The Medicaid expansion divide

April 2, 2015

Article

After the first year of Medicaid expansion under the Affordable Care Act (ACA), some healthcare providers and plans on the front lines are confronting operational-as well as political-challenges.

In Washington, an expansion state, a safety net plan’s Medicaid enrollment skyrocketed by 50% and newcomers’ pent-up demand created initial customer-service issues.

In Texas, a non-expansion state, a safety net plan’s parent hospital district that cares for a significant number of uninsured patients is facing a $14 million-dollar shortfall despite staff layoffs and other cost-cutting measures.

When enacted in 2010, the ACA required all states to expand Medicaid coverage to adults with incomes up to 138% of the federal poverty level. However, the U.S. Supreme Court ruled in 2012 that states could refuse to participate in Medicaid expansion under the reform statute without being penalized. While 28 states and the District of Columbia have opted to expand their Medicaid programs since this component of the ACA first took effect in January 2014, fully 22 states have not.

The ACA’s drafters assumed Medicaid expansion in all states, but it is anyone’s guess as to what happens next. Hundreds of pro-expansion community activists recently marched on the Missouri Capitol. If the state raises Medicaid eligibility to the ACA’s standard, which its Democratic governor wants and GOP-controlled legislature opposes, then proponents say 300,000 more Missourians would gain health coverage and the state would reap about $2 billion in additional federal dollars.

NEXT: Does benefit outweigh the cost?

In Kansas, a standing-room-only crowd listened to pro-Medicaid expansion testimony at a legislative hearing March 18. H.B. 2319 calls on Gov. Sam Brownback (R) and state regulators to devise an expansion plan and negotiate with U.S. Centers for Medicare and Medicaid Services (CMS) for its approval.

BachrachKansas’ failure to expand Medicaid lost the state $334 million in 2014 and an estimated $380 million-plus this year in federal dollars, with 6,400 fewer jobs being created over the two years, says a George Washington University study sponsored by the Kansas Hospital Association.

Currently, KanCare, the state’s Medicaid managed care program, covers about 466,000 people; expansion would add between 140,000 and 170,000 adults. State officials testified against expansion March 19, arguing it could cost at least $100 million annually and push healthy adults ahead of disabled people awaiting Medicaid services.

Across the U.S., advocates insist Medicaid expansion not only will help more people get access to affordable care, thus improving their health, but it also will contribute to states’ economic health. They anticipate that some expansion states’ positive preliminary 2014 data, starting to appear in March, could sway elected officials in the increasing number of states that are considering alternative models through federal waivers as a politically viable way to expand Medicaid. Specifically:

A March 11 briefing paper by Kaiser Family Foundation cites state budget savings and revenue gains, alongside limited costs, from Medicaid expansion in Connecticut, New Mexico and Washington state.

Analysis by Manatt Health Solutions for the Robert Wood Johnson Foundation estimates net savings of $820 million for Kentucky and $370 million for Arkansas from 2014 through 2021, as a result of the states’ use of new federal funds and enhanced federal matching under Medicaid expansion. In 2014 alone, Kentucky saved $9 million when Medicaid paid for behavioral health and mental health services previously paid by the state, according to the report, and Arkansas saved $17.5 million by using a 100% federal match for high-need enrollees.

“We have found that without exception the economic benefit [of Medicaid expansion] outweighs the cost...and there is no negative fiscal state impact well past 2020,” says Deborah Bachrach, a partner at Manatt Health Solutions and lead author of the firm’s March 4 Arkansas/Kentucky issue brief. She says analysis of more states’ expansion results is expected soon.

The bottom line? “There’s a big difference between projecting and realizing savings, and states are now realizing savings,” Bachrach says.

NEXT: Providers in all states seeing drop in uncompensated care

The ACA called for the federal government to foot a state’s entire bill for Medicaid expansion for three years starting in 2014, paying 90% thereafter. While 10 states with Republican governors have expanded Medicaid, Missouri and others with GOP-controlled legislatures either worry they ultimately may have to pick up a greater share of the tab--or they take broad exception to what they call Obamacare.

Proponents counter that still-reluctant states ought to embrace Medicaid expansion as soon as possible to cover millions of people who would be left uninsured if the Supreme Court decides to eliminate federal subsidies for low-income people buying private coverage on the ACA-created health insurance exchanges. The high court’s ruling is expected by June.

In March, the U.S. Department of Health and Human Services (HHS) reported that 16.4 million Americans had gained coverage in the five years since the ACA’s enactment. Coverage gains were especially strong in Medicaid expansion states. While 55% of people in expansion states with incomes below 138% of federal poverty lacked coverage prior to expansion, they experienced the largest coverage gain of 13%. That compares to a 7% hike for people at the same income level in non-expansion states.

Providers in all states, including states not expanding Medicaid, are seeing drops in uncompensated care, says Manatt’s Bachrach, a former New York Medicaid director. But hospitals in expansion states are reporting “considerable reductions” in their uncompensated care levels, she says, describing the program’s expansion as critical for safety net and rural hospitals.

Moreover, Bachrach notes there is continuous coverage in Medicaid expansion states, instead of the traditional gaps when low-income people lose Medicaid eligibility but can’t afford private plans. This stability “gives health insurers the ability to truly manage the care and reduce costs,” she says.

NEXT: Handling the influx

United, Anthem touting gains

Publicly traded commercial plans, including UnitedHealthcare and Anthem, Inc., are touting financial gains from Medicaid enrollment boosts. In January, United cited a 29% increase in its Medicaid revenue in 2014 as compared to 2013, driven by expansion, and anticipates further growth of 15% to 17% in the business line this year. Anthem said it gained 815,000 new Medicaid enrollees in 2014.

Medicaid expansion has added about 300,000 enrollees to CareSource’s 1.3 million members in Ohio and Kentucky, says Steve Ringel, CareSource’s Ohio market president. “These members have struggled financially and have not been able to make health care a priority and now they have access,” he says.

RingelGiven CareSource’s size, there were no corporate operational changes from Medicaid expansion, Ringel says. But some small local safety net plans, while also strong advocates of extending Medicaid to improve their communities’ access to care, are confronting a different reality.

Handling the influx

Community Health Plan of Washington (CHPW) has added about 95,000 adults from Medicaid expansion to its membership base of 180,000 in the Temporary Assistance for Needy Families (TANF) program, says Stacy Kessel, chief financial officer. The largest enrollment was in January, but membership is continuing to grow, with about 4,500 members added in the first half of March.

“Our [statewide Medicaid] enrollment also increased tremendously because our [state] exchange was very successful,” she says. CPHW added about 1,300 members in its subsidized exchange product for people churning on and off Medicaid, she notes.

KesselKessel stresses that CHPW is “thrilled” that Washington state opted for Medicaid expansion, thus improving preventive care for many people. But she adds CHPW, a nonprofit plan, founded and governed by community health centers, initially struggled with new members’ pent-up demand for care, completion of their health-risk assessments, and getting new members into disease management, behavioral health and other needed services and orienting them to the care delivery system. “Because of the pent-up demand, there was definitely this bolus of effort that was needed up front,” says Kessel.

According to Kessel, CHPW’s network includes 21 federally qualified community health centers (FQHCs) which operate 127 clinic sites in Washington; including its non-FQHC network, CHPW has more than 2,700 contracted primary care providers, 15,000 specialist providers and 100-plus hospitals.

While about 70% of the health plan’s TANF members have FQHC primary care physicians, almost nine in 10 new members in the expansion population have FQHC primary care physicians (PCPs), she adds.

“Health centers have certainly had to ramp up” to handle the heavy influx of Medicaid expansion members, Kessel says. “But they’ve been doing it for awhile--increasing their ability to care for more patients,” including bricks-and-mortar construction.

Kessel also notes that CHPW has stretched its reserves to be able to handle premiums. “Our risk-based capital percentage was just over 350% at the end of 2014, still well within NAIC’s [i.e., the National Association of Insurance Commissioners’] healthy range,” she says. “But we were sitting close to 500%” previously. Washington state insurance regulators “like $1 of reserves for every $8 of premium,” she explains, “so basically 12.5% of premium coming in, they want to see in reserves.” While reserves are adequate, she says, “Obviously, we’re not making money with this population.”

NEXT: From telemedicine to clinics

From telemedicine to clinics

MurrayMargaret A. Murray, chief executive officer of the Association for Community Affiliated Plans (ACAP) and Managed Healthcare Executive editorial advisor, says her group is examining what safety net plans are doing to address expansion demand.

First, Murray cites plans’ active use of telemedicine and e-consults that allow PCPs to leverage limited specialist networks. L.A. Care Health Plan in southern California is using e-consults, particularly with dermatologists, she says, while telemedicine is being used by Driscoll Health Plan in Corpus Christi, Texas, to connect members with child psychiatrists, and by Partnership HealthPlan of California, particularly for hepatitis C consults.

In addition, safety net plans are starting to build their own clinics, Murray says. Texas Children’s Health Plan in Houston built its own clinic and, because of its success, is considering a second site, she says. Moreover, she adds, plans are working to integrate care delivery models to meet significant demand for behavioral health and substance abuse services. “For us, it’s 100% our mission to cover these populations, and we’ll do whatever is necessary.”

Pushing for change in Texas

In Texas, which has about 4 million Medicaid recipients, hospitals, county officials and plans have spent the past few years urging the state’s politicians to act on statewide expansion - including an initial failed effort to phase in expansion through county-led efforts.

“It’s totally a political issue. If you just do the math, it’s a ‘no brainer’ [to expand Medicaid under the ACA], but that’s not how our state legislators see it,” says Ken Janda, president and chief executive officer of Houston-based Community Health Choice, Inc. The nonprofit managed care plan covers about 265,000 Medicaid STAR program and Children’s Health Insurance Program (CHIP) members, and another 35,000 enrollees through its HMO products from Texas’s federally-facilitated exchange.

NEXT: Hospitals struggling

None of the introduced pro-Medicaid expansion bills are moving, Janda says. “The reality is it will take some near-miracle for the Texas state legislature to pass expansion in this session which ends May 31,” he told MHE March 16.

JandaIn Texas, “what the legislature sees is Medicaid costs continuing to rise, but it’s the number of enrollees [rising], not the cost per enrollee,” Janda explains. He says the slight decline in Texas’s statewide uninsured rate to 23% in 2014-still the highest rate in the U.S.-“is 100% attributable to subsidized products on the exchange.” For 2015, about 1.2 million people in Texas got coverage through exchange plans, of which about 700,000 previously had individual policies and 500,000 previously were uninsured, he says. “If the Supreme Court says no subsidies, there could be more trouble,” he adds.

Medicaid expansion would add roughly 1.7 million-out of about 6 million-uninsured Texans to the program’s rolls, according to initial estimates, of which about 400,000 would be in the Houston area, Janda says.

Prior to the Supreme Court’s 2012 decision allowing states to opt out, Texas had a preliminary plan to expand its Medicaid managed care model by using five HMOs in the Houston area. Janda says that proposal would have resulted in about 80,000 new enrollees per plan; and Community Health Choice, which has a strong network for adults, was looking at bringing in childless adults and parents of children in Medicaid and CHIP. “We still think that’s what we should do,” he says.

Houston, similar to Dallas, San Antonio and Fort Worth, has a public hospital system supported by local tax dollars that serves significant numbers of uninsured patients, Janda explains. Community Health Choice’s parent organization is Harris County Hospital District, now known as Harris Health System, he says, “and, frankly, they are really struggling, because as part of the ACA they have had reductions in DSH [Medicaid’s Disproportionate Share Hospital] and uncompensated care payments,” totaling about $40 million over the past year.

For the last fiscal year, Harris Health had about a $25 million deficit that was projected to climb to $70 million for this fiscal year, Janda says. The projected deficit was seen as untenable, so the hospital district had to lay off staff, reduce hours and outsource certain services, which resulted in an approved budget projecting a $14 million loss, he says.

“Next year it will be really bad for Harris Health if we don’t get Medicaid expansion or more DSH and uncompensated care funding,” Janda asserts. He says the hospital district got about $525 million of its $1 billion-plus annual budget from local property taxes last year; local funds could help with the state’s 10% of the Medicaid expansion tab after 2016--“but county taxes can’t cover growth in uninsured and DSH payments,” he says.

As for how the situation is playing out for Community Health Choice, Janda says: “We haven’t really been negatively impacted because [enrollments for] pregnant women and kids continue to grow...and we hope we’re helping the hospital district by covering some previously uninsured.”

Meanwhile, he says Community Health Choice is “advocating very strongly” for a federal Medicaid waiver that includes “principles of individual responsibility and a marketplace solution.”

NEXT: Maryland expects savings

Maryland expects savings

By contrast, heavily-regulated Maryland is a Medicaid expansion state where hospitals operate on global budgets. Since the 1970s, state regulators have used a waiver to set prices that hospitals charge patients, regardless of whether they have private or government-sponsored insurance.

Shannon McMahon, Maryland’s Medicaid director, says that when she testified before state lawmakers in early March on the forthcoming Medicaid budget, she cited a Manatt study’s finding that hospitals in expansion states have seen a 46% decrease, on average, in uncompensated care. This would translate into a $500 million reduction in uncompensated care across Maryland’s hospitals, she notes.

Moreover, McMahon tells Managed Healthcare Executive that her Medicaid-expansion state likely will save $17 million in state general funds over the next year from the enhanced federal matching rate.

“We know that we have just over 300,000 new Medicaid enrollees as a result of expansion,” says McMahon, deputy secretary for healthcare financing in the Maryland Dept. of Health and Mental Hygiene. Nearly 201,000 enrollees are from ACA-driven Medicaid expansion; the rest are childless adults enrolled in a limited-benefit Primary Adult Care program who automatically converted to Medicaid last year.

Overall, Maryland’s Medicaid program is budgeting for 1.4 million enrollees in the coming fiscal year, which represents nearly a doubling of enrollment over the past seven years, McMahon says. “It’s a big number,” she says, explaining the drive to get the expansion population into managed care plans and connect them to PCPs--and, for those with severe and persistent mental illness, to health homes.

In addition, McMahon says the Medicaid program will set managed care payment rates for 2016 over the next several months. “For us, this is the big year where we’ll see the impact of Medicaid expansion because we have a full year of data from [Medicaid] MCOs,” she says.

“The ACA’s Medicaid expansion has allowed the state to leverage federal funding to cover a broader group of individuals...and bring down hospital and uncompensated care costs,” McMahon concludes, “and there’s some consistency and predictability in the rate setting.”

Yet McMahon concedes that the real test will come soon. Maryland’s Medicaid program projects the state will need to spend $80 million in state general funds starting in January 2017, after the federal government stops paying states’ full expansion costs. “We’ll need to show expansion is a good thing for Maryland...and the taxpayers,” she says. “You want to be able to say, ‘We’re big picture saving money.’”

Judy Packer-Tursman is a freelance writer in Washington D.C.