Exhibit 1

Future Directions for Medicaid:

Implications of The Deficit Reduction Act
of 2005 and 1115 Waivers

Presented by
Robin Rudowitz
Principal Policy Analyst
Kaiser Commission on Medicaid
and the Uninsured

for

KaiserEDU.org
September 2006
 Exhibit 2

Medicaid’s Roles

Health Insurance Coverage Assistance to Long-Term Care

25 million children &
14 million adults in low-income
families; 6 million persons
with disabilities
Medicare Beneficiaries Assistance
7 million aged and disabled— 1 million nursing home
18% of Medicare beneficiaries residents; 43% of long-term
care services

MEDICAID

Support for Health Care State Capacity for

System and Safety-net Health Coverage
17% of national health spending 43.5% of federal funds to states

Return to KaiserEDU.org
 Exhibit 3

Medicaid’s Role for Selected Populations

Percent with Medicaid Coverage:

Poor 39%

Near Poor 23%

Families

All Children 26%

Low-Income Children 51%

Low-Income Adults 20%

Births (Pregnant Women) 37%

Aged & Disabled

Medicare Beneficiaries 18%

People with Severe Disabilities 20%

People Living with HIV/AIDS 44%

Nursing Home Residents 60%

Note: “Poor” is defined as living below the federal poverty level, which was $19,307 for a family of four in 2004.
Return to KaiserEDU.org
 Exhibit 4

Medicaid Enrollees and Expenditures

by Enrollment Group, 2003

Elderly 11%
Elderly
Disabled 14% 28%

Adults
26 % Disabled
42%

Children
49% Adults 12%

Children 18%

Enrollees Expenditures on benefits

Total = 55 million Total = $234 billion

Source: Urban Institute and Kaiser Commission on Medicaid and the Uninsured estimates based on
2003 MSIS data. Return to KaiserEDU.org
 Exhibit 5

Why is Medicaid at the Center of

National Policy and Budget Debates?

Pressures in the general Number of Uninsured Children

health care system: and Adults, 2000–2004

• Rising health costs 50 45.5 M

43.3 M
39.6 M
40 9
• More uninsured 9.3
9.4

In Millions
30
• Aging population
20 36.5
34
30.2
10

0
2000 2002 2004
Adults Children

Note: Sums may not equal totals due to rounding.

Source: KCMU and Urban Institute estimates based on the March Current Population Surveys, 2001–2005. Return to KaiserEDU.org
 Exhibit 6

State Budgetary Pressures and Responses

States Implementing Medicaid

• Slow recovery from Cost Containment, 2005
economic downturn
Long-Term Care 10
• Medicaid spending
outpacing revenue growth Disease Management 26

• Focus on reducing and Increasing

8
Co-payments
predicting rate of spending
growth
Reducing Benefits 7

• State response: Reducing/Restricting

8
– Cost containment Eligibility
– 1115 Waivers Reducing/Freezing 50
Provider Payments

Controlling Drug 43
Costs

Source: KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management
Associates, September and December 2003, October 2004 and October 2005. Return to KaiserEDU.org
 Exhibit 7

Federal Budget Pressures and Responses

• Rising federal deficit

Federal Deficit Projections, 2006–2016
• Pressure to cut deficit and
extend tax cuts
$100

• Interest in reducing federal $0

Billions of Dollars
spending on Medicaid
-$100

• Federal Action: -$200

– Deficit Reduction Act
– President’s FY 2007 -$300
proposals -$400
– Secretary’s Medicaid
Commission -$500
2006 2008 2010 2012 2014 2016

CBO Baseline CBO Adjusted Baseline

Note: Adjusted baseline accounts for the impact of the Deficit Reduction Act, extension of tax cuts, AMT
reform and war costs
Source: CBO, Baseline Budget Outlook, January 2006. Return to KaiserEDU.org
 Exhibit 8

5- and 10-Year Savings Estimates

from the Deficit Reduction Act
2006-2010 2006-2015

Other
Medicare
Medicaid/SCHIP
$38.8 Billion

$99.3 Billion

Source: CBO, January 27, 2006 Return to KaiserEDU.org

 Exhibit 9

Distribution of Medicaid Spending Reductions

in the Deficit Reduction Act
2006-2010 2006-2015

Other

Prescription
Drug Payment

Long-Term Care

Benefits and Cost

Sharing
37%
28%

5-Year Savings = $11.5 Billion 10-Year Savings = $43.2 Billion

Note: “Other” provisions in the conference report include targeted case management,
third-party recovery, provider taxes, and requiring evidence of citizenship
Source: CBO, January 27, 2006 Return to KaiserEDU.org
 Exhibit 10

DRA Requires Proof of

Citizenship for Medicaid
• Prior to the DRA
– 47 states allowed applicants to self-declare citizenship status

• DRA requires all Medicaid enrollees to document proof of citizenship

starting July 1, 2006
– Most immigrants still ineligible for Medicaid
– Undocumented immigrants still only eligible for emergency Medicaid services

• HHS rules provide a “documentation hierarchy” where individuals

must use passport or birth certificate before non-government
documents and affidavits

• HHS rules also

– Exempt dual eligibles and SSI recipients; foster children not exempted
– Allow states to conduct upfront data matches to obtain birth certificates
– Allow current beneficiaries a “reasonable opportunity” to obtain documents but
delays enrollment for new applicants without documentation

Return to KaiserEDU.org
 Exhibit 11

Cost Sharing Provisions in the DRA

• Prior to DRA: states could charge nominal cost sharing to
certain Medicaid beneficiaries but not premiums. Cost
sharing had to be uniform across the state.

• DRA cost sharing and premiums changes:

– States may impose higher or new cost sharing and premiums
– Maintains cost sharing exemption for
• mandatory children (infants with incomes up to 185% FPL,
children up to age 6 up to 133% FPL, and older children
under 100% FPL), and
• pregnant women
– States can make cost sharing “enforceable”
– Allows variation in benefits and cost sharing across groups
and geographic areas

• CBO estimates that 80% of the savings would be

attributable to decreased utilization

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 Exhibit 12
Medicaid Benefits
“Mandatory” Items and Services
• Physician services
• Laboratory and x-ray services
• Inpatient hospital services
• Outpatient hospital services
• Early and periodic screening,
diagnostic, and treatment
(EPSDT) services for
individuals under 21
• Family planning
• Rural and federally-qualified
health center (FQHC) services
• Nurse midwife services
• Nursing facility (NF) services
for individuals 21 or over
“Optional” Items and Services
• Prescription drugs
• Clinic services
• Dental services, dentures
• Physical therapy and rehab services
• Prosthetic devices, eyeglasses
• Primary care case management
• Intermediate care facilities for the mentally
retarded (ICF/MR) services
• Inpatient psychiatric care for individuals
under 21
• Home health care services
• Personal care services
• Hospice services
Return to KaiserEDU.org
 Exhibit 13

Benefit Provisions in the DRA

• Allows states to use “benchmark” plans for certain groups
– FEHBP – Blue Cross/Blue Shield PPO
– Largest commercial HMO in state
– Any state employees plan
– Secretary-approved

• Maintains current benefits for individuals with disabilities or

long term care needs (can enroll voluntarily)

• Maintains EPSDT coverage as wrap-around for children

• Allows variation across groups and geographic areas

• Does not apply to expansion populations

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 Exhibit 14

Other Medicaid Provisions in the DRA

(10-Year Estimates)
• Savings Provisions in the DRA
– Prescription drug payment reform – pricing and rebates ($12.6B)
– Reforms to asset transfer laws ($6.4B)
– Restrictions on Provider Taxes ($2.9B)
– Targeted Case Management Changes ($2.1B)
– Third Party Recovery ($1.7B)

• Spending Provisions in the DRA

– Katrina-related Assistance ($2.1B)
– Home and Community-Based Services ($2.6B)
– Family Opportunity Act ($6.4B)
– Cash and Counseling ($360M)
– TMA and Abstinence Education ($762M)
– Medicaid Program Integrity ($528M)
– Health Opportunity Accounts ($261M)

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 Exhibit 15

West Virginia One of the First States

to Use New Options in the DRA
• Creates Basic and Enhanced benefit plans for children
and parents

• Parents must sign a “member agreement”

to access “Enhanced” benefits for themselves and their
children, including mental health services, diabetes care,
and drugs beyond a four-drug limit

• State must continue to provide EPSDT benefit to children

• HMOs and providers will report patient status with regard

to the member agreement to the state

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 Exhibit 16

Kentucky’s New Medicaid Program Under the DRA

• Creates 4 Targeted Benefits Plans
– Global Choices (default)
– Family Choices (most kids)
– Optimum Choices (Mentally Retarded/Developmentally Disabled)
– Comprehensive Choices (Nursing Home Care)

• New cost sharing requirements and service limits. For example:

– limited to 4 prescription drugs per month
– $50 co-pays for inpatient hospital services
– $3–$6 for physician visits
– $1 for generic drugs, $2 for preferred drugs and a 5% coinsurance
for non-preferred drugs
– Out-of-pocket costs for service capped at $225/year and another
$225 annual cap for prescription drugs

• Emphasis on disease management, Get Healthy Benefit

Accounts, and premium assistance

• Expanded access to community-based long-term care services

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 Exhibit 17

Key Periods of Medicaid 1115 Waiver Activity

Waiver Activity
1965–1990 Limited waiver activity

Mandatory managed care and coverage expansions

1990s
Oregon Health Plan & TennCare

SCHIP waivers
HIFA waiver initiative released
2000–2004
As fiscal pressures grew, most waivers focused on
reductions

Broad restructuring
Tiered benefits
2005–Current
Changes in special financing arrangements

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 Exhibit 18

What Medicaid Changes

Still Require 1115 Waivers?

• Changes that still require waivers

– Providing Medicaid coverage to childless adults
– Benefit limits, premiums, and cost sharing increases
beyond DRA limits
– Limiting benefits for new eligibility groups
– Eliminating EPSDT requirements
– Enrollment caps

• Waivers must meet federal budget neutrality requirements,

no budget neutrality for state plan amendments (SPAs)

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 Exhibit 19

Florida Used an 1115 Waiver

for Medicaid Changes
• State will allot risk-adjusted premiums for beneficiaries as
payment to plans

• Beneficiaries choose among managed care plans or “opt-out”

to employer sponsored insurance

• New authority for plans to set benefits for adults

• New overall annual maximum benefit limit for adults

• No benefit limit for children, continuation of EPSDT

• Individuals can earn “Enhanced Benefits” by engaging

in healthy activities

• Low-Income Pool of $1 billion for safety-net providers

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 Exhibit 20

New Directions in Medicaid

• Emphasis on personal actions and responsibility
– Behavior modification through incentives
– “Consumer choice” of managed care plans
– Long-Term Care Consumer Direction
– Increased premiums and/or cost sharing

• “Tailored” benefits
– Variation in benefit packages across groups or geographic areas

• Increased role of private marketplace

– Increased control to plans to determine benefit packages
– Emphasis on premium assistance
– Public/private long-term care partnerships

• Restricting spending/increasing spending predictability

– Defined contribution approaches
– Aggregate cap on federal funding

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 Exhibit 21

Issues to Consider
• Health insurance is critical for assuring access to needed
preventive, specialty, and hospital care and protecting families
from high medical costs.

• Low-income adults have few insurance options in the absence

of public coverage

• Medicaid is the nation’s health care safety net

– Beneficiaries are poor with limited resources
– Many have chronic conditions with multiple health needs
– Beneficiaries with disabilities require both acute and long-term care

• Limits on Medicaid result in more uninsured and increased

unmet health needs

• Medicaid still provides an important base and mechanism

for states to expand coverage

Return to KaiserEDU.org
 Exhibit 22

Related Resources on
Medicaid and the DRA
• Medicaid at a Glance
• Deficit Reduction Act of 2005: Implications for Medicaid
• State Medicaid Fact Sheets (WV, KY, VT, FL, MA)
• State-Specific Section 1115 Waiver Fact Sheets
• The New Medicaid and CHIP Waiver Initiatives
• New Developments in Medicaid Coverage: Who Bears Risk and Responsibility?
• New Requirements for Citizenship Documentation in Medicaid
• Medicaid Long-Term Services Reforms in the Deficit Reduction Act

• The Nuts and Bolds of Making Medicaid Policy Changes: An Overview and a Loo

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