Medicaid at the Crossroads Cindy Mann Research Professor Institute for Health Policy Georgetown University Washington DC Grantmakers in Health January 24, 2005

Figure 2 The Federal Budget Process 1: THE PRESIDENT’S BUDGET –Released early February 2: CONGRESSIONAL BUDGET RESOLUTIONS (HOUSE, SENATE & JOINT) –March/April –Sets overall funding, revenue, and deficit targets –Will likely include reconciliation directive to cut entitlements –Could include budget process changes, e.g., entitlement caps or overall spending caps

Figure 3 Federal Budget Process, cont. 3: BUDGET RECONCILIATION –If required in budget resolution, creates fast-track legislative vehicle for entitlement cuts by authorizing committees. –Committees could accommodate cuts thru block grants or other mechanisms –Timeframe probably May to July. 4: APPROPRIATIONS –Sets funding levels for appropriated (discretionary) programs. –Overall limit on appropriations set in budget resolution

Figure 4 Why The Attention to Medicaid? Rising health care costs, slow state revenue growth, and an aging population has created stress at the state level Federal interest in reducing/capping federal spending It’s a big program

Figure 5 Medicaid’s Role Largest single source of coverage in the nation– covers 53 million people, including children, parents, pregnant women, elderly, disabled Largest source of financing for long term care Supports many other priorities, such as special education, early intervention, Head Start, child welfare system Accounts for 17% of all health spending; major source of revenue for providers, particularly public hospitals, children’s hospitals, community clinics Economic engine in state and localities; largest source of federal funds to states

Figure 6 Medicaid Per-Person Costs vs. Private Healthcare Premium Costs, Annual Growth Source: Georgetown Health Policy Institute’s Analysis based on Kaiser/HRET Survey of Employer-Sponsored Health Benefits , CBO Medicaid Baselines Growth rate for private premiums based on family coverage.

Figure 7 Medicaid as a Percent of Expenditures, 2003 Source: Georgetown Health Policy Institute analysis based on National Association of State Budget Officers, 2002 State Expenditure Report, November Total = $499.4 billion ($82.3 billion) Total = $1.137 trillion ($243.6 billion) State General Fund Expenditures Total Expenditures (State and Federal)

Figure 8 Medicaid Program Federal funding provided on an “as needed” basis – based on actual costs Eligible people are guaranteed coverage State matching payments are required Federal minimum benefit and cost sharing standards Capped Program Key Features Federal funding is capped - federal funds paid to states based on a pre-set amount or formula No federal guarantee of coverage (for some or all people) State matching payments may or may not be required Fewer (perhaps none for some populations) benefit and cost sharing standards

Figure 9 Risk #1: Costs no longer fully shared between states and federal government - States bear the risk of higher-than- projected enrollment (global cap) - States bear the risk of higher-than- projected costs per person (global cap and per capita cap)

Figure 10 CBO Federal Medicaid Spending Projections for Fiscal Year 2003 Variance in actual 2003 expenditures vs. projections is $19.7 billion or 12.3% of all 2003 federal payments. Source: Congressional Budget Office Medicaid Baselines, (billions of dollars)

Figure 11 Health Care Costs Can Rise without Warning: AIDS Incidence in California Grew Rapidly Once the Epidemic Hit ( ) Source: CDC HIV/AIDS Annual Surveillance Reports, Persons included with vital status "alive" reported; excludes persons whose vital status is unknown. Data from December of each year.

Figure 12 Risk #2: Any funding formula will necessarily affect different states in different (and somewhat arbitrary) ways

Figure 13 Total Medicaid Expenditures per Low-Income Individual, FY 2002 Sources: Urban Institute estimates based on data from CMS (Form 64). Population counts from the March Current Population Surveys, 2001, 2002; Holahan J, Weil A. "Block Grants Are the Wrong Prescription for Medicaid." Urban Institute, May 2003.

Figure 14 Risk #3: If the state matching requirement is replaced by an “MOE” requirement, states might be able to withdraw a significant portion of their funding

Figure 15 Current Law Federal dollars lost if state reduces Medicaid spending by $125 million, at different match rates Federal Dollars Lost (millions) $125 $232 $375 Match Rate State Funds Saved (millions) 50% 65% 75% $125 Proposal Federal Dollars Lost (millions) $0 State Funds Saved (millions) $125 Federal dollars lost if a state reduces Medicaid spending by $125 million (assuming state meets “MOE”) Matching System Creates Incentives to Maintain Investment in Optional Coverage

Figure 16 Source: Georgetown Health Policy Institute analysis. Lower estimate shows the difference between MOE and state spending projections under current law assuming program expenditures grow at 5.51% (CT’s Medicaid expenditure growth rate from ). Higher estimate shows the difference between MOE and state spending projections under current law assuming program expenditures grow at 8.15% (CBO 2004 Medicaid baseline growth rate for the years ). MOE growth is based on 2002 state expenditures from CMS-64’s, adjusted by the Medical CPI projected by HHS year loss ( ) year loss ( ) (millions of dollars) Potential Reduction in State Medicaid Spending Under MOE in CT

Figure 17 Risk #4: With less funding, what will be the impact of new flexibility?

Figure 18 Impact of Premiums in OHP Standard Caseload fell by about half in less than a year; main cause was premiums. Reductions particularly deep for those with the lowest incomes. Income as Percent of Poverty Line Source: Oregon Health Research & Evaluation Collaborative 2004 % Caseload Reduction from 2002 to June 2003

Figure 19 Capped Federal Funding Creates a “Zero Sum” Game National Medicaid Expenditures, 2002 Expenditure distribution based on CBO data that includes only spending on services and excludes DSH, supplemental provider payments, vaccines for children, and administration. Source: Kaiser Commission estimates based on CBO and OMB data, 2003.

Figure 20 Risk #5: Long term implications? - Historically, block grant funding declines over time in real value

Figure 21 Real Reform?  Address some issues in the “FMAP”  Realign some costs to the federal government; e.g. “duals”  Address rising pharmacy costs generally and within Medicaid  Other tools/new areas of flexibility to help states control costs  Broader health care reform (e.g., drug costs)

Figure 22 Medicaid Fills in for Medicare’s Gaps Over 42% of Medicaid Benefit Spending Nationwide -- $91 billion – is for Services for Medicare Beneficiaries (2002) Source: Bruen B, Holohan J. “Shifting the Cost of Dual Eligibles: Implications for States and the Federal Government.” Kaiser Commission on Medicaid and the Uninsured, November Total Expenditures = $214.9 billion

Figure 23 Moving Forward without Moving Backward Match solutions to the real problems Identify and work with those who should care about Medicaid– broad range of interests Need for education-- Medicaid matters

Figure 24 Coverage Trends for Nonelderly Americans, Percentage Point Change from Notes: 2000 data included implementation of a 28,000 household sample expansion. Source: Georgetown Health Policy Institute analysis based on March Current Population Survey. 1.5 Million Children 2.4 Million Children 4.3 Million Children 244,000 Children 1.0 Million Adults 2.3 Million Adults 2.0 Million Adults 5.4 Million Adults