1. PUBLIC SECTOR INITIATIVES TO CONTROL COSTS: MEDICAID Jim Verdier Mathematica Policy Research, Inc. Citizens’ Health Care Working Group Arlington, VA May 13, 2005

2. 1 Introduction and Overview National Medicaid spending trends National Medicaid spending trends Distribution of Medicaid spending by enrollment group Distribution of Medicaid spending by enrollment group Options for containing Medicaid spending growth Options for containing Medicaid spending growth Potential to control costs by improving care quality Potential to control costs by improving care quality

3. 2 National Medicaid Spending Trends Annual Medicaid spending growth dipped in 2003 (7.1%) and 2004 (7.9%) following two years of 10-12% growth (CMS 2005) Annual Medicaid spending growth dipped in 2003 (7.1%) and 2004 (7.9%) following two years of 10-12% growth (CMS 2005) –Reflects comprehensive and aggressive state cost containment efforts Both CMS and CBO project Medicaid spending growth at about 8.5% a year from 2007 to 2014 Both CMS and CBO project Medicaid spending growth at about 8.5% a year from 2007 to 2014 State revenues are likely to grow at no more than half that rate State revenues are likely to grow at no more than half that rate

4. 3 EnrolleesExpenditures Total = 52 millionTotal = $252 billion Elderly 9% Elderly 26% Blind & Disabled 16% Blind & Disabled 43% Adults 27% Adults 12% Children 48% Children 19% SOURCE: Kaiser Commission on Medicaid and the Uninsured estimates based on CMS, CBO and OMB data, 2004. NOTE: Total expenditures on benefits excludes DSH payments. Medicaid Enrollees and Expenditures by Enrollment Group, 2003

5. 4 Cost Containment Options Provider reimbursement Provider reimbursement –Nursing facilities (16.8% of total Medicaid expenditures in 2003) –MCOs (15.6%) –Hospitals (13.6%) –Home health (13.0%) –Drugs (10.0%) –All other (31.0%)

6. 5 Cost Containment Options Eligibility Eligibility –Non-disabled adults and children are 75% of enrollees, but account for only 31% of costs  Annual costs per enrollee in 2003 were $1,700 for children and $1,900 for adults –Disabled are 16% of enrollees and 43% of costs ($12,300 per enrollee per year) –Elderly are 9% of enrollees and 26% of costs ($12,800 per enrollee per year)

7. 6 Cost Containment Options Benefits Benefits –Most costly benefits are concentrated on most needy beneficiaries –Defended by well-organized advocacy and provider groups Copayments and other beneficiary cost sharing Copayments and other beneficiary cost sharing –Maximum copayment of $3 or 5% of cost of service  Unchanged since 1982 –Greatest potential to change behavior and achieve savings is with Rx drug and emergency room use

8. 7 Cost Containment Options Rx drugs Rx drugs –Beneficiary co-payments/coinsurance –Pharmacy reimbursement –Preferred drug lists/formularies –Manufacturer rebates Disease management Disease management –Stand-alone vs. managed care Managed care Managed care –Expand to disabled, long-term care –New Medicare Special Needs Plans Long-term care reform Long-term care reform –Greater emphasis on home- and community- based services

9. 8 Cost Containment Options Creative financing Creative financing –DSH, IGTs, provider taxes, “Medicaid maximization”  CMS is cracking down  Existing and proposed legislative limits Fraud and abuse Fraud and abuse –Crackdowns can be resource-intensive  Pharmacy  Medicaid estate planning  Billing for services not provided

10. 9 Conclusion Cost pressures in Medicaid will likely continue for many years Cost pressures in Medicaid will likely continue for many years –Reflects underlying health care costs and the special demographics of Medicaid  Medicaid functions as the nation’s high risk pool Opportunities for improved care abound Opportunities for improved care abound –Not hard to improve on unmanaged fee-for- service Medicaid Improved care can contain costs in some areas over time Improved care can contain costs in some areas over time –But savings are neither quick nor assured