PUBLIC SECTOR INITIATIVES TO CONTROL COSTS: MEDICAID

1. PUBLIC SECTOR INITIATIVES TO CONTROL COSTS: MEDICAID Jim Verdier Mathematica Policy Research, Inc. Citizens’ Health Care Working Group Arlington, VA May 13, 2005

2. Introduction and Overview • National Medicaid spending trends • Distribution of Medicaid spending by enrollment group • Options for containing Medicaid spending growth • Potential to control costs by improving care quality

3. National Medicaid Spending Trends • Annual Medicaid spending growth dipped in 2003 (7.1%) and 2004 (7.9%) following two years of 10-12% growth (CMS 2005) • Reflects comprehensive and aggressive state cost containment efforts • Both CMS and CBO project Medicaid spending growth at about 8.5% a year from 2007 to 2014 • State revenues are likely to grow at no more than half that rate

4. Elderly 9% Elderly 26% Blind & Disabled 16% Adults 27% Blind & Disabled 43% Children 48% Adults 12% Children 19% Enrollees Expenditures Total = 52 million Total = $252 billion SOURCE: Kaiser Commission on Medicaid and the Uninsured estimates based on CMS, CBO and OMB data, 2004. NOTE: Total expenditures on benefits excludes DSH payments. Medicaid Enrollees and Expendituresby Enrollment Group, 2003

5. Cost Containment Options • Provider reimbursement • Nursing facilities (16.8% of total Medicaid expenditures in 2003) • MCOs (15.6%) • Hospitals (13.6%) • Home health (13.0%) • Drugs (10.0%) • All other (31.0%)

6. Cost Containment Options • Eligibility • Non-disabled adults and children are 75% of enrollees, but account for only 31% of costs • Annual costs per enrollee in 2003 were $1,700 for children and $1,900 for adults • Disabled are 16% of enrollees and 43% of costs ($12,300 per enrollee per year) • Elderly are 9% of enrollees and 26% of costs ($12,800 per enrollee per year)

7. Cost Containment Options • Benefits • Most costly benefits are concentrated on most needy beneficiaries • Defended by well-organized advocacy and provider groups • Copayments and other beneficiary cost sharing • Maximum copayment of $3 or 5% of cost of service • Unchanged since 1982 • Greatest potential to change behavior and achieve savings is with Rx drug and emergency room use

8. Cost Containment Options • Rx drugs • Beneficiary co-payments/coinsurance • Pharmacy reimbursement • Preferred drug lists/formularies • Manufacturer rebates • Disease management • Stand-alone vs. managed care • Managed care • Expand to disabled, long-term care • New Medicare Special Needs Plans • Long-term care reform • Greater emphasis on home- and community-based services

9. Cost Containment Options • Creative financing • DSH, IGTs, provider taxes, “Medicaid maximization” • CMS is cracking down • Existing and proposed legislative limits • Fraud and abuse • Crackdowns can be resource-intensive • Pharmacy • Medicaid estate planning • Billing for services not provided

10. Conclusion • Cost pressures in Medicaid will likely continue for many years • Reflects underlying health care costs and the special demographics of Medicaid • Medicaid functions as the nation’s high risk pool • Opportunities for improved care abound • Not hard to improve on unmanaged fee-for-service Medicaid • Improved care can contain costs in some areas over time • But savings are neither quick nor assured