1. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 0 The Deficit Reduction Act of 2005: Implications and Opportunities for State Coverage Efforts Presented by: Robin Rudowitz Principal Policy Analyst Kaiser Commission on Medicaid and the Uninsured For: Cyber Seminar Sponsored by State Coverage Initiatives (SCI) June 7, 2006

2. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 1 Why is Medicaid at the Center of State and Federal Budget Debates? Pressures in health care system –Rising health care costs –Rising numbers of uninsured –Aging population State fiscal pressures –Slow revenue growth in recovery –Medicaid spending increases outpacing revenue growth –Intense focus on Medicaid cost containment for several years –Response: Cost containment and Waivers Federal fiscal pressures –Growing federal deficit –Pressure to cut deficit and extend tax cuts –Interest in reducing federal spending on Medicaid –Response: DRA, President’s FY 2007 proposals, Secretary’s Medicaid Commission

3. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 2 Distribution of Medicaid Spending Reductions in the Deficit Reduction Act Note: “Other” provisions in the conference report include targeted case management, third-party recovery, provider taxes, and requiring evidence of citizenship SOURCE: CBO, January 27, 2006 Long-Term Care Prescription Drug Payment Other 10 Year Savings = $43.2 Billion Benefits and Cost Sharing 5 Year Savings = $11.5 Billion

4. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 3 Cost Sharing Provisions in the DRA Prior to DRA states could impose nominal cost sharing to certain Medicaid beneficiaries but could not impose premiums Cost sharing and premiums changes: –Allows states to impose higher or new cost sharing and premiums –Allows states to make cost sharing “enforceable” –Maintains exemption for mandatory children and pregnant women (except for non-preferred prescription drugs) –Allows variation in benefits and cost sharing across groups and geographic areas CBO estimates: –13 million or 20% of all Medicaid beneficiaries will be affected by provisions –80% of the savings would be attributable to decreased utilization Research shows that imposing premiums and cost sharing on low- income populations can create barriers to access, reduce utilization of essential services and increase financial strain on families

5. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 4 “Mandatory” Children Other Children <150% FPL Other Children Above 150% FPL Most servicesNot allowed <10% of service cost <20% of service cost Prescription drugs “Non-preferred”Up to $3 Up to 20% of cost “Preferred”Not allowedMay charge less Non-emergency use of an ER Up to $6 Any amount Preventive services Not allowedNo charge allowed Aggregate cap on charges No cap 5% of monthly or quarterly income PremiumsNot allowed Allowed (no limit except 5% aggregate cap) DRA Cost Sharing and Premium Standards for Children* *Poverty level for a family of 3 in 2006 is $16,000 annually *Some groups of children are exempt from these rules.

6. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 5 <100% FPL100%-150% FPLAbove 150% FPL Most servicesUnclear<10% of service cost<20% of service cost Prescription drugs “Non-preferred”Up to $3 Up to 20% of cost “Preferred” May charge less Non-emergency use of an ER Up to $6 Any amount Preventive servicesUp to $3<10% of service cost<20% of service cost Aggregate cap on charges No cap 5% of monthly or quarterly income PremiumsNot allowed Allowed (no limit except 5% aggregate cap) DRA Cost Sharing and Premium Standards for Adults* *Poverty level for a family of 3 in 2006 is $16,000 annually *Some adults are exempt from these rules

7. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 6 Benefit Provisions in the DRA Prior to DRA states were required to cover mandatory services & could receive federal match for optional services Allows states to use “benchmark” plans for certain groups –FEHBP- Blue Cross/Blue Shield PPO –Any state employees plan –Largest commercial HMO in state –Secretary-approved Maintains current benefits for individuals with disabilities or long term care needs (can be enrolled on voluntary basis) Maintains EPSDT coverage as wrap-around for children (could be hard to implement) Does not apply to expansion populations Allows variation across groups and geographic areas CBO estimates benefit limits could affect 1.6 million enrollees Limited benefits could result in unmet health needs and barriers to access for uncovered services

8. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 7 DRA Requires Proof of Citizenship for Medicaid DRA requires all new and current Medicaid enrollees to provide documentation to prove citizenship Main sources of documentation include U.S. passport or birth certificate –HHS given authority to list alternative documents (not released yet) Effective date: July 1, 2006 New administrative burdens for states and new barriers for beneficiaries to obtain and retain Medicaid Conflicts with state efforts to simplify eligibility process Wide range of estimates about coverage impact

9. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 8 Health Opportunity Accounts in the DRA Up to 10 state demonstrations –After 5 years other states can adopt unless all demonstrations unsuccessful –Generally limited to families with children (overlap with benefits benchmark option) Allows high deductible coverage in Medicaid combined with health opportunity account Account up to $2,500 per adult and $1,000 per child per year to pay for health care services Deductible set by state –Can be up to 10% higher than the account –If account runs out, must pay out-of-pocket for care until deductible is met Individuals maintain access to accounts even if Medicaid eligibility ends, so could increase state costs

10. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 9 Other Provisions in the DRA (10 year estimates) Savings Provisions in the DRA –Prescription drug payment reform – pricing and rebates ($12.6B) –Reforms to asset transfer laws ($6.4B) –Restrictions on Provider Taxes ($2.9B) –Targeted Case Management Changes ($2.1B) –Third Party Recovery ($1.7B) Spending Provisions in the DRA –Katrina-related Assistance ($2.1B) –Home and Community-Based Services ($2.6B) –Family Opportunity Act ($6.4B) –Cash and Counseling ($360M) –TMA and Abstinence Education ($762M) –Medicaid Program Integrity ($528M)

11. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 10 Latest State DRA Developments West Virginia: “Secretary-approved coverage” and use of “member agreement” –Use of “Secretary-approved” coverage option under the DRA for children and parents –Parents will be required to sign and comply with a “member agreement” to access certain benefits for themselves and their children (including mental health services, diabetes care, and drugs beyond a four-drug limit) –Unclear how children will access mandated EPDST wrap around services –Providers will monitor their patients’ compliance and report to the state Kentucky: Creates 4 Targeted Benefits Plans and Increases Cost Sharing –Global Choices (default), Family Choices (most kids), Optimum Choices (MRDD), Comprehensive Choices (Nursing Home Care) –New cost sharing requirements and service limits (i.e. $225 max OOP and 4 prescription limit) –Emphasis on disease management, Get Healthy Benefit Accounts, and premium assistance –Expanded access to community based long-term care services Idaho: 3 Targeted Benefit Plans Promotes Responsibility and Prevention –Targeted benefits for healthy children and working adults, individuals with disabilities and elderly –Emphasis on long-term savings through prevention and responsible use of health care

12. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 11 What Changes Still Require Waivers? Changes that no longer require waivers –Benefit limits for current eligibility categories within DRA limits –Premiums and cost sharing within DRA limits –Allowing providers to deny care based on cost sharing –Varying benefits and/or cost sharing across groups or locales Changes that still require waivers –Providing Medicaid coverage to childless adults –Benefit limits, premiums, and cost sharing increases beyond DRA limits –Limiting benefits for new eligibility groups –Eliminating EPSDT requirements –Enrollment caps Waivers must meet federal budget neutrality requirements, no budget neutrality for state plan amendments (SPAs)

13. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 12 Some New Directions in Medicaid Emphasis on personal behavior and responsibility –“Consumer choice” of plans / Long-term Care Services –Increased premiums and/or cost sharing –Behavior modification through incentives “Tailored” benefits –Variation in benefit packages across groups or geographic areas Increased role of private marketplace –Increased control to plans to determine benefit packages –Emphasis on premium assistance –Public/private long-term care partnerships Restricting spending/increasing spending predictability –Defined contribution approaches –Aggregate cap on federal funding

14. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 13 Medicaid Enrollees and Expenditures by Enrollment Group, 2003 Children 18% Elderly 28% Disabled 42% Adults 12% Children 49% Elderly 11% Disabled 14% Adults 26 % Total = 55 millionTotal = $234 billion SOURCE: Urban Institute and Kaiser Commission on Medicaid and the Uninsured estimates based on 2003 MSIS data.

15. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 14 4 Percent of Medicaid Population Accounted for 48% of Expenditures in 2001 SOURCE: Urban Institute estimates based on MSIS 2001 data. Adults 1% Disabled 25% Total = 46.9 millionTotal = $180.0 billion Elderly 20% <$25,000 in Costs 96% Children 3% <$25,000 in Costs 52% >$25,000 in Costs Children (.2%) Adults (.1%) Disabled (1.6%) Elderly (1.8%) >$25,000 in Costs

16. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 15 Impact of Increased Cost Sharing in Oregon Note: Includes adults subject to benefit, premium, and cost sharing changes who were continuously enrolled for six months following the changes. Categories are not mutually exclusive; will not sum to 100%. Source: Carlson, M. and B. Wright, “The Impact of Program Changes on Enrollment, Access, and Utilization, in the Oregon Health Plan Standard Population,” March 2005. No Transportation Could Not Get Appointment Insurance Not Accepted Reasons for not obtaining care among those who reported unmet need:

17. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 16 Access to Employer-Based Coverage by Family Income, 2001 SOURCE: Garrett B. Employer-Sponsored Health Insurance Coverage: Sponsorship, Eligibility, and Participation Patterns in 2001. KCMU report. July 2004. (Family Income <100% FPL) (Family Income 400%+ FPL)

18. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Figure 17 Issues to Consider for Medicaid Reform Medicaid is nation’s health safety net Beneficiaries are poor with limited resources Low-income beneficiaries have limited access to employer sponsored health coverage Many have chronic conditions with multiple health needs Medicaid assists those with disabilities requiring both acute and long-term care Beneath the averages, there are a few high-cost cases Limits on Medicaid result in more uninsured and increased unmet health needs Some states continue to use Medicaid as a vehicle to expand health insurance coverage