On April 27-28, NASBO held a Medicaid Roundtable in Washington, DC in collaboration with the Kaiser Family Foundation. With budget directors and health care analysts from 35 states and territories in attendance, we had a robust discussion on a wide range of health care issues with a focus on Medicaid and state budgets.
The important role Medicaid plays in state budgets was discussed including how state budget officials look at Medicaid funding relative to other budget priorities. A number of states mentioned that the forecasted costs of the present Medicaid program were treated similarly to debt service and other mandated expenses when building the state budget. State budget officers also looked at the overall budget and fiscal climate and the rate of growth of Medicaid relative to state revenue growth. States also discussed how they finance their share of program costs and how Medicaid financing is used as a resource for other state services including behavioral health, corrections, and public health. Discussing the origins of the federal-state partnership to fund Medicaid, it was recalled that policymakers viewed the required state match as a brake on spending growth in the original program design.
States discussed how Medicaid expansion in the Affordable Care Act (ACA) affected spending and revenues throughout individual state budgets, the impact on corrections, behavioral health, and uncompensated care, and whether states have achieved savings or have been able to enhance their services. Further descriptions of some of the cost shifting that took place in Medicaid expansion states led to a broader discussion of the impact of overall health care cost growth in a state. Some other topics brought up by attendees included state expansion of Medicaid through a waiver, such as currently approved waivers that integrate services such as transportation and housing for beneficiaries, and other flexibilities states are seeking from the Centers for Medicare and Medicaid Services (CMS) to operate their programs. States also discussed how Medicaid (often Medicaid expansion) was being used to address public health, substance abuse and healthy behaviors.
With the American Health Care Act (AHCA), the bill to repeal and replace the Affordable Care Act (ACA), under debate in Congress, participants had the opportunity to discuss individual state estimates of the impacts of proposed legislation pertaining to Medicaid. These discussions included implications of eliminating the enhanced federal funding for the optional Medicaid expansion under the ACA as well as moving to a per capita cap approach for federal financing of Medicaid. Some states noted specific triggers that would end the expansion due to changes in the expansion match rate. Other states discussed implications for coverage and budgets including for Medicaid and other agencies like corrections and mental health that had benefited from expansion dollars.
Key points raised about per capita caps included the financial risk of high medical cost increases (such as a new expensive specialty drug coming to market or aging populations), the selection of a single year (2016) as a base for comparison, the uncertainty over what flexibility would be afforded to states in exchange for reduced federal funds, and the lack of state-federal shared savings under a per capita cap scenario. In addition, states noted that the timing and implementation of the cap in the AHCA would be difficult to manage because states would not know the cap until the end of year and overages would be recouped the following year. States also noted that there would be a lot of pressure to never exceed the caps which could result in more program cuts.
The movement to expand managed care across most states was also of great interest including the challenges of managed care rate setting. Discussion included the recognition of initial Medicaid savings in the transition from fee-for-service, the movement of certain populations into managed care such as the elderly and disabled, and overall challenges in providing long-term care. Some states noted one of the challenges of moving to managed care was the loss of control in managing costs under the capitation payment. Other approaches to change service delivery, including moving to Accountable Care Organizations and to value-based purchasing, were also discussed.
Medicaid cost containment was another topic of great importance, including strategies to address pharmacy costs. Participants discussed the continued movement to home and community-based services away from institutional services. States also noted the difficulty in achieving cost savings because states have been implementing many efficiencies in Medicaid over time and especially during the last two recessions. States noted pressures related to increasing drug costs, delivering long-term care services and recent actions to increase wages for caregivers as an increased cost pressure. The current use of global caps either through federal waivers or through state initiated policy and how those caps work with overall budget targets was also examined in the context of overall Medicaid spending. While limiting spending to a given cap can be achieved in the short term, it is unclear if caps can be sustained over a long-term time period. One state noted that cost containment actions have real implications for people and enrollees.
Medicaid forecasting was of particular interest to participants and states exchanged information about the various processes that they use and the role of the state budget office in forecasting. Some states indicated that they use outside actuaries/consultants, others use commissions, while others collaborate across a range of state agencies. Participants also discussed the frequency and monitoring of forecasts as well as actions to take when there are variances with the forecast.
In addition to financing Medicaid, participants highlighted other budget pressures including historically low state revenue growth since the recession, pensions, retiree health care, transportation funding, and property tax relief, and how state budget officers view Medicaid spending in relationship to other cost demands. Several states mentioned that since the recession, they have been reducing their budgets year after year and further reductions will be difficult. States also noted that while costs continue to grow, there is little support to examine policies to increase revenue at the state level. States noted that they continue to work hard to try to manage costs related to health care and Medicaid. Federal policies to reduce Medicaid funding (and other federal support to states) could have negative implications for state budgets and credit ratings, especially for states that are economically dependent on federal dollars.
NASBO will continue to monitor significant health issues and the impact on state budgets. Please contact NASBO staff for additional information.