July | August 2017




Medicaid Cost-Cutting:  Finding the Lesser Evil

By Debra Miller, CSG Director of Health Policy
As cash-strapped states strive to find cuts in Medicaid, they generally look at restricting eligibility, limiting benefits or cutting provider payments.
“Provider pay cuts are the lesser of three evils,” said Matt Salo, executive director of the National Association of Medicaid Directors.  
Thirty-three states plan to reduce Medicaid provider rates in the 2012 fiscal year, the National Association of State Budget Officers reports. These reductions come on top of 24 states that implemented rate reductions and 15 states that froze rates in 2011.
Salo and James Johnston, from the Center for Medicare and Medicaid Innovation in the U.S. Department for Health and Human Services, will discuss “Looking for Medicaid Relief in All the Right Places,” from 3:30 to 5 p.m. Oct. 20, during The Council of State Governments’ National Conference & North American Summit in Bellevue, Wash.                  
Congress took eligibility restriction off the table as a state budget-cutting tool by instituting maintenance of effort requirements in the Recovery Act and later in the Affordable Care Act. To qualify for the enhanced Medicaid match rates available from October 2008 through June 2011 under the federal stimulus, states could not change eligibility income guidelines to make it harder to qualify for Medicaid coverage. This restriction came at the same time Medicaid enrollment grew because of the economic downturn and higher unemployment. Nationally, NASBO projects the increase in Medicaid enrollment at 17.3 percent for the three-year period through 2012.
Many states are limiting benefits. Medicaid law has mandatory benefits and optional benefits. States are moving away from optional benefits, such as non-emergency dental services for adults. Other benefit cuts can be fraught with trouble.
For instance, beginning Oct. 1 the state of Washington will limit reimbursement for nonemergency ER visits to three per year. The state has developed a list of diagnoses that will be excluded. Patients may be billed for visits not covered under those diagnoses. The Washington Chapter of the American College of Emergency Physicians and other Washington medical associations said in a letter to state officials the policy will put people's health at risk and make the state vulnerable to lawsuits. Cost savings are estimated to be as much as $35 million per year. State officials hope to change the consumer behavior of the minority who overuse emergency rooms.
“States should think outside the box,” Salo said. “The thinking that got into this mess isn’t the thinking that will get us out of it. We’re not solving the problem by cutting; we will solve it by rethinking the system. “
Eleven states’ Medicaid reimbursement rates meet or exceed Medicare rates, set by the federal government and used as the benchmark the Medicaid to Medicare health fee index calculated by the Kaiser Family Foundation. The other states reimburse providers at considerably lower rates for Medicaid than Medicare patients. The four states with the lowest Medicaid to Medicare ratio were New Jersey (.37), Rhode Island (.42), New York (.43) and California (.56). In other words, for every dollar the federal Medicare program pays providers, the state Medicaid programs pay 56 cents or less.
Federal law requires that rates be set “sufficient to enlist enough providers” so that individuals insured through Medicaid have the same access to care as people privately insured. When rates are too low, providers and patients alike complain. Private insurers complain of cost shifting if the Medicaid rates are too low.
“Cost shifting on some level is unavoidable,” Salo said. “That is a short-term solution.”
“We need to rethink the system—do payment reform and delivery system reform. Medicaid is a convenient scapegoat to avoid making long-term system reform.”
The rules about just how to ensure provider reimbursement rates are sufficient are in flux. Federal regulations have been proposed to require states prove that reducing reimbursements will not make it harder for Medicaid enrollees to get appointments. The U.S. Supreme Court will hear a California case challenging rate reductions in the 2012 fiscal year state budget finally worked out between Gov. Jerry Brown and the California legislature this fall.

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