MEDICAID RESTRUCTURING BUDGET BACKGROUND February 2013

1. MEDICAID RESTRUCTURINGBUDGET BACKGROUNDFebruary 2013 Office of Administration Division of Budget and Planning

2. MEDICAID RESTRUCTURINGBUDGET BACKGROUND • Background Information • Cost for new Medicaid eligibles • Savings in state share for existing populations • Additional revenue • Summary of budget impact • Provider payments

3. BACKGROUND INFORMATION • Missouri currently provides Medicaid for parents up to 19% of the Federal Poverty Level (FPL). - For a family of four, $4,475 per year. • Missouri does not provide Medicaid to non-custodial adults, unless they are disabled or seniors. • In the future, would cover low-income working adults up to 138% of the FPL. - For a family of four $32,499 annual income.

4. BACKGROUND INFORMATION • Missouri’s typical federal match rate for the current Medicaid Program is 62%. • Missouri provides Medicaid currently to about 900,000 Missourians: - 543,000 children; - 166,000 persons with disabilities; - 80,000 low income parents; - 76,000 low income elderly; and - 28,000 pregnant women.

5. MEDICAID RESTRUCTURING BUDGET PROJECTIONS

6. COST -- STATE SHARE • No state cost for first three fiscal years (FY14-FY16). • State share then phases up to 10%: - January 2017 – 5% (half year for FY 2017); - January 2018 – 6%; - January 2019 – 7%; and - January 2020 – 10% .

7. COST -- NUMBER OF PEOPLE

8. MEDICAID PROJECTIONS NUMBER OF PEOPLE 307,542 292,061 276,579 268,039 259,499

9. COST PER PERSON • Developed by actuary • Added cost for wrap around for medically frail • Pay a commercial reimbursement rate • Savings from better care coordination (multiple avenues) • Assumes maximum cost sharing (copays) allowed

10. COST PER PERSON • Per Member/Per Month - $436 for parents - $583 for childless adults - $1,635 for medically frail • Trended forward at average of 4%

11. COST – SUMMARY (millions of $s)

12. MEDICAID RESTRUCTURING SAVINGS IN STATE SHARE

13. SAVINGS – EXISTING POPULATIONS • Current Medicaid Populations under 138% FPL • Pregnant women – covered prior to pregnancy • Ticket to Work • Breast/Cervical Cancer • Spenddown • Women’s Health Services

14. SAVINGS – EXISTING POPULATIONS • Current State Only Populations under 138% FPL • Blind Pension • Corrections • Dept of Mental Health Clients

15. SAVINGS – EXISTING POPULATIONSGENERAL REVENUE (millions of $)

16. MEDICAID RESTRUCTURING ADDITIONAL REVENUE

17. ADDITIONAL REVENUE • Key Assumptions – Income Tax • No multiplier assumed • Looked at increased federal revenue to providers • Discounted to portion typically used for salaries based on individual provider-type • Applied 4.5% income tax rate

18. ADDITIONAL REVENUE • Key Assumptions – Sales Tax • No multiplier assumed • 19.2% of income spent on GR taxable goods • 6.9% of non-salary spent on GR taxable goods • Tax rate of 3% goes to GR

19. ADDITIONAL REVENUE • Key Assumptions – High Risk Pool • High Risk Pool no longer necessary • Insurance companies help fund pool through assessments • Taken as credits against taxes owed • Typically do not take full credit in first year • Fully realized ($22M), with $1.5M savings from normal growth each year after that

20. ADDITIONAL REVENUE$s in millions $61.8 $57.3 $53.5 $15.6

21. MEDICAID RESTRUCTURINGBUDGET SUMMARY

22. MEDICAID RESTRUCTURINGBUDGET SUMMARY • State costs for new eligibles $0 until FY 2017 • Full phase in of state share at 10% in FY 2021 • Savings for existing populations begin immediately • Additional revenue estimate conservative – no multiplier

23. BUDGET SUMMARYCOST, SAVINGS & REVENUE

24. PROVIDER PAYMENTS Hospital Reductions • Regardless of a state’s decision to expand Medicaid, payments to hospitals will be reduced. • Reductions will be to Disproportionate Share Hospital (DSH) payments. • Hospitals that serve a high percentage of Medicaid and/or other low income individuals qualify for DSH payments. • These payments are designed to help cover the cost of uncompensated care.

25. HOSPITAL PAYMENT REDUCTIONS • Each state’s share of the DSH reduction is unknown. • HHS Secretary will determine methodology. • That methodology to consider: • Percentage of uninsured, • State’s use of DSH funds, and • State’s current DSH level (high DSH states, like Missouri, may face a larger cut).

26. HOSPITAL PAYMENT REDUCTIONS • Medicaid DSH cuts at the national level: • 5% for first three years • 15% for next year • 50% thereafter • Missouri’s FY 2013 DSH payments: • $511 million hospitals • $207 million DMH hospitals

27. HOSPITAL PAYMENT REDUCTIONS • Hospitals will also see cuts in Medicare payments. • These payments do NOT flow through the state. • Medicare DSH cuts comparable to Medicaid. • Medicare direct inpatient payments will also be reduced (reduction in trend).

28. PROVIDER PAYMENTSMEDICAID RESTRUCTURING Estimated payments by provider type: • 49% ($900 million) professional services • 13% ($240M) mental health • 11% ($200M) physician services • 9% ($160 M) in-home • 16% ($300M) other (DME, ambulance, ….) • 40% ($740 million) hospital services • 11% ($200 million) pharmacies

29. CONCLUSION • Restructuring Medicaid has a net positive impact on the budget • Cuts to hospital payments will happen • Those reductions will be mitigated through increased provider payments, if restructure • Other considerations - indirect budget implications: • Improved access to care • Better health outcomes • Improved job retention when healthy • Reduce cost shift to private premiums