Medicaid and SCHIP in 2007: Current Trends and the Outlook for the Future Vernon K. Smith, Ph.D. for State Coverage Initiatives Workshop for State Officials.

Medicaid and SCHIP in 2007:Current Trends and the Outlook for

the Future

Vernon K. Smith, Ph.D.

for

State Coverage InitiativesWorkshop for State Officials

Conducted byAcademyHealth

DenverAugust 3, 2007

[email protected]

Smith 2

Outline for Presentation

• Medicaid spending trends

• Medicaid & SCHIP enrollment trends

• State policy directions– Cost containment – DRA Initiatives– Waiver Initiatives

• Outlook for the future– Policy focus and spending projections

Smith 3

“Medicaid…

…has always been under-appreciated, particularly for the role that it plays in the lives of so many Americans.”

– John Iglehart, Editor, Health Affairs

Smith 4

Medicaid Nationally in 2007: A State – Federal Partnership

$340 billion for over 62 million individuals, the largest health program in America …

• 30 million children – including 1.5 million newborns

• 16 million adults in families

• 10 million persons with disabilities

• 6 million persons age 65 or older

Medicaid accounts for 44% of federal funds to states, the largest single component

Sources: CBO March 2007 Medicaid Baseline; HMA projections of 2007 total spending. All data for federal fiscal year 2007. NASBO, State Expenditure Report, 2006.

Smith 5

Medicaid is the “Financial Glue” of the U.S. Health Care Safety Net

– Mental health• over half of publicly financed care

– Public health and schools

– Hospitals that serve the uninsured

• special Medicaid “DSH” payments $16 billion in 2007

– Community Health Centers

• Medicaid averages 40% of CHC revenues

– Medicare

• 7 million low-income elderly and disabled are “dual eligibles”– on both Medicaid and Medicare

• “Duals” account for about 40% of Medicaid spending

Smith 6

9%

13% 10%

44%

17%17%

Total PersonalHealth Care

Hospital Care ProfessionalServices

Nursing HomeCare

PrescriptionDrugs

Note: Data for 2005.SOURCE: Aaron Catlin, et.al., “National Health Spending in 2005,” Health Affairs, January/February 2007. Based on National Health Care Expenditure Data for 2005, CMS, Office of the Actuary, 2007. Part D allocation by Health Management Associates.

Medicaid: 1/6 of U.S. Health Spending and 2.7% of GDP

After Part D2006

19% Before Part D2005

Smith 7

Medicaid Spending Increased When State Tax Revenue Dropped: Annual Percentage Changes

1997-2006

3.7%3.2%5.3% 6.6% 5.2% 5.1% 2.0%

-7.8% 3.2%

5.3%

3.0%

6.1%7.1%

8.2%

12.4%

7.4%

2.8%2.7%

10.3%8.3%

6.3%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

State Tax Revenue Medicaid Spending Growth

NOTE: State Tax Revenue data is adjusted for inflation and legislative changes. Preliminary estimate for 2006.

SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Amy Wiles, Robin Rudowitz, Molly O’Malley and Caryn Marks, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal

Years 2006 and 2007, Kaiser Commission on Medicaid and the Uninsured, October 2006..kff.org/Medicaid/7569.cfm

Smith 8

U.S. Medicaid Spending: Growth Now at Near-Record Lows

Due to:

• Number of persons enrolled – Low growth

• Health care costs – Slowing in growth overall, particularly

for prescription drugs

• Cost containment – Cumulative effect of strategies adopted

in recent years

Smith 9

Growth in Medicaid and SCHIP Coverage of Children, 1997-2005

21 21.4 21.6 21.9 22.6 25.5 26.3 27.8 28.1 29.5 29.80 0.9 1.9 3.3 4.6

5.3 6 6.2 6.2 6.6 6.9

0

10

20

30

40

Medicaid SCHIP

Millions of Children

Smith 10

U.S. Medicaid Enrollment: Percentage Changes FY 1992- FY 2006

7.1%

5.1%

3.4%

-3.3%-2.4%

0.6%

3.2%

8.1%

9.9%

5.7%

4.1%3.2%

1.6%

-0.6%

10.2%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

SOURCES: Eileen R. Ellis, Vernon K. Smith and David M. Rousseau, Medicaid Enrollment in 50 States, June 2005 Update – Preliminary Data, Kaiser Commission on Medicaid and the Uninsured, June 2006. 2006 data provided by state officials to Health Management Associates for Kaiser Commission on Medicaid and the Uninsured, 2006. For 1992-1997 data are from CMS for federal fiscal years. 1998-2006 are June-June state fiscal years.

Annual growth rate:

Smith 11

12.0%

18.0%

14.0%

8.5%

0.8%

9.2%

7.7%

11.2% *

5.3% *

8.2% *

10.9% *

12.9% *

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Health Insurance PremiumsWorkers EarningsOverall Inflation

Increases in Health Insurance Premiums, Earnings and Inflation, 1988-2006

* Estimate is statistically different from the previous year shown at p<0.05.† Estimate is statistically different from the previous year shown at p<0.1.

Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999-2006; KPMG Survey of Employer-Sponsored Health Benefits:1993, 1996; The Health Insurance Association of America (HIAA): 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation (April to April), 1988-2005; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2006.

13.9%†

3.5%3.8%

Smith 12

Fiscal Pressures Forced Every State to Take Aggressive Medicaid Cost Containment

FY 2003 – FY 2007

4650

25

18 1713

10

4850

2119 18

14

8

26

10

15

912

17

59

3

26

10

20

50

43

78

46

18

2927

43

ControllingDrug Costs

Reducing/FreezingProvider

Payments

Reducing/RestrictingEligibility

ReducingBenefits

IncreasingCopayments

DiseaseManagement

Long-TermCare

2003 2004 2005 2006 Adopted for 2007

NOTE: Adopted actions are not always implemented. SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Amy Wiles, Robin Rudowitz, Molly O’Malley and Caryn Marks, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2006 and 2007 , Kaiser Commission on Medicaid and

the Uninsured, October 2006. www.kff.org/Medicaid/7569.cfm

Number of States, by Year

Smith 13

Improving State Revenues Decreased Likelihood of Medicaid Rate Cuts, 2004 - 2007

21

10

6

0

SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Amy Wiles, Robin Rudowitz, Molly O’Malley and Caryn Marks, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2006 and 2007, Kaiser Commission on Medicaid and the Uninsured, October 2006.

www.kff.org/Medicaid/7569.cfm

FY 2004 FY 2005 FY 2006 FY 2007

Number of States Cutting Medicaid Rates for Inpatient Hospitals, Doctors, Nursing Facilities or Managed Care Organizations

Smith 14

In 2006 and 2007, States Increasingly Turned to Program and Quality Improvement

1214

17

2628

21

Disease Management Quality Initiatives Program Integrity

2006 Adopted for 2007

SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Amy Wiles, Robin Rudowitz, Molly O’Malley and Caryn Marks, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2006 and 2007, Kaiser Commission on Medicaid and the Uninsured, October 2006.

www.kff.org/Medicaid/7569.cfm

Number of States in

Smith 15

Disease Management: Focus on 4 Percent of Medicaid Enrollees with 48% of Expenditures

SOURCE: Urban Institute estimates for Kaiser Commission on Medicaid and the Uninsured based on MSIS 2001 data, 2005.

Enrollees Expenditures

Adults 1%

Disabled 25%

Total = 46.9 million Total = $180.0 billion

Elderly 20%

<$25,000 in Costs

96%

Children 3%

<$25,000 in Costs

52%

>$25,000 in Costs• Children (.2%)• Adults (.1%)• Disabled (1.6%)• Elderly (1.8%)

>$25,000 in Costs

4%4%

48%

Smith 16

Medicaid Long-Term Care Policy Changes FY 2006 and Adopted for FY 2007

6

2

1

24

2

4

13

31

EnhancedInstitutional

Services

Added AdditionalServices to HCBS

Waiver

Implemented orExpanded PACE

New or ExpandedHCBS Waiver

FY 2006 FY 2007

SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Amy Wiles, Robin Rudowitz, Molly O’Malley and Caryn Marks, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2006 and 2007, Kaiser Commission on Medicaid and the Uninsured, October

2006. www.kff.org/Medicaid/7569.cfm

Smith 17

Medicaid Long Term Care: Trend Is To Home and Community Care

1991 - 2006

0

20

40

60

80

100

120

1991 1996 2001 2006Projected

Institutional HCBS

86%79%

71%

21%

14%

$34 B

$52 B

$75 B

Billions of Dollars for U.S.

Source: 1991-2001, Brian Burwell, Kate Sredl and Steve Eiken, Thomson Medstat, 2006.

2006 projection by Health Management Associates, 2007.

$101 B

38%

62%

29%

HCBS

Smith 18

Across States, the Medicaid Now Has Moved Beyond Cost Containment

Leaders in 2005:

• Vermont– Expanded coverage– “Global Commitment” for all federal

funds– Preserved federal Medicaid funds

• Florida– Rewards for personal responsibility– “Defined Contribution” for managed care – Preserved federal Medicaid funds

Smith 19

In 2006, the DRA Provided New Options

• New Flexibility Options: – Benefits or Cost Sharing– New HSA-like “Health Opportunity Accounts”

• New Long Term Care Options– LTC Partnership– Self-Directed Personal Assistance Service– Money Follows the Person programs– HCBS as a State Plan Option– About half of all states considering LTC

options

SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Amy Wiles, Robin Rudowitz, Molly O’Malley and Caryn Marks, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2006 and 2007, Kaiser Commission on Medicaid and the Uninsured, October 2006. www.kff.org/Medicaid/7569.cfm

Smith 20

So far, Few States Have Used DRA Options

Benefit Flexibility: WV, KY, FL, KS

Cost Sharing Flexibility: KY

Health Opportunity Acct: SC

HCBS State Plan Option: IA

Cash & Counseling Option: AL

Smith 21

In 2006, Two States Leveraged Medicaid to Move toward Broad, Near-Universal Health Coverage

• Massachusetts Health Plan – Universal coverage, with individual and employer

mandates / assessment of $295– Subsidies for low income individuals– Health insurance “Connector” – Strong quality component

• Vermont – Catamount Health Plan– Near-universal coverage, with Premium

Assistance for low-income uninsured– New individual product for uninsured – Employer assessment of $365/FTE (exceptions)– Chronic care management initiative

Smith 22

In 2007, Over 2/3 of All States Offered New Proposals

• Governors in 34 states offered plans to reduce the number of uninsured children, parents, adults, aged and disabled in their state through

– Medicaid expansions– SCHIP expansions– DRA waivers– Comprehensive Section 1115 waivers– Market-based approaches– Improving quality through prevention and better

management of chronic conditions

Source: NASBO, The Fiscal Survey of States, June 2007.

Smith 23

Indiana Plan Adopted 2007

• Eligibility for subsidized private insurance: – up to 200 percent of the FPL ($20,420 for an individual,

$41,300 for family of four) could buy insurance. – Estimate 132,000 persons qualify.

• Coverage: – $500 in preventive care; a $1,100 health savings account;

up to $300,000 of annual coverage from a private insurer.• Premiums:

– 2 to 5 percent of adjusted gross income, sliding scale.• Medicaid eligibility:

– increases for children and pregnant women • Other provisions:

– allows children up to age 24 to stay on their parents' health insurance plans;

– creates an insurance pool for small businesses; and – tax incentives to encourage more employers to offer

insurance.• Financing: cigarette tax increased by $0.44 to $0.995

Smith 24

Oregon

“The biggest agenda piece right now is to insure all kids in Oregon.”

– Russ Kelley, spokesman for Oregon House Speaker Jeff Merkley, quoted in The New York Times, June 11, 2007

Smith 25

Pennsylvania

• Comprehensive, 47-point health plan: “Prescription for Pennsylvania”

• Coverage for all children• “…affordable health insurance to all

adults, with payments based on income.” • Focus on personal responsibility and

quality • No mandates.

Smith 26

California …The Boldest Proposal Yet

Universal coverage for 6.5 million uninsured• Expanded Medicaid coverage for all children• Mandates for Employers (with 10 or more

employees) and individuals• Assessments on providers

– 2% for doctors, 4% for hospitals

“California will be the first state, I guarantee you, where we will have universal health coverage, where we will insure everybody.” --Gov. Arnold Schwarzenegger, speaking to the California Medical Association, May 2, 2007

Smith 27

An Emerging Consensus: To Control Medicaid Spending, Control Overall Health Costs

“Medicaid is one purchaser in a larger health care market … the most effective way to control Medicaid spending growth is to pursue strategies to control overall health care spending growth.”

--Richard Kronick and David Rousseau, “Is Medicaid Sustainable? Spending Projections for the Program’s Second Forty Years,” Health Affairs – Web Exclusive, February 23, 2007.

Smith 28

New Focus: Slow the growth of conditions that need treatment

• A new emphasis on prevention, primary care and care management for

– Chronic disease is the number one cause of death and disability in the U.S.

– accounts for 70 percent of all deaths and more than 75 percent of health care spending

“We should be moving into an era now… that puts much more emphasis on keeping people well and not just paying for costly complications after they happen.”

--Mark McClellan, former CMS Administrator, July 17, 2007.

Smith 29

Data-Based Policy: Obesity, Disease Prevalence and Health Care Spending Are Linked

• Total diabetes prevalence has increased 53% over the past 20 years

• “All the increase in diabetes is linked to the doubling of obesity prevalence among adults.”

• 27% of the increase in health care spending is accounted for by the increase in obesity prevalence.

Source: Kenneth Thorpe, 2006

Smith 30

Historic Growth of Obesity Prevalence Adults, 1978-2002

15.1%

32.2%

0%

5%

10%

15%

20%

25%

30%

35%

Source: Kenneth Thorpe, 2006

1978 2002

Smith 31

States Are Also Focusing on IT to Improve the Delivery of Health Care

• Fact: Chronically ill Americans receive the recommended treatment only 56% of the time.

• Improvements in information technology infrastructure have great potential to improve care, especially for the chronically ill

Source: Partnership for Fighting Chronic Disease, 2007

Smith 32

The Future: Medicaid Cost Increases Expected to Parallel Overall Health Spending

“Medicaid spending as a share of national health spending will average 16.6 percent from 2006 to 2025 – roughly unchanged from the 16.5 percent in 2005.”

Even after accounting for “… the anticipated decline in employer-sponsored health insurance and the long term care needs of the baby boomers…”

--Richard Kronick and David Rousseau, “Is Medicaid Sustainable? Spending Projections for the Program’s Second Forty Years,” Health Affairs – Web Exclusive, February 23, 2007.

Smith 33

Medicaid Spending Projected to More than Double to Over $700 Billion in Ten Years: 2007 - 2017

314340 362

390421

455492

533577

625677

736

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Health Management Associates estimates based on data from CBO and CMS, 2007.

All funds: Federal, State and Local

Smith 34

Medicaid Spending Projections

Average annual Medicaid spending growth:

• Ten year forecast – CMS: 8% – CBO: 8%

• 9% for long term care

• State budgets: – increase on average by 6.5%

• Based on actual growth over the past 30 years.Sources: Source: John Poisal, et al., “Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact,” Health Affairs, 21 February 2007; CBO, Medicaid Baseline 2007; NASBO, Fiscal Survey of States, June 2007.

Smith 35

Medicaid Projected to Continue to Grow as a Share of State Budgets: 1985 - 2010

14%

19%

8%

13%

20% 20%23%

18%

14%

25%

0%

5%

10%

15%

20%

25%

30%

1985 1990 1995 2000 2005 2010(Projected)

General Fund Total Funds

Source: National Association of State Budget Officers, State Expenditure Reports, 2005 and earlier reports; 2010 percentages projected by HMA.

Total Medicaid Spending as % of State Budgets

GF GF GF

Smith 36

Summary and Conclusion

• Medicaid is the largest health program in America and one of the most significant programs administered by states.

• States have a huge stake in the future of Medicaid, particularly due to the limits of state fiscal capacity to sustain it.

• Medicaid has the potential to – Help finance strategies to reduce the number

of uninsured– improve quality of care– improve the health of beneficiaries that could

help slow overall health costs and costs to Medicaid