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Changes in Medicaid:. Protecting Medicaid Beneficiaries NAMI Convention June 30, 2006 Judith Solomon, Senior Fellow, CBPP. Topics. How states are using waivers and the Deficit Reduction Act of 2005 (DRA) to change: How Medicaid provides benefits The benefits Medicaid provides

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changes in medicaid

Changes in Medicaid:

Protecting Medicaid Beneficiaries

NAMI Convention

June 30, 2006

Judith Solomon, Senior Fellow, CBPP

  • How states are using waivers and the Deficit Reduction Act of 2005 (DRA) to change:
    • How Medicaid provides benefits
    • The benefits Medicaid provides
  • Strategies to protect beneficiaries
deficit reduction act key changes
Deficit Reduction Act: Key Changes
  • Requires citizens to supply documents proving their citizenship
  • Provides states new flexibility to increase cost-sharing and reduce benefits
  • Provides states with several other new options:
    • Health Opportunity Accounts demonstration program
    • Family Opportunity Act
    • Home and community-based services
state flexibility on cost sharing and premiums
State Flexibility on Cost-Sharing and Premiums
  • New flexibility to impose premiums and cost-sharing (co-payments and co-insurance)
    • Primarily affects beneficiaries with income above the poverty line
  • Charges can vary across/within groups
  • State option to allow providers to deny care when families are unable to pay
  • States can require pre-payment of premiums before coverage begins
  • Special rules for non-preferred drugs and use of the emergency room for non-emergency care
state flexibility on benefits
State Flexibility on Benefits
  • State option to provide a limited package of benefits (“benchmark” benefits) to children and some parents
    • People with disabilities exempt but CMS allowing states to allow them to “opt-in”
  • For children, benchmark benefits must be supplemented with an EPSDT “wrap-around”
  • New option allows different groups to be provided with different benchmark benefits
    • Geographic location
    • Health status
    • Access to employer-based coverage
section 1115 waivers
“Section 1115” Waivers
  • Permit states to use federal program funds in ways not otherwise permitted
    • Coverage beyond federal options for eligibility and services
    • Coverage below federal minimum standards
  • Law says 1115 waivers must be experimental, pilot, or demonstration project(s)” that promote the objectives of the program
  • Must be “budget neutral” to the federal government
waiver process
Waiver Process
  • Minimal requirements for public input
  • Details often worked out in negotiations between state and CMS even before proposal submitted
  • Recent waivers raise process concerns, e.g.:
    • Quick approval – 16 days in FL
    • Minimal information available to public
    • Public statements may not match what’s on paper
but dra is even worse
But DRA is Even Worse. . .
  • No explicit requirements for public input
  • WV state plan amendment approved in 8 business days without any public input
  • ID state plan amendment approved on May 25 but entire state plan amendment not made public until ??
changing medicaid waivers
Changing Medicaid: Waivers
  • Recent state waiver proposals look to private market solutions to contain costs
    • Defined contribution plans
    • “Opt-out” to employer coverage
    • “Tailored” benefits
    • Personal accounts/incentive accounts
changing medicaid dra state plan amendments so far
Changing Medicaid: DRA State Plan Amendments So Far
  • West Virginia (Parents and most children)
    • Some benefits (mental health services, diabetes care) conditional on signing and complying with Medicaid member agreement
    • Appears to limit EPSDT benefits for children
  • Kentucky (All beneficiaries)
    • 4 benefit packages
    • Many “soft” limits on benefits
  • Idaho (All beneficiaries)
    • 3 benefit packages
    • Analysis difficult without release of state plan amendments
faulty assumptions underlying these changes in medicaid
Faulty Assumptions Underlying These Changes in Medicaid
  • Private coverage is cheaper
  • Medicaid beneficiaries use more care than needed because Medicaid provides comprehensive benefits and because beneficiaries don’t pay for their care
  • Accounts/contributions can be individually adjusted to match health care needs
faulty assumption 1 the facts
Faulty Assumption #1: The Facts

Medicaid Costs Less than Private Coverage


Medicaid Costs 30% Less for Adults and 10% Less for Children Than Private Health Insurance

Estimated 2001 per capita costs of serving Medicaid enrollees with Medicaid vs. private insurance, after adjusting for health differences.

Source: Hadley and Holahan, Inquiry, 2004

Medicaid Spending Per Person Grew More Slowly than Spending Under Medicare and Private Insurance, 2000 - 2003

Average Annual Growth, 2000-2003

Medicaid Spending

Per Enrollee1

Monthly Premiums

For Employer-

Sponsored Insurance3

Private Health

Insurance Spending

Per Enrollee2

Medicare Spending

Per Enrollee2

1 Holahan and Ghosh, Health Affairs, 2005.

2 CMS Office of the Actuary, National Health Accounts, 2005.

3 Kaiser/HRET Survey, 2003.

faulty assumption 2 the facts
Faulty Assumption #2: The Facts

Medicaid’s Benefit Package Does Not Itself Increase Program Costs

Medicaid Beneficiaries Already Have Out-of-Pocket Costs for Health Care

4 percent of medicaid population accounted for 48 of expenditures in 2001
4 Percent of Medicaid Population Accounted for 48% of Expenditures in 2001


in Costs



in Costs


>$25,000 in Costs

  • >$25,000 in Costs
  • Children (.2%)
  • Adults (.1%)
  • Disabled (1.6%)
  • Elderly (1.8%)

Children 3%

Adults 1%

Disabled 25%

Elderly 20%

Total = 46.9 million

Total = $180.0 billion

SOURCE: Kaiser Commission on Medicaid and the Uninsured from Urban Institute estimates based on MSIS 2001 data.


Poor Adults on Medicaid Already Spend More of Their Income on Out-of-Pocket Medical Expenses Than Higher Income Privately-insured People


Source: Ku and Broaddus, 2005, Analyses of 2002 Medical Expenditure Panel Survey


Out-of-Pocket Medical Expenses Already Rising Faster than Income, Especially for Medicaid

Average Annual Growth Rate, 1997-2002


Source: Ku and Broaddus, 2005, Analyses of Medical Expenditure Panel Surveys

faulty assumption 3 the facts
Faulty Assumption #3: The Facts

Risk adjustment does not work on an individual level.

fixed funding based on average expenditures will put many beneficiaries at risk
Fixed Funding Based on Average Expenditures Will Put Many Beneficiaries at Risk

The “average” amount would not cover the full medical expenses of about 30% of adult women, those with greater health needs.

The “average” amount would provide

more money than is actually used by

about 70% of adult women.

Average Expenditure = $2,119

Women’s Medicaid expenditures in 2002, based on Medical Expenditure Panel Survey

strategies improving the process
Strategies: Improving the Process
  • State laws that require public notice and comment for both waivers and state plan amendments
    • Model legislation at
    • Current state laws compiled at (Role of State Law in Limiting Medicaid Changes)
  • Require consultation with state Medical Care Advisory Committee
  • Federal waiver process legislation (introduced in 2002 and 2003)
    • Expand to DRA state plan amendments
strategies addressing the substance
Strategies: Addressing the Substance
  • Coalitions of beneficiaries, advocates, provider groups can:
    • Demonstrate potential impact of changes on beneficiaries, health care providers, state budget and economy
    • Use research, grass roots organizing, media, meetings with policymakers
    • Develop alternatives that can save money without harm to beneficiaries
for more information
For more information:

Judith Solomon

(202) 408-1080