Medicare Update

1. Medicare Update Presented byTricia Neuman, Sc.D. Vice President, Henry J. Kaiser Family Foundation forGrantmakers in Health November 4, 2004

2. Exhibit 1 The Medicare Population(selected characteristics) Percent of total Medicare population: Full Year Part-Year Lack Drug Coverage (full or part-year) 43% Low-Income (<150% FPL) Fair/Poor Health Rural Cognitive Impairment Under-65 Disabled Nursing Home SOURCE: Medicare Current Beneficiary Survey, 1997-2000; Income data based on CBO letter to Sen. Nickels, November 2003.

3. Exhibit 2 Medicare Prescription Drug Benefit Overview • Beginning in 2006, beneficiaries have choice of:    • Fee-for-service Medicare, with access to private drug-only plans (PDPs) • Medicare Advantage (MA) plans for Medicare benefits and Rx drugs • New plans provide “standard” prescription drug benefit or its actuarial equivalent • Plans have flexibility to determine which drugs are covered and cost-sharing requirements, subject to certain constraints • Premium and cost-sharing subsidies for low-income beneficiaries with incomes up to 150% poverty ($13,965/single; $18,735/couple) and modest assets • Medicaid prescription drug coverage terminates for Medicare beneficiaries December 31, 2005

4. Exhibit 3 Standard Medicare Part D Drug Benefit, 2006 Beneficiary Out-of-Pocket Spending Catastrophic Coverage 5% Medicare Pays 95% $5,100 in total drug costs $2850 Gap: Beneficiary Pays 100% No Coverage $2,250 in total drug costs Partial Coverage up to Limit Medicare Pays 75% 25% $250 Deductible + ~$420 in annual premiums SOURCE: Kaiser Family Foundation analysis of Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

5. Exhibit 4 Many Questions • Who will sponsor new private drug-only plans, where, and for how long? • What will Medicare prescription drug benefit packages look like, which drugs will be covered, and how much will monthly premiums be? • Will beneficiaries sign up for Part D? Low-income subsidies? • Can the new benefit be implemented -- without major glitches?

6. Exhibit 5 Implementation Challenges: Now – January 2006 • January 1, 2005 • CMS announces PDP & MA regions • CMS releases financing & solvency • requirements for plans November 15-December 31, 2004 Annual coordinated election period for 2005 discount card program February 18, 2005 CMS publishes risk-adjustment methodology for 2006 payment rates June 31, 2005 CMS “pre-qualifies” bidders for eligible fallback plans starting in 2006 Early 2005 CMS publishes final rules for Medicare drug benefit and MA program June 6, 2005 PDP & MA-PD plan bids submitted July 1, 2005 States begin accepting applications for low-income subsidies July 1, 2005 CMS establishes procedures for coordination between Part D plans and state pharmacy assistance programs and other insurers September 2005 CMS awards bids to PDP and MA-PD plans October 15, 2005 CMS disseminates information comparing Part D coverage to beneficiaries via mail and 1-800-MEDICARE November 15, 2005-May 15, 2006 Annual coordinated election period for 2006 Part D for all beneficiaries October 15, 2005 Secretary notifies states of per capita drug payments for 2006 (“clawback” for dual eligibles) • December 31, 2005 • Medicare discount card program ends • Medicaid Rx coverage ends for “full benefit” dual eligibles • January 1, 2006 • Part D coverage begins for all beneficiaries enrolled in PDP or MA-PD • Low-income subsidies for Part D coverage begin • Retiree drug subsidy program begins • Secretary implements billing and benefit coordination for determining beneficiaries’ true out-of-pocket (TrOOP) costs • States begin making monthly “clawback” payments to federal government for dual eligibles

7. Exhibit 6 Challenges for Beneficiaries • Deciding whether to enroll in Part D in 2006 (financial penalties for delayed enrollment) • Or maintaining other coverage, such as retiree health benefits • Enrolling in low-income subsidy program, if eligible • SSA or Medicaid office • Must apply each year • Comparing plans and deciding which to join • Variations in premiums, cost-sharing and formularies • Coordinating Part D with other sources of drug coverage • State pharmacy assistance programs, employer coverage, etc. • Tracking total and out-of-pocket Rx costs • Important due to benefit gap

8. Exhibit 7 Decisions for Medicare Beneficiaries, 2006 Enroll in Part D Plan Medicare Advantage Traditional Medicare Part D Prescription Drug Plan No Part D coverage HMO (local) PPO (regional) Private Fee-for-Service Apply for Low-Income Subsidy Social Security Office Dual Eligibles Medicaid Office Meet Income and Asset Test? If yes, qualify for: Below 100% FPL: No premium or deductible, $1/generic Rx, $3/brand name Rx, pay nothing after $5,100 in Rx costs Below 135% FPL: Subsidy for premium, no deductible, $2/generic Rx, $5/brand name Rx, pay nothing after $5,100 in Rx costs Below 150% FPL: Subsidy for premium on sliding scale, $50 deductible, 15% coinsurance to $5,100 in Rx costs, $2/generic Rx, $5/brand name Rx after $5,100

9. Exhibit 8 Medicare Beneficiaries’ Impressions of the Drug Law Given what you know about it, in general, do you have a favorable or unfavorable impression of the new Medicare law? Favorable Unfavorable Don’t Know/Refused Source: Kaiser Family Foundation/Harvard School of Public Health Views of the New Medicare Drug Law: A Survey of People on Medicare (conducted June 16-July 21, 2004)

10. Exhibit 9 Opportunities for Grantmakers • Help low-income beneficiaries get financial assistance • Develop easy-to-understand public education materials targeted to local area • Support local organizations that provide beneficiary education • Track implementation at local level • Help educate pharmacists and physicians

11. Medicaid Update Presented by Andy Schneider Medicaid Policy, LLC forGrantmakers in Health November 4, 2004

12. Exhibit 1 Context: State Fiscal Pressures • Average Medicaid spending growth 9.5% in 2004 • Growth driven by increased enrollment, drug costs, and overall health care costs • State revenue growth 3.4% in 2004 • HMA survey: All states plan at least one new cost containment strategy in 2005: • Controlling prescription drug costs • Reducing/freezing provider payments • Reducing eligibility, including reversing eligibility simplifications • Restricting benefits (acute and long-term care) • Increasing copayments • Implementing disease management programs

13. Exhibit 2 Outreach and Enrollment • In 2002, 6.2 million low-income children were eligible for Medicaid (3.4 million) or SCHIP (2.8 million) but not enrolled • Outreach efforts plus procedural simplifications demonstrably increase enrollment • Center on Budget survey found that between April 2003 and July 2004 nearly half of states imposed enrollment barriers in Medicaid or SCHIP • 16 increased premiums • 8 reinstated procedural barriers (e.g., more frequent certification) • 8 froze enrollment • Some states have raised eligibility standards and streamlined enrollment (e.g., IL)

14. Exhibit 3 Section 1115 Waivers • Section 1115 waivers allow federal matching funds when regular Medicaid rules are not followed (e.g., higher cost-sharing, no choice of MCOs) or when populations can’t otherwise be covered (e.g., childless adults) • Waivers must be budget-neutral to federal government over 5-year term (e.g., federal government will spend no more than in absence of waiver) • Some recent waivers finance eligibility expansions with shallow benefits through reductions in regular benefits for current eligibles (Utah) • Some recent waivers contain no eligibility expansions, just reductions benefits for current eligibles (Washington)

15. Exhibit 4 MMA Implementation • The implementation of Part D on January 1, 2006 will bring two fundamental changes to Medicaid and the 6 million dual eligibles • On that day, the federal government will no longer match the cost of Medicaid prescription drug coverage for dual eligibles • By that day, over 6 million dual eligibles will have to be enrolled in a Medicare Part D plan or they will lose prescription drug coverage • That month, states will be required to begin making monthly “clawback” payments to the Medicare Trust Fund to help finance the new Part D

16. Exhibit 5 Block Grant • Medicaid is an entitlement to states and to low-income individuals: The federal government will share in the costs of covered services for eligible individuals • Continuing interest at the federal level in limiting the federal government’s financial exposure under Medicaid (e.g., long-term care, HIV epidemic) • Interest on the part of some governors (e.g., FL, NH) in agreeing to limit federal government’s financial exposure in exchange for broad programmatic flexibility • Implications of Medicaid block grant over time for: • Safety net providers • State and local governments • Quality of care for low-income populations • Racial and ethnic health disparities

17. Exhibit 6 Role for State and Local Foundations • Fund outreach and enrollment efforts • Brandywine Health and Wellness Foundation (Chester County enrollment) • Michael and Susan Dell Foundation (insure-a-kid school outreach) • Hartford Foundation (HUSKY outreach workers) • Commission studies on proposed 1115 waivers and block grant implications • Connecticut Health Foundation • New Hampshire Endowment • Winter Park Health Foundation • Fund stakeholder meetings and website for development of section 1115 waiver • California Endowment (www.medi-calredesign.org) • Maintain independent analytic capacity of state Medicaid policy issues • Blue Cross Blue Shield Foundation of Massachusetts (Massachusetts Medicaid Institute) • California Health Care Foundation