ch C ouncil Research Council Citizens Resear of Michigan Options ffor or Managing Medic aid Medicaid Funding and C ost Gr owth Cost Growth Februar Februaryy 2012 Repor ort 376 Repor ort Rep CELEBR ATING 96 YEARS OF INDEPENDENT, NONP AR TISAN ELEBRA ONPAR ARTISAN PUBLIC POLIC Y RESEARCH IN MICHIGAN OLICY Board of Directors Chair Jeffrey D. Bergeron Vice Chair Terence M. Donnelly Treasurer Aleksandra A. Miziolek Jeffrey D. Bergeron John J. Gasparovic Cathy Nash Ernst & Young LLP BorgWarner Inc. Citizens Bank Michael G. Bickers Ingrid A. Gregg Paul R. Obermeyer PNC Financial Services Group Earhart Foundation Comerica Bank Beth Chappell Marybeth S. Howe Kevin Prokop Detroit Economic Club Wells Fargo Bank Rockbridge Growth Equity, LLC Mark A. Davidoff Nick A. Khouri Lynda Rossi Deloitte LLP DTE Energy Company Blue Cross Blue Shield of Michigan Terence M. Donnelly Daniel T. Lis Jerry E. Rush Dickinson Wright PLLC Kelly Services, Inc. Meritor, Inc. Randall W. Eberts Sarah L. McClelland Michael A. Semanco W. E. Upjohn Institute JPMorgan Chase & Co. Hennessey Capital LLC David O. Egner Michael P. McGee Terence A. Thomas, Sr. Hudson-Webber Foundation New Economy Initiative Miller, Canfield, Paddock and Stone PLC Thomas Group Consulting, Inc. Laura Fournier Aleksandra A. Miziolek Varnum Compuware Dykema Gossett PLLC Eugene A. Gargaro, Jr. Jim Murray Manoogian Foundation AT&T Michigan Kent J. Vana Theodore J. Vogel CMS Energy Corporation Advisory Director Louis Betanzos Board of Trustees Chair Eugene A. Gargaro, Jr. Terence E. Adderley Ralph J. Gerson Sarah L. McClelland Irving Rose Kelly Services, Inc. Guardian Industries Corporation Jeffrey D. Bergeron Eric R. Gilbertson JPMorgan Chase & Co. Edward Rose & Sons Ernst & Young LLP Saginaw Valley State University Paul W. McCracken George E. Ross Stephanie W. Bergeron Allan D. Gilmour University of Michigan, Emeritus Central Michigan University Walsh College Wayne State University Patrick M. McQueen Gary D. Russi David P. Boyle Alfred R. Glancy III McQueen Financial Advisors Oakland University PNC Unico Investment Group LLC Robert Milewski Nancy M. Schlichting Beth Chappell Thomas J. Haas Blue Cross Blue Shield of Michigan Henry Ford Health System Detroit Economic Club Grand Valley State University Mary Sue Coleman James S. Hilboldt Glenn D. Mroz First National Bank of Michigan University of Michigan The Connable Office, Inc. Matthew P. Cullen Paul C. Hillegonds Rock Ventures LLC DTE Energy Company Tarik Daoud Daniel J. Kelly Long Family Service Center Deloitte. Retired Stephen R. DвЂ™Arcy David B. Kennedy Detroit Medical Center Earhart Foundation John M. Dunn Mary Kramer Western Michigan University Crain Communications, Inc. David O. Egner Gordon Krater Hudson-Webber Foundation New Economy Initiative Plante & Moran PLLC David L. Eisler Ford Motor Company Ferris State University Edward C. Levy, Jr. David G. Frey Edw. C. Levy Co. David Leitch Frey Foundation Daniel Little Mark T. Gaffney Eugene A. Gargaro, Jr. University of Michigan-Dearborn Manoogian Foundation Alphonse S. Lucarelli Ernst & Young LLP, Retired Michigan Technological University Mark A. Murray Meijer Inc. Cathy H. Nash Citizens Bank James M. Nicholson PVS Chemicals Donald R. Parfet Apjohn Group LLC Sandra E. Pierce Charter One Philip H. Power The Center for Michigan Keith A. Pretty Northwood University John Rakolta Jr. Walbridge Douglas B. Roberts IPPSR- Michigan State University Milt Rohwer John M. Schreuder Lloyd A. Semple University of Detroit Mercy School of Law Lou Anna K. Simon Michigan State University S. Martin Taylor Amanda Van Dusen Miller, Canfield, Paddock and Stone PLC Kent J. Vana Varnum Theodore J. Vogel CMS Energy Corporation Gail L. Warden Henry Ford Health System, Emeritus Jeffrey K. Willemain Deloitte. Leslie E. Wong Northern Michigan University Frey Foundation Citizens Research Council of Michigan is a tax deductible 501(c)(3) organization Citizens Resear ch C ouncil of Michigan rc Co Options ffor or Managing Medic aid Medicaid owth Funding and C ost Gr Cost Growth Februar Februaryy 2012 Rep or t 376 Repor ort CITIZENS RESEARCH COUNCIL OF MICHIGAN M A I N O F F I C E 38777 Six Mile Road, Suite 208 вЂў Livonia, MI 48152-3974 вЂў 734-542-8001 вЂў Fax 734-542-8004 L A N S I N G O F F I C E 124 West Allegan, Suite 620 вЂў Lansing, MI 48933-1738 вЂў 517-485-9444 вЂў Fax 517-485-0423 CRCMICH.ORG OPTIONS FOR MANAGING MEDIC AID EDICAID FUNDING AND COST GROWTH Contents Summary ..................................................................................................................... v Introduction ................................................................................................................ 1 Background on Medicaid ............................................................................................. 2 Mandatory and Optional Medicaid Services ..................................................................... 2 Section 1115 Demonstration Waivers ............................................................................. 4 The Fiscal Problem ...................................................................................................... 6 Medicaid Financing ................................................................................................... 10 Federal Funding .......................................................................................................... 10 The FMAP in Dollars .............................................................................................. 11 Federal Funding Challenges .................................................................................... 14 Non-Federal Revenue Sources ..................................................................................... 15 Intergovernmental Transfers .................................................................................. 15 Certified Public Expenditures .................................................................................. 15 Provider Donations ................................................................................................ 15 Provider Taxes ...................................................................................................... 15 Legislative Appropriations to DCH ........................................................................... 20 HMO/PIHP Use Tax .......................................................................................... 20 Health Insurance Claims Assessment ................................................................. 20 Tobacco Tax .................................................................................................... 21 General Funds ................................................................................................. 21 Medicaid Expenditures .............................................................................................. 22 State Budget Overview ................................................................................................ 22 Expenditure Components ............................................................................................ 22 Health Plan Services .............................................................................................. 23 Medicare Premium Payments and Medicare Part D ................................................... 23 Hospital DSH ........................................................................................................ 24 All Long-Term Care ................................................................................................ 24 Affordable Care Act of 2010 ...................................................................................... 25 Maintenance of Effort Requirements ............................................................................. 26 Citizens Research Council of Michigan i CRC Report Medicaid Cost Drivers ............................................................................................... 27 Enrollment Growth ...................................................................................................... 28 Case Mix .................................................................................................................... 29 Service Utilization ....................................................................................................... 30 Provider Reimbursement Rates .................................................................................... 31 FMAP ......................................................................................................................... 31 Policy Solutions ......................................................................................................... 33 I. Additional Medicaid Revenue Options ........................................................................ 33 Provider Taxes versus Broad-Based Taxes ................................................................ 34 Provider Taxes ................................................................................................. 34 Broad-Based Taxes ........................................................................................... 35 Local Revenues ..................................................................................................... 38 Other Revenue-side Considerations ......................................................................... 38 II. Expenditure-side Alternatives .................................................................................. 39 Benefit/Provider Changes ....................................................................................... 39 Eligibility changes ............................................................................................ 39 Elimination of optional benefits and programs .................................................... 40 Decrease Utilization/Increase Cost-sharing ......................................................... 41 Pharmaceutical Controls ................................................................................... 42 Provider payments ........................................................................................... 44 Benefit/Provider Change Considerations ............................................................. 46 Cost containment .................................................................................................. 47 Managed Care ................................................................................................. 47 Pharmaceutical Controls ................................................................................... 49 Program Integrity ............................................................................................ 50 Introduction of new programs and legislation ..................................................... 51 Market reforms and longer-term changes ........................................................... 52 Conclusion ................................................................................................................. 56 Appendix A MichiganвЂ™s Special and Creative Financing Practices ........................... 57 Appendix B Summary of State Provider Taxes ........................................................ 61 Appendix C Covered Services, Enhanced Services, and Services Covered Outside of Contract Terms and Conditions of Health Plan Contractor, State of Michigan .............................................................. 71 ii Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDIC AID EDICAID FUNDING AND COST GROWTH Charts Chart 1 Chart 2 Chart 3 Chart 4 Chart 5 Chart 6 Chart 7 Major Budget Area Share of Total State Spending from State Resources, FY2002 and FY2012 ....................................................................................................... 7 Own-Source Medicaid Revenues by Source as a Percent Share, FY2002 to FY2012 ............ 21 Medicaid Spending as a Percent of Total and General Fund Michigan Spending, FY1999-2012 ............................................................................................................... 22 Total Medicaid Enrollment, Year-over-Year Percent Change Michigan compared to U.S. and Great Lake States Averages, June 2001 to June 2010 ............................................... 28 Distribution of Medicaid Enrollees in Michigan by Enrollment Group, FY2008 ..................... 29 Distribution of Medicaid Payments in Michigan by Enrollment Group, FY2008 .................... 29 QAAP Provider Increases and State GF/GP Savings Trends .............................................. 59 Tables Table Table Table Table Table Table Table Table Table Table 1 2 3 4 5 6 7 8 9 10 Table 11 Table 12 Table 13 Table 14 Table 15 Table 16 Table 17 2011 Health and Human Services Poverty Guidelines or Federal Poverty Level .................... 3 Michigan Medicaid Income Eligibility by Age and Status, 2011 as a percent of FPL .............. 4 State Spending from State Sources Compared to Selected Budget Areas, Nominal and Real ... 6 Michigan StateвЂ™s Expenditure Related Indicators ............................................................... 7 Average Annual Growth in Medicaid Spending, FY1990 - FY2009 ....................................... 8 Federal Medical Assistance Percentage (FMAP) for Medicaid ............................................ 10 FMAP Changes in Michigan versus United States Average, FY1969-2012........................... 11 Predicted Impact of 5%, 15%, and 33% Federal Spending Cuts on Michigan.................... 13 Provider Tax Assessments by State, Great Lakes Region .................................................. 18 Line Item Appropriations for Michigan Medicaid as a Percent of Total Medicaid Appropriations, Fiscal Year 2012 .............................................................. 23 Michigan Medicaid Cost per Client, Utilization, and Spending by Service Category, FY2008 .... 30 Examples of Guidelines for the Maximum Allowable Copayments ..................................... 41 Maximum Allowable Drug Copayments by Family Income ................................................ 42 Pharmacy Cost Containment Actions Taken in FY2010 and FY2011 .................................. 43 Medicaid Physician Fees: Cumulative Percentage Change in Medicaid Fees by Type of Service, 2003-2008 ...................................................................................... 44 Medicaid Physician Fee Index, 2008 .............................................................................. 45 Medicaid Physician Fees: Medicaid-to-Medicare Fee Index, 2008 ...................................... 46 Figures Figure 1 MichiganвЂ™s Use of IGTs ................................................................................................. 57 Citizens Research Council of Michigan iii CRC Report iv Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDIC AID EDICAID FUNDING AND COST GROWTH Executive Summary Medicaid is a public health insurance program for low income children and adults that is financed by the state and federal governments. As of Fiscal Year 2012, Medicaid spending consumed nearly 15 percent of total state own-source revenues (revenue generated by taxes and fees levied by Michigan). This share has grown five percentage points over the previous decade and when combined with MichiganвЂ™s decade long recession, is squeezing out appropriations for other state programs. The fundamental challenge for policymakers is that there is a structural imbalance between MedicaidвЂ™s revenue base and expenditure growth rate. There are several factors driving Medicaid cost growth. First, MichiganвЂ™s enrollment increased nearly 60 percent between 2001 and 2010, with accelerated growth of up to 11 percent per year during the most recent national recession. Second, the type of cases and the changing case mix influence costs. The elderly and disabled Medicaid populations make up approximately one quarter of enrollees but over 60 percent of all Medicaid payments are made on their behalf. Third, the utilization rate of high cost services drives cost growth. For example, nursing facility services are consumed by less than 3 percent of Medicaid enrollees but due to the high cost of these services, make up 16 percent of total spending. In contrast, health plan services are utilized by nearly 80 percent of Medicaid clients and consume 50 percent of the budget. Fourth, states determine, with approval from the federal government, the amount they will reimburse health care providers for services rendered to Medicaid patients. As this rate grows, so do overall state costs. The final factor in Medicaid cost growth is the rate at which the Chart 1 Major Budget Area Share of Total State Spending from State Resources, FY2002 and FY2012 Community Colleges Major Budget Area Other Community Health Revenue Sharing Human Services Higher Education Corrections Medicaid K-12 School Aid All Other Programs 0% 5% 10% 15% 20% FY2002 25% 30% 35% 40% 45% 50% FY2012 Source: Senate Fiscal Agency. вЂњState Spending from State Resources Appropriations: Total Compared to Selected Budget Areas.вЂќ September 7, 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf Citizens Research Council of Michigan v CRC Report the law that currently constrains statesвЂ™ ability to make changes to its Medicaid program is the maintenance of effort requirement. This requirement, with few exceptions, does not allow states to reduce eligibility or to change benefits in such as way that it indirectly reduces eligibility. The ACA also adds many new mandates including the expansion of Medicaid to individuals and families with incomes below 133 percent of the federal poverty level. The cost of this mandate to states will be minimal through 2019 and will be 10 percent of the cost of this population thereafter. States will also be responsible for setting up a health insurance exchange and may optionally expand other Medicaid programs, often with federal financial assistance and matching grants. federal government reimburses states for Medicaid expenditures. Since fiscal year 2002, total own-source state spending has declined by 15.6 percent when adjusted for inflation. In contrast, Medicaid spending, which is appropriated to the Department of Community Health, has increased 29.5 percent and as a percent of the entire budget has grown from 9.9 percent to 14.8 percent over the same period. Consequently, Medicaid has been crowding out allocations to other state programs; spending for human services, K-12 school aid, and community colleges have all declined by over 20 percent when adjusted for inflation. Higher education and revenue sharing to local governments received over 45 percent fewer appropriations in FY2012 than in FY2002. (See Chart A.) The federal governmentвЂ™s share of Medicaid costs in each state is determined by a formula based on a stateвЂ™s per capita income relative to the national average. This can change annually and may range from 50 percent to 83 percent of state Medicaid costs. In FY2012 the federal governmentвЂ™s share of The federal Patient Protection and Affordable Care Act (ACA), signed into law in March 2010, contains many changes that may impact state Medicaid budgets both before and after the actвЂ™s official start date of January 1, 2014. The major component of 24.5% 27.5% 33.3% 4.7% 22.5% 45.3% 21.0% 45.2% 20.5% 21.8% 2007 20% 44.4% 2006 61.9% 66.8% 2004 67.6% 62.8% 2003 57.3% 59.4% 66.7% 30% 9.4% 8.8% 50% 40% 29.9% 13.0% 25.1% 10.2% 23.0% 27.4% 26.7% 12.8% 3.9% 37.4% 6.5% 60% 15.3% 70% 10.5% 80% 34.1% 90% 32.9% 100% 19.5% Chart B Own-Source Medicaid Revenues by Source as a Percent Share, FY2002 to FY2012 2011 2012 10% 0% 2002 2005 2008 2009 2010 Fiscal Year End GF/GP Exp QAAP Use Tax Other Rev Source: Data calculated from Senate Fiscal Agency documents vi Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Medicaid in Michigan is 66.1 percent of total qualified expenditures. States have several options in financing their own share of the Medicaid program. Main financing sources include taxing healthcare providers within federally allowable classes and legislative appropriations to the state Medicaid agency (Department of Community Health in Michigan). Michigan has several earmarked revenue sources such as a percentage of the tobacco tax, expansion of the Use Tax base to Medicaid Health Maintenance Organizations and Prepaid Inpatient Health Plans (to expire in March 2012), and since January 2012, a new health insurance claims assessment. Even with these various sources, Michigan appropriated 45.3 percent of its own-source Medicaid revenues from general fund, general purpose dollars. (See Chart B.) Michigan spends over 80 percent of Medicaid appropriations on physical health and the remainder on community mental health services. Nearly 35 percent of all expected expenditures in FY2012 are for health plan services. An additional 20 percent is spent on long-term care. A variety of other benefits that are paid for on a вЂњfee-for-serviceвЂќ basis including hospital, physician, home health, hospice, and dental services, make up a high portion of the remaining expenditures. A continual issue is the high cost of certain services, especially those that service a small portion of the Medicaid population. For example, nursing facility services serve only 2.6 percent of the Medicaid population, but because these services are treating the sickest and most medically needy, costs are higher; over 15 percent of total spending goes to this service. The state has two options to reduce the skewing of funding toward Medicaid: raise additional revenue or reduce expenditures. Revenue options include increasing the provider tax collections to the maximum federally allowed or appropriating additional general fund, general purpose funds to Medicaid. To increase general fund revenues, the state can increase its broad-base tax collection through changes to the income or sales taxes. The state can also reassess its tobacco tax rates, as well as those from several other federally permissible sources of Medicaid revenue. However, there is no one method or combination of revenue strategies that will enable Medicaid revenues to grow at the same rate, or higher than, the Medicaid cost growth rate. Therefore, expenditure-side solutions are also necessary. On the expenditure side, two categories of solutions may ease the structural Medicaid budget imbalance. The first category of solutions directly impacts beneficiaries and providers by either limiting optional benefits, adding or increasing benefit cost-sharing, or shifting the burden to providers by enacting higher provider tax rates or lower provider payments. The second category of solutions contain costs through process and programmatic efficiencies and may not result in immediate budgetary relief but are expected to produce long term declines in the expenditure growth rate. These solutions include expanding managed care to populations currently ineligible for this service and introducing new or expanding current pharmaceutical controls such as preferred drug lists and mandatory generic substitution. The state can also ramp up efforts to decrease Medicaid fraud and abuse and the recovery rate of these funds. The state may also introduce new programs designed to improve overall health, consequently reducing health care costs in the future. And finally, there are many technology tools that may help reduce costs through process efficiencies, paperwork reduction, and program monitoring. The scale of the problem surrounding health care cost growth necessitates a broad solution. Many of the strategies discussed in this paper treat the symptoms and not the underlying problem. The solution to this issue will need to be solved nationallywith the federal and state governments working cooperatively and potentially allowing states greater flexibility in providing health care using the techniques that best serve their unique populations. Healthcare outcomes should be the focus, not solely the methods for delivery. Given flexibility, states have already shown great capability to find innovative, cost-saving solutions to health care delivery. Citizens Research Council of Michigan vii CRC Report viii Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDIC AID EDICAID FUNDING AND COST GROWTH Since 1966, Michigan has provided health insurance percent. Consequently, Medicaid has effectively to low income children and adults through its statecrowded out appropriations to revenue sharing for operated Medicaid program. Medicaid services and local governments (-47.0 percent), higher education other programs serving low income or unemployed (-45.4 percent), community colleges (-25.7 percent), residents have been in high demand since 2001, human services (-21.3 percent), and K-12 school aid when Michigan slipped into a recession. The combi(-21.2 percent). nation of increased demand and declining state reTo address MedicaidвЂ™s structural imbalance, where sources has caused Medicaid costs to assume a larger cost growth consistently outpaces revenue base share of the total state and general fund budgets. growth, state policymakers have Medicaid spending has been rising faster than the growth in the tax Medicaid spending has two options: raise revenues or reduce spending. Options Michigan base used to support it by a sigbeen rising faster than the policymakers might consider to innificant margin and is projected to continue at this unsustainable rate growth in the tax base used crease revenues available to the through the foreseeable future. to support it by a significant Medicaid program include expanding existing taxes on certain types Medicaid spending increases are margin and is projected to of health care providers, increastriggered by a growing eligible continue at this unsustain- ing the tobacco tax, increasing population, rising service utiliza- able rate through the fore- general fund, general purpose suption, and changes in the rates paid port, or requesting or requiring seeable future. to Medicaid providers. Other pocontributions from local units of tential pressures on the stateвЂ™s government. Medicaid spending share of its Medicaid budget come reduction options include those from the federal government, which is threatening that impact the welfare of Medicaid recipients and to reduce its share of Medicaid financing. Federal providers, such as cost-sharing and provider reimlegislators have proposed a variety of strategies for bursement rate reductions, and those that do not, reducing Medicaid costs such as converting it to a such as managed care expansion and fraud reducblock grant or reducing the provider rate cap and tion. Because the Medicaid system is unsustainable therefore limiting federal match money available to in its current form, neither of these solutions will the states. The Affordable Care Act of 2010 will also provide a long-term financial solution but may enimpact future eligibility, benefits, and federal costsure greater balance among budget areas. sharing. Medicaid financing exposes the tension between the Despite a decade of financial decline, Michigan has growing fiscal pressures on both the state and fedpreserved most Medicaid eligibility and benefits, and eral governments and the desire and responsibility while this has ensured health care access for low that many feel for providing health care to societyвЂ™s income individuals and families, the result has been most vulnerable individuals. This paper presents detrimental to other Michigan programs. Growing government financial information and to remain withMedicaid costs are squeezing out other budget items in scope, it largely ignores the potential impacts these leading to a non-deliberate prioritization of Medicbudgetary changes may have on those who depend aid above other state funded programs. While real on Medicaid for some of their most basic needs. total state spending from state resources declined These are not insignificant yet are only briefly dis15.6 percent since Fiscal Year 2002 (FY2002), real cussed within this paper. own-source spending for Medicaid increased by 29.5 Citizens Research Council of Michigan 1 CRC Report Background on Medicaid Medicaid is a government operated medical insurance program for low income individuals and families that is co-financed by the state and federal governments. Medicaid was authorized in 1965 as part of the Social Security Act, Title XIX. The program is entirely state operated, but there is federal oversight through the Department of Health and Human ServicesвЂ™ Centers for Medicare and Medicaid Services (CMS). A stateвЂ™s role is outlined in its вЂњstate planвЂќ which must be approved by the CMS. The federal government sets minimum standards for eligibility and benefits, as well as regulations regarding financing, service delivery, reimbursement rates and most other facets of the program. All states voluntarily participate in the Medicaid program; the last state to opt in was Arizona in 1982. Michigan began its Medicaid program in 1966 and has since expanded eligibility and benefits considerably beyond the floors set by the federal government. Mandatory and Optional Medicaid Services The state must meet minimum eligibility and service mandates to be reimbursed by the federal government for Medicaid services. The three basic groups of low income eligible recipients are (1) families with children, (2) the elderly (often referred to as dualeligibles because they are also enrolled in Medicare), and (3) the disabled. As of late 2011, the mandatory Medicaid eligibility groups include: вЂў Families with children with income below the stateвЂ™s cutoff for the Temporary Assistance for Needy Families (TANF) program (referred to as the Family Independence Program (FIP) in Michigan)1 вЂў Supplemental Security Income (SSI) recipients 2 вЂў вЂў вЂў вЂў вЂў Infants born to Medicaid-eligible pregnant women Children aged 6 and younger in families that are at or below 133 percent of the federal poverty level (FPL) Pregnant women at or below 133 percent of the FPL Recipients of foster care and adoption assistance Some income and asset eligible Medicare recipients2 States are required to provide a variety of benefits to all eligible recipients. These benefits include: вЂў Physician services вЂў Nursing facility services for individuals 21 or older вЂў Inpatient and outpatient hospital services вЂў Prenatal care вЂў Vaccinations for children вЂў Family planning вЂў Nurse-midwife services вЂў Laboratory and x-ray services вЂў Home health care for eligible persons вЂў Pediatric and family nurse practitioner services3 States have the option of expanding eligibility requirements beyond mandated levels. Many states choose to cover children and parents above mandatory coverage limits, disabled and elderly persons with income above 100 percent of the FPL, pregnant woman above 133 percent of the FPL, certain working disabled and others. Some individuals and families above the income and asset limitations may be eligible if their medical expenses reduce their incomes to a level that would otherwise qualify (called the Medicaid spend-down). Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Federal Poverty Level (FPL) Eligibility for Medicaid is based on what is commonly referred to as the federal poverty level (FPL) that is determined by the Federal Poverty Guidelines as calculated by the U.S. Department of Health and Human Services. In addition to Medicaid, the FPL is used to determine eligibility for a variety of federal programs such as Head Start, the Food Stamp Program, and the ChildrenвЂ™s Health Insurance Program. The guidelines change every year and are valid for the year in which they are issued. In 2012, a four-person family in Michigan would be at 100 percent of the FPL with an income of $23,050, qualifying the entire family for Medicaid services (See Table 1). If instead the familyвЂ™s income was $30,657 (133 percent of the PFL), the children would qualify for insurance through Medicaid but the parents may not if the income eligibility has not been raised by the state in which they live. However, federal guidelines allow for a window where individuals and families may still qualify for Medicaid if their income is within 5 percent of the stated upper limit (called the income disregard). For example, if the state cutoff for Medicaid eligibility is 150 percent of the FPL, the effective cutoff rate is actually 155 percent of FPL, presumably to be sensitive to borderline eligibles and possible income accounting errors. Table 1 2011 Health and Human Services Poverty Guidelines or Federal Poverty Level* Persons in Family 1 2 3 4 For each additional person, add 48 Contiguous States and D.C. $11,170 $15,130 $19,090 $23,050 $3,960 133% of FPL $14,856 $20,123 $25,390 $30,657 вЂ”- 150% of FPL $16,755 $22,695 $28,635 $34,575 вЂ”- 185% of FPL $20,665 $27,991 $35,317 $42,643 вЂ”- * Hawaii and Alaska have different FPL guidelines than the other states. Source: Department of Health and Human Services Citizens Research Council of Michigan 3 CRC Report Table 2 shows income eligibility for Medicaid in Michigan. The state has opted to expand benefit eligibility to infants, children, and pregnant women with incomes at a higher percent of the FPL than federally mandated. Table 2 Michigan Medicaid Income Eligibility by Age and Status, 2012 as a percent of FPL Category Income Eligibility Infants Ages 0-1 185% Children Ages 1-19 150% Adults вЂ“ Working, w/children 64% Adults вЂ“ Jobless, w/ children 37% Adults вЂ“ Working, Childless 35%* Pregnant Women 185% Aged, Blind, and Disabled 100% States have the flexibility to fund optional benefits such as prescription drug coverage, rehabilitation, physical and occupational therapies, dental and vision services, hospice care and others. Optionally covered benefits must be offered to both the mandatory and optional eligibility groups. Mich*Enrollment is closed igan has been generous in providing nonSource: The Kaiser Family Foundation mandated services to Medicaid enrollees. Of 30 optional services from the Kaiser Family FoundationвЂ™s Medicaid benefits online dataoften cover demonstration projects related to the base,4 Michigan offers 23 to its beneficiaries. These expansion of managed care, eligibility expansion with include rehabilitation, chiropractor, limited benefits, reducing costs to dental, optometrist, podiatrist, hosaddress budget deficits, and expice, and personal care services. Of 30 optional services from panding limited coverage to lowOptional coverage is also broad- the Kaiser Family Foundincome adults (such as the Adult ened to include coverage for preationвЂ™s Medicaid benefits Benefits Waiver in Michigan). scription drugs and devices such as eyeglasses, dentures, hearing online database, Michigan There are two types of Section aids, and prosthetic and orthotic offers 23 to its beneficiaries. 1115 demonstration waivers. The devices. first allows the Secretary to waive Section 1115 Demonstration Waivers The CMS allows for flexibility and innovation in Medicaid service and delivery through the use of Section 1115 Demonstration waivers. These waivers are completed by states and must be approved by the CMS before states can begin action. Section 1115 waivers refer to Section 1115 of the Social Security Act and allow the Secretary of Health and Human Services, through the CMS, to authorize pilot or experimental projects that further promote Medicaid objectives through the use of policies or approaches that have not yet been demonstrated and may not otherwise be allowed. Projects submitted under this waiver may include expansions in eligibility and benefits not otherwise covered, new service delivery systems, cost-sharing, and provider payments. They 4 certain provisions to operate demonstration programs and the second allows matching grants for costs that otherwise would not be matched. The demonstration projects are typically approved and allowed to operate for a five-year period, with allowances for renewals, and must be budget-neutral; the new program or system cannot cost the federal government more than it would have cost without the waiver.5 The federal government achieves this by instituting a cap on federal funds over the life of the waiver that forces the state to bear the risk of any additional costs. In 2011, the federal government supported one or more waivers in each of 30 states and the District of Columbia causing the federal government to spend an estimated $54.6 billion or 20 percent of federal Medicaid spending.6 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH MichiganвЂ™s Medicaid Programs The following are mandatory and optional programs provided through MichiganвЂ™s Medicaid program as of July 2011: вЂў Healthy Kids. A program for low-income children under 19 years of age and pregnant women. вЂў MIChild. This extends health insurance to uninsured children under age 19, in low income, working families. There is a $10 monthly premium per family for this service and it includes vision, dental and mental health services. вЂў ChildrenвЂ™s Special Health Care Services (CSHCS). Provides medical coverage to some children and adults with special qualifying medical care needs. вЂў Under 21. Extends Medicaid to income and asset eligible persons under age 21. Health care benefits include vision, dental and mental health services. вЂў Supplementary Security Income (SSI). Beneficiaries of this cash benefit for disabled children and aged, blind or disabled adults are automatically eligible for Medicaid. Health care benefits include vision, dental and mental health services. вЂў Special Disabled Children. Extends insurance to children who received SSI benefits on August 22, 1996, provided that the child meets current SSI income and asset requirements and has a qualifying disability. вЂў Healthy Kids for Pregnant Women. Available to an income eligible pregnant woman during pregnancy and for two calendar months following the month her pregnancy ends. вЂў Group 2 Pregnant Women. A program available to women whose income exceeds the maximum required to participate in Healthy Kids for Pregnant Woman. Eligible women are assigned a deductible. вЂў Maternity Outpatient Medical Services (MOMS). Provides outpatient prenatal coverage to pregnant women who need immediate health coverage and whose Medicaid application is pending. Other participants in this program may include pregnant teens who do not apply for Medicaid due to confidentially concerns and noncitizens who are eligible for emergency services only. вЂў Medicare Savings Program (MSP). This program pays for certain eligible Medicare costs such as premiums, coinsurance, and deductibles. There are asset and income qualifications. вЂў Adult Benefits Waiver (ABW), a.k.a. Adult Medical Program (AMP). Provides limited coverage to low income, childless adults. вЂў Caretaker Relatives. Makes Medicaid insurance available to eligible parents and caretakers who care for a dependent child. There are income and asset qualifications. Health care benefits include vision, dental and mental health services. вЂў Aged, Blind, Disabled. Provides Medicaid benefits to persons who are aged, blind, or disabled. Health care benefits include vision, dental and mental health services. вЂў Disabled Adult Children (DAC). Extends Medicaid to adults who had a disability or blindness prior to age 22. Health care benefits include vision, dental and mental health services. вЂў MIChoice. Provides home and community based health care for aged and disabled persons. The cost of home care must be less than that in a nursing home. вЂў Low Income Families. Provides Medicaid insurance to families in the Low Income Families (LIF) program. Health care benefits include vision, dental and mental health services. вЂў Special N Support. This program provides insurance to families who have previously received LIF Medicaid or cash assistance but no longer meet the income requirements because they receive child support payments. Medicaid is available for 4 months. вЂў Transitional Medical Assistance. Available to families that have received LIF Medicaid or cash assistance in at least 3 of the last 6 months but are no longer eligible for either because of increased income. Medicaid insurance is available for up to 12 months. вЂў Plan First! Family Planning Program. Family planning services offered to women who do not meet the income requirements for Medicaid but would if they became pregnant. Source: Michigan Department of Community Health. Health Care Programs Eligibility. Accessed on July 28, 2011. www.michigan.gov/mdch/0,1607,7-132-2943_4860-35199вЂ”,00.html Citizens Research Council of Michigan 5 CRC Report The Fiscal Problem In the decade covering FY2002 through FY2012, icantly over the period due mostly to Medicaid; excluding Medicaid, other community MichiganвЂ™s own-source spending remained relatively flat, and most expenditures still grew 87.7 Adjusting for the effects of health percent. Adjusting for the effects funding categories received less in FY2012 than they had in inflation shows that real of inflation, real total own-source FY2002. Revenue sharing to lo- total own-source state state spending declined 15.6 percal governments declined by 36.8 spending declined 15.6 percent and only community health percent and appropriations to had real budget increases (34.0 cent and only community percent) due to higher Medicaid higher education declined by 34.9 percent. The only budget areas health saw real budget in- appropriations (29.5 percent); oththat grew over the decade were creases due to higher Med- er community health appropriations community health (59.8 percent) icaid appropriations. grew 57.4 percent. Table 3 shows state spending for major budget arand corrections (16.6 percent). Community health, the budget eas in FY2002 and FY2012 (nomiarea that receives Medicaid allocations, grew signifnal and real spending). The related indicators (See Table 3 State Spending from State Sources Compared to Selected Budget Areas, Nominal and Real (Dollars in Millions) Budget Area Medicaid Other Community Health Corrections Human Services K-12 School Aid Community Colleges Higher Education Revenue Sharing All Other Programs FY2002 $2,571.3 $494.8 $1,653.0 $1,230.1 $11,220.6 $320.2 $1,940.9 $1,517.3 $5,138.6 FY2012 $3,972.2 $928.8 $1,927.2 $1,155.3 $10,550.2 $283.9 $1,264.0 $959.0 $5,219.2 FY2012 (2002 $) $3,330.3 $778.7 $1,615.6 $968.5 $8,844.6 $238.0 $1,059.7 $804.0 $4,375.4 Total State Spending $26,086.8 $26,259.8 $22,014.4 Nominal Percent Change 54.5% 87.7% 16.6% -6.1% -6.0% -11.3% -34.9% -36.8% 1.6% Real Percent Change 29.5% 57.4% -2.3% -21.3% -21.2% -25.7% -45.4% -47.0% -14.9% 0.7% -15.6% Source: Senate Fiscal Agency. вЂњState Spending from State Resources Appropriations Total Compared to Selected Budget Areas.вЂќ October 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf Note: Other Community Health includes all department expenditures except for those for Medicaid. Inflation adjusted appropriations were calculated using the Detroit Consumer Price Index. 6 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Table 4 Michigan StateвЂ™s Expenditure Related Indicators Related Indicators: Medicaid Caseload Prison Population K-12 Pupil Count University Students Community College Students Michigan per Capita Income Detroit Consumer Price Index FY2002 1,211,816 47,270 1,647,459 241,205 116,802 30,193 178 FY2012 1,920,000 43,455 1,552,300 262,615 177,277 35,597* 207 Percent Change 58.4% -8.1% -5.8% 8.9% 51.8% 17.9% 16.8% *2010 per capita income not adjusted for inflation Source: Senate Fiscal Agency. вЂњState Spending from State Resources Appropriations Total Compared to Selected Budget Areas.вЂќ October 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf Table 4) show that for the most part, despite declining budgets, demand for associated services has increased. Community colleges endured a real budget decline of 25.7 percent yet enrollment increased 51.8 percent over the same period. Only Medicaid saw appropriation changes (29.5 percent) nearing caseload changes (58.4 percent). Because real total own-source state spending fell 15.6 percent between FY2002 and FY2012 and Medicaid appropriations grew nearly 30 percent, MedicaidвЂ™s share of the state budget also grew larger. In FY2002 MedicaidвЂ™s share of total own-source funding was 9.86 percent and it grew to 14.75 percent by FY2012. These figures are shown in Chart 1 Chart 1 Major Budget Area Share of Total State Spending from State Resources, FY2002 and FY2012 Community Colleges Major Budget Area Other Community Health Revenue Sharing Human Services Higher Education Corrections Medicaid K-12 School Aid All Other Programs 0% 5% 10% 15% 20% FY2002 25% 30% 35% 40% 45% 50% FY2012 Source: Senate Fiscal Agency. вЂњState Spending from State Resources Appropriations: Total Compared to Selected Budget Areas.вЂќ September 7, 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf Citizens Research Council of Michigan 7 CRC Report where Medicaid is broken out as a component of the community health budget area. Table 5 compares annual growth in Medicaid spending over four different time periods between 1990 and 2009. Spending in Michigan grew at a slower rate than the rest of the country for all periods except for FY2004 through FY2007. The low annual growth rate between FY2001 and FY2007 is most likely attributable to MichiganвЂ™s single-state recession. During this time the state took several cost containment measures. The other Great Lake states had average spending growth rates of 10.2 percent for FY1990-FY2001, 8.6 percent for FY2001-FY2004, 3.8 percent for FY2004-FY2007 and 7.1 percent for FY2007-FY2009. Michigan was near its regional average for all time periods except FY2001-FY2004, where its growth rate of 4.5 percent was nearly half of the regional average. The Great Recession brought company to MichiganвЂ™s lonely one-state recession: The National Governors Association and The National Association of State Budget OfficersвЂ™ Spring 2011 Fiscal Survey of States revealed that while state budgets improved from FY2009 and FY2010, revenues still lagged behind FY2008 levels. Nearly 60 percent of states reported reduced general fund spending from FY2008. General fund expenditures in FY2012 are expected to be higher than FY2011, but still $18.7 billion less than FY2008. And even though revenue rose modestly in FY2011 and is expected to in FY2012 as well, states have had to account for the impact of the elimination of billions of dollars in funding from the American Recovery and Reinvestment Act of 2009 (ARRA) when finalizing FY2012 budgets. After relying on budget stabilization funds and the introduction of $13.8 billion in new net taxes and fees for FY2012, governors are turning to budget cuts in areas such as higher education, public assistance, and K-12 education. The Fiscal Survey of States estimates that Medicaid accounts for 22 percent of total national state spending in FY2010, making it the receiver of the largest portion of funding.7 The legal framework of the Social Security Act and the new requirements in the Affordable Care Act (ACA) somewhat constrain the ability of states to make cuts to Medicaid to address budget concerns. For example, the Social Security Act requires that in general, the same benefits must be made available to both the mandatory and optional eligibility groups. The federal Deficit Reduction Act of 2005 granted states more options to impose premiums and cost sharing, though with some limits and exceptions. Individuals and families in the optional Medicaid population (higher income brackets) may be subject to a premium or deductible payment for a service that a mandatorily eligible individual or family may receive at no cost. Currently there are some asset Table 5 Average Annual Growth in Medicaid Spending, FY1990 - FY2009 Michigan versus United States Average and States in the Great Lakes Region United States Michigan Illinois Indiana Minnesota Ohio Pennsylvania Wisconsin FY 1990-2001 10.9% FY 2001-2004 9.4% FY 2004-2007 3.6% FY 2007-2009 7.1% 9.7% 4.5% 3.9% 6.9% 11.1% 9.6% 9.3% 9.2% 12.4% 9.5% 8.7% 6.6% 13.1% 11.1% 8.9% 3.6% 7.6% 1.3% 3.2% 3.7% 3.9% 3.2% 1.9% 7.4% 9.2% 3.8% 4.0% 16.4% Source: The Kaiser Family Foundation 8 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH nates, enrollment growth will continue. If all factors are left unchecked, MichiganвЂ™s Medicaid program will increasingly crowd out other programs. State and federal policymakers need to are left un- find an effective solution to healthcare delivery that results in And it is with this backdrop that checked, MichiganвЂ™s Medic- conservative and predictable cost the urgency of Medicaid revenue aid program will increas- growth, efficient delivery of servicand spending reform is revealed. ingly crowd out other es, and quality healthcare as meaThere is a structural imbalance sured by health outcomes. Until a between Medicaid cost growth and programs. national solution is reached state the revenue base. There are no policymakers can utilize many tools indications that cost growth will to abate Medicaid spending. This paper addresses slow on its own and as the nationвЂ™s economy stagmany revenue and expenditure side solutions. restrictions for mandatory populations. However, those will be eliminated by the federal ACA by 2014, and only an income eligibility requirement will remain, further growing the Medicaid eligible population. If all factors Citizens Research Council of Michigan 9 CRC Report Medicaid Financing There are two major categories for financing Medicaid: federal funding and own-source state funding. Federal Funding The Social Security Act outlines the formula used to calculate the federal governmentвЂ™s portion of MedicaidвЂ™s costs, called the federal medical assistance percentage (FMAP). The formula permits the federal government to provide matching funds based on a stateвЂ™s average per capita income relative to the national average.8 By statute the FMAP can range from 50 percent to 83 percent; the federal government pays for at least half the cost of Medicaid in every state. Each state is responsible to reimburse its qualified providers for the covered Medicaid services supplied to eligible populations and then submit a claim to the federal government to receive the matching funds. The federal government has a history of adjusting the FMAP during difficult economic times to further assist states with cost-sharing. During the economic downturn in 2003 and 2004, the federal government increased the Medicaid match rate for all states, which gave an additional $312.2 million to Michi- gan. Similarly, in 2009 enhanced matching funds were included with the passage of the ARRA. An FMAP increase of 6.2 percentage points was effective from October 2009 through December 2010 along with a small unemployment adjustment. In August 2010, the federal government extended this base increase but at a lower rate of 3.2 percentage points through March 2011 and then at a rate of 1.2 percentage points from April to June 2011. All enhanced matching rates expired on June 30, 2011. MichiganвЂ™s original FMAP share was 63.2 percent in FY2010 and then grew to 75.6 percent in the first quarter of FY2011 with the ARRA enhancements. MichiganвЂ™s FMAP for FY2012 (i.e., first full fiscal year without any rate enhancement) is 66.1 percent. Table 6 shows the FMAPs for Medicaid in Michigan and the states in the Great Lakes region. The U.S. figure shown is the national minimum, which increased in FY2009 and FY2010 because of the ARRA enhancements. Because the fiscal years do not necessarily correspond with the dates when the enhancements were passed, the numbers in the table do not align precisely with MichiganвЂ™s FMAPs as described above. The table, however, provides comparable data between Michigan and its region. Table 6 Federal Medical Assistance Percentage (FMAP) for Medicaid Michigan versus United States and Average of Great Lakes Region FY2004 FY2005 FY2006 FY2007 FY2008 50.0% 50.0% Michigan 58.8% 56.7% 56.6% 56.0% 58.1% 70.7% 73.3% 65.8% 66.1% Illinois Indiana Minnesota Ohio Pennsylvania Wisconsin 53.0% 65.3% 53.0% 62.2% 57.7% 61.4% 61.9% 74.2% 61.6% 72.3% 65.6% 69.9% 50.0% 67.0% 50.0% 64.2% 55.1% 60.5% 50.0% 63.0% 50.0% 59.9% 55.1% 57.7% 50.0% 50.0% 62.6% 50.0% 59.7% 54.4% 57.5% 50.0% 50.0% 62.7% 50.0% 60.8% 54.1% 57.6% 56.2% 56.2% 61.9% 75.7% 61.6% 73.5% 65.9% 70.6% 50.0% 50.2% 66.5% 50.0% 63.7% 55.6% 60.2% *Represents the federal minimum Source: The Kaiser Family Foundation, www.statehealthfacts.org/ profileind.jsp?cmprgn=1&cat=4&rgn=24&ind=184&sub=47 10 FY2012 United States* 50.0% 62.8% 50.0% 59.7% 53.8% 58.3% 50.0% FY2009 FY2010 FY2011 Citizens Research Council of Michigan 50.0% OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH 34.21 percent of all the eligible Medicaid expendiFY2011 data reflect FMAPs effective on July 1, 2011, tures, while the federal government paid for the rewhen the ARRA funding expired. In the Great Lake maining share, nearly a two-to-one match. This cost states in 2011, Michigan had the second highest sharing converted to a multiplier of 1.92, where for FMAP after Indiana. Because per capita incomes every $1.00 Michigan spent on its Medicaid program have been declining in the Great Lakes region relathe federal government provided tive to the rest of the country, FMAPs in these states have been For every $1 that Michigan $1.92. Therefore, for every one dollar that Michigan spent on Medincreasing since 1965; this contrasts with trends in the Southwest spends on Medicaid, the fed- icaid from own-source revenues it and Southeast, where relative per eral government will match was able to provide $2.92 in medcapita incomes have risen and that spending with $1.95 for ical services to low income state On the flip side, if the those statesвЂ™ FMAPs have dea total Medicaid investment residents. state reduced its own-source exclined.9 Nationally, Mississippi had the highest FMAP at 74.7 percent of $2.95 between the two penditures on Medicaid by one dollar, medical services provided to and Michigan ranked 15th. Fifteen governments. low income residents would have states, Guam, and Puerto Rico redeclined by a total of $2.92. ceive the minimum FMAP of 50 percent. The FY2012 FMAP for Michigan is 66.14 percent, the highest it has ever received (with the exception Since 1965, the average federal share of Medicaid of boosts from federal stimulus spending). This has been around 57 percent (excluding ARRA and means that for every $1.00 that Michigan spends on other temporary enhancements). According to a Medicaid, the federal government will match that report by the Kaiser Family Foundation, the strucspending with $1.95 for a total Medicaid investment ture of the FMAP formula has resulted in a compresof $2.95 between the two governments. sion of the overall rates where the highest FMAPs have been shrinking over time. 10 Unlike most other states, Table 7 MichiganвЂ™s FMAP has FMAP Changes in Michigan versus United States Average, FY1969-2012 increased steadily over FMAPs Michigan United States time resulting in a declining state share of FY1969 50.00 61.33 Medicaid funding as FY1979 50.00 59.10 shown in Table 7. FY1989 54.75 60.74 While an increasing FY1999 52.72 60.67 FMAP aids Michigan FY2009 60.27 59.97 from a budgetary perFY2010 63.19 60.13 spective it is also indicFY2011 65.79 59.89 ative of the declining FY2012 66.14 59.62 per capita income Michigan has endured in the last decade.11 Percentage Point Change, 1969-2012 The FMAP in Dollars State Share Percent Change, 1969-2012 MichiganвЂ™s FY2011 FMAP of 65.79 meant that Michigan paid Source: The Kaiser Commission on Medicaid and the Uninsured. An Overview of Changes in the Federal Medical Assistance Percentages (FMAPs) for Medicaid. The Kaiser Family Foundation: Publication #8210. July 2011. 16.14 -1.71 -32.28% Citizens Research Council of Michigan -вЂ” 11 CRC Report The Multiplier Effect Several studies quantify the positive effects of Medicaid spending on state economies. In January 2009, the Kaiser Family Foundation released a review of 29 studies in 23 states regarding the impact of both the state and federal share of Medicaid dollars.a These studies focus on the multiplier effect that occurs when spending is repeatedly injected into the state economy. For example, when the state makes Medicaid expenditures to qualified health care providers this directly affects health care services. Then there is an influx of new dollars from the federal match, multiplying this impact at a rate dependent on the stateвЂ™s FMAP. The employment, income and state tax revenues generated from the flow of dollars to health care services is funneled to vendors and then to the employees themselves who can spend this new income on consumer goods and services. Those dollars continue to travel through the economy via spending on goods and services and taxes. However, it is the inflow of money from outside the state that allows the economy to grow beyond its own means. This is shown in the diagram below that has been excerpted from the Kaiser Family Foundation study. Source: The Role of Medicaid in State Economies: A Look at the Research, (#7075-02), The Henry J. Kaiser Family Foundation, January 2009.b Some key findings of the Kaiser Family Foundation survey include: вЂў Medicaid dollars from the federal and state governments stimulate state-level economic activity such as the creation of jobs, income and tax revenues. вЂў By adding new money to the state, federal Medicaid matching dollars are critical in generating economic activity and multiplying its effects. 12 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH вЂў вЂў The magnitude of the economic impact from Medicaid spending is dependent upon the FMAP. The higher the FMAP, the greater the multiplier effect. If a state chooses to cut one dollar from its Medicaid program the entire state will lose at least two dollars worth of economic activity (because of the minimum 50 percent FMAP). Any reduction in Medicaid spending will adversely impact state-level employment, income and tax revenues. A more recent study conducted by Families USA, a nonprofit healthcare consumer advocacy group, quantifies the economic consequence from cuts in federal Medicaid financing.c Table 8 shows the predicted impact for Michigan based on three hypothetical cuts in federal spending on Medicaid: 5 percent, 15 percent, and 33 percent. For instance, if the federal government cut spending by 5 percent the respective decline would be approximately $862 million in business activity and 7,670 jobs in Michigan alone. Table 8 Predicted Impact of 5%, 15%, and 33% Federal Spending Cuts on Michigan Percent Cut 5% 15% 33% Business Activity at Risk $861,877,000 $2,585,630,000 5,688,385,00 Jobs at Risk 7,670 23,020 50,650 Source: Families USA. Jobs at Risk: Federal Medicaid Cuts Would Harm State Economies. June 2011. The state level benefits from federal matching funds vary for several reasons. Individuals and businesses pay the federal taxes that are redistributed among the states in the form of various grants including Medicaid (in FY2010, Medicaid accounted for 40 percent of total grant funding received by states).d There are some states that receive more money from the federal government per capita than they pay out (in individual and business taxes), thus magnifying the multiplier effect in their state since there is real, new money in their state. Those states that pay more per capita in federal taxes than the state receives back are essentially losing some of that economic activity. In federal FY2010, the State of Michigan ranked 38th of the 50 states in the amount of per capita federal funds that flowed to Michigan recipients, and 26th in the amount of per capita federal grants awarded to state and local governments. This makes Michigan a net donor state in that the state paid more to the federal government than it received back.e See CRC Report 348 for more information about federal expenditures in Michigan. a The Kaiser Commission on Medicaid and the Uninsured. The Role of Medicaid in State Economies: A Look at the Research. The Kaiser Family Foundation. Publication 7075-02. January 2009. This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, a leader in health policy analysis, health journalism and communication, is dedicated to filling the need for trusted, independent information on the biggest health issues facing our nation and its people. The Foundation is a non-profit private operating foundation based in Menlo Park, California. b c Families USA. Jobs at Risk: Federal Medicaid Cuts Would Harm State Economies. June 2011. d State Policy Reports. Vol. 29, Issue 10. May 2011. United States Census Bureau. Consolidated Federal Funds Report for Fiscal Year 2010: State and County Areas. September 2011. www.census.gov/prod/2011pubs/cffr-10.pdf United States Census Bureau. Federal Aid to States for Fiscal Year 2010. September 2011. e Citizens Research Council of Michigan 13 CRC Report Federal Funding Challenges As the federal government struggles to manage its deficit and contain growing health care spending, state governments may see a change in how the federal government finances Medicaid. This change may cap growth but may also immediately reduce revenue for Medicaid, in which case states will need to determine if they will proportionally make spending reductions to Medicaid or replace the lost revenue from other sources. One proposal that is periodically introduced to contain federal spending is to convert the entitlement programs into block grants. The federal government currently has no limit on the amount of money it will spend on programs such as Medicaid, Medicare, and Social Security as long as the claims filed for those dollars are valid and eligible. To curb spending in this category, legislators, analysts, and watchdogs have asked that these programs be converted to block grants, one way the federal government currently transfers funds for other programs to state governments and other entities. The federal block grants, which are large sums of money that have broad spending provisions, would likely have a builtin adjustor so that the amount the federal government distributes to states would keep up with spending growth rates. To some, this approach to cost containment makes good financial sense, but it is not popular among Medicaid advocates and some others because of the chance that many otherwise eligible individuals will not receive Medicaid insurance if the budgeted amount is not sufficient. This could not only limit the number of Medicaid recipients, but it could also compromise the quality of care by either reducing the number of services provided, or the reimbursement rate to providers thereby lowering the number of providers willing to participate or the quality of care. According to a 2008 Health Tracking Physician Survey, 28 percent of U.S. physicians do not accept Medicaid patients.12 Another cost reduction strategy discussed most recently during the federal debt ceiling, debt reduction debate in 2011, is to limit the amount of provider taxes that may be collected by states or limit the amount the federal government will match state 14 expenditures from provider tax revenue sources (provider taxes are discussed in the вЂњProvider TaxesвЂќ section below). In his FY2012 budget, President Obama recommended lowering the maximum provider tax rate allowed from 6 percent to 3.5 percent beginning in FY2015, reducing the amount of revenue states could effectively collect from providers. 13 This alone would cut federal Medicaid spending by $18.4 billion between FY2012 and FY2021 albeit shifting the cost burden to the states.14 In 2008, the Congressional Budget Office published a report outlining options for reducing federal spending on health care. The report identified ten costsaving strategies for Medicaid alone. These solutions included: converting acute care service reimbursement into a block grant; removing or reducing the floor on FMAPs (set at 50 percent since 1965); limiting reimbursements for administrative costs; reducing the taxes states are allowed to levy on Medicaid providers; and other solutions dealing with prescription drug rebates.15 The National Commission on Fiscal Responsibility and Reform, a bipartisan group tasked by President Obama to explore debt reduction solutions, published The Moment of Truth in December of 2010. They too looked at entitlement programs, such as Medicaid, to tease out long-term budget savings. This commission, which identified health care spending as, вЂњour single largest fiscal challenge over the longrun,вЂќ16 made 19 recommendations for health care savings, seven of which apply to Medicaid. The recommendations include: restricting provider tax revenue matching (saves $49 billion between 2015 and 2020); placing Medicaid eligible seniors currently covered by Medicare in the Medicaid system (saving $13 billion between 2015 and 2020); reducing funding for Medicaid administrative costs (saving $2.26 billion between 2015 and 2020); allowing expedited application for Medicaid waivers in well-qualified states (gives flexibility to states to control costs and improve quality); reforming the medical malpractice system (saving $19 billion between 2015 and 2020 for all health care programs); and establishing a global budget for total health care costs and limiting the growth to GDP plus one percent. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Non-Federal Revenue Sources The federal government limits how states may collect own-source Medicaid revenues. The permissible sources for non-federal public funds are intergovernmental transfers, certified public expenditures, provider donations, permissible provider taxes, and legislative appropriations to the state Medicaid agency (Department of Community Health in Michigan). Current law stipulates that statesвЂ™ share of Medicaid expenditures must be from public funds17 and that no more than 60 percent of the total state share may come from local funds. Intergovernmental Transfers An intergovernmental transfer (IGT) is the exchange of public funds between public entities. Many states utilize IGTs through local government matching requirements in order to raise Medicaid funds. Michigan does not require local government Medicaid matches. However, some funding is transferred between the state and public Medicaid providers through IGTs. These revenues are from local medical facilities such as community mental health services programs, Prepaid Inpatient Health Plans (PIHPs), county indigent health care programs, county medical care facilities, local health departments and public school districts. In FY2011, $48.4 million (0.4% of total own-source revenues) was appropriated from these sources to the stateвЂ™s Medicaid program.18 In the 1990s and the early 2000s, Michigan utilized loopholes in federal funding regulations to raise additional federal funds (See Appendix A). Certified Public Expenditures Certified public expenditures (CPEs) are expenditures made by non-state public entities, such as counties, university teaching hospitals, or other public entities within a state, toward qualified Medicaid services. These expenditures are counted toward a stateвЂ™s share of Medicaid expenses and are therefore matched by the federal government. This provision allows for a county or university hospital to provide certification that it has incurred costs for Medicaid services and the state can attribute those costs to its share to receive a federal match. This option is utilized in lieu of transferring public funds to the state using an IGT. Provider Donations Provider donations were once a common source of Medicaid revenue for states but Congress imposed restrictions in the early 1990s limiting provider donations to those qualified as вЂњbona fide.вЂќ A bona fide donation is one that is voluntary and has no direct or indirect relation to state Medicaid payments made to the health care provider, any related health care provider, or to other providers in the same class. Any distribution of reimbursements cannot be positively correlated to the amount or existence of the donation. The amount of the donation may not exceed $5,000 per year per individual provider or $50,000 per year from any health care organization. Provider Taxes The Social Security Act, Title XIX that created Medicaid allows for states to levy provider taxes to help pay for their share of Medicaid. This tax may be assessed on certain categories or вЂњclassesвЂќ of providers such as inpatient hospitals, outpatient hospitals, nursing facilities, physician services, managed care organizations, and 14 other classes. Revenues from the tax are combined with the federal matching funds and then redistributed among providers in the form of increased reimbursements for eligible Medicaid services. Therefore, providers with higher Medicaid volume receive more in increased reimbursement rates than they pay in provider taxes. In order for the tax revenue to be eligible for a federal match, provider taxes must be approved by the CMS, be вЂњgenerally redistributive,вЂќ and meet these requirements: 1. The tax must be uniformly imposed. All providers in a class must be charged at the same rate or the same amount. The providers are taxed regardless of the amount of their business related to Medicaid; the tax is solely based on the providersвЂ™ line of business (nursing home, hospital, etcвЂ¦) as defined in law. Common forms of taxation are rates on net patient revenues, gross tax revenues, or total facilities costs. Fees are also commonly assessed on the number of licensed beds or on a per patient day basis. For the uniformity criteria to be met, rates and fees must be Citizens Research Council of Michigan 15 CRC Report imposed uniformly on all providers in a class in the state. The requirement may be waived if the state meets a quantitative test applied on a per class basis to all taxes that are not uniform. 2. The tax must be вЂњbroad-based.вЂќ It must apply to all non-federal, non-public medical providers in a class in the state. However, not all classes need be taxed. For example, if a state taxes inpatient hospitals they must tax all inpatient hospitals in the state, except those that are federally or otherwise publically funded. This requirement may be waived if the proportion of Medicaid revenue being taxed under the proposed tax is equal to or greater than the proportion of Medicaid revenue being taxed under a broad-based tax. 3. If possible, the tax cannot hold providers harmless. In other words, the providers paying the tax cannot receive, directly or indirectly, a non-Medicaid payment from the state that would offset the payment the provider makes for all or a portion of the tax. Nor can the state elect to waive taxes for certain providers. This prevents the state from defending providers against losing money from the tax. The payments made to providers may not be positively correlated with the amount of tax paid by that provider or to the difference between the cost of the tax and the Medicaid payment it receives. This provision may not be waived.19 Why are there вЂњwinnersвЂќ and вЂњlosersвЂќ with a provider tax? Most states levy provider taxes and use the associated revenue generated, combined with the additional federal match, to increase the Medicaid provider reimbursement rates, which are set by the states. Whether or not the provider sees a positive or negative net impact from the provider tax depends on the volume of Medicaid services it provides. Providers that render a large volume of Medicaid services, as a percentage of their net revenues, receive the greatest benefit from the tax while those that serve fewer Medicaid patients will receive less benefit. A provider with few Medicaid patients can only lose net income up to the percent of the tax. For example, if a nursing home does not accept Medicaid patients, it would still be liable for the nursing home provider tax, but would not receive any reimbursements for services, since no Medicaid services were delivered. Therefore, this individual nursing home is a вЂњloserвЂќ from the tax in that its net revenues decline by the amount it had to pay in the tax but it received no additional benefit from the tax in the form of greater Medicaid reimbursement. On the other hand, if a nursing home collected 60 percent of its net patient revenues from Medicaid, then it would pay the tax on all revenues (Medicaid and non-Medicaid), but would benefit by receiving more than that much back from the state in the form of increased reimbursement rates, making this provider a вЂњwinnerвЂќ from the tax levy. The Senate Fiscal AgencyвЂ™s (SFA) rough estimate is that 10 percent of nursing homes pay more in taxes than they receive in Medicaid rate increases. However, most of these вЂњlosersвЂќ are nursing homes that do not accept Medicaid patients. Among 95 individual hospitals in Michigan, there are approximately 35 вЂњlosersвЂќ and 60 вЂњwinnersвЂќ and out of 14 hospital systems, only Beaumont Health System and Trinity Health pay more in taxes than they receive in an increased rate reimbursement.* The federal requirement that states cannot hold providers harmless attempts to ensure that there are вЂњwinnersвЂќ and вЂњlosersвЂќ and that the tax is вЂњgenerally redistributive,вЂќ in that more funding goes to those that provide more services. The tax is designed to enhance and expand Medicaid services and many of these requirements are instituted to ensure that states are not using the taxes to reduce their own costs at the expense of the federal government. * 16 Email correspondence with the Senate Fiscal Agency on September 15, 2011. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH the immediately preceding year. This rate is roughly Other federal regulations stipulate that collections at the maximum 6 percent rate. Furthermore, the from provider taxes may not exceed 25 percent of statute assesses a $2.00 fee per non-Medicare pathe stateвЂ™s share of Medicaid expenditures and the tient day on nursing homes and long-term care units state cannot guarantee providers that they will be with less than 40 licensed beds.22 reimbursed at or beyond the amount of the tax they paid. Currently, 46 states and the District of ColumThe Public Health Code stipulates that the provider bia implement some type of provider tax on at least 20 tax assessed on hospitals in Michigan is a fixed or one class of medical providers. Nursing home favariable rate, based on net patient cilities are the class of providers states most commonly tax, fol- The revenue collected from revenues, and generates revenues not to exceed the maximum allowlowed by hospitals and intermedithe provider tax is matched able under the federal matching ate care facilities for individuals with mental retardation or devel- by federal funds and then requirements. It also specifies that opmental disabilities (ICF/MR- 86.8 percent of the total Medicaid reimbursements will be at least maintained at the inDDs). According to the Kaiser Famfunds are redistributed to creased level set in 2002 (the tax ily Foundation, between 2008 and 2011, the number of hospital pro- the providers in the form of was implemented in 2003). The vider taxes imposed by states in- a provider rate increase. statute also requires that any ascreased from 19 to 34, but the to- The state retains the re- sessments collected from a hospital that are not eligible for a federtal number of provider taxes on all maining 13.2 percent of the 21 al match will be returned to the classes stayed about the same. combined provider tax rev- hospital, though this has never Beginning with the FY2002 budget, enue and federal match to actually occurred. This tax is currently assessed at roughly 4.3 perMichigan enacted targeted providoffset GF/GP revenue origi- cent.23 er tax programs called Quality Assurance Assessment Programs nally appropriated for Med(QAAPs). Initially, the QAAP was icaid, freeing up that appro- The revenue collected from the provider tax is matched by federal imposed on only the nursing home priation for other uses. funds and then 86.8 percent of the and long-term care industry. Betotal funds are redistributed to the cause roughly 60 percent of resiproviders in the form of a provider rate increase. dents in nursing homes use Medicaid insurance, these The state retains the remaining 13.2 percent of the providers are typically reimbursed for the entirety of combined provider tax revenue and federal match their tax. QAAPs were briefly levied on Medicaid to offset GF/GP revenue originally appropriated for managed care organizations (namely, Health MainMedicaid, freeing up that appropriation for other tenance Organizations (HMOs) and Prepaid Inpatient uses. Whether or not providers financially benefit Health Plans (PIHPs)), however, taxing these entifrom the tax varies because of MichiganвЂ™s multi-tiered ties was disallowed by U.S. Congress and these approach to provider taxes and the varying rate of QAAPs were phased out by 2009. the tax itself. Nursing homes, many of which do not MichiganвЂ™s provider taxes (QAAPs) are outlined in accept Medicaid or are mostly financed through the Public Health Code, Public Act 368 of 1978. The Medicare, must serve roughly 30 percent Medicaid statute identifies two taxes: one for nursing homes patients to break even from the tax. The break even and long term care units and the other for hospitals. threshold for hospitals is roughly 15 percent of total The assessment for nursing homes and long-term patient days for Medicaid patients.24 care units with more than 40 beds is an amount Table 9 is taken directly from the National Conferresulting in not more than 6 percent of total indusence of State LegislatureвЂ™s report Health Provider try revenues and is based on the total number of and Industry Taxes/Fees, which was updated in 2011, patient days of care each nursing home and longand which shows provider taxes in a selection of term care unit provides to non-Medicare patients in Citizens Research Council of Michigan 17 CRC Report Table 9 Provider Tax Assessments by State, Great Lakes Region State Tax Applies to: Description and Notes IL Hospital (M) Hospital: Occupied beds less Medicare occupied beds from hospitalвЂ™s fiscal year Medicare cost report. The tax rate is $218.38 per occupied bed and is based on Fiscal Year 2005. The annual tax is $900.0 million. ICF/MR-DD (M) ICF/MR-DD: Adjusted gross revenues reported on HFS tax report. The tax rate is 5.5 percent and is based on the previous state fiscal year. The annual tax is $19.1 million. Nursing Home (M) Nursing Home: Licensed beds multiplied by number of days in the current quarter. The tax rate is $1.50 per licensed bed day and is based on the current state fiscal year. The annual tax is $55.2 million. In 2011, the legislature passed a bill to increase the bed tax bringing in an estimated $145 million next year. Article вЂ” Chicago Tribune, 1/12/11. ICF/MR-DD (M) ICF/MR-DD: Revised 2008. вЂњEach facilityвЂ™s assessment shall be based on a formula set forth in regulations promulgated by the Department of Mental Health;вЂќ effective June 29, 2009. Nursing Home Nursing Home: SB 169 of 2006; effective July 1, 2006, extends an expiring levy on nursing facilitiesвЂ™ non-Medicare total annual patient days. The extension of the $10 per non-Medicare patient day Quality Assessment is estimated to result in total additional payments to nursing facilities of approximately $215.8 million. Estimated total annual collection of $102.5 million for FY 2007. Hospital (M) Hospital: Fixed or variable rate to generate funds not to exceed federal matching requirements. Nursing Home Nursing Home: An amount resulting in not more than 6% of total industry revenues and is based on the total number of patient days of care for home with more than 40 licensed beds. Homes with less than 40 licensed beds are charged $2.00 per non-Medicare patient day. Other: Community Mental Health Other вЂ” Community Mental Health: Provider tax revenue was $674.0 million for fiscal 2006; $856.0 million for fiscal 2007 and $1,008.0 million for fiscal 2008.6 IN MI Note: Managed Care Org. fee discontinued in 2010. MN Hospital (M) вЂњMinnesotaCare Tax:вЂќ Hospitals, surgical centers, health care providers, and surgical centersвЂ™ wholesale drug distributors pay 2% of estimated tax gross revenues (Sec. 295.52(4a)). Hospital: вЂњHospital SurchargeвЂќ is 1.56% of net patient revenues (Sec. 256.9657). 18 ICF/MR-DD (M) ICF/MR-DD: Tax is $1,040 per licensed bed annually. Managed Care Org. (M) Managed Care Org.: HMO and Integrated Network surcharge is 1.6% of total premium revenues. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH State Tax Applies to: OH PA WI Description and Notes Nursing Home (M) Nursing Home: вЂњNursing Home License Surcharge:вЂќ Licensed non-stateoperated nursing homes pay an annual surcharge of $2,815 per licensed bed. Increased from $625 in 2002 & 2003 (Sec. 256.9657). Other: Providers (M), Ambulatory Surgical Centers (M), and Wholesale Drugs (M) Other вЂ” Providers, ambulatory surgical centers, and wholesale drugs have a tax of 2%. Hospital (M) Hospital: Hospitals assessment on total facility costs not to exceed 2%, determined annually (Ohio Rev. Code Sec. 5112.01 et seq.). ICF/MR-DD NA Managed Care Org. Managed Care Org.: Began in 2006. Nursing Home Nursing Home: Nursing home and hospital bed annual franchise permit fee at $1.25 per day per bed (Ohio Rev. Code Sec. 3721.51 as increased from $1 by HB 199 of 2007). Hospital NA ICF/MR-DD NA Managed Care Org. (M) Managed Care Org.: Pennsylvania enacted a gross receipts tax on the managed care plans tied to the amount of revenue they received from Medicaid. Tax of 59 mills is imposed on each dollar of gross receipts received by managed care organizations pursuant to a contract with the PA Department of Public Welfare. Effective October 1, 2009. Nursing Home NA Hospitals Hospitals: In effect 2007-2008. ICF/MR-DD ICF/MR-DD: Intermediate care facility assessment of $445 per month for fiscal year 2004-2005. Nursing Home (M) Nursing Home: Nursing home assessment of $75 per month per licensed bed. Increased from $32 in 2003. (Sec. 50.14, Wis. Stats, as amended by Act 33 (S.B. 44), Laws of 2003). Other NA The code (M) indicates taxes or fees that are used to obtain Medicaid matching funds. The code (NA) indicates that details are not available. ICF/MR-DD is intermediate care facilities for individuals with mental retardation or developmental disabilities. Source: National Conference of State Legislatures. Health Provider and Industry Taxes/Fees. Article #14359. February 2011 (updated July 2011). www.ncsl.org/?tabid=14359 Citizens Research Council of Michigan 19 CRC Report states from the Great Lakes region.25 Table 9, which can be found in its entirety in Appendix B, shows that there is no common formula for which provider classes are taxed or for the rate or amount they are taxed. Some states levy taxes based on gross revenues and others on net revenues. Many of the taxes are assessed on occupied beds, licensed beds, per bed per day, or annual patient days. Several states have a combination of taxes such that one class is assessed a rate and another is assessed a fee. For example, Minnesota taxes 2 percent of estimated gross tax revenues for hospitals, surgical centers, health care providers, and surgical centersвЂ™ wholesale drug distributors. There is also a 1.56 percent hospital surcharge on net patient revenues and a 1.6 percent tax on managed care organizationsвЂ™ premium revenues. Minnesota also assesses a fee of $1,040 per licensed bed annually to ICF/ MR-DDs and an annual surcharge of $2,815 per licensed bed to some nursing homes. Legislative Appropriations to DCH Several funding mechanisms are utilized to collect restricted and general purpose revenues that are appropriated to MichiganвЂ™s Department of Community Health (DCH) which administers Medicaid. Main revenue sources are the HMO/PIHP Use Tax, the Health Insurance Claims Assessment, the Tobacco Tax, and general fund appropriations. HMO/PIHP Use Tax. With the federally required 2009 phase out of the HMO/PIHP QAAP, Michigan would have had to increase GF/GP spending by $200 million to maintain services unless it replaced that revenue. Because of the QAAP, Medicaid HMOs and Medicaid PIHPs were now defined in statue, and therefore could be subject to the stateвЂ™s already existing six percent Use Tax. In broadening the base of the Use Tax to include these Medicaid providers, the state could tax the exact same entities it had the year before using an existing tax structure. By doing this, the Use Tax acted like a QAAP except that it was not considered a provider tax. The new taxing method was approved by the CMS, though it was вЂњdubiousвЂќ about the proposal, and the state implemented the tax in FY2009.26 20 Health Insurance Claims Assessment. Based on the expectation that the CMS would soon disallow Michigan from including HMOs and PIHPs in the base of the Use Tax, Public Act 141 of 2011 was enacted to amend the Use Tax Act to exclude HMOs and PIHPs in its base beginning in March 2012. This law is tiebarred to Public Act 142 of 2011 which places a 1.0 percent tax on eligible paid health claims. Payments made by Medicaid HMOs and PIHPs, which were previously subject to a QAAP and then the Use Tax, would be subject to this tax. The entity paying the health claim, such as the insurer, HMO, or third party administrator is responsible for paying the assessment to the state. Revenue is deposited in the Health Insurance Claims Assessment fund in the Department of Treasury. The revenue is restricted and only used to support the Medicaid program. The health claims assessment took effect on January 1, 2012 and will sunset on January 1, 2014. According to the Senate Fiscal AgencyвЂ™s bill analysis, the assessment will generate approximately $375 million and result in a net gain in the general fund of $5 million when compared to the previous Medicaid HMO/PIHP Use Tax. 27 While many new entities are taxed by the health claims assessment, those that may pay the most new taxes are self-insured public and private employers such as the state government, public universities, community colleges, school districts, local governments, and large private self-insured companies such as manufacturers. In these cases, the third party administrator of the insurance will likely pass the cost of the assessment directly to these entities. The Senate Fiscal Agency estimates that the state government, local governments, universities, community colleges, and school districts combined will pay $35.9 million for this assessment, with $8 million of those costs being paid by local governments and the bulk, $20 million, paid by school districts.28 One benefit of this assessment is that it more closely follows federal requirements and the intent of a вЂњbroad-basedвЂќ tax when compared to past funding strategies. The assessment may provide a long term source of funds for the stateвЂ™s Medicaid program. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH TaxesвЂќ section below. Tobacco Tax. Medicaid is also partially funded by the state tobacco tax. The Medicaid Trust Fund, which was established in 2000 and is drawn upon for Medicaid funding when there is a shortfall from the anticipated federal revenue, receives 31.9 percent of the cigarette tax revenue and 75.0 percent of other tobacco product tax revenues. In FY2011, an estimated $334.3 million from this tax was allocated to the Medicaid Trust Fund. Between FY2008 and FY2012, tobacco tax revenues declined 13.0 percent with the amount allocated to the Medicaid Trust Fund declining 10.1 percent. General Funds. While many of the legislative appropriations discussed above are deposited into the stateвЂ™s general fund, they do not cover the entire cost of Medicaid. Therefore, funding must also be appropriated from non-specified general fund/general purpose (GF/GP) dollars. GF/GP revenues may come from a variety of sources including sales and income taxes. Chart 2 breaks out revenues by source, as a percentage of own-source Medicaid spending. The QAAP was enacted in 2002 and expanded several times; it reached its peak revenue in 2008. The HMO/PHIP Use Tax, which was implemented in 2009, will be phased out in March 2012 explaining the large percentage share decline from FY2011 to FY2012. The ARRA permitted the state to offset a larger portion of its GF/GP expenditures from 2009 through 2011; between 2008 and 2009 Medicaid GF/GP spending declined 27.5 percent from roughly $2.4 billion to $1.8 billion. There are several reasons why revenue from this flat tax is declining. First, smoking is declining, which shrinks the base of the tax and thus its revenues. Secondly, inflation is slowly degrading the real value of the revenues. The tax last rose to $2.00 per pack in 2004, however $2.00 in 2004 dollars does not have the same purchasing power as $2.00 today. Other merits and demerits of the tobacco tax are discussed in the вЂњProvider Taxes versus Broad-Based 24.5% 27.5% 4.7% 22.5% 45.3% 20.5% 21.0% 45.2% 20% 44.4% 61.9% 66.8% 67.6% 2004 57.3% 62.8% 2003 33.3% 29.9% 13.0% 10.2% 23.0% 25.1% 12.8% 27.4% 26.7% 59.4% 30% 66.7% 50% 40% 9.4% 8.8% 21.8% 60% 3.9% 37.4% 6.5% 15.3% 70% 10.5% 80% 34.1% 90% 32.9% 100% 19.5% Chart 2 Own-Source Medicaid Revenues by Source as a Percent Share, FY2002 to FY2012 2011 2012 10% 0% 2002 2005 2006 2007 2008 2009 2010 Fiscal Year End GF/GP Exp QAAP Use Tax Other Rev Source: Data calculated from Senate Fiscal Agency documents Citizens Research Council of Michigan 21 CRC Report Medicaid Expenditures State Budget Overview passage of the ARRA in FY2009. Total Medicaid spending as a percent of total state spending has grown steadily since 1999, from consuming 9.7 percent of all spending to a high of 15.2 percent in FY2011. In Michigan, the state governmentвЂ™s finances have been negatively impacted over the last decade from a number of factors including high unemployment, falling real per capita incomes, and an exodus of Expenditure Components residents. Accordingly, real total state government spending fell 11.3 percent and MichiganвЂ™s adopted budget for state general fund spending deTotal Medicaid spending as FY2012 includes $11.7 billion for clined by 31.1 percent. As a result, there were spending cuts to a percent of the total state Medicaid, which includes both nearly all major budget areas ex- spending has grown steadily own-source and federal matching cept for DCH, the departmental since 1999 from consuming funds. This price tag is intended to provide Medicaid services for an home of Medicaid. 9.7 percent of spending to estimated 1.92 million people, or Including both state and federal a high of 15.2 percent in roughly 1 in 5 state residents. The total appropriation is broken down funding, nominal Medicaid spend- FY2011. by source, as a percent of the toing in Michigan has more than doutal appropriation, in Table 10. bled from $4.8 billion in FY1999 to Medicaid funds are typically allocated among two $11.7 appropriated for FY2012. When adjusted for categories вЂ” mental health and physical health вЂ” inflation, total spending on Medicaid increased 88 with the bulk of funds supporting physical health percent and general fund spending on Medicaid rose services (81.66 percent). The major line item ex35 percent between FY1999 and FY2012. Part of this increased Medicaid spending was offset by Chart 3 new taxing sourcMedicaid Spending as a Percent of Total and General Fund Michigan es, namely the Spending, FY1999-2012 QAAPs and the HMO/PIHP Use 30% Tax that took ef25% fect in FY2009. General fund spending for Medicaid as a percent of the total general fund reached its peak in 2007 at 27.9 percent and dropped steadily in the following years because of the infusion of FMAP enhancements with the 22 20% 15% 10% 5% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fiscal Year Ending Medicaid State Spending as Percent of Total Medicaid GF/GP Expenditures as Percent of GF/GP Source: Data from Senate Fiscal Agency documents Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH enrolled in those programs. Capitation rates are the per person rates paid to MCOs for service. They are actuarially sound, and based on FY2012 age, eligibility group, and Community Mental Health 18.3% other demographic factors to best estimate actual costs of Health Plan Services (Medicaid HMOs) 34.9% providing coverage to MedAll Long-Term Care 18.9% icaid patients. The cost of Hospital Services 10.9% the health plan services is Medicare Part D 4.7% also based on what services Medicare Premium Payments 3.5% the state contracts for with Pharmaceutical 2.9% the MCO. While the MCO is Physician Services 2.6% designed to provide compreDental Services 1.4% hensive care, many states вЂњcarve-inвЂќ or вЂњcarve-outвЂќ Hospice Services 1.2% specific services for various Hospital DSH 0.4% reasons. A вЂњcarve-inвЂќ would Ambulance Services 0.1% be services included in the Auxiliary Medical Services 0.1% contract and those вЂњcarvedHome Health Services 0.1% outвЂќ would be services that Transportation Services 0.1% are excluded from the conTOTAL Physical Health 81.7% tract and are usually paid for on a fee-for-service basis GRAND TOTAL (CMH + Physical Health) 100.0% (see box for more details). Source: Data calculated from Senate Fiscal Agency documents Some of the items that Michigan carves-in are outpatient behavioral health, nonpenditures for physical health include services proemergency transportation, most outpatient pharmavided by hospitals, physicians, ceuticals, and vision services. Spehome health, hospices, ambulanc- Additionally, 34.9 percent of cific Michigan carve-outs are dental es, and dentists as well as pharservices, inpatient behavioral the Medicaid budget is spent maceuticals; all are provided on a health, outpatient substance fee-for-service basis. Additional- on health plan contracts for abuse, inpatient detoxification, ly, 34.9 percent of the Medicaid comprehensive health care physical therapy, occupational therbudget is spent on health plan conapy, and specific pharmacy drugs programs that cover sertracts for comprehensive health including anti-psychotics and those care programs that cover services vices for roughly 80 percent for mental health.29 A comprehenfor roughly 80 percent of Medicaid of Medicaid beneficiaries. sive list of included and excluded beneficiaries. Definitions for seservices is in Appendix C. lected budget line items are included below. Medicare Premium Payments and Medicare Part D Table 10 Line Item Appropriations for Michigan Medicaid as a Percent of Total Medicaid Appropriations, Fiscal Year 2012 Health Plan Services Health Plan Services are capitation-based payments made to managed care organizations (MCOs), such as HMOs, to oversee the care of Medicaid patients While Medicare is a federally funded health insurance program for persons aged 65 and over, there are a group of elderly individuals that are dually eligible for Medicare and Medicaid because of their age and income. These dual-eligibles are therefore Citizens Research Council of Michigan 23 CRC Report served by both programs; with Medicaid covering specific components of the program that Medicare does not such as copayments, premiums, and coinsurance. Medicare Part D is one an example of an expense paid by Medicaid on behalf of low income Medicare recipients. Medicare Part D is a prescription drug benefit for Medicare beneficiaries that requires payment of a deductible, coinsurance, and some additional out-of-pocket expenses if expenses go over a certain limit. If a beneficiary is dually eligible, Medicaid covers these expenses. The federal government provides a match for Medicare Part D payments that is equivalent to the FMAP. Hospital DSH Disproportional Share Hospital (DSH) payments are federally allowed additional payments made through the Medicaid program to hospitals that serve a disproportionately high percentage of uninsured or Medicaid insured patients. These payments are eligible for a federal match but there is a cap on the reimbursable amount that is based on inflationary growth of historic DSH spending. Because health care reform will reduce the number of uninsured and uncompensated care patients, the federal Affordable Care Act of 2010 (ACA) places additional limitations on DSH payments beginning in 2014. All Long-Term Care вЂњAll long-term careвЂќ costs include Medicaid payments to nursing homes and other hospital longterm care units as well as home and community based waiver expenses, adult home help, and personal care services. Drug Rebate Program and Pharmacy вЂњcarve-outsвЂќ The federal Omnibus Budget Reconciliation Act of 1990 created the Medicaid Drug Rebate Program that requires drug manufacturers to have an outpatient drug rebate agreement with the CMS that subsidizes pharmaceuticals covered under the fee-for-service component of Medicaid. The amount of the rebate is determined by the amount of the drug purchased by the state Medicaid program multiplied by the greater of either: the difference between the average wholesale price (AWP, best price) and the drugвЂ™s average manufacturer price (AMP, amount drug actually sells for); or 15.1 percent of AMP. Generic drug manufacturers must provide a rebate of 11 percent of AMP. The Congressional Budget Office estimates that the average rebate was 23.1 percent of AMP in 2007. These rebates provide real Medicaid program cost savings to both the state and federal governments. Until the Drug Rebate Equalization Act of 2009 (DRE) was signed into law with the ACA, MCOs with Medicaid contracts were not authorized to receive rebates for drugs purchased on behalf of Medicaid patients. Since this is an added cost to the MCOs which is then passed down in the contract cost to states, many states have an arrangement where they вЂњcarve outвЂќ drug benefits from the MCO contract. In this case, patients receive Medicaid drug coverage through the fee-for-service program. With the passage of the DRE, states can authorize MCOs to manage Medicaid patient drug coverage. Another significant change in drug rebates through the ACA is the reimbursement rate and procedure. The ACA set new minimum rebates of 15.1 percent to 23.1 percent for most brand name drugs and smaller amounts for generics and others, with 100 percent of the rebate going to the federal government instead of the shared arrangement in place prior. This policy went into effect in January 2010. Source: Congressional Budget Office. Budget Options, Volume One. December 2008. www.cbo.gov/ftpdocs/99xx/doc9925/ 12-18-HealthOptions.pdf 24 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Affordable Care Act of 2010 The federal Patient Protection and Affordable Care Act (ACA) signed into law in March 2010, marks the beginning of an historic expansion of Medicaid. When the law takes effect January 1, 2014, Medicaid coverage will expand to an estimated 16 million newly eligible individuals nationwide. The federally mandated eligibility requirements will be expanded to include those under age 65 with incomes up to 133 percent of the FPL with no consideration for assets. The major components of the new law are individually mandated health insurance, federal financial assistance for those who cannot afford health insurance, mandates for employers with more than 50 full-time employees to provide insurance, and a requirement for health insurance companies to cover all applicants. Between 2014 and 2016 the federal government will cover 100 percent of the newly eligible population and between 2017 and 2020 their share will drop to 90 percent such that by 2020, states will be financially responsible for 10 percent of the newly expanded Medicaid population. Individuals without employer sponsored insurance can buy insurance through state-run health insurance exchanges (or federally operated health insurance exchanges if a state does not have an operational exchange as of January 1, 2013) and several lower income groups (133 percent through 400 percent of the FPL) will receive tax credits to participate. The federal government will provide states with extra funding to implement the health insurance exchanges, the expansion of Medicaid, and many of the other requirements under the new law. There are several features to the ACA that will impact statesвЂ™ budgets going forward, many of which take effect prior to the official 2014 expansion of health care. One example is the provider reimbursement rate increase for primary care services provided by primary care doctors to 100 percent of the Medicare payment rates for 2013 and 2014. While the federal government will pay the difference between these rates and those the state paid as of Health Insurance Exchanges As required by the ACA, states must set up and operate health insurance exchanges (referred to as вЂњexchangesвЂќ). These exchanges provide an online and telephone marketplace where consumers will be able to compare various insurance plan options, features, and prices and then make a purchase. The exchanges have been compared to travel search engines such as вЂњTravelocityвЂќ where customers complete a basic questionnaire and receive a sideby-side list of purchasing options and prices that meet that criteria. States have flexibility in the creation, operation and governance of the exchanges. The exchanges may be statewide, multi-state, or may cover smaller geographic areas such as intrastate regions. The exchange may be operated by the state, another government or quasi-government agency, or a nonprofit entity.* Individuals without employer sponsored insurance can buy coverage and subsidies will be given to those in lower income groups. To meet their coverage obligations, employers may provide financial assistance to employees to buy their own insurance through the exchange. All health insurance plans offered on the exchange must meet minimum coverage levels set out in the ACA. The exchange must be operational on January 1, 2014 and states must show sufficient progress toward developing the exchange at various milestones prior to this date. If a state does not meet minimum criteria in developing their exchange or the CMS deems the exchange as not making sufficient progress by January 1, 2013, then residents will use an exchange operated by the federal government. вЂњHealth Insurance Exchanges Explained For Employers.вЂќ Governing Magazine: White Paper. Accessed October 12, 2011. http://media.navigatored.com/documents/Health-Insurance-Exchanges-for-Employers.pdf * Citizens Research Council of Michigan 25 CRC Report July 1, 2009, the state must choose whether or not to maintain the enhanced rate and assume the cost based on their federal matching percentage. to test methods of encouraging healthy lifestyles through behavior modification (smoking cessation, diet, exercise, etc.). It also creates two new centers within CMS to better align Medicare and Medicaid administration, financing, and oversight for dual-eligibles and to develop new ways to better coordinate care between the two insurance systems.30 The ACA contains many provisions to incentivize states to take certain actions. States that expand Medicaid coverage to parents and childless adults prior to the 2014 requirement will qualify for a higher federal match rate specific to this population. The Other features of the ACA are discussed in the вЂњPolACA also incentivizes expansions in preventive care icy SolutionsвЂќ section below. and adult vaccinations without cost sharing (cost Maintenance of Effort Requirements sharing refers to copayments or coinsurance paid for by the enrollee); states that meet this requireUnder the maintenance of effort requirements that ment will be eligible for a one percentage point inwere first instituted by the American Recovery and crease in their FMAP for costs for these services beReinvestment Act (ARRA) in 2009 ginning in 2013. Additional matching funds are also available Under the maintenance of and then extended by the ACA, states must maintain eligibility to states that meet certain requirements for expanding the percent- effort requirements that standards, methodologies, and age of long-term care spending for were first instituted by procedures that were in place on home and community based ser- American Recovery and Re- March 23, 2010 until their exchange is operational. Because the vices. The federal government is investment Act in 2009 and ACA extended the ARRA mainteoffering an FMAP increase of six nance of effort requirements, the then extended by the ACA, percentage points for related costs to states that amend their state states must maintain eligi- implication is that until at least Janplan to include the Community First bility standards, methodolo- uary 1, 2014 eligibility must be maintained at the same levels as Choice which provides Medicaid gies, and procedures that they were on July 1, 2008. Eligifunded home and community based attendant services. The were in place on March 23, bility requirements for children ACA, in further attempts to expand 2010 until their exchange is must be maintained through 2019. One exception to the maintenance home health care for the disabled operational. of effort requirement is that beneand those with chronic conditions, fits to non-disabled, non-pregnant provided a 90 percent match for childless adults with incomes greathome health services effective January 2011. er than 133 percent of the FPL may be eliminated or reduced if the state shows proof of a certified budThe ACA sets new mandatory minimum drug rebate get deficit. Michigan provides coverage for childless amounts and for the first time allows MCOs to coladults, but its low income threshold (35 percent) lect rebates on pharmaceuticals on behalf of Medicmakes the state ineligible for this waiver. Should a aid patients; these minimums went into effect in state violate the maintenance of effort requirement January 2010 and applied to MCOs on March 23, it would lose all federal Medicaid funding. 2010. The law also includes several new demonstration projects and grants designed to improve The maintenance of effort requirements only apply service delivery and payment processes. These to eligibility and not to optional benefits; however, grants and pilot projects include: selecting eight benefits cannot be altered in such a way as to change states to use bundled payments to promote integraeligibility. This means that within the ACA and maintion of hospital care; selecting five states to test tenance of effort requirements, states still have some paying a safety net hospital system using a global flexibility in managing budgets and containing deficapitated payment model; awarding grants to states cits. 26 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Medicaid Cost Drivers Medical and health related costs in the U.S. have been increasing at rates higher than overall economic growth nearly every year. Between 1970 and 2008 health care expenditures as a percent of the gross domestic product rose from 7.1 percent to 16.0 percent, compared to 2008 shares of 11.2 percent in France, 11.1 percent in Belgium, 10.5 percent in Germany and 10.4 percent in Canada.31 Additionally, medical cost growth rates are also higher, but not highest, in the U.S. compared to select other OECD nations (see box for more details). The Medicare Office of the Actuary recently projected health care spending to rise annually by 5.8 percent through 2020, but 8.3 percent in 2014 when the ACA takes effect.32 Medicaid encounters the same inflationary problems as the rest of the health care system. In FY2010, total Medicaid spending increased by 7.9 percent across states and is estimated to have increased 11.2 percent in FY2011.33 Between 2007 and 2009 Medicaid spending increased 7.1 percent nationwide and Health Care Spending: An International Perspective A recent report by the Commonwealth Fund* using data from the Organization for Economic Cooperation and Development (OECD) compares total health care spending for Australia, Canada, Denmark, France, Germany, Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States (U.S.). The data revealed that the U.S. spends far more on health care with per capita spending at $7,538 versus an OECD median of $2,995. In fact, Norway, the second highest spending country, spent only $5,003 per capita in health care, less than two-thirds of that spent in the U.S. Of the 12 countries, seven countriesвЂ™ per capita health care spending was less than half of that in the U.S. The data also highlights sources of funding for health care expenditures. While the greatest portion of U.S. spending came from public funding, it was a much lower percent (46.5 percent) compared to the other 12 OECD countries. Consequently, U.S. private spending ($3,119 per capita of total) was highest among nations and outof-pocket expenditures were the second highest ($912 after SwitzerlandвЂ™s $1,424). The U.S. also dominates in health care spending by another measure вЂ“ percentage of gross domestic product. In 2008, the U.S. spent 16 percent of its GDP on health care compared to 13.4 percent in 1998, and an OECD median of 8.7 percent in 2008 and 7.8 percent in 1998. The second highest spending country, France, spent only 11.2 percent of its GDP on health care in 2008. The U.S. also had the fewest practicing physicians (2.43 per 1,000 population) and the second lowest number of physician visits per capita (6.4 per capita). Patients in the U.S. had shorter hospital stays (5.5 days) than the median of the 12 OECD countries (6.0 days) but hospital spending per discharge ($16,708) was nearly three times the median ($5,949). Additionally, pharmaceutical use was the highest (61 percent adults taking at least one prescription and 25 percent of adults taking at least four) and pharmaceutical spending per capita ($897) was twice the median ($461). Despite widespread pharmaceutical use, hospital admissions for chronic diseases such as asthma, congestive heart failure, and diabetes acute complications, was highest in the U.S. among the 12 OECD countries. Unfortunately for the U.S., its high spending has mixed results in many health care outcomes. For example, fiveyear cancer survival rates for breast and colorectal cancers were highest in the U.S., but the U.S. ranked fourth in five-year cervical cancer survival rates. The U.S. had the third highest fatality rate for in-hospital deaths of those admitted for myocardial infarction, and the second highest in-hospital death rate for hemorrhagic stroke. David A. Squires. вЂњThe U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations.вЂќ The Commonwealth Fund publication 1532 vol. 16. July 2011. * Citizens Research Council of Michigan 27 CRC Report 6.9 percent in Michigan while the Detroit Consumer Price Index increased 1.7 percent.34 The Fiscal Survey of States, a joint survey between the National Governors Association and The National Association of State Budget Officers, reports that GovernorsвЂ™ proposed budgets are expected to reflect an average decline of 2.9 percent in Medicaid spending for FY2012 with state funds increasing by 18.6 percent and a decline of federal funds of 13.0 percent (due to end of ARRA FMAP enhancements).35 Cost driving components behind the large year-to-year changes for Medicaid are enrollment growth, case mix, service utilization, provider payment rates, and the FMAP; each are discussed below. 2002 (9.3 percent), 2009 (7.8 percent), and 2010 (7.2 percent).36 MichiganвЂ™s Medicaid enrollment growth rates trend higher than the nationвЂ™s which is expected given the stateвЂ™s decade-long recession began in 2001. Enrollment in Michigan grew fastest in 2010 at 11.0 percent compared to a nationwide high of 9.3 percent in 2002. Enrollment growth is based on several factors. First, the impact of the recessions resulted in high unemployment, especially in Michigan, and increased enrollment in publicly funded health insurance when people lost their employer-sponsored insurance or were unable to afford private insurance. Second, eligibility was expanded by either adding new groups or expanding existing groups. For example, in 2003 Michigan extended benefits to low income, childless adults through the Adult Benefits Waiver program. However, in subsequent years, the state reduced enrollment levels in this program and several others in an effort to reduce costs. While the federal government will be financing the cost of the newly expanded Medicaid population in 2014, states will be sharing the cost for those increased caseloads be- Enrollment Growth Between 2001 and 2010 national Medicaid enrollment grew from 31.74 million to 50.31 million, an increase of 58.5 percent; MichiganвЂ™s enrollment grew 68.5 percent over this period. This same decade endured two national recessions which consequently drove annual enrollment growth rates for the nation above 7 percent in each 2001 (7.5 percent), Chart 4 Total Medicaid Enrollment, Year-over-Year Percent Change Michigan compared to U.S. and Great Lake States Averages, June 2001 to June 2010 12% 11.0% 10.4% 10% 8% 9.2% 9.3% 8.9% 8.5% 7.8% 7.5% 6.4% 7.2% 6.7% 6.7% 5.6% 6% 8.3% 7.2% 6.3% 5.7% 4.3% 4% 4.1% 4.3% 3.2% 4.2% 3.9% 3.0% 2.9% 2.7% 1.6% 2% 0.9% 0.2% 0% 2001 2002 2003 2004 2005 -2% Michigan US Average 2006 2007 -0.6% 2008 2009 2010 Great Lake States Average Source: The Kaiser Family Foundation: Publication #8050-03. February 2011. 28 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH ginning in 2017 but can generally expect fewer costs from enrollment growth in the meantime. Case Mix The distribution of Medicaid spending does not match the enrollment distribution, in Michigan or nationally. In Michigan, 41 percent of Medicaid payments were on behalf of non-elderly disabled persons, which is close to the national average of 43 percent. Payments on behalf of the elderly made up 22 percent; non-disabled children, 21 percent; and non-elderly, non-disabled around one adults, 15 percent (See Chart 6).38 The mix or type of cases has a large impact on costs. For instance, the elderly and disabled have more frequent doctor and hospital visits, have higher usage of prescripIn Michigan, tion medications, and are more likely to utilize expensive long-term quarter of enrollees are eicare. In Michigan, around one ther elderly or disabled quarter of enrollees are either eld- which drives up costs disproerly or disabled which drives up portionately as over 60 percosts disproportionately as over 60 percent of expenditures for Med- cent of expenditures for icaid are on their behalf.37 Medicaid are on their behalf. In FY2008 (most recent data available), the largest group of Michigan enrollees were children (54 percent of the total, compared to the national average of 49 percent), followed by adults at 22 percent, the disabled at 16 percent, and the elderly at 7 percent (See Chart 5). Chart 5 Distribution of Medicaid Enrollees in Michigan by Enrollment Group, FY2008 Disabled, 16% The proportion of elderly and disabled patients has declined compared to children and adult enrollments since 2000, but this may not be a lasting trend. Elderly and disabled enrollments do not tend to change with economic fluctuations as enrollment for children, adults and pregnant women do and as the economy strengthens their percent share of enrollments may grow again. Another growing concern is spending on behalf of low income elderly individuals who are dually eligi- Chart 6 Distribution of Medicaid Payments in Michigan by Enrollment Group, FY2008 Children, 21% Children, 54% Elderly, 7% Disabled, 41% Adults, 15% Adults, 22% Elderly, 22% Source: The Kaiser Family Foundation. Distribution of Medicaid Payments by Enrollment Group (in millions), FY2008. www.statehealthfacts.kff.org/ comparemaptable.jsp?ind=858&cat=4 Source: The Kaiser Family Foundation. Distribution of Medicaid Payments by Enrollment Group (in millions), FY2008. www.statehealthfacts.kff.org/ comparemaptable.jsp?ind=858&cat=4. Citizens Research Council of Michigan 29 CRC Report ble for both Medicaid and Medicare. In 2011, this population accounted for 12.5 percent of MichiganвЂ™s Medicaid enrollees and about 38 percent of spending, roughly $1 billion of which was from the stateвЂ™s general fund.39 Because this population is served by two insurance systems, there is a great deal of inefficiency in providing medical care; a coordinated health care delivery system is a focus in discussions of both federal and state budget reduction solutions. Service Utilization Utilization rates are heavily tied to case mix and enrollment trends. As described above, the elderly and disabled consume a higher proportion of resources due mostly to their high utilization rates and the types of services they receive. For example, in FY2008, spending per elderly enrollee was $14,837 versus $1,845 per child, $3,098 per adult enrollee, and $12,127 per disabled enrollee in Michigan. Nationally, spending per disabled enrollee was highest at $14,865 followed by $12,950 per elderly enrollee.40 As seen in Table 11, some of the highest cost services have low utilization rates but still consume a large portion of the spending. For example, in FY2008 Nursing Facility Services served 2.6 percent of Medicaid patients at an average rate of $32,319 per client and consumed 16.4 percent of the budget. On the other hand, 31.2 percent of beneficiaries used physician services in FY2008 at an average cost of $405 per client but the total cost of providing this service equaled just 2.5 percent of MichiganвЂ™s Medicaid budget. Some very expensive services such as for those at Intermediate Care Facilities for the Mentally Retarded ($163,811 on average per client annually) are used by a very small percentage of clients (0.01 percent) and therefore Table 11 Michigan Medicaid Cost per Client, Utilization, and Spending by Service Category, FY2008 Service Category FY2008 Total Beneficiaries Intermediate Care Facility for the Mentally Retarded Services Mental Health Facility Services Nursing Facility Services Inpatient Hospital Services Health Plan Services (Medicaid HMOs) Personal Support Services Clinic Services Other Care Services Outpatient Hospital Services Prescribed Drugs Services Sterilization Services Home Health Services Physician Services Dental Services Lab and X-ray Services Other Practitioner Services Primary Care Case Management Services Services Not Identified Cost per Client $5,157 $163,811 $36,234 $32,319 $9,964 $3,418 $3,160 $1,147 $1,133 $856 $753 $690 $577 $405 $182 $133 $67 $8 $342,072 Percent of Utilization 0.01% 0.04% 2.6% 5.8% 76.7% 8.1% 10.8% 10.8% 13.9% 33.6% 0.1% 0.3% 31.2% 23.1% 20.9% 5.7% 0.03% 0.0001% Percent of Spending 0.2% 0.3% 16.4% 11.3% 50.8% 5.0% 2.4% 2.4% 2.3% 4.9% 0.02% 0.0% 2.5% 0.8% 0.5% 0.1% 0.00004% 0.004% Source: Calculations based on data from Centers for Medicare & Medicaid Services, Medical Statistical Information System Tables. https://www.cms.gov/MedicaidDataSourcesGenInfo/MSIS/list.asp 30 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH are not huge cost drivers. Health Plan Services provide managed care for the majority of Medicaid enrollees. Managed care covers most medical care services at a comparably low rate ($3,418 per client annually),41 while many of the other services listed are paid on a fee-for-service basis and are typically for services carved out of state contracts or for clients not enrolled in managed care. Utilization rates are higher among the elderly and disabled. Even though this population made up 23 percent of MichiganвЂ™s FY2008 enrollees, 63 percent of spending was on their behalf. If the case mix changes such that the percent of elderly and disabled enrollees grows faster than the remaining groups, then spending will grow at a much faster pace than the alternative scenario. Provider Reimbursement Rates States are relatively free to determine reimbursement rates paid to health care providers for delivered Medicaid services. However, there are requirements that reimbursement rates be вЂњreasonableвЂќ and they must be approved by CMS. Medicaid pays notoriously low reimbursement rates for services and pharmaceuticals, where the average rate paid for all services is 72 percent of the rate paid by Medicare. However, statesвЂ™ costs are heavily tied to changes in provider rates as most Medicaid expenses are paid through reimbursements to providers. FMAP Each stateвЂ™s percent share of Medicaid costs paid with federal funding is determined by the FMAP. Over the years, Michigan has seen a slow increase in its FMAP, which is indicative of its relative decline in real per capita income. This FMAP growth shifts some of the Medicaid cost burden to the federal government, thereby helping to control state spending. Historically, Michigan and many other states used creative financing to maximize the federal match, sometimes receiving matches for transferred funds when no services were actually rendered; these strategies saved the state $8.0 billion between 1990 and 2008 (See Appendix A for more details).42 Citizens Research Council of Michigan 31 CRC Report Affordable Care Act Impact Many states fear potential Medicaid cost surges associated with the ACA especially once federal contributions are paired down in 2020. Several studies have sought to estimate what this impact may actually be when the law takes effect in 2014. The first report that looked specifically at Michigan was conducted by the Senate Fiscal Agency (SFA) in April 2010, just one month after the ACA was signed into law.* This report highlights the three main ways MichiganвЂ™s budget will be impacted by the law: (1) as a main provider of medical coverage for low income individuals and families through Medicaid; (2) as an operator of state-owned hospitals; and (3) as an employer that is now required to provide health insurance to employees based on legal requirements. The study concluded that there will be limited state funding liability through 2019 in the expansion of coverage to all individuals below 133 percent of the FPL because 93 percent to 100 percent of the new coverage will be paid by the federal government. In fact, many of the individuals that are currently treated in the stateвЂ™s Community Mental Health non-Medicaid budget will be covered by Medicaid beginning in 2014. This savings is estimated to be around $150 million of GF/GP annually and is expected to cover about half of the current non-Medicaid population. An additional increased match rate for the stateвЂ™s MI-Child program will reduce annual state GF/GP spending by another $12 million. The SFA estimates that when the federal match rate declines to 90 percent in 2020, the state will be paying roughly $200 million annually in GF/GP dollars to support the expansion. Additionally, if the state opts to continue paying the increased primary care physician rate, which is fully funded by the federal government in 2013 and 2014, it will have an annual cost of $40 million. Many of the other impacts of the law are dependent upon MichiganвЂ™s decision on whether or not to participate in certain programs for which extra matching funds or grant dollars are provided. According to the SFA report, the Federal Funds Information for States estimates the gross cost (state and federal) in Michigan to be $1.5 billion when the coverage takes effect in 2014, $1.8 billion by 2017 and $2.0 billion by 2019. In a more recent, but more general study, Kaiser Family Foundation performed a state by state analysis of increased coverage and cost.** They used the Medicaid participation expansion rates from the CBO as well as an вЂњenhancedвЂќ participation rate that would apply to states that more aggressively enroll individuals in the expanded coverage. The CBO estimates that 57 percent of newly eligible individuals will enroll and the вЂњenhancedвЂќ coverage assumes 75 percent participation among the newly eligible. The analysis shows that in the standard CBO scenario 589,965 Michiganders would enroll in Medicaid and that there would be a 50.6 percent reduction in uninsured adults and a 30.2 percent increase in total enrollment by 2019. Michigan spending would increase by $686 million between 2014 and 2019 or just 2.0 percent over the baseline, non-reform amount. Federal spending would cover an average of 95.4 percent of the expanded insurance costs and federal spending in Michigan would increase by 21.5 percent. In the enhanced scenario with a 75 percent participation rate, Michigan would have 812,818 new Medicaid enrollees, reduce its uninsured population by 74.6 percent, and increase enrollment by 41.6 percent. The stateвЂ™s cost would increase by $1.096 billion or 3.2 percent between 2014 and 2019 with the federal government picking up the remaining $16.94 billion tab and increasing its spending by 25.6 percent over the baseline amount, for a total of 93.9 percent of the total funding from 2014 to 2019. Steve Angelotti and David Fosdick. вЂњFiscal Analysis of the Federal Health Reform Legislation.вЂќ Issue Paper: Senate Fiscal Agency. April 2010. * John Holahan and Irene Headen. вЂњMedicaid Coverage and Spending in Health Reform: Naitonal and State-byState Results for Adults at or Below 133% FPL.вЂќ Urban Institute and the Kaiser Commission on Medicaid and the Uninsured. Publication #8076. May 2010. ** 32 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Policy Solutions tegrity of the program and ensure sustainability for Many states are battling severe financial distress, at least a few more years. rising Medicaid caseloads and diminished capability to make eligibility or benefits changes. State Potential financial solutions are divided into three policymakers are apprehensive about how the fedbroad categories: (1) additional revenue options, (2) eral government will choose to reduce its Medicaid service/provider changes, and (3) spending. Many of the most budget strapped states, such as Ari- There is a structural gap cost containment. Service and provider changes typically shift burzona, California, and Florida, are between Medicaid revenues dens from the state to other Medsimply putting out budget fires; making cuts wherever cuts are al- and expenditures that the icaid stakeholders, namely lowed so that total state expendi- state is not in control of beneficiaries and providers. Alternatively, cost containment actions tures equal revenues. Other states correcting. But until a naare those that hold providers and have the luxury of a more contemplative approach to fiscal policy. tional or global system rec- beneficiaries mostly harmless by Officials in these states may be tifies the rapid annual cost maintaining funding levels and seeing revenues grow, though growth, the state has some cost-sharing arrangements. These solutions reduce expenditures and gradually, and, at least in Michioptions to maintain the cost growth through process and ganвЂ™s case, have completed a lot practice changes such as improvstructure and integrity of of the hard work required to implement a structurally sound bud- the program and prolong ing efficiencies and introducing get. It is very likely that the the sustainability for at least cost controls. FY2012 budget has strengthened The next section of this report disthe financial footing of the state a few more years. cusses additional revenue options by eliminating reliance on one-time for Medicaid, followed by a review revenue sources and reducing or of expenditure-side alternatives that may impact eliminating the structural deficit. MedicaidвЂ™s future cost trajectory. Michigan has a variety of options to reduce MedicI. Additional Medicaid Revenue Options aid spending and help ease the current structural budget imbalance tied to Medicaid services. One Michigan has a long history of using creative taxaluxury of having a stable budget is that policymakers tion to leverage state and local resources to maxican make grounded decisions that do not forsake mize federal matching dollars. Most of these crefuture benefits in the name of immediate budget ative avenues have been closed by federal legislative relief. and CMS administrative rule changes. Effective January 2012, the state began assessing a tax on paid Absent changes in policy, Medicaid expenditures are health insurance claims and dedicated those reveexpected to grow by 5 percent to 8 percent per year nues to fund Medicaid. This tax, however, is revefor the next decade. This growth is faster than most nue neutral, in that it replaces revenue from the reliable revenue sources that could be used to supHMO/PIHP Use Tax and any state revenue gains will port it will grow, and is significantly faster than state be nominal. The efficacy of this new tax is predicatincome and economic activity are expected to grow. ed on a reliable stream of matching funds from the There is a structural gap between Medicaid revefederal government and a reasonable medical cost nues and expenditures that the state is not in coninflation rate. While the sustainability of Medicaid is trol of correcting. But until a national or global syswaning, the state may implement several funding tem rectifies the rapid annual cost growth, the state solutions to help prolong the delivery of these serhas some options to maintain the structure and invices; these are discussed below. Citizens Research Council of Michigan 33 CRC Report Provider Taxes versus Broad-Based Taxes Michigan has two main tax-based revenue options for funding Medicaid: provider taxation and general fund support. igan receives the provider taxes combined with the federal matching funds, it keeps 13.2 percent to offset an identical amount of GF/GP revenue originally allocated for Medicaid. These вЂњsavingsвЂќ can be used for other state programs, while the rest is redistributed to the providers in the form of rate increases. Provider Taxes. The state currently taxes two classes of health care providers, nursing facilities and Third, the majority of providers benefit from the funds hospitals, but the federal Social Security Act outraised by provider taxes and therefore generally suplines 19 other provider classes the state could tax. port them. Because these tax revenues are eligible While the state is near its 25 percent provider tax for a federal match, the amount of money being maximum, it still has some room to continue to raise redistributed to providers through Medicaid payments Medicaid revenues through this route. One option financed with the provider taxes is more than the the state can pursue is to add an amount providers paid in taxes iniadditional provider tax but at a lowtially; the pool from which to reer rate so as to not go over the 25 While the state is near itвЂ™s imburse for services is larger. percent cap. Other than the two 25 percent provider tax Therefore, the tax burden is miniprovider taxes already in place in mized. Michigan, the third most common maximum it still has some assessment among the 50 states room to continue to raise Fourth, compared to other reveis on intermediate care facilities for Medicaid revenues through nue sources, provider taxes are the developmentally disabled.43 better able to follow medical cost this route. While a physician tax has been proinflation over time and generate a posed several times, it has never more reliable source of revenue. received sufficient legislative support to move forBecause the tax is based on net patient revenues in ward. This may indicate that it would be politically Michigan (not all states tax the same way), which difficult to expand the base of the provider tax or should grow in line with costs, tax collections from may just be indicative of the difficulty of expanding providers will keep up with the medical inflation rate the tax to physicians. with little need to modify the tax rate in the future. A second option for the state is to broaden the tax to several additional, or even all provider classes, but reduce the overall rate. While the number of taxpayers may grow, the amount each of the individual providers is responsible for will decrease. Provider Taxes: The Good and the Bad. There are several reasons why provider taxes are popular among states. First, provider taxes are eligible for federal matching funds allowing the state to leverage its Medicaid spending. These federal dollars help create local jobs and grow the economy beyond its own resources. Second, the inflow of federal funds for Medicaid health care spending allows state-raised revenues to be used for other purposes. All tax revenues from providers will be matched according to their FMAP so long as the state meets federal regulations in administering the tax. By state statute, when Mich- 34 Finally, a benefit of provider taxes over other types of taxes is that they may create an incentive for providers to increase their Medicaid caseload or begin accepting Medicaid patients if they had not before. When individual providers increase their Medicaid caseloads, they will either reduce their net tax disadvantage (payment plus reimbursement) or see a net gain from increased reimbursement rates. Increasing the availability of providers accepting Medicaid patients ensures easier access to care and better health outcomes. However, the efficacy of this strategy is dependent on many factors, including the proximity of the stateвЂ™s reimbursement rates to the providersвЂ™ actual costs. However, the provider tax also has many drawbacks, including its role in increasing costs for the hospitals and nursing homes that do not see a large enough volume of Medicaid patients to earn an increased Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH payment above the amount of their tax. This is a net revenue loss of up to the amount of the tax for roughly 10 percent of nursing homes and 30 percent of hospitals.44 Additionally, many states are raising tax rates at the same time they are decreasing reimbursement rates. According to the Michigan Health and Hospital Association, MichiganвЂ™s providers have sustained approximately $1.1 billion in reduced reimbursement rates between FY1996 and FY2011.45 The already relatively low reimbursement rates with the additional taxation may hinder some providersвЂ™ ability to stay in business, adversely affecting availability of providers for patients as well as the local economies that depend on the jobs and incomes from these providers. Additionally, the administrative costs for the state to expand its provider tax base may be very expensive, particularly as the number of provider classes included in the base of the tax increases. In early 2011, Governor Cuomo of New York signed an Executive Order establishing a Medicaid Redesign Team to find ways to cut costs and improve positive outcomes in that fiscal year and beyond. In a report to the redesign team, the New York State Association of Counties (NYSAC) discussed the implications of provider taxes, saying: NYSAC believes, that a long term reliance on вЂњmanufacturedвЂќ revenuesвЂ¦is unrealistic in its promises of care and coverage, as the financing of the program is beyond the capacity of the multitude of tax payers and health care providers expected to provide the financial support over the long run. For health care providers, the higher fees and taxes generally become a cost of doing business which raises the overall cost of health care in public and private sector insurance. Additionally, the use of health care provider taxes is continually under congressional scrutiny and is not a reliable long term source of financing for the Medicaid program.46 This report emphasized opponentsвЂ™ concerns about the ability of the market to handle continued increases in provider taxes and the long run sustainability of this revenue. Finally, since the federal government will only allow a maximum of 25 percent of own-source revenue from provider taxes they cannot be an all-inclusive, one-package solution. In FY2011, Michigan collected 21 percent of its own-source revenues for Medicaid financing from the hospital and nursing home provider taxes. This still leaves some room should the state decide to increase the rate of the hospital provider tax or expand the tax to other provider classes but will not solve the structural Medicaid revenue and expenditure imbalance. Provider tax trends. The Kaiser Family Foundation and Health Management Associates survey reported that 46 states and the District of Columbia had provider taxes in place as of FY2011.47 Only Alaska, Delaware, Hawaii and Wyoming did not. Thirty-eight states assess taxes on nursing homes, 34 on inpatient hospitals, and 34 on intermediate care facilities for individuals with mental retardation or developmental disabilities (ICF/MR-DD). The survey also indicates that several states added provider taxes on new provider classes; 5 states added a hospital provider tax, Virginia added an ICF/MR-DD tax, and Kansas added a nursing facilities tax. Oregon dropped its tax on managed care organizations in 2011. There were increases in 27 provider taxes in FY2010 and only two reductions. Twenty-two provider taxes are also proposed to rise in FY2011 with no reductions for any. Broad-Based Taxes. The majority of own-source state revenue comes from broad-based taxes; broadbased taxes are those that are imposed uniformly on all residents such as the income tax, property tax, and sales and use taxes. In terms of equity, general broad-based taxes may pay for a variety of universally beneficial services such as public safety and education, but may also support services utilized by a small sector of the population such as physical and mental health services, welfare, and food stamp assistance. As is the case with any service provided by the state, the services will not be utilized equally by all residents, yet all taxpayers have agreed either implicitly or through referenda to support these services. Because there is a revenue limit on provider taxes, the state will always use some general fund support through broad-based taxes to partially fund Medicaid, whether it specifies this in its call to raise taxes or not. In FY2011, 15.5 percent of Medicaid expenditures were from the stateвЂ™s GF/GP which re- Citizens Research Council of Michigan 35 CRC Report ceives revenue from the sales, income, use, business, and liquor taxes among other tax and fee sources. On the other hand, Medicaid expenditures consumed 21.3 percent of the stateвЂ™s GF/GP. Fund. However, the practice of earmarking taxes often undermines the annual legislative process and those earmarks rarely keep up with spending growth. In most cases, the use of earmarking runs contrary to principles of good budgeting. The legislative and When considering raising current or implementing executive branches must have new broad-based taxes, strong control over revenues and policymakers may attempt to earBecause there is a revenue expenditures and be able to use mark these revenues to ensure the funds are dedicated to Medicaid. limit on provider taxes, the the budget to set policy. There Earmarking has been a common state will always use some must be adequate flexibility to react to changing conditions. These way for policymakers to win apgeneral fund support principles are best met through a proval for their tax proposals and provides voters with security in through broad-based taxes budgetary process with all expenknowing how these new tax dol- to partially fund Medicaid ditures judged on their merits and lars will be spent. Michigan relies whether it specifies this in income allocated accordingly. If any government function is impormore heavily than most other states on earmarking to dedicate its call to raise taxes or not. tant enough to warrant consideration for earmarking, based on its revenue from particular taxes to importance, it should easily pass the muster of the favored purposes. For example, approximately 23 budgetary process. If not, perhaps it is not as impercent of income tax revenue is allocated to the portant as its advocates might contend.48 School Aid Fund, while the remaining revenue goes to the GF/GP. Similarly, sales tax revenue collecBroad-based Tax Options. Michigan policymakers tions are distributed among the School Aid Fund, could elect to fund Medicaid through increases to Local Revenue Sharing, the Comprehensive Transthe income tax rate or sales tax rate. In South Daportation Fund, Health Initiative, and the GF/GP. It kota, organizers of a sales tax ballot measure rehas already been noted that 31.9 percent of the cigcently obtained enough signatures to get the initiaarette tax revenue is allocated to the Medicaid Trust MichiganвЂ™s Tobacco Tax is 11th Highest in Nation In 1994, Michigan had the highest state tobacco tax in the country when it raised its cigarette tax from 25 cents to 75 cents per pack. The state raised the tax again in 2002 to $1.25 per pack and most recently in 2004 to $2.00 per pack, leaving Michigan with the nationвЂ™s second highest state tobacco tax following New JerseyвЂ™s tax of $2.05 per pack.* As of 2012, Michigan has the 11th highest per pack tobacco tax, where the state average is $1.46 per pack and the median is $1.339 per pack.** New York State has the highest tobacco tax of $4.35 per pack followed by Rhode Island and Connecticut at $3.46 and $3.40 per pack, respectively. In addition to the $1.01 per pack federal cigarette tax many states allow local units of government to tax cigarettes. The highest combined state and local tax rate per pack is $5.85 in New York City. вЂњAAA 1-B Supports tobacco tax increase to fund Medicaid Health Care.вЂќ Boomer Caregivers Article. Accessed October 31, 2011. www.50plusprime.com/index.cfm/fuseaction/TNP.showArticle/TNPArticlePK/1CA65F9A-3048-709E5A4ACBC2131BB5B8.cfm * Ann Boonn. вЂњState Cigarette Excise Tax Rates & Rankings.вЂќ Campaign for Tobacco-free Kids. June 28, 2011 (Accessed October 31, 2011). www.tobaccofreekids.org/research/factsheets/pdf/0097.pdf ** 36 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH tive, which would raise the sales from four percent to five percent, on the November 2012 ballot. The increased revenue would be shared between Medicaid and K-12 education in the state.49 rently used to support the Medicaid program. In 2011, 34.8 percent or $334.3 million in tobacco revenues was earmarked for the Medicaid Trust Fund. The state could increase the tobacco tax and designate that revenue for Medicaid. Other alternatives could be explored such as expandOne notable drawback to tobacco taxes is that they ing the sales tax base to services. The sales tax are generally regressive in that they tax lower-inbase was broadened to include a few select services come individuals disproportionatetemporarily in 2007 to help close a ly higher than those with higher budget deficit, but was quickly overturned due to unpopularity. While broad-based taxes incomes. This is the case for sevExpansion of the sales tax is one may provide a reliable eral reasons. First, because the method that other states have stream of revenue from a tax is flat it consumes a higher been using to combat the declinlarger resource pool, it is percent of income for an individual with a lower income than an ining revenues from this source; as unlikely that most broaddividual with a higher income. the economy has expanded in the last several decades, individuals based taxes will keep up Sales taxes in general are considare spending a larger percentage with the medical cost ered regressive because low income individuals use a greater of their incomes on services comgrowth rate. Overall, percent of their income purchaspared to goods. Taxing services rather than goods alone is a more broad-based taxes are un- ing goods. Additionally, the prevsustainable revenue source for the likely to provide the long- alence of smoking is higher among state and may preserve funding for term funding to maintain the poor вЂ” 33 percent of Medicaid recipients smoke versus 20 programs that are being crowded the integrity of the Medic- percent of the rest of the populaout by Medicaid. aid program. tion50 вЂ” so the tax itself is often General broad-based taxes have seen as one that targets this popseveral benefits and limitations. ulation. This factor may make inWhile broad-based taxes may provide a reliable creases in tobacco taxes more politically and ethistream of revenue from a larger resource pool, it is cally challenging. unlikely that most broad-based taxes will keep up with the medical cost growth rate. Therefore, over If policymakers choose to increase the tobacco tax time a greater and greater percentage of the broadto fund Medicaid there are several other factors they based taxes will need to be allocated to Medicaid should consider. An argument in favor of raising the and away from other important services such as tax is that the tax burden falls on those who are more likely to consume the services for which the education, which has already occurred in the last taxes pay. Tobacco use increases medical costs and ten years. Additionally, unless there is sufficient state one study using 2004 data estimated MichiganвЂ™s savings during periods of economic expansion, state annual Medicaid smoking related costs to be 13 perresources will be excessively stressed during recescent of total Medicaid spending or $727 million.51 In sions because of MedicaidвЂ™s increasing demand as the economy worsens. Overall, broad-based taxes Governor SnyderвЂ™s recent Health and Wellness mesare unlikely to provide the long-term funding to sage he indicated these costs to be $1.1 billion for maintain the integrity of the Medicaid program. the state.52 Increasing the cost of smoking and decreasing its demand may reduce tobacco-related illExcise Taxes. One subset of broad-based taxes are nesses leading to some positive reduction in overall those that tax a specific good or service when purhealth care costs. On the other hand, smoking rates chased. Examples include taxes on alcohol and toin the United States are continuing to fall which brings bacco, which are often referred to as excise taxes. into question the amount of money that could be Excise taxes, specifically the tobacco tax, are cur- Citizens Research Council of Michigan 37 CRC Report saved in medical care by curbing smoking and the sustainability of a tobacco tax revenue source. cade as the state has reduced revenues it sends to the local governments. Additionally, since the tax on cigarettes is a flat rate of two dollars per pack, the real value of the tax will decline over time due to inflation. Nominal tobacco tax revenues have been falling an average of 3.5 percent annually over the last five years. In general, if policymakers are looking for a sustainable revenue source for Medicaid, it would be wise to avoid taxes on items designed to curb the use of that item, therefore suggesting a declining future revenue stream. However, counties can elect to fund Medicaid services on their own through county medical care facilities. At least 31 counties have extra-voted millages that fund medical care facilities, which treat Medicaid and non-Medicaid patients. The Medicaid portions of the services provided are eligible for federal match and the funds are interchanged through the state. Other states have attempted to levy excise taxes on soft drinks, vending machines, and other unhealthy food and beverage choices in order to raise revenues while encouraging healthier food choices. Approximately half of the states levy a tax on soft drinks, however MichiganвЂ™s constitution forbids taxation of food and beverages in the state (only prepared foods are taxed). Pending a constitutional amendment, these goods, with the exception of vending machine foods, are not a taxable option in Michigan.53 Medicaid is different from other programs in its capability to leverage federal dollars. This feature of Medicaid revenue has encouraged states to expand programs, but may corrupt the budget process based on officialsвЂ™ desire to obtain matching funds. MichiganвЂ™s policymakers have spent considerable time and effort finding ways to maximize federal matching funds for Medicaid, thus preserving most benefits and beneficiaries over the last decade. In the meantime, other programs have lost significant funding. Any further erosion of other programs should be made as policy decisions and not as a result of chasing leveraged dollars. Local Revenues The Social Security Act allows for up to 60 percent of a stateвЂ™s own-source Medicaid revenues to originate from local sources. Many states require local governments to match the cost of various Medicaid services. In New York, counties match 50 percent of the state share of acute care services. North Carolina has a вЂњMedicaid swapвЂќ where it has authorized several taxing options for counties such as a land transfer tax and a limited local sales tax to aid the state in funding Medicaid. In North Carolina, counties may keep some of the revenues they collect and send the rest to the state. While Michigan could mandate Medicaid matching requirements by counties, it would be very difficult to implement because of MichiganвЂ™s tax collection structure and the constitutional right of local voters to approve new local taxes under the Headlee Amendment to the 1963 Michigan Constitution. Additionally, distrust between the state and local governments has been magnified over the last de- 38 Other Revenue-side Considerations Today, Medicaid is a major budget priority; however, as policymakers debate and determine the best solution to the Medicaid funding problem, they should also realize that policy priorities change over time and that revenue sources need to reflect those changes. Unrestricted revenues provide policymakers with flexibility to adjust their policy mechanism, the budget, to reflect these changes. Whether the revenue source is broad-based or more specific, such as the health insurance claims tax, an holistic approach to funding government services is always good policy. Any budget solution should also acknowledge the need that low income Michigan residents have for quality health care. Many of the budget challenges come from rapidly rising healthcare costs, and those who benefit most from these services, such as pregnant woman, children, and the disabled, are often casualties in this debate. The tradeoff between budget priorities and Medicaid recipients should be prominent in this discussion. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH sections. The first section outlines expenditure reduction options related to changes in benefits and Michigan has already taken measures to reduce provider costs. The second section focuses on cost spending and spending growth. Since adoption of containment actions that do not directly negatively the FY2002 budget, the state has implemented the impact beneficiaries or providers. A pie chart next following changes: to each strategy provides a quick depiction of the portion of the Medicaid budget вЂў freezing and reducing providunder consideration or relevant to er payment rates; Because a great number of the associated discussion. For exвЂў reducing dispensing fees to the budget challenges ample, in the discussion of costpharmacists; sharing, 75 percent of the budget вЂў instituting new copayments for come from rapidly rising covers services and beneficiaries physician office visits, non- healthcare costs, those who that are affected by the alternaemergency ER visits, and outbenefit most from these tives in this category. patient and inpatient hospital services, such as pregnant services; Benefit/Provider Changes вЂў increasing prescription woman, children, and the copayments for adults; disabled, are often casual- An option that allows the state to reduce its Medicaid funding now вЂў implementing a preferred drug ties in this debate. but displaces the burden on othlist; ers (low-income individuals and вЂў seeking supplemental drug refamilies, medical providers, etc.) is to alter benefits bates for generic drugs; to enrollees or the costs of and payments to providвЂў capping or freezing enrollment levels in the Home ers. These actions are driven by a stateвЂ™s need to and Community Based Services and Adult Benebalance its budget and may include discontinuing fits Waiver programs; services to optionally eligible populations, suspendвЂў eliminating non-emergency adult dental care, ing or reducing optional benefits, decreasing utilizahearing aids, podiatric and chiropractic care; tion through the use of cost sharing, reducing provider payments, or increasing provider taxes. вЂў establishing an asset test for parents, caretakers and 19 to 20 year olds in optional eligibility Eligibility changes. The maintegroups; nance of effort requirements under вЂў tightening eligibility for the Adult Home Help the ACA limit eligibility changes program; states can make to non-disabled вЂў increasing efforts to reduce fraud, errors, and childless adults with incomes above waste. 133 percent of the federal poverty level. Michigan currently provides Medicaid services The state restored some benefits such as adult denfor childless adults that have incomes at or below tal care and the coverage of hearing aids, podiatric 34 percent of the FPL, and therefore cannot make and chiropractic services, and subsequently used any eligibility changes. provider taxes to increase provider payments.54 While these strategies provided some immediate Arizona is aggressively trying to reduce Medicaid budget relief, there are additional short-term and expenditures and has proposed several changes and long-term policy actions which can be implemented waivers to the CMS with varying levels of success. to address rising Medicaid costs. One point made clear by the CMS through this process is that any changes to enrollment must serve a The following discussion is broken into two main purpose other than to save the state money.55 II. Expenditure-side Alternatives Citizens Research Council of Michigan 39 CRC Report Elimination of optional benefits and programs. Over the past several decades, many states have provided Medicaid services above and beyond the minimum requirements included in federal statute. These optional benefits and programs may include vision, dental, and physical therapy, and may be eliminated to preserve other aspects of the Medicaid program. In a February 3, 2011 letter to governors, U.S. Department of Health and Human Services Secretary Kathleen Sebelius wrote, вЂњStates can generally change optional benefits or limit their amount, duration or scope through an amendment to their state plan, provided that each service remains sufficient to reasonably achieve its purpose.вЂќ56 In The Fiscal Survey of States, ten states indicated that they proposed to eliminate some optional benefits in FY2012, and 25 recommended limiting benefits. This comes after six states eliminated and 20 states limited benefits in FY2011. In 2010, the Kaiser Family Foundation and Health Management Associates conducted a survey of Medicaid officials in all 50 states to assess trends in statesвЂ™ policies and spending. This survey revealed that in FY2010, 20 states reduced benefits, either through eliminations, limits, or utilization controls вЂ” the highest number reported since the survey began in 2001. For example, the State of Washington limited Medicaid coverage of emergency room visits for non-emergency care to three per year.57 Long-term care services were also vulnerable вЂ“ 18 states in FY2010 and 10 states in FY2011 cut back services. In contrast, 15 states in FY2010 and 16 in FY2011 reported that they expanded or planned to expand benefits or restore services, such as those for dental, vision, smoking cessation, mental health or substance abuse. Thirty-two states expanded or planned to expand long-term care services in FY2010 and FY2011, mainly through expanding home and community based long-term care services. With approval from CMS, Arizona is limiting or eliminating dental services, podiatrist services, transplants, well visits and physical exams, prosthetics and orthotics coverage, hospice services, and outpatient occupational and speech therapy to non-disabled, non-pregnant childless adults.58 Secretary Sebelius also reminded states that they can offer вЂњbenchmarkвЂќ plans in lieu of traditional Medicaid benefits. Benchmark plans can be designed to meet specific needs but need to be at least equal to coverage under one of the following: вЂў Federal employee health benefit coverage вЂў State employee health benefit coverage вЂў HMO coverage вЂў Secretary approved coverage вЂў A plan that is actuarially equivalent to one of the first three plans but may have different benefits.59 These вЂњbenchmarkвЂќ or вЂњbenchmark-equivalentвЂќ plans are typically used to extend coverage to non-pregnant, non-disabled adults or some pregnant women or disabled adults in higher income ranges. Wisconsin, for example, provides coverage for pregnant women with income between 200 percent and 250 percent of the FPL equal to the largest commercial plan in the state, plus mental health and substance abuse coverage. Quality of Life Tradeoff The discussion of optional benefits highlights many of the difficulties in managing Medicaid costs. While states are looking to save money by eliminating certain services, the quality of care, and potentially the quality of life for many low income individuals, is tested. Services such as vision and dental care, hospice care, and the coverage of prosthetic devices may greatly impact an individualвЂ™s livelihood. While many working individuals not covered by Medicaid may not have coverage for these services or devices, they may still be able to afford them out-ofpocket with some tradeoff in quality or frequency. In the legislative debates regarding many of these optional services, the outcome may necessitate that Medicaid-eligible individuals go without these services or devices. 40 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH The value of eliminating optional benefits is not clearcut. For example, a study of OregonвЂ™s decision to eliminate Medicaid dental benefits in 2003 showed increased utilization of emergency room care, a more costly form of treatment.60 Decrease Utilization/Increase Cost-sharing. The federal Deficit Reduction Act of 2005 gave states greater flexibility to increase cost sharing through copayments, deductibles, coinsurance, and other Using data from 2001, the Kaiser Family Foundation methods. While most children and pregnant women and The Urban institute calculated that optional seras well as some services (emergency services, famvices for both mandatory and optional eligibility ily planning, and preventive services for children) groups comprise 30.4 percent of Medicaid expendiare exempt, states can impose cost sharing on sertures.61 More recent data (FY2008) using MichiganвЂ™s vices as well as on beneficiaries in Medicaid expenditure reports sughigher income groups (above 100 gest that this figure is now closer Using data from 2001, the percent of the FPL) as long as the to 16 percent.62 The Kaiser Family familyвЂ™s or individualsвЂ™ total cost Foundation argues that while many Kaiser Family Foundation and sharing is not greater than 5 perof the services provided are cate- The Urban institute calcu- cent of their income. Table 12 gorized as optional, вЂњвЂ¦the health lated that optional services provides guidelines for the maxidelivery system in the past forty for both mandatory and op- mum allowable copayments for years has evolved toward greater three different services among continuity of care, care coordina- tional eligibility groups com- three recipient income levels. tion, and away from institutional- prise 30.4 percent of Medicized care, placing a greater rele- aid expenditures. FY2008 In October 2011, CMS issued a ruling on many controversial cost vance on a set of services currently data suggest that this figure savings strategies proposed by considered вЂ�optional.вЂ™ Thus, the legal distinction of services by is now closer to 16 percent. Arizona. Accepted proposals include eliminating a program for вЂ�mandatoryвЂ™ and вЂ�optionalвЂ™ classes those with health emergencies, an imposed by federal statute may not enrollment cap for adults without dependent chilprovide a useful roadmap for distinguishing populadren, copayments for non-emergency transportation, tions and services that are central to MedicaidвЂ™s a $3 fee for parents and childless adults who fail to role.вЂќ63 This helps explain why many states, despite give 24-hour notice for missed appointments (only the added cost, have expanded Medicaid programs applicable in 2 counties), and the elimination of the or resisted cuts even in economic downturns. Table 12 Examples of Guidelines for the Maximum Allowable Copayments Institutional Care (inpatient hospital care, rehab care, etc) Eligible Populations by Family Income <100% FPL 101-150% FPL >150% FPL 50% of cost for 50% of cost for 50% of cost for 1st day of care 1st day of care, 1st day of care, 10% of cost 20% of cost Non-Institutional Care (physician visits, physical therapy, etc.) $3.65 10% of cost 20% of cost Non-Emergency Use of the ER $3.65 $7.30 No limit Source: U.S. Department of Health & Human Services, www.hhs.gov/news/press/2011pres/02/20110203tech.html Citizens Research Council of Michigan 41 CRC Report spend-down64 category. The state proposed imposing a $50 fee on childless adults (an optionally covered population group) who either smoke or are obese. 65 This request was denied by CMS as was a proposed cap on enrollment for low income parents and several other proposals. California is addressing its budget deficit by reducing spending for its Medicaid program, called MediCal, by $1.4 billion. The savings are achieved by a combination of increasing patient copayments and premiums, decreasing provider reimbursements, and by capping the number of covered office visits to seven per year (waivers may be granted based on circumstances). 66 nerics. For certain high income groups, copayments for non-preferred drugs may be as high as 20 percent of the cost of the drug. Table 13 shows allowable cost sharing for prescription drugs. Michigan has a copayment that is $1.00 for generic drugs and $3.00 for brand name drugs. Of states that have pharmaceutical copayments, prices typically vary between $0.50 and $3.00, with many states differentiating between generic and brand drugs. Over the last decade, Michigan has implemented a variety of controls on pharmaceuticals. The state has implemented a preferred drug list (discussed in the вЂњCost ContainmentвЂќ section below) and in 2003, Michigan and Vermont launched the Michigan Multi-State Pooling As reported in The Fiscal Survey of States, seven states instituted The Senate Fiscal Agency Agreement, also known as the new or higher copayments in estimates that the state National Medicaid Pooling Initiative (NMPI). The NMPI is a multistate FY2011 and 21 proposed new or saved $8.0 million in 2004 effort to obtain additional rebates higher copayments for FY2012. The Kaiser Family Foundation and from this pooled purchasing. and discounts from pharmaceutical manufacturers. The Senate Health Management Associates Fiscal Agency estimates that the survey reports that a total of 45 state saved $8.0 million in 2004 from this pooled states and the District of Columbia have copayments purchasing.69 As of 2009, the NMPI had 11 particifor some services; five states only have copayments on prescription medications. Connecticut, Hawaii, pating states and the District of Columbia and sevNew Jersey, Nevada, Texas, and Washington have eral other multistate cooperatives have since been no copayments at all.67 established. With the increased drug rebate requirement in the ACA, it is likely the drug manufacturers Pharmaceutical Controls. In her will be less likely to negotiate significant discounts letter to states, Secretary Sebelius with states through these pools going forward. reiterated the cost sharing The Kaiser Family Foundation and Health Manageflexibilities permitted under the Defment Associates survey shows that in FY2011 many icit Reduction Act of 2005.68 Among states and the District of Columbia already had sevthese is the option to encourage use eral pharmacy cost containment strategies in place. of lower-cost drugs by charging different copayments Forty-eight states have prior authorization programs, for non-preferred and preferred drugs, such as ge- Table 13 Maximum Allowable Drug Copayments by Family Income Preferred Drugs Non-preferred Drugs <100% FPL $3.65 101-150% FPL $3.65 $3.65 $3.65 >150% FPL $3.65 20% of cost Source: U.S. Department of Health & Human Services, www.hhs.gov/news/press/2011pres/02/20110203tech.html 42 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH and 44 states have preferred drugs lists, supplemental rebates, and maximum allowable cost programs. Twenty-six states are in a multi-state purchasing coalition, 16 have script limits, and 15 have full or partial carve-outs. States are limiting prescription drugs for beneficiaries; eight states indicated performing this action in The Fiscal Survey of States for FY2011. Thirteen states proposed this action in FY2012. Twenty-three states enacted other strategies to reduce spending for prescription drugs in FY2011 and 27 proposed to do so in FY2012. In FY2011, Alaska created a preferred drug list and proposed step edits70 in 2012. Louisiana conducted ingredient and dispensing cost surveys to update reimbursement methods. Other pharmacy cost containment measures are listed in Table 14. The ACA includes provisions on a new mandatory minimum Medicaid pharmacy rebate amount. The rebates had been paid by the pharmaceutical companies and shared between the federal government and the states where the statesвЂ™ share was based on its FMAP. States were also permitted to negotiate supplementary rebate programs that were shared between the state and federal governments. The new mandatory minimum, increased from its previous amount, will now go entirely to the federal government and states with supplemental rebate programs will experience a loss in revenue from this change. Michigan benefited from the supplementary rebate program and collected $18.0 million in rebates in FY2007. Table 14 Pharmacy Cost Containment Actions Taken in FY2010 and FY2011 Drug Policy Change Imposed or restricted quantity or refill limits Acting States Kansas, Kentucky, Maine, Mississippi, Virginia, Wisconsin Increased drug copayments Arizona, California, Massachusetts, Oklahoma Carved-out pharmacy benefits from managed care contracts Indiana, Michigan, Missouri, Ohio Implemented specialty pharmacy products North Carolina, New Hampshire, Pennsylvania, Wisconsin Reduced reimbursements for physician administered drugs California, Georgia, South Carolina Added preferred medical supplies to preferred drug list Massachusetts, Wisconsin Utilization controls on mental health drugs for children South Carolina, Washington Implemented generic first policy Rhode Island Reduced capitation rates to long-term care pharmacies New Jersey Initiated pharmacy audits Kentucky Required dispensing of 100-day supply Wisconsin Case management for clients using narcotics Washington Source: The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser Family Foundation: Publication #8105. September 2010. Citizens Research Council of Michigan 43 CRC Report States also have authority, with approval from the Provider payments. The most CMS, to determine pharmacy dispensing rates. These common strategy states used in rates are paid to pharmacies on a per prescription FY2011 to contain costs was to rebasis. MichiganвЂ™s dispensing fee is set at $2.50 with duce or freeze Medicaid reimbursesome exceptions: $2.75 for dispensing drugs for longments to providers who see Medicterm care patients; $6.00 for cream, emulsion, naaid patients. California has reduced sal drops, ointments or optic drugs; and $10.00 for its payments to Medicaid providers and because of compounded capsules, powders, severe budget stress, over just a or suppositories. Because states few years the state went from havdifferentiate pricing based on ge- Federal law requires that ing one of the highest reimburseneric, brand name, prescriber, and states must pay Medicaid ment rates to one of the lowest. 72 other criteria, a comparison of As a result, California is being sued rates that are вЂњsufficient to by Medicaid recipients who believe MichiganвЂ™s prices to other statesвЂ™ is difficult. However, only fees in enlist enough providersвЂќ to the quality of their care is now comArizona, Colorado (institutional ensure beneficiaries have promised. The Supreme Court pharmacy only), Maine (mail order access to care. heard oral arguments in October only), Maryland (brand only), New 2011 in the Douglas v. Independent Hampshire, New Mexico (except Living Center of California, No. 09when pharmacist uses product selection), Tennes958, which argued that Medicaid recipients were see (Pharmacy Benefit Management National plan harmed by CaliforniaвЂ™s provider payment rate cuts. and TennCare Pharmacy Network only), and West Federal law requires that states must pay Medicaid Virginia (brand only) are equal to or lower than Michrates that are вЂњsufficient to enlist enough providersвЂќ iganвЂ™s dispensing fees for pills and capsules.71 For to ensure beneficiaries have access to care. The isthe most part, states have either frozen or reduced sue before the Supreme Court does not address the these dispensing fees over the last several years. lawsuit as it was filed but whether or not the lawsuit Table 15 Medicaid Physician Fees: Cumulative Percentage Change in Medicaid Fees by Type of Service, 2003-2008 Michigan and Other Great Lake States All Services 15.1% Primary Care 20.0% Obstetric Care 8.8% Other Services 8.7% Michigan 6.7% 0.6% 27.1% -3.6% Illinois Indiana Minnesota Ohio Pennsylvania Wisconsin 11.5% 9.8% -0.5% 15.9% 63.0% 0.8% 19.5% 15.4% 0.0% 13.6% 83.9% 2.5% 0.0% 0.0% 0.0% 6.8% 103.1% 0.0% -0.1% 2.5% -2.3% 28.4% -8.2% -2.2% U.S. Average Source: The Kaiser Family Foundation 44 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH may even be filed. The Obama administration maintains that beneficiaries are not allowed to sue states in response to Medicaid cuts, but the United States Court of Appeals for the Ninth Circuit (San Francisco) ruled otherwise. The Kaiser Family Foundation and Health Management Associates survey revealed that in FY2011, 37 states proposed a provider reimbursement rate cut or freeze; 33 states had done so in FY2009 and 39 have in FY2010. However, many states are also increasing reimbursement rates; thirty-six states increased rates in FY2010 and the same number planned to do so in FY2011. Nursing homes and inpatient hospitals are the most common beneficiaries of these rate changes вЂ“ both restrictions and hikes. Some of the rate increases are related to provider tax increases. For example, the Kaiser Family Foundation and Health Management Associates report that Iowa increased payment rates by 15 percent for hospitals and 14 percent for nursing homes and financed these increases with hospital and nursing home taxes. Georgia similarly increased inpatient hospital rates as a result of new provider taxes. In Michigan, provider tax rates are calculated based on the total amount to be distributed as reimbursements and therefore these actions are always correlated. Tables 15, 16, and 17 compare relative reimbursement rates for physician services. These data from the Kaiser Family Foundation can be used by policymakers to determine how much, if at all, providers can withstand changes in reimbursement rates. Table 15 shows cumulative percent changes in Medicaid fees paid as fee-for-service rates (MCOs not included) between 2003 and 2008 compared to the U.S. average and those changes in Great Lakes region states. Despite MichiganвЂ™s ongoing recession through the 2000s, most rates increased, especially those for obstetric care (27.1 percent), but at rates slower than the nation and the rest of the region with the exception of Wisconsin and Minnesota. Table 16 displays a Medicaid fee index for Medicaid fee-for-service payments compared to a national average set to one. By this index, in 2008 Michigan paid its obstetric care physicians 94.2 percent of the national average compared to 177.7 percent in Pennsylvania. MichiganвЂ™s lowest relative payments were to physicians other than those in primary and obstetric care, where fees were paid at 79.6 percent of the national average. No adjustments for cost of living differences are included in this index. Table 16 Medicaid Physician Fee Index, 2008 Michigan and Other Great Lake States (National Average = 1.0) Michigan Illinois Indiana Minnesota Ohio Pennsylvania Wisconsin All Services 0.895059 Primary Care 0.913069 Obstetric Care 0.941742 Other Services 0.795740 0.902898 0.897430 0.975309 0.935850 0.978156 1.073423 0.904223 0.879389 0.853036 0.987765 0.947634 0.970372 0.934285 0.861828 0.846074 0.865366 1.776883 1.077926 0.878313 0.965241 1.425007 0.858630 0.677497 1.316712 Source: The Kaiser Family Foundation Citizens Research Council of Michigan 45 CRC Report Table 17 shows how Michigan, the U.S. average, and other Great Lakes region states pay for fee-forservice Medicaid costs relative to Medicare fees in each state, which are set by the federal government. By this measure, Michigan still pays physician fees at rates well below its Great Lakes neighbors and the national average. Geographic adjusters are included in this index. There are several issues associated with increasing providersвЂ™ Medicaid cost burden. The primary concern is that as reimbursement rates decline, more and more physicians will no longer accept Medicaid patients, which reduces access to care and potentially the quality of care since there are fewer physicians from which to choose. A nationwide 2008 survey revealed that only 53 percent of physicians accepted new Medicaid patients compared to 74 percent that took вЂњall or mostвЂќ new Medicare patients and 87 percent that took вЂњall or mostвЂќ private insurance patients.73 MichiganвЂ™s low Medicaid reimbursement rates are one factor that has contributed to the contiguous 16 county area of the upper part of the lower peninsula that is without obstetrical services (Medicaid and non-Medicaid), despite the 27.1 percent increase in fees between 2003 and 2008. The West Branch Regional Medical Center in Ogemaw County closed its obstetric unit in 2010, citing underfunding of the Medicaid program as forcing, вЂњmany of the hospitals in Northern Michigan out of the [obstetric care] business and unless something is done, the trend will continue.вЂќ74 Some experts believe that decreased access among Medicaid patients is not due to provider rate changes but because of geographical barriers (such as distance) and that providers respond to rate cuts by operating more efficiently. Some opponents to this cost cutting strategy argue that reducing provider payments does not actually reduce overall costs because providers shift costs to private health insurers; private health insurers pass the costs to employers who then either increase premiums or suppress wages. The exact implications of increasing provider taxes and/or freezing or reducing reimbursements rates is unclear, but the most likely outcome is some combination of efficiency, reduced access, and increased health care costs. Benefit/Provider Change Considerations. Before policymakers take action they should consider these six questions: 1. Is the service widely used by a large number of individuals or is it little used or used by a few? 2. Is the service preventive in nature so that it results in lowering future costs? 3. Is the service critical or can it be postponed without increasing Medicaid costs at a later time? Table 17 Medicaid Physician Fees: Medicaid-to-Medicare Fee Index, 2008 Michigan and Other Great Lake States (National Average = 1.0) U.S. Average Michigan Illinois Indiana Minnesota Ohio Pennsylvania Wisconsin All Services 0.720000 Primary Care 0.655458 Obstetric Care 0.925237 Other Services 0.723351 0.627286 0.592060 0.759740 0.553803 0.631688 0.694463 0.760383 0.687801 0.728099 0.847367 0.573984 0.608786 0.577545 0.662201 0.623828 0.665882 0.821802 0.926380 0.839146 0.840718 1.727704 1.043351 0.640635 0.743085 1.107353 0.645314 0.511418 1.050808 Source: The Kaiser Family Foundation 46 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH 4. Is the imposition or increase of a deductible or co-payment preferable to elimination or curtailment of the service? 5. Will the imposition or increase of a deductible or co-payment result in individuals not receiving a needed service? 6. If the service is dropped, will doing without it result in greater expense when another provider gives a higher cost service made necessary by not having access to the dropped service?75 While cutting benefits, reducing provider reimbursements, and expanding the number of provider classes taxed provide some financial relief for the state, there are many that argue that these are short-sighted solutions that balance the budget on the backs of others. Federal government cuts will lead to hardships at the state level; state-level cuts are often passed down to providers; providers may opt out of serving Medicaid patients or may pass those costs on to private insurers, and so on. There are longterm solutions to reducing the faster-than-economic growth of health care costs, but not all have been tested for efficacy. Some of these solutions are discussed below. Cost containment The cost containment strategies discussed below refer to actions that preserve current program levels and any current cost-sharing with recipients. These solutions focus on improving efficiencies and reducing the rate of spending growth, but may or may not result in immediate budget relief. These solutions do not directly shift cost burdens onto other parties and include expanding managed care, pharmaceutical controls, increasing program integrity, introducing new health programs or legislation, and process and market reforms. Managed Care. States with managed care systems (47 states and DC) contract with health plans to deliver health care to Medicaid patients. The contracts may lead to cost reductions for the state and a more extensive health care network for patients. Managed care health plans promise to meet certain performance requirements in care quality and other patient care outcomes. There are several types of managed care models and Michigan participates in what Kaiser Family Foundation calls a risk-based managed care health plan.76 In this model, Michigan contracts with MCOs, often in the form of HMOs, to provide a comprehensive set of benefits to Medicaid eligible patients. The state pays the MCOs on a capitation basis (the per person rate) where capitation rates must be actuarially sound and based on age, eligibility group, and other demographic factors to best estimate actual costs of providing coverage to Medicaid patients. With this arrangement, the MCOs bear the full financial risk for medical services. Since the early 1980s, states have increasingly adopted managed care models to deliver health care services rather than the traditional fee-for-service system. According to the Congressional Budget Office, the expansion of managed care plans in the 1990s reduced costs so that health care costs in the U.S. grew at the same rate as the overall economy between 1992 and 2000 and total health care spending as a percent of GDP remained constant at 14 percent. However, most of these savings were achieved through restrictions in non-evidence based procedures and reduced utilization arising from referral requirements and limited physician networks.77 One important concern is whether or not health outcomes are negatively impacted. While some argue that decreased utilization is commensurate with the use of only necessary medical care, others worry that the overall health of MCO patients in and out of Medicaid is compromised. Most research supports managed care plansвЂ™ claims of cost savings. A recently updated review of 24 studies commissioned by AmericaвЂ™s Health Insurance Plans by The Lewin Group found that the managed care model may produce savings from one to 20 percent. The savings are larger among some higher cost groups, specifically the Supplemental Security Income (SSI) beneficiaries and related enrollees. For example, Arizona achieved $102.8 million in savings from 1983 to 1991 from managed care and 60 percent of the savings were attributed to the SSI population. This review also confirmed that much of the Citizens Research Council of Michigan 47 CRC Report savings was due to decreased utilization when compared to fee-for-service Medicaid enrollees. Additionally, Medicaid managed care programs were associated with improved access to services and high satisfaction ratings from enrollees.78 Approximately 80 percent of national Medicaid spending is in the fee-for-service system, despite the fact that nearly half of all Medicaid beneficiaries are enrolled in managed care. 80 While nearly all states, including Michigan, have already made the switch to a managed care program, many states are lookOn the other hand, some research provides evidence ing at ways to increase its use by certain population that managed care plans may not groups. As of June 2009, 88.8 actually save states money. In a The inference of the con- percent of Medicaid recipients in recent report by the National BuMichigan were enrolled in a Medreau of Economic Research, re- flicting research is that icaid managed care.81 The CMS searchers found that by shifting while managed care may be reported that 71 percent of MedicMedicaid patients from fee-for-ser- seen as a silver bullet in aid beneficiaries nationwide are vice plans to managed care plans enrolled in some form of managed between 1991 and 2003 the aver- managing costs, there may care. The Fiscal Survey of States age state did not see reductions in be different or better ways indicates that in FY2011, seven Medicaid spending, though the re- that achieve similar results states expanded managed care as sults varied from state to state. In through decreased utiliza- a strategy to contain Medicaid fact, any reduction in spending was costs; 19 states including Michigan likely caused by reducing provider tions and provider reim- proposed expanding managed care reimbursement rates, as was like- bursement rates. in FY2012. ly the case in Michigan.79 The inMichigan currently limits the Medference of the conflicting research icaid eligible groups that may enroll in MCOs. Groups is that while managed care may be seen as a silver that may voluntarily enroll are migrants and Native bullet in managing costs, there may be different or Americans. Groups excluded from MCO enrollment better ways that achieve similar results through deare Medicaid eligible persons that are: residing in a creased utilization and provider reimbursement rates. Medicaid Managed Care Actuarial Soundness Since 2005, the federal government has required states to pay actuarially sound rates to Medicaid managed care organizations (MCOs). This requirement came about because MCOs in Michigan and other states would compete for contracts and submit bids too low to actually cover costs. This led to financial problems with many of the MCOs responsible for Medicaid coordinated care. The actuarial soundness requirement helps to ensure that MCOs such as HMOs are paid sufficient rates such that they can afford to pay their providers and continue a high quality of service. These rates must be certified by an actuary, developed in accordance with actuarial principles, and factor in population demographics and services rendered. States are required to submit its methodology for rate setting, including the data used, to the CMS who is obligated to monitor compliance. However, the CMS does not include standards for the type, amount, or age of the data used to set the rates. In a 2010 report, the Government Accountability Office questions the reliability and quality of the data used by states to set actuarially sound rates as well as the efficacy of oversight by CMS in this capacity. The requisite of paying actuarially sound rates to MCOs usually results in an annual inflationary increase of rates paid and is seen as a budgetary constraint by states.* вЂњMedicaid Managed Care: CMSвЂ™s Oversight of StatesвЂ™ Rate Setting Needs Improvement.вЂќ United States Government Accountability Office. GAO-10-810. August 2010. * 48 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Intermediate Care Facility for the Mentally Retarded (ICF/MR) or are in a state psychiatric hospital; receiving long-term care in a licensed nursing facility; being served under the Home and Community Based Elderly Waiver; enrolled in ChildrenвЂ™s Special Health Care Services; covered under commercial HMOs including Medicare HMO coverage; in the Program for All-inclusive Care for the Elderly; deductible or spenddown clients; children in foster care or in Child Care Institutions; in the Refugee Assistance Program; in the Repatriate Assistance Program; in the Traumatic Brain Injury Program; dually-eligible in Medicare and Medicaid.82 In June 2011, California placed all its elderly and disabled Medicaid patients in managed care plans under a Section 1115 waiver. The state estimates a 10 percent savings by switching this population from fee-for-service to managed care.85 Pharmaceutical Controls. To reduce expenditures on pharmaceuticals, states are exploring options for boosting the usage of generic drugs. A report from the National Association of State Budget Officers suggests that Medicaid may be able to reduce costs by either requiring or providing incentives for the use of generics.86 States may also be able to target Many of these excluded groups are high cost because of more expensive treatmedications that treat chronic disments and high utilization. A reeases, such as asthma, to deterport by the Michigan Association A report by the Michigan mine appropriateness and dosage of Health Plans (MAHP) estimates Association of Health Plans of treatment drugs. In some casthat approximately 75 percent of certain drugs are commonly estimates that approxi- es, the cost of Medicaid resides with prescribed where an alternative these remaining fee-for-service mately 75 percent of the would be cheaper for Medicaid and populations.83 Michigan could ex- cost of Medicaid resides safer for the patient. CMS has pect to save at least 5 percent of with these remaining fee- been actively involved in this promedical care treatment costs by cess as well, working with states for-service populations. to increase generic drug usage, enrolling these populations in a mail order services, management managed care plan. In fact, the of costly over-prescribed drugs, and the use of inMAHP reports that Michigan saved $4.5 billion beformation technology to manage prescriptions. tween FY2000 and FY2010 by moving more Medicaid enrollees into managed care. However, many In a 2004 brief, the CMS recommended that states worry about the ability of managed care plans to implement вЂњaggressiveвЂќ, meaning mandatory, generic properly treat more difficult and delicate medical substitution policies, and notes such policies in Minconditions since much of managed careвЂ™s success nesota and Idaho as best practices. Many of these has been in treating relatively healthy patients. policies allow physicians to prescribe brand name Some larger states, mostly with lower managed care drugs if the physician receives prior authorization participation, are taking the lead in reinvigorating from the Medicaid agency in the state.87 the managed care movement. Five years ago, FlorIn 2001, Michigan instituted a preferred drug list ida enrolled five of its counties in a pilot program to known as the Michigan Preferred Product List (MPPL). implement managed care. The goal was to improve Through use of the drug list, the state was able to access and reduce state expenses, but the results encourage the use of generics and negotiate supplehave thus far been unclear. Nevertheless, the state mental rebates from pharmaceutical manufacturers is petitioning CMS to begin a statewide transition of in exchange for inclusion on the MPPL. By statute, the elderly (dual-eligibles) into managed care. This patient consent for use of generics is required. The population is the most costly and therefore a high MPPL is reviewed and updated by an 11 member compriority for the state. The Florida Medical Associamittee that includes both pharmacists and physicians tion opposes the stateвЂ™s action.84 Citizens Research Council of Michigan 49 CRC Report who have served Medicaid patients. By 2004, 70 percent of drugs prescribed to Medicaid patients were included in the MPPL.88 Physicians who wish to prescribe medications that are not on the MPPL must receive prior authorization, but no prior authorization is required for medications on the MPPL. There are exceptions for drugs prescribed to Medicaid patients with mental disorders, HIV/AIDS, cancer, and others as defined in Public Act 248 of 2004. In 2005, Michigan began the Pharmacy Quality Improvement Project (PQIP) with the goal of ensuring that physicians prescribed drugs to mental health patients using evidence-based treatment guidelines such that there was greater uniformity in drug type and dosages. In an effectiveness study of the first six months of implementation, the Department of Community Health reported a 22 percent reduction in pharmaceutical claims and 21 percent decline in costs that resulted in a $1.7 million savings.89 The state could expand this project to include treatment for other chronic diseases and disabilities. Program Integrity. States have also targeted fraud, waste, and abuse to reduce costs and maintain program benefits. The U.S. Department of Health and Human Services reported $33.7 billion in improper state and federal payments in FY2010. Part of CMSвЂ™s oversight responsibility is to detect and deter fraudulent claims; this oversight is predominately carried out by contractors. The U.S. Justice Department, which prosecutes fraudulent claims in addition to statesвЂ™ attorney general, had more than 1,300 Medicare or Medicaid fraud whistle-blower cases under investigation in early 2011, compared to roughly 900 at the end of 2008. In 2010, the Justice Department recovered $2.5 billion in false health care claims.90 Governor SnyderвЂ™s Special Health and Wellness Message In September 2011, Governor Snyder presented a special health and wellness message that outlined many of his goals and intentions for the future of MichigandersвЂ™ health.* In this message, he indicated that to improve the health of the 12.4 percent of Michigan youths who are obese, he would encourage the Michigan Department of Education to work with schools to increase physical activity and health education and to adopt healthier nutrition standards. In fact, Michigan is one of two states that were selected by the U.S. Department of Agriculture to participate in a pilot program to use locally produced fruits and vegetables in school lunches. Additionally, to reduce the nearly $3 billion the state spends annually on obesity related medical costs, the Governor has directed DCH to incorporate body mass index data with childhood immunization records to increase obesity screening rates and treatment. To reduce the 18.9 percent adult and 18.1 percent youth smoking rates, the Governor also indicated that he will ask for legislation to ban smoking on state-owned beaches and ask the DCH to review the stateвЂ™s policy regarding Medicaid coverage of FDA-approved smoking cessation treatments as only three of MichiganвЂ™s 14 Medicaid managed care plans cover all smoking cessation medications. The Governor also expressed his desire to use technology to provide more efficient health care. Examples include the remote monitoring of patients and the development of platforms for sharing electronic health information. * 50 вЂњA Special Message from Governor Rick Snyder: Health and Wellness.вЂќ September 14, 2011. www.michigan.gov. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH A 2005 report by the Institute of Medicine estimated that 30 to 40 percent of all healthcare spending was вЂњmisspent,вЂќ mostly for inappropriate care; 3 percent to 10 percent of spending was due to fraud and abuse. Additionally, in 2008 a report in Florida estimated that between 5 percent and 20 percent of the stateвЂ™s total spending on Medicaid was due to fraud.91 The CMS estimates that the average state recovers only 0.09 percent of state Medicaid spending through fraud reduction efforts.92 Medicaid expenditures and the highest recovery rate in the country.93 MichiganвЂ™s Office of the Inspector General identified roughly $590,000 in Medicaid fraud in FY2009.94 Introduction of new programs and legislation. Most of the strategies thus far introduced deal with altering costs within MedicaidвЂ™s current footprint. With a few exceptions, these strategies provide shortStates are encouraged to develop ways to reduce term savings, but not many provide long-term fraud, waste, and abuse. For example, Secretary solutions to reduce future costs or cost growth. One SebeliusвЂ™s letter indicated that the CMS delivers free strategy is to increase the health of the population in-person and web-based trainings to help with fraud and thus reduce the need and use of health care. detection and sharing of best practices training for The ACA will play a role in improvMedicaid agency staff through the Medicaid Integrity Institute. The A 2005 report by the Insti- ing public health through several new initiatives for screening and CMS also plans to develop Payment tute of Medicine estimated prevention research, immunization Accuracy Improvement Groups which will group states with com- that 30 to 40 percent of all programs, and the provision of mon integrity priorities and work healthcare spending was state grants to reduce chronic diseases, address health disparities, with CMS and other experts to solve вЂњmisspentвЂќ mostly toward improve oral health, and meet othproblems. As part of the ACA, on January 1, 2012, states had to en- inappropriate care; 3 per- er public health goals. act CMSвЂ™s procedures for screen- cent to 10 percent of ing, oversight, and reporting for spending was because of In a February 2011 brief, the National Conference of State Legisproviders and suppliers that parfraud and abuse. latures (NCSL) explored cost savticipate in Medicaid, Medicare and ings options through public health CHIP (ChildrenвЂ™s Health Insurance initiatives.95 They reported that in Program, also co-financed by the both 2003 and 2007 Arkansas passed legislation state and federal governments). designed to reduce childhood and adolescent obesity. The legislation required students in kindergarten The Fiscal Survey of States indicates that in 2011, through grade 10 to have a body mass index screen24 states enhanced program integrity efforts and 32 ing every other year, eliminated vending machine proposed to do so in 2012. In both years, this was access in public elementary schools, and established one of the most commonly performed or proposed a statewide Child Health Advisory Committee to recactions to reduce Medicaid costs. ommend nutrition and physical activity standards for Ohio created a Medicaid Fraud Control unit which public schools. A review of the impact of the legisincluded 10 new staff positions and increased relation six years after its initial implementation showed coveries from $65 million to $91 million between that school environments were healthier and that 2008 and 2009. New York has taken an aggressive families had a higher awareness of health problems and innovative approach to curbing fraud by creatassociated with childhood obesity. There was an ing the nationвЂ™s first Medicaid inspector general. This increase in reported physical activity by adolescents new office examined provider billing databases for as well as a reported reduction in soda and fast food outliers and investigated those providers for fraud. consumption. In 2007, Texas and Mississippi both Between 2007 and 2009 the state recovered more passed legislation to promote increased physical than $550 million, or 1.2 percent of New YorkвЂ™s total activity in public schools. Citizens Research Council of Michigan 51 CRC Report The NCSL brief describes tax policies states have adopted to promote wellness, such as tax credits for fitness and wellness choices and new junk food and soda taxes. States also have enacted laws that promote community design to encourage physical activity, such as bike paths for new roads, and to discourage tobacco use and alcohol abuse. Additionally, many states are making it easier for women to breastfeed and the ACA requires, with some exceptions, employers to provide break time and a private non-bathroom place for nursing mothers to express breast milk. Research has uncovered several proven cost saving initiatives such as childhood immunization, vision screening for seniors, fluorinated community water systems, family planning, lead abatement in public housing, and alcohol (problem drinking) and tobacco use screening and follow-up programs. The NCSL reports that strategies to reduce tobacco use also lower Medicaid spending96 mostly because the prevalence of smoking is higher among the poor. The NCSL also identifies initiatives that are cost-effective, in that the additional benefit of the program is worth the additional cost, though these programs may not save money. These initiatives include immunization requirements for school entry; mandatory motor vehicle occupant restraints; primary school education on reducing sun exposure to prevent skin cancer; home visitation to prevent child abuse or neglect; community-wide campaigns to encourage physical activity; influenza and pneumococcal vaccines for adults; and screening for high blood pressure, high cholesterol, and problem drinking. An example of innovative cost reduction efforts occurred recently in Wisconsin. In September 2011, the state unveiled a website to chronicle savings for state health care programs including a prominent feature to solicit public input on new strategies. These proposals will be reviewed by the LegislatureвЂ™s Joint Finance Committee and by the federal government.97 Connecticut just received a grant from the federal government to explore the effectiveness of paying smokers to quit.98 Many new programs can be introduced under a Section 1115 waiver from CMS and may be eligible for federal matching dollars. 52 Market reforms and longerterm changes. Market reforms and longer-term changes are taking many forms. Some states are addressing process, payment, and service delivery while others are embracing information technology. Most states are implementing a variety of methods simultaneously in such a way that Medicaid administration may look vastly different in just a few years. Many medical providers and some states are in the process of creating accountable care organizations (ACOs). These organizations, which were first introduced in the ACA, are intended to provide a new model for delivering quality care at a lower cost. ACOs accept responsibility for the care of the patient and are provided financial incentives tied to measures of cost and quality. Primary care doctors, specialists and hospitals work together to provide care for patients in a manner similar to MCOs. While many states and providers are voluntarily switching to this model, none are fully operational and the actual benefits have yet to be seen. ACOs do incentivize providers to reduce expensive, unnecessary testing while also discouraging hospital re-admittance of patients, which should also save states money if the programs work as planned. Oregon is the first state to authorize a state-run ACO and estimates it will save $640 million in its first year of operation.99 States are also using technology to reduce Medicaid spending. Texas recently stopped mailing monthly proof of coverage letters to its three million Medicaid beneficiaries and switched all Medicaid recipients to cards. The state spent about $1 million per month printing and mailing the forms and expects the change to save the state $30 million over four years. The cards have magnetic strips on the back which are not currently being used but will eventually allow doctors and patients to retrieve medical records thereby reducing duplication of care and ensure eligibility when the feature is operational. 100 Michigan is in the process of implementing the Michigan Health Information Network (MiHIN) which will help health care providers utilize electronic health records to access and share patient information. This Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH will be especially useful in emergency medical situations.101 Twenty-six states made changes to streamline or simplify the Medicaid enrollment and renewal process in FY2010, compared to 17 states that plan to make changes in FY2011 according to the Kaiser Family Foundation and Health Management Associates survey. Seventeen states added or expanded the ability to apply or renew Medicaid applications online, seven states implemented Express Lane Eligibility, and eight states increased the use of available data for renewals to reduce administrative work. Three states eliminated the requirement for in-person renewals and 21 states have begun using the Social Security AdministrationвЂ™s data match for citizenship and identity confirmation. States are also making system-wide changes that focus on monitoring care quality and quality improvements and measuring outcomes and performance. The Healthcare Effectiveness Data and Information Set (HEDISВ®) is a set of benchmark measures developed by the National Committee on Quality As- surance that is available to states that contract with MCOs, including Michigan. States have the flexibility to use HEDISВ® or develop measures that better align with their own Medicaid policy priorities such as those to track prenatal care and immunization status. According to the Kaiser Family Foundation and Health Management Associates survey, 46 states and the District of Columbia use HEDISВ® or a similar system to track quality of care for most of their Medicaid programs, not just managed care. By the end of 2011, 85 percent of Medicaid programs will have some pay-for-performance system for health care plans and providers to meet or exceed benchmarks and expected results.102 Kaiser Family Foundation and Health Management Associates also report that 41 states are taking action to assess patient satisfaction and experience, and together with HEDISВ® and HEDISВ®-like measures, are using the data to ensure compliance and reward or penalize providers based on performance. States publish these measures as вЂњreport cardsвЂќ and distribute them to Medicaid beneficiaries or on Medicaid Opt-Out Option Since Congress began debating the bill that became the ACA in March 2010, Governors from around the country have threatened to stop providing Medicaid services in their state. The conflict stems from two issues: timing, and the Tenth Amendment to the U.S. Constitution. First, Congress enacted a law that expands Medicaid to 16 million individuals nationwide during a time when states are having difficulty meeting their current Medicaid obligations. While the expansion of eligibility in the ACA should not impact state budgets until 2017, many states fear that they will still be dealing with the lingering effects of the Great Recession and the double-dip recession that many suspect may follow. Additionally, the ACAвЂ™s maintenance of effort requirements constrain the ability of states to make changes to Medicaid to close their budget deficits, further burdening state priorities. Some states believe that they simply can no longer afford Medicaid. Second, many Governors see the ACA as a violation of their Tenth Amendment right to reserve powers that are neither expressly given to the federal government nor prohibited to the states. In the case of the ACA, the federal government is mandating that states expand Medicaid without allowing them flexibility on how the expansion is performed. Several other ACA provisions may override state policies and states may become liable for increased costs as well as program outcomes despite an inability to make changes that better suit their needs. A Nevada report on this issue summarizes statesвЂ™ complaint as, вЂњвЂ¦it is clear that forcing states to deal with the burden of funding health coverage to new Medicaid eligibles under health care reform is forcing some to consider what previously was unthinkable вЂ“ opting out of the Medicaid program.вЂќa A recent study by the Heritage Foundation, a conservative public policy think tank, has fueled many of the state Medicaid opt-out threats.b The study reported that over a ten-year period states could cumulatively save nearly $1 trillion by opting out of Medicaid. In fact, by their calculations, most states would be better off forgoing the federal match and only spending 90 percent of what they currently spend on long-term care from own-source Citizens Research Council of Michigan 53 CRC Report state dollars. Michigan would save $32,337 million between 2013 and 2019 under this scenario and $30,774 million with no change to long-term care. As expected, there is a large constituency of groups and individuals that either oppose state opt-out in general or find issue with the simplistic approach of the Heritage Foundation. A major issue is that the number of uninsured would greatly increase. Low-income families and individuals who would now be uninsured will encounter some ambiguity as to their insurance options under federal health care reform. As it stands, the ACA does not allow for those who qualify for Medicaid to receive subsidies for enrolling in state insurance exchanges. It is assumed that if this population does not have access to subsidies to pay for premiums and cost-sharing that they will not obtain health insurance. Having a large uninsured share of the population is costly to many parties because treatment is often delayed and use of costly emergency room care increases. The burden of these costs falls on providers, insurers, and eventually taxpayers. Nevada, Texas, and Wyoming have commissioned reports to investigate the impact of a state Medicaid opt-out.c These reports found long-term and pervasive damage to a state opt-out. Not only would low-income individuals be unable to obtain health care but state hospitals, nursing homes, medical centers, and other institutions that provide Medicaid services would suffer extreme financial damage. State and county run hospitals would also see increased costs and reduced revenues. Not only would they no longer receive Medicaid reimbursements, but they would be required to continue treating the uninsured and would have to absorb the cost of uncompensated care. Additionally, it is not clear whether or not private providers would still be subject to provider taxes. States would likely continue to charge the taxes since it adds to their current own-source Medicaid funding and some GF/GP savings, further compounding the financial stress placed on medical care providers. Medicaid also plays an important role in job creation and state economic growth. Federal and state Medicaid spending ignites investment in the health care industry and has a strong multiplier effect throughout the general state economy. The Medicaid dollars paid to medical care providers create jobs and demand for products needed to carry out services, both of which result in employee income which is spent on goods, services, and taxes, spurring economic growth.d A major component that makes Medicaid a better economic driver than other forms of investment is the amount of non-state dollars coming in. Many state economic drivers pass around state dollars with no new resources added; Medicaid creates new income and jobsfor many states. Consequently, a loss of federal matching funds would reduce the amount of money available in this economic sector and would have negative consequences for the economic activity in the state. If a state were to opt out of Medicaid, its residents would still be subsidizing Medicaid in other states as their federal tax liability will not be impacted by the change. The Social Security Act allows for voluntary state participation in Medicaid; all have participated since 1982. States presumably can choose to no longer participate, though no state has exercised this right. As it stands, the evidence points to the fact that states are better off providing Medicaid as it currently is than opting out all together. The opt-out threats have gotten serious attention and should alarm Congress to the needs of states вЂ” namely, to have greater control and flexibility in how they manage Medicaid especially over the next several years when budgets are expected to be chronically imbalanced. Nevada Department of Health and Human Services and the Division of Health Care Financing and Policy. Medicaid Opt Out. White Paper. January 22, 2010. a Dennis G. Smith and Edmund F. Haislmaier. Medicaid Meltdown: Dropping Medicaid Could Save States $1 Trillion. WebMemo Published by The Heritage Foundation. No. 2712. December 1, 2009. b вЂњMedicaid Opt Out,вЂќ Nevada Department of Health and Human Services and the Division of Health Care Financing and Policy, January 22, 2010. http://media.lasvegassun.com/media/pdfs/blogs/documents/2010/01/28/medcaid0128.pdfвЂњMedicaid OptOut Impact Analysis,вЂќ Wyoming Department of Health, September 1, 2010. www.health.wyo.gov/ Media.aspx?mediaId=9529вЂњImpact on Texas if Medicaid is Eliminated,вЂќ Texas Health and Human Services Commission and Texas Department of Insurance, December 2010. http://www.hhsc.state.tx.us/HB-497_122010.pdf c The Kaiser Commission on Medicaid and the Uninsured. The Role of Medicaid in State Economies: A Look at Research. The Kaiser Family Foundation: Publication #7075-02. January 2009. d 54 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH websites. Michigan publishes A Guide to Michigan Medicaid Health Plans: Quality Checkup103 that provides star ratings and accreditation information for each of MichiganвЂ™s Medicaid health plans. Michigan also uses a performance based bonus system determined by annually changing quality measures. As part of the Deficit Reduction Act of 2005, Congress authorized Medicaid Transformation Grants that have provided states with resources to more actively use technology to improve efficiency and effectiveness and reduce waste and abuse in Medicaid.104 ARRA also allocated $2 billion in grant funding to states and eligible providers to establish technology infrastructure. These grants, which do not require state matching, can be used to develop electronic health records, health information exchanges, electronic prescribing, electronic clinical decision support systems, tele-medicine services, and electronic claims submission systems among other technology tools. Citizens Research Council of Michigan 55 CRC Report Conclusion Nearly 20 percent of MichiganвЂ™s population relies on Medicaid for critical health services. This figure may continue to grow given the uncertainty of the state, national, and global economies. challenge for state policymakers is to agree on a funding method for Medicaid that ensures the integrity of the program now and in the future, without compromising other state spending priorities. As Medicaid spending continues to grow at a rate faster than the economy, there are few funding sources that can keep up. While Medicaid spending contributes to state economic activity, it continues to stress state resources. Even with recent revenue changes, the majority of Medicaid financing is growing at a rate slower than the costs of Medicaid, and state policymakers will grapple with revenue raising options in order to maintain Medicaid services. The A main function of the state budget is to prioritize services; as such, Medicaid has been dominating the budget as the number of patients served and benefits provided have increased. Michigan policymakers need to decide whether to allow Medicaid to continue to crowd out other important programs. This has been, and will continue to be, the fiscal dilemma facing policymakers. 56 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Appendix A MichiganвЂ™s Special and Creative Financing Practices Prior to FY2002, Michigan had relied on a variety of special financing strategies to minimize the impact of Medicaid financing on the GF/GP budget and maximize the dollars reimbursed from the federal government. These strategies were commonly referred to as special or creative financing and generated matching funds regardless of whether Medicaid services had actually been rendered. In the 1990s, these strategies fell into three major categories: specific provider taxes, provider donations, and intergovernmental transfers (IGTs). Prior to federal legislation in 1991, states were allowed to receive donations from providers and use these donations as matchable Medicaid funds. To best utilize this circumstance, Michigan collected voluntary contributions from hospitals, used those dollars to increase matching funds from the federal government and then redistributed some of the money back to those same hospitals, and retained the rest to offset its GF/GP expenditures. 105 Both providers and the stateвЂ™s general fund benefited from this scheme; the federal government, which paid out matching funds for payments not associated with Medicaid services, was the only party to lose out. In addition to provider donations, states including Michigan utilized provider specific taxes to finance Medicaid. Provider specific taxes have the benefit of allowing states to only tax those medical providers that have enough Medicaid business that, even though they are subject to taxation, the amount matched by the federal government (with the inclusion of tax dollars), and therefore reimbursed, would more than compensate for the tax payments. According to the United States General Accounting Office (GAO), 32 states employed either or both specific provider taxes and donations with the amount collected representing 23.5 percent (up to half in some states) of statesвЂ™ own-share expenditures on Medicaid. In 1991 and again in 1993, Congress passed legislation that limited these practices with the goal of ensuring that provider taxes were utilized to increase state revenue and not to maximize federal matching funds. 106 According to the GAO, despite the 1991 and 1993 changes, Michigan increased its federal share of Medicaid financing from 56 percent to 68 percent in 1993 using other special financing approaches, namely, intergovernmental transfers and public provider donations. Figure 1 MichiganвЂ™s Use of IGTs Source: вЂњMedicaid: Intergovernmental Transfers Have Facilitated State Financing Schemes.вЂќ Statement of Kathryn G. Allen, Director, Health Care вЂ” Medicaid and Private Health Insurance Issues. United States General Accounting Office. GAO-04-574T. March 18, 2004. Citizens Research Council of Michigan 57 CRC Report Michigan utilized IGTs in similar ways. The state made special Medicaid payments to public providers such as county medical care facilities and stateowned hospitals at a rate higher than the normal reimbursement (usually the Upper Payment Limit discussed below). The state then filed its federal claim and received matching funds for the special payment. The public medical provider that received the payment returned most or all of the original increased payment to the state through an IGT (sometimes within the hour it was received).107 This transfer was now considered local revenue or state restricted revenue and was used to fund other Medicaid expenditures for which it could also claim a federal reimbursement. 108 This method allowed the state to receive federal match funding twice on the same pot of money вЂ” as it was first transferred to the provider and then as it was paid back to the provider after the IGT. This strategy is depicted in Figure 1. Payment limits were placed on these transactions in 2000 and in 2002 Congress further reduced the payment limit. Effective in 2008, the CMS limited payments to public providers to their actual cost of providing services. In a similar manner, Michigan utilized Disproportional Share Hospital (DSH) payments to public hospitals in the guise of public provider donations. Between FY1991 and FY2005, Michigan made DSH payments to public hospitals (the University of Michigan Medical Center and Hurley Medical Center in Flint), which were matched by the federal government. The GF/ GP portion of the original payment was returned to the state along with some of the matching funds. While this saved Michigan taxpayers $1.43 billion109 over the 15-year period it was utilized, the strategy was gradually restricted by federal law until it was completely phased out in 2005. Beginning in 1995, the state began making DSH payments to state psychiatric hospitals. These payments are matched but not returned to the state. The amount matched results in general fund savings for the state. While these payments are still made, they have been reduced in accordance with federal regulations enacted in 2001. 58 Beginning in 1991, intermediate school districts became eligible to receive Medicaid reimbursements for school-provided health services such as health screening, physical therapy, speech therapy, nursing, social work, counseling, and some administrative activities related to outreach, application assistance, and coordination of health services. Schools receive a reimbursement for the cost of these services that is not subject to a state match (state and local funding of employees providing services is viewed as the match). As an additional benefit to the stateвЂ™s GF/GP, the state retains 40 percent of the reimbursed funds and the school districts are allocated the remaining 60 percent. In 2002, the federal government ruled that many of MichiganвЂ™s claims for administration related services were invalid and Michigan was ordered to pay a $33 million penalty. With this settlement, the federal government revised the types of services that may be claimed for reimbursement and as a result the amount submitted for reimbursement has declined in the last decade. An additional special financing strategy employed by the state utilized the certified public expenditures process. Beginning in FY2006, a hospital could submit documentation to the state detailing its financial loss associated with providing medical services to the uninsured. The state forwards this documentation to the federal government who subsequently provides reimbursement for this certified expenditure at the same rate as its Medicaid reimbursement (i.e. FMAP). The state uses this money to offset its Medicaid expenditures from the GF/GP. According to the Senate Fiscal Agency, this practice saved the state nearly $76 million over the first two years it was utilized.110 Quality Assurance Assessment Programs Beginning with the FY2002 budget and the phase out of provider donations and intergovernmental transfers, Michigan enacted targeted provider tax programs called Quality Assurance Assessment Programs (QAAPs). Initially, the QAAP was imposed on only the nursing home and long-term care industry. Because roughly 60 percent of residents in nursing homes use Medicaid insurance, these providers are typically reimbursed for the entirety of their tax. Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Subsequently, the state found a loophole in the federal law that listed вЂњMedicaid managed care organizationsвЂќ as a taxable entity rather than the more general вЂњmanaged care organizations.вЂќ The difference in wording meant that there could be an entire class of providers that only served Medicaid patients. This loophole motivated some health maintenance organizations (HMOs) to spin off their Medicaid business into a Medicaid-only provider. Only the new Medicaid HMO was subject to the QAAP. This allowed the state to follow federal guidelines by taxing this class of providers uniformly with the added bonus of not having to tax non-Medicaid providers that would not benefit from the state-paid reimbursement. Therefore, there were very few, if any, вЂњlosersвЂќ (except for the federal government) under this scenario because the state was able to hold this class of providers harmless. services, which were operated by Prepaid Inpatient Health Plans (PIHPs) and therefore subject to the вЂњmanaged care organizationsвЂќ loophole. With the passage of the Deficit Reduction Act of 2005, Congress and the President initiated the phase out of the вЂњMedicaid managed care organizationsвЂќ loophole; the loophole was officially closed in 2009, ending the QAAP assessed on Medicaid HMOs and PIHPs. The nursing home and hospital QAAPs are still in effect. Revenues from the QAAPs are deposited in the general fund and designated as restricted revenue. In FY2011, providers received $1.017 billion in net increases from the QAAP tax and its federal match. This provider tax also created a net GF/GP savings to the state of $266.6 million.111 Chart 7 shows the trend of the provider rate increases and state GF/GP savings (money that is freed up for use on other programs) over the last decade since QAAPs were enacted. The state GF/GP savings includes savings from all techniques implemented during the year. In FY2003, Michigan instituted QAAPs for hospital services and the new Medicaid HMOs. In FY2005, the state levied a QAAP on Medicaid mental health Chart 7 QAAP Provider Increases and State GF/GP Savings Trends $1,200 Millions of Dollars $1,000 $800 $954.4 Net Increase to Providers $994.8 $1,017.1 $875.3 State GF/GP Savings $644.7 $600 $554.2 $447.0 $400 $344.3 $313.6 $192.1 $200 $167.4 $199.4 $223.6 $266.6 $209.7 $92.4 $0 $14.6 $0.0 2002 $18.9 2003 $42.9 2004 2005 2006 2007 2008 2009 2010 2011 Source: Margaret Alston, Sudan Frey, and Steve Stauff. Community Health Background Briefing. Michigan House Fiscal Agency. January 2011. Citizens Research Council of Michigan 59 CRC Report Upper Payment Limits and Disproportionate Share Hospital Payments The Upper Payment Limits (UPLs) restrict the amount that states may reimburse classes of providers for Medicaid services to the amount that Medicare would reimburse for the same service. The UPL allows states, which normally would reimburse lower than the Medicare rate, to pool UPL reimbursement amounts for individual facilities within a class, and then redistribute that money among the providers in that class. This provides states with flexibility in reimbursing individual providers for varying operation costs based on population type.* To curb abuse, federal legislative changes were made such that since 2008, payments to public providers have had to be equivalent to the actual cost of services. Similarly, states are permitted to make additional payments through the Medicaid program to hospitals that serve a disproportionately high percent of uninsured or Medicaid insured patients. These are called Disproportional Share Hospital (DSH) payments and are eligible for a federal match. The reimbursable amount is capped based on inflationary growth of historic DSH spending. Because health care reform will reduce the number of uninsured and uncompensated care, the Affordable Care Act (ACA) places additional limitations on DSH payments beginning in 2014. Department of Health and Human Services. Testimony on Medicaid Upper Payment Limits by Timothy Westmoreland, Director, Center for Medicaid and State Operations, Health Care Financing Administration, * 60 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Appendix B Summary of State Provider Taxes Taken from the National Conference of State Legislatures report вЂњHealth Care Provider and Industry Taxes/FeesвЂќ The code (M) indicates taxes or fees that are used to obtain Medicaid matching funds. The code (NA) indicates that details are not available. ICF/MR-DD is intermediate care facilities for individuals with mental retardation or developmental disabilities. State Tax Applies to: AL Hospital (M) Description and Notes Hospitals: Hospitals were added for FY 2010. Nursing Home (M) Nursing Home: Levies a privilege tax on nursing facilities, at an annual rate of $1,899.96, imposes a new supplemental tax of $1,063.08 for the period September 1, 2010 through August 31, 2011, to reduce the percentage of total nursing facility revenues used when considering a reduction of the tax and to provide for the prepayment of the supplemental privilege tax through an increase in the Medicaid per diem rate beginning in January 2011. Signed as Law chapter 520. This tax is expected to generate $200 million. Other: Pharmacy (M) Other вЂ” Pharmacy: A pharmacy tax of 0.10 per prescription exists except for prescriptions below $3.00. This has been in place since approximately 1990. Tax is valid only if allowed for FFP under federal Medicaid. Note: Provider tax revenue was $58 million in FY 2006, $58 million in FY 2007 and $59 million in FY 2008. AZ Managed Care Org. (M) Managed Care Org.: 2% of net premiums, for hospital and medical service corporations, health care service organizations, health care providers of Medicaid services. Note: From 2003 through 2008, the premium tax on ArizonaвЂ™s Medicaid health insurers generated $575 million. Analysis: вЂњA Review of Health Care Provider Taxes and Their Potential Fiscal Impact to ArizonaвЂќ Arizona ACCCS, November 2009. AR Hospital (M) Hospitals: вЂњAssessment feeвЂќ of up to 1 percent of some hospitalsвЂ™ annual net patient revenue added for FY 2010 (Act 562 of 2009). ICF/MR-DD (M) ICF/MR-DD: Establishes a provider fee for intermediate care facilities for individuals with developmental disabilities added for FY 2010 (Act 433 of 2009). From July 31, 2009, to June 30, 2010, the multiplier shall be set at $15.15 per patient day. Nursing Home (M) Nursing Home: Quality assurance fee of 6% of the aggregate annual Arkansas gross receipts (Act 635, В§2 (H.B. 1274), Laws of 2001). Citizens Research Council of Michigan 61 CRC Report State Tax Applies to: Description and Notes CA Hospital Hospital: As of 2009, establishes an unspecified вЂњcoverage dividend feeвЂќ on private hospitals with the purpose of increasing payments to MediCal managed care plans, hospitals, and expanding health coverage to children. Sunset: December 31, 2013, signed as Law chapter 627 (AB 1383). Awaiting CMS approval. ICF/MR-DD (M) ICF/MR-DD: Quality assurance fee up to 5.5% of gross revenue on skilled nursing facilities (CA Health and Safety В§1324.21, signed as Law chapter 875 (AB 1629), Sept. 2004). Nursing Home Nursing Home: Began in 2006. As of 2009, expansion of Quality Assurance Fee for AB 1629 Nursing Homes. AB 1629 nursing homes presently pay a quality assurance fee. Expanded this fee to include Medicare revenues, as well as MediCal and private pay revenues. Signed as Law chapter 5 (AB 5 d). For assessment on SNFs see Cal Health & Saf. Code В§В§ 1324.20 to 1324.30 (2009). California has a waiver exempting some types of SNFs, such as continuing care retirement communities and SNFs operated by the state or another public entity. Notes: Discontinued Managed Care Org. fee in 2010. Article: California Hospitals to Begin Taxing Themselves, released October 7, 2010. CO Hospital (M) Hospitals: Fee was determined by a 13-member oversight committee. Managed care days are taxed at $60.47 per inpatient hospital day. Non-managed care days are taxed at $270.26 per inpatient bed day. Discounts are applied to high volume Medicaid and indigent care providers and essential access hospitals. Mental disease, rehabilitation, and long term care hospitals are excluded (Signed as Chapter 152 of 2009). ICF/MR-DD (M) ICF/MR-DD: Service fee up to 5% of the costs incurred by each intermediate care facility, effective 2003-04. (Co. Rev. Stat. 25.5-6-204(c)). Fee is valid only if allowed for FFP under federal Medicaid. Nursing Home NA Article: Gov. Ritter Announces Colorado Healthcare Affordability Act, released February 26, 2009. CT Nursing Home (M) Nursing Home: вЂњResident day user feeвЂќ on nursing homes of 6% on each Medicaid nursing home bed (CT Sec. 17b-321, enacted as P.A. 05-251, effective for 2006). Fee amount is subject to federal Medicaid waiver approval. DC ICF/MR-DD ICF/MR-DD: 1.5% per annum of gross revenue. (Sec. 47-1273, signed as D.C. Law 16-68, March 2006, effective for FY 2008). FY 2011 Budget reflects $1.7 million from a 1.5 percent tax on the gross revenue of intermediate care facilities that was adopted in 2006 but has not been implemented. Nursing Home (M) Nursing Home: Assessment on nursing homes of $3,600 per licensed bed annually; may be increased up to 6% of net resident revenue (Sec. 47-1263, signed as Law 15-205). The tax is estimated to generate $11 million in revenue annually from FY 2010 through FY 2014. Note: Hospital assessment of 0.45% of net patient services revenue was discontinued (Sec. 47-1242 вЂ” Repealed by Law 15-205). 62 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH State Tax Applies to: Description and Notes FL Hospital (M) Hospital: Hospitals are assessed 1.5% of the annual inpatient net operating revenues and 1 percent of the annual outpatient net operating revenues; funds administered by the вЂњPublic Medical Assistance Trust FundвЂќ (В§ 395.701, F.S. amended by Chapter 2007-230). ICF/MR-DD ICF/MR-DD: ICF/MR-DD taxes were added, effective FY 2010. Sunset date of the assessment is October 1, 2011. Nursing Home Nursing Home: Created a quality assessment on nursing home facility providers and required the assessment to be imposed beginning April 1, 2009. The assessment may not exceed the federal ceiling of 5.5 percent of the total aggregate net patient service revenue. Signed as Law chapter 4. Other: Clinical Labs, Ambulatory Surgical Centers, Diagnostic Imaging NA A Note: Florida no longer taxes health care entities (including clinical labs, ambulatory surgical centers, diagnostic imaging) at an assessed 1% rate of annual net operating revenues (В§ 395.7015, F.S.). This revenue is used for administrative expenses, not matching funds GA Nursing Homes Nursing Home: Reduced for 2006. Note: Managed Care Org. fee was dropped for FY 2010. ID IL IN Hospital (M) Hospital: Began in 2008. Not greater than 1.5 percent of the assessment base. Repeals July 1, 2012. Nursing Home NA Hospital (M) Hospital: Occupied beds less Medicare occupied beds from hospitalвЂ™s fiscal year Medicare cost report. The tax rate is $218.38 per occupied bed and is based on Fiscal Year 2005. The annual tax is $900.0 million. ICF/MR-DD (M) ICF/MR-DD: Adjusted gross revenues reported on HFS tax report. The tax rate is 5.5 percent and is based on the previous state fiscal year. The annual tax is $19.1 million. Nursing Home (M) Nursing Home: Licensed beds multiplied by number of days in the current quarter. The tax rate is $1.50 per licensed bed day and is based on the current state fiscal year. The annual tax is $55.2 million. In 2011, the legislature passed a bill to increase the bed tax bringing in an estimated $145 million next year. Article вЂ” Chicago Tribune, 1/12/11. ICF/MR-DD (M) ICF/MR-DD: Revised 2008. вЂњEach facilityвЂ™s assessment shall be based on a formula set forth in regulations promulgated by the Department of Mental Health;вЂќ effective June 29, 2009. Nursing Home Nursing Home: SB 169 of 2006; effective July 1, 2006, extends an expiring levy on nursing facilitiesвЂ™ non-Medicare total annual patient days. The extension of the $10 per non-Medicare patient day Quality Assessment is estimated to result in total additional payments to nursing facilities of approximately $215.8 million. Estimated total annual collection of $102.5 million for FY 2007. Citizens Research Council of Michigan 63 CRC Report State Tax Applies to: Description and Notes IA ICF/MR-DD (M) ICF/MR-DD: The assessment fee equals 5.5 percent of the total revenue of the facility for the facilityвЂ™s preceding fiscal year. Nursing Home Nursing Home: Imposes a quality assurance assessment on nursing facilities for each patient day. The assessment rate is 3.0%. The quality assurance fee is expected to generate roughly $33 million. Signed as Law chapter 160 (S 476). Hospital (M) Hospital: Annual assessment on hospital inpatient services of 1.83% of net inpatient operating revenue. Nursing Home Nursing Home: Imposed annual quality care assessment per licensed bed on each skilled nursing care facility. The assessment on all facilities in the aggregate shall not exceed $1,950 annually per licensed bed, and shall be imposed uniformly on all skilled nursing care facilities. Excludes skilled nursing care facilities that are part of a continuing care retirement facility, small skilled nursing care facilities and high Medicaid volume skilled nursing care facilities. Signed as Law chapter 159 (H 2320). Pending CMS approval. KS Note: All assessments are valid only if allowed for FFP under federal Medicaid (Ch. 89 (HB 2912), Laws of 2004). Former Managed Care Org. Fee: Assessment fee of 5.9% of non-Medicare premiums collected by HMO. Fee is no longer waived for Medicaid MCOs. KY Hospital (M) Hospital: Hospital Services Tax of 2.5% on gross revenues (KRS Sec. 142.303, as amended by Ch. 9, Laws of 2007). ICF/MR-DD ICF/MR-DD: Intermediate Facility Services Assessment of 5.5% on the gross revenues; effective July 1, 2004 (KRS Sec. 142.363-1). Nursing Home Nursing Home: Nursing Facility Services Assessment of 2% of gross revenues for non-Medicare patients, with variations (KRS Sec. 142.361, as created by Ch. 142, Laws 2004). Other: Home Health Care (M) Other вЂ” Home Health Care: Health Care Provider Tax of 2% on gross revenues of licensed home-health-care services and HMO services (KRS Sec. 142.307 as amended by Ch. 73, Laws of 2005). Note: Managed Care Org. fee discontinued in 2010. A Pharmacy Tax of 15Вў per prescription ended in 1999 (see KRS Sec. 142.311). LA ICF/MR-DD (M) ICF/MR-DD: вЂњHealth Care ProvidersвЂ™ Medicaid FeesвЂќ are $30 per occupied bed per day for intermediate care facilities. Actual fee collected is $14.30 per day. Nursing Home (M) Nursing Home: $10 per occupied bed per day for nursing facilities. Actual fee collected is $8.02 per day. Other: Pharmacy (M), Medical Transportation Providers (M) Other вЂ” Pharmacy: 10Вў per out-patient prescription. Other вЂ” Medical Transportation Providers: $7.50 per medical service trip for medical transportation providers (Sec. 46:2625, La R.S.). No fee collected. This is the amount authorized by state law, but not implemented. Note: All fees are valid only if allowed for FFP under federal Medicaid. 64 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH State Tax Applies to: ME Hospital (M) Description and Notes Hospital: вЂњHealth Care Provider TaxвЂќ вЂ” Hospitals subject to 2.23% tax of net operating revenue (36 M.R.S.A. Sec. 2892 as enacted by Act 513 (H.B. 1351), Laws of 2004). The hospital assessment has an updated tax base year of 2008 (changed from 2006). ICF/MR-DD NA Nursing Home Nursing Home: Nursing homes tax is 5.5% of annual net operating revenue. Other: Private Non-Medical Other вЂ” Residential Care & Day Hab.: Residential treatment facilities Institutions (PNMI), is 6% of annual gross patient services revenue (36 M.R.S.A. Residential Care & Sec. 2872, as amended by Act 467 (S.B. 424), Laws of 2003). Day Hab. Note: All taxes are valid only if allowed for FFP under federal Medicaid (Sec. HH-6, Ch.673, 2004). MD MA MI Hospital Hospital: HB1587/SB 974 passed during the 2008 Legislative Session. By the end of FY 09, the Department estimated that it will receive $41 million in hospital assessment funds. Chapter 7. ICF/MR-DD NA Managed Care Org. NA Nursing Home (M) Nursing Homes: Added in FY 2008.The aggregate amount of the quality assessment necessary to support the Medicaid nursing facility reimbursement system in the FY 2009 was equivalent to the statutory cap of 2% of operating revenue. (SB 101 вЂ” Chapter 503 of the Acts of 2007). Hospital Hospital: Assessment; payment of expenses for Health Policy office and health safety net office by acute hospitals. (MGL Ch. 118, В§5 as amended by Ch. 58 вЂњhealth reformвЂќ law of 2006). ICF/MR-DD (M) ICF/MR-DD: Provider donations from hospitals or health centers. Massachusetts established a new tax on intermediate care facilities for the developmentally disabled in FY 2007. Nursing Home (M) Nursing Home: Began in FY 2007. Extended to 4/4/10. Hospital (M) Hospital: Increased in 2006. Nursing Home Nursing Home: Increased in 2006. Other: Community Mental Health Other вЂ” Community Mental Health: Provider tax revenue was $674.0 million for fiscal 2006; $856.0 million for fiscal 2007 and $1,008.0 million for fiscal 2008. Note: Managed Care Org. fee discontinued in 2010. Citizens Research Council of Michigan 65 CRC Report State Tax Applies to: Description and Notes MN вЂњMinnesotaCare Tax:вЂќ Hospitals, surgical centers, health care providers, and surgical centersвЂ™ wholesale drug distributors pay 2% of estimated tax gross revenues (Sec. 295.52(4a)). Hospital (M) Hospital: вЂњHospital SurchargeвЂќ is 1.56% of net patient revenues (Sec. 256.9657). MS MO ICF/MR-DD (M) ICF/MR-DD: Tax is $1040 per licensed bed annually. Managed Care Org. (M) Managed Care Org.: HMO and Integrated Network surcharge is 1.6% of total premium revenues. Nursing Home (M) Nursing Home: вЂњNursing Home License Surcharge:вЂќ Licensed non-state-operated nursing homes pay an annual surcharge of $2,815 per licensed bed. Increased from $625 in 2002 & 2003 (Sec. 256.9657). Other: Providers (M), Other вЂ” Providers, ambulatory surgical centers, and wholesale drugs Ambulatory Surgicalhave a tax of 2%. Centers (M), and Wholesale Drugs (M) Hospital NA ICF/MR-DD NA Nursing Home NA Other: Psychiatric Residential Treatment Facilities ICF/MR-DD and Nursing Home: Assessment not to exceed $2 per patient bed per day (Miss. Code Sec. 43-13-145, as amended by ch. 470, Laws of 2005). Hospital (M) Hospital: Began in FY1992. Amount is set by regulations (13 CSR70-15.110). For FY2011, the rate is set at 5.45% of inpatient and outpatient adjusted net revenues. ICF/MR-DD (M) ICF/MR-DD: Began in FY2009. For FY2011, the rate is set at 5.49% of net operating revenues. Nursing Home (M) Nursing Home: Began in FY1995. Amount is set by regulations (13 CSR7010.110). For FY 2011, the NFRA is $9.27 per patient occupancy day. Other: Pharmacy (M) Other вЂ” Pharmacy: Began in 2002. For FY2011, the rate is set at 1.97% of Gross Retail Prescription Sales. Note: Ambulance: This provider tax is pending CMS approval. The rate is anticipated to be 5.45% of gross receipts. Managed Care Org.: Tax was discontinued in FY2010. Certification Fee for providers of health benefit services for home and community based waiver services for persons with developmental disabilities: Authorized by General Assembly in 2009. Fee is pending CMS approval. MT Hospital (M) Hospital: Each hospital in the state pays a utilization fee beginning January 1, 2010, in the amount of $50 for each inpatient bed day. ICF/MR-DD (M) ICF/MR-DD: FY 2007 set at 6% of revenue; currently 5.5% of revenue (15-67102, MCA). Nursing Home (M) Nursing Home: FY 2007 it was increased to $8.30/bed day (15-60-102, MCA). Report: MT Report on provider facilities fees -2009 budget. 66 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH State Tax Applies to: Description and Notes NE ICF/MR-DD (M) ICF/MR-DD: In effect 2007-2008. NH Hospital NA Nursing Home Nursing Home: Senate Bill 376 passed in 2004 established the Nursing Facility Quality Assessment which imposes an assessment of 6% on net patient services revenue on all nursing facilities licensed by the State. Effective for taxable periods beginning on or after 1/1/2008 this rate is reduced to 5.5%. NV Nursing Home (M) Nursing Home: In the 2003 Legislative Session, legislation was passed to impose fees on free-standing nursing facilities. It was amended in 2005. The title of the program is вЂњAssessment of Fees on Nursing Facilities to Increase the Quality of Nursing Care.вЂќ It can be found in the Nevada Revised Statutes NRS 422.3755. NJ ICF/MR-DD (M) NA Managed Care Org. NA Nursing Home Nursing Home: The current rate is $11.89 per non-Medicare day to applicable nursing homes. It may be up to a maximum of 6% of the aggregate amount of annual revenues received by applicable nursing homes. Managed Care Org. (M) Managed Care Org.: NM has a broad-based вЂњgross receipts sales taxвЂќ; in 2004 the state exempted all commercial managed care providers from this sales tax.B Other NA NM Note: Discontinued ICF/MR-DD in 2006; Discontinued Nursing Home in 2006. NY Hospital (M) Hospital: Began in 2006. Nursing Home NA Other NA ICF/MR-DD (M) ICF/MR-DD: Effective November 1, 2009, the cost assessment rate that applies to all ICF/MR enrolled providers for total non-Medicare patient days is $12.32. Managed Care Org. Managed Care Org.: HMO taxes measured by 1.9% of gross premiums (NC В§ 105-228.5, effective 1/1/07). Nursing Home NA ND ICF/MR-DD (M) NA OH Hospital (M) Hospital: Hospitals assessment on total facility costs not to exceed 2%, determined annually (Ohio Rev. Code Sec. 5112.01 et seq.). ICF/MR-DD NA Managed Care Org. Managed Care Org.: Began in 2006. Nursing Home Nursing Home: Nursing home and hospital bed annual franchise permit fee at $1.25 per day per bed (Ohio Rev. Code Sec. 3721.51 as increased from $1 by HB 199 of 2007). NC Citizens Research Council of Michigan 67 CRC Report State Tax Applies to: Description and Notes OK Nursing Home (M) Nursing Home: Nursing Facility Quality of Care Fee is collected from nursing facilities on a per patient day basis and placed into a revolving fund which is used to pay for a higher facility reimbursement rate, increased staffing requirements and other increased member benefits. The facilities receive monthly invoices for fee payments based on self-reported patient census and revenues. Health Insurance (M) Health Insurance: HB2437 applies a 1% fee on all health insurance claims to be paid by insurance companies as well as companies that self-insure their employees. It is designed to collect an estimated $52 million in the first fiscal year that would be used to obtain $135 million in federal matching money (May 2010). This law was struck down by the state Supreme Court 8/24/2010. Hospital (M) Hospitals: The tax rate beginning July 1, 2009 is 2.32 percent. Managed Care Org. (M) Managed Care Org.: The tax rate beginning October 1, 2009 is 1.0 percent. Nursing Home (M) Nursing Home: The long term care tax is assessed based on a rate set by the Director of the Department of Human Services. Hospital NA ICF/MR-DD NA Managed Care Org. (M) Managed Care Org.: Pennsylvania enacted a gross receipts tax on the managed care plans tied to the amount of revenue they received from Medicaid. Tax of 59 mills is imposed on each dollar of gross receipts received by managed care organizations pursuant to a contract with the PA Department of Public Welfare. Effective October 1, 2009. Nursing Home NA Hospital (M) Hospital: Hospital licensing fee of 3.14% for 2003. (RI Gen Laws Sec. 23-1738.1). ICF/MR-DD ICF/MR-DD: Residential facility for mentally retarded rate of 25% of the gross patient revenue. (RI Gen Laws Sec. 44-50-3). Managed Care Org. NA Nursing Home Nursing Home: Nursing facilities rate of 5.5% fee gross patient revenue Increased for 2006 (RI Gen Laws Sec. 44-51-3). Hospital (M) NA ICF/MR-DD NA SD ICF/MR-DD (M) ICF/MR-DD: Began in FY 2008. TN ICF/MR-DD NA Managed Care Org. (M) Managed Care Org.: Premium tax; premium tax revenue for fiscal 2008 totaled $64 million. Nursing Home Nursing Home: Uniformly applied at the rate of $2,225 per licensed bed, effective 2003-08 (Tenn. Sec. 68-11-216; will sunset 6/30/2011). Nursing Home Tax revenue for fiscal 2008 totaled $85 million.C ORD PA RI SC 68 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH State Tax Applies to: Description and Notes TX ICF/MR-DD (M) ICF/MR-DD: The Health and Human Services Commission or the department at the direction of the commission shall set the quality assurance fee for each day in the amount necessary to produce annual revenues equal to an amount that is not more than six percent of the facilityвЂ™s total annual gross receipts in this state. Managed Care Org. NA Hospital Hospital: Enacts the Hospital Provider Assessment Act. For fiscal year 2010-11 the department may generate an additional amount of $2,000,000 which shall be used by the department and the division as follows: $1,000,000 to offset Medicaid mandatory expenditures; and $1,000,000 to offset the reduction in hospital outpatient fees in the state program. Repeals in 2013. Signed as Law chapter 179. ICF/MR-DD (M) ICF/MR-DD: Began in 2006.Other вЂ” Rural Health Care Facilities: Qualifying rural counties may adopt a rural health care facilities tax of up to 1 percent. Nursing Home NA Other: Rural Health Care Facilities NA Hospital (M) NA ICF/MR-DD (M) NA Nursing Home (M) NA Other: Pharmacy (M), Residential Care & Day Hab. (M), Home Health Provider (M), Health Information Technology Other вЂ” Health Information Technology: Health insurers pay in based on claims processed; and these funds are used as match to support the HIT/HIE initiative. Hospital Hospital: Creates hospital safety net assessment, which is an assessment on hospitals based on non-Medicare inpatient hospital days. The assessments increase periodically in four phases, and they range from six dollars to $174 depending on the phase and the type of hospital. Repeals on July 1, 2013. Signed as Law chapter 30 (H 2956). The increased hospital assessments may generate $352 million in additional revenue. ICF/MR-DD ICF/MR-DD: The rate is .06 of revenues for services provided to intellectually disabled persons. Nursing Home (M) Nursing Home: вЂњQuality Maintenance FeeвЂќ is $6.50 per patient day. The fee is valid only if allowed for FFP under federal Medicaid. (Ch. 16 (S.B. 5341), 1st Sp. Sess., Laws of 2003). Revenue reported as reduced for 2006 & 2007. The tax was scheduled to terminate in FY 2008. UT VT WA Citizens Research Council of Michigan 69 CRC Report State Tax Applies to: Description and Notes WV Hospital (M) Hospital: Inpatient and outpatient hospital services are taxed at 2.5% (W.Va. Code Sec. 11-27-9; В§11-27-15). ICF/MR-DD (M) NA Nursing Home (M) Nursing Home: Nursing facility services, increased from 5.5% to 5.95% of gross receipts in 2005. Other: Independent Lab/X-ray Other вЂ” Laboratory/ X-ray services: Laboratory or x-ray services are taxed at 5%; MD offices are exempt (W.Va. Code Sec. 11-27-8). Other: Practitioner, Ambulatory Surgical Centers (M) Other: Ambulatory surgical centers are taxed at 1.75% of gross receipts. Note: In June 2009, West Virginia amended an annual broad-based health carerelated tax on providers of physiciansвЂ™ services; expanding the definition of physiciansвЂ™ services to mean those services furnished by a physician within the scope of the practice of medicine or osteopathy, whether furnished in the physicianвЂ™s office, the recipientвЂ™s home, a hospital, a skilled nursing facility or any other location. S 724 was signed into law as Chapter 215 of 2009. Former Emergency Ambulance Service Providers Tax: Emergency ambulance service providers are taxed at the rate of 5.5%. Reduced for 2006 & 2007. Former PhysiciansвЂ™ Services Tax: PhysiciansвЂ™ services were taxed at 2% until 2001 but have been reduced annually; for 2007-08 the rate was 0.8% and was scheduled to be phased out to 0% by 2010. (W.Va. Code Sec. 11-27-36). Also formerly taxed, chiropractic (В§11-27-5); dental; nursing; opticians & optometric; podiatry; psychological and therapistsвЂ™ services. All formerly taxed entities were eliminated effective July 1, 2010. WI 70 Hospitals Hospitals: In effect 2007-2008. ICF/MR-DD ICF/MR-DD: Intermediate care facility assessment of $445 per month for fiscal year 2004-2005. Nursing Home (M) Nursing Home: Nursing home assessment of $75 per month per licensed bed. Increased from $32 in 2003. (Sec. 50.14, Wis. Stats, as amended by Act 33 (S.B. 44), Laws of 2003). Other NA Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Appendix C Covered Services, Enhanced Services, and Services Covered Outside of Contract Terms and Conditions of Health Plan Contractor, State of Michigan111 Covered Services include but are not limited to: вЂў Ambulance and other emergency medical transportation вЂў Blood lead testing in accordance with Medicaid Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) policy вЂў Certified nurse midwife services вЂў Certified pediatric and family nurse practitioner services вЂў Chiropractic services вЂў Diagnostic lab, x-ray and other imaging services вЂў Durable medical equipment (DME) and supplies вЂў Emergency services вЂў End Stage Renal Disease services вЂў Family planning services (e.g., examination, sterilization procedures, limited infertility screening, and diagnosis) вЂў Health education вЂў Hearing and speech services вЂў Hearing aids вЂў Home Health services вЂў Hospice services (if requested by the enrollee) вЂў Immunizations вЂў Inpatient and outpatient hospital services вЂў Intermittent or short-term restorative or rehabilitative services (in a nursing facility), up to 45 days вЂў Restorative or rehabilitative services (in a place of service other than a nursing facility) вЂў Medically necessary weight reduction services вЂў Mental health care вЂ“ maximum of 20 outpatient visits per calendar year вЂў Out-of-state services authorized by the Contractor вЂў Outreach for included services, especially pregnancy-related and Well child care вЂў Parenting and birthing classes вЂў Pharmacy services вЂў Podiatry services вЂў PractitionersвЂ™ services (such as those provided by physicians, optometrists and dentists enrolled as a Medicaid Provider Type 10) вЂў Prosthetics and orthotics вЂў Tobacco cessation treatment including pharmaceutical and behavioral support вЂў Therapies (speech, language, physical, occupational) excluding services provided to persons with development disabilities which are billed through Community Mental Health Services Program (CMHSP) providers or Intermediate School Districts. вЂў Transplant services вЂў Transportation for medically necessary covered services Citizens Research Council of Michigan 71 CRC Report вЂў вЂў вЂў Treatment for sexually transmitted disease (STD) Vision services Well child/EPSDT for persons under age 21 Enhanced services: вЂў Place strong emphasis on programs to enhance the general health and well-being of enrollees вЂў Make health promotion programs available to the enrollees вЂў Promote the availability of health education classes for enrollees вЂў Provide education for enrollees with, or at risk for, a specific disability or illness вЂў Provide education to enrollees, enrolleesвЂ™ families, and other health care providers about early intervention and management strategies for various illnesses and/or exacerbations related to that disability or disabilities вЂў Upon request from DCH, collaborate with DCH on projects that focus on improvements and efficiency in the overall delivery of health services Services covered outside of the contract: вЂў Dental services вЂў Services provided by a school district and billed through the Intermediate School District вЂў Inpatient hospital psychiatric services (the Contractor is not responsible for the physician cost related to providing psychiatric admission histories and physical. However, if physician services are required for other than psychiatric care during a psychiatric inpatient admission, the Contractor would be responsible for covering the cost, provided the service has been prior authorized and is a covered benefit.) вЂў Intermittent or short-term restorative or rehabilitative services (in a nursing facility), after 45 days вЂў Outpatient partial hospitalization psychiatric care вЂў Maternal Infant Health Program (MIHP) вЂў Mental health services in excess of 20 outpatient visits each calendar year вЂў Mental health services for enrollees meeting the guidelines under Medicaid Policy for serious mental illness or severe emotional disturbance. вЂў Substance abuse services through accredited providers including: o Screening and assessment o Detoxification o Intensive outpatient counseling and other outpatient services o Methadone treatment and other substance abuse pharmaceuticals indicated exclusively for substance abuse treatment and specified on DCHвЂ™s pharmacy vendorвЂ™s web site under the вЂњClasses for Psychotropic and HIV/AIDS Carve OutвЂќ at www.michigan.fhsc.com вЂў вЂў вЂў вЂў вЂў вЂў 72 Services, including therapies (speech, language, physical, occupational), provided to persons with developmental disabilities which are billed through CMHSP providers or Intermediate School Districts. Custodial care in a nursing facility Home and Community-Based Waiver Program services Personal care or home help services Traumatic Brain Injury Program Services Transportation for services not covered in the CHCP Services, including therapies (speech, language, physical, occupational), provided to persons with developmental disabilities which are billed through Community Mental Health Services Program Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH Endnotes For households with non-elderly, non-disabled persons the TANF gross income cutoff is 130% of the FPL and net income limit is 100 percent of the FPL. Households must meet both criteria. 1 Centers for Medicare & Medicaid Services. Mandatory Eligibility Groups. Accessed July 29, 2011. https://www.cms.gov/ medicaideligibility/03_mandatoryeligibilitygroups.asp 2 American Speech-Language-Hearing Association. Frequently Asked Questions about Medicaid. Accessed on July 28, 2011. w w w. a s h a . o r g / p r a c t i c e / r e i m b u r s e m e n t / m e d i c a i d / medicaid_faqs.htm#q6 3 4 medicaidbenefits.kff.org/. Accessed October 6, 2011. Website for the Centers for Medicare & Medicaid Services, Research and Demonstration Projects- Section 1115. Accessed October 13, 2011. https://www.cms.gov/ M e d i c a i d S t W a i v P r o g D e m o P G I / 03_Research&DemonstrationProjects-Section1115.asp 5 The Kaiser Commission on Medicaid and the Uninsured. Five Key Questions and Answers about Section 1115 Medicaid Demonstration Waivers. The Kaiser Family Foundation: Publication #8196. June 2011. www.kff.org/medicaid/upload/8196.pdf 6 6 The Kaiser Family Foundation. www.statehealthfacts.org. National Governors Association and The National Association of State Budget Officers. The Fiscal Survey of State: An Update of State Fiscal Conditions. Spring 2011. If the federal government cuts Medicaid by reducing provider taxes the actual impact is an effective reduction in Medicaid spending overall unless states choose to supplement the lost funding with other sources. States would either need to reduce Medicaid spending by $18.4 billion, increase other taxes, or keep tax rates the same and cover the increased costs with other own-source revenues effectively crowding out other state programs. Only if states choose to cut back the Medicaid program would the federal government actually see the savings it projects; if the states choose to redirect funding from other sources or increase other broad based taxes to make up for the short fall in provider tax revenues, the federal government would still be obligated to match those funds. Reducing provider tax rates is the federal governmentвЂ™s way of downsizing the Medicaid program as a whole. 14 Congressional Budget Office. Budget Options, Volume I: Health Care. December 2008 15 The National Commission on Fiscal Responsibility and Reform. The Moment of Truth. December 2010. Pgs. 36-42 16 To be considered public funds, Medicaid funding must be from state Medicaid appropriations, intergovernmental transfers, or certified public expenditures as defined by statue. 17 Email correspondence with the House Fiscal Agency on October 5, 2011. 18 19 42 CFR 433.68(e) 7 20 State per capita income for the FMAP formula comes from the three year average personal income as calculated by the Department of CommerceвЂ™s Bureau of Economic Analysis. The Kaiser Commission on Medicaid and the Uninsured. Medicaid Financing Issues: Provider Taxes. The Kaiser Family Foundation: Publication #8193. May 2011. www.kff.org/medicaid/ 8193.cfm 8 9 The Kaiser Commission on Medicaid and the Uninsured. An Overview of Changes in the Federal Medical Assistance Percentages (FMAPs) for Medicaid. The Kaiser Family Foundation: Publication #8210. July 2011. www.kff.org/medicaid/upload/ 8210.pdf 10 The Kaiser Commission on Medicaid and the Uninsured. An Overview of Changes in the Federal Medical Assistance Percentages (FMAPs) for Medicaid. The Kaiser Family Foundation: Publication #8210. July 2011. www.kff.org/medicaid/upload/ 8210.pdf The four states without provider taxes are Alaska, Delaware, Hawaii and Wyoming. 21 This is in accordance with a federal waiver allowing for nonuniformity of tax assessments. 22 This actual tax rate varies because of different pools of hospitals within the provider class and therefore 4.3% is an average across the provider class rather than an exact levy rate. 23 Email correspondence with the Senate Fiscal Agency on September 15, 2011. 24 National Conference of State Legislatures. Health Provider and Industry Taxes/Fees. Article #14359. February 2011 (updated July 2011). www.ncsl.org/?tabid=14359 25 More information about MichiganвЂ™s per capita income over time can be found on the website of MichiganвЂ™s Department of Technology, Management and Budget. www.michigan.gov/cgi/ 0,4548,7-158-54534-253826вЂ”,00.html Steve Angelotti. Governor SnyderвЂ™s Health Claims Tax Proposal. State Notes: Michigan Senate Fiscal Agency. Spring 2011. Ellyn R. Boukus, Alwyn Cassil, Ann S. OвЂ™Malley. вЂњA Snapshot of U.S. Physicians: Key Findings from the 2008 Health Tracking Physician Survey.вЂќ Center for Studying Health System Change. Data Bulletin No. 35, September 2009. www.hschange.com/ CONTENT/1078/ Steve Angelotti. Bill Analysis: Paid Health Claims Assessment (S.B. 347 & 348 (S-3)). Senate Fiscal Agency. June 30, 2011. 11 12 Kaiser Commission, Medicaid Financing Issues: Provider Taxes, May 2011 13 26 Steve Angelotti. Bill Analysis: Paid Health Claims Assessment (S.B. 347 & 348 (S-3)). Senate Fiscal Agency. June 30, 2011. 27 28 State of Michigan Department of Management and Budget Purchasing Operation. Comprehensive Health Care Program for the Michigan Department of Community Health. www.michigan.gov/documents/contract_7696_7.pdf 29 Citizens Research Council of Michigan 73 CRC Report Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder. Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser Family Foundation: Publication #8105. September 2010. 30 Michigan Health and Hospital Association. вЂњMedicaid Funding Reductions to MichiganвЂ™s Community Hospitals, Fiscal Years (FY) 1996-2011.вЂќ Updated December 2010. Accessed October 10, 2011. 45 31 вЂњReforming Medicaid in New York State: The County Perspective. A report to the New York State GovernorвЂ™s Medicaid Redesign Team. вЂњSubmitted by the New York State Association of Counties. February 11, 2011 www.nysac.org/legislative-action/documents/NYSACMedicaidRedesignTeamReport.pdf. Phil Galewitz. вЂњNationвЂ™s Health Care Bill to Nearly Double by 2020.вЂќ Kaiser Health News. July 28, 2011. 47 Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder. Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser Family Foundation: Publication #8105. September 2010. вЂњHealth Care Spending in the United States and Selected OECD Countries, April 2011.вЂќ Snapshots: Health Care Costs: The Kaiser Family Foundation. April 28, 2011 (Accessed November 2, 2011). www.kff.org/insurance/snapshot/ OECD042111.cfm 32 National Governors Association and The National Association of State Budget Officers. The Fiscal Survey of State: An Update of State Fiscal Conditions. Spring 2011. 33 34 The Kaiser Family Foundation. www.statehealthfacts.org. The Fiscal Survey of States: Spring 2011. A Report by the National Governors Association and the National Association of State Budget Officers. 2011. 35 The Kaiser Commission on Medicaid and the Uninsured. Medicaid Enrollment: June 2010 Data Snapshot. The Kaiser Family Foundation: Publication #8050-03. January 2011. www.kff.org/medicaid/upload/8050-03.pdf 36 The Kaiser Family Foundation. Distribution of Medicaid Payments by Enrollment Group (in millions), FY2008. w w w . s t a t e h e a l t h f a c t s . k f f . o r g / comparemaptable.jsp?ind=858&cat=4 37 The Kaiser Family Foundation. Distribution of Medicaid Payments by Enrollment Group (in millions), FY2007. Accessed on www.statehealthfacts.kff.org/ July 29, 2011. comparemaptable.jsp?ind=858&cat=4 38 вЂњA Special Message from Governor Rick Snyder: Health and Wellness.вЂќ September 14, 2011 39 40 The Kaiser Family Foundation. www.statehealthfacts.org. Those enrolled in capitated care services are usually the youngest and healthiest enrollees while fee-for-service is mainly reserved for those with more complicated and severe health issues such as the disabled and elderly. 41 46 The Earmarking of State Taxes in Michigan. Citizens Research Council, Council Comments No. 1038. December 1995. www.crcmich.org/PUBLICAT/1990s/1995/cc1038.pdf 48 Josh Verges. вЂњSignature filed for tax hike to benefit education, Medicaid.вЂќ Argus Leader. November 1, 2011 (Accessed November 2, 2011). 49 Pleis JR, Lucas JW. Summary health statistics for U.S. adults: National Health Interview Survey, 2007. Vital Health Statistics: Series 10, no 240. May 2009. www.cdc.gov/nchs/data/series/ sr_10/sr10_240.pdf 50 Brian S. Armour, Eric A. Finkelstein, Ian C. Fiebelkorn. Statelevel Medicaid expenditures attributable to smoking. Preventable Chronic Diseases, 6(3):A84 (2009).www.cdc.gov/pcd/issues/2009/jul/08_0153.htm. Accessed October 6, 2011. 51 вЂњA Special Message from Governor Rick Snyder: Health and Wellness.вЂќ September 14, 2011. www.michigan.gov. 52 In the past, Michigan has taxed vending machine purchases in the context that vending machine foods are prepared and intended for immediate consumption and therefore meets the criteria set forth in the constitution. Additionally, soda from the fountain is taxed under the sales tax. There are several indirect taxing options such as levying a retail sales tax on some junk food or soda ingredients at the wholesale level. 53 54 Bill Fairgrieve. Managing Medicaid Costs in Michigan. House Fiscal Agency: Fiscal Forum. January 2007. Mary K. Reinhart. вЂњArizona Medicaid Cuts: Key Portions of Plan Rejected by U.S. Officials.вЂќ The Arizona Republic. October 8, 2011 (Accessed October 8, 2011). 42 David Fosdick. The Role of Medicaid Special Financing in Changes in State Expenditure, 1991-2007. Issue Paper: Senate Fiscal Agency. January 2008. 55 Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder. Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser Family Foundation: Publication #8105. September 2010. 56 43 Email correspondence with the Senate Fiscal Agency on September 15, 2011. 44 74 A Letter by United States Department of Health and Human Services Secretary Kathleen Sebelius. вЂњSebelius outlines state flexibility and federal support available for Medicaid вЂ“ Full Letter.вЂќ February 3, 2011. вЂњWash. to Limit Medicaid Emergency Room Visits.вЂќ The Associated Press. September 26, 2011 (Accessed September 26, 2011) 57 Citizens Research Council of Michigan OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH A Letter by United State Department of Health and Human Services Secretary Kathleen Sebelius to Janice Brewer, Governor of Arizona. February 15, 2011. 58 Ending June 2011.вЂќ https://www.cms.gov/reimbursement/ Downloads/2Q2011ReimbursementChart.pdf www.statehealthfacts.org/comparetable.jsp?ind=196&cat=4. Accessed on July 21, 2011. 72 вЂњEnclosure: Medicaid Cost-Savings Opportunities.вЂќ A letter sent on February 3, 2011 by Kathleen Sebelius, Secretary of the United States Department of Health and Human Services. www.hhs.gov/news/press/2011pres/02/20110203tech.html 73 John Buntin. вЂњWhat Experts Think of Five Medicaid-Savings Strategies.вЂќ Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html 74 59 60 Anna Sommers, Arunabh Ghosh, and David Rousseau. Medicaid Enrollment and Spending by вЂњMandatoryвЂќ and вЂњOptionalвЂќ Eligibility and Benefit Categories. The Kaiser Family Foundation: The Kaiser Commission on Medicaid and the Uninsured. Publication #7332. June 2005. 61 62 Calculations from Centers for Medicare & Medicaid Services, Medical Statistical Information System Tables. https:// www.cms.gov/MedicaidDataSourcesGenInfo/MSIS/list.asp The Kaiser Commission on Medicaid and the Uninsured. Medicaid: An Overview of Spending on вЂњMandatoryвЂќ vs. вЂњOptionalвЂќ Populations and Services. Publication #7331. June 2005 63 The spend-down category includes individuals and families that are not eligible for Medicaid but once their medical expenses are subtracted from their income (they have вЂњspentdownвЂќ their income) they are now eligible for Medicaid benefits. 64 Timothy Williams. Under an Arizona Plan, Smokers and the Obese would pay Medicaid Fee. The New York Times. May 30, 2011 65 Sarah Varney. вЂњPublic Health Cuts Causing More Pain.вЂњ The California Report: audio recording. July 20, 2011. 66 Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder. Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser Family Foundation: Publication #8105. September 2010. 67 вЂњEnclosure: Medicaid Cost-Savings Opportunities.вЂќ A letter sent on February 3, 2011 by Kathleen Sebelius, Secretary of the United States Department of Health and Human Services. www.hhs.gov/news/press/2011pres/02/20110203tech.html 68 Matthew Grabowski. вЂњPrescriptions for Cost-Containment: MichiganвЂ™s Efforts to Manage Pharmaceutical Expenditures.вЂќ Senate Fiscal Agency: State Notes. January/February 2008. 69 Step edits or step therapy is a practice that controls prescription drug costs by prescribing the safest and most costeffective drugs first and then progresses to more costly or risky medications if necessary. 70 The Centers for Medicare and Medicaid Services. вЂњMedicaid Prescription Reimbursement Information by StateвЂ”Quarter 71 John Buntin. вЂњWhat Experts Think of Five Medicaid-Savings Strategies.вЂќ Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html West Branch Regional Medical Center Health Report. Summer 2010. www.wbrmc.org/DOCS/Health%20ReportSummer10.pdf Medicaid Health Care Services: Federal Law and Regulation. Citizens Research Council Memorandum 1072. March 2003. 75 Kathleen Gifford, Vernon K. Smith, Dyke Snipes, and Julia Paradise. A Profile of Medicaid Managed Care Programs in 2010: Findings from a 50-State Survey. Kaiser Family Foundation: Kaiser Commission on Medicaid and the Uninsured. Publication #8220. September 2011. 76 CBO Testimony before the Committee on the Budget of the United States Senate. Statement of Peter R Orszag. вЂњHealth Care and the Budget: Issues and Challenges for Reform.вЂќ June 21, 2007. 77 The Lewin Group. Medicaid Managed Care Cost Savings- A Synthesis of 24 Studies. July 2004, Updated March 2009. 78 Mark Duggan and Tamara Hayford. вЂњHas the Shift to Managed Care Reduced Medicaid Expenditures? Evidence from State and Local Mandates.вЂќ National Bureau of Economic Research. No. 17236. July 2011. 79 The Lewin Group. Medicaid Managed Care Cost Savings- A Synthesis of 24 Studies. July 2004, Updated March 2009. 80 81 The Kaiser Family Foundation. www.statehealthfacts.org. State of Michigan Department of Management and Budget Purchasing Operation. Comprehensive Health Care Program for the Michigan Department of Community Health. www.michigan.gov/documents/contract_7696_7.pdf 82 Michigan Association of Health Plans. вЂњPerformance, Value, Outcomes: Medicaid Managed Care FY 2011-2013.вЂќ Medicaid White Paper: FY12/FY13. www.mahp.org 83 84 Brittany Alana Davis. FMA: Reject Medicaid Waiver. Health News Florida. August 4, 2011. Suzy Khimm. вЂњCan Managed Care Help Save Medicaid?вЂќ The Washington Post. May 30, 2011. Accessed October 11, 2011. 85 The National Association of State Budget Officers. Medicaid Cost Containment: Recent Proposals and Trends. April 2011. 86 Centers for Medicare and Medicaid. вЂњSafe and Effective Approaches to Lowering State Prescription Drug Costs: Best Practices Among State Medicaid Drug Programs.вЂќ September 2004. https://www.cms.gov/medicaiddrugrebateprogram/downloads/ StateStrategiestoLowerMedicaidPharmacyCosts.pdf 87 Citizens Research Council of Michigan 75 CRC Report Matthew Grabowski. вЂњPrescriptions for Cost-Containment: MichiganвЂ™s Efforts to Manage Pharmaceutical Expenditures.вЂќ Senate Fiscal Agency: State Notes. January/February 2008. 88 Matthew Grabowski. вЂњPrescriptions for Cost-Containment: MichiganвЂ™s Efforts to Manage Pharmaceutical Expenditures.вЂќ Senate Fiscal Agency: State Notes. January/February 2008. 89 Kathleen Sharp. вЂњTo Save on Health Care, First Crack Down on Fraud.вЂќ The New York Times. September 26, 2011 (Accessed September 26, 2011). 90 John Buntin. вЂњWhat Experts Think of Five Medicaid-Savings Strategies.вЂќ Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html 91 John Buntin. вЂњWhat Experts Think of Five Medicaid-Savings Strategies.вЂќ Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html 92 John Buntin. вЂњWhat Experts Think of Five Medicaid-Savings Strategies.вЂќ Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html 93 Office of Inspector General. вЂњAnnual Report Fiscal Year 2009.вЂќ State of Michigan Department of Human Services. www.michigan.gov/documents/dhs/DHS-OIG-09-AnnualReport_302100_7.pdf 94 The National Conference of Sate Legislatures. вЂњPublic Health and Cost Savings.вЂќ Health Costs Containment and Efficiencies: NCSL Briefs for State Legislators, No. 14. February 2011. 95 The National Conference of Sate Legislatures. вЂњPublic Health and Cost Savings.вЂќ Health Costs Containment and Efficiencies: NCSL Briefs for State Legislators, No. 14. February 2011. 96 Jason Stein. вЂњState Launches Website on Medicaid Savings.вЂќ The Journal Sentinel. September 26, 2011 (Accessed September 26, 2011). 97 Jody Sindelar. вЂњShould We Pay People to Stop Smoking?вЂќ CNN Opinion. October 5, 2011 (Accessed (October 17, 2011). www.cnn.com/2011/10/05/opinion/sindelar-smoking-medicaid/ index.html?eref=rss_health&utm_source=feedburner& u t m _ m e d i u m = f e e d & u t m _ c a m p a i g n = Fe e d % 3 A + r s s %2Fcnn_health+%28RSS%3A+Health%29 98 The 2011 version can be found at www.michigan.gov/documents/QualityCheckupJan03_59423_7.pdf 103 Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder. Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser Family Foundation: Publication #8105. September 2010. 104 Bill Fairgrieve. Medicaid Special Financing Payments and Intergovernmental Transfers. Fiscal Forum: House Fiscal Agency. November 2000. http://house.michigan.gov/hfa/PDFs/ medicaid.pdf 105 GAO/HEHS-96-76R State Medicaid Financing Practices, January 1996. http://archive.gao.gov/paprpdf1/156091.pdf 106 вЂњMedicaid: Intergovernmental Transfers Have Facilitated State Financing Schemes.вЂќ Statement of Kathryn G. Allen, Director, Health Care- Medicaid and Private Health Insurance Issues. United States General Accounting Office. GAO-04-574T. March 18, 2004. 107 Bill Fairgrieve. Medicaid Special Financing Payments and Intergovernmental Transfers. Fiscal Forum: House Fiscal Agency. November 2000. http://house.michigan.gov/hfa/PDFs/ medicaid.pdf 108 David Fosdick. The Role of Medicaid Special Financing in Changes in State Expenditure, 1991-2007. Issue Paper: Senate Fiscal Agency. January 2008. 109 David Fosdick. The Role of Medicaid Special Financing in Changes in State Expenditure, 1991-2007. Issue Paper: Senate Fiscal Agency. January 2008. 110 Margaret Alston, Sudan Frey, and Steve Stauff. Community Health Background Briefing. House Fiscal Agency. January 2011. http://house.michigan.gov/hfa/PDFs/Briefings/ CommunityHealth%2010-11.pdf 111 State of Michigan Department of Management and Budget Purchasing Operation. Comprehensive Health Care Program for the Michigan Department of Community Health. www.michigan.gov/documents/contract_7696_7.pdf. 112 Robin Moody. вЂњBudget woes could hamper Medicaid plan.вЂќ Portland Business Journal. August 5, 2011. 99 Robert T. Garrett. Texas switching Medicaid recipients to cards. The Dallas Morning News. August 2011. 100 вЂњA Special Message from Governor Rick Snyder: Health and Wellness.вЂќ September 14, 2011. www.michigan.gov. 101 John Buntin. вЂњWhat Experts Think of Five Medicaid-Savings Strategies.вЂќ Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html 102 76 Citizens Research Council of Michigan