Building a Roadmap for Financing Long- Term Services & Supports Melding Private Insurance, a Contribution Program and Medicaid into a Cohesive Proposal – Part II Long-Term Care Financing Advisory Committee December 10, 2009 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

2 Overview of presentation Update on Public Awareness Campaign Intersecting Activities Review and Preview The Analysis  Setting the Stage  Cost Avoidance to Medicaid from Private Financing Mechanisms  Cost of Medicaid Expansions Preliminary View of the Roadmap Committee Business Appendix Note: All numbers are rounded in this presentation.

3 Section 1 Update on Public Awareness Campaign

4 Section 2 Intersecting Activities

Background As part of the Commonwealth’s Community First Olmstead Plan, the Advisory Committee is tasked with identifying strategic options for reforming the financing system for LTS in Massachusetts The Advisory Committee has identified several issues that are integrally related to LTS financing, but are outside of the Advisory Committee’s scope of work:  Affordable and accessible housing  Employment  Workforce capacity and development  Transportation  Integrated financing and care delivery  Administrative activities  Public awareness and access to information  Consumer choice 5

Olmstead Plan and other initiatives Other Olmstead Plan and state initiatives that address these “intersecting activities” are in process across the Commonwealth. Responsible parties include:  System Transformation Grant  Work Without Limits Initiative (formerly MI-CEO grant)  Cross-agency and cross-Secretariat workgroups  Community organizations  PCA Workforce Council The Advisory Committee recognizes that the Commonwealth’s Community First goals cannot be met through improved financing alone:  Successful implementation of the Advisory Committee’s financing recommendations is contingent upon the success of these other initiatives (and vice versa) 6

Proposed endorsing statements The Advisory Committee endorses the following initiatives and activities that support its core principles:  Increase the availability of affordable and accessible housing;  Promote employment of people with disabilities; encouraging the state to lead this effort by becoming a model employer;  Promote a high-quality and stable direct care workforce;  Increase the availability and coordination of local transportation options for people with disabilities and elders; 7

Proposed endorsing statements (2)  Support a care delivery system that coordinates all services and integrates financing for people with chronic care needs;  Enable more effective care coordination through infrastructure improvements that expand the use of health information technologies and build capacity for information exchange;  Promote public and provider awareness about LTS and planning for future LTS needs; ensuring that all information is available in accessible formats for people with disabilities and elders; and  Increase consumer choice in the LTS delivery system. 8

Next steps on intersecting activities Other activities or initiatives to add? Revise and finalize endorsing statements In final report, we will characterize these issues specifically as they relate to LTS financing 9

10 Section 3 Review and Preview

Recap of last month Developed more affordable private LTC insurance model (for Partnership) targeted at middle income  Based on Federal LTC Insurance Program  Group coverage with portability requirements may be important to increase take-up rates Modeled mandatory contribution program and analyzed premiums necessary for solvency (tenuous)  Federal CLASS program uses auto-enrollment with voluntary opt out – estimated take-up rate of 5% Discussed need to refine proposals based upon more realistic “take-up” rates Began to assess impact on Medicaid (cost avoidance due to delaying or preventing Medicaid spend-down) 11

12 Today’s presentation Presentation on Medicaid cost avoidance from:  Federal CLASS program  State contribution program  LTC Partnership program Begin to present numbers on Medicaid expansion costs  Expand access to HCBS for people with disabilities and seniors  Expand Medicaid eligibility for seniors  New state Medicaid buy-in program

Take away points from today’s presentation Federal CLASS program and LTC Partnership  Take-up rates from voluntary programs too low to make a meaningful impact on Medicaid  Programs do not address needs of people who spend-down  Small part of the solution; tinkering around the edges Mandatory state contribution program breaks the cycle  A bigger splash, but is another mandate feasible?  Subsidies would increase take-up rates, but are they affordable? Without Medicaid expansion, still have significant unmet need among lower middle class and likelihood of spend-down 13

14 Section 4a The Analysis: Setting the Stage

Setting the stage for the numbers Focus on the Medicaid budget for seniors & adults with disabilities  $4.6 billion on all services, including waiver services  75% of the $4.6 billion – or $3.6 billion – spent on LTS  45% of the $4.6 billion – or $2.0 billion – spent on institutional care  Note: State share = $2.3 billion / Federal share = $2.3 billion Medicaid coverage levels today  Medicaid seniors & adults with disabilities: 8.5% of MA population (25 years & older)  Seniors = 126,000 or 14% of MA population age 65+, including those who are eligible for Medicaid by meeting the standards through spend- down  Adults with disabilities = 240,000 or about 80% of MA population of adults with disabilities Potential risk pool = those seniors and adults with disabilities not on Medicaid (key to estimating take-up rates, woodwork effect, etc.) 15 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Medicaid cost avoidance and Medicaid expansion costs depend on population distribution by income and need 16 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

University of Massachusetts Medical School EBD Consulting Services, LLC 17 Section 4b The Analysis: Medicaid Cost Avoidance

Medicaid cost avoidance: minimal to substantial Key question: What is the net effect on the Medicaid budget?  Depends on: How many persons who use Medicaid would be covered by federal CLASS, state contribution or private LTC insurance with Partnership? (depends on income and health, personal preferences, and program construct) The value of the non-Medicaid coverage People’s level of need (low, medium, high risk) Parameters & data sources around the estimating process  “Base” case estimates = best estimates of cost avoidance to Medicaid based on best available data sources (ACS, CBO, Census, MassHealth, other states’ experiences, published literature)  “Low” and “High” case estimates reflect uncertainty around assumptions included in the base estimates 18

All of these financing mechanisms provide some Medicaid cost avoidance 19 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Key program features & assumptions 20 Federal CLASS ProgramState Contribution ProgramLTC Partnership Program Program Design & Assumptions ParticipationVoluntary opt-out Mandatory for all with subsidies & Mandatory only for those meeting 2% affordability test Voluntary Eligible population All persons age 25+ (modeled here) Daily benefit amount $50-$100 “cash daily”, based upon level of need $100 per day BenefitLifetime, after 5 years of vesting 2-year policy Pays for?Non-medical community LTSAll LTS Annual premiums$1,750 $1,200 Reduced by subsidies if mandatory for all Depends on age Take-up rate5% 100% with subsidies 60% without subsidies Specific to each age group; 5% across all age groups Participant BaseAdverse selectionBroad baseMiddle-income assumed to participate Excludes people with disabilities

Cost Avoidance: Under the Federal CLASS Program Cost-avoidance calculations  CBO analysis assumes 1.7% in Medicaid cost avoidance based upon take-up rates of 3-5%  Base case: 1.7% Medicaid Cost Avoidance applied against base of MA Medicaid LTS Spending  Low and High cases: 1.2% and 2.2% applied against base of LTS spending Subsidies – Not included. May wish to consider subsidies for lower middle income individuals, if permissible under federal CLASS program 21 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Cost Avoidance: Under a State Contribution Program Cost-avoidance calculations  Modeled cost avoidance in 3 areas: 1. Contribution pays for some community LTS before Medicaid (small adjustment; assumes these are mostly new services) 2. Providing community LTS delays entry into nursing facility (assume 3 months) 3. Contribution is the primary payer for nursing facility costs, Medicaid wraps (after the 3 month delay)  Base case: Assumes that Medicaid payments for Community LTS decline 40% and that the Contribution $100 daily benefit meets 70% of nursing facility costs  Low case: Assumes Medicaid Community LTS decline 20% and Contribution benefit meets 60% of nursing facility costs  High case: Assumes Medicaid Community LTS decline 60% and Contribution meets 80% of nursing facility costs Subsidies – estimated for individuals for whom the Contribution premium exceeds 2% of income. Subsidies would be a new state cost. 22 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Cost Avoidance: Under the LTC Partnership Program Cost-avoidance calculations  Obtain savings if people are covered by private insurance who otherwise would have spent down to Medicaid. Assume these are lower middle income individuals.  Calculations based on California’s experience and program structure  Base case: Assumes 1% of policyholders would have spent down to Medicaid  Low case: Assumes.5% would have spent down  High case: Assumes 1.5% would have spent down Changes to the insurance market that increase take-up rates could also increase Medicaid cost avoidance (e.g. NAIC consumer protections, increase group coverage, make group coverage portable, etc.) Subsidies – not estimated 23

Section 4c The Analysis: Medicaid Expansions 24

Recap from May: MassHealth financial eligibility rules create significant access inequities IncomeAssets 25

Recap from May: Medicaid benefit coverage rules leave gaps in access to key LTS Medicaid state plan covers various medically necessary services:  Institutional care (NF, ICF-MR, chronic/rehab hospital)  Community-based services: personal care services (special eligibility rules), home health, private duty nursing, adult foster care/group adult foster care, adult day health, day habilitation, hospice, therapies, prosthetics, orthotics, DME/oxygen 4 HCBS Waivers* cover a wide range of additional community- based supports only for targeted groups at an institutional level of care (frail elders, adults with MR, adults with traumatic brain injury, children with autism):  Examples: homemaker, respite, individual supports, companion, chore, home delivered meals, laundry, medication management, NF transition assistance, grocery shopping and delivery, transportation, residential habilitation, assistive technology, supported employment, home adaptation… 26 *Funded through state agencies, but expenditures eligible for federal Medicaid reimbursement.

Medicaid expansions: Gaps in coverage Key question: What is the net effect on the Medicaid Budget?  New Services – Expand access to HCBS for adults with disabilities & seniors  More Users – Expand eligibility for seniors (0-200% & %)  New Medicaid Program Design – Buy in for Seniors Parameters & data sources around the estimating process  “Base” estimates = best estimates of Medicaid expansion costs based on best available data sources (MassHealth, Census, ACS, SCO evaluation)  “Low” and “High” estimates reflect uncertainty around assumptions included in the base estimates  Conservative estimating process overall 27 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Medicaid expansions - Gaps in coverage Three ways to expand Medicaid: # 1. Expand access to HCBS  Non-medical LTS for adults with disabilities & seniors  Estimated increase based on number of new users. No offsets were taken. # 2. Expand eligibility for seniors  More seniors eligible due to increase in income eligibility test;  Estimate senior population not enrolled in Medicaid today  Numbers incomplete on increasing asset limit [more information at next meeting] # 3. New program – Buy in to Medicaid using assets  Allow people to buy into Medicaid with their assets  Numbers incomplete on this option [more information at next meeting] 28

Assumptions used to calculate the cost of the gaps in coverage # 1. Expand access to HCBS  Non-medical services for adults with disabilities & seniors  Estimated increase based on number of new users. No offsets were taken.  Assumes that all adults with disabilities & seniors will use HCBS  Assumes that the average cost for HCBS is $13,200 for eligible seniors and $35,000 for eligible adults with disabilities  Low, base, and high cases built around average cost estimates that are 25%, 50%, and 75% of the risk of the average for current users #2. Expand eligibility for seniors  0-200% FPL eligible  % FPL eligible  [Remove asset test as a barrier to eligibility for seniors] [next meeting]  Assumes that a certain percentage of all seniors in both income groups are not eligible for Medicaid but will be under this expansion option  Base case applies MassHealth average cost per member per year by level of need: Nursing Facility resident: $55,600; Community state plan LTS user: $12,100; Community Well (acute care only): $2,000;  Low and high cases are 20% above and below base case because of uncertainty of the assumptions 29 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Options for Medicaid expansions: broad parameters to demonstrate order of magnitude ($ millions) 30 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

#3. New program - Buy-in to Medicaid using assets Why consider a new Medicaid program?  Medicaid expansion of spending gives you 50% FFP  Purchasing power of Medicaid  Typical expansions reduce any incentive that middle-income have to plan for future  A buy-in might give them a way to save and avoid the delay in receiving care as well Target Population  Elderly persons living in the community  Persons who cannot easily afford private insurance  Assets would exceed community asset requirements How would such a program work?  Put liquid assets to good use 31 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Section V Preliminary View of the Roadmap 32

Preliminary roadmap: short-term activities Short-term (Years 1-2): 1. Support enactment and implementation of NAIC model act and regulations 2. Develop comprehensive and large-scale LTS education and awareness campaign about all public and private LTS financing mechanisms 3. Provide additional support for informal caregivers around training and support groups 33

Preliminary roadmap: short- to medium-term activities Short- to Medium-term (Years 2 and 4) 1. Pursue development of LTC Partnership program (state legislation with design specifications that meet our goals) 2. Pursue other insurance reforms 1. Promote group coverage of private LTC insurance with portability (Recommendation re: GIC?) 2. Develop FDIC-like mechanism to insure policies against risk of insurer solvency 3. Develop modest Medicaid HCBS and eligibility expansions 4. Support activities to increase participation in federal CLASS program (assuming it passes) 34

Preliminary roadmap: long-term activities Long-term (Years 4-8): 1. Pursue broader Medicaid service and eligibility expansions 2. Establish mandatory state contribution program (determine relationship to federal CLASS program if it passes) 3. New Medicaid buy-in program (determine relationship to contribution program) 4. Additional support for informal caregivers 35

Section VI Committee Business 36

Committee Business Public input process  Dates TBD (early February 2010?): Eastern MA Western MA Next meeting  Date: Thursday, January 7 th, 2010 from 9:00 -11:30am  Location: One Ashburton Place, 21 st Floor Future meeting reminder  Additional meeting scheduled for Thursday, February 25 th 37

Appendix 38

LTS financing principles The reformed LTS financing system will:  Ensure a strong public safety net for the poor and most vulnerable.  Limit financial pressure on the state financing system so that state funds are preserved for those most in need.  Encourage personal responsibility for financing LTS to the maximum extent possible.  Enable middle income people of all ages to access the LTS they need without becoming impoverished.  Ensure appropriate participation of and support for informal caregivers. 39

The big picture on cost avoidance 40 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

State contribution with subsidies takes the lead in take-up rates 41 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Where there is a will, there is a way: lower the subsidies Loss of federal share (50%) challenge to state contribution 42 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

To subsidize or not to subsidize, that is the question 2% premium income standard used 43 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Tax-i: Will tax incentives take us for a ride? Tax Incentives  Encourage very little participation in private insurance  Who benefits from this approach? Two types considered #1. Tax deduction.  Above-the-line tax deduction for long-term, deducted directly from a taxpayer’s adjusted gross income (the “line”)  Tax deductions based on 5.3% income tax #2 Tax credit.  Tax credit of some specified amount for those with long-term care needs or their caregivers  Assumptions  Credit = $500 that reduces price of insurance to the buyer 44 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

Tax incentives to encourage take-up rates Illustrates costs based on specific assumptions about “take-up” rates for each program. 45 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

#1. Expand access to HCBS 46 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.

#2. Expand Medicaid eligibility for seniors 47 Medicaid expansion cost estimates were developed specifically for this presentation, and should not be used for other purposes.