1. Medicaid and LTSS: Key Issues in 2013 and Outlook for the Future LeadingAge LTSS Finance Reform Task Force Washington, DC February 15, 2013 Vernon K. Smith, PhD Health Management Associates © 2013 Vsmith@HealthManagement.com

2. Key Issues for Medicaid in 2013 Fiscal pressure: a driving factor affecting Medicaid at both the state and federal level Making Medicaid better: Widespread focus on accountability, quality improvement, delivery system and reimbursement strategies Health reform: State-specific responses to opportunities in ACA, including those for persons with disabilities, chronic conditions, or for seniors. 1 SOURCE: Vernon Smith, Kathy Gifford, Eileen s, Robin Rudowitz and Laura Snyder, “Medicaid Today; Preparing for Tomorrow, A Look at State Medicaid Program Spending, Enrollment and Policy Trends: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013,” The Kaiser Commission on Medicaid and the Uninsured, October 2012. http://www.kff.org/medicaid/8380.cfmhttp://www.kff.org/medicaid/8380.cfm

3. What Medicaid Has Become: America’s Largest Health Program 2 – Medicaid enrollment: 63 Million (2013 avg. monthly, including 6 million children in CHIP) – With turnover, over 75 million enrolled for part or all of 2013 – Medicaid spending: $491 billion (2013) – Federal share: $282 billion; State share: $209 billion Medicare, by comparison, will cover 51 million persons and spend $598 billion in 2013 Source: HMA projections for 2013, based on CMS, Office of the Actuary, 2012.

4. Medicaid Is Not One Program, But Several, Each with a Key Role 3 Health insurance for low-income families, persons with disabilities and the elderly Assistance to low-income Medicare beneficiaries (40% of Medicaid spending) Long-term care, including home and community services (Over 30% of Medicaid spending) Other roles, such as: Support for safety net providers who serve the uninsured - DSH payments to hospitals Financial support for other programs such as mental health, school and public health.

5. 4 SOURCE: HMA, calculated from CMS 2010 data for NHE, Projections 2011 – 2021. August 2012.2010. Medicaid Is Financial Glue Holding Together the Health Care Safety Net Medicaid Spending Is 1/6 of National Health Expenditures, But Even More Significant for LTSS

6. 5 SOURCE: HMA, calculated from CMS 2010 data for NHE, Projections 2011 – 2021. August 2012.2010. Medicaid and Medicare Together Total Over 1/3 of NHE and Dominate LTSS Spending 36% 54% 82% 73%

7. Medicaid Spending Continues to Increase as a Share of State Budgets (Now Almost ¼ of total State Spending, 17% of State GF Spending) 6 Source: HMA, based on NASBO reports, various years.

8. Medicaid Spending and Enrollment FY 1998 – FY 2013 NOTE: Enrollment percentage changes from June to June of each year. Spending growth percentages in state fiscal year. SOURCE: Vernon Smith, Kathy Gifford, Eileen s, Robin Rudowitz and Laura Snyder, “Medicaid Today; Preparing for Tomorrow, A Look at State Medicaid Program Spending, Enrollment and Policy Trends: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013,” The Kaiser Commission on Medicaid and the Uninsured, October 2012. http://www.kff.org/medicaid/8380.cfmhttp://www.kff.org/medicaid/8380.cfm 7

9. MI AK HI CA WI WA OR ID WY UT AZ NM NV TX MN IA MO OK NE KS SD ND MT AL LA FL TN IN OH IL PA WV VA KY NC SC GA AR MS ME NY VT NH MA RI CT NJ DE MD CO Percent Change in Nominal State Tax Revenue 2007 to 2012 Personal Income, Corporate, and Sales Taxes Source: “On the Verge : The Transformation of Long-Term Services and Supports” AARP Public Policy Institute February 2012, updated to reflect 2012 actual revenue. HMA analysis of data from National Association of State Budget Officers (NASBO), FallFiscal Survey of States, 2007-2012 reports. Percent Change from 2007 < - 15.0% -5.0% to -10% --1.0% to -5.0% +1.0% to +5.0% +5.0% to 10.0% > 10.0% -10.0% to -15.0%

10. State Spending on Medicaid and K–12 Education as % of Total Spending 2008 - 2012

11. Governors Are Often Frustrated by Persistent Medicaid Cost Growth “Medicaid growth is simply unsustainable and threatens to consume the core functions of state government.” Governor Jan Brewer, (R – Arizona), signing request for waiver of “Maintenance of Effort” law in order to cut adults from Medicaid. 10

12. States Have Looked for Every Possible Way to Slow Medicaid Cost Growth, But … 11 Easy actions have been taken – State fiscal stress has meant a perennial focus on cost containment – Some options, like eligibility restrictions, are off the table for now Medicaid patients are sicker – Compared to low-income adults with private health insurance, over twice as likely to be in fair or poor physical or mental health, or to have chronic health conditions Medicaid costs are already lower than other payers’ – Adjusted for health status, costs per capita are 1/4 less for adults; 1/3 less for children; further cuts could jeopardize access Medicaid cost growth has been lower – 23% less per capita than for persons with private health insurance Smith 20 Sources: Health status, per capita costs and above quotes: Ku and Broaddus, “Public and Private Health Insurance: Stacking Up the Costs,” Health Affairs, online 24 June 2008; and, Hadley and Holahan, Inquiry, 2004; Per capita cost growth: Holahan and Cohen, Understanding the Recent Changes in Medicaid Spending and Enrollment Growth Between 2000-2004, Kaiser Commission on Medicaid and the Uninsured, May 2006.

13. Medicaid and Medicare spending growth per enrollee is lower, compared to private spending. SOURCE: Urban Institute, 2010. Estimates based on data from Medicaid Financial Management Reports (HCFA/CMS Form 64), Medicaid Statistical Information System (MSIS), and KCMU/HMA enrollment data. Expenditures exclude prescription drug spending for dual eligibles to remove the effect of their transition to Medicare Part D in 2006.

14. State Policy Actions Implemented in FY 2012 And Adopted for FY 2013 States with Expansions / Enhancements States with Program Restrictions Adopted FY 2013 FY 2012 Provider Payments Eligibility BenefitsLong Term Care 45 42 2 6 18 8 10 7 NOTE: Past survey results indicate not all adopted actions are implemented. Restrictions include cuts or freezes for nursing facilities or hospitals. SOURCE: Vernon Smith, Kathy Gifford, Eileen s, Robin Rudowitz and Laura Snyder, “Medicaid Today; Preparing for Tomorrow, A Look at State Medicaid Program Spending, Enrollment and Policy Trends: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013,” The Kaiser Commission on Medicaid and the Uninsured, October 2012. www.kff.org/medicaid/8380.cfmwww.kff.org/medicaid/8380.cfm.

15. Rate Increases More Common for Nursing Facilities FY 2010 – FY 2013 Any Provider Inpatient HospitalMCOsNursing HomesPhysicians States with Rate Increases States with Rate Restrictions NOTE: Past survey results indicate adopted actions are not always implemented. Any provider includes all other provider groups mentioned. Rate restrictions include rate cuts for any provider and also frozen rates for inpatient hospitals and nursing homes. SOURCE: KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management Associates, 2010, 2011 and 2012. FY 2011 FY 2010FY 2012Adopted FY 2013

16. Medicaid Continues to Expand HCBS Implemented in FY 2010 – FY 2013 SOURCE: KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management Associates, September 2009, 2010 and October 2011, 2012.

17. Medicaid Benefit Spending per FYE Enrollee, by Use of LTSS 16 Source: Prepared by HMA based on 2009 data in: MACPAC, Medicaid and CHIP Program Statistics, June 2012.

18. Medicaid Has Been “Re-Balancing” Long-Term Care for Many Years, Especially Since 2002 In Billions: $32 $54 $75 87% 80% 70% 13% 20% 30% 32% 68% $92 $100 63% 37% $109 41% 59% Note: Home and community-based care includes home health, personal care services and home and community-based service waivers. SOURCE: HMA, based on: Kaiser Commission on Medicaid and the Uninsured and Urban Institute analysis of HCFA/CMS-64 data; and, Eiken, Sredl, Burwell and Gold, “Medicaid Expenditures for Long-Term Services and Supports: 2011 Update,” Thomson Reuters, 2011. 58% 42% $115 $125 45% 55%

19. ACA added incentives for States to accelerate LTSS shift, institution to home and community State Balancing Incentive Payments – a 2 to 5 %-point FMAP increase for states with less than 50% HCBS – 9 Participating states: CT, GA, IA, IN, MD, MO, MS, NH, TX Community First Choice option – 6%-point increase in FMAP for community services for persons with disabilities, for states selected for participation – 5 Participating states: AZ, CA, LA, MD, MN 18 Source: NASUAD, State Integration Tracker, January 2013.

20. 19 Medicaid Now Relies on Managed Care, Mainly Through MCOs 1991 - 2010 MCO Source: HMA; 2010 data from: Kathy Gifford, Vernon Smith, Dyke Snipes and Julia Paradise, “A Profile of Medicaid Managed Care Programs in 2010: Findings from a 50-State Survey,” The Kaiser Commission on Medicaid and the Uninsured, September 2011. 1991 – 2005, and 2011 data from HMA analysis of CMS Managed Care Reports, various years.

21. States Have Found Managed Care Provides a Platform for Accountability and Quality “We are unashamed to use the power of Medicaid to raise the standard of care for all the citizens of our state.” – Craigan Gray, MD, Former NC Medicaid director Wide Range of Quality Initiatives Care management programs for high risk / high cost patients Performance improvement projects (e.g., reducing avoidable ER visits) Consumer guides and MCO performance report cards, based on HEDIS and CAHPS Special initiatives for priority population health (e.g., reducing obesity, disparities) Reimbursement Strategies Bonus payments for high performance on HEDIS® or CAHPS® quality performance measures selected annually Penalties for poor performance Higher payment when meet medical home or chronic care management standards Procurements based on quality 20 SOURCE: Kathy Gifford, Vernon Smith, Dyke Snipes and Julia Paradise, “A Profile of Medicaid Managed Care Programs in 2010: Findings from a 50-State Survey,” The Kaiser Commission on Medicaid and the Uninsured, September 2011. http://www.kff.org/medicaid/8220.cfm

22. 21 Most Enrollees are Now in Managed Care, but Most Medicaid Spending Is Still FFS Note: Managed care includes risk- and non-risk based, including MCOs, PCCMs, and limited benefit plans. Data are for 2009. Source: HMA, prepared from data in: MACPAC, Medicaid and CHIP Program Statistics, June 2012.

23. Many States Are Incorporating LTSS into their Risk-Based Managed Care Programs A transformational change is occurring: States have gained confidence that the long term care population can be well served through health plans or managed long term care. Massachusetts, Arizona, Minnesota and Wisconsin led the way 2 decades ago Programs generally included Medicaid services only, but programs in Massachusetts, New York, and Wisconsin also included Medicare services. At least half of states now include, or have plans to include LTSS in managed care 22 SOURCE: Kathy Gifford, Vernon Smith, Dyke Snipes and Julia Paradise, “A Profile of Medicaid Managed Care Programs in 2010: Findings from a 50-State Survey,” Kaiser Commission on Medicaid and the Uninsured, September 2011. http://www.kff.org/medicaid/8220.cfm.

24. Recent And Scheduled State Procurements Illustrate Movement of LTSS in Managed Care NM – Contracts awarded 2/8/13 to 4 MCOs include all physical health, behavioral health and LTSS statewide FL – Managed LTC (MLTC) contracts were announced in January NY – MLTC moving voluntary to mandatory in NYC. (Duals demo state) CA – Carving LTC benefits into existing MCOs. (Duals demo state) LA – MLTC RFI issued. KS - MLTC included in MCO program launched this year. DE – MLTC included in MCO program, began April 2012 NH - MLTC included in MCO program to launch this year. TX – STAR+PLUS RFP out for rural Texas. (Duals demo state) NJ – LTC benefits being carved into MCOs. HI – Rebidding QExA (i.e., ABDs / LTC in MCOs) IL – MLTC expanding into Central Illinois and other regions 23 Source: HMA, February 2013.

25. State Care Coordination and Managed Care Changes FY 2012 – FY 2013 SOURCE: Vernon Smith, Kathy Gifford, Eileen s, Robin Rudowitz and Laura Snyder, “Medicaid Today; Preparing for Tomorrow, A Look at State Medicaid Program Spending, Enrollment and Policy Trends: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013,” The Kaiser Commission on Medicaid and the Uninsured, October 2012. http://www.kff.org/medicaid/8380.cfmhttp://www.kff.org/medicaid/8380.cfm FY 2012Adopted FY 2013

26. State Managed Care, Care Coordination and Dual Eligible Initiatives, FY 2012 and FY 2013 SOURCE: Vernon Smith, Kathy Gifford, Eileen s, Robin Rudowitz and Laura Snyder, “Medicaid Today; Preparing for Tomorrow, A Look at State Medicaid Program Spending, Enrollment and Policy Trends: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2013,” The Kaiser Commission on Medicaid and the Uninsured, October 2012. http://www.kff.org/medicaid/8380.cfm http://www.kff.org/medicaid/8380.cfm. FY 2012Adopted FY 2013

27. Duals Demo Projects Aim for Integrated, Coordinated Care to Patients A total of 34 states were looking at a “duals initiative” of some kind for FY 2013 CMS has approved “financial alignment” demos in Massachusetts, Washington, Ohio – Capitated (MA, OH) or managed FFS (WA) models CMS continues to review demo MOUs for: – Capitated only models: MI, NY, VT – Both Cap and FFS Models: CA, SC, WI – Managed FFS models: CO, CT, NC, OK MN, OR and TN were selected by CMS for demo grants but have withdrawn proposals 26

28. The Michigan Dual Eligible Project Will integrate physical health, behavioral health and long term care for up to 70,000 of Michigan’s 200,000 duals, in 4 regions – Wayne County, Macomb County, 8 SW Counties, All 15 UP Counties Integrated Care Organizations will use the Care Bridge to coordinate all care – PIHPs handle for behavioral health and habilitative services for persons with developmental disabilities, mental illness and substance abuse. Medicaid PMPM payments to ICOs and to PIHPs Medicare payments to ICOs – PIHP subcontracts required Timeline: – Expect RFP for ICOs soon; Expect awards ~ June 2013 – Expect final contracts and outreach ~ Fall 2013 – Implementation January 1, 2014 27

29. 28 Already 40% of Medicaid Spending, Duals Will Be More Significant in Future Share of Population Age 65+ Is Increasing Sharply Source: U.S., Administration on Aging.

30. The State Innovation Models Initiative – CMMI announced initiative in July 2012 to accelerate the development and testing of new payment and service delivery models; applications were due in September 2012. – Will fund limited number of states to test new payment and service delivery models that have potential to lower costs for Medicare, Medicaid and CHIP while improving health and quality of care. – Goal is to involve multi-payer models that raise community health status and reduce long term health risks for program beneficiaries – Awards expected soon Up to $50 million to up to 25 states for model design Up to $225 million for 3-4 years for up to 5 states for model testing 29

31. U.S. Total Spending on LTC, by Type of Care, 2008 – 2021 Projected 30. $ $377 $ Billions Source: HMA, based on CMS, Office of Actuary, 2012. % Growth 2012 - 2021 $Billions

32. Medicaid and Medicare Per Capita Spending Projected to Grow More Slowly than Private Insurance, Similar to GDP per capita. SOURCE: HMA based on data in: Holahan and McMorrow, “Medicare and Medicare Spending Trends and the Deficit Debate,” NEJM, August 2, 2012.

33. 32 State Decisions Will Determine Future of U.S. Medicaid Spending Projections to 2020 Total Medicaid Spending IF All States Expand To 133% FPL Total Medicaid Spending Based on CBO Projection of States Adopting Medicaid Expansion ($ Billions) SOURCE: HMA, based on CBO and CMS, NHE projections, 2012. $850

34. Medicare Spending Projected to Exceed $1 Trillion by 2022 33 Source: CBO, The Budget and Economic Outlook: Fiscal Years 2013 to 2023, February 5, 2013. $Billions Federal Funds 2013: 51 million Enrollees (Part A) 2023: 68 million Enrollees

35. At Federal Level, Medicare and Federal Medicaid Are Almost ¼ of Total Federal Spending 1 Amount for Medicare includes offsetting premium receipts. 2 Other category includes disaster costs and negative outlays for Troubled Asset Relief Program. SOURCE: Office of Management and Budget, FY2011 Budget, Summary Tables. Total Federal Spending, FY2010 = $3.5 Trillion 20% 19% 6% 12% 8% 15% 20%

36. “Deficits are projected to increase later in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.” CBO, “The Budget and Economic Outlook, Fiscal Years 2013 to 2023,” February 5, 2013 What Will Congress Do Under Pressure to Cut Federal Cost of Medicare and Medicaid?

37. “The primary driver of our national debt is our healthcare programs. There's no one magic bullet — like pass this and it's fixed — but, save the healthcare system and you're saving the country from its debt crisis.” – Congressman Paul Ryan (R – WI) Source: Modern Healthcare It is Hard for Congress Not to Focus on Federal Cost of Medicare and Medicaid

38. “Yes, we all know, the biggest driver of our long-term debt is the rising cost of health care for an aging population. ” President Obama, State of the Union, February 12, 2013 The President ….

39. Medicare and Medicaid Are the Primary Drivers of Future Federal Spending Growth and Deficits 41 Source: CBO.

40. This is a historic and uncertain time for Medicaid – and all of health care – Medicaid is innovating with payment and delivery systems, greater use of managed care and care management New accountability focused on access, quality, cost savings Using opportunities particularly for dual eligibles, persons with disabilities, chronic conditions, and long term care. – Budget issues continue to be a driver for change in Medicaid Rising health costs and aging of the population add to urgency – Change is occurring quickly in Medicaid Innovations promise more value for state and federal dollars, better care for patients Providers who serve Medicaid patients will need to adapt to the new rules, opportunities and challenges 39