State Budgets at the Crossroads

Implications for Medicaid System Funding for 2005 and Beyond

NAMIJuly 2004

Other Key Issues in 2004 and 2005

• Criminalization• Children and adolescents• Commitment (both inpatient and outpatient

standards)• Inpatient access• Parity (enactment of new laws and refinement of

existing laws)• Access to services• Shrinking priority population

Budgets and Medicaid 2004-2005

“We are surrounded by insurmountable opportunities”

Walt Kelly POGO

Medicaid Is

• Complex

• Confusing

• Changing

• And critically important

Medicaid Spending• Medicaid spent $280 billion (est.) in 2004 - more

than Medicare!• Serves 50 million people.• Expected to grow 8 - 9% a year within the next

decade; by that time it will exceed half a trillion dollars.

• After education, Medicaid is the largest component of State spending.

• On average, Medicaid accounts for nearly 20% of general fund expenditures in state budgets.

• Only Medicaid and corrections gained in budget share over the last decade.

Medicaid Spending as a Percentage of State General Fund Expenditures, FY 1999

(Kaiser Commission on Medicaid and the Uninsured)

Public Assistance 3%

Higher Education 13%

Elementary &Secondary Education 35%

Transportation <1%All Other 24%

Medicaid 16%

Total = $420 Billion

SOURCE: National Association of State Budget Officers, 2004 State Expenditure Report, June 2002.

Corrections 7%

Medicaid: Mandated Services

• Inpatient hospital services

• Outpatient services

• Physician Services

• Early, Periodic, Screening, Diagnosis and Treatment (EPSDT)

Medicaid: Optional Services

Two-thirds of Medicaid expenditures are on optional services.

• Services provided by private practitioners• IMD services for people under 21 or over 65• Clinic Services• Home and Community based Service• PACT• Personal Care Services• Prescription Medications• Case management• Screening, preventive and rehabilitative services

State-level MH Financing Trends

0%10%20%30%40%50%60%70%80%90%

100%

1987 1992 1997 2002* 2007* 2012* 2017*

State-based

SCHIP

Block grant

Medicaid

The Budget Picture 2003-2004

• The last two years have been the toughest years for state government in recorded history.

• 44 states experienced revenues below projections.

• Overall shortfalls in FY 2002 amounted to 7.8% of revenues.

• The rate of Medicaid growth was 13%.• Medicaid began to take away from other

accounts in state budgets.

State Governments Reactions in 2004 to Budget Shortfalls

General Strategies• Reduce tax cuts • Increase taxes• Short term borrowing• Hiring freezes/employee furloughs• Use Rainy Day funds• Delay planned expenditures• Use Tobacco settlement monies

Specific Strategies

• Reduce reimbursement rates to providers• Use 1115 health Insurance Flexibility and Accountability (HIFA) waivers to CMS: reduce

coverage by population served or benefit design• Enhance utilization review and managed care in Medicaid• Use across the Board Cuts• Use targeted cuts while exempting some services: local education• Enhance fraud and abuse capacity in Medicaid• Maximizing federal match in Medicaid• Restrict medication access

Medicaid pays for publicly financed mental health

• Medicaid now pays for more than 60% of the public MH services that states administer (SAMHSA)

• They are 30% of the “high cost” enrollees (NGA).

• Depending on the state, between 25% and 50% of persons receiving state MH services only receive them from Medicaid (NGA).

• Among 6-14 year olds, about 25% of Medicaid spending is for MH services: In some states it is as high as 40% (SAMHSA)

State Efforts to Control Pharmacy Costs

• Prior Authorization• Fail First• Deep Supplemental Rebates• Generic First policies• Co-payments

1998 Lewin Study (federally funded) found reductions in Medicaid Rx budgets gained by

excluding effective drugs from coverage is more than offset by increases elsewhere in the system, such as increased hospitalization and ER visits.

Prescription medicines account for about 10% of total Medicaid spending

Other acute care5%

Home health and other community-based

services8%

Physicians and other practitioner services

5%

Prescription medicines

9%

Health insurance20%

Inpatient and outpatient hospital

21%

Institutional long-term care32%

SOURCE: Centers for Medicare and Medicaid Services (CMS, formerly HCFA).

Medicaid Expenditures, FY1998 (the most recent data available from CMS). Includes fee-for-service and managed care.

Impact of Medicaid Drug Reimbursement Limits

$1,530

($57)

Reduced Drug Costs Increased Hospital and Emergency Cost

Savings/Cost perPatient

Source: Soumerai S, et al. Effects of limiting Medicaid drug-reimbursement benefits on the use of psychotropic agents and acute mental health services by patients with schizophrenia. New Eng J Me. Sept. 8, 1994

FY 2004 Medicaid Pharmacy Policy and Payment Changes

• AWP less greater discount 17 States• More Rx under Prior Authorization 32 States• Preferred Drug List 30 States (2003 and 2004)• New or Higher Co-payments 17 States• Seek Supplemental Rebates 21 States• Require generics 5 States• Limit Number of Rx per month 5 States

• Kaiser Commission Medicaid and the Uninsured

Impact of Lack of Access to Treatment

Impact on Patient

Imp

act

on

Illn

ess

Occasional

IncompleteRecovery

Positive Symptoms

Relapse

Days Weeks Months

Optimal

Loss of Job

Rehospitalization

Danger toSelf/Others

Negative Symptoms

Relapse

Loss ofConfidence

Full Recovery

Family Discord

Demoralization

HIFA 1115 Waivers

• Health Insurance Flexibility and Accounting Demonstration Initiative (HIFA).

• Waivers to expand Medicaid to groups currently not eligible.

• Federal budget neutrality requirement.• New state discretion and incentives to cut

benefits and impose cost-sharing for optional Medicaid beneficiaries.– Potential benefits cuts include rehabilitation services,

case management, prescription drugs, and inpatient treatment.

The Medicaid Budget Dilemma

• Medicaid need goes up just when the state’s ability to pay for it goes down.

• States must cut total Medicaid spending $2-$4 to save one state general fund dollar.

• Every Medicaid cut affects local health care providers and individuals who need health care services.

• Medicaid spending cuts are usually needed immediately, but it takes time to achieve savings,

The Outlook

• Medicaid cost pressure will be driven by enrollment growth, more elderly and disabled, double-digit cost growth in the medical market place where Medicaid operates

• Even with a rebounding economy, increases in state revenues will be dwarfed by Medicaid expenditure growth

• Even if the economy improves, state revenues are not likely to recover as fast.

• State fund balances will be less available in FY 2005, adding pressure to cut costs.

• States will use HIFA and Section 1115 waivers to expand and restructure Medicaid coverage, and to relieve fiscal pressure.

Advocacy Strategies

Get involved with decision making and advisory committees: DUR, Medicaid Advisory, Pharmacy and Therapeutics Committee and MH Planning Committee.

Participate in state level coalitions. Collect stories and information about the impact of Medicaid cuts. Work with media. Support increase to FMAP. Remember Medicaid Policy is traditionally an “insiders game”. Invite the Medicaid Director and Pharmacy Director to speak at your

convention and forums. Encourage DMH control of MH Medicaid allocations. Get involved in local, state and federal candidate education in the 2002

election. Become familiar with your state Medicaid Plan. Hold states accountable for outcomes !!!!!

Other Key Issues in 2003

• Criminalization• Children and adolescents• Commitment (both inpatient and outpatient

standards)• Inpatient access• Parity (enactment of new laws and refinement of

existing laws)• Access to services• Shrinking priority population

Policy Advocacy

• “If you don’t have a strategy, you will be permanently reactive and part of someone else’s strategy.” Alan Toffler, Future Shock

• “All Politics is Local “ Tip O’Neil

Developing the PolicyBattle Plan

• Identify the problem• Get organized• Choose the Right Target (who can solve the

problem)• Line Up Your Ducks (who is in favor/who is

against)• Watch the Clock (strategy and deadlines)• Use the media• Build your diverse coalition• Create noise and momentum

Election 2004 Campaign

• GREAT OPPORTUNITY

• Forums

• Surveys