Protecting Funding for Medicaid’s Safety-net Health Plans

1. Protecting Funding for Medicaid’s Safety-net Health Plans Catherine Finley Capitol Counsel, LLC July 14, 2009

2. Medicaid Provider Tax History 1991 Congress passed the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments (P.L. 102-234). • The law set parameters for how states can utilize Medicaid provider taxes to generate state-matching funds. The taxes must be: • “broad based” and uniformly applied to all providers within specified classes of providers; • prohibits taxes that exceed 25 percent of the state (or non-federal) share of Medicaid expenditures; and • prohibits states from a direct or indirect guarantee that providers receive their money back (or be “held harmless”) 2005 Congress passed the Deficit Reduction Act of 2005 (DRA, P.L. 109-171). • The law altered the definition of a Managed Care Organization (MCO) to include all MCOs, not just Medicaid MCOs. • Importantly, it provided a grandfather for the eight states who as of December 8, 2005 already utilized an MCO tax to generate funding for their Medicaid program. • The grandfather allowed the states to continue utilizing the MCO tax until October 1, 2009.

3. Implementing the Deficit Reduction Act (DRA) On February 22, 2008, the US Department of Health and Human Services published a final rule: “Medicaid Program: Health Care Related Taxes” in the Federal Register. • Notably, the regulation broadened the class of services of “Medicaid managed care organizations” to those of all managed care organizations, as required by the DRA. • It also specified that all services of MCOs, regardless of payer source, will be considered a permissible class of health care items or services for the purpose of the taxes. • This was done to reduce incentives for MCOs to reorganize to separate their business lines, to separate Medicaid business from Commercial business for the purpose of avoiding a tax on their commercial business. • The preamble of the proposed regulation noted that this practice was found to be occurring.

4. Challenges Created by Loss of the MCO Provider Tax • Expiration of the MCO provider tax grandfather would result in approximately $2.7 billion in lost Medicaid funding for eight states combined each year. • Since 2005, states have considered ways in which to comply with the new requirement to tax all MCOs. Unfortunately, only two states have succeeded in passing a new policy, and only one of those states actually is poised to implement it. • Compounding the financial problem is the state of the nation’s economy. According to the June 2009 budget report issued jointly by the National Governors’ Association and the National Association of State Budget Officials: “States still face large budget gaps for the foreseeable future. States are currently facing $183.3 billion in remaining budget gaps for fiscal 2009-2011, after already addressing gaps of $46.2 billion.”

5. ACAP’s Solution • ACAP formed a working group comprised of plans from six of the eight states. • ACAP’s working group developed a strategy that ensures the best chance of achieving legislative success. • ACAP has led the effort among its partners to extend the MCO provider tax grandfather – • America’s Health Insurance Plans (AHIP) • Medicaid Health Plans of America (MHPA) • ACAP has garnered support from the National Governors Association and the National Association of State Medicaid Directors.

6. Building Support to Extend the MCO Provider Tax • To impact legislative changes ACAP put into action a strategy that: • Identified congressional champions; • Built support among key members from impacted states; • Educated leadership and committee staff. • ACAP brought Senator Arlen Specter (D-PA) on board to serve as the MCO champion in the Senate, and Rep. Matsui (D-CA) in the House. ACAP also is working closely with Rep. Yarmuth (D-KY), another House champion. • ACAP has done outreach to advocates and other partners to expand support for the policy.

7. Congressional Outreach • SENATE • ACAP and its members met with Senators from all of the affected ACAP states: • Feinstein (CA) • Boxer (CA) • Bond (MO) • McCaskill (MO) • Voinovich (OH) • Brown (OH) • Wyden (OR) • Merkley (OR) • Specter (PA) • Casey (PA) • We continue to work with Chairman Baucus’ and Senator Grassley staff to build support. • HOUSE of REPRESENTATIVES • We have met with the key members of the House Energy and Commerce Committee, which has jurisdiction over Medicaid: • Bono-Mack (CA) • Capps (CA) • Doyle (PA) • Eshoo (CA) • Harman (CA) • Matsui (CA) • Tim Murphy (PA) • Space (OH) • Sutton (OH) • We continue to work with Chairman Waxman’s staff to build support.

8. The RESULTS • ACAP came very close to getting a two-year extension added to the Economic Stimulus and Recovery Act. • Building upon the progress made on the Stimulus, ACAP has met with all of the key members in Congress. • Seven Senators with whom ACAP has met contacted the Finance Committee staff to express their boss’ support for a two-year extension of the MCO provider tax and to ask that it be included in the health reform package. • Almost all of the House members whom ACAP has met committed to expressing support to Chairman Waxman for a two-year extension of the MCO provider tax. • ACAP secured NASMD’s and NGA’s support for a two-year extension of the MCO provider tax.

9. When will Congress Act? • President Obama set a deadline of October 1 for Congress to complete its work. • Action on reconciliation required before October 15, 2009. • Senate HELP Committee started its bill Markup on June 16. It continued through the following week, but recessed because of incomplete budget scores from the Congressional Budget Office. • The Senate Finance Committee was expected to release a draft proposal on June 17 and notice its markup on June 19, which would have commenced on June 23. However, because of extremely high budget scores the Committee delayed action until after the July 4th congressional recess. • The Senate remains optimistic that it will have a joint Finance/HELP Committee bill on the floor before the August recess, which starts August 8. • The House of Representatives released a tri-Committee draft bill on June 19. On June 21 the Energy and Commerce Committee proceeded with a week of “Health Reform” hearings. The House committees are expected to begin their legislative markups July 13 and floor consideration is expected the week of July 27.