States brace for increased role in post-reform healthcare system

Although faced with myriad budgetary and policy challenges – not to mention the uncertainty generated by the Supreme Court's ruling on health reform – state Medicaid directors have an opportunity to make significant changes away from traditional fee-for-service care delivery and payments.

Medicaid directors are “trying to do the herculean, Manhattan Project-style effort to totally reform the healthcare system without enough time, enough money, enough staff or enough people out there even aware of what they’re doing,” explained Matt Salo, executive director of the National Association of Medicaid Directors.

Increasingly, states are moving their Medicaid programs toward managed care, although it may not necessarily mean a managed care organization, but “intermediary steps where they are encouraging primary care physicians to take a more aggressive and empowered role in shepherding people through the fee-for-service fractured system,” such as medical homes and accountable care organizations.

“Medicaid is clearly in the forefront in a way that it hasn’t really been in the past,” he said, adding that its increased visibility is commensurate with its role and value in the healthcare system and society at large.

“In a situation where the bottom dropped out of state financing, finding savings on top of already low levels of reimbursement rates is difficult,” Salo said at an Oct. 5 conference sponsored by America’s Health Insurance Plans.

On top of that, the Medicaid population is one that “most people want to forget about because they are difficult, expensive and need a lot of complex care and care coordination,” he continued.

Post-election, Medicaid directors will have to figure out what to do depending on how health reform survives or thrives and whether their states will expand Medicaid. The decision to expand or not will be complicated, in part political and a large part financial, based on what it means to the state’s bottom line, Salo said.

And whoever wins the election, Congress is going to get serious about the federal deficit and budget cuts, and that will mean Medicaid changes.

“There will be a lot going on that states cannot control,” he said. Some changes could help the program, while others could cast uncertainty. Will the federal government shift the program to the states? What would block grants look like, and what does that mean for Medicaid expansion? Will the government reduce the federal match?

State elections matter too, commented Joan Henneberry, principal at Health Management Associates in Denver, and former planning director for Colorado’s health insurance exchange.

“There are choices being made today that could be overturned or modified when new leadership comes in, such as state legislators in addition to governors. In many states, the insurance commissioner is also an elected office,” she said.

The health reform law is not expected to initially change the market for employer-sponsored insurance, which accounts for about 60 percent of those covered. Some states have already expanded Medicaid, and there are states that will choose to expand to individuals who earn up to 138 percent of the federal poverty level as called for under the law but who are not there yet.

Uninsured individuals in the middle from 138 percent to 400 percent of the poverty level will access coverage through the health insurance exchange starting in 2014 and get premiums subsidized through Internal Revenue Service and, if eligible, some of their co-pays too, she explained.

Some states may choose not to expand Medicaid eligibility, however, like Texas which now covers only at 25 percent of the poverty level -- and that will leave a gaping hole in coverage.

“You have a big empty spot where people in that state up to 138 percent have no coverage,” Henneberry remarked.

“While there are some states that have said they’re not doing this, I think that over time, you will see growing pressure on the part of hospital associations, provider groups, advocates, legislators, that we have got to rethink that decision and figure out how to do something because it will not be sustainable for a state to leave that one layer of individuals out in the cold without any coverage,” she said.

The initial instinct is to look at how much this is going to cost. While the first few years of healthcare spending are fully federally funded, enormous administrative costs remain, including eligibility and enrollment, program integrity and appeals issues.

If they look hard, those states may find savings by expanding their Medicaid programs in areas such as the following:

  • With full expansion, states may save on other programs where services are no longer needed because they are included in their insurance coverage or Medicaid.
  • Medicaid expansion may provide potential savings to the system overall, such as in reducing the cost of uncompensated care.
  • When all individuals are covered, states may be able to cut administrative costs if they can manage the churn of people falling in and out of Medicaid coverage by having a seamless integrated system between the exchange and Medicaid.
  • With full coverage, states that have big counties that traditionally spend significant funds on healthcare programs may be able to negotiate what to do with the monies that are freed up.

Or conversely, in states like Louisiana and Texas, which are not expanding Medicaid, some counties could explore using their funds as a match and go ahead with expansion for themselves.

States also need to be prepared for the “woodwork” effect of many individuals who have been eligible for Medicaid and not enrolled but will sign up for it now.

”Even if you don’t expand Medicaid in your state, the efforts around marketing the exchange and subsidizing health plans through the exchange is going to increase Medicaid whether you want to or not,” she said. “We also think that CMS, if it wants, could give states flexibility to allow them to phase in these expansions."

Some states may know they have to figure out how to do expansion but just can’t meet the October 2013 deadline. Some might have legislatures that don’t meet annually and some have biennial budgets. For example, CMS could allow states to phase in expansion, for example go from its current level of coverage to 100 percent of poverty level by 2014, and then work their way up to 138 percent.

“Whoever becomes president," Henneberry said, "either one will want to work to make it as right as they can with states."