Medicaid and the Medicaid Commission

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• Medicaid and the Medicaid Commission

Health Policy Seminar National Institute of
Health Policy University of St. Thomas Washington
Court Hotel May 8, 2006
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The Usual Disclaimer

• The views I express are my own
• And not those of
• AEI
• HHS
• The Medicaid Commission or any of its other
  members

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The Medicaid Commission

• Established by Secretary Leavitt in July 2005
• 15 voting members, 15 non-voting members
• Governors Joe Manchin (D, WV) and Jeb Bush (R,FL)
  joined in October
• Chairman, former governor of Tennessee, Don
  Sundquist
• Vice-chair, former governor of Maine, Angus King,
  Jr.
• Two mandates
• September 1, 2005 recommend how to save 10 B
  over 5 years (submitted)
• End of 2006 recommend how to reform Medicaid

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The Federal/State Medicaid Program

• Passed in 1965 as Title XIX of the Social
  Security Act
• S-CHIP (Title XXI) added in 1997
• Covers 58.5 million people in 2005
• Federal guidelines with some state flexibility

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Medicaids Complex Benefit Structure

• 28 Mandatory and 21 optional eligibility groups
• Mandatory AFDC/TANF women children children
  lt6,lt133 FPL SSI etc.
• Optional infants lt1, lt185 FPL low income women
  with cancer medically needy HCBS etc.
• Mandatory and optional coverage
• Mandatory hospital physician prenatal care
  VFC etc.
• Optional drugs ICF/MR eyeglasses
  transportation PT etc.

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Cost of entitlement programs
Total Estimated Cost in 2050
5.3
15.9
28 of GDP
52 of federal budget
6.3
Source CBO Long Term Budget Outlook, 2003
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Medicaid Federal Outlays in Billions of Dollars

Spending grew 97.8 percent between 1995 and 2004,
for average growth of 7.9 percent each year.
Fiscal Year
Assumes enactment of the Deficit Reduction Act
of 2005.
Source CBO.
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Federal Medicaid Expenditures, 2005
13
42
16
13
29
184.2 Billion Total in 2005 CBO Projections
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Four Types of Medicaid BenefitsCBO Projections
in Billions
Source CBO, Fact Sheet for March 2005 Baseline
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FMAP Formula
FMAP 100 -
(State Per Capita Income)2 (Federal Per
Capita Income)2
x 0.45

• A lower income state will have a lower state
  share and a higher matching rate
• Designed to
• Give the average state a 55 matching rate
• Give lower income states higher matching rates
• Give higher income states lower matching rates
• Year-to-year changes a function of
• Relative changes in pre capita income
• Relative changes in a states population

State Share
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Federal Funding Magnifies StateSpending
Decisions . . .
100
100
100
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. . . and reduces the incentives to cut costs

• To save 1,000,000 in state costs would require a
  state to cut total Medicaid expenditures by
• 2,000,000 if the matching rate is 50
• 2,500,000 if the matching rate is 60
• 2,777,000 if the matching rate is 63.99
  (Tennessee)
• 3,333,333 if the matching rate is 70
• 4,166,666 if the matching rate is 76
  (Mississippi)

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Medicaid State Matching Rates, FY 200650
Minimum to 76 in Mississippi
Lightest color 50 -50.09 to 60.4 -60.41 to
67.91 Darkest color more than 67.91
Source KFF State Health Facts
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Medicaid State Matching Rates, FY 2006

• 12 States with 50 FMAPs
• California
• Colorado
• Connecticut
• Illinois
• Maryland
• Massachusetts
• Minnesota
• New Hampshire
• New Jersey
• New York
• Virginia
• Washington

• 10 States with highest FMAPs
• Mississippi 76.0
• Montana 75.4
• Arkansas 73.8
• West Virginia 73.0
• New Mexico 71.2
• District of Columbia 70.0 (set by law, not by
  formula)
• Idaho 69.9
• Louisiana 69.8
• Alabama 69.5
• South Carolina 69.3
• Kentucky 69.3

Source KFF State Health Facts
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Nine States Get Half the FederalMedicaid Money,
Billions, 2004
States with 50 matching rate Total Federal
Medicaid expenditures were 167 Billion in FY 2004
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What You See in the Next Slide
Highest Maine 6780
Low poverty, High Fed s
Federal s Per Capita
High poverty, Low Fed s
Lowest Nevada 1736
Lowest NH 8.2
Highest MS 25.6
Number in State lt125 of poverty
of state pop in poverty
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Federal Medicaid Spending and PovertyAll States,
2004
Northeastern States
MN
Katrina states
Source Calculations based on CMS Medicaid and
Census Bureau data, 2004
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Medicaid Commission Recommended Savings
Total 5-year savings 11.1 B
Source Medicaid Commission briefing book, Aug
17-18, 2005
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Medicaid Savings ProposalsHouse and Senate
Conference Agreement December 19, 2005
Total Medicaid Net Savings 6.9 B 0.6 of 1.13
Trillion estimated outlays
Source CBO
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Medicaid Reform ApproachesFederalize vs.
Federalism

• Federalize Expand benefits and federal funding
• A Federal State swap
• Federal covers LTC (dual eligibles)
• States cover welfare population
• What about the blind and disabled?
• Federalism approaches
• State flexibility, deregulation
• Block grant the program
• A state grant based on a revised FMAP formula
• State flexibility to use federal tax credits
• The default option Keep everything just as it is

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Whats at Stake in Reform?

• Quality care for the disabled, poor, and aged
• State and Federal budget issues
• Incentives to overspend and mismanage services
• Incentives to play accounting games with claims
• Weak incentives to reduce costs or fight fraud
• Lack of flexibility for states to adapt to local
  wants and conditions
• Disincentives for entrepreneurs to develop new
  forms of coverage in medical and LTC markets

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Why Medicaid?

• It costs 323 Billion in 2005 (federal state)
• 7.4 of federal outlays in FY 2005 (CBO)
• CBO projects Medicaid to grow to 9.9 of the
  federal budget by 2015
• There is widespread dissatisfaction with the
  program
• Patient complaints about lack of access
• Provider complaints about payment
• State complaints about federal regulations, lack
  of flexibility
• 26 states have comprehensive reform waivers (5
  pending)
• 13 states, NGA NCSL have Medicaid reform
  efforts
• No political agreement, but all reformers argue
  there has to be a better way!