Medicaid Trends & Prospects: An Update on Medicaid and Mental Health

1. Medicaid Trends & Prospects:An Update on Medicaid and Mental Health Eileen Ellis, Principal December 4, 2008 eellis@healthmanagement.com Presented to: Michigan Association of Community Mental Health Boards

2. Outline for discussion • Medicaid’s current role, scope and impact • Medicaid spending and enrollment trends • Current state and federal strategies and policy directions • Medicaid’s role in Mental Health (or Mental Health’s role in Medicaid) • Outlook for the future of Medicaid

3. Medicaid’s Current role, Scope and Impact

4. Medicaid Is Not One Program, But Several, Each with a Key Role • Health insurance for low-income families, persons with disabilities and the elderly • Long-term care, including home and community services • Assistance to low-income Medicare beneficiaries • Support for safety net providers who serve the uninsured • Financial support for other state programs such as mental health

5. Medicaid is $360 Billion of “Financial Glue” Holding Together Local Health Care Safety Nets • Mental health, public health and schools • Over half of publicly financed mental health care • Community Health Centers • Medicaid averages 40% of Health Center revenues • Hospitals that serve the uninsured • $16 billion in Medicaid “DSH” payments • Medicare • Medicaid-paid premiums, copays, deductibles, long-term care and other benefits , including mental health, for over 7 million low-income “duals” account for about 40% of Medicaid spending • Altogether, Medicaid is 1/6 of all U.S. health spending and 2.5% of U.S. GDP

6. Medicaid Is the Largest Health Program in America: 63 Million Enrolled in 2008 • 30 million children • 26% of all children; 51% of low-income children; 41% of U.S. births • 17 million adults in families • 20% of low-income adults • 10 million persons with disabilities • 20% of Americans with severe disabilities; 44% of persons with HIV/AIDS; 60% of persons in nursing homes • 6 million elderly age 65 and older • Low-income Medicare beneficiaries also on Medicaid as “Dual eligibles” Sources: HMA projections for enrollment for federal FY 2008, based on: CBO, Budget and Economic Outlook, January 2008; CBO, Medicaid Baseline, 2008; CMS, Office of the Actuary, National Health Statistics Group, 2008; Percentages estimated by Kaiser Commission on Medicaid and the Uninsured and Urban Institute, 2005; Birth data from MCH Update, NGA,, 2007.

7. Characteristics of Disabled Medicaid Enrollees • As noted above, 10 million persons with disabilities • 20% of Americans with severe disabilities; 44% of persons with HIV/AIDS; 60% of persons in nursing homes • Includes 5.3 million non-elderly persons receiving Supplemental Security Income (SSI) • As of December 2007 the qualifying diagnostic categories were dominated by: • Mental Retardation: 20.2% • Other Mental Disorder: 38.8% • Clearly mental health treatment is a key issue for Medicaid. Sources: http://www.socialsecurity.gov/policy/docs/statcomps/ssi_asr/2007/table34.pdf.

8. Medicaid Enrollment and Spending trends

9. U.S. Medicaid Enrollment – Annual Growth FY 1992 to FY 2009 Annual growth rate: Projected Note: 1992-1997 based on CMS data for federal fiscal years. 1998-2009 data are June to June fiscal years. SOURCES: Eileen R. Ellis, Dennis Roberts and David M. Rousseau, Medicaid Enrollment in 50 States, June 2007 Data Update– Preliminary, Kaiser Commission on Medicaid and the Uninsured, Forthcoming. 2008 and 2009 data provided by state officials to Health Management Associates for Kaiser Commission on Medicaid and the Uninsured, 2008.

10. Michigan Medicaid Enrollment – Annual Growth FY 1992 to FY 2009 Annual growth rate: Projected Note: Based on Michigan’s October to September fiscal year. SOURCES: Total Medicaid enrollment from MDHS website less PlanFIrst! enrollment numbers from MDCH.

11. Impact of Unemployment Growth on Medicaid, SCHIP, and the number of Uninsured $3.4 1.1 $1.4 1.0 State = 1% & Increase in National Unemployment Rate Federal $2.0 Increase in Medicaid and SCHIP Enrollment (millions) Increase in Uninsured (millions) Increase in Medicaid and SCHIP Spending (billions) Source: Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses, prepared for the Kaiser Commission on Medicaid and the Uninsured, April 2008

12. Looking into the Future: Medicaid Enrollment Projected to Grow More Slowly Over Next Decade 2018: 73 Million Millions of U.S. Medicaid Beneficiaries during year. Growth by decade. 2008: 63 Million 1998: 40 Million 1978: 22 Million 1988: 23 Million Projection +56% +16% +76% <1% SOURCE: 1966 – 2007: HMA analysis of CMS and CBO historical data. 2008-2018: HMA calculations based on CBO Medicaid Baseline, 2008.

13. Projected Growth in Medicaid Enrollees by Category of Eligibility 2008 - 2018 Annual Average Rates of Growth over Next Decade Source: Calculations by Health Management Associates in 2008 based on CMS historical data and Congressional Budget Office 2008 Projections through 2018.

14. Enrollment Accounts for Some but not all U.S. Medicaid Spending Growth U.S. Medicaid Spending Growth Medicaid Enrollment Growth 0% Adopted NOTE: Enrollment percentage changes June to June of each year. Spending growth changes in state fiscal year. SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, Molly O’Malley and Caryn Marks, Headed for a Crunch: An Update on Medicaid Spending, Coverage and Policy Heading into an Economic downturn: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2008 and 2009, Kaiser Commission on Medicaid and the Uninsured, September 2008. www.kff.org/Medicaid/7815.cfm

15. For States, Medicaid Is Expected to Grow as Share of State Budgets: 1985 – 2015 Projected Total Medicaid Spending as % of State Budgets GF GF GF GF GF Source: National Association of State Budget Officers, State Expenditure Reports, December 2007 and earlier years; Percentages for 2010 and 2015 projected by HMA, 2008.

16. Federal Officials Increasingly Convey a Sense of Urgency about Impact of Medicaid on the Federal Budget • “…under any plausible scenario, the federal budget is on an unsustainable path…. rising costs for health care …will cause federal spending to grow rapidly. • “Future growth in spending per beneficiary for Medicare and Medicaid will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth in costs … is ultimately the nation’s central long-term challenge in setting federal fiscal policy.” • --Peter Orzag, CBO Director, “The Long-Term Budget Outlook and Options for Slowing the Growth of Health Care Costs,” Testimony before Senate Finance Committee, June 17, 2008.

17. Medicaid Spending Projected to Increase by 8% Annually to Over $700 Billion in Ten Years: 2008 - 2018 All funds: Federal, State and Local $ 73 million Enrollees In 2018 63 million Enrollees in 2008 Source: Health Management Associates estimates based on data from CBO and CMS, 2008.

18. state and federal strategies and policy directions

19. States Adopted Primarily Positive Policy Actions in FY 2008 and FY 2009 Implemented FY 2008 Adopted FY 2009 Provider Payments Eligibility Benefits Long Term Care NOTE: Not all adopted actions are implemented. Provider payment restrictions include rate cuts for any provider or freezes for nursing facilities or hospitals. Eligibility includes eligibility and application expansions/restrictions. SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, Molly O’Malley and Caryn Marks, Headed for a Crunch: An Update on Medicaid Spending, Coverage and Policy Heading into an Economic downturn: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2008 and 2009, Kaiser Commission on Medicaid and the Uninsured, September 2008. www.kff.org/Medicaid/7815.cfm 50 States with Expansions / Enhancements 3 7 5 7 8 7 21 22 States with Program Restrictions

20. Medicaid Rate Cuts for Major Provider Groups:Inpatient Hospitals, Physicians, Nursing Facilities or Managed Care Organizations FY 2004 – FY 2009 Adopted FY 2009 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Number of States SOURCE: Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, Molly O’Malley and Caryn Marks, Headed for a Crunch: An Update on Medicaid Spending, Coverage and Policy Heading into an Economic downturn: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2008 and 2009, Kaiser Commission on Medicaid and the Uninsured, September 2008. www.kff.org/Medicaid/7815.cfm

21. Disease and Care Management Focuses on 4% of Medicaid Enrollees with 48% of Expenditures >$25,000 in Costs 48% • >$25,000 in Costs • Children (.2%) • Adults (.1%) • Disabled (1.6%) • Elderly (1.8%) Children 3% Adults 1% Disabled 25% 4% Elderly 20% Total = 46.9 million Total = $180.0 billion Note: For the U.S., the top 1% of the population accounts for 23% of health spending; the top 5% accounts for 50%; the top half account for 96.5%. SOURCE: Urban Institute estimates for Kaiser Commission on Medicaid and the Uninsured based on MSIS 2001 data, 2005.

22. Program Integrity – Continuing Federal Focus • Congress has been a driver • GAO audits of federal agency oversight • Critical of CMS • Administration response: focus on federal/state fiscal relationship Increased scrutiny of state fiscal arrangements (100 new auditors reviewing state financing): state “schemes” and “fraud and abuse” theme

23. Payment Error Rate Measurement (PERM) • Rolling implementation: FY 2007 to FY 2009 • Detailed examination of Medicaid/SCHIP paid claims, capitation payments, reimbursement and premium policies, coding, eligibility processing and more. • Recent CMS report –10.5% Medicaid payment error rate. • Michigan is a Fiscal 2009 state. • State concerns • 56 state/territories – different rules; federal/contractor learning curve • Fierce disagreements over “error” • Controversial federal recoveries from states • New administration may not relax these provisions

24. DRA 2005: Medicaid Integrity Program (MIP) • MIP Required CMS to develop national strategy and 5 year plan, with annual reports • Encouraged states to enact Medicaid False Claims Acts - State law that meets federal standards enables a state to retain a higher percentage of fiscal recoveries • Businesses receiving federal funds must educate employees regarding federal and state false claims acts, including “whistle-blower” provisions

25. Medicaid’s role in mental health or mental health’s role in Medicaid

26. Federal Policy Isn’t “Behavioral Health Friendly” • From the beginning – Medicaid goal to avoid refinancing state mental health programs • Federal Medicaid policy excludes payment for services to people who live in “Institutions for Mental Disease” and community MH services are “optional” • Federal “disability” definitions are restricted re: alcohol and/or other drug abuse

27. Federal Policy Isn’t “BH Friendly” • Medicare has charged a higher co-payment for MH treatment than for physical medicine • Unlike with primary care (FQHC system), there is no explicit federal commitment to assuring community access to specialty MH providers

28. Despite federal bias, Medicaid pays for nearly half of all publicly provided MH services Medicaid’s role as a payer for substance abuse treatment services in the public system varies widely from over 1/3 in some states (VT, OR, AZ, KS) to less than 1% (AK, CO, MD) Medicaid is the largest single payer of MH services – public or private Medicaid in Mental Health System

29. MH Total Spending 2006 = $121.7 B Source: Future Funding for Mental Health and Substance Abuse: Increasing Burden For the Public Sector. Katharine Levit, et. al, Health Affairs –Web Exclusive, October 8, 2008.

30. MH Public Spending Source: Future Funding for Mental Health and Substance Abuse: Increasing Burden For the Public Sector. Katharine Levit, et. al, Health Affairs –Web Exclusive, October 8, 2008.

31. Medicaid’s Reality • MH spending: pharmacy, in-patient care in community hospital (non-IMD), community MH services, private practice settings • Majority of MH spending is non-specialty services • Medicaid spends more on non-MH services for people with MI than on MH services

32. Most Medicaid MH Spending – Non-Specialty Services ($26.4 B 2003) Source: SAMHSA Survey, Analysis and Financing Branch (Jeff Buck slides, NASMD, Nov. 2007)

33. Major Medicaid Non-Specialty MH providers • ERs and general hospitals w/o psychiatric units • Non-psychiatric physicians • 60% all Psychotropic drugs • 34% Anti-psychotic drugs • Nursing homes Source: SAMHSA Survey, Analysis and Financing Branch (Jeff Buck slides, NASMD, Nov. 2007)

34. Use of Medicaid Services by those using Mental Health Services (2003) Medicaid spends more on non-MH services for people with MI than on MH service Source: SAMHSA Survey, Analysis and Financing Branch (Jeff Buck slides, NASMD, Nov. 2007)

35. Recent Federal Reforms: Good News • Higher Medicare co-pay to be phased out by 2012? • Deficit Reduction Act of 2005 created new options for states (community care waiver for children in residential treatment, 1915i “waiver-like” state plan option, $ Follows Person grants) • HRSA recognizes basic mental health services as part of primary care, requiring new FQHCs to offer increased access (LSW, psychologists, psychiatrists, primary care MD – intention is for “mild” MI)

36. Recent Federal Reforms: Bad News • Targeted Case Management regulations • Definition TCM and CM as comprehensive: Assessment, development of care plan, referral, monitoring & follow-up • Only one CM per person • Billing in “15 minutes units” • Limited days of TCM/CM for community transition, paid only after transition • Won’t pay for CM that is “intrinsic element” of another public program or administrative CM

37. Recent Federal Reforms: Bad News • Rehabilitation Option proposed regulations • Adopts a “commercial insurance” definition • Requires documentation of progress toward specific rehab goals • Restricts access to Rehab Option for persons with developmental disabilities

38. Congressional Intervention • Moratorium on TCM and Rehabilitation Option regulations in place until April 1, 2009 • Moratoriums had bipartisan support of Governors and obtained a veto-proof majority in both chambers • Results of alliance of states, providers, advocates across Medicaid, MH/SA, aging, DD, public education and human services systems (6 target regulations, 5 included in moratorium)

39. What Happens Next? • Congress and states “punted” issues to a new Administration • New Administration will still be unpacking boxes by March 2009! • Will they: Withdraw regs? Modify regs? Voluntarily extend moratorium? Start over? • Congress likely to retain interest in outcomes • Many issues raised by current Administration are viewed as having merit

40. Outlook for the Future of Medicaid

41. The Economic Crisis • States are generally facing significant revenue reductions. • The specifics vary with the sources of state revenues. For some states the revenue loss exceeds 30%. • The implications for Medicaid and MH funding vary even more. • Most states dedicate certain revenue sources to specific purposes such as education. • Individual state “general funds” shortfalls vary widely.

42. The Economic Crisis, Continued • Few states cut provider rates at the start of FY 2009. (Florida, Nevada, California). • Mid-year rate cuts already enacted • New York • South Carolina • Additional cuts in Nevada • Most states are just now reviewing their budgetary status

43. The Economic Crisis, Michigan • $1 billion deficit for FY 2010 (out of less than $9 billion in state general funds) • FY 2009 revenues down by $727 million from FY 2008. But deficit “only” $400 million due to surplus from FY 2008. • Executive Order promised before Christmas • Federal stimulus package is essential

44. Economic Stimulus • Potential for another temporary increase in FMAP as occurred in the last recession – possibly 24 months. • Could be sufficient to avoid the need for budget cuts in Michigan for FY 2009 and mitigate the size of cuts for FY 2010.

45. Outlook for 2009 and Beyond Budget and fiscal pressures are the leading concerns for FY 2009, as spending and enrollment trends turned upward and the economy impacted state revenues States are focused on strategies to improve quality and value and improve coverage for the uninsured Value based purchasing Encouraging electronic health records and e-prescribing Chronic care management Integration of acute, primary and long term care Strategies to cover low-income uninsured children and adults State and federal budget pressures will be an even more powerful force in the future to obtain better value in Medicaid

46. Medicaid: Looking Forward • Medicaid’s MH-related issues: • Access for children, rural, inpatient, residential • Cost of physical care for those with MI • Cost/Use of Psychotropics, esp. for children • Integration of physical & behavioral health care • Evidence-Based Practice • Improved accountability • MI in Nursing Homes • Role of MH/SA authorities vs Medicaid agency

47. Medicaid: Looking Forward • Opportunity - build shared M/MH agenda • SAMHSA funded MH/Medicaid TAG • Research – build business case for change • Use of HIT to improve efficiency, quality • Proactively seek clarity from state Medicaid programs re: documentation, service definitions • Opportunity to build on recent interest in Congress - to improve Behavioral Health outcomes (e.g., Medicaid reforms to support EBP)

48. Implications for MH • Focus on performance and accountability will continue • Necessity to redesign of benefits, case management creates an opportunity to adopt more effective approaches • The focus on MH creates an opportunity to make the business case: better care and service integration will extend lives, reduce cost of physical health care, improve outcomes and recovery