Medicaid and the Deficit Reduction Act Charles Milligan, Executive Director Center for Health Program Development and Management University of Maryland, Baltimore County January 25, 2007 SCI National Meeting

-2- Trends in Medicaid and SCHIP 1. Targeted expansion of coverage to reduce substitution 2. Major Medicaid reform as a “voluntary block grant” 3. Coverage reform not in a vacuum: bridge market failures and challenges in Employer Sponsored Insurance 4. Consumer-directed purchasing

-3- Trend 1: There has been tremendous migration into Medicaid from ESI Change in Number of People in Group, Employer-sponsored insurance -5,980,579 Individual insurance 1,243,575 Medicaid 8,048,244 Uninsured 5,971,224 Source: Kaiser Family Foundation Change in Number Among Nonelderly by Coverage Type,

-4- Response to Trend 1 Tailored benefits and cost sharing authorized in Medicaid 1115 waivers Tailoring of benefits and cost sharing permitted (sometimes) in Deficit Reduction Act Leavitt Medicaid Commission would go further still Report No. 2, issued on December 29, 2006, included recommendations

-5- Trend 2: “Voluntary Block Grants” States seeking to reach agreement with CMS and OMB on what they would spend running an existing Medicaid program States then want to take those funds, and develop far-ranging initiatives Cover more people with limited benefits Subsidize middle class insurance Still protect safety-net providers Examples: MA, VT, FL

-6- Trend 3: Bridge with Market Failures and Challenges in ESI CMS now encouraging “purchasing pools” as approaches Use Medicaid expansion as a purchasing platform for small employers, self-employed individuals and others to purchase non-subsidized insurance via Medicaid insurance contracts CMS wants to support: Bulk purchasing Portability Families buying coverage from same insurance carriers or managed care organizations Examples: FL, MA, NM

-7- Trend 4: Consumer- Directed Purchasing States seeking to make consumers more actively engaged in purchasing decisions Many objectives for this: Interventions in “lifestyle” issues; use funds for non-health preventive services Encourage appropriate substitution of services (e.g., primary care instead of ER) Encourage appropriate use of less-expensive versions of the same service (e.g. generic drugs instead of brand-name) Create price competition among providers and MCOs Control Medicaid budget: move from defined benefit to defined contribution model Examples: FL, SC, WV

Questions Charles Milligan Executive Director, UMBC/CHPDM