1. Medicaid Coverage in Arizona January 2015

2. History of Arizona Medicaid Arizona was the last state to participate in Medicaid – Arizona Health Care Cost Containment System (AHCCCS) Joined in 1982 as the only mandatory managed care program in the country. Added Arizona Long Term Care System (ALTCS) in 1989 also under a mandatory managed care program 2

3. “Gold Standard” of Medicaid Managed Care Built on competition and public/private partnership; strong competition by private health plans to participate in the program One of highest rates of community placement nationally for those at risk of institutionalization (84% living at home or in community) #1 ranking nationally for serving members with Developmental Disabilities by United Cerebral Palsy Report last 3 years National leader in Integrated system for dual eligibles: all AHCCCS health plans are also Medicare plans; 1/3 of dual eligible population is served by one health plan for both Medicaid and Medicare Very strong provider participation rates by private providers – no “Medicaid mills” or government-provided care High member satisfaction – less than 3% switch plans each year Error rates well below national average Quality performance measures above national averages 3

4. 2012 3 rd Presidential Debate “Number two, we take some programs that we are going to keep, like Medicaid, which is a program for the poor. We're — take that health care program for the poor, and we give it to the states to run because states run these programs more efficiently. As a governor, I thought, please, give me this program…I can run this more efficiently than the federal government. And states, by the way, are proving it. States like Arizona, Rhode Island have taken these Medicaid dollars, have shown they can run these programs more cost effectively.” Governor Romney 10-22-12 4

5. AHCCCS Coverage History Mid 1990s – Governor Symington proposed adult eligibility increase to 100% FPL to leverage state only spending 1996 – voters pass initiative after lack of legislative support 2000 – voters pass Prop. 204 initiative mandating coverage for all Arizonans up to 100% FPL 2001 – coverage up to 100% FPL implemented for parents and childless adults 2010 – ACA passes; Medicaid coverage up to 133% FPL 2011 – State imposes childless adult enrollment freeze 2012 – US Supreme Court ruling on ACA makes adult coverage optional but Prop. 204 still mandatory under Arizona law 5

6. ~~ ~ ~~ ~ Medicaid and ACA Populations 67% 85% 100 % Medicare 400% 100-133% FPL Estimated 57,000 to enroll Percentage of costs paid by federal government 6

7. Impact of Great Recession Recession had devastating impact on Arizona o Unemployment went from 3.5% to over 10% o GF revenues dropped 30% o AHCCCS enrollment increased 30% $2.5 Billion in annual reductions in AHCCCS program. o Provider Reimbursement – up to 15% reductions, most still in place o Benefits – eliminated/limited nearly all optional benefits o Eligibility – froze enrollment for Prop. 204 childless adults (0-100% FPL) ; Froze KidsCare enrollment; phased out spend down program o Administrative reductions – 30% decrease in staffing o Cost Sharing – maximized at/above federal requirements 7

8. Childless Adult Enrollment Freeze State Medicaid programs were bound by Maintenance of Effort (MOE) provisions in the ACA. Arizona was one of 6 states that covered childless adults prior to ACA expansion. AZ’s coverage permitted under federal 1115 waiver authority; that waiver expired September 30, 2011. Because that waiver, and its expiration date, existed before the MOE, CMS took the position that Arizona could make changes to coverage for that population. AZ requests authority to freeze enrollment for childless adults; request approved; freeze began July, 2011. Authority to continue frozen program expired Jan. 2014. 8 Reaching across Arizona to provide comprehensive quality health care for those in need

9. Medical Profile of Childless Adults Before Freeze 9 Reaching across Arizona to provide comprehensive quality health care for those in need

10. Prop. 204 Childless Adult Population – Enrollment 10

11. Impact of Childless Adult Freeze Based on FFY 2011 Spend (3 months of freeze) - $1.7 B Hospitals $720 million; for rural hospitals, $160 m Physicians/Clinicians - $283 million; $50 m rural AZ Behavioral Health - $125 million - $27 m rural AZ Emergency and Non-Emergency Transportation - $80 m Radiology and Lab - $72 m Waiver Authority Expired 1-1-14 To make supplemental payments to Hospitals for Uncompensated Care To cover Childless Adults up to 100% FPL 11

12. Impact of Childless Adult Freeze Enrollment declined due to attrition -- 220,000 enrolled at time of freeze July 2011; 67,770 by December 2013 Medical needs did not disappear Cost of care largely borne by hospitals Uncompensated care costs were becoming unmanageable and were not sustainable A long-term solution was needed to address coverage for this population 12 Reaching across Arizona to provide comprehensive quality health care for those in need

13. The Journey to Restoration In State of the State, Gov. Brewer called for restoration of Prop. 204 childless adult coverage (estimated 240,000 Arizonans 0-100% FPL) and new adult coverage (estimated 50,000 – 60,000 Arizonans between 100-133% FPL). Because Arizona expanded early under Prop. 204, the State was not eligible for 100% federal funding for childless adults. ACA included transitional enhanced federal match for expansion states (approx. 85% federal – compares to AZ regular match of 67% federal) Arizona could only access higher 85% match for childless adults if it lifted freeze and “expanded” to include adults from 100-133% FPL. CMS would not approve regular match for maintaining freeze The State could not afford Prop 204 restoration (adults 0-100% FPL) without expansion (adults 100-133% FPL). 13

14. Relatively Minor Tweak to Populations Already Covered by Arizona Voters 14

15. Medicaid Restoration Plan Circuit Breaker – includes requirement that if federal funding decreases below 80%, coverage for new adults terminates. Funding Source – hospital assessment to cover state costs associated with Prop 204; frees up State monies ($100M) to fund other needs. Pursue payment modernization opportunities – updates inpatient payment system; includes price transparency requirements; acknowledges cannot increase enrollment without addressing payment reform. 15

16. 2013 Coverage Policy Options OptionsLives coveredGF Impact (FY 14-16) Federal $ available Prop 204 Vote Honored Medicaid Restoration Proposal 300,000$(100) m savings $4.1 billionYes Continued Freeze (assume state only) 63,000 and shrinking $850 m plus cost $0No Terminate Coverage 1-1-14 0 (63,000 lose coverage) $0 No

17. 17 AHCCCS Prop 204 Restoration and Medicaid Coverage Honor the will of the Voters – twice have approved coverage for low income Arizonans – up to 100% Keeps Arizona Economically competitive – Arizona families and businesses have to support uncompensated care – states that expand Medicaid have competitive advantage Protect rural, safety net and healthcare infrastructure - AHCCCS is an integrated system and the impact of a continued freeze will be dramatic on the delivery system all Arizonans enjoy AHCCCS part of sustainability solution – Healthcare financing is a national policy dilemma that requires a federal solution – AHCCCS is nationally recognized system and similar efficiency levels should be achieved elsewhere Achieve healthier Arizona – New England Journal of Medicine found AHCCCS expansion saved lives and coverage also supports lower costs of care for patients

18. Wide Support for the Restoration Plan Every alternative was reviewed with broad stakeholder input Supporters included over 400 organizations: o State and Local Chambers of Commerce, business leaders o Economists o Faith-based leaders and organizations o Hospital industry o Physicians, nurses, behavioral health and other providers o Community organizations, families and individuals 18

19. Medicaid Restoration Reaching across Arizona to provide comprehensive quality health care for those in need 19 12/1/201312/1/2014Change Prop 204 Restoration67,770276,638208,868 Adult Expansion032,594 KidsCare46,7611,898-44,863 Family Planning5,1050-5,105 AHCCCS for Families & Children (1931) 672,135720,49848,363 All Other505,379604,85699,477 Total Enrollment1,297,1501,636,484339,334

20. Medicaid Restoration Enrollment figures show the Restoration plan was really about restoring coverage to the Prop. 204 eligible childless adult population Enrollment projections were overall on target 20 Reaching across Arizona to provide comprehensive quality health care for those in need

21. Total AHCCCS Acute 21 Reaching across Arizona to provide comprehensive quality health care for those in need

22. Hospital Assessment & Litigation Assessment Hospital industry sought assessment; Created through collaboration with stakeholders so no hospital system would be negatively impacted Assessed $75 m in FY 2014; $233 m in FY 2015 Litigation Lawsuit brought by 36 Republican Legislators Won at Superior Court – Standing 4/22/14: Court of Appeals rules legislature has standing 12/31/15: State Supreme Court rules legislature has standing; back to Superior Court for litigation on the merits 22

23. AzHHA Uncompensated Care Reports Self reported data from 78% of hospitals, based on inpatient cases September 23 Reaching across Arizona to provide comprehensive quality health care for those in need 201220132014Percent Chg Uncomp Billed Charges$238.4 m$259.6 m$158.6 m-38.9% Costs of Uncomp Care$56.5 m$61.2 m$37.4 m-38..8% Percent of total charges uncomp care 7.8%8.2%4.5%-45.4% Operating Margin2.6%3.0%2.6%