are:
 Freezing or cutting payments to providers
 Controlling prescription drug costs
 Reducing Medicaid benefits
 Restricting Medicaid eligibility
 Increasing beneficiary co-payments
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Looking to the future, states
are worried
 Many states say they cannot continue to afford Medicaid if costs rise as
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projected
Medicaid pays for costs that should be covered by Medicare—35% of
Medicaid spending is for services for “dual eligibles”, persons who
receive both Medicaid and Medicare
Prescription drug costs are increasingly rapidly
The need for long-term services and supports will increase significantly
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States need immediate help
 States need short-term funding so that they can maintain their
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commitment to Medicaid and avoid further cutting services and
eligibility – Congress has been debating a temporary increase in the
“FMAP”
Current recession means that since more people are out of work, more
people count on Medicaid for health care coverage
After fixing short-term problems, there are long-term challenges to be
addressed
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Bush Administration’s response
 The Administration has
consistently opposed a
temporary increase in the
FMAP
 The President’s FY2004
budget includes a radical
restructuring of the way
Medicaid is paid for and run
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The President’s Medicaid proposal
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At least 2/3 of the spending (and possibly all) will be “block granted”.
States choose to participate – if they don’t however, they get no fiscal relief.
States that choose to participate receive capped federal payments that they
have to pay back in later years. The proposal is “budget neutral” – offering
$12.7billion over 7 years that is paid back in years-8-10.
Eliminates the SCHIP program as we know it.
No required state matching payments/ a “maintenance of effort” system instead
“Carte blanche” flexibility
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How does block grant proposal
work?
States would receive 2 annual, capped
allotments from federal govt; one for acute
care and one for LTC
 States could move some portion of the
funds between 2 accounts (10%?)
 Up to 15% of each allotment for DSH and
admin
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Key features of the President’s proposal
Capped federal payments to states
 Payments front loaded to provide fiscal relief, but reductions in later
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years - $12.7 billion over 7 years; “budget neutral” over 10 years.
In comparison 80 Senators voted for a Sense of the Senate in March
which would provide states with at least $15billion in increased FMAP
over 1 year.
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Capped Federal Payments
 Based on 2002 spending, adjusted forward using 10-year growth
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projections
Funding no longer based on actual changes in enrollment
Funding no longer based on actual changes in health care costs,
utilization, new technology
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Bush plan would allow for “complete”
flexibility for “optional” beneficiaries
What does this mean?:
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Optional services could be provided for some groups of people but not others
Some services could be covered in some parts of the state but not others
States could adopt closed formularies for drugs: high cost drugs could be
excluded even if needed
Federal standards on cost sharing could be relaxed or eliminated
Current “mandatory” services, such as mental health care or hospital care, could
be cut out of the benefits package for “optional” people
States might not have to meet nursing home quality standards
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Impact on mandatory beneficiaries is unclear
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Risk #1:Difficult to predict spending changes
in Medicaid over time
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CBO Federal Medicaid Spending
Projections, 1999-2002
(billions of dollars)
145
Variance in actual 2002
expenditures vs.
projections is $17 billion
or 12% of all 2002
federal payments.
135
Actual 2002
CBO 2002
CBO 2001
CBO 2000
CBO 1999
CBO 1998
CBO 1997
125
115
105
1999
2000
2001
2002
Source: Congressional Budget Office historical budget tables, previous editions of its Economic and Budget Outlook.
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Medicaid Long Term Care Average Annual
Expenditure Growth Rates 1990-1998
20%
18.2%
15%
10%
9.1%
8.2%
4.7%
5%
3.4%
0%
All LTC
Home Care
Nursing Home
ICF/MR
Mental Health
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Source: Urban Institute estimates, based on HCFA-2082 and HCFA-64 reports.
Risk #2: Capped Funding Inevitably Results In
Winners and Losers Among States
 Base year differences
 Differences in growth rates
 States do not have to take the block grant option
 But states may not be able to predict if they will be a winner or a loser
 No fiscal relief if state does not opt in
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Risk #3: States likely to withdraw a significant
portion of their funding
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Bush plan could lead to lost state support for
Medicaid
Under Current Law When A State Cuts
State Spending, It Loses Federal Funds
Amount of federal dollars lost if a
state reduces state Medicaid
spending by $125 million, at
different match rates
Match
Rate
State
Funds
Saved
(millions)
Federal
Dollars
Lost
(millions)
50%
$125
$125
65%
$125
$232
75%
$125
$375
Under The Proposal, A State Could Cut State
Spending Without Losing Federal Funds (as
long as it meets the MOE requirement)
Amount of federal dollars lost if a
state reduces state Medicaid
spending by $125 million
State
Funds
Saved
(millions)
$125
Federal
Dollars
Lost
(millions)
$0
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Bush plan would diminish state
incentives to invest in Medicaid
Under Current Law When a State Invests
Under The Proposal, If A State Invests State
State Funds to Expand Coverage, Federal Funds To Expand Coverage, Federal Payments
Funds Grow
Do Not Grow (assuming the state is receiving its
full federal allotment)
Amount of federal dollars gained if a
state expands state Medicaid
spending, at different match rates
Amount of federal dollars gained if a
state expands state Medicaid spending
Match
Rate
New State
Investment
(millions)
Additional
Federal
Funds
(millions)
New State
Investment
(millions)
Additional
Federal
Funds
(millions)
50%
$125
$125
$125
$0
65%
$125
$232
75%
$125
$375
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What Spending Would be Under the Cap?
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Most Spending in Medicaid is “Optional” (1998)
Optional
Services for
Mandatory
Groups
21%
Mandatory Expenditures
For Mandatory Groups
35%
Optional
Expenditures
65%
All Services for
Optional Groups
44%
Note: Expenditures do not include disproportionate share hospital (DSH)
payments, administrative costs, or accounting adjustments.
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Source: Urban Institute estimate, based on data from federal fiscal year 1998 HCFA2082 and HCFA-64 reports, 2001
Most “Optional” Spending is for the
Elderly and Disabled
(Optional Spending by Eligibility Group, 1998)
Children
Parents
8.0%
9.0%
Elderly
38.0%
Disabled
45.0%
Optional Spending =
$100 billion
Note: Expenditures do not include disproportionate share hospital (DSH)
payments, administrative costs, or accounting adjustments.
Source: Urban Institute estimate, based on data from federal fiscal year 1998 HCFA2082 and HCFA-64 reports, 2001
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Distribution of Medicaid Spending
by Eligibility Group and Type of
Service, 1998
Children
Parents
Disabled
Elderly
17%
20%
41%
15%
45%
34%
34%
10%
73%
65%
32%
14%
Mandatory Services for Mandatory Groups
Optional Services for Mandatory Groups
All Services for Optional Groups
Note: Expenditures do not include disproportionate share hospital (DSH) payments, administrative costs, or
accounting adjustments.
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Source: Urban Institute estimates, based on data from federal fiscal year 1998 HCFA 2082 and HCFA-64 reports, 2001
Optional Spending for Long Term Care (1998)
ICF-MR
17%
Mental Health
5%
Home and
CommunityBased
Waivers
16%
Nursing
Facility
51%
Other Home
Care
10%
Home Health
Care
1%
Total =
$58.7 billion
Note: Expenditures do not include disproportionate share hospital
(DSH) payments, administrative costs, or accounting adjustments.
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Source: Urban Institute estimate, based on data from federal fiscal year 1998 HCFA2082 and HCFA-64 reports, 2001
Other solutions?
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Increasing the Medicaid “FMAP”
Medicare prescription drug benefit
Increasing the Medicaid Drug Rebate
Other controls on prescription drug costs
Federalizing “duals”/federalizing LTC
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