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ch C
ouncil
Research
Council
Citizens Resear
of Michigan
Options ffor
or Managing Medic
aid
Medicaid
Funding and C
ost Gr
owth
Cost
Growth
Februar
Februaryy 2012
Repor
ort 376
Repor
ort
Rep
CELEBR
ATING 96 YEARS OF INDEPENDENT, NONP
AR
TISAN
ELEBRA
ONPAR
ARTISAN
PUBLIC POLIC
Y RESEARCH IN MICHIGAN
OLICY
Board of Directors
Chair
Jeffrey D. Bergeron
Vice Chair
Terence M. Donnelly
Treasurer
Aleksandra A. Miziolek
Jeffrey D. Bergeron
John J. Gasparovic
Cathy Nash
Ernst & Young LLP
BorgWarner Inc.
Citizens Bank
Michael G. Bickers
Ingrid A. Gregg
Paul R. Obermeyer
PNC Financial Services Group
Earhart Foundation
Comerica Bank
Beth Chappell
Marybeth S. Howe
Kevin Prokop
Detroit Economic Club
Wells Fargo Bank
Rockbridge Growth Equity, LLC
Mark A. Davidoff
Nick A. Khouri
Lynda Rossi
Deloitte LLP
DTE Energy Company
Blue Cross Blue Shield of Michigan
Terence M. Donnelly
Daniel T. Lis
Jerry E. Rush
Dickinson Wright PLLC
Kelly Services, Inc.
Meritor, Inc.
Randall W. Eberts
Sarah L. McClelland
Michael A. Semanco
W. E. Upjohn Institute
JPMorgan Chase & Co.
Hennessey Capital LLC
David O. Egner
Michael P. McGee
Terence A. Thomas, Sr.
Hudson-Webber Foundation
New Economy Initiative
Miller, Canfield, Paddock and
Stone PLC
Thomas Group Consulting, Inc.
Laura Fournier
Aleksandra A. Miziolek
Varnum
Compuware
Dykema Gossett PLLC
Eugene A. Gargaro, Jr.
Jim Murray
Manoogian Foundation
AT&T Michigan
Kent J. Vana
Theodore J. Vogel
CMS Energy Corporation
Advisory Director
Louis Betanzos
Board of Trustees
Chair
Eugene A. Gargaro, Jr.
Terence E. Adderley
Ralph J. Gerson
Sarah L. McClelland
Irving Rose
Kelly Services, Inc.
Guardian Industries Corporation
Jeffrey D. Bergeron
Eric R. Gilbertson
JPMorgan Chase & Co.
Edward Rose & Sons
Ernst & Young LLP
Saginaw Valley State University
Paul W. McCracken
George E. Ross
Stephanie W. Bergeron
Allan D. Gilmour
University of Michigan, Emeritus
Central Michigan University
Walsh College
Wayne State University
Patrick M. McQueen
Gary D. Russi
David P. Boyle
Alfred R. Glancy III
McQueen Financial Advisors
Oakland University
PNC
Unico Investment Group LLC
Robert Milewski
Nancy M. Schlichting
Beth Chappell
Thomas J. Haas
Blue Cross Blue Shield
of Michigan
Henry Ford Health System
Detroit Economic Club
Grand Valley State University
Mary Sue Coleman
James S. Hilboldt
Glenn D. Mroz
First National Bank of Michigan
University of Michigan
The Connable Office, Inc.
Matthew P. Cullen
Paul C. Hillegonds
Rock Ventures LLC
DTE Energy Company
Tarik Daoud
Daniel J. Kelly
Long Family Service Center
Deloitte. Retired
Stephen R. D’Arcy
David B. Kennedy
Detroit Medical Center
Earhart Foundation
John M. Dunn
Mary Kramer
Western Michigan University
Crain Communications, Inc.
David O. Egner
Gordon Krater
Hudson-Webber Foundation
New Economy Initiative
Plante & Moran PLLC
David L. Eisler
Ford Motor Company
Ferris State University
Edward C. Levy, Jr.
David G. Frey
Edw. C. Levy Co.
David Leitch
Frey Foundation
Daniel Little
Mark T. Gaffney
Eugene A. Gargaro, Jr.
University of Michigan-Dearborn
Manoogian Foundation
Alphonse S. Lucarelli
Ernst & Young LLP, Retired
Michigan Technological University
Mark A. Murray
Meijer Inc.
Cathy H. Nash
Citizens Bank
James M. Nicholson
PVS Chemicals
Donald R. Parfet
Apjohn Group LLC
Sandra E. Pierce
Charter One
Philip H. Power
The Center for Michigan
Keith A. Pretty
Northwood University
John Rakolta Jr.
Walbridge
Douglas B. Roberts
IPPSR- Michigan State University
Milt Rohwer
John M. Schreuder
Lloyd A. Semple
University of Detroit Mercy
School of Law
Lou Anna K. Simon
Michigan State University
S. Martin Taylor
Amanda Van Dusen
Miller, Canfield, Paddock
and Stone PLC
Kent J. Vana
Varnum
Theodore J. Vogel
CMS Energy Corporation
Gail L. Warden
Henry Ford Health System,
Emeritus
Jeffrey K. Willemain
Deloitte.
Leslie E. Wong
Northern Michigan University
Frey Foundation
Citizens Research Council of Michigan is a tax deductible 501(c)(3) organization
Citizens Resear
ch C
ouncil of Michigan
rc
Co
Options ffor
or Managing Medic
aid
Medicaid
owth
Funding and C
ost Gr
Cost
Growth
Februar
Februaryy 2012
Rep
or
t 376
Repor
ort
CITIZENS RESEARCH COUNCIL OF MICHIGAN
M A I N O F F I C E 38777 Six Mile Road, Suite 208 • Livonia, MI 48152-3974 • 734-542-8001 • Fax 734-542-8004
L A N S I N G O F F I C E 124 West Allegan, Suite 620 • Lansing, MI 48933-1738 • 517-485-9444 • Fax 517-485-0423
CRCMICH.ORG
OPTIONS FOR MANAGING MEDIC
AID
EDICAID
FUNDING AND COST GROWTH
Contents
Summary ..................................................................................................................... v
Introduction ................................................................................................................ 1
Background on Medicaid ............................................................................................. 2
Mandatory and Optional Medicaid Services ..................................................................... 2
Section 1115 Demonstration Waivers ............................................................................. 4
The Fiscal Problem ...................................................................................................... 6
Medicaid Financing ................................................................................................... 10
Federal Funding .......................................................................................................... 10
The FMAP in Dollars .............................................................................................. 11
Federal Funding Challenges .................................................................................... 14
Non-Federal Revenue Sources ..................................................................................... 15
Intergovernmental Transfers .................................................................................. 15
Certified Public Expenditures .................................................................................. 15
Provider Donations ................................................................................................ 15
Provider Taxes ...................................................................................................... 15
Legislative Appropriations to DCH ........................................................................... 20
HMO/PIHP Use Tax .......................................................................................... 20
Health Insurance Claims Assessment ................................................................. 20
Tobacco Tax .................................................................................................... 21
General Funds ................................................................................................. 21
Medicaid Expenditures .............................................................................................. 22
State Budget Overview ................................................................................................ 22
Expenditure Components ............................................................................................ 22
Health Plan Services .............................................................................................. 23
Medicare Premium Payments and Medicare Part D ................................................... 23
Hospital DSH ........................................................................................................ 24
All Long-Term Care ................................................................................................ 24
Affordable Care Act of 2010 ...................................................................................... 25
Maintenance of Effort Requirements ............................................................................. 26
Citizens Research Council of Michigan
i
CRC Report
Medicaid Cost Drivers ............................................................................................... 27
Enrollment Growth ...................................................................................................... 28
Case Mix .................................................................................................................... 29
Service Utilization ....................................................................................................... 30
Provider Reimbursement Rates .................................................................................... 31
FMAP ......................................................................................................................... 31
Policy Solutions ......................................................................................................... 33
I. Additional Medicaid Revenue Options ........................................................................ 33
Provider Taxes versus Broad-Based Taxes ................................................................ 34
Provider Taxes ................................................................................................. 34
Broad-Based Taxes ........................................................................................... 35
Local Revenues ..................................................................................................... 38
Other Revenue-side Considerations ......................................................................... 38
II. Expenditure-side Alternatives .................................................................................. 39
Benefit/Provider Changes ....................................................................................... 39
Eligibility changes ............................................................................................ 39
Elimination of optional benefits and programs .................................................... 40
Decrease Utilization/Increase Cost-sharing ......................................................... 41
Pharmaceutical Controls ................................................................................... 42
Provider payments ........................................................................................... 44
Benefit/Provider Change Considerations ............................................................. 46
Cost containment .................................................................................................. 47
Managed Care ................................................................................................. 47
Pharmaceutical Controls ................................................................................... 49
Program Integrity ............................................................................................ 50
Introduction of new programs and legislation ..................................................... 51
Market reforms and longer-term changes ........................................................... 52
Conclusion ................................................................................................................. 56
Appendix A Michigan’s Special and Creative Financing Practices ........................... 57
Appendix B Summary of State Provider Taxes ........................................................ 61
Appendix C Covered Services, Enhanced Services, and Services Covered
Outside of Contract Terms and Conditions of Health Plan
Contractor, State of Michigan .............................................................. 71
ii
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDIC
AID
EDICAID
FUNDING AND COST GROWTH
Charts
Chart 1
Chart 2
Chart 3
Chart 4
Chart 5
Chart 6
Chart 7
Major Budget Area Share of Total State Spending from State Resources,
FY2002 and FY2012 ....................................................................................................... 7
Own-Source Medicaid Revenues by Source as a Percent Share, FY2002 to FY2012 ............ 21
Medicaid Spending as a Percent of Total and General Fund Michigan Spending,
FY1999-2012 ............................................................................................................... 22
Total Medicaid Enrollment, Year-over-Year Percent Change Michigan compared to U.S.
and Great Lake States Averages, June 2001 to June 2010 ............................................... 28
Distribution of Medicaid Enrollees in Michigan by Enrollment Group, FY2008 ..................... 29
Distribution of Medicaid Payments in Michigan by Enrollment Group, FY2008 .................... 29
QAAP Provider Increases and State GF/GP Savings Trends .............................................. 59
Tables
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
1
2
3
4
5
6
7
8
9
10
Table 11
Table 12
Table 13
Table 14
Table 15
Table 16
Table 17
2011 Health and Human Services Poverty Guidelines or Federal Poverty Level .................... 3
Michigan Medicaid Income Eligibility by Age and Status, 2011 as a percent of FPL .............. 4
State Spending from State Sources Compared to Selected Budget Areas, Nominal and Real ... 6
Michigan State’s Expenditure Related Indicators ............................................................... 7
Average Annual Growth in Medicaid Spending, FY1990 - FY2009 ....................................... 8
Federal Medical Assistance Percentage (FMAP) for Medicaid ............................................ 10
FMAP Changes in Michigan versus United States Average, FY1969-2012........................... 11
Predicted Impact of 5%, 15%, and 33% Federal Spending Cuts on Michigan.................... 13
Provider Tax Assessments by State, Great Lakes Region .................................................. 18
Line Item Appropriations for Michigan Medicaid as a Percent of
Total Medicaid Appropriations, Fiscal Year 2012 .............................................................. 23
Michigan Medicaid Cost per Client, Utilization, and Spending by Service Category, FY2008 .... 30
Examples of Guidelines for the Maximum Allowable Copayments ..................................... 41
Maximum Allowable Drug Copayments by Family Income ................................................ 42
Pharmacy Cost Containment Actions Taken in FY2010 and FY2011 .................................. 43
Medicaid Physician Fees: Cumulative Percentage Change in Medicaid Fees
by Type of Service, 2003-2008 ...................................................................................... 44
Medicaid Physician Fee Index, 2008 .............................................................................. 45
Medicaid Physician Fees: Medicaid-to-Medicare Fee Index, 2008 ...................................... 46
Figures
Figure 1
Michigan’s Use of IGTs ................................................................................................. 57
Citizens Research Council of Michigan
iii
CRC Report
iv
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDIC
AID
EDICAID
FUNDING AND COST GROWTH
Executive Summary
Medicaid is a public health insurance program for
low income children and adults that is financed by
the state and federal governments. As of Fiscal Year
2012, Medicaid spending consumed nearly 15 percent
of total state own-source revenues (revenue
generated by taxes and fees levied by Michigan).
This share has grown five percentage points over
the previous decade and when combined with
Michigan’s decade long recession, is squeezing out
appropriations for other state programs.
The
fundamental challenge for policymakers is that there
is a structural imbalance between Medicaid’s revenue
base and expenditure growth rate.
There are several factors driving Medicaid cost
growth. First, Michigan’s enrollment increased nearly
60 percent between 2001 and 2010, with accelerated
growth of up to 11 percent per year during the most
recent national recession. Second, the type of cases
and the changing case mix influence costs. The
elderly and disabled Medicaid populations make up
approximately one quarter of enrollees but over 60
percent of all Medicaid payments are made on their
behalf. Third, the utilization rate of high cost services
drives cost growth. For example, nursing facility
services are consumed by less than 3 percent of
Medicaid enrollees but due to the high cost of these
services, make up 16 percent of total spending. In
contrast, health plan services are utilized by nearly
80 percent of Medicaid clients and consume 50
percent of the budget. Fourth, states determine,
with approval from the federal government, the
amount they will reimburse health care providers
for services rendered to Medicaid patients. As this
rate grows, so do overall state costs. The final factor
in Medicaid cost growth is the rate at which the
Chart 1
Major Budget Area Share of Total State Spending from State Resources, FY2002 and FY2012
Community Colleges
Major Budget Area
Other Community Health
Revenue Sharing
Human Services
Higher Education
Corrections
Medicaid
K-12 School Aid
All Other Programs
0%
5%
10%
15%
20%
FY2002
25%
30%
35%
40%
45%
50%
FY2012
Source: Senate Fiscal Agency. “State Spending from State Resources Appropriations: Total Compared to Selected Budget Areas.”
September 7, 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf
Citizens Research Council of Michigan
v
CRC Report
the law that currently constrains states’ ability to
make changes to its Medicaid program is the
maintenance of effort requirement. This
requirement, with few exceptions, does not allow
states to reduce eligibility or to change benefits in
such as way that it indirectly reduces eligibility. The
ACA also adds many new mandates including the
expansion of Medicaid to individuals and families with
incomes below 133 percent of the federal poverty
level. The cost of this mandate to states will be
minimal through 2019 and will be 10 percent of the
cost of this population thereafter. States will also be
responsible for setting up a health insurance
exchange and may optionally expand other Medicaid
programs, often with federal financial assistance and
matching grants.
federal government reimburses states for Medicaid
expenditures.
Since fiscal year 2002, total own-source state
spending has declined by 15.6 percent when
adjusted for inflation. In contrast, Medicaid
spending, which is appropriated to the Department
of Community Health, has increased 29.5 percent
and as a percent of the entire budget has grown
from 9.9 percent to 14.8 percent over the same
period. Consequently, Medicaid has been crowding
out allocations to other state programs; spending
for human services, K-12 school aid, and community
colleges have all declined by over 20 percent when
adjusted for inflation. Higher education and
revenue sharing to local governments received over
45 percent fewer appropriations in FY2012 than in
FY2002. (See Chart A.)
The federal government’s share of Medicaid costs in
each state is determined by a formula based on a
state’s per capita income relative to the national
average. This can change annually and may range
from 50 percent to 83 percent of state Medicaid costs.
In FY2012 the federal government’s share of
The federal Patient Protection and Affordable Care
Act (ACA), signed into law in March 2010, contains
many changes that may impact state Medicaid
budgets both before and after the act’s official start
date of January 1, 2014. The major component of
24.5%
27.5%
33.3%
4.7%
22.5%
45.3%
21.0%
45.2%
20.5%
21.8%
2007
20%
44.4%
2006
61.9%
66.8%
2004
67.6%
62.8%
2003
57.3%
59.4%
66.7%
30%
9.4%
8.8%
50%
40%
29.9%
13.0%
25.1%
10.2%
23.0%
27.4%
26.7%
12.8%
3.9%
37.4%
6.5%
60%
15.3%
70%
10.5%
80%
34.1%
90%
32.9%
100%
19.5%
Chart B
Own-Source Medicaid Revenues by Source as a Percent Share, FY2002 to FY2012
2011
2012
10%
0%
2002
2005
2008
2009
2010
Fiscal Year End
GF/GP Exp
QAAP
Use Tax
Other Rev
Source: Data calculated from Senate Fiscal Agency documents
vi
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Medicaid in Michigan is 66.1 percent of total qualified
expenditures.
States have several options in financing their own
share of the Medicaid program. Main financing sources
include taxing healthcare providers within federally
allowable classes and legislative appropriations to the
state Medicaid agency (Department of Community
Health in Michigan). Michigan has several earmarked
revenue sources such as a percentage of the tobacco
tax, expansion of the Use Tax base to Medicaid Health
Maintenance Organizations and Prepaid Inpatient
Health Plans (to expire in March 2012), and since
January 2012, a new health insurance claims
assessment. Even with these various sources,
Michigan appropriated 45.3 percent of its own-source
Medicaid revenues from general fund, general purpose
dollars. (See Chart B.)
Michigan spends over 80 percent of Medicaid
appropriations on physical health and the remainder
on community mental health services. Nearly 35
percent of all expected expenditures in FY2012 are
for health plan services. An additional 20 percent is
spent on long-term care. A variety of other benefits
that are paid for on a “fee-for-service” basis including
hospital, physician, home health, hospice, and dental
services, make up a high portion of the remaining
expenditures. A continual issue is the high cost of
certain services, especially those that service a small
portion of the Medicaid population. For example,
nursing facility services serve only 2.6 percent of
the Medicaid population, but because these services
are treating the sickest and most medically needy,
costs are higher; over 15 percent of total spending
goes to this service.
The state has two options to reduce the skewing of
funding toward Medicaid: raise additional revenue
or reduce expenditures. Revenue options include
increasing the provider tax collections to the
maximum federally allowed or appropriating
additional general fund, general purpose funds to
Medicaid. To increase general fund revenues, the
state can increase its broad-base tax collection
through changes to the income or sales taxes. The
state can also reassess its tobacco tax rates, as well
as those from several other federally permissible
sources of Medicaid revenue. However, there is no
one method or combination of revenue strategies
that will enable Medicaid revenues to grow at the
same rate, or higher than, the Medicaid cost growth
rate. Therefore, expenditure-side solutions are also
necessary.
On the expenditure side, two categories of solutions
may ease the structural Medicaid budget imbalance.
The first category of solutions directly impacts
beneficiaries and providers by either limiting optional
benefits, adding or increasing benefit cost-sharing,
or shifting the burden to providers by enacting higher
provider tax rates or lower provider payments.
The second category of solutions contain costs
through process and programmatic efficiencies and
may not result in immediate budgetary relief but are
expected to produce long term declines in the
expenditure growth rate. These solutions include
expanding managed care to populations currently
ineligible for this service and introducing new or
expanding current pharmaceutical controls such as
preferred drug lists and mandatory generic
substitution. The state can also ramp up efforts to
decrease Medicaid fraud and abuse and the recovery
rate of these funds. The state may also introduce
new programs designed to improve overall health,
consequently reducing health care costs in the future.
And finally, there are many technology tools that
may help reduce costs through process efficiencies,
paperwork reduction, and program monitoring.
The scale of the problem surrounding health care
cost growth necessitates a broad solution. Many of
the strategies discussed in this paper treat the
symptoms and not the underlying problem. The
solution to this issue will need to be solved nationallywith the federal and state governments working
cooperatively and potentially allowing states greater
flexibility in providing health care using the
techniques that best serve their unique populations.
Healthcare outcomes should be the focus, not solely
the methods for delivery. Given flexibility, states
have already shown great capability to find
innovative, cost-saving solutions to health care
delivery.
Citizens Research Council of Michigan
vii
CRC Report
viii
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDIC
AID
EDICAID
FUNDING AND COST GROWTH
Since 1966, Michigan has provided health insurance
percent. Consequently, Medicaid has effectively
to low income children and adults through its statecrowded out appropriations to revenue sharing for
operated Medicaid program. Medicaid services and
local governments (-47.0 percent), higher education
other programs serving low income or unemployed
(-45.4 percent), community colleges (-25.7 percent),
residents have been in high demand since 2001,
human services (-21.3 percent), and K-12 school aid
when Michigan slipped into a recession. The combi(-21.2 percent).
nation of increased demand and declining state reTo address Medicaid’s structural imbalance, where
sources has caused Medicaid costs to assume a larger
cost growth consistently outpaces revenue base
share of the total state and general fund budgets.
growth, state policymakers have
Medicaid spending has been rising
faster than the growth in the tax Medicaid spending has two options: raise revenues or reduce spending. Options Michigan
base used to support it by a sigbeen
rising
faster
than
the
policymakers might consider to innificant margin and is projected to
continue at this unsustainable rate growth in the tax base used crease revenues available to the
through the foreseeable future.
to support it by a significant Medicaid program include expanding existing taxes on certain types
Medicaid spending increases are margin and is projected to of health care providers, increastriggered by a growing eligible continue at this unsustain- ing the tobacco tax, increasing
population, rising service utiliza- able rate through the fore- general fund, general purpose suption, and changes in the rates paid
port, or requesting or requiring
seeable future.
to Medicaid providers. Other pocontributions from local units of
tential pressures on the state’s
government. Medicaid spending
share of its Medicaid budget come
reduction options include those
from the federal government, which is threatening
that impact the welfare of Medicaid recipients and
to reduce its share of Medicaid financing. Federal
providers, such as cost-sharing and provider reimlegislators have proposed a variety of strategies for
bursement rate reductions, and those that do not,
reducing Medicaid costs such as converting it to a
such as managed care expansion and fraud reducblock grant or reducing the provider rate cap and
tion. Because the Medicaid system is unsustainable
therefore limiting federal match money available to
in its current form, neither of these solutions will
the states. The Affordable Care Act of 2010 will also
provide a long-term financial solution but may enimpact future eligibility, benefits, and federal costsure greater balance among budget areas.
sharing.
Medicaid financing exposes the tension between the
Despite a decade of financial decline, Michigan has
growing fiscal pressures on both the state and fedpreserved most Medicaid eligibility and benefits, and
eral governments and the desire and responsibility
while this has ensured health care access for low
that many feel for providing health care to society’s
income individuals and families, the result has been
most vulnerable individuals. This paper presents
detrimental to other Michigan programs. Growing
government financial information and to remain withMedicaid costs are squeezing out other budget items
in scope, it largely ignores the potential impacts these
leading to a non-deliberate prioritization of Medicbudgetary changes may have on those who depend
aid above other state funded programs. While real
on Medicaid for some of their most basic needs.
total state spending from state resources declined
These are not insignificant yet are only briefly dis15.6 percent since Fiscal Year 2002 (FY2002), real
cussed within this paper.
own-source spending for Medicaid increased by 29.5
Citizens Research Council of Michigan
1
CRC Report
Background on Medicaid
Medicaid is a government operated medical insurance program for low income individuals and families that is co-financed by the state and federal governments. Medicaid was authorized in 1965 as part
of the Social Security Act, Title XIX. The program is
entirely state operated, but there is federal oversight through the Department of Health and Human
Services’ Centers for Medicare and Medicaid Services (CMS). A state’s role is outlined in its “state plan”
which must be approved by the CMS. The federal
government sets minimum standards for eligibility
and benefits, as well as regulations regarding financing, service delivery, reimbursement rates and most
other facets of the program.
All states voluntarily participate in the Medicaid program; the last state to opt in was Arizona in 1982.
Michigan began its Medicaid program in 1966 and
has since expanded eligibility and benefits considerably beyond the floors set by the federal government.
Mandatory and Optional Medicaid Services
The state must meet minimum eligibility and service
mandates to be reimbursed by the federal government for Medicaid services. The three basic groups
of low income eligible recipients are (1) families with
children, (2) the elderly (often referred to as dualeligibles because they are also enrolled in Medicare),
and (3) the disabled. As of late 2011, the mandatory Medicaid eligibility groups include:
• Families with children with income below the state’s
cutoff for the Temporary Assistance for Needy Families (TANF) program (referred to as the Family Independence Program (FIP) in Michigan)1
• Supplemental Security Income (SSI) recipients
2
•
•
•
•
•
Infants born to Medicaid-eligible pregnant women
Children aged 6 and younger in families that are
at or below 133 percent of the federal poverty
level (FPL)
Pregnant women at or below 133 percent of the
FPL
Recipients of foster care and adoption assistance
Some income and asset eligible Medicare recipients2
States are required to provide a variety of benefits
to all eligible recipients. These benefits include:
• Physician services
• Nursing facility services for individuals 21 or older
• Inpatient and outpatient hospital services
• Prenatal care
• Vaccinations for children
• Family planning
• Nurse-midwife services
• Laboratory and x-ray services
• Home health care for eligible persons
• Pediatric and family nurse practitioner services3
States have the option of expanding eligibility requirements beyond mandated levels. Many states
choose to cover children and parents above mandatory coverage limits, disabled and elderly persons
with income above 100 percent of the FPL, pregnant woman above 133 percent of the FPL, certain
working disabled and others. Some individuals and
families above the income and asset limitations may
be eligible if their medical expenses reduce their incomes to a level that would otherwise qualify (called
the Medicaid spend-down).
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Federal Poverty Level (FPL)
Eligibility for Medicaid is based on what is commonly referred to as the federal poverty level (FPL) that is determined by the Federal Poverty Guidelines as calculated by the U.S. Department of Health and Human Services. In
addition to Medicaid, the FPL is used to determine eligibility for a variety of federal programs such as Head Start,
the Food Stamp Program, and the Children’s Health Insurance Program. The guidelines change every year and
are valid for the year in which they are issued.
In 2012, a four-person family in Michigan would be at 100 percent of the FPL with an income of $23,050,
qualifying the entire family for Medicaid services (See Table 1). If instead the family’s income was $30,657 (133
percent of the PFL), the children would qualify for insurance through Medicaid but the parents may not if the
income eligibility has not been raised by the state in which they live. However, federal guidelines allow for a
window where individuals and families may still qualify for Medicaid if their income is within 5 percent of the
stated upper limit (called the income disregard). For example, if the state cutoff for Medicaid eligibility is 150
percent of the FPL, the effective cutoff rate is actually 155 percent of FPL, presumably to be sensitive to borderline eligibles and possible income accounting errors.
Table 1
2011 Health and Human Services Poverty Guidelines or Federal Poverty Level*
Persons
in Family
1
2
3
4
For each additional
person, add
48 Contiguous
States and D.C.
$11,170
$15,130
$19,090
$23,050
$3,960
133% of
FPL
$14,856
$20,123
$25,390
$30,657
—-
150% of
FPL
$16,755
$22,695
$28,635
$34,575
—-
185% of
FPL
$20,665
$27,991
$35,317
$42,643
—-
* Hawaii and Alaska have different FPL guidelines than the other states.
Source: Department of Health and Human Services
Citizens Research Council of Michigan
3
CRC Report
Table 2 shows income eligibility for Medicaid in Michigan. The state has opted to expand benefit eligibility to infants, children,
and pregnant women with incomes at a
higher percent of the FPL than federally
mandated.
Table 2
Michigan Medicaid Income Eligibility by Age and
Status, 2012 as a percent of FPL
Category
Income Eligibility
Infants Ages 0-1
185%
Children Ages 1-19
150%
Adults – Working, w/children
64%
Adults – Jobless, w/ children
37%
Adults – Working, Childless
35%*
Pregnant Women
185%
Aged, Blind, and Disabled
100%
States have the flexibility to fund optional
benefits such as prescription drug coverage,
rehabilitation, physical and occupational
therapies, dental and vision services, hospice care and others. Optionally covered
benefits must be offered to both the mandatory and optional eligibility groups. Mich*Enrollment is closed
igan has been generous in providing nonSource: The Kaiser Family Foundation
mandated services to Medicaid enrollees. Of
30 optional services from the Kaiser Family
Foundation’s Medicaid benefits online dataoften cover demonstration projects related to the
base,4 Michigan offers 23 to its beneficiaries. These
expansion of managed care, eligibility expansion with
include rehabilitation, chiropractor,
limited benefits, reducing costs to
dental, optometrist, podiatrist, hosaddress budget deficits, and expice, and personal care services. Of 30 optional services from
panding limited coverage to lowOptional coverage is also broad- the Kaiser Family Foundincome adults (such as the Adult
ened to include coverage for preation’s Medicaid benefits Benefits Waiver in Michigan).
scription drugs and devices such
as eyeglasses, dentures, hearing online database, Michigan There are two types of Section
aids, and prosthetic and orthotic offers 23 to its beneficiaries. 1115 demonstration waivers. The
devices.
first allows the Secretary to waive
Section 1115 Demonstration Waivers
The CMS allows for flexibility and innovation in Medicaid service and delivery through the use of Section
1115 Demonstration waivers. These waivers are
completed by states and must be approved by the
CMS before states can begin action. Section 1115
waivers refer to Section 1115 of the Social Security
Act and allow the Secretary of Health and Human
Services, through the CMS, to authorize pilot or experimental projects that further promote Medicaid
objectives through the use of policies or approaches
that have not yet been demonstrated and may not
otherwise be allowed. Projects submitted under this
waiver may include expansions in eligibility and benefits not otherwise covered, new service delivery
systems, cost-sharing, and provider payments. They
4
certain provisions to operate demonstration programs and the second allows matching grants for costs that otherwise would not be
matched. The demonstration projects are typically
approved and allowed to operate for a five-year period, with allowances for renewals, and must be
budget-neutral; the new program or system cannot
cost the federal government more than it would have
cost without the waiver.5 The federal government
achieves this by instituting a cap on federal funds
over the life of the waiver that forces the state to
bear the risk of any additional costs. In 2011, the
federal government supported one or more waivers
in each of 30 states and the District of Columbia
causing the federal government to spend an estimated $54.6 billion or 20 percent of federal Medicaid spending.6
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Michigan’s Medicaid Programs
The following are mandatory and optional programs provided through Michigan’s Medicaid program as of July 2011:
• Healthy Kids. A program for low-income children under 19 years of age and pregnant women.
• MIChild. This extends health insurance to uninsured children under age 19, in low income, working families.
There is a $10 monthly premium per family for this service and it includes vision, dental and mental health
services.
• Children’s Special Health Care Services (CSHCS). Provides medical coverage to some children and adults
with special qualifying medical care needs.
• Under 21. Extends Medicaid to income and asset eligible persons under age 21. Health care benefits include
vision, dental and mental health services.
• Supplementary Security Income (SSI). Beneficiaries of this cash benefit for disabled children and aged, blind
or disabled adults are automatically eligible for Medicaid. Health care benefits include vision, dental and
mental health services.
• Special Disabled Children. Extends insurance to children who received SSI benefits on August 22, 1996,
provided that the child meets current SSI income and asset requirements and has a qualifying disability.
• Healthy Kids for Pregnant Women. Available to an income eligible pregnant woman during pregnancy and for
two calendar months following the month her pregnancy ends.
• Group 2 Pregnant Women. A program available to women whose income exceeds the maximum required to
participate in Healthy Kids for Pregnant Woman. Eligible women are assigned a deductible.
• Maternity Outpatient Medical Services (MOMS). Provides outpatient prenatal coverage to pregnant women
who need immediate health coverage and whose Medicaid application is pending. Other participants in this
program may include pregnant teens who do not apply for Medicaid due to confidentially concerns and noncitizens who are eligible for emergency services only.
• Medicare Savings Program (MSP). This program pays for certain eligible Medicare costs such as premiums,
coinsurance, and deductibles. There are asset and income qualifications.
• Adult Benefits Waiver (ABW), a.k.a. Adult Medical Program (AMP). Provides limited coverage to low income,
childless adults.
• Caretaker Relatives. Makes Medicaid insurance available to eligible parents and caretakers who care for a
dependent child. There are income and asset qualifications. Health care benefits include vision, dental and
mental health services.
• Aged, Blind, Disabled. Provides Medicaid benefits to persons who are aged, blind, or disabled. Health care
benefits include vision, dental and mental health services.
• Disabled Adult Children (DAC). Extends Medicaid to adults who had a disability or blindness prior to age 22.
Health care benefits include vision, dental and mental health services.
• MIChoice. Provides home and community based health care for aged and disabled persons. The cost of
home care must be less than that in a nursing home.
• Low Income Families. Provides Medicaid insurance to families in the Low Income Families (LIF) program.
Health care benefits include vision, dental and mental health services.
• Special N Support. This program provides insurance to families who have previously received LIF Medicaid or
cash assistance but no longer meet the income requirements because they receive child support payments.
Medicaid is available for 4 months.
• Transitional Medical Assistance. Available to families that have received LIF Medicaid or cash assistance in at
least 3 of the last 6 months but are no longer eligible for either because of increased income. Medicaid
insurance is available for up to 12 months.
• Plan First! Family Planning Program. Family planning services offered to women who do not meet the income
requirements for Medicaid but would if they became pregnant.
Source: Michigan Department of Community Health. Health Care Programs Eligibility. Accessed on July 28, 2011.
www.michigan.gov/mdch/0,1607,7-132-2943_4860-35199—,00.html
Citizens Research Council of Michigan
5
CRC Report
The Fiscal Problem
In the decade covering FY2002 through FY2012,
icantly over the period due mostly to Medicaid; excluding Medicaid, other community
Michigan’s own-source spending
remained relatively flat, and most
expenditures still grew 87.7
Adjusting for the effects of health
percent. Adjusting for the effects
funding categories received less
in FY2012 than they had in inflation shows that real of inflation, real total own-source
FY2002. Revenue sharing to lo- total own-source state state spending declined 15.6 percal governments declined by 36.8 spending declined 15.6 per- cent and only community health
percent and appropriations to
had real budget increases (34.0
cent and only community percent) due to higher Medicaid
higher education declined by 34.9
percent. The only budget areas health saw real budget in- appropriations (29.5 percent); oththat grew over the decade were creases due to higher Med- er community health appropriations
community health (59.8 percent) icaid appropriations.
grew 57.4 percent. Table 3 shows
state spending for major budget arand corrections (16.6 percent).
Community health, the budget
eas in FY2002 and FY2012 (nomiarea that receives Medicaid allocations, grew signifnal and real spending). The related indicators (See
Table 3
State Spending from State Sources Compared to Selected Budget Areas, Nominal and Real
(Dollars in Millions)
Budget Area
Medicaid
Other Community Health
Corrections
Human Services
K-12 School Aid
Community Colleges
Higher Education
Revenue Sharing
All Other Programs
FY2002
$2,571.3
$494.8
$1,653.0
$1,230.1
$11,220.6
$320.2
$1,940.9
$1,517.3
$5,138.6
FY2012
$3,972.2
$928.8
$1,927.2
$1,155.3
$10,550.2
$283.9
$1,264.0
$959.0
$5,219.2
FY2012
(2002 $)
$3,330.3
$778.7
$1,615.6
$968.5
$8,844.6
$238.0
$1,059.7
$804.0
$4,375.4
Total State Spending
$26,086.8
$26,259.8
$22,014.4
Nominal
Percent
Change
54.5%
87.7%
16.6%
-6.1%
-6.0%
-11.3%
-34.9%
-36.8%
1.6%
Real
Percent
Change
29.5%
57.4%
-2.3%
-21.3%
-21.2%
-25.7%
-45.4%
-47.0%
-14.9%
0.7%
-15.6%
Source: Senate Fiscal Agency. “State Spending from State Resources Appropriations Total Compared to Selected Budget
Areas.” October 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf
Note: Other Community Health includes all department expenditures except for those for Medicaid. Inflation adjusted
appropriations were calculated using the Detroit Consumer Price Index.
6
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Table 4
Michigan State’s Expenditure Related Indicators
Related Indicators:
Medicaid Caseload
Prison Population
K-12 Pupil Count
University Students
Community College Students
Michigan per Capita Income
Detroit Consumer Price Index
FY2002
1,211,816
47,270
1,647,459
241,205
116,802
30,193
178
FY2012
1,920,000
43,455
1,552,300
262,615
177,277
35,597*
207
Percent Change
58.4%
-8.1%
-5.8%
8.9%
51.8%
17.9%
16.8%
*2010 per capita income not adjusted for inflation
Source: Senate Fiscal Agency. “State Spending from State Resources Appropriations Total Compared to Selected Budget
Areas.” October 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf
Table 4) show that for the most part, despite declining budgets, demand for associated services has
increased. Community colleges endured a real budget decline of 25.7 percent yet enrollment increased
51.8 percent over the same period. Only Medicaid
saw appropriation changes (29.5 percent) nearing
caseload changes (58.4 percent).
Because real total own-source state spending fell
15.6 percent between FY2002 and FY2012 and Medicaid appropriations grew nearly 30 percent, Medicaid’s share of the state budget also grew larger. In
FY2002 Medicaid’s share of total own-source funding was 9.86 percent and it grew to 14.75 percent
by FY2012. These figures are shown in Chart 1
Chart 1
Major Budget Area Share of Total State Spending from State Resources, FY2002 and FY2012
Community Colleges
Major Budget Area
Other Community Health
Revenue Sharing
Human Services
Higher Education
Corrections
Medicaid
K-12 School Aid
All Other Programs
0%
5%
10%
15%
20%
FY2002
25%
30%
35%
40%
45%
50%
FY2012
Source: Senate Fiscal Agency. “State Spending from State Resources Appropriations: Total Compared to Selected Budget
Areas.” September 7, 2011. www.senate.michigan.gov/sfa/StateBudget/TotalStateSpending_Comparison.pdf
Citizens Research Council of Michigan
7
CRC Report
where Medicaid is broken out as a component of the
community health budget area.
Table 5 compares annual growth in Medicaid spending over four different time periods between 1990
and 2009. Spending in Michigan grew at a slower
rate than the rest of the country for all periods except for FY2004 through FY2007. The low annual
growth rate between FY2001 and FY2007 is most
likely attributable to Michigan’s single-state recession. During this time the state took several cost
containment measures. The other Great Lake states
had average spending growth rates of 10.2 percent
for FY1990-FY2001, 8.6 percent for FY2001-FY2004,
3.8 percent for FY2004-FY2007 and 7.1 percent for
FY2007-FY2009. Michigan was near its regional average for all time periods except FY2001-FY2004,
where its growth rate of 4.5 percent was nearly half
of the regional average.
The Great Recession brought company to Michigan’s
lonely one-state recession: The National Governors
Association and The National Association of State
Budget Officers’ Spring 2011 Fiscal Survey of States
revealed that while state budgets improved from
FY2009 and FY2010, revenues still lagged behind
FY2008 levels. Nearly 60 percent of states reported
reduced general fund spending from FY2008. General fund expenditures in FY2012 are expected to
be higher than FY2011, but still $18.7 billion less
than FY2008. And even though revenue rose modestly in FY2011 and is expected to in FY2012 as well,
states have had to account for the impact of the
elimination of billions of dollars in funding from the
American Recovery and Reinvestment Act of 2009
(ARRA) when finalizing FY2012 budgets. After relying on budget stabilization funds and the introduction of $13.8 billion in new net taxes and fees for
FY2012, governors are turning to budget cuts in areas such as higher education, public assistance, and
K-12 education. The Fiscal Survey of States estimates that Medicaid accounts for 22 percent of total
national state spending in FY2010, making it the
receiver of the largest portion of funding.7
The legal framework of the Social Security Act and
the new requirements in the Affordable Care Act
(ACA) somewhat constrain the ability of states to
make cuts to Medicaid to address budget concerns.
For example, the Social Security Act requires that in
general, the same benefits must be made available
to both the mandatory and optional eligibility groups.
The federal Deficit Reduction Act of 2005 granted
states more options to impose premiums and cost
sharing, though with some limits and exceptions.
Individuals and families in the optional Medicaid
population (higher income brackets) may be subject
to a premium or deductible payment for a service
that a mandatorily eligible individual or family may
receive at no cost. Currently there are some asset
Table 5
Average Annual Growth in Medicaid Spending, FY1990 - FY2009
Michigan versus United States Average and States in the Great Lakes Region
United States
Michigan
Illinois
Indiana
Minnesota
Ohio
Pennsylvania
Wisconsin
FY 1990-2001
10.9%
FY 2001-2004
9.4%
FY 2004-2007
3.6%
FY 2007-2009
7.1%
9.7%
4.5%
3.9%
6.9%
11.1%
9.6%
9.3%
9.2%
12.4%
9.5%
8.7%
6.6%
13.1%
11.1%
8.9%
3.6%
7.6%
1.3%
3.2%
3.7%
3.9%
3.2%
1.9%
7.4%
9.2%
3.8%
4.0%
16.4%
Source: The Kaiser Family Foundation
8
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
nates, enrollment growth will continue. If all factors are left unchecked, Michigan’s Medicaid program
will increasingly crowd out other programs. State
and federal policymakers need to
are left un- find an effective solution to
healthcare delivery that results in
And it is with this backdrop that checked, Michigan’s Medic- conservative and predictable cost
the urgency of Medicaid revenue aid program will increas- growth, efficient delivery of servicand spending reform is revealed. ingly crowd out other es, and quality healthcare as meaThere is a structural imbalance
sured by health outcomes. Until a
between Medicaid cost growth and programs.
national solution is reached state
the revenue base. There are no
policymakers can utilize many tools
indications that cost growth will
to abate Medicaid spending. This paper addresses
slow on its own and as the nation’s economy stagmany revenue and expenditure side solutions.
restrictions for mandatory populations. However,
those will be eliminated by the federal ACA by 2014,
and only an income eligibility requirement will remain, further growing the Medicaid eligible population.
If all factors
Citizens Research Council of Michigan
9
CRC Report
Medicaid Financing
There are two major categories for financing Medicaid: federal funding and own-source state funding.
Federal Funding
The Social Security Act outlines the formula used to
calculate the federal government’s portion of Medicaid’s costs, called the federal medical assistance
percentage (FMAP). The formula permits the federal government to provide matching funds based on
a state’s average per capita income relative to the
national average.8 By statute the FMAP can range
from 50 percent to 83 percent; the federal government pays for at least half the cost of Medicaid in
every state. Each state is responsible to reimburse
its qualified providers for the covered Medicaid services supplied to eligible populations and then submit a claim to the federal government to receive the
matching funds.
The federal government has a history of adjusting
the FMAP during difficult economic times to further
assist states with cost-sharing. During the economic downturn in 2003 and 2004, the federal government increased the Medicaid match rate for all states,
which gave an additional $312.2 million to Michi-
gan. Similarly, in 2009 enhanced matching funds
were included with the passage of the ARRA. An
FMAP increase of 6.2 percentage points was effective from October 2009 through December 2010
along with a small unemployment adjustment. In
August 2010, the federal government extended this
base increase but at a lower rate of 3.2 percentage
points through March 2011 and then at a rate of 1.2
percentage points from April to June 2011. All enhanced matching rates expired on June 30, 2011.
Michigan’s original FMAP share was 63.2 percent in
FY2010 and then grew to 75.6 percent in the first
quarter of FY2011 with the ARRA enhancements.
Michigan’s FMAP for FY2012 (i.e., first full fiscal year
without any rate enhancement) is 66.1 percent.
Table 6 shows the FMAPs for Medicaid in Michigan
and the states in the Great Lakes region. The U.S.
figure shown is the national minimum, which increased in FY2009 and FY2010 because of the ARRA
enhancements. Because the fiscal years do not
necessarily correspond with the dates when the enhancements were passed, the numbers in the table
do not align precisely with Michigan’s FMAPs as described above. The table, however, provides comparable data between Michigan and its region.
Table 6
Federal Medical Assistance Percentage (FMAP) for Medicaid
Michigan versus United States and Average of Great Lakes Region
FY2004 FY2005 FY2006 FY2007 FY2008
50.0%
50.0%
Michigan
58.8% 56.7% 56.6% 56.0% 58.1%
70.7% 73.3% 65.8%
66.1%
Illinois
Indiana
Minnesota
Ohio
Pennsylvania
Wisconsin
53.0%
65.3%
53.0%
62.2%
57.7%
61.4%
61.9%
74.2%
61.6%
72.3%
65.6%
69.9%
50.0%
67.0%
50.0%
64.2%
55.1%
60.5%
50.0%
63.0%
50.0%
59.9%
55.1%
57.7%
50.0%
50.0%
62.6%
50.0%
59.7%
54.4%
57.5%
50.0%
50.0%
62.7%
50.0%
60.8%
54.1%
57.6%
56.2%
56.2%
61.9%
75.7%
61.6%
73.5%
65.9%
70.6%
50.0%
50.2%
66.5%
50.0%
63.7%
55.6%
60.2%
*Represents the federal minimum
Source: The Kaiser Family Foundation, www.statehealthfacts.org/
profileind.jsp?cmprgn=1&cat=4&rgn=24&ind=184&sub=47
10
FY2012
United States*
50.0%
62.8%
50.0%
59.7%
53.8%
58.3%
50.0%
FY2009 FY2010 FY2011
Citizens Research Council of Michigan
50.0%
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
34.21 percent of all the eligible Medicaid expendiFY2011 data reflect FMAPs effective on July 1, 2011,
tures, while the federal government paid for the rewhen the ARRA funding expired. In the Great Lake
maining share, nearly a two-to-one match. This cost
states in 2011, Michigan had the second highest
sharing converted to a multiplier of 1.92, where for
FMAP after Indiana. Because per capita incomes
every $1.00 Michigan spent on its Medicaid program
have been declining in the Great Lakes region relathe federal government provided
tive to the rest of the country,
FMAPs in these states have been For every $1 that Michigan $1.92. Therefore, for every one
dollar that Michigan spent on Medincreasing since 1965; this contrasts with trends in the Southwest spends on Medicaid, the fed- icaid from own-source revenues it
and Southeast, where relative per eral government will match was able to provide $2.92 in medcapita incomes have risen and that spending with $1.95 for ical services to low income state
On the flip side, if the
those states’ FMAPs have dea total Medicaid investment residents.
state reduced its own-source exclined.9 Nationally, Mississippi had
the highest FMAP at 74.7 percent of $2.95 between the two penditures on Medicaid by one
dollar, medical services provided to
and Michigan ranked 15th. Fifteen governments.
low income residents would have
states, Guam, and Puerto Rico redeclined by a total of $2.92.
ceive the minimum FMAP of 50
percent.
The FY2012 FMAP for Michigan is 66.14 percent,
the highest it has ever received (with the exception
Since 1965, the average federal share of Medicaid
of boosts from federal stimulus spending). This
has been around 57 percent (excluding ARRA and
means that for every $1.00 that Michigan spends on
other temporary enhancements). According to a
Medicaid, the federal government will match that
report by the Kaiser Family Foundation, the strucspending with $1.95 for a total Medicaid investment
ture of the FMAP formula has resulted in a compresof $2.95 between the two governments.
sion of the overall rates where the highest FMAPs
have been shrinking
over time. 10 Unlike
most other states,
Table 7
Michigan’s FMAP has
FMAP Changes in Michigan versus United States Average, FY1969-2012
increased steadily over
FMAPs
Michigan United States
time resulting in a declining state share of
FY1969
50.00
61.33
Medicaid funding as
FY1979
50.00
59.10
shown in Table 7.
FY1989
54.75
60.74
While an increasing
FY1999
52.72
60.67
FMAP aids Michigan
FY2009
60.27
59.97
from a budgetary perFY2010
63.19
60.13
spective it is also indicFY2011
65.79
59.89
ative of the declining
FY2012
66.14
59.62
per capita income Michigan has endured in the
last decade.11
Percentage Point Change,
1969-2012
The FMAP in Dollars
State Share Percent Change,
1969-2012
Michigan’s FY2011
FMAP of 65.79 meant
that Michigan paid
Source: The Kaiser Commission on Medicaid and the Uninsured. An Overview of
Changes in the Federal Medical Assistance Percentages (FMAPs) for Medicaid. The
Kaiser Family Foundation: Publication #8210. July 2011.
16.14
-1.71
-32.28%
Citizens Research Council of Michigan
-—
11
CRC Report
The Multiplier Effect
Several studies quantify the positive effects of Medicaid spending on state economies. In January 2009, the
Kaiser Family Foundation released a review of 29 studies in 23 states regarding the impact of both the state and
federal share of Medicaid dollars.a These studies focus on the multiplier effect that occurs when spending is
repeatedly injected into the state economy. For example, when the state makes Medicaid expenditures to
qualified health care providers this directly affects health care services. Then there is an influx of new dollars
from the federal match, multiplying this impact at a rate dependent on the state’s FMAP. The employment,
income and state tax revenues generated from the flow of dollars to health care services is funneled to vendors
and then to the employees themselves who can spend this new income on consumer goods and services. Those
dollars continue to travel through the economy via spending on goods and services and taxes. However, it is the
inflow of money from outside the state that allows the economy to grow beyond its own means. This is shown
in the diagram below that has been excerpted from the Kaiser Family Foundation study.
Source: The Role of Medicaid in State Economies: A Look at the Research, (#7075-02), The Henry J.
Kaiser Family Foundation, January 2009.b
Some key findings of the Kaiser Family Foundation survey include:
• Medicaid dollars from the federal and state governments stimulate state-level economic activity such as the
creation of jobs, income and tax revenues.
• By adding new money to the state, federal Medicaid matching dollars are critical in generating economic
activity and multiplying its effects.
12
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
•
•
The magnitude of the economic impact from Medicaid spending is dependent upon the FMAP. The higher the
FMAP, the greater the multiplier effect.
If a state chooses to cut one dollar from its Medicaid program the entire state will lose at least two dollars
worth of economic activity (because of the minimum 50 percent FMAP).
Any reduction in Medicaid spending will adversely impact state-level employment, income and tax revenues.
A more recent study conducted by Families USA, a nonprofit healthcare consumer advocacy group, quantifies the
economic consequence from cuts in federal Medicaid financing.c Table 8 shows the predicted impact for Michigan based on three hypothetical cuts in federal spending on Medicaid: 5 percent, 15 percent, and 33 percent.
For instance, if the federal government cut spending by 5 percent the respective decline would be approximately
$862 million in business activity and 7,670 jobs in Michigan alone.
Table 8
Predicted Impact of 5%, 15%, and 33% Federal Spending Cuts on Michigan
Percent Cut
5%
15%
33%
Business Activity at Risk
$861,877,000
$2,585,630,000
5,688,385,00
Jobs at Risk
7,670
23,020
50,650
Source: Families USA. Jobs at Risk: Federal Medicaid Cuts Would Harm State Economies. June 2011.
The state level benefits from federal matching funds vary for several reasons. Individuals and businesses pay the
federal taxes that are redistributed among the states in the form of various grants including Medicaid (in FY2010,
Medicaid accounted for 40 percent of total grant funding received by states).d There are some states that receive
more money from the federal government per capita than they pay out (in individual and business taxes), thus
magnifying the multiplier effect in their state since there is real, new money in their state. Those states that pay
more per capita in federal taxes than the state receives back are essentially losing some of that economic activity.
In federal FY2010, the State of Michigan ranked 38th of the 50 states in the amount of per capita federal funds
that flowed to Michigan recipients, and 26th in the amount of per capita federal grants awarded to state and local
governments. This makes Michigan a net donor state in that the state paid more to the federal government than
it received back.e See CRC Report 348 for more information about federal expenditures in Michigan.
a
The Kaiser Commission on Medicaid and the Uninsured. The Role of Medicaid in State Economies: A Look at the Research.
The Kaiser Family Foundation. Publication 7075-02. January 2009.
This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation,
a leader in health policy analysis, health journalism and communication, is dedicated to filling the need for trusted, independent information on the biggest health issues facing our nation and its people. The Foundation is a non-profit private
operating foundation based in Menlo Park, California.
b
c
Families USA. Jobs at Risk: Federal Medicaid Cuts Would Harm State Economies. June 2011.
d
State Policy Reports. Vol. 29, Issue 10. May 2011.
United States Census Bureau. Consolidated Federal Funds Report for Fiscal Year 2010: State and County Areas. September
2011. www.census.gov/prod/2011pubs/cffr-10.pdf United States Census Bureau. Federal Aid to States for Fiscal Year 2010.
September 2011.
e
Citizens Research Council of Michigan
13
CRC Report
Federal Funding Challenges
As the federal government struggles to manage its
deficit and contain growing health care spending,
state governments may see a change in how the
federal government finances Medicaid. This change
may cap growth but may also immediately reduce
revenue for Medicaid, in which case states will need
to determine if they will proportionally make spending reductions to Medicaid or replace the lost revenue from other sources.
One proposal that is periodically introduced to contain federal spending is to convert the entitlement
programs into block grants. The federal government
currently has no limit on the amount of money it will
spend on programs such as Medicaid, Medicare, and
Social Security as long as the claims filed for those
dollars are valid and eligible. To curb spending in
this category, legislators, analysts, and watchdogs
have asked that these programs be converted to
block grants, one way the federal government currently transfers funds for other programs to state
governments and other entities. The federal block
grants, which are large sums of money that have
broad spending provisions, would likely have a builtin adjustor so that the amount the federal government distributes to states would keep up with spending growth rates. To some, this approach to cost
containment makes good financial sense, but it is
not popular among Medicaid advocates and some
others because of the chance that many otherwise
eligible individuals will not receive Medicaid insurance if the budgeted amount is not sufficient. This
could not only limit the number of Medicaid recipients, but it could also compromise the quality of
care by either reducing the number of services provided, or the reimbursement rate to providers thereby
lowering the number of providers willing to participate or the quality of care. According to a 2008
Health Tracking Physician Survey, 28 percent of U.S.
physicians do not accept Medicaid patients.12
Another cost reduction strategy discussed most recently during the federal debt ceiling, debt reduction debate in 2011, is to limit the amount of provider taxes that may be collected by states or limit the
amount the federal government will match state
14
expenditures from provider tax revenue sources (provider taxes are discussed in the “Provider Taxes”
section below). In his FY2012 budget, President
Obama recommended lowering the maximum provider tax rate allowed from 6 percent to 3.5 percent
beginning in FY2015, reducing the amount of revenue states could effectively collect from providers. 13
This alone would cut federal Medicaid spending by
$18.4 billion between FY2012 and FY2021 albeit
shifting the cost burden to the states.14
In 2008, the Congressional Budget Office published
a report outlining options for reducing federal spending on health care. The report identified ten costsaving strategies for Medicaid alone. These solutions included: converting acute care service
reimbursement into a block grant; removing or reducing the floor on FMAPs (set at 50 percent since
1965); limiting reimbursements for administrative
costs; reducing the taxes states are allowed to levy
on Medicaid providers; and other solutions dealing
with prescription drug rebates.15
The National Commission on Fiscal Responsibility and
Reform, a bipartisan group tasked by President
Obama to explore debt reduction solutions, published
The Moment of Truth in December of 2010. They
too looked at entitlement programs, such as Medicaid, to tease out long-term budget savings. This
commission, which identified health care spending
as, “our single largest fiscal challenge over the longrun,”16 made 19 recommendations for health care
savings, seven of which apply to Medicaid. The recommendations include: restricting provider tax revenue matching (saves $49 billion between 2015 and
2020); placing Medicaid eligible seniors currently
covered by Medicare in the Medicaid system (saving
$13 billion between 2015 and 2020); reducing funding for Medicaid administrative costs (saving $2.26
billion between 2015 and 2020); allowing expedited
application for Medicaid waivers in well-qualified
states (gives flexibility to states to control costs and
improve quality); reforming the medical malpractice
system (saving $19 billion between 2015 and 2020
for all health care programs); and establishing a global budget for total health care costs and limiting
the growth to GDP plus one percent.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Non-Federal Revenue Sources
The federal government limits how states may collect own-source Medicaid revenues. The permissible sources for non-federal public funds are intergovernmental transfers, certified public expenditures,
provider donations, permissible provider taxes, and
legislative appropriations to the state Medicaid agency (Department of Community Health in Michigan).
Current law stipulates that states’ share of Medicaid
expenditures must be from public funds17 and that
no more than 60 percent of the total state share
may come from local funds.
Intergovernmental Transfers
An intergovernmental transfer (IGT) is the exchange
of public funds between public entities. Many states
utilize IGTs through local government matching requirements in order to raise Medicaid funds. Michigan does not require local government Medicaid
matches. However, some funding is transferred between the state and public Medicaid providers
through IGTs. These revenues are from local medical facilities such as community mental health services programs, Prepaid Inpatient Health Plans
(PIHPs), county indigent health care programs, county medical care facilities, local health departments
and public school districts. In FY2011, $48.4 million
(0.4% of total own-source revenues) was appropriated from these sources to the state’s Medicaid program.18 In the 1990s and the early 2000s, Michigan
utilized loopholes in federal funding regulations to
raise additional federal funds (See Appendix A).
Certified Public Expenditures
Certified public expenditures (CPEs) are expenditures
made by non-state public entities, such as counties,
university teaching hospitals, or other public entities within a state, toward qualified Medicaid services. These expenditures are counted toward a state’s
share of Medicaid expenses and are therefore
matched by the federal government. This provision
allows for a county or university hospital to provide
certification that it has incurred costs for Medicaid
services and the state can attribute those costs to
its share to receive a federal match. This option is
utilized in lieu of transferring public funds to the state
using an IGT.
Provider Donations
Provider donations were once a common source of
Medicaid revenue for states but Congress imposed
restrictions in the early 1990s limiting provider donations to those qualified as “bona fide.” A bona
fide donation is one that is voluntary and has no
direct or indirect relation to state Medicaid payments
made to the health care provider, any related health
care provider, or to other providers in the same class.
Any distribution of reimbursements cannot be positively correlated to the amount or existence of the
donation. The amount of the donation may not exceed $5,000 per year per individual provider or
$50,000 per year from any health care organization.
Provider Taxes
The Social Security Act, Title XIX that created Medicaid allows for states to levy provider taxes to help
pay for their share of Medicaid. This tax may be
assessed on certain categories or “classes” of providers such as inpatient hospitals, outpatient hospitals, nursing facilities, physician services, managed
care organizations, and 14 other classes. Revenues
from the tax are combined with the federal matching funds and then redistributed among providers in
the form of increased reimbursements for eligible
Medicaid services. Therefore, providers with higher
Medicaid volume receive more in increased reimbursement rates than they pay in provider taxes.
In order for the tax revenue to be eligible for a federal match, provider taxes must be approved by the
CMS, be “generally redistributive,” and meet these
requirements:
1. The tax must be uniformly imposed. All providers in a class must be charged at the same
rate or the same amount. The providers are
taxed regardless of the amount of their business related to Medicaid; the tax is solely
based on the providers’ line of business (nursing home, hospital, etc…) as defined in law.
Common forms of taxation are rates on net
patient revenues, gross tax revenues, or total facilities costs. Fees are also commonly
assessed on the number of licensed beds or
on a per patient day basis. For the uniformity criteria to be met, rates and fees must be
Citizens Research Council of Michigan
15
CRC Report
imposed uniformly on all providers in a class
in the state. The requirement may be waived
if the state meets a quantitative test applied
on a per class basis to all taxes that are not
uniform.
2. The tax must be “broad-based.” It must apply to all non-federal, non-public medical providers in a class in the state. However, not
all classes need be taxed. For example, if a
state taxes inpatient hospitals they must tax
all inpatient hospitals in the state, except
those that are federally or otherwise publically
funded. This requirement may be waived if
the proportion of Medicaid revenue being
taxed under the proposed tax is equal to or
greater than the proportion of Medicaid revenue being taxed under a broad-based tax.
3. If possible, the tax cannot hold providers
harmless. In other words, the providers paying the tax cannot receive, directly or indirectly, a non-Medicaid payment from the state
that would offset the payment the provider
makes for all or a portion of the tax. Nor can
the state elect to waive taxes for certain providers. This prevents the state from defending providers against losing money from the
tax. The payments made to providers may
not be positively correlated with the amount
of tax paid by that provider or to the difference between the cost of the tax and the
Medicaid payment it receives. This provision may not be waived.19
Why are there “winners” and “losers” with a provider tax?
Most states levy provider taxes and use the associated revenue generated, combined with the additional federal
match, to increase the Medicaid provider reimbursement rates, which are set by the states. Whether or not the
provider sees a positive or negative net impact from the provider tax depends on the volume of Medicaid services
it provides. Providers that render a large volume of Medicaid services, as a percentage of their net revenues,
receive the greatest benefit from the tax while those that serve fewer Medicaid patients will receive less benefit.
A provider with few Medicaid patients can only lose net income up to the percent of the tax.
For example, if a nursing home does not accept Medicaid patients, it would still be liable for the nursing home
provider tax, but would not receive any reimbursements for services, since no Medicaid services were delivered.
Therefore, this individual nursing home is a “loser” from the tax in that its net revenues decline by the amount it
had to pay in the tax but it received no additional benefit from the tax in the form of greater Medicaid reimbursement. On the other hand, if a nursing home collected 60 percent of its net patient revenues from Medicaid, then
it would pay the tax on all revenues (Medicaid and non-Medicaid), but would benefit by receiving more than that
much back from the state in the form of increased reimbursement rates, making this provider a “winner” from the
tax levy.
The Senate Fiscal Agency’s (SFA) rough estimate is that 10 percent of nursing homes pay more in taxes than they
receive in Medicaid rate increases. However, most of these “losers” are nursing homes that do not accept Medicaid patients. Among 95 individual hospitals in Michigan, there are approximately 35 “losers” and 60 “winners”
and out of 14 hospital systems, only Beaumont Health System and Trinity Health pay more in taxes than they
receive in an increased rate reimbursement.*
The federal requirement that states cannot hold providers harmless attempts to ensure that there are “winners”
and “losers” and that the tax is “generally redistributive,” in that more funding goes to those that provide more
services. The tax is designed to enhance and expand Medicaid services and many of these requirements are
instituted to ensure that states are not using the taxes to reduce their own costs at the expense of the federal
government.
*
16
Email correspondence with the Senate Fiscal Agency on September 15, 2011.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
the immediately preceding year. This rate is roughly
Other federal regulations stipulate that collections
at the maximum 6 percent rate. Furthermore, the
from provider taxes may not exceed 25 percent of
statute assesses a $2.00 fee per non-Medicare pathe state’s share of Medicaid expenditures and the
tient day on nursing homes and long-term care units
state cannot guarantee providers that they will be
with less than 40 licensed beds.22
reimbursed at or beyond the amount of the tax they
paid. Currently, 46 states and the District of ColumThe Public Health Code stipulates that the provider
bia implement some type of provider tax on at least
20
tax assessed on hospitals in Michigan is a fixed or
one class of medical providers. Nursing home favariable rate, based on net patient
cilities are the class of providers
states most commonly tax, fol- The revenue collected from revenues, and generates revenues
not to exceed the maximum allowlowed by hospitals and intermedithe
provider
tax
is
matched
able under the federal matching
ate care facilities for individuals
with mental retardation or devel- by federal funds and then requirements. It also specifies that
opmental disabilities (ICF/MR- 86.8 percent of the total Medicaid reimbursements will be
at least maintained at the inDDs). According to the Kaiser Famfunds
are
redistributed
to
creased level set in 2002 (the tax
ily Foundation, between 2008 and
2011, the number of hospital pro- the providers in the form of was implemented in 2003). The
vider taxes imposed by states in- a provider rate increase. statute also requires that any ascreased from 19 to 34, but the to- The state retains the re- sessments collected from a hospital that are not eligible for a federtal number of provider taxes on all
maining
13.2
percent
of
the
21
al match will be returned to the
classes stayed about the same.
combined provider tax rev- hospital, though this has never
Beginning with the FY2002 budget, enue and federal match to actually occurred. This tax is currently assessed at roughly 4.3 perMichigan enacted targeted providoffset GF/GP revenue origi- cent.23
er tax programs called Quality Assurance Assessment Programs nally appropriated for Med(QAAPs). Initially, the QAAP was icaid, freeing up that appro- The revenue collected from the
provider tax is matched by federal
imposed on only the nursing home priation for other uses.
funds and then 86.8 percent of the
and long-term care industry. Betotal funds are redistributed to the
cause roughly 60 percent of resiproviders in the form of a provider rate increase.
dents in nursing homes use Medicaid insurance, these
The state retains the remaining 13.2 percent of the
providers are typically reimbursed for the entirety of
combined provider tax revenue and federal match
their tax. QAAPs were briefly levied on Medicaid
to offset GF/GP revenue originally appropriated for
managed care organizations (namely, Health MainMedicaid, freeing up that appropriation for other
tenance Organizations (HMOs) and Prepaid Inpatient
uses. Whether or not providers financially benefit
Health Plans (PIHPs)), however, taxing these entifrom the tax varies because of Michigan’s multi-tiered
ties was disallowed by U.S. Congress and these
approach to provider taxes and the varying rate of
QAAPs were phased out by 2009.
the tax itself. Nursing homes, many of which do not
Michigan’s provider taxes (QAAPs) are outlined in
accept Medicaid or are mostly financed through
the Public Health Code, Public Act 368 of 1978. The
Medicare, must serve roughly 30 percent Medicaid
statute identifies two taxes: one for nursing homes
patients to break even from the tax. The break even
and long term care units and the other for hospitals.
threshold for hospitals is roughly 15 percent of total
The assessment for nursing homes and long-term
patient days for Medicaid patients.24
care units with more than 40 beds is an amount
Table 9 is taken directly from the National Conferresulting in not more than 6 percent of total indusence of State Legislature’s report Health Provider
try revenues and is based on the total number of
and Industry Taxes/Fees, which was updated in 2011,
patient days of care each nursing home and longand which shows provider taxes in a selection of
term care unit provides to non-Medicare patients in
Citizens Research Council of Michigan
17
CRC Report
Table 9
Provider Tax Assessments by State, Great Lakes Region
State Tax Applies to:
Description and Notes
IL
Hospital (M)
Hospital: Occupied beds less Medicare occupied beds from hospital’s fiscal
year Medicare cost report. The tax rate is $218.38 per occupied bed and is
based on Fiscal Year 2005. The annual tax is $900.0 million.
ICF/MR-DD (M)
ICF/MR-DD: Adjusted gross revenues reported on HFS tax report. The tax
rate is 5.5 percent and is based on the previous state fiscal year. The annual
tax is $19.1 million.
Nursing Home (M)
Nursing Home: Licensed beds multiplied by number of days in the current
quarter. The tax rate is $1.50 per licensed bed day and is based on the
current state fiscal year. The annual tax is $55.2 million. In 2011, the
legislature passed a bill to increase the bed tax bringing in an estimated
$145 million next year. Article — Chicago Tribune, 1/12/11.
ICF/MR-DD (M)
ICF/MR-DD: Revised 2008. “Each facility’s assessment shall be based on a
formula set forth in regulations promulgated by the Department of Mental
Health;” effective June 29, 2009.
Nursing Home
Nursing Home: SB 169 of 2006; effective July 1, 2006, extends an expiring
levy on nursing facilities’ non-Medicare total annual patient days. The
extension of the $10 per non-Medicare patient day Quality Assessment is
estimated to result in total additional payments to nursing facilities of
approximately $215.8 million. Estimated total annual collection of $102.5
million for FY 2007.
Hospital (M)
Hospital: Fixed or variable rate to generate funds not to exceed federal
matching requirements.
Nursing Home
Nursing Home: An amount resulting in not more than 6% of total industry
revenues and is based on the total number of patient days of care for home
with more than 40 licensed beds. Homes with less than 40 licensed beds are
charged $2.00 per non-Medicare patient day.
Other: Community
Mental Health
Other — Community Mental Health: Provider tax revenue was
$674.0 million for fiscal 2006; $856.0 million for fiscal 2007 and
$1,008.0 million for fiscal 2008.6
IN
MI
Note: Managed Care Org. fee discontinued in 2010.
MN
Hospital (M)
“MinnesotaCare Tax:” Hospitals, surgical centers, health care providers, and
surgical centers’ wholesale drug distributors pay 2% of estimated tax gross
revenues (Sec. 295.52(4a)).
Hospital: “Hospital Surcharge” is 1.56% of net patient revenues
(Sec. 256.9657).
18
ICF/MR-DD (M)
ICF/MR-DD: Tax is $1,040 per licensed bed annually.
Managed Care Org. (M)
Managed Care Org.: HMO and Integrated Network surcharge is 1.6% of
total premium revenues.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
State Tax Applies to:
OH
PA
WI
Description and Notes
Nursing Home (M)
Nursing Home: “Nursing Home License Surcharge:” Licensed non-stateoperated nursing homes pay an annual surcharge of $2,815 per licensed
bed. Increased from $625 in 2002 & 2003 (Sec. 256.9657).
Other: Providers (M),
Ambulatory Surgical
Centers (M), and
Wholesale Drugs (M)
Other — Providers, ambulatory surgical centers, and wholesale drugs
have a tax of 2%.
Hospital (M)
Hospital: Hospitals assessment on total facility costs not to exceed 2%,
determined annually (Ohio Rev. Code Sec. 5112.01 et seq.).
ICF/MR-DD
NA
Managed Care Org.
Managed Care Org.: Began in 2006.
Nursing Home
Nursing Home: Nursing home and hospital bed annual franchise permit fee
at $1.25 per day per bed (Ohio Rev. Code Sec. 3721.51 as increased from $1
by HB 199 of 2007).
Hospital
NA
ICF/MR-DD
NA
Managed Care Org. (M)
Managed Care Org.: Pennsylvania enacted a gross receipts tax on the managed care plans tied to the amount of revenue they received from Medicaid.
Tax of 59 mills is imposed on each dollar of gross receipts received by managed care organizations pursuant to a contract with the PA Department of
Public Welfare. Effective October 1, 2009.
Nursing Home
NA
Hospitals
Hospitals: In effect 2007-2008.
ICF/MR-DD
ICF/MR-DD: Intermediate care facility assessment of $445 per month for
fiscal year 2004-2005.
Nursing Home (M)
Nursing Home: Nursing home assessment of $75 per month per licensed
bed. Increased from $32 in 2003. (Sec. 50.14, Wis. Stats, as amended by
Act 33 (S.B. 44), Laws of 2003).
Other
NA
The code (M) indicates taxes or fees that are used to obtain Medicaid matching funds. The code (NA) indicates that details
are not available.
ICF/MR-DD is intermediate care facilities for individuals with mental retardation or developmental disabilities.
Source: National Conference of State Legislatures. Health Provider and Industry Taxes/Fees. Article #14359. February 2011
(updated July 2011). www.ncsl.org/?tabid=14359
Citizens Research Council of Michigan
19
CRC Report
states from the Great Lakes region.25 Table 9, which
can be found in its entirety in Appendix B, shows
that there is no common formula for which provider
classes are taxed or for the rate or amount they are
taxed. Some states levy taxes based on gross revenues and others on net revenues. Many of the taxes are assessed on occupied beds, licensed beds,
per bed per day, or annual patient days. Several
states have a combination of taxes such that one
class is assessed a rate and another is assessed a
fee. For example, Minnesota taxes 2 percent of estimated gross tax revenues for hospitals, surgical
centers, health care providers, and surgical centers’
wholesale drug distributors. There is also a 1.56
percent hospital surcharge on net patient revenues
and a 1.6 percent tax on managed care organizations’ premium revenues. Minnesota also assesses
a fee of $1,040 per licensed bed annually to ICF/
MR-DDs and an annual surcharge of $2,815 per licensed bed to some nursing homes.
Legislative Appropriations to DCH
Several funding mechanisms are utilized to collect
restricted and general purpose revenues that are
appropriated to Michigan’s Department of Community Health (DCH) which administers Medicaid. Main
revenue sources are the HMO/PIHP Use Tax, the
Health Insurance Claims Assessment, the Tobacco
Tax, and general fund appropriations.
HMO/PIHP Use Tax. With the federally required
2009 phase out of the HMO/PIHP QAAP, Michigan
would have had to increase GF/GP spending by $200
million to maintain services unless it replaced that
revenue. Because of the QAAP, Medicaid HMOs and
Medicaid PIHPs were now defined in statue, and
therefore could be subject to the state’s already existing six percent Use Tax. In broadening the base
of the Use Tax to include these Medicaid providers,
the state could tax the exact same entities it had
the year before using an existing tax structure. By
doing this, the Use Tax acted like a QAAP except
that it was not considered a provider tax. The new
taxing method was approved by the CMS, though it
was “dubious” about the proposal, and the state
implemented the tax in FY2009.26
20
Health Insurance Claims Assessment. Based on
the expectation that the CMS would soon disallow
Michigan from including HMOs and PIHPs in the base
of the Use Tax, Public Act 141 of 2011 was enacted
to amend the Use Tax Act to exclude HMOs and PIHPs
in its base beginning in March 2012. This law is tiebarred to Public Act 142 of 2011 which places a 1.0
percent tax on eligible paid health claims. Payments
made by Medicaid HMOs and PIHPs, which were
previously subject to a QAAP and then the Use Tax,
would be subject to this tax. The entity paying the
health claim, such as the insurer, HMO, or third party administrator is responsible for paying the assessment to the state.
Revenue is deposited in the Health Insurance Claims
Assessment fund in the Department of Treasury. The
revenue is restricted and only used to support the
Medicaid program. The health claims assessment
took effect on January 1, 2012 and will sunset on
January 1, 2014. According to the Senate Fiscal
Agency’s bill analysis, the assessment will generate
approximately $375 million and result in a net gain
in the general fund of $5 million when compared to
the previous Medicaid HMO/PIHP Use Tax. 27
While many new entities are taxed by the health
claims assessment, those that may pay the most
new taxes are self-insured public and private employers such as the state government, public universities, community colleges, school districts, local governments, and large private self-insured
companies such as manufacturers. In these cases,
the third party administrator of the insurance will
likely pass the cost of the assessment directly to
these entities. The Senate Fiscal Agency estimates
that the state government, local governments, universities, community colleges, and school districts
combined will pay $35.9 million for this assessment,
with $8 million of those costs being paid by local
governments and the bulk, $20 million, paid by
school districts.28
One benefit of this assessment is that it more closely follows federal requirements and the intent of a
“broad-based” tax when compared to past funding
strategies. The assessment may provide a long term
source of funds for the state’s Medicaid program.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Taxes” section below.
Tobacco Tax. Medicaid is also partially funded by
the state tobacco tax. The Medicaid Trust Fund,
which was established in 2000 and is drawn upon
for Medicaid funding when there is a shortfall from
the anticipated federal revenue, receives 31.9 percent of the cigarette tax revenue and 75.0 percent
of other tobacco product tax revenues. In FY2011,
an estimated $334.3 million from this tax was allocated to the Medicaid Trust Fund. Between FY2008
and FY2012, tobacco tax revenues declined 13.0
percent with the amount allocated to the Medicaid
Trust Fund declining 10.1 percent.
General Funds. While many of the legislative appropriations discussed above are deposited into the
state’s general fund, they do not cover the entire
cost of Medicaid. Therefore, funding must also be
appropriated from non-specified general fund/general purpose (GF/GP) dollars. GF/GP revenues may
come from a variety of sources including sales and
income taxes. Chart 2 breaks out revenues by
source, as a percentage of own-source Medicaid
spending. The QAAP was enacted in 2002 and expanded several times; it reached its peak revenue in
2008. The HMO/PHIP Use Tax, which was implemented in 2009, will be phased out in March 2012
explaining the large percentage share decline from
FY2011 to FY2012. The ARRA permitted the state
to offset a larger portion of its GF/GP expenditures
from 2009 through 2011; between 2008 and 2009
Medicaid GF/GP spending declined 27.5 percent from
roughly $2.4 billion to $1.8 billion.
There are several reasons why revenue from this
flat tax is declining. First, smoking is declining, which
shrinks the base of the tax and thus its revenues.
Secondly, inflation is slowly degrading the real value
of the revenues. The tax last rose to $2.00 per pack
in 2004, however $2.00 in 2004 dollars does not
have the same purchasing power as $2.00 today.
Other merits and demerits of the tobacco tax are
discussed in the “Provider Taxes versus Broad-Based
24.5%
27.5%
4.7%
22.5%
45.3%
20.5%
21.0%
45.2%
20%
44.4%
61.9%
66.8%
67.6%
2004
57.3%
62.8%
2003
33.3%
29.9%
13.0%
10.2%
23.0%
25.1%
12.8%
27.4%
26.7%
59.4%
30%
66.7%
50%
40%
9.4%
8.8%
21.8%
60%
3.9%
37.4%
6.5%
15.3%
70%
10.5%
80%
34.1%
90%
32.9%
100%
19.5%
Chart 2
Own-Source Medicaid Revenues by Source as a Percent Share, FY2002 to FY2012
2011
2012
10%
0%
2002
2005
2006
2007
2008
2009
2010
Fiscal Year End
GF/GP Exp
QAAP
Use Tax
Other Rev
Source: Data calculated from Senate Fiscal Agency documents
Citizens Research Council of Michigan
21
CRC Report
Medicaid Expenditures
State Budget Overview
passage of the ARRA in FY2009. Total Medicaid
spending as a percent of total state spending has
grown steadily since 1999, from consuming 9.7 percent of all spending to a high of 15.2 percent in
FY2011.
In Michigan, the state government’s finances have
been negatively impacted over the last decade from
a number of factors including high unemployment,
falling real per capita incomes, and an exodus of
Expenditure Components
residents. Accordingly, real total state government
spending fell 11.3 percent and
Michigan’s adopted budget for
state general fund spending deTotal Medicaid spending as FY2012 includes $11.7 billion for
clined by 31.1 percent. As a result, there were spending cuts to a percent of the total state Medicaid, which includes both
nearly all major budget areas ex- spending has grown steadily own-source and federal matching
cept for DCH, the departmental since 1999 from consuming funds. This price tag is intended
to provide Medicaid services for an
home of Medicaid.
9.7 percent of spending to estimated 1.92 million people, or
Including both state and federal a high of 15.2 percent in roughly 1 in 5 state residents. The
total appropriation is broken down
funding, nominal Medicaid spend- FY2011.
by source, as a percent of the toing in Michigan has more than doutal appropriation, in Table 10.
bled from $4.8 billion in FY1999 to
Medicaid funds are typically allocated among two
$11.7 appropriated for FY2012. When adjusted for
categories — mental health and physical health —
inflation, total spending on Medicaid increased 88
with the bulk of funds supporting physical health
percent and general fund spending on Medicaid rose
services (81.66 percent). The major line item ex35 percent between FY1999 and FY2012. Part of
this increased
Medicaid spending was offset by
Chart 3
new taxing sourcMedicaid Spending as a Percent of Total and General Fund Michigan
es, namely the
Spending, FY1999-2012
QAAPs and the
HMO/PIHP Use
30%
Tax that took ef25%
fect in FY2009.
General
fund
spending for Medicaid as a percent
of the total general fund reached its
peak in 2007 at
27.9 percent and
dropped steadily
in the following
years because of
the infusion of
FMAP enhancements with the
22
20%
15%
10%
5%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Fiscal Year Ending
Medicaid State Spending as Percent of Total
Medicaid GF/GP Expenditures as Percent of GF/GP
Source: Data from Senate Fiscal Agency documents
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
enrolled in those programs.
Capitation rates are the per
person rates paid to MCOs
for service. They are actuarially sound, and based on
FY2012
age, eligibility group, and
Community Mental Health
18.3%
other demographic factors to
best estimate actual costs of
Health Plan Services (Medicaid HMOs)
34.9%
providing coverage to MedAll Long-Term Care
18.9%
icaid patients. The cost of
Hospital Services
10.9%
the health plan services is
Medicare Part D
4.7%
also based on what services
Medicare Premium Payments
3.5%
the state contracts for with
Pharmaceutical
2.9%
the MCO. While the MCO is
Physician Services
2.6%
designed to provide compreDental Services
1.4%
hensive care, many states
“carve-in” or “carve-out”
Hospice Services
1.2%
specific services for various
Hospital DSH
0.4%
reasons. A “carve-in” would
Ambulance Services
0.1%
be services included in the
Auxiliary Medical Services
0.1%
contract and those “carvedHome Health Services
0.1%
out” would be services that
Transportation Services
0.1%
are excluded from the conTOTAL Physical Health
81.7%
tract and are usually paid for
on a fee-for-service basis
GRAND TOTAL (CMH + Physical Health) 100.0%
(see box for more details).
Source: Data calculated from Senate Fiscal Agency documents
Some of the items that Michigan carves-in are outpatient
behavioral health, nonpenditures for physical health include services proemergency transportation, most outpatient pharmavided by hospitals, physicians,
ceuticals, and vision services. Spehome health, hospices, ambulanc- Additionally, 34.9 percent of cific Michigan carve-outs are dental
es, and dentists as well as pharservices, inpatient behavioral
the
Medicaid
budget
is
spent
maceuticals; all are provided on a
health, outpatient substance
fee-for-service basis. Additional- on health plan contracts for abuse, inpatient detoxification,
ly, 34.9 percent of the Medicaid comprehensive health care physical therapy, occupational therbudget is spent on health plan conapy, and specific pharmacy drugs
programs
that
cover
sertracts for comprehensive health
including anti-psychotics and those
care programs that cover services vices for roughly 80 percent for mental health.29 A comprehenfor roughly 80 percent of Medicaid of Medicaid beneficiaries.
sive list of included and excluded
beneficiaries. Definitions for seservices is in Appendix C.
lected budget line items are included below.
Medicare Premium Payments and Medicare Part D
Table 10
Line Item Appropriations for Michigan Medicaid as a Percent of
Total Medicaid Appropriations, Fiscal Year 2012
Health Plan Services
Health Plan Services are capitation-based payments
made to managed care organizations (MCOs), such
as HMOs, to oversee the care of Medicaid patients
While Medicare is a federally funded health insurance program for persons aged 65 and over, there
are a group of elderly individuals that are dually eligible for Medicare and Medicaid because of their
age and income. These dual-eligibles are therefore
Citizens Research Council of Michigan
23
CRC Report
served by both programs; with Medicaid covering
specific components of the program that Medicare
does not such as copayments, premiums, and coinsurance.
Medicare Part D is one an example of an expense
paid by Medicaid on behalf of low income Medicare
recipients. Medicare Part D is a prescription drug
benefit for Medicare beneficiaries that requires payment of a deductible, coinsurance, and some additional out-of-pocket expenses if expenses go over a
certain limit. If a beneficiary is dually eligible, Medicaid covers these expenses. The federal government provides a match for Medicare Part D payments
that is equivalent to the FMAP.
Hospital DSH
Disproportional Share Hospital (DSH) payments are
federally allowed additional payments made through
the Medicaid program to hospitals that serve a disproportionately high percentage of uninsured or
Medicaid insured patients. These payments are eligible for a federal match but there is a cap on the
reimbursable amount that is based on inflationary
growth of historic DSH spending. Because health
care reform will reduce the number of uninsured and
uncompensated care patients, the federal Affordable
Care Act of 2010 (ACA) places additional limitations
on DSH payments beginning in 2014.
All Long-Term Care
“All long-term care” costs include Medicaid payments to nursing homes and other hospital longterm care units as well as home and community
based waiver expenses, adult home help, and personal care services.
Drug Rebate Program and Pharmacy “carve-outs”
The federal Omnibus Budget Reconciliation Act of 1990 created the Medicaid Drug Rebate Program that requires
drug manufacturers to have an outpatient drug rebate agreement with the CMS that subsidizes pharmaceuticals
covered under the fee-for-service component of Medicaid. The amount of the rebate is determined by the
amount of the drug purchased by the state Medicaid program multiplied by the greater of either: the difference
between the average wholesale price (AWP, best price) and the drug’s average manufacturer price (AMP, amount
drug actually sells for); or 15.1 percent of AMP. Generic drug manufacturers must provide a rebate of 11 percent
of AMP. The Congressional Budget Office estimates that the average rebate was 23.1 percent of AMP in 2007.
These rebates provide real Medicaid program cost savings to both the state and federal governments.
Until the Drug Rebate Equalization Act of 2009 (DRE) was signed into law with the ACA, MCOs with Medicaid
contracts were not authorized to receive rebates for drugs purchased on behalf of Medicaid patients. Since this
is an added cost to the MCOs which is then passed down in the contract cost to states, many states have an
arrangement where they “carve out” drug benefits from the MCO contract. In this case, patients receive Medicaid drug coverage through the fee-for-service program. With the passage of the DRE, states can authorize MCOs
to manage Medicaid patient drug coverage.
Another significant change in drug rebates through the ACA is the reimbursement rate and procedure. The ACA
set new minimum rebates of 15.1 percent to 23.1 percent for most brand name drugs and smaller amounts for
generics and others, with 100 percent of the rebate going to the federal government instead of the shared
arrangement in place prior. This policy went into effect in January 2010.
Source: Congressional Budget Office. Budget Options, Volume One. December 2008. www.cbo.gov/ftpdocs/99xx/doc9925/
12-18-HealthOptions.pdf
24
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Affordable Care Act of 2010
The federal Patient Protection and Affordable Care
Act (ACA) signed into law in March 2010, marks the
beginning of an historic expansion of Medicaid. When
the law takes effect January 1, 2014, Medicaid coverage will expand to an estimated 16 million newly
eligible individuals nationwide. The federally mandated eligibility requirements will be expanded to
include those under age 65 with incomes up to 133
percent of the FPL with no consideration for assets.
The major components of the new law are individually mandated health insurance, federal financial
assistance for those who cannot afford health insurance, mandates for employers with more than 50
full-time employees to provide insurance, and a requirement for health insurance companies to cover
all applicants. Between 2014 and 2016 the federal
government will cover 100 percent of the newly eligible population and between 2017 and 2020 their
share will drop to 90 percent such that by 2020,
states will be financially responsible for 10 percent
of the newly expanded Medicaid population.
Individuals without employer sponsored insurance
can buy insurance through state-run health insurance exchanges (or federally operated health insurance exchanges if a state does not have an operational exchange as of January 1, 2013) and several
lower income groups (133 percent through 400 percent of the FPL) will receive tax credits to participate. The federal government will provide states
with extra funding to implement the health insurance exchanges, the expansion of Medicaid, and
many of the other requirements under the new law.
There are several features to the ACA that will impact states’ budgets going forward, many of which
take effect prior to the official 2014 expansion of
health care. One example is the provider reimbursement rate increase for primary care services provided by primary care doctors to 100 percent of the
Medicare payment rates for 2013 and 2014. While
the federal government will pay the difference between these rates and those the state paid as of
Health Insurance Exchanges
As required by the ACA, states must set up and operate health insurance exchanges (referred to as “exchanges”).
These exchanges provide an online and telephone marketplace where consumers will be able to compare various
insurance plan options, features, and prices and then make a purchase. The exchanges have been compared to
travel search engines such as “Travelocity” where customers complete a basic questionnaire and receive a sideby-side list of purchasing options and prices that meet that criteria. States have flexibility in the creation,
operation and governance of the exchanges. The exchanges may be statewide, multi-state, or may cover smaller
geographic areas such as intrastate regions. The exchange may be operated by the state, another government
or quasi-government agency, or a nonprofit entity.*
Individuals without employer sponsored insurance can buy coverage and subsidies will be given to those in lower
income groups. To meet their coverage obligations, employers may provide financial assistance to employees to
buy their own insurance through the exchange. All health insurance plans offered on the exchange must meet
minimum coverage levels set out in the ACA.
The exchange must be operational on January 1, 2014 and states must show sufficient progress toward developing the exchange at various milestones prior to this date. If a state does not meet minimum criteria in developing
their exchange or the CMS deems the exchange as not making sufficient progress by January 1, 2013, then
residents will use an exchange operated by the federal government.
“Health Insurance Exchanges Explained For Employers.” Governing Magazine: White Paper. Accessed October 12, 2011.
http://media.navigatored.com/documents/Health-Insurance-Exchanges-for-Employers.pdf
*
Citizens Research Council of Michigan
25
CRC Report
July 1, 2009, the state must choose whether or not
to maintain the enhanced rate and assume the cost
based on their federal matching percentage.
to test methods of encouraging healthy lifestyles
through behavior modification (smoking cessation,
diet, exercise, etc.). It also creates two new centers
within CMS to better align Medicare and Medicaid
administration, financing, and oversight for dual-eligibles and to develop new ways to better coordinate care between the two insurance systems.30
The ACA contains many provisions to incentivize
states to take certain actions. States that expand
Medicaid coverage to parents and childless adults
prior to the 2014 requirement will qualify for a higher federal match rate specific to this population. The
Other features of the ACA are discussed in the “PolACA also incentivizes expansions in preventive care
icy Solutions” section below.
and adult vaccinations without cost sharing (cost
Maintenance of Effort Requirements
sharing refers to copayments or coinsurance paid
for by the enrollee); states that meet this requireUnder the maintenance of effort requirements that
ment will be eligible for a one percentage point inwere first instituted by the American Recovery and
crease in their FMAP for costs for these services beReinvestment Act (ARRA) in 2009
ginning in 2013. Additional
matching funds are also available Under the maintenance of and then extended by the ACA,
states must maintain eligibility
to states that meet certain requirements for expanding the percent- effort requirements that standards, methodologies, and
age of long-term care spending for were first instituted by procedures that were in place on
home and community based ser- American Recovery and Re- March 23, 2010 until their exchange is operational. Because the
vices. The federal government is
investment
Act
in
2009
and
ACA extended the ARRA mainteoffering an FMAP increase of six
nance of effort requirements, the
then
extended
by
the
ACA,
percentage points for related costs
to states that amend their state states must maintain eligi- implication is that until at least Janplan to include the Community First bility standards, methodolo- uary 1, 2014 eligibility must be
maintained at the same levels as
Choice which provides Medicaid
gies,
and
procedures
that
they were on July 1, 2008. Eligifunded home and community
based attendant services. The were in place on March 23, bility requirements for children
ACA, in further attempts to expand 2010 until their exchange is must be maintained through 2019.
One exception to the maintenance
home health care for the disabled operational.
of effort requirement is that beneand those with chronic conditions,
fits to non-disabled, non-pregnant
provided a 90 percent match for
childless adults with incomes greathome health services effective January 2011.
er than 133 percent of the FPL may be eliminated or
reduced if the state shows proof of a certified budThe ACA sets new mandatory minimum drug rebate
get deficit. Michigan provides coverage for childless
amounts and for the first time allows MCOs to coladults, but its low income threshold (35 percent)
lect rebates on pharmaceuticals on behalf of Medicmakes the state ineligible for this waiver. Should a
aid patients; these minimums went into effect in
state violate the maintenance of effort requirement
January 2010 and applied to MCOs on March 23,
it would lose all federal Medicaid funding.
2010. The law also includes several new demonstration projects and grants designed to improve
The maintenance of effort requirements only apply
service delivery and payment processes. These
to eligibility and not to optional benefits; however,
grants and pilot projects include: selecting eight
benefits cannot be altered in such a way as to change
states to use bundled payments to promote integraeligibility. This means that within the ACA and maintion of hospital care; selecting five states to test
tenance of effort requirements, states still have some
paying a safety net hospital system using a global
flexibility in managing budgets and containing deficapitated payment model; awarding grants to states
cits.
26
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Medicaid Cost Drivers
Medical and health related costs in the U.S. have
been increasing at rates higher than overall economic
growth nearly every year. Between 1970 and 2008
health care expenditures as a percent of the gross
domestic product rose from 7.1 percent to 16.0 percent, compared to 2008 shares of 11.2 percent in
France, 11.1 percent in Belgium, 10.5 percent in
Germany and 10.4 percent in Canada.31 Additionally, medical cost growth rates are also higher, but not
highest, in the U.S. compared to select other OECD
nations (see box for more details). The Medicare
Office of the Actuary recently projected health care
spending to rise annually by 5.8 percent through
2020, but 8.3 percent in 2014 when the ACA takes
effect.32
Medicaid encounters the same inflationary problems
as the rest of the health care system. In FY2010,
total Medicaid spending increased by 7.9 percent
across states and is estimated to have increased 11.2
percent in FY2011.33 Between 2007 and 2009 Medicaid spending increased 7.1 percent nationwide and
Health Care Spending: An International Perspective
A recent report by the Commonwealth Fund* using data from the Organization for Economic Cooperation and
Development (OECD) compares total health care spending for Australia, Canada, Denmark, France, Germany,
Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States (U.S.). The
data revealed that the U.S. spends far more on health care with per capita spending at $7,538 versus an OECD
median of $2,995. In fact, Norway, the second highest spending country, spent only $5,003 per capita in health
care, less than two-thirds of that spent in the U.S. Of the 12 countries, seven countries’ per capita health care
spending was less than half of that in the U.S.
The data also highlights sources of funding for health care expenditures. While the greatest portion of U.S.
spending came from public funding, it was a much lower percent (46.5 percent) compared to the other 12 OECD
countries. Consequently, U.S. private spending ($3,119 per capita of total) was highest among nations and outof-pocket expenditures were the second highest ($912 after Switzerland’s $1,424).
The U.S. also dominates in health care spending by another measure – percentage of gross domestic product. In
2008, the U.S. spent 16 percent of its GDP on health care compared to 13.4 percent in 1998, and an OECD
median of 8.7 percent in 2008 and 7.8 percent in 1998. The second highest spending country, France, spent only
11.2 percent of its GDP on health care in 2008.
The U.S. also had the fewest practicing physicians (2.43 per 1,000 population) and the second lowest number of
physician visits per capita (6.4 per capita). Patients in the U.S. had shorter hospital stays (5.5 days) than the
median of the 12 OECD countries (6.0 days) but hospital spending per discharge ($16,708) was nearly three
times the median ($5,949). Additionally, pharmaceutical use was the highest (61 percent adults taking at least
one prescription and 25 percent of adults taking at least four) and pharmaceutical spending per capita ($897)
was twice the median ($461). Despite widespread pharmaceutical use, hospital admissions for chronic diseases
such as asthma, congestive heart failure, and diabetes acute complications, was highest in the U.S. among the 12
OECD countries.
Unfortunately for the U.S., its high spending has mixed results in many health care outcomes. For example, fiveyear cancer survival rates for breast and colorectal cancers were highest in the U.S., but the U.S. ranked fourth
in five-year cervical cancer survival rates. The U.S. had the third highest fatality rate for in-hospital deaths of
those admitted for myocardial infarction, and the second highest in-hospital death rate for hemorrhagic stroke.
David A. Squires. “The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations.” The Commonwealth Fund publication 1532 vol. 16. July 2011.
*
Citizens Research Council of Michigan
27
CRC Report
6.9 percent in Michigan while the Detroit Consumer
Price Index increased 1.7 percent.34 The Fiscal Survey of States, a joint survey between the National
Governors Association and The National Association
of State Budget Officers, reports that Governors’
proposed budgets are expected to reflect an average decline of 2.9 percent in Medicaid spending for
FY2012 with state funds increasing by 18.6 percent
and a decline of federal funds of 13.0 percent (due
to end of ARRA FMAP enhancements).35 Cost driving components behind the large year-to-year changes for Medicaid are enrollment growth, case mix,
service utilization, provider payment rates, and the
FMAP; each are discussed below.
2002 (9.3 percent), 2009 (7.8 percent), and 2010
(7.2 percent).36 Michigan’s Medicaid enrollment
growth rates trend higher than the nation’s which is
expected given the state’s decade-long recession
began in 2001. Enrollment in Michigan grew fastest
in 2010 at 11.0 percent compared to a nationwide
high of 9.3 percent in 2002.
Enrollment growth is based on several factors. First,
the impact of the recessions resulted in high unemployment, especially in Michigan, and increased enrollment in publicly funded health insurance when
people lost their employer-sponsored insurance or
were unable to afford private insurance. Second,
eligibility was expanded by either adding new groups
or expanding existing groups. For example, in 2003
Michigan extended benefits to low income, childless
adults through the Adult Benefits Waiver program.
However, in subsequent years, the state reduced
enrollment levels in this program and several others
in an effort to reduce costs. While the federal government will be financing the cost of the newly expanded Medicaid population in 2014, states will be
sharing the cost for those increased caseloads be-
Enrollment Growth
Between 2001 and 2010 national Medicaid enrollment grew from 31.74 million to 50.31 million, an
increase of 58.5 percent; Michigan’s enrollment grew
68.5 percent over this period. This same decade
endured two national recessions which consequently drove annual enrollment growth rates for the nation above 7 percent in each 2001 (7.5 percent),
Chart 4
Total Medicaid Enrollment, Year-over-Year Percent Change
Michigan compared to U.S. and Great Lake States Averages, June 2001 to June 2010
12%
11.0%
10.4%
10%
8%
9.2%
9.3%
8.9%
8.5%
7.8%
7.5%
6.4%
7.2%
6.7% 6.7%
5.6%
6%
8.3%
7.2%
6.3%
5.7%
4.3%
4%
4.1% 4.3%
3.2%
4.2%
3.9%
3.0%
2.9%
2.7%
1.6%
2%
0.9%
0.2%
0%
2001
2002
2003
2004
2005
-2%
Michigan
US Average
2006
2007
-0.6%
2008
2009
2010
Great Lake States Average
Source: The Kaiser Family Foundation: Publication #8050-03. February 2011.
28
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
ginning in 2017 but can generally expect fewer costs
from enrollment growth in the meantime.
Case Mix
The distribution of Medicaid spending does not match
the enrollment distribution, in Michigan or nationally. In Michigan, 41 percent of Medicaid payments
were on behalf of non-elderly disabled persons, which
is close to the national average of 43 percent. Payments on behalf of the elderly made up 22 percent;
non-disabled children, 21 percent;
and non-elderly, non-disabled
around one adults, 15 percent (See Chart 6).38
The mix or type of cases has a large impact on costs.
For instance, the elderly and disabled have more
frequent doctor and hospital visits, have higher usage of prescripIn Michigan,
tion medications, and are more
likely to utilize expensive long-term quarter of enrollees are eicare. In Michigan, around one ther elderly or disabled
quarter of enrollees are either eld- which drives up costs disproerly or disabled which drives up
portionately as over 60 percosts disproportionately as over 60
percent of expenditures for Med- cent of expenditures for
icaid are on their behalf.37
Medicaid are on their behalf.
In FY2008 (most recent data available), the largest group of Michigan enrollees were
children (54 percent of the total, compared to the
national average of 49 percent), followed by adults
at 22 percent, the disabled at 16 percent, and the
elderly at 7 percent (See Chart 5).
Chart 5
Distribution of Medicaid Enrollees in
Michigan by Enrollment Group, FY2008
Disabled,
16%
The proportion of elderly and disabled patients has declined compared to children and adult enrollments since 2000, but this may not
be a lasting trend. Elderly and disabled enrollments do not tend to
change with economic fluctuations
as enrollment for children, adults
and pregnant women do and as
the economy strengthens their percent share of enrollments may grow again.
Another growing concern is spending on behalf of
low income elderly individuals who are dually eligi-
Chart 6
Distribution of Medicaid Payments in
Michigan by Enrollment Group, FY2008
Children,
21%
Children,
54%
Elderly,
7%
Disabled,
41%
Adults,
15%
Adults,
22%
Elderly,
22%
Source: The Kaiser Family Foundation. Distribution of
Medicaid Payments by Enrollment Group (in millions),
FY2008. www.statehealthfacts.kff.org/
comparemaptable.jsp?ind=858&cat=4
Source: The Kaiser Family Foundation. Distribution of
Medicaid Payments by Enrollment Group (in millions),
FY2008. www.statehealthfacts.kff.org/
comparemaptable.jsp?ind=858&cat=4.
Citizens Research Council of Michigan
29
CRC Report
ble for both Medicaid and Medicare. In 2011, this
population accounted for 12.5 percent of Michigan’s
Medicaid enrollees and about 38 percent of spending, roughly $1 billion of which was from the state’s
general fund.39 Because this population is served by
two insurance systems, there is a great deal of inefficiency in providing medical care; a coordinated
health care delivery system is a focus in discussions
of both federal and state budget reduction solutions.
Service Utilization
Utilization rates are heavily tied to case mix and enrollment trends. As described above, the elderly and
disabled consume a higher proportion of resources
due mostly to their high utilization rates and the types
of services they receive. For example, in FY2008,
spending per elderly enrollee was $14,837 versus
$1,845 per child, $3,098 per adult enrollee, and
$12,127 per disabled enrollee in Michigan. Nationally, spending per disabled enrollee was highest at
$14,865 followed by $12,950 per elderly enrollee.40
As seen in Table 11, some of the highest cost services have low utilization rates but still consume a
large portion of the spending. For example, in
FY2008 Nursing Facility Services served 2.6 percent
of Medicaid patients at an average rate of $32,319
per client and consumed 16.4 percent of the budget. On the other hand, 31.2 percent of beneficiaries used physician services in FY2008 at an average cost of $405 per client but the total cost of
providing this service equaled just 2.5 percent of
Michigan’s Medicaid budget. Some very expensive
services such as for those at Intermediate Care Facilities for the Mentally Retarded ($163,811 on average per client annually) are used by a very small
percentage of clients (0.01 percent) and therefore
Table 11
Michigan Medicaid Cost per Client, Utilization, and Spending by Service Category, FY2008
Service Category
FY2008 Total Beneficiaries
Intermediate Care Facility for
the Mentally Retarded Services
Mental Health Facility Services
Nursing Facility Services
Inpatient Hospital Services
Health Plan Services (Medicaid HMOs)
Personal Support Services
Clinic Services
Other Care Services
Outpatient Hospital Services
Prescribed Drugs Services
Sterilization Services
Home Health Services
Physician Services
Dental Services
Lab and X-ray Services
Other Practitioner Services
Primary Care Case Management Services
Services Not Identified
Cost per
Client
$5,157
$163,811
$36,234
$32,319
$9,964
$3,418
$3,160
$1,147
$1,133
$856
$753
$690
$577
$405
$182
$133
$67
$8
$342,072
Percent of
Utilization
0.01%
0.04%
2.6%
5.8%
76.7%
8.1%
10.8%
10.8%
13.9%
33.6%
0.1%
0.3%
31.2%
23.1%
20.9%
5.7%
0.03%
0.0001%
Percent of
Spending
0.2%
0.3%
16.4%
11.3%
50.8%
5.0%
2.4%
2.4%
2.3%
4.9%
0.02%
0.0%
2.5%
0.8%
0.5%
0.1%
0.00004%
0.004%
Source: Calculations based on data from Centers for Medicare & Medicaid Services, Medical Statistical Information
System Tables. https://www.cms.gov/MedicaidDataSourcesGenInfo/MSIS/list.asp
30
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
are not huge cost drivers. Health Plan Services provide managed care for the majority of Medicaid enrollees. Managed care covers most medical care
services at a comparably low rate ($3,418 per client
annually),41 while many of the other services listed
are paid on a fee-for-service basis and are typically
for services carved out of state contracts or for clients not enrolled in managed care.
Utilization rates are higher among the elderly and
disabled. Even though this population made up 23
percent of Michigan’s FY2008 enrollees, 63 percent
of spending was on their behalf. If the case mix
changes such that the percent of elderly and disabled enrollees grows faster than the remaining
groups, then spending will grow at a much faster
pace than the alternative scenario.
Provider Reimbursement Rates
States are relatively free to determine reimbursement rates paid to health care providers for delivered Medicaid services. However, there are requirements that reimbursement rates be “reasonable” and
they must be approved by CMS. Medicaid pays notoriously low reimbursement rates for services and
pharmaceuticals, where the average rate paid for all
services is 72 percent of the rate paid by Medicare.
However, states’ costs are heavily tied to changes in
provider rates as most Medicaid expenses are paid
through reimbursements to providers.
FMAP
Each state’s percent share of Medicaid costs paid
with federal funding is determined by the FMAP. Over
the years, Michigan has seen a slow increase in its
FMAP, which is indicative of its relative decline in
real per capita income. This FMAP growth shifts
some of the Medicaid cost burden to the federal
government, thereby helping to control state spending. Historically, Michigan and many other states
used creative financing to maximize the federal
match, sometimes receiving matches for transferred
funds when no services were actually rendered; these
strategies saved the state $8.0 billion between 1990
and 2008 (See Appendix A for more details).42
Citizens Research Council of Michigan
31
CRC Report
Affordable Care Act Impact
Many states fear potential Medicaid cost surges associated with the ACA especially once federal contributions are
paired down in 2020. Several studies have sought to estimate what this impact may actually be when the law
takes effect in 2014. The first report that looked specifically at Michigan was conducted by the Senate Fiscal
Agency (SFA) in April 2010, just one month after the ACA was signed into law.* This report highlights the three
main ways Michigan’s budget will be impacted by the law: (1) as a main provider of medical coverage for low
income individuals and families through Medicaid; (2) as an operator of state-owned hospitals; and (3) as an
employer that is now required to provide health insurance to employees based on legal requirements. The study
concluded that there will be limited state funding liability through 2019 in the expansion of coverage to all
individuals below 133 percent of the FPL because 93 percent to 100 percent of the new coverage will be paid by
the federal government. In fact, many of the individuals that are currently treated in the state’s Community
Mental Health non-Medicaid budget will be covered by Medicaid beginning in 2014. This savings is estimated to
be around $150 million of GF/GP annually and is expected to cover about half of the current non-Medicaid
population. An additional increased match rate for the state’s MI-Child program will reduce annual state GF/GP
spending by another $12 million.
The SFA estimates that when the federal match rate declines to 90 percent in 2020, the state will be paying
roughly $200 million annually in GF/GP dollars to support the expansion. Additionally, if the state opts to continue paying the increased primary care physician rate, which is fully funded by the federal government in 2013 and
2014, it will have an annual cost of $40 million. Many of the other impacts of the law are dependent upon
Michigan’s decision on whether or not to participate in certain programs for which extra matching funds or grant
dollars are provided. According to the SFA report, the Federal Funds Information for States estimates the gross
cost (state and federal) in Michigan to be $1.5 billion when the coverage takes effect in 2014, $1.8 billion by 2017
and $2.0 billion by 2019.
In a more recent, but more general study, Kaiser Family Foundation performed a state by state analysis of
increased coverage and cost.** They used the Medicaid participation expansion rates from the CBO as well as an
“enhanced” participation rate that would apply to states that more aggressively enroll individuals in the expanded
coverage. The CBO estimates that 57 percent of newly eligible individuals will enroll and the “enhanced” coverage assumes 75 percent participation among the newly eligible. The analysis shows that in the standard CBO
scenario 589,965 Michiganders would enroll in Medicaid and that there would be a 50.6 percent reduction in
uninsured adults and a 30.2 percent increase in total enrollment by 2019. Michigan spending would increase by
$686 million between 2014 and 2019 or just 2.0 percent over the baseline, non-reform amount. Federal spending
would cover an average of 95.4 percent of the expanded insurance costs and federal spending in Michigan would
increase by 21.5 percent.
In the enhanced scenario with a 75 percent participation rate, Michigan would have 812,818 new Medicaid
enrollees, reduce its uninsured population by 74.6 percent, and increase enrollment by 41.6 percent. The state’s
cost would increase by $1.096 billion or 3.2 percent between 2014 and 2019 with the federal government picking
up the remaining $16.94 billion tab and increasing its spending by 25.6 percent over the baseline amount, for a
total of 93.9 percent of the total funding from 2014 to 2019.
Steve Angelotti and David Fosdick. “Fiscal Analysis of the Federal Health Reform Legislation.” Issue Paper:
Senate Fiscal Agency. April 2010.
*
John Holahan and Irene Headen. “Medicaid Coverage and Spending in Health Reform: Naitonal and State-byState Results for Adults at or Below 133% FPL.” Urban Institute and the Kaiser Commission on Medicaid and the
Uninsured. Publication #8076. May 2010.
**
32
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Policy Solutions
tegrity of the program and ensure sustainability for
Many states are battling severe financial distress,
at least a few more years.
rising Medicaid caseloads and diminished capability
to make eligibility or benefits changes. State
Potential financial solutions are divided into three
policymakers are apprehensive about how the fedbroad categories: (1) additional revenue options, (2)
eral government will choose to reduce its Medicaid
service/provider changes, and (3)
spending. Many of the most budget strapped states, such as Ari- There is a structural gap cost containment. Service and provider changes typically shift burzona, California, and Florida, are
between
Medicaid
revenues
dens from the state to other Medsimply putting out budget fires;
making cuts wherever cuts are al- and expenditures that the icaid stakeholders, namely
lowed so that total state expendi- state is not in control of beneficiaries and providers. Alternatively, cost containment actions
tures equal revenues. Other states
correcting.
But
until
a
naare those that hold providers and
have the luxury of a more contemplative approach to fiscal policy. tional or global system rec- beneficiaries mostly harmless by
Officials in these states may be tifies the rapid annual cost maintaining funding levels and
seeing revenues grow, though growth, the state has some cost-sharing arrangements. These
solutions reduce expenditures and
gradually, and, at least in Michioptions
to
maintain
the
cost growth through process and
gan’s case, have completed a lot
practice changes such as improvstructure
and
integrity
of
of the hard work required to implement a structurally sound bud- the program and prolong ing efficiencies and introducing
get. It is very likely that the the sustainability for at least cost controls.
FY2012 budget has strengthened
The next section of this report disthe financial footing of the state a few more years.
cusses additional revenue options
by eliminating reliance on one-time
for Medicaid, followed by a review
revenue sources and reducing or
of
expenditure-side
alternatives that may impact
eliminating the structural deficit.
Medicaid’s future cost trajectory.
Michigan has a variety of options to reduce MedicI. Additional Medicaid Revenue Options
aid spending and help ease the current structural
budget imbalance tied to Medicaid services. One
Michigan has a long history of using creative taxaluxury of having a stable budget is that policymakers
tion to leverage state and local resources to maxican make grounded decisions that do not forsake
mize federal matching dollars. Most of these crefuture benefits in the name of immediate budget
ative avenues have been closed by federal legislative
relief.
and CMS administrative rule changes. Effective January 2012, the state began assessing a tax on paid
Absent changes in policy, Medicaid expenditures are
health insurance claims and dedicated those reveexpected to grow by 5 percent to 8 percent per year
nues to fund Medicaid. This tax, however, is revefor the next decade. This growth is faster than most
nue neutral, in that it replaces revenue from the
reliable revenue sources that could be used to supHMO/PIHP Use Tax and any state revenue gains will
port it will grow, and is significantly faster than state
be nominal. The efficacy of this new tax is predicatincome and economic activity are expected to grow.
ed on a reliable stream of matching funds from the
There is a structural gap between Medicaid revefederal government and a reasonable medical cost
nues and expenditures that the state is not in coninflation rate. While the sustainability of Medicaid is
trol of correcting. But until a national or global syswaning, the state may implement several funding
tem rectifies the rapid annual cost growth, the state
solutions to help prolong the delivery of these serhas some options to maintain the structure and invices; these are discussed below.
Citizens Research Council of Michigan
33
CRC Report
Provider Taxes versus Broad-Based Taxes
Michigan has two main tax-based revenue options
for funding Medicaid: provider taxation and general
fund support.
igan receives the provider taxes combined with the
federal matching funds, it keeps 13.2 percent to offset an identical amount of GF/GP revenue originally
allocated for Medicaid. These “savings” can be used
for other state programs, while the rest is redistributed to the providers in the form of rate increases.
Provider Taxes. The state currently taxes two
classes of health care providers, nursing facilities and
Third, the majority of providers benefit from the funds
hospitals, but the federal Social Security Act outraised by provider taxes and therefore generally suplines 19 other provider classes the state could tax.
port them. Because these tax revenues are eligible
While the state is near its 25 percent provider tax
for a federal match, the amount of money being
maximum, it still has some room to continue to raise
redistributed to providers through Medicaid payments
Medicaid revenues through this route. One option
financed with the provider taxes is more than the
the state can pursue is to add an
amount providers paid in taxes iniadditional provider tax but at a lowtially; the pool from which to reer rate so as to not go over the 25 While the state is near it’s
imburse for services is larger.
percent cap. Other than the two 25 percent provider tax
Therefore, the tax burden is miniprovider taxes already in place in
mized.
Michigan, the third most common maximum it still has some
assessment among the 50 states room to continue to raise Fourth, compared to other reveis on intermediate care facilities for Medicaid revenues through nue sources, provider taxes are
the developmentally disabled.43
better able to follow medical cost
this route.
While a physician tax has been proinflation over time and generate a
posed several times, it has never
more reliable source of revenue.
received sufficient legislative support to move forBecause the tax is based on net patient revenues in
ward. This may indicate that it would be politically
Michigan (not all states tax the same way), which
difficult to expand the base of the provider tax or
should grow in line with costs, tax collections from
may just be indicative of the difficulty of expanding
providers will keep up with the medical inflation rate
the tax to physicians.
with little need to modify the tax rate in the future.
A second option for the state is to broaden the tax
to several additional, or even all provider classes,
but reduce the overall rate. While the number of
taxpayers may grow, the amount each of the individual providers is responsible for will decrease.
Provider Taxes: The Good and the Bad. There are
several reasons why provider taxes are popular
among states. First, provider taxes are eligible for
federal matching funds allowing the state to leverage its Medicaid spending. These federal dollars
help create local jobs and grow the economy beyond its own resources.
Second, the inflow of federal funds for Medicaid
health care spending allows state-raised revenues
to be used for other purposes. All tax revenues from
providers will be matched according to their FMAP
so long as the state meets federal regulations in
administering the tax. By state statute, when Mich-
34
Finally, a benefit of provider taxes over other types
of taxes is that they may create an incentive for providers to increase their Medicaid caseload or begin
accepting Medicaid patients if they had not before.
When individual providers increase their Medicaid
caseloads, they will either reduce their net tax disadvantage (payment plus reimbursement) or see a
net gain from increased reimbursement rates. Increasing the availability of providers accepting Medicaid patients ensures easier access to care and better health outcomes. However, the efficacy of this
strategy is dependent on many factors, including the
proximity of the state’s reimbursement rates to the
providers’ actual costs.
However, the provider tax also has many drawbacks,
including its role in increasing costs for the hospitals
and nursing homes that do not see a large enough
volume of Medicaid patients to earn an increased
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
payment above the amount of their tax. This is a
net revenue loss of up to the amount of the tax for
roughly 10 percent of nursing homes and 30 percent of hospitals.44 Additionally, many states are
raising tax rates at the same time they are decreasing reimbursement rates. According to the Michigan Health and Hospital Association, Michigan’s providers have sustained approximately $1.1 billion in
reduced reimbursement rates between FY1996 and
FY2011.45 The already relatively low reimbursement
rates with the additional taxation may hinder some
providers’ ability to stay in business, adversely affecting availability of providers for patients as well
as the local economies that depend on the jobs and
incomes from these providers.
Additionally, the administrative costs for the state to
expand its provider tax base may be very expensive, particularly as the number of provider classes
included in the base of the tax increases.
In early 2011, Governor Cuomo of New York signed
an Executive Order establishing a Medicaid Redesign Team to find ways to cut costs and improve
positive outcomes in that fiscal year and beyond. In
a report to the redesign team, the New York State
Association of Counties (NYSAC) discussed the implications of provider taxes, saying:
NYSAC believes, that a long term reliance on
“manufactured” revenues…is unrealistic in its
promises of care and coverage, as the financing
of the program is beyond the capacity of the
multitude of tax payers and health care providers expected to provide the financial support over
the long run. For health care providers, the higher fees and taxes generally become a cost of
doing business which raises the overall cost of
health care in public and private sector insurance. Additionally, the use of health care provider taxes is continually under congressional
scrutiny and is not a reliable long term source of
financing for the Medicaid program.46
This report emphasized opponents’ concerns about
the ability of the market to handle continued increases in provider taxes and the long run sustainability
of this revenue.
Finally, since the federal government will only allow
a maximum of 25 percent of own-source revenue
from provider taxes they cannot be an all-inclusive,
one-package solution. In FY2011, Michigan collected 21 percent of its own-source revenues for Medicaid financing from the hospital and nursing home
provider taxes. This still leaves some room should
the state decide to increase the rate of the hospital
provider tax or expand the tax to other provider classes but will not solve the structural Medicaid revenue
and expenditure imbalance.
Provider tax trends. The Kaiser Family Foundation
and Health Management Associates survey reported that 46 states and the District of Columbia had
provider taxes in place as of FY2011.47 Only Alaska,
Delaware, Hawaii and Wyoming did not. Thirty-eight
states assess taxes on nursing homes, 34 on inpatient hospitals, and 34 on intermediate care facilities for individuals with mental retardation or developmental disabilities (ICF/MR-DD). The survey also
indicates that several states added provider taxes
on new provider classes; 5 states added a hospital
provider tax, Virginia added an ICF/MR-DD tax, and
Kansas added a nursing facilities tax. Oregon
dropped its tax on managed care organizations in
2011. There were increases in 27 provider taxes in
FY2010 and only two reductions. Twenty-two provider taxes are also proposed to rise in FY2011 with
no reductions for any.
Broad-Based Taxes. The majority of own-source
state revenue comes from broad-based taxes; broadbased taxes are those that are imposed uniformly on
all residents such as the income tax, property tax,
and sales and use taxes. In terms of equity, general
broad-based taxes may pay for a variety of universally beneficial services such as public safety and education, but may also support services utilized by a
small sector of the population such as physical and
mental health services, welfare, and food stamp assistance. As is the case with any service provided by
the state, the services will not be utilized equally by
all residents, yet all taxpayers have agreed either
implicitly or through referenda to support these services. Because there is a revenue limit on provider
taxes, the state will always use some general fund
support through broad-based taxes to partially fund
Medicaid, whether it specifies this in its call to raise
taxes or not. In FY2011, 15.5 percent of Medicaid
expenditures were from the state’s GF/GP which re-
Citizens Research Council of Michigan
35
CRC Report
ceives revenue from the sales, income, use, business,
and liquor taxes among other tax and fee sources.
On the other hand, Medicaid expenditures consumed
21.3 percent of the state’s GF/GP.
Fund. However, the practice of earmarking taxes
often undermines the annual legislative process and
those earmarks rarely keep up with spending growth.
In most cases, the use of earmarking runs contrary
to principles of good budgeting. The legislative and
When considering raising current or implementing
executive branches must have
new
broad-based
taxes,
strong control over revenues and
policymakers may attempt to earBecause
there
is
a
revenue
expenditures and be able to use
mark these revenues to ensure the
funds are dedicated to Medicaid. limit on provider taxes, the the budget to set policy. There
Earmarking has been a common state will always use some must be adequate flexibility to react to changing conditions. These
way for policymakers to win apgeneral
fund
support
principles are best met through a
proval for their tax proposals and
provides voters with security in through broad-based taxes budgetary process with all expenknowing how these new tax dol- to partially fund Medicaid ditures judged on their merits and
lars will be spent. Michigan relies whether it specifies this in income allocated accordingly. If
any government function is impormore heavily than most other
states on earmarking to dedicate its call to raise taxes or not. tant enough to warrant consideration for earmarking, based on its
revenue from particular taxes to
importance, it should easily pass the muster of the
favored purposes. For example, approximately 23
budgetary process. If not, perhaps it is not as impercent of income tax revenue is allocated to the
portant as its advocates might contend.48
School Aid Fund, while the remaining revenue goes
to the GF/GP. Similarly, sales tax revenue collecBroad-based Tax Options. Michigan policymakers
tions are distributed among the School Aid Fund,
could elect to fund Medicaid through increases to
Local Revenue Sharing, the Comprehensive Transthe income tax rate or sales tax rate. In South Daportation Fund, Health Initiative, and the GF/GP. It
kota, organizers of a sales tax ballot measure rehas already been noted that 31.9 percent of the cigcently obtained enough signatures to get the initiaarette tax revenue is allocated to the Medicaid Trust
Michigan’s Tobacco Tax is 11th Highest in Nation
In 1994, Michigan had the highest state tobacco tax in the country when it raised its cigarette tax from 25 cents
to 75 cents per pack. The state raised the tax again in 2002 to $1.25 per pack and most recently in 2004 to $2.00
per pack, leaving Michigan with the nation’s second highest state tobacco tax following New Jersey’s tax of $2.05
per pack.*
As of 2012, Michigan has the 11th highest per pack tobacco tax, where the state average is $1.46 per pack and the
median is $1.339 per pack.** New York State has the highest tobacco tax of $4.35 per pack followed by Rhode
Island and Connecticut at $3.46 and $3.40 per pack, respectively. In addition to the $1.01 per pack federal
cigarette tax many states allow local units of government to tax cigarettes. The highest combined state and local
tax rate per pack is $5.85 in New York City.
“AAA 1-B Supports tobacco tax increase to fund Medicaid Health Care.” Boomer Caregivers Article. Accessed October 31,
2011.
www.50plusprime.com/index.cfm/fuseaction/TNP.showArticle/TNPArticlePK/1CA65F9A-3048-709E5A4ACBC2131BB5B8.cfm
*
Ann Boonn. “State Cigarette Excise Tax Rates & Rankings.” Campaign for Tobacco-free Kids. June 28, 2011 (Accessed
October 31, 2011). www.tobaccofreekids.org/research/factsheets/pdf/0097.pdf
**
36
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
tive, which would raise the sales from four percent
to five percent, on the November 2012 ballot. The
increased revenue would be shared between Medicaid and K-12 education in the state.49
rently used to support the Medicaid program. In
2011, 34.8 percent or $334.3 million in tobacco revenues was earmarked for the Medicaid Trust Fund.
The state could increase the tobacco tax and designate that revenue for Medicaid.
Other alternatives could be explored such as expandOne notable drawback to tobacco taxes is that they
ing the sales tax base to services. The sales tax
are generally regressive in that they tax lower-inbase was broadened to include a few select services
come individuals disproportionatetemporarily in 2007 to help close a
ly higher than those with higher
budget deficit, but was quickly
overturned due to unpopularity. While broad-based taxes incomes. This is the case for sevExpansion of the sales tax is one may provide a reliable eral reasons. First, because the
method that other states have stream of revenue from a tax is flat it consumes a higher
been using to combat the declinlarger resource pool, it is percent of income for an individual with a lower income than an ining revenues from this source; as
unlikely
that
most
broaddividual with a higher income.
the economy has expanded in the
last several decades, individuals based taxes will keep up Sales taxes in general are considare spending a larger percentage with the medical cost ered regressive because low income individuals use a greater
of their incomes on services comgrowth rate. Overall, percent of their income purchaspared to goods. Taxing services
rather than goods alone is a more broad-based taxes are un- ing goods. Additionally, the prevsustainable revenue source for the likely to provide the long- alence of smoking is higher among
state and may preserve funding for term funding to maintain the poor — 33 percent of Medicaid recipients smoke versus 20
programs that are being crowded
the integrity of the Medic- percent of the rest of the populaout by Medicaid.
aid program.
tion50 — so the tax itself is often
General broad-based taxes have
seen as one that targets this popseveral benefits and limitations.
ulation. This factor may make inWhile broad-based taxes may provide a reliable
creases in tobacco taxes more politically and ethistream of revenue from a larger resource pool, it is
cally challenging.
unlikely that most broad-based taxes will keep up
with the medical cost growth rate. Therefore, over
If policymakers choose to increase the tobacco tax
time a greater and greater percentage of the broadto fund Medicaid there are several other factors they
based taxes will need to be allocated to Medicaid
should consider. An argument in favor of raising the
and away from other important services such as
tax is that the tax burden falls on those who are
more likely to consume the services for which the
education, which has already occurred in the last
taxes pay. Tobacco use increases medical costs and
ten years. Additionally, unless there is sufficient state
one study using 2004 data estimated Michigan’s
savings during periods of economic expansion, state
annual Medicaid smoking related costs to be 13 perresources will be excessively stressed during recescent of total Medicaid spending or $727 million.51 In
sions because of Medicaid’s increasing demand as
the economy worsens. Overall, broad-based taxes
Governor Snyder’s recent Health and Wellness mesare unlikely to provide the long-term funding to
sage he indicated these costs to be $1.1 billion for
maintain the integrity of the Medicaid program.
the state.52 Increasing the cost of smoking and decreasing its demand may reduce tobacco-related illExcise Taxes. One subset of broad-based taxes are
nesses leading to some positive reduction in overall
those that tax a specific good or service when purhealth care costs. On the other hand, smoking rates
chased. Examples include taxes on alcohol and toin the United States are continuing to fall which brings
bacco, which are often referred to as excise taxes.
into question the amount of money that could be
Excise taxes, specifically the tobacco tax, are cur-
Citizens Research Council of Michigan
37
CRC Report
saved in medical care by curbing smoking and the
sustainability of a tobacco tax revenue source.
cade as the state has reduced revenues it sends to
the local governments.
Additionally, since the tax on cigarettes is a flat rate
of two dollars per pack, the real value of the tax will
decline over time due to inflation. Nominal tobacco
tax revenues have been falling an average of 3.5
percent annually over the last five years. In general, if policymakers are looking for a sustainable revenue source for Medicaid, it would be wise to avoid
taxes on items designed to curb the use of that item,
therefore suggesting a declining future revenue
stream.
However, counties can elect to fund Medicaid services on their own through county medical care facilities. At least 31 counties have extra-voted millages
that fund medical care facilities, which treat Medicaid and non-Medicaid patients. The Medicaid portions of the services provided are eligible for federal
match and the funds are interchanged through the
state.
Other states have attempted to levy excise taxes on
soft drinks, vending machines, and other unhealthy
food and beverage choices in order to raise revenues while encouraging healthier food choices. Approximately half of the states levy a tax on soft drinks,
however Michigan’s constitution forbids taxation of
food and beverages in the state (only prepared foods
are taxed). Pending a constitutional amendment,
these goods, with the exception of vending machine
foods, are not a taxable option in Michigan.53
Medicaid is different from other programs in its capability to leverage federal dollars. This feature of
Medicaid revenue has encouraged states to expand
programs, but may corrupt the budget process based
on officials’ desire to obtain matching funds. Michigan’s policymakers have spent considerable time and
effort finding ways to maximize federal matching
funds for Medicaid, thus preserving most benefits
and beneficiaries over the last decade. In the meantime, other programs have lost significant funding.
Any further erosion of other programs should be
made as policy decisions and not as a result of chasing leveraged dollars.
Local Revenues
The Social Security Act allows for up to 60 percent
of a state’s own-source Medicaid revenues to originate from local sources. Many states require local
governments to match the cost of various Medicaid
services. In New York, counties match 50 percent
of the state share of acute care services. North Carolina has a “Medicaid swap” where it has authorized
several taxing options for counties such as a land
transfer tax and a limited local sales tax to aid the
state in funding Medicaid. In North Carolina, counties may keep some of the revenues they collect
and send the rest to the state.
While Michigan could mandate Medicaid matching
requirements by counties, it would be very difficult
to implement because of Michigan’s tax collection
structure and the constitutional right of local voters
to approve new local taxes under the Headlee
Amendment to the 1963 Michigan Constitution.
Additionally, distrust between the state and local
governments has been magnified over the last de-
38
Other Revenue-side Considerations
Today, Medicaid is a major budget priority; however,
as policymakers debate and determine the best solution to the Medicaid funding problem, they should
also realize that policy priorities change over time
and that revenue sources need to reflect those
changes.
Unrestricted revenues provide
policymakers with flexibility to adjust their policy
mechanism, the budget, to reflect these changes.
Whether the revenue source is broad-based or more
specific, such as the health insurance claims tax, an
holistic approach to funding government services is
always good policy.
Any budget solution should also acknowledge the
need that low income Michigan residents have for
quality health care. Many of the budget challenges
come from rapidly rising healthcare costs, and those
who benefit most from these services, such as pregnant woman, children, and the disabled, are often
casualties in this debate. The tradeoff between budget priorities and Medicaid recipients should be prominent in this discussion.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
sections. The first section outlines expenditure reduction options related to changes in benefits and
Michigan has already taken measures to reduce
provider costs. The second section focuses on cost
spending and spending growth. Since adoption of
containment actions that do not directly negatively
the FY2002 budget, the state has implemented the
impact beneficiaries or providers. A pie chart next
following changes:
to each strategy provides a quick depiction of the
portion of the Medicaid budget
• freezing and reducing providunder consideration or relevant to
er payment rates;
Because
a
great
number
of
the associated discussion. For ex• reducing dispensing fees to
the budget challenges ample, in the discussion of costpharmacists;
sharing, 75 percent of the budget
• instituting new copayments for come from rapidly rising covers services and beneficiaries
physician office visits, non- healthcare costs, those who that are affected by the alternaemergency ER visits, and outbenefit most from these tives in this category.
patient and inpatient hospital
services, such as pregnant
services;
Benefit/Provider Changes
• increasing
prescription woman, children, and the
copayments for adults;
disabled, are often casual- An option that allows the state to
reduce its Medicaid funding now
• implementing a preferred drug ties in this debate.
but displaces the burden on othlist;
ers (low-income individuals and
• seeking supplemental drug refamilies, medical providers, etc.) is to alter benefits
bates for generic drugs;
to enrollees or the costs of and payments to provid• capping or freezing enrollment levels in the Home
ers. These actions are driven by a state’s need to
and Community Based Services and Adult Benebalance its budget and may include discontinuing
fits Waiver programs;
services to optionally eligible populations, suspend• eliminating non-emergency adult dental care,
ing or reducing optional benefits, decreasing utilizahearing aids, podiatric and chiropractic care;
tion through the use of cost sharing, reducing provider payments, or increasing provider taxes.
• establishing an asset test for parents, caretakers and 19 to 20 year olds in optional eligibility
Eligibility changes. The maintegroups;
nance of effort requirements under
• tightening eligibility for the Adult Home Help
the ACA limit eligibility changes
program;
states can make to non-disabled
• increasing efforts to reduce fraud, errors, and
childless adults with incomes above
waste.
133 percent of the federal poverty
level. Michigan currently provides Medicaid services
The state restored some benefits such as adult denfor childless adults that have incomes at or below
tal care and the coverage of hearing aids, podiatric
34 percent of the FPL, and therefore cannot make
and chiropractic services, and subsequently used
any eligibility changes.
provider taxes to increase provider payments.54
While these strategies provided some immediate
Arizona is aggressively trying to reduce Medicaid
budget relief, there are additional short-term and
expenditures and has proposed several changes and
long-term policy actions which can be implemented
waivers to the CMS with varying levels of success.
to address rising Medicaid costs.
One point made clear by the CMS through this process is that any changes to enrollment must serve a
The following discussion is broken into two main
purpose other than to save the state money.55
II. Expenditure-side Alternatives
Citizens Research Council of Michigan
39
CRC Report
Elimination of optional benefits
and programs. Over the past several decades, many states have provided Medicaid services above and
beyond the minimum requirements
included in federal statute. These
optional benefits and programs may include vision,
dental, and physical therapy, and may be eliminated
to preserve other aspects of the Medicaid program.
In a February 3, 2011 letter to governors, U.S. Department of Health and Human Services Secretary
Kathleen Sebelius wrote, “States can generally
change optional benefits or limit their amount, duration or scope through an amendment to their state
plan, provided that each service remains sufficient
to reasonably achieve its purpose.”56
In The Fiscal Survey of States, ten states indicated
that they proposed to eliminate some optional benefits in FY2012, and 25 recommended limiting benefits. This comes after six states eliminated and 20
states limited benefits in FY2011.
In 2010, the Kaiser Family Foundation and Health
Management Associates conducted a survey of
Medicaid officials in all 50 states to assess trends in
states’ policies and spending. This survey revealed
that in FY2010, 20 states reduced benefits, either
through eliminations, limits, or utilization controls
— the highest number reported since the survey
began in 2001. For example, the State of Washington limited Medicaid coverage of emergency room
visits for non-emergency care to three per year.57
Long-term care services were also vulnerable – 18
states in FY2010 and 10 states in FY2011 cut back
services. In contrast, 15 states in FY2010 and 16 in
FY2011 reported that they expanded or planned to
expand benefits or restore services, such as those
for dental, vision, smoking cessation, mental health
or substance abuse. Thirty-two states expanded or
planned to expand long-term care services in FY2010
and FY2011, mainly through expanding home and
community based long-term care services.
With approval from CMS, Arizona is limiting or eliminating dental services, podiatrist services, transplants, well visits and physical exams, prosthetics
and orthotics coverage, hospice services, and outpatient occupational and speech therapy to non-disabled, non-pregnant childless adults.58
Secretary Sebelius also reminded states that they
can offer “benchmark” plans in lieu of traditional
Medicaid benefits. Benchmark plans can be designed
to meet specific needs but need to be at least equal
to coverage under one of the following:
• Federal employee health benefit coverage
• State employee health benefit coverage
• HMO coverage
• Secretary approved coverage
• A plan that is actuarially equivalent to one of the
first three plans but may have different benefits.59
These “benchmark” or “benchmark-equivalent” plans
are typically used to extend coverage to non-pregnant, non-disabled adults or some pregnant women
or disabled adults in higher income ranges. Wisconsin, for example, provides coverage for pregnant
women with income between 200 percent and 250
percent of the FPL equal to the largest commercial
plan in the state, plus mental health and substance
abuse coverage.
Quality of Life Tradeoff
The discussion of optional benefits highlights many of the difficulties in managing Medicaid costs. While states
are looking to save money by eliminating certain services, the quality of care, and potentially the quality of life for
many low income individuals, is tested. Services such as vision and dental care, hospice care, and the coverage
of prosthetic devices may greatly impact an individual’s livelihood. While many working individuals not covered
by Medicaid may not have coverage for these services or devices, they may still be able to afford them out-ofpocket with some tradeoff in quality or frequency. In the legislative debates regarding many of these optional
services, the outcome may necessitate that Medicaid-eligible individuals go without these services or devices.
40
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
The value of eliminating optional benefits is not clearcut. For example, a study of Oregon’s decision to
eliminate Medicaid dental benefits in 2003 showed
increased utilization of emergency room care, a more
costly form of treatment.60
Decrease Utilization/Increase
Cost-sharing. The federal Deficit
Reduction Act of 2005 gave states
greater flexibility to increase cost
sharing through copayments,
deductibles, coinsurance, and other
Using data from 2001, the Kaiser Family Foundation
methods. While most children and pregnant women
and The Urban institute calculated that optional seras well as some services (emergency services, famvices for both mandatory and optional eligibility
ily planning, and preventive services for children)
groups comprise 30.4 percent of Medicaid expendiare exempt, states can impose cost sharing on sertures.61 More recent data (FY2008) using Michigan’s
vices as well as on beneficiaries in
Medicaid expenditure reports sughigher income groups (above 100
gest that this figure is now closer Using data from 2001, the percent of the FPL) as long as the
to 16 percent.62 The Kaiser Family
family’s or individuals’ total cost
Foundation argues that while many Kaiser Family Foundation and sharing is not greater than 5 perof the services provided are cate- The Urban institute calcu- cent of their income. Table 12
gorized as optional, “…the health lated that optional services provides guidelines for the maxidelivery system in the past forty
for both mandatory and op- mum allowable copayments for
years has evolved toward greater
three different services among
continuity of care, care coordina- tional eligibility groups com- three recipient income levels.
tion, and away from institutional- prise 30.4 percent of Medicized care, placing a greater rele- aid expenditures. FY2008 In October 2011, CMS issued a
ruling on many controversial cost
vance on a set of services currently
data suggest that this figure savings strategies proposed by
considered ‘optional.’ Thus, the
legal distinction of services by is now closer to 16 percent. Arizona. Accepted proposals include eliminating a program for
‘mandatory’ and ‘optional’ classes
those with health emergencies, an
imposed by federal statute may not
enrollment cap for adults without dependent chilprovide a useful roadmap for distinguishing populadren, copayments for non-emergency transportation,
tions and services that are central to Medicaid’s
a $3 fee for parents and childless adults who fail to
role.”63 This helps explain why many states, despite
give 24-hour notice for missed appointments (only
the added cost, have expanded Medicaid programs
applicable in 2 counties), and the elimination of the
or resisted cuts even in economic downturns.
Table 12
Examples of Guidelines for the Maximum Allowable Copayments
Institutional Care
(inpatient hospital care, rehab
care, etc)
Eligible Populations by Family Income
<100% FPL
101-150% FPL
>150% FPL
50% of cost for
50% of cost for
50% of cost for
1st day of care
1st day of care,
1st day of care,
10% of cost
20% of cost
Non-Institutional Care
(physician visits, physical
therapy, etc.)
$3.65
10% of cost
20% of cost
Non-Emergency Use of the ER
$3.65
$7.30
No limit
Source: U.S. Department of Health & Human Services, www.hhs.gov/news/press/2011pres/02/20110203tech.html
Citizens Research Council of Michigan
41
CRC Report
spend-down64 category. The state proposed imposing a $50 fee on childless adults (an optionally covered population group) who either smoke or are
obese. 65 This request was denied by CMS as was a
proposed cap on enrollment for low income parents
and several other proposals.
California is addressing its budget deficit by reducing spending for its Medicaid program, called MediCal,
by $1.4 billion. The savings are achieved by a combination of increasing patient copayments and premiums, decreasing provider reimbursements, and by
capping the number of covered office visits to seven
per year (waivers may be granted based on circumstances). 66
nerics. For certain high income groups, copayments
for non-preferred drugs may be as high as 20 percent of the cost of the drug. Table 13 shows allowable cost sharing for prescription drugs.
Michigan has a copayment that is $1.00 for generic
drugs and $3.00 for brand name drugs. Of states
that have pharmaceutical copayments, prices typically vary between $0.50 and $3.00, with many states
differentiating between generic and brand drugs.
Over the last decade, Michigan has implemented a
variety of controls on pharmaceuticals. The state
has implemented a preferred drug list (discussed in
the “Cost Containment” section below) and in 2003,
Michigan and Vermont launched
the Michigan Multi-State Pooling
As reported in The Fiscal Survey
of States, seven states instituted The Senate Fiscal Agency Agreement, also known as the
new or higher copayments in
estimates that the state National Medicaid Pooling Initiative
(NMPI). The NMPI is a multistate
FY2011 and 21 proposed new or
saved
$8.0
million
in
2004
effort to obtain additional rebates
higher copayments for FY2012.
The Kaiser Family Foundation and from this pooled purchasing. and discounts from pharmaceutical manufacturers. The Senate
Health Management Associates
Fiscal Agency estimates that the
survey reports that a total of 45
state saved $8.0 million in 2004 from this pooled
states and the District of Columbia have copayments
purchasing.69 As of 2009, the NMPI had 11 particifor some services; five states only have copayments
on prescription medications. Connecticut, Hawaii,
pating states and the District of Columbia and sevNew Jersey, Nevada, Texas, and Washington have
eral other multistate cooperatives have since been
no copayments at all.67
established. With the increased drug rebate requirement in the ACA, it is likely the drug manufacturers
Pharmaceutical Controls. In her
will be less likely to negotiate significant discounts
letter to states, Secretary Sebelius
with states through these pools going forward.
reiterated the cost sharing
The Kaiser Family Foundation and Health Manageflexibilities permitted under the Defment Associates survey shows that in FY2011 many
icit Reduction Act of 2005.68 Among
states and the District of Columbia already had sevthese is the option to encourage use
eral pharmacy cost containment strategies in place.
of lower-cost drugs by charging different copayments
Forty-eight states have prior authorization programs,
for non-preferred and preferred drugs, such as ge-
Table 13
Maximum Allowable Drug Copayments by Family Income
Preferred Drugs
Non-preferred Drugs
<100% FPL
$3.65
101-150% FPL
$3.65
$3.65
$3.65
>150% FPL
$3.65
20% of cost
Source: U.S. Department of Health & Human Services, www.hhs.gov/news/press/2011pres/02/20110203tech.html
42
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
and 44 states have preferred drugs lists, supplemental rebates, and maximum allowable cost programs.
Twenty-six states are in a multi-state purchasing
coalition, 16 have script limits, and 15 have full or
partial carve-outs. States are limiting prescription
drugs for beneficiaries; eight states indicated performing this action in The Fiscal Survey of States for
FY2011. Thirteen states proposed this action in
FY2012. Twenty-three states enacted other strategies to reduce spending for prescription drugs in
FY2011 and 27 proposed to do so in FY2012. In
FY2011, Alaska created a preferred drug list and
proposed step edits70 in 2012. Louisiana conducted
ingredient and dispensing cost surveys to update
reimbursement methods. Other pharmacy cost containment measures are listed in Table 14.
The ACA includes provisions on a new mandatory
minimum Medicaid pharmacy rebate amount. The
rebates had been paid by the pharmaceutical companies and shared between the federal government
and the states where the states’ share was based
on its FMAP. States were also permitted to negotiate supplementary rebate programs that were shared
between the state and federal governments. The
new mandatory minimum, increased from its previous amount, will now go entirely to the federal government and states with supplemental rebate programs will experience a loss in revenue from this
change. Michigan benefited from the supplementary rebate program and collected $18.0 million in rebates in FY2007.
Table 14
Pharmacy Cost Containment Actions Taken in FY2010 and FY2011
Drug Policy Change
Imposed or restricted quantity or refill limits
Acting States
Kansas, Kentucky, Maine, Mississippi, Virginia,
Wisconsin
Increased drug copayments
Arizona, California, Massachusetts, Oklahoma
Carved-out pharmacy benefits from
managed care contracts
Indiana, Michigan, Missouri, Ohio
Implemented specialty pharmacy products
North Carolina, New Hampshire, Pennsylvania,
Wisconsin
Reduced reimbursements for physician
administered drugs
California, Georgia, South Carolina
Added preferred medical supplies to preferred
drug list
Massachusetts, Wisconsin
Utilization controls on mental health drugs
for children
South Carolina, Washington
Implemented generic first policy
Rhode Island
Reduced capitation rates to long-term
care pharmacies
New Jersey
Initiated pharmacy audits
Kentucky
Required dispensing of 100-day supply
Wisconsin
Case management for clients using narcotics
Washington
Source: The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The Kaiser
Family Foundation: Publication #8105. September 2010.
Citizens Research Council of Michigan
43
CRC Report
States also have authority, with approval from the
Provider payments. The most
CMS, to determine pharmacy dispensing rates. These
common strategy states used in
rates are paid to pharmacies on a per prescription
FY2011 to contain costs was to rebasis. Michigan’s dispensing fee is set at $2.50 with
duce or freeze Medicaid reimbursesome exceptions: $2.75 for dispensing drugs for longments to providers who see Medicterm care patients; $6.00 for cream, emulsion, naaid patients. California has reduced
sal drops, ointments or optic drugs; and $10.00 for
its payments to Medicaid providers and because of
compounded capsules, powders,
severe budget stress, over just a
or suppositories. Because states
few years the state went from havdifferentiate pricing based on ge- Federal law requires that ing one of the highest reimburseneric, brand name, prescriber, and states must pay Medicaid ment rates to one of the lowest. 72
other criteria, a comparison of
As a result, California is being sued
rates that are “sufficient to by Medicaid recipients who believe
Michigan’s prices to other states’
is difficult. However, only fees in enlist enough providers” to the quality of their care is now comArizona, Colorado (institutional ensure beneficiaries have promised. The Supreme Court
pharmacy only), Maine (mail order access to care.
heard oral arguments in October
only), Maryland (brand only), New
2011 in the Douglas v. Independent
Hampshire, New Mexico (except
Living Center of California, No. 09when pharmacist uses product selection), Tennes958, which argued that Medicaid recipients were
see (Pharmacy Benefit Management National plan
harmed by California’s provider payment rate cuts.
and TennCare Pharmacy Network only), and West
Federal law requires that states must pay Medicaid
Virginia (brand only) are equal to or lower than Michrates that are “sufficient to enlist enough providers”
igan’s dispensing fees for pills and capsules.71 For
to ensure beneficiaries have access to care. The isthe most part, states have either frozen or reduced
sue before the Supreme Court does not address the
these dispensing fees over the last several years.
lawsuit as it was filed but whether or not the lawsuit
Table 15
Medicaid Physician Fees: Cumulative Percentage Change in Medicaid Fees by Type of
Service, 2003-2008
Michigan and Other Great Lake States
All Services
15.1%
Primary Care
20.0%
Obstetric Care
8.8%
Other Services
8.7%
Michigan
6.7%
0.6%
27.1%
-3.6%
Illinois
Indiana
Minnesota
Ohio
Pennsylvania
Wisconsin
11.5%
9.8%
-0.5%
15.9%
63.0%
0.8%
19.5%
15.4%
0.0%
13.6%
83.9%
2.5%
0.0%
0.0%
0.0%
6.8%
103.1%
0.0%
-0.1%
2.5%
-2.3%
28.4%
-8.2%
-2.2%
U.S. Average
Source: The Kaiser Family Foundation
44
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
may even be filed. The Obama administration maintains that beneficiaries are not allowed to sue states
in response to Medicaid cuts, but the United States
Court of Appeals for the Ninth Circuit (San Francisco)
ruled otherwise.
The Kaiser Family Foundation and Health Management Associates survey revealed that in FY2011, 37
states proposed a provider reimbursement rate cut
or freeze; 33 states had done so in FY2009 and 39
have in FY2010. However, many states are also increasing reimbursement rates; thirty-six states increased rates in FY2010 and the same number
planned to do so in FY2011. Nursing homes and
inpatient hospitals are the most common beneficiaries of these rate changes – both restrictions and
hikes.
Some of the rate increases are related to provider
tax increases. For example, the Kaiser Family Foundation and Health Management Associates report
that Iowa increased payment rates by 15 percent
for hospitals and 14 percent for nursing homes and
financed these increases with hospital and nursing
home taxes. Georgia similarly increased inpatient
hospital rates as a result of new provider taxes. In
Michigan, provider tax rates are calculated based on
the total amount to be distributed as reimbursements
and therefore these actions are always correlated.
Tables 15, 16, and 17 compare relative reimbursement rates for physician services. These data from
the Kaiser Family Foundation can be used by
policymakers to determine how much, if at all, providers can withstand changes in reimbursement
rates. Table 15 shows cumulative percent changes
in Medicaid fees paid as fee-for-service rates (MCOs
not included) between 2003 and 2008 compared to
the U.S. average and those changes in Great Lakes
region states. Despite Michigan’s ongoing recession
through the 2000s, most rates increased, especially
those for obstetric care (27.1 percent), but at rates
slower than the nation and the rest of the region
with the exception of Wisconsin and Minnesota.
Table 16 displays a Medicaid fee index for Medicaid
fee-for-service payments compared to a national
average set to one. By this index, in 2008 Michigan
paid its obstetric care physicians 94.2 percent of the
national average compared to 177.7 percent in Pennsylvania. Michigan’s lowest relative payments were
to physicians other than those in primary and obstetric care, where fees were paid at 79.6 percent of
the national average. No adjustments for cost of
living differences are included in this index.
Table 16
Medicaid Physician Fee Index, 2008
Michigan and Other Great Lake States
(National Average = 1.0)
Michigan
Illinois
Indiana
Minnesota
Ohio
Pennsylvania
Wisconsin
All Services
0.895059
Primary Care
0.913069
Obstetric Care
0.941742
Other Services
0.795740
0.902898
0.897430
0.975309
0.935850
0.978156
1.073423
0.904223
0.879389
0.853036
0.987765
0.947634
0.970372
0.934285
0.861828
0.846074
0.865366
1.776883
1.077926
0.878313
0.965241
1.425007
0.858630
0.677497
1.316712
Source: The Kaiser Family Foundation
Citizens Research Council of Michigan
45
CRC Report
Table 17 shows how Michigan, the U.S. average,
and other Great Lakes region states pay for fee-forservice Medicaid costs relative to Medicare fees in
each state, which are set by the federal government.
By this measure, Michigan still pays physician fees
at rates well below its Great Lakes neighbors and
the national average. Geographic adjusters are included in this index.
There are several issues associated with increasing
providers’ Medicaid cost burden. The primary concern is that as reimbursement rates decline, more
and more physicians will no longer accept Medicaid
patients, which reduces access to care and potentially the quality of care since there are fewer physicians from which to choose. A nationwide 2008 survey revealed that only 53 percent of physicians
accepted new Medicaid patients compared to 74
percent that took “all or most” new Medicare patients and 87 percent that took “all or most” private
insurance patients.73 Michigan’s low Medicaid reimbursement rates are one factor that has contributed
to the contiguous 16 county area of the upper part
of the lower peninsula that is without obstetrical
services (Medicaid and non-Medicaid), despite the
27.1 percent increase in fees between 2003 and
2008. The West Branch Regional Medical Center in
Ogemaw County closed its obstetric unit in 2010,
citing underfunding of the Medicaid program as forc-
ing, “many of the hospitals in Northern Michigan out
of the [obstetric care] business and unless something is done, the trend will continue.”74
Some experts believe that decreased access among
Medicaid patients is not due to provider rate changes but because of geographical barriers (such as distance) and that providers respond to rate cuts by
operating more efficiently. Some opponents to this
cost cutting strategy argue that reducing provider
payments does not actually reduce overall costs because providers shift costs to private health insurers; private health insurers pass the costs to employers who then either increase premiums or
suppress wages. The exact implications of increasing provider taxes and/or freezing or reducing reimbursements rates is unclear, but the most likely outcome is some combination of efficiency, reduced
access, and increased health care costs.
Benefit/Provider Change Considerations. Before policymakers take action they should consider
these six questions:
1. Is the service widely used by a large number of
individuals or is it little used or used by a few?
2. Is the service preventive in nature so that it results in lowering future costs?
3. Is the service critical or can it be postponed without increasing Medicaid costs at a later time?
Table 17
Medicaid Physician Fees: Medicaid-to-Medicare Fee Index, 2008
Michigan and Other Great Lake States
(National Average = 1.0)
U.S. Average
Michigan
Illinois
Indiana
Minnesota
Ohio
Pennsylvania
Wisconsin
All Services
0.720000
Primary Care
0.655458
Obstetric Care
0.925237
Other Services
0.723351
0.627286
0.592060
0.759740
0.553803
0.631688
0.694463
0.760383
0.687801
0.728099
0.847367
0.573984
0.608786
0.577545
0.662201
0.623828
0.665882
0.821802
0.926380
0.839146
0.840718
1.727704
1.043351
0.640635
0.743085
1.107353
0.645314
0.511418
1.050808
Source: The Kaiser Family Foundation
46
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
4. Is the imposition or increase of a deductible or
co-payment preferable to elimination or curtailment of the service?
5. Will the imposition or increase of a deductible
or co-payment result in individuals not receiving a needed service?
6. If the service is dropped, will doing without it
result in greater expense when another provider gives a higher cost service made necessary
by not having access to the dropped service?75
While cutting benefits, reducing provider reimbursements, and expanding the number of provider classes
taxed provide some financial relief for the state, there
are many that argue that these are short-sighted
solutions that balance the budget on the backs of
others. Federal government cuts will lead to hardships at the state level; state-level cuts are often
passed down to providers; providers may opt out of
serving Medicaid patients or may pass those costs
on to private insurers, and so on. There are longterm solutions to reducing the faster-than-economic growth of health care costs, but not all have been
tested for efficacy. Some of these solutions are discussed below.
Cost containment
The cost containment strategies discussed below
refer to actions that preserve current program levels and any current cost-sharing with recipients.
These solutions focus on improving efficiencies and
reducing the rate of spending growth, but may or
may not result in immediate budget relief. These
solutions do not directly shift cost burdens onto other parties and include expanding managed care,
pharmaceutical controls, increasing program integrity, introducing new health programs or legislation,
and process and market reforms.
Managed Care. States with managed care systems (47 states and
DC) contract with health plans to
deliver health care to Medicaid patients. The contracts may lead to
cost reductions for the state and a
more extensive health care network
for patients. Managed care health plans promise to
meet certain performance requirements in care quality and other patient care outcomes.
There are several types of managed care models
and Michigan participates in what Kaiser Family Foundation calls a risk-based managed care health plan.76
In this model, Michigan contracts with MCOs, often
in the form of HMOs, to provide a comprehensive
set of benefits to Medicaid eligible patients. The
state pays the MCOs on a capitation basis (the per
person rate) where capitation rates must be actuarially sound and based on age, eligibility group, and
other demographic factors to best estimate actual
costs of providing coverage to Medicaid patients.
With this arrangement, the MCOs bear the full financial risk for medical services.
Since the early 1980s, states have increasingly adopted managed care models to deliver health care services rather than the traditional fee-for-service system. According to the Congressional Budget Office,
the expansion of managed care plans in the 1990s
reduced costs so that health care costs in the U.S.
grew at the same rate as the overall economy between 1992 and 2000 and total health care spending as a percent of GDP remained constant at 14
percent. However, most of these savings were
achieved through restrictions in non-evidence based
procedures and reduced utilization arising from referral requirements and limited physician networks.77
One important concern is whether or not health outcomes are negatively impacted. While some argue
that decreased utilization is commensurate with the
use of only necessary medical care, others worry
that the overall health of MCO patients in and out of
Medicaid is compromised.
Most research supports managed care plans’ claims
of cost savings. A recently updated review of 24
studies commissioned by America’s Health Insurance
Plans by The Lewin Group found that the managed
care model may produce savings from one to 20
percent. The savings are larger among some higher
cost groups, specifically the Supplemental Security
Income (SSI) beneficiaries and related enrollees. For
example, Arizona achieved $102.8 million in savings
from 1983 to 1991 from managed care and 60 percent of the savings were attributed to the SSI population. This review also confirmed that much of the
Citizens Research Council of Michigan
47
CRC Report
savings was due to decreased utilization when compared to fee-for-service Medicaid enrollees. Additionally, Medicaid managed care programs were associated with improved access to services and high
satisfaction ratings from enrollees.78
Approximately 80 percent of national Medicaid spending is in the fee-for-service system, despite the fact
that nearly half of all Medicaid beneficiaries are enrolled in managed care. 80 While nearly all states,
including Michigan, have already made the switch
to a managed care program, many states are lookOn the other hand, some research provides evidence
ing at ways to increase its use by certain population
that managed care plans may not
groups. As of June 2009, 88.8
actually save states money. In a
The inference of the con- percent of Medicaid recipients in
recent report by the National BuMichigan were enrolled in a Medreau of Economic Research, re- flicting research is that icaid managed care.81 The CMS
searchers found that by shifting while managed care may be reported that 71 percent of MedicMedicaid patients from fee-for-ser- seen as a silver bullet in aid beneficiaries nationwide are
vice plans to managed care plans
enrolled in some form of managed
between 1991 and 2003 the aver- managing costs, there may care. The Fiscal Survey of States
age state did not see reductions in be different or better ways indicates that in FY2011, seven
Medicaid spending, though the re- that achieve similar results states expanded managed care as
sults varied from state to state. In
through decreased utiliza- a strategy to contain Medicaid
fact, any reduction in spending was
costs; 19 states including Michigan
likely caused by reducing provider tions and provider reim- proposed expanding managed care
reimbursement rates, as was like- bursement rates.
in FY2012.
ly the case in Michigan.79 The inMichigan currently limits the Medference of the conflicting research
icaid eligible groups that may enroll in MCOs. Groups
is that while managed care may be seen as a silver
that may voluntarily enroll are migrants and Native
bullet in managing costs, there may be different or
Americans. Groups excluded from MCO enrollment
better ways that achieve similar results through deare Medicaid eligible persons that are: residing in a
creased utilization and provider reimbursement rates.
Medicaid Managed Care Actuarial Soundness
Since 2005, the federal government has required states to pay actuarially sound rates to Medicaid managed care
organizations (MCOs). This requirement came about because MCOs in Michigan and other states would compete
for contracts and submit bids too low to actually cover costs. This led to financial problems with many of the
MCOs responsible for Medicaid coordinated care. The actuarial soundness requirement helps to ensure that
MCOs such as HMOs are paid sufficient rates such that they can afford to pay their providers and continue a high
quality of service.
These rates must be certified by an actuary, developed in accordance with actuarial principles, and factor in
population demographics and services rendered. States are required to submit its methodology for rate setting,
including the data used, to the CMS who is obligated to monitor compliance. However, the CMS does not include
standards for the type, amount, or age of the data used to set the rates. In a 2010 report, the Government
Accountability Office questions the reliability and quality of the data used by states to set actuarially sound rates
as well as the efficacy of oversight by CMS in this capacity. The requisite of paying actuarially sound rates to
MCOs usually results in an annual inflationary increase of rates paid and is seen as a budgetary constraint by
states.*
“Medicaid Managed Care: CMS’s Oversight of States’ Rate Setting Needs Improvement.” United States Government Accountability Office. GAO-10-810. August 2010.
*
48
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Intermediate Care Facility for the Mentally Retarded
(ICF/MR) or are in a state psychiatric hospital; receiving long-term care in a licensed nursing facility;
being served under the Home and Community Based
Elderly Waiver; enrolled in Children’s Special Health
Care Services; covered under commercial HMOs including Medicare HMO coverage; in the Program for
All-inclusive Care for the Elderly; deductible or spenddown clients; children in foster care or in Child Care
Institutions; in the Refugee Assistance Program; in
the Repatriate Assistance Program; in the Traumatic
Brain Injury Program; dually-eligible in Medicare and
Medicaid.82
In June 2011, California placed all its elderly and
disabled Medicaid patients in managed care plans
under a Section 1115 waiver. The state estimates a
10 percent savings by switching this population from
fee-for-service to managed care.85
Pharmaceutical Controls. To reduce expenditures on pharmaceuticals, states are exploring options for
boosting the usage of generic drugs.
A report from the National Association of State Budget Officers suggests that Medicaid may be able to reduce costs by
either requiring or providing incentives for the use
of generics.86 States may also be able to target
Many of these excluded groups are high cost because of more expensive treatmedications that treat chronic disments and high utilization. A reeases, such as asthma, to deterport by the Michigan Association A report by the Michigan mine appropriateness and dosage
of Health Plans (MAHP) estimates Association of Health Plans of treatment drugs. In some casthat approximately 75 percent of
certain drugs are commonly
estimates that approxi- es,
the cost of Medicaid resides with
prescribed where an alternative
these remaining fee-for-service mately 75 percent of the would be cheaper for Medicaid and
populations.83 Michigan could ex- cost of Medicaid resides safer for the patient. CMS has
pect to save at least 5 percent of with these remaining fee- been actively involved in this promedical care treatment costs by
cess as well, working with states
for-service
populations.
to increase generic drug usage,
enrolling these populations in a
mail order services, management
managed care plan. In fact, the
of costly over-prescribed drugs, and the use of inMAHP reports that Michigan saved $4.5 billion beformation technology to manage prescriptions.
tween FY2000 and FY2010 by moving more Medicaid enrollees into managed care. However, many
In a 2004 brief, the CMS recommended that states
worry about the ability of managed care plans to
implement “aggressive”, meaning mandatory, generic
properly treat more difficult and delicate medical
substitution policies, and notes such policies in Minconditions since much of managed care’s success
nesota and Idaho as best practices. Many of these
has been in treating relatively healthy patients.
policies allow physicians to prescribe brand name
Some larger states, mostly with lower managed care
drugs if the physician receives prior authorization
participation, are taking the lead in reinvigorating
from the Medicaid agency in the state.87
the managed care movement. Five years ago, FlorIn 2001, Michigan instituted a preferred drug list
ida enrolled five of its counties in a pilot program to
known as the Michigan Preferred Product List (MPPL).
implement managed care. The goal was to improve
Through use of the drug list, the state was able to
access and reduce state expenses, but the results
encourage the use of generics and negotiate supplehave thus far been unclear. Nevertheless, the state
mental rebates from pharmaceutical manufacturers
is petitioning CMS to begin a statewide transition of
in exchange for inclusion on the MPPL. By statute,
the elderly (dual-eligibles) into managed care. This
patient consent for use of generics is required. The
population is the most costly and therefore a high
MPPL is reviewed and updated by an 11 member compriority for the state. The Florida Medical Associamittee that includes both pharmacists and physicians
tion opposes the state’s action.84
Citizens Research Council of Michigan
49
CRC Report
who have served Medicaid patients. By 2004, 70
percent of drugs prescribed to Medicaid patients were
included in the MPPL.88 Physicians who wish to prescribe medications that are not on the MPPL must
receive prior authorization, but no prior authorization
is required for medications on the MPPL. There are
exceptions for drugs prescribed to Medicaid patients
with mental disorders, HIV/AIDS, cancer, and others
as defined in Public Act 248 of 2004.
In 2005, Michigan began the Pharmacy Quality Improvement Project (PQIP) with the goal of ensuring
that physicians prescribed drugs to mental health patients using evidence-based treatment guidelines such
that there was greater uniformity in drug type and
dosages. In an effectiveness study of the first six
months of implementation, the Department of Community Health reported a 22 percent reduction in pharmaceutical claims and 21 percent decline in costs that
resulted in a $1.7 million savings.89 The state could
expand this project to include treatment for other chronic diseases and disabilities.
Program Integrity. States have
also targeted fraud, waste, and
abuse to reduce costs and maintain
program benefits. The U.S. Department of Health and Human Services
reported $33.7 billion in improper
state and federal payments in FY2010. Part of CMS’s
oversight responsibility is to detect and deter fraudulent claims; this oversight is predominately carried
out by contractors. The U.S. Justice Department,
which prosecutes fraudulent claims in addition to
states’ attorney general, had more than 1,300 Medicare or Medicaid fraud whistle-blower cases under
investigation in early 2011, compared to roughly 900
at the end of 2008. In 2010, the Justice Department recovered $2.5 billion in false health care
claims.90
Governor Snyder’s Special Health and Wellness Message
In September 2011, Governor Snyder presented a special health and wellness message that outlined many of his
goals and intentions for the future of Michiganders’ health.* In this message, he indicated that to improve the
health of the 12.4 percent of Michigan youths who are obese, he would encourage the Michigan Department of
Education to work with schools to increase physical activity and health education and to adopt healthier nutrition
standards. In fact, Michigan is one of two states that were selected by the U.S. Department of Agriculture to
participate in a pilot program to use locally produced fruits and vegetables in school lunches. Additionally, to
reduce the nearly $3 billion the state spends annually on obesity related medical costs, the Governor has directed
DCH to incorporate body mass index data with childhood immunization records to increase obesity screening
rates and treatment. To reduce the 18.9 percent adult and 18.1 percent youth smoking rates, the Governor also
indicated that he will ask for legislation to ban smoking on state-owned beaches and ask the DCH to review the
state’s policy regarding Medicaid coverage of FDA-approved smoking cessation treatments as only three of Michigan’s 14 Medicaid managed care plans cover all smoking cessation medications.
The Governor also expressed his desire to use technology to provide more efficient health care. Examples
include the remote monitoring of patients and the development of platforms for sharing electronic health
information.
*
50
“A Special Message from Governor Rick Snyder: Health and Wellness.” September 14, 2011. www.michigan.gov.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
A 2005 report by the Institute of Medicine estimated that 30 to 40 percent of all healthcare spending
was “misspent,” mostly for inappropriate care; 3
percent to 10 percent of spending was due to fraud
and abuse. Additionally, in 2008 a report in Florida
estimated that between 5 percent and 20 percent of
the state’s total spending on Medicaid was due to
fraud.91 The CMS estimates that the average state
recovers only 0.09 percent of state Medicaid spending through fraud reduction efforts.92
Medicaid expenditures and the highest recovery rate
in the country.93
Michigan’s Office of the Inspector General identified
roughly $590,000 in Medicaid fraud in FY2009.94
Introduction of new programs
and legislation. Most of the strategies thus far introduced deal with
altering costs within Medicaid’s current footprint. With a few exceptions, these strategies provide shortStates are encouraged to develop ways to reduce
term savings, but not many provide long-term
fraud, waste, and abuse. For example, Secretary
solutions to reduce future costs or cost growth. One
Sebelius’s letter indicated that the CMS delivers free
strategy is to increase the health of the population
in-person and web-based trainings to help with fraud
and thus reduce the need and use of health care.
detection and sharing of best practices training for
The ACA will play a role in improvMedicaid agency staff through the
Medicaid Integrity Institute. The A 2005 report by the Insti- ing public health through several
new initiatives for screening and
CMS also plans to develop Payment
tute
of
Medicine
estimated
prevention research, immunization
Accuracy Improvement Groups
which will group states with com- that 30 to 40 percent of all programs, and the provision of
mon integrity priorities and work healthcare spending was state grants to reduce chronic diseases, address health disparities,
with CMS and other experts to solve
“misspent”
mostly
toward
improve oral health, and meet othproblems. As part of the ACA, on
January 1, 2012, states had to en- inappropriate care; 3 per- er public health goals.
act CMS’s procedures for screen- cent to 10 percent of
ing, oversight, and reporting for spending was because of In a February 2011 brief, the National Conference of State Legisproviders and suppliers that parfraud
and
abuse.
latures (NCSL) explored cost savticipate in Medicaid, Medicare and
ings options through public health
CHIP (Children’s Health Insurance
initiatives.95 They reported that in
Program, also co-financed by the
both 2003 and 2007 Arkansas passed legislation
state and federal governments).
designed to reduce childhood and adolescent obesity. The legislation required students in kindergarten
The Fiscal Survey of States indicates that in 2011,
through grade 10 to have a body mass index screen24 states enhanced program integrity efforts and 32
ing every other year, eliminated vending machine
proposed to do so in 2012. In both years, this was
access in public elementary schools, and established
one of the most commonly performed or proposed
a statewide Child Health Advisory Committee to recactions to reduce Medicaid costs.
ommend nutrition and physical activity standards for
Ohio created a Medicaid Fraud Control unit which
public schools. A review of the impact of the legisincluded 10 new staff positions and increased relation six years after its initial implementation showed
coveries from $65 million to $91 million between
that school environments were healthier and that
2008 and 2009. New York has taken an aggressive
families had a higher awareness of health problems
and innovative approach to curbing fraud by creatassociated with childhood obesity. There was an
ing the nation’s first Medicaid inspector general. This
increase in reported physical activity by adolescents
new office examined provider billing databases for
as well as a reported reduction in soda and fast food
outliers and investigated those providers for fraud.
consumption. In 2007, Texas and Mississippi both
Between 2007 and 2009 the state recovered more
passed legislation to promote increased physical
than $550 million, or 1.2 percent of New York’s total
activity in public schools.
Citizens Research Council of Michigan
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CRC Report
The NCSL brief describes tax policies states have
adopted to promote wellness, such as tax credits
for fitness and wellness choices and new junk food
and soda taxes. States also have enacted laws that
promote community design to encourage physical
activity, such as bike paths for new roads, and to
discourage tobacco use and alcohol abuse. Additionally, many states are making it easier for women
to breastfeed and the ACA requires, with some exceptions, employers to provide break time and a
private non-bathroom place for nursing mothers to
express breast milk.
Research has uncovered several proven cost saving
initiatives such as childhood immunization, vision
screening for seniors, fluorinated community water
systems, family planning, lead abatement in public
housing, and alcohol (problem drinking) and tobacco use screening and follow-up programs. The NCSL
reports that strategies to reduce tobacco use also
lower Medicaid spending96 mostly because the prevalence of smoking is higher among the poor.
The NCSL also identifies initiatives that are cost-effective, in that the additional benefit of the program
is worth the additional cost, though these programs
may not save money. These initiatives include immunization requirements for school entry; mandatory motor vehicle occupant restraints; primary
school education on reducing sun exposure to prevent skin cancer; home visitation to prevent child
abuse or neglect; community-wide campaigns to
encourage physical activity; influenza and pneumococcal vaccines for adults; and screening for high
blood pressure, high cholesterol, and problem drinking.
An example of innovative cost reduction efforts occurred recently in Wisconsin. In September 2011,
the state unveiled a website to chronicle savings for
state health care programs including a prominent
feature to solicit public input on new strategies.
These proposals will be reviewed by the Legislature’s
Joint Finance Committee and by the federal government.97 Connecticut just received a grant from the
federal government to explore the effectiveness of
paying smokers to quit.98 Many new programs can
be introduced under a Section 1115 waiver from CMS
and may be eligible for federal matching dollars.
52
Market reforms and longerterm changes. Market reforms and
longer-term changes are taking
many forms. Some states are addressing process, payment, and service delivery while others are embracing information technology. Most states are
implementing a variety of methods simultaneously
in such a way that Medicaid administration may look
vastly different in just a few years.
Many medical providers and some states are in the
process of creating accountable care organizations
(ACOs). These organizations, which were first introduced in the ACA, are intended to provide a new
model for delivering quality care at a lower cost.
ACOs accept responsibility for the care of the patient and are provided financial incentives tied to
measures of cost and quality. Primary care doctors,
specialists and hospitals work together to provide
care for patients in a manner similar to MCOs. While
many states and providers are voluntarily switching
to this model, none are fully operational and the
actual benefits have yet to be seen. ACOs do
incentivize providers to reduce expensive, unnecessary testing while also discouraging hospital re-admittance of patients, which should also save states
money if the programs work as planned. Oregon is
the first state to authorize a state-run ACO and estimates it will save $640 million in its first year of
operation.99
States are also using technology to reduce Medicaid
spending. Texas recently stopped mailing monthly
proof of coverage letters to its three million Medicaid beneficiaries and switched all Medicaid recipients to cards. The state spent about $1 million per
month printing and mailing the forms and expects
the change to save the state $30 million over four
years. The cards have magnetic strips on the back
which are not currently being used but will eventually allow doctors and patients to retrieve medical
records thereby reducing duplication of care and
ensure eligibility when the feature is operational. 100
Michigan is in the process of implementing the Michigan Health Information Network (MiHIN) which will
help health care providers utilize electronic health
records to access and share patient information. This
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
will be especially useful in emergency medical situations.101
Twenty-six states made changes to streamline or
simplify the Medicaid enrollment and renewal process in FY2010, compared to 17 states that plan to
make changes in FY2011 according to the Kaiser
Family Foundation and Health Management Associates survey. Seventeen states added or expanded
the ability to apply or renew Medicaid applications
online, seven states implemented Express Lane Eligibility, and eight states increased the use of available data for renewals to reduce administrative work.
Three states eliminated the requirement for in-person renewals and 21 states have begun using the
Social Security Administration’s data match for citizenship and identity confirmation.
States are also making system-wide changes that
focus on monitoring care quality and quality improvements and measuring outcomes and performance.
The Healthcare Effectiveness Data and Information
Set (HEDIS®) is a set of benchmark measures developed by the National Committee on Quality As-
surance that is available to states that contract with
MCOs, including Michigan. States have the flexibility to use HEDIS® or develop measures that better
align with their own Medicaid policy priorities such
as those to track prenatal care and immunization
status. According to the Kaiser Family Foundation
and Health Management Associates survey, 46 states
and the District of Columbia use HEDIS® or a similar
system to track quality of care for most of their Medicaid programs, not just managed care. By the end
of 2011, 85 percent of Medicaid programs will have
some pay-for-performance system for health care
plans and providers to meet or exceed benchmarks
and expected results.102
Kaiser Family Foundation and Health Management
Associates also report that 41 states are taking action to assess patient satisfaction and experience,
and together with HEDIS® and HEDIS®-like measures, are using the data to ensure compliance and
reward or penalize providers based on performance.
States publish these measures as “report cards” and
distribute them to Medicaid beneficiaries or on
Medicaid Opt-Out Option
Since Congress began debating the bill that became the ACA in March 2010, Governors from around the country
have threatened to stop providing Medicaid services in their state. The conflict stems from two issues: timing,
and the Tenth Amendment to the U.S. Constitution. First, Congress enacted a law that expands Medicaid to 16
million individuals nationwide during a time when states are having difficulty meeting their current Medicaid
obligations. While the expansion of eligibility in the ACA should not impact state budgets until 2017, many states
fear that they will still be dealing with the lingering effects of the Great Recession and the double-dip recession
that many suspect may follow. Additionally, the ACA’s maintenance of effort requirements constrain the ability of
states to make changes to Medicaid to close their budget deficits, further burdening state priorities. Some states
believe that they simply can no longer afford Medicaid.
Second, many Governors see the ACA as a violation of their Tenth Amendment right to reserve powers that are
neither expressly given to the federal government nor prohibited to the states. In the case of the ACA, the
federal government is mandating that states expand Medicaid without allowing them flexibility on how the
expansion is performed. Several other ACA provisions may override state policies and states may become liable
for increased costs as well as program outcomes despite an inability to make changes that better suit their needs.
A Nevada report on this issue summarizes states’ complaint as, “…it is clear that forcing states to deal with the
burden of funding health coverage to new Medicaid eligibles under health care reform is forcing some to consider
what previously was unthinkable – opting out of the Medicaid program.”a
A recent study by the Heritage Foundation, a conservative public policy think tank, has fueled many of the state
Medicaid opt-out threats.b The study reported that over a ten-year period states could cumulatively save nearly
$1 trillion by opting out of Medicaid. In fact, by their calculations, most states would be better off forgoing the
federal match and only spending 90 percent of what they currently spend on long-term care from own-source
Citizens Research Council of Michigan
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CRC Report
state dollars. Michigan would save $32,337 million between 2013 and 2019 under this scenario and $30,774
million with no change to long-term care.
As expected, there is a large constituency of groups and individuals that either oppose state opt-out in general or
find issue with the simplistic approach of the Heritage Foundation. A major issue is that the number of uninsured
would greatly increase. Low-income families and individuals who would now be uninsured will encounter some
ambiguity as to their insurance options under federal health care reform. As it stands, the ACA does not allow for
those who qualify for Medicaid to receive subsidies for enrolling in state insurance exchanges. It is assumed that
if this population does not have access to subsidies to pay for premiums and cost-sharing that they will not obtain
health insurance. Having a large uninsured share of the population is costly to many parties because treatment
is often delayed and use of costly emergency room care increases. The burden of these costs falls on providers,
insurers, and eventually taxpayers.
Nevada, Texas, and Wyoming have commissioned reports to investigate the impact of a state Medicaid opt-out.c
These reports found long-term and pervasive damage to a state opt-out. Not only would low-income individuals
be unable to obtain health care but state hospitals, nursing homes, medical centers, and other institutions that
provide Medicaid services would suffer extreme financial damage. State and county run hospitals would also see
increased costs and reduced revenues. Not only would they no longer receive Medicaid reimbursements, but
they would be required to continue treating the uninsured and would have to absorb the cost of uncompensated
care. Additionally, it is not clear whether or not private providers would still be subject to provider taxes. States
would likely continue to charge the taxes since it adds to their current own-source Medicaid funding and some
GF/GP savings, further compounding the financial stress placed on medical care providers.
Medicaid also plays an important role in job creation and state economic growth. Federal and state Medicaid
spending ignites investment in the health care industry and has a strong multiplier effect throughout the general
state economy. The Medicaid dollars paid to medical care providers create jobs and demand for products needed to
carry out services, both of which result in employee income which is spent on goods, services, and taxes, spurring
economic growth.d A major component that makes Medicaid a better economic driver than other forms of investment is the amount of non-state dollars coming in. Many state economic drivers pass around state dollars with no
new resources added; Medicaid creates new income and jobsfor many states. Consequently, a loss of federal
matching funds would reduce the amount of money available in this economic sector and would have negative
consequences for the economic activity in the state. If a state were to opt out of Medicaid, its residents would still
be subsidizing Medicaid in other states as their federal tax liability will not be impacted by the change.
The Social Security Act allows for voluntary state participation in Medicaid; all have participated since 1982.
States presumably can choose to no longer participate, though no state has exercised this right. As it stands, the
evidence points to the fact that states are better off providing Medicaid as it currently is than opting out all
together. The opt-out threats have gotten serious attention and should alarm Congress to the needs of states —
namely, to have greater control and flexibility in how they manage Medicaid especially over the next several years
when budgets are expected to be chronically imbalanced.
Nevada Department of Health and Human Services and the Division of Health Care Financing and Policy. Medicaid Opt Out.
White Paper. January 22, 2010.
a
Dennis G. Smith and Edmund F. Haislmaier. Medicaid Meltdown: Dropping Medicaid Could Save States $1 Trillion. WebMemo
Published by The Heritage Foundation. No. 2712. December 1, 2009.
b
“Medicaid Opt Out,” Nevada Department of Health and Human Services and the Division of Health Care Financing and Policy,
January 22, 2010. http://media.lasvegassun.com/media/pdfs/blogs/documents/2010/01/28/medcaid0128.pdf“Medicaid OptOut Impact Analysis,” Wyoming Department of Health, September 1, 2010. www.health.wyo.gov/
Media.aspx?mediaId=9529“Impact on Texas if Medicaid is Eliminated,” Texas Health and Human Services Commission and
Texas Department of Insurance, December 2010. http://www.hhsc.state.tx.us/HB-497_122010.pdf
c
The Kaiser Commission on Medicaid and the Uninsured. The Role of Medicaid in State Economies: A Look at Research. The
Kaiser Family Foundation: Publication #7075-02. January 2009.
d
54
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
websites. Michigan publishes A Guide to Michigan
Medicaid Health Plans: Quality Checkup103 that provides star ratings and accreditation information for
each of Michigan’s Medicaid health plans. Michigan
also uses a performance based bonus system determined by annually changing quality measures.
As part of the Deficit Reduction Act of 2005, Congress authorized Medicaid Transformation Grants that
have provided states with resources to more actively use technology to improve efficiency and effec-
tiveness and reduce waste and abuse in Medicaid.104
ARRA also allocated $2 billion in grant funding to
states and eligible providers to establish technology
infrastructure. These grants, which do not require
state matching, can be used to develop electronic
health records, health information exchanges, electronic prescribing, electronic clinical decision support systems, tele-medicine services, and electronic
claims submission systems among other technology
tools.
Citizens Research Council of Michigan
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CRC Report
Conclusion
Nearly 20 percent of Michigan’s population relies on
Medicaid for critical health services. This figure may
continue to grow given the uncertainty of the state,
national, and global economies.
challenge for state policymakers is to agree on a
funding method for Medicaid that ensures the integrity of the program now and in the future, without
compromising other state spending priorities.
As Medicaid spending continues to grow at a rate
faster than the economy, there are few funding sources that can keep up. While Medicaid spending contributes to state economic activity, it continues to
stress state resources. Even with recent revenue
changes, the majority of Medicaid financing is growing at a rate slower than the costs of Medicaid, and
state policymakers will grapple with revenue raising
options in order to maintain Medicaid services. The
A main function of the state budget is to prioritize
services; as such, Medicaid has been dominating the
budget as the number of patients served and benefits provided have increased. Michigan policymakers
need to decide whether to allow Medicaid to continue to crowd out other important programs. This
has been, and will continue to be, the fiscal dilemma facing policymakers.
56
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Appendix A
Michigan’s Special and Creative Financing Practices
Prior to FY2002, Michigan had relied on a variety of
special financing strategies to minimize the impact
of Medicaid financing on the GF/GP budget and
maximize the dollars reimbursed from the federal
government. These strategies were commonly referred to as special or creative financing and generated matching funds regardless of whether Medicaid services had actually been rendered. In the
1990s, these strategies fell into three major categories: specific provider taxes, provider donations, and
intergovernmental transfers (IGTs).
Prior to federal legislation in 1991, states were allowed to receive donations from providers and use
these donations as matchable Medicaid funds. To
best utilize this circumstance, Michigan collected
voluntary contributions from hospitals, used those
dollars to increase matching funds from the federal
government and then redistributed some of the
money back to those same hospitals, and retained
the rest to offset its GF/GP expenditures. 105 Both
providers and the state’s general fund benefited from
this scheme; the federal government, which paid out
matching funds for payments not associated with
Medicaid services, was the only party to lose out.
In addition to provider donations, states including
Michigan utilized provider specific taxes to finance
Medicaid. Provider specific taxes have the benefit
of allowing states to only tax those medical providers that have enough Medicaid business that, even
though they are subject to taxation, the amount
matched by the federal government (with the inclusion of tax dollars), and therefore reimbursed, would
more than compensate for the tax payments.
According to the United States General Accounting
Office (GAO), 32 states employed either or both specific provider taxes and donations with the amount
collected representing 23.5 percent (up to half in
some states) of states’ own-share expenditures on
Medicaid. In 1991 and again in 1993, Congress
passed legislation that limited these practices with
the goal of ensuring that provider taxes were utilized to increase state revenue and not to maximize
federal matching funds. 106 According to the GAO,
despite the 1991 and 1993 changes, Michigan increased its federal share of Medicaid financing from
56 percent to 68 percent in 1993 using other special
financing approaches, namely, intergovernmental
transfers and public provider donations.
Figure 1
Michigan’s Use of IGTs
Source: “Medicaid: Intergovernmental Transfers Have Facilitated State Financing Schemes.” Statement
of Kathryn G. Allen, Director, Health Care — Medicaid and Private Health Insurance Issues. United States
General Accounting Office. GAO-04-574T. March 18, 2004.
Citizens Research Council of Michigan
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CRC Report
Michigan utilized IGTs in similar ways. The state
made special Medicaid payments to public providers
such as county medical care facilities and stateowned hospitals at a rate higher than the normal
reimbursement (usually the Upper Payment Limit
discussed below). The state then filed its federal
claim and received matching funds for the special
payment. The public medical provider that received
the payment returned most or all of the original increased payment to the state through an IGT (sometimes within the hour it was received).107 This transfer was now considered local revenue or state
restricted revenue and was used to fund other Medicaid expenditures for which it could also claim a
federal reimbursement. 108 This method allowed
the state to receive federal match funding twice on
the same pot of money — as it was first transferred
to the provider and then as it was paid back to the
provider after the IGT. This strategy is depicted in
Figure 1. Payment limits were placed on these
transactions in 2000 and in 2002 Congress further
reduced the payment limit. Effective in 2008, the
CMS limited payments to public providers to their
actual cost of providing services.
In a similar manner, Michigan utilized Disproportional
Share Hospital (DSH) payments to public hospitals
in the guise of public provider donations. Between
FY1991 and FY2005, Michigan made DSH payments
to public hospitals (the University of Michigan Medical Center and Hurley Medical Center in Flint), which
were matched by the federal government. The GF/
GP portion of the original payment was returned to
the state along with some of the matching funds.
While this saved Michigan taxpayers $1.43 billion109
over the 15-year period it was utilized, the strategy
was gradually restricted by federal law until it was
completely phased out in 2005.
Beginning in 1995, the state began making DSH
payments to state psychiatric hospitals. These payments are matched but not returned to the state.
The amount matched results in general fund savings for the state. While these payments are still
made, they have been reduced in accordance with
federal regulations enacted in 2001.
58
Beginning in 1991, intermediate school districts became eligible to receive Medicaid reimbursements
for school-provided health services such as health
screening, physical therapy, speech therapy, nursing, social work, counseling, and some administrative activities related to outreach, application assistance, and coordination of health services. Schools
receive a reimbursement for the cost of these services that is not subject to a state match (state and
local funding of employees providing services is
viewed as the match). As an additional benefit to
the state’s GF/GP, the state retains 40 percent of the
reimbursed funds and the school districts are allocated the remaining 60 percent. In 2002, the federal government ruled that many of Michigan’s claims
for administration related services were invalid and
Michigan was ordered to pay a $33 million penalty.
With this settlement, the federal government revised
the types of services that may be claimed for reimbursement and as a result the amount submitted for
reimbursement has declined in the last decade.
An additional special financing strategy employed
by the state utilized the certified public expenditures
process. Beginning in FY2006, a hospital could submit documentation to the state detailing its financial
loss associated with providing medical services to
the uninsured. The state forwards this documentation to the federal government who subsequently
provides reimbursement for this certified expenditure at the same rate as its Medicaid reimbursement
(i.e. FMAP). The state uses this money to offset its
Medicaid expenditures from the GF/GP. According
to the Senate Fiscal Agency, this practice saved the
state nearly $76 million over the first two years it
was utilized.110
Quality Assurance Assessment Programs
Beginning with the FY2002 budget and the phase
out of provider donations and intergovernmental
transfers, Michigan enacted targeted provider tax
programs called Quality Assurance Assessment Programs (QAAPs). Initially, the QAAP was imposed on
only the nursing home and long-term care industry.
Because roughly 60 percent of residents in nursing
homes use Medicaid insurance, these providers are
typically reimbursed for the entirety of their tax.
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Subsequently, the state found a loophole in the federal law that listed “Medicaid managed care organizations” as a taxable entity rather than the more
general “managed care organizations.” The difference in wording meant that there could be an entire
class of providers that only served Medicaid patients.
This loophole motivated some health maintenance
organizations (HMOs) to spin off their Medicaid business into a Medicaid-only provider. Only the new
Medicaid HMO was subject to the QAAP. This allowed the state to follow federal guidelines by taxing this class of providers uniformly with the added
bonus of not having to tax non-Medicaid providers
that would not benefit from the state-paid reimbursement. Therefore, there were very few, if any, “losers” (except for the federal government) under this
scenario because the state was able to hold this class
of providers harmless.
services, which were operated by Prepaid Inpatient
Health Plans (PIHPs) and therefore subject to the
“managed care organizations” loophole.
With the passage of the Deficit Reduction Act of 2005,
Congress and the President initiated the phase out
of the “Medicaid managed care organizations” loophole; the loophole was officially closed in 2009, ending the QAAP assessed on Medicaid HMOs and PIHPs.
The nursing home and hospital QAAPs are still in
effect.
Revenues from the QAAPs are deposited in the general fund and designated as restricted revenue. In
FY2011, providers received $1.017 billion in net increases from the QAAP tax and its federal match.
This provider tax also created a net GF/GP savings
to the state of $266.6 million.111 Chart 7 shows the
trend of the provider rate increases and state GF/GP
savings (money that is freed up for use on other
programs) over the last decade since QAAPs were
enacted. The state GF/GP savings includes savings
from all techniques implemented during the year.
In FY2003, Michigan instituted QAAPs for hospital
services and the new Medicaid HMOs. In FY2005,
the state levied a QAAP on Medicaid mental health
Chart 7
QAAP Provider Increases and State GF/GP Savings Trends
$1,200
Millions of Dollars
$1,000
$800
$954.4
Net Increase to Providers
$994.8
$1,017.1
$875.3
State GF/GP Savings
$644.7
$600
$554.2
$447.0
$400
$344.3
$313.6
$192.1
$200
$167.4
$199.4
$223.6
$266.6
$209.7
$92.4
$0
$14.6 $0.0
2002
$18.9
2003
$42.9
2004
2005
2006
2007
2008
2009
2010
2011
Source: Margaret Alston, Sudan Frey, and Steve Stauff. Community Health Background Briefing. Michigan
House Fiscal Agency. January 2011.
Citizens Research Council of Michigan
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CRC Report
Upper Payment Limits and Disproportionate Share Hospital Payments
The Upper Payment Limits (UPLs) restrict the amount that states may reimburse classes of providers for Medicaid
services to the amount that Medicare would reimburse for the same service. The UPL allows states, which
normally would reimburse lower than the Medicare rate, to pool UPL reimbursement amounts for individual
facilities within a class, and then redistribute that money among the providers in that class. This provides states
with flexibility in reimbursing individual providers for varying operation costs based on population type.* To curb
abuse, federal legislative changes were made such that since 2008, payments to public providers have had to be
equivalent to the actual cost of services.
Similarly, states are permitted to make additional payments through the Medicaid program to hospitals that serve
a disproportionately high percent of uninsured or Medicaid insured patients. These are called Disproportional
Share Hospital (DSH) payments and are eligible for a federal match. The reimbursable amount is capped based
on inflationary growth of historic DSH spending. Because health care reform will reduce the number of uninsured
and uncompensated care, the Affordable Care Act (ACA) places additional limitations on DSH payments beginning in 2014.
Department of Health and Human Services. Testimony on Medicaid Upper Payment Limits by Timothy Westmoreland,
Director, Center for Medicaid and State Operations, Health Care Financing Administration,
*
60
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Appendix B
Summary of State Provider Taxes
Taken from the National Conference of State Legislatures report “Health Care Provider and
Industry Taxes/Fees”
The code (M) indicates taxes or fees that are used to obtain Medicaid matching funds. The code (NA) indicates that details are
not available. ICF/MR-DD is intermediate care facilities for individuals with mental retardation or developmental disabilities.
State Tax Applies to:
AL
Hospital (M)
Description and Notes
Hospitals: Hospitals were added for FY 2010.
Nursing Home (M)
Nursing Home: Levies a privilege tax on nursing facilities, at an annual rate of
$1,899.96, imposes a new supplemental tax of $1,063.08 for the period September 1, 2010 through August 31, 2011, to reduce the percentage of total
nursing facility revenues used when considering a reduction of the tax and to
provide for the prepayment of the supplemental privilege tax through an
increase in the Medicaid per diem rate beginning in January 2011. Signed as
Law chapter 520. This tax is expected to generate $200 million.
Other: Pharmacy (M)
Other — Pharmacy: A pharmacy tax of 0.10 per prescription exists except for
prescriptions below $3.00. This has been in place since approximately 1990.
Tax is valid only if allowed for FFP under federal Medicaid.
Note: Provider tax revenue was $58 million in FY 2006, $58 million in FY 2007
and $59 million in FY 2008.
AZ
Managed Care Org. (M)
Managed Care Org.: 2% of net premiums, for hospital and medical service
corporations, health care service organizations, health care providers of Medicaid services.
Note: From 2003 through 2008, the premium tax on Arizona’s Medicaid health
insurers generated $575 million.
Analysis: “A Review of Health Care Provider Taxes and Their Potential Fiscal
Impact to Arizona” Arizona ACCCS, November 2009.
AR
Hospital (M)
Hospitals: “Assessment fee” of up to 1 percent of some hospitals’ annual net
patient revenue added for FY 2010 (Act 562 of 2009).
ICF/MR-DD (M)
ICF/MR-DD: Establishes a provider fee for intermediate care facilities for individuals with developmental disabilities added for FY 2010 (Act 433 of 2009).
From July 31, 2009, to June 30, 2010, the multiplier shall be set at $15.15 per
patient day.
Nursing Home (M)
Nursing Home: Quality assurance fee of 6% of the aggregate annual Arkansas
gross receipts (Act 635, §2 (H.B. 1274), Laws of 2001).
Citizens Research Council of Michigan
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CRC Report
State Tax Applies to:
Description and Notes
CA
Hospital
Hospital: As of 2009, establishes an unspecified “coverage dividend fee” on
private hospitals with the purpose of increasing payments to MediCal managed
care plans, hospitals, and expanding health coverage to children. Sunset:
December 31, 2013, signed as Law chapter 627 (AB 1383). Awaiting CMS
approval.
ICF/MR-DD (M)
ICF/MR-DD: Quality assurance fee up to 5.5% of gross revenue on skilled
nursing facilities (CA Health and Safety §1324.21, signed as Law chapter 875
(AB 1629), Sept. 2004).
Nursing Home
Nursing Home: Began in 2006. As of 2009, expansion of Quality Assurance Fee
for AB 1629 Nursing Homes. AB 1629 nursing homes presently pay a quality
assurance fee. Expanded this fee to include Medicare revenues, as well as
MediCal and private pay revenues. Signed as Law chapter 5 (AB 5 d). For
assessment on SNFs see Cal Health & Saf. Code §§ 1324.20 to 1324.30 (2009).
California has a waiver exempting some types of SNFs, such as continuing care
retirement communities and SNFs operated by the state or another public
entity.
Notes: Discontinued Managed Care Org. fee in 2010.
Article: California Hospitals to Begin Taxing Themselves, released October 7,
2010.
CO
Hospital (M)
Hospitals: Fee was determined by a 13-member oversight committee. Managed
care days are taxed at $60.47 per inpatient hospital day. Non-managed care
days are taxed at $270.26 per inpatient bed day. Discounts are applied to high
volume Medicaid and indigent care providers and essential access hospitals.
Mental disease, rehabilitation, and long term care hospitals are excluded
(Signed as Chapter 152 of 2009).
ICF/MR-DD (M)
ICF/MR-DD: Service fee up to 5% of the costs incurred by each intermediate
care facility, effective 2003-04. (Co. Rev. Stat. 25.5-6-204(c)). Fee is valid only
if allowed for FFP under federal Medicaid.
Nursing Home
NA
Article: Gov. Ritter Announces Colorado Healthcare Affordability Act, released
February 26, 2009.
CT
Nursing Home (M)
Nursing Home: “Resident day user fee” on nursing homes of 6% on each
Medicaid nursing home bed (CT Sec. 17b-321, enacted as P.A. 05-251, effective
for 2006). Fee amount is subject to federal Medicaid waiver approval.
DC
ICF/MR-DD
ICF/MR-DD: 1.5% per annum of gross revenue. (Sec. 47-1273, signed as D.C.
Law 16-68, March 2006, effective for FY 2008). FY 2011 Budget reflects $1.7
million from a 1.5 percent tax on the gross revenue of intermediate care
facilities that was adopted in 2006 but has not been implemented.
Nursing Home (M)
Nursing Home: Assessment on nursing homes of $3,600 per licensed bed
annually; may be increased up to 6% of net resident revenue (Sec. 47-1263,
signed as Law 15-205). The tax is estimated to generate $11 million in revenue
annually from FY 2010 through FY 2014.
Note: Hospital assessment of 0.45% of net patient services revenue was
discontinued (Sec. 47-1242 — Repealed by Law 15-205).
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OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
State Tax Applies to:
Description and Notes
FL
Hospital (M)
Hospital: Hospitals are assessed 1.5% of the annual inpatient net operating
revenues and 1 percent of the annual outpatient net operating revenues; funds
administered by the “Public Medical Assistance Trust Fund” (§ 395.701, F.S.
amended by Chapter 2007-230).
ICF/MR-DD
ICF/MR-DD: ICF/MR-DD taxes were added, effective FY 2010. Sunset date of
the assessment is October 1, 2011.
Nursing Home
Nursing Home: Created a quality assessment on nursing home facility providers
and required the assessment to be imposed beginning April 1, 2009. The
assessment may not exceed the federal ceiling of 5.5 percent of the total
aggregate net patient service revenue. Signed as Law chapter 4.
Other: Clinical Labs,
Ambulatory Surgical
Centers, Diagnostic
Imaging
NA
A
Note: Florida no longer taxes health care entities (including clinical labs,
ambulatory surgical centers, diagnostic imaging) at an assessed 1% rate
of annual net operating revenues (§ 395.7015, F.S.). This revenue is
used for administrative expenses, not matching funds
GA
Nursing Homes
Nursing Home: Reduced for 2006.
Note: Managed Care Org. fee was dropped for FY 2010.
ID
IL
IN
Hospital (M)
Hospital: Began in 2008. Not greater than 1.5 percent of the assessment base.
Repeals July 1, 2012.
Nursing Home
NA
Hospital (M)
Hospital: Occupied beds less Medicare occupied beds from hospital’s fiscal year
Medicare cost report. The tax rate is $218.38 per occupied bed and is based on
Fiscal Year 2005. The annual tax is $900.0 million.
ICF/MR-DD (M)
ICF/MR-DD: Adjusted gross revenues reported on HFS tax report. The tax rate
is 5.5 percent and is based on the previous state fiscal year. The annual tax is
$19.1 million.
Nursing Home (M)
Nursing Home: Licensed beds multiplied by number of days in the current
quarter. The tax rate is $1.50 per licensed bed day and is based on the current
state fiscal year. The annual tax is $55.2 million. In 2011, the legislature passed
a bill to increase the bed tax bringing in an estimated $145 million next year.
Article — Chicago Tribune, 1/12/11.
ICF/MR-DD (M)
ICF/MR-DD: Revised 2008. “Each facility’s assessment shall be based on a
formula set forth in regulations promulgated by the Department of Mental
Health;” effective June 29, 2009.
Nursing Home
Nursing Home: SB 169 of 2006; effective July 1, 2006, extends an expiring levy
on nursing facilities’ non-Medicare total annual patient days. The extension of
the $10 per non-Medicare patient day Quality Assessment is estimated to result
in total additional payments to nursing facilities of approximately $215.8 million.
Estimated total annual collection of $102.5 million for FY 2007.
Citizens Research Council of Michigan
63
CRC Report
State Tax Applies to:
Description and Notes
IA
ICF/MR-DD (M)
ICF/MR-DD: The assessment fee equals 5.5 percent of the total revenue of the
facility for the facility’s preceding fiscal year.
Nursing Home
Nursing Home: Imposes a quality assurance assessment on nursing facilities for
each patient day. The assessment rate is 3.0%. The quality assurance fee is
expected to generate roughly $33 million. Signed as Law chapter 160 (S 476).
Hospital (M)
Hospital: Annual assessment on hospital inpatient services of 1.83% of net
inpatient operating revenue.
Nursing Home
Nursing Home: Imposed annual quality care assessment per licensed bed on
each skilled nursing care facility. The assessment on all facilities in the aggregate shall not exceed $1,950 annually per licensed bed, and shall be imposed
uniformly on all skilled nursing care facilities. Excludes skilled nursing care
facilities that are part of a continuing care retirement facility, small skilled
nursing care facilities and high Medicaid volume skilled nursing care facilities.
Signed as Law chapter 159 (H 2320). Pending CMS approval.
KS
Note: All assessments are valid only if allowed for FFP under federal Medicaid
(Ch. 89 (HB 2912), Laws of 2004). Former Managed Care Org. Fee: Assessment
fee of 5.9% of non-Medicare premiums collected by HMO. Fee is no longer
waived for Medicaid MCOs.
KY
Hospital (M)
Hospital: Hospital Services Tax of 2.5% on gross revenues (KRS Sec. 142.303,
as amended by Ch. 9, Laws of 2007).
ICF/MR-DD
ICF/MR-DD: Intermediate Facility Services Assessment of 5.5% on the gross
revenues; effective July 1, 2004 (KRS Sec. 142.363-1).
Nursing Home
Nursing Home: Nursing Facility Services Assessment of 2% of gross revenues
for non-Medicare patients, with variations (KRS Sec. 142.361, as created by Ch.
142, Laws 2004).
Other: Home Health
Care (M)
Other — Home Health Care: Health Care Provider Tax of 2% on
gross revenues of licensed home-health-care services and HMO
services (KRS Sec. 142.307 as amended by Ch. 73, Laws of 2005).
Note: Managed Care Org. fee discontinued in 2010. A Pharmacy Tax of 15¢ per
prescription ended in 1999 (see KRS Sec. 142.311).
LA
ICF/MR-DD (M)
ICF/MR-DD: “Health Care Providers’ Medicaid Fees” are $30 per occupied bed
per day for intermediate care facilities. Actual fee collected is $14.30 per day.
Nursing Home (M)
Nursing Home: $10 per occupied bed per day for nursing facilities. Actual fee
collected is $8.02 per day.
Other: Pharmacy (M),
Medical Transportation
Providers (M)
Other — Pharmacy: 10¢ per out-patient prescription.
Other — Medical Transportation Providers: $7.50 per medical service trip for
medical transportation providers (Sec. 46:2625, La R.S.). No fee collected. This
is the amount authorized by state law, but not implemented.
Note: All fees are valid only if allowed for FFP under federal Medicaid.
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Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
State Tax Applies to:
ME
Hospital (M)
Description and Notes
Hospital: “Health Care Provider Tax” — Hospitals subject to 2.23% tax of net
operating revenue (36 M.R.S.A. Sec. 2892 as enacted by Act 513 (H.B. 1351),
Laws of 2004). The hospital assessment has an updated tax base year of 2008
(changed from 2006).
ICF/MR-DD
NA
Nursing Home
Nursing Home: Nursing homes tax is 5.5% of annual net operating revenue.
Other: Private Non-Medical Other — Residential Care & Day Hab.: Residential treatment facilities
Institutions (PNMI),
is 6% of annual gross patient services revenue (36 M.R.S.A.
Residential Care &
Sec. 2872, as amended by Act 467 (S.B. 424), Laws of 2003).
Day Hab.
Note: All taxes are valid only if allowed for FFP under federal Medicaid (Sec.
HH-6, Ch.673, 2004).
MD
MA
MI
Hospital
Hospital: HB1587/SB 974 passed during the 2008 Legislative Session. By the
end of FY 09, the Department estimated that it will receive $41 million in
hospital assessment funds. Chapter 7.
ICF/MR-DD
NA
Managed Care Org.
NA
Nursing Home (M)
Nursing Homes: Added in FY 2008.The aggregate amount of the quality assessment necessary to support the Medicaid nursing facility reimbursement system
in the FY 2009 was equivalent to the statutory cap of 2% of operating revenue.
(SB 101 — Chapter 503 of the Acts of 2007).
Hospital
Hospital: Assessment; payment of expenses for Health Policy office and health
safety net office by acute hospitals. (MGL Ch. 118, §5 as amended by Ch. 58
“health reform” law of 2006).
ICF/MR-DD (M)
ICF/MR-DD: Provider donations from hospitals or health centers. Massachusetts
established a new tax on intermediate care facilities for the developmentally
disabled in FY 2007.
Nursing Home (M)
Nursing Home: Began in FY 2007. Extended to 4/4/10.
Hospital (M)
Hospital: Increased in 2006.
Nursing Home
Nursing Home: Increased in 2006.
Other: Community
Mental Health
Other — Community Mental Health: Provider tax revenue was
$674.0 million for fiscal 2006; $856.0 million for fiscal 2007 and
$1,008.0 million for fiscal 2008.
Note: Managed Care Org. fee discontinued in 2010.
Citizens Research Council of Michigan
65
CRC Report
State Tax Applies to:
Description and Notes
MN
“MinnesotaCare Tax:” Hospitals, surgical centers, health care providers, and
surgical centers’ wholesale drug distributors pay 2% of estimated tax gross
revenues (Sec. 295.52(4a)).
Hospital (M)
Hospital: “Hospital Surcharge” is 1.56% of net patient revenues (Sec.
256.9657).
MS
MO
ICF/MR-DD (M)
ICF/MR-DD: Tax is $1040 per licensed bed annually.
Managed Care Org. (M)
Managed Care Org.: HMO and Integrated Network surcharge is 1.6% of total
premium revenues.
Nursing Home (M)
Nursing Home: “Nursing Home License Surcharge:” Licensed non-state-operated nursing homes pay an annual surcharge of $2,815 per licensed bed.
Increased from $625 in 2002 & 2003 (Sec. 256.9657).
Other: Providers (M),
Other — Providers, ambulatory surgical centers, and wholesale drugs
Ambulatory Surgicalhave a tax of 2%.
Centers (M), and
Wholesale Drugs (M)
Hospital
NA
ICF/MR-DD
NA
Nursing Home
NA
Other: Psychiatric
Residential Treatment
Facilities
ICF/MR-DD and Nursing Home: Assessment not to exceed $2 per
patient bed per day (Miss. Code Sec. 43-13-145, as amended by
ch. 470, Laws of 2005).
Hospital (M)
Hospital: Began in FY1992. Amount is set by regulations (13 CSR70-15.110).
For FY2011, the rate is set at 5.45% of inpatient and outpatient adjusted net
revenues.
ICF/MR-DD (M)
ICF/MR-DD: Began in FY2009. For FY2011, the rate is set at 5.49% of net
operating revenues.
Nursing Home (M)
Nursing Home: Began in FY1995. Amount is set by regulations (13 CSR7010.110). For FY 2011, the NFRA is $9.27 per patient occupancy day.
Other: Pharmacy (M)
Other — Pharmacy: Began in 2002. For FY2011, the rate is set at 1.97% of
Gross Retail Prescription Sales.
Note: Ambulance: This provider tax is pending CMS approval. The rate is
anticipated to be 5.45% of gross receipts. Managed Care Org.: Tax was discontinued in FY2010. Certification Fee for providers of health benefit services for
home and community based waiver services for persons with developmental
disabilities: Authorized by General Assembly in 2009. Fee is pending CMS
approval.
MT
Hospital (M)
Hospital: Each hospital in the state pays a utilization fee beginning January 1,
2010, in the amount of $50 for each inpatient bed day.
ICF/MR-DD (M)
ICF/MR-DD: FY 2007 set at 6% of revenue; currently 5.5% of revenue (15-67102, MCA).
Nursing Home (M)
Nursing Home: FY 2007 it was increased to $8.30/bed day (15-60-102, MCA).
Report: MT Report on provider facilities fees -2009 budget.
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Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
State Tax Applies to:
Description and Notes
NE
ICF/MR-DD (M)
ICF/MR-DD: In effect 2007-2008.
NH
Hospital
NA
Nursing Home
Nursing Home: Senate Bill 376 passed in 2004 established the
Nursing Facility Quality Assessment which imposes an assessment of 6% on net
patient services revenue on all nursing facilities licensed by the State. Effective
for taxable periods beginning on or after 1/1/2008 this rate is reduced to 5.5%.
NV
Nursing Home (M)
Nursing Home: In the 2003 Legislative Session, legislation was passed to impose
fees on free-standing nursing facilities. It was amended in 2005. The title of
the program is “Assessment of Fees on Nursing Facilities to Increase the Quality
of Nursing Care.” It can be found in the Nevada Revised Statutes NRS
422.3755.
NJ
ICF/MR-DD (M)
NA
Managed Care Org.
NA
Nursing Home
Nursing Home: The current rate is $11.89 per non-Medicare day to applicable
nursing homes. It may be up to a maximum of 6% of the aggregate amount of
annual revenues received by applicable nursing homes.
Managed Care Org.
(M) Managed Care Org.: NM has a broad-based “gross receipts sales
tax”; in 2004 the state exempted all commercial managed care
providers from this sales tax.B
Other
NA
NM
Note: Discontinued ICF/MR-DD in 2006; Discontinued Nursing Home in 2006.
NY
Hospital (M)
Hospital: Began in 2006.
Nursing Home
NA
Other
NA
ICF/MR-DD (M)
ICF/MR-DD: Effective November 1, 2009, the cost assessment rate that applies
to all ICF/MR enrolled providers for total non-Medicare patient days is $12.32.
Managed Care Org.
Managed Care Org.: HMO taxes measured by 1.9% of gross premiums (NC §
105-228.5, effective 1/1/07).
Nursing Home
NA
ND
ICF/MR-DD (M)
NA
OH
Hospital (M)
Hospital: Hospitals assessment on total facility costs not to exceed 2%, determined annually (Ohio Rev. Code Sec. 5112.01 et seq.).
ICF/MR-DD
NA
Managed Care Org.
Managed Care Org.: Began in 2006.
Nursing Home
Nursing Home: Nursing home and hospital bed annual franchise permit fee at
$1.25 per day per bed (Ohio Rev. Code Sec. 3721.51 as increased from $1 by HB
199 of 2007).
NC
Citizens Research Council of Michigan
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CRC Report
State Tax Applies to:
Description and Notes
OK
Nursing Home (M)
Nursing Home: Nursing Facility Quality of Care Fee is collected from nursing
facilities on a per patient day basis and placed into a revolving fund which is
used to pay for a higher facility reimbursement rate, increased staffing requirements and other increased member benefits. The facilities receive monthly
invoices for fee payments based on self-reported patient census and revenues.
Health Insurance (M)
Health Insurance: HB2437 applies a 1% fee on all health insurance claims to be
paid by insurance companies as well as companies that self-insure their employees. It is designed to collect an estimated $52 million in the first fiscal year that
would be used to obtain $135 million in federal matching money (May 2010).
This law was struck down by the state Supreme Court 8/24/2010.
Hospital (M)
Hospitals: The tax rate beginning July 1, 2009 is 2.32 percent.
Managed Care Org. (M)
Managed Care Org.: The tax rate beginning October 1, 2009 is 1.0 percent.
Nursing Home (M)
Nursing Home: The long term care tax is assessed based on a rate set by the
Director of the Department of Human Services.
Hospital
NA
ICF/MR-DD
NA
Managed Care Org. (M)
Managed Care Org.: Pennsylvania enacted a gross receipts tax on the managed
care plans tied to the amount of revenue they received from Medicaid. Tax of
59 mills is imposed on each dollar of gross receipts received by managed care
organizations pursuant to a contract with the PA Department of Public Welfare.
Effective October 1, 2009.
Nursing Home
NA
Hospital (M)
Hospital: Hospital licensing fee of 3.14% for 2003. (RI Gen Laws Sec. 23-1738.1).
ICF/MR-DD
ICF/MR-DD: Residential facility for mentally retarded rate of 25% of the gross
patient revenue. (RI Gen Laws Sec. 44-50-3).
Managed Care Org.
NA
Nursing Home
Nursing Home: Nursing facilities rate of 5.5% fee gross patient revenue Increased for 2006 (RI Gen Laws Sec. 44-51-3).
Hospital (M)
NA
ICF/MR-DD
NA
SD
ICF/MR-DD (M)
ICF/MR-DD: Began in FY 2008.
TN
ICF/MR-DD
NA
Managed Care Org. (M)
Managed Care Org.: Premium tax; premium tax revenue for fiscal 2008 totaled
$64 million.
Nursing Home
Nursing Home: Uniformly applied at the rate of $2,225 per licensed bed,
effective 2003-08 (Tenn. Sec. 68-11-216; will sunset 6/30/2011). Nursing Home
Tax revenue for fiscal 2008 totaled $85 million.C
ORD
PA
RI
SC
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Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
State Tax Applies to:
Description and Notes
TX
ICF/MR-DD (M)
ICF/MR-DD: The Health and Human Services Commission or the department at
the direction of the commission shall set the quality assurance fee for each day
in the amount necessary to produce annual revenues equal to an amount that
is not more than six percent of the facility’s total annual gross receipts in this
state.
Managed Care Org.
NA
Hospital
Hospital: Enacts the Hospital Provider Assessment Act. For fiscal year 2010-11
the department may generate an additional amount of $2,000,000 which shall
be used by the department and the division as follows: $1,000,000 to offset
Medicaid mandatory expenditures; and $1,000,000 to offset the reduction in
hospital outpatient fees in the state program. Repeals in 2013. Signed as Law
chapter 179.
ICF/MR-DD (M)
ICF/MR-DD: Began in 2006.Other — Rural Health Care Facilities: Qualifying rural
counties may adopt a rural health care facilities tax of up to 1 percent.
Nursing Home
NA
Other: Rural Health
Care Facilities
NA
Hospital (M)
NA
ICF/MR-DD (M)
NA
Nursing Home (M)
NA
Other: Pharmacy (M),
Residential Care &
Day Hab. (M), Home
Health Provider (M),
Health Information
Technology
Other — Health Information Technology: Health insurers pay in
based on claims processed; and these funds are used as match to
support the HIT/HIE initiative.
Hospital
Hospital: Creates hospital safety net assessment, which is an assessment on
hospitals based on non-Medicare inpatient hospital days. The assessments
increase periodically in four phases, and they range from six dollars to $174
depending on the phase and the type of hospital. Repeals on July 1, 2013.
Signed as Law chapter 30 (H 2956). The increased hospital assessments may
generate $352 million in additional revenue.
ICF/MR-DD
ICF/MR-DD: The rate is .06 of revenues for services provided to intellectually
disabled persons.
Nursing Home (M)
Nursing Home: “Quality Maintenance Fee” is $6.50 per patient day. The fee is
valid only if allowed for FFP under federal Medicaid. (Ch. 16 (S.B. 5341), 1st
Sp. Sess., Laws of 2003). Revenue reported as reduced for 2006 & 2007. The
tax was scheduled to terminate in FY 2008.
UT
VT
WA
Citizens Research Council of Michigan
69
CRC Report
State Tax Applies to:
Description and Notes
WV
Hospital (M)
Hospital: Inpatient and outpatient hospital services are taxed at 2.5% (W.Va.
Code Sec. 11-27-9; §11-27-15).
ICF/MR-DD (M)
NA
Nursing Home (M)
Nursing Home: Nursing facility services, increased from 5.5% to 5.95% of gross
receipts in 2005.
Other: Independent
Lab/X-ray
Other — Laboratory/ X-ray services: Laboratory or x-ray services are
taxed at 5%; MD offices are exempt (W.Va. Code Sec. 11-27-8).
Other: Practitioner,
Ambulatory Surgical
Centers (M)
Other: Ambulatory surgical centers are taxed at 1.75%
of gross receipts.
Note: In June 2009, West Virginia amended an annual broad-based health carerelated tax on providers of physicians’ services; expanding the definition of
physicians’ services to mean those services furnished by a physician within the
scope of the practice of medicine or osteopathy, whether furnished in the
physician’s office, the recipient’s home, a hospital, a skilled nursing facility or
any other location. S 724 was signed into law as Chapter 215 of 2009. Former
Emergency Ambulance Service Providers Tax: Emergency ambulance service
providers are taxed at the rate of 5.5%. Reduced for 2006 & 2007. Former
Physicians’ Services Tax: Physicians’ services were taxed at 2% until 2001 but
have been reduced annually; for 2007-08 the rate was 0.8% and was scheduled
to be phased out to 0% by 2010. (W.Va. Code Sec. 11-27-36). Also formerly
taxed, chiropractic (§11-27-5); dental; nursing; opticians & optometric; podiatry; psychological and therapists’ services. All formerly taxed entities were
eliminated effective July 1, 2010.
WI
70
Hospitals
Hospitals: In effect 2007-2008.
ICF/MR-DD
ICF/MR-DD: Intermediate care facility assessment of $445 per month for fiscal
year 2004-2005.
Nursing Home (M)
Nursing Home: Nursing home assessment of $75 per month per licensed bed.
Increased from $32 in 2003. (Sec. 50.14, Wis. Stats, as amended by Act 33
(S.B. 44), Laws of 2003).
Other
NA
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Appendix C
Covered Services, Enhanced Services, and Services Covered Outside of Contract
Terms and Conditions of Health Plan Contractor, State of Michigan111
Covered Services include but are not limited to:
• Ambulance and other emergency medical transportation
• Blood lead testing in accordance with Medicaid Early and Periodic Screening, Diagnosis, and Treatment
(EPSDT) policy
• Certified nurse midwife services
• Certified pediatric and family nurse practitioner services
• Chiropractic services
• Diagnostic lab, x-ray and other imaging services
• Durable medical equipment (DME) and supplies
• Emergency services
• End Stage Renal Disease services
• Family planning services (e.g., examination, sterilization procedures, limited infertility screening, and diagnosis)
• Health education
• Hearing and speech services
• Hearing aids
• Home Health services
• Hospice services (if requested by the enrollee)
• Immunizations
• Inpatient and outpatient hospital services
• Intermittent or short-term restorative or rehabilitative services (in a nursing facility), up to 45 days
• Restorative or rehabilitative services (in a place of service other than a nursing facility)
• Medically necessary weight reduction services
• Mental health care – maximum of 20 outpatient visits per calendar year
• Out-of-state services authorized by the Contractor
• Outreach for included services, especially pregnancy-related and Well child care
• Parenting and birthing classes
• Pharmacy services
• Podiatry services
• Practitioners’ services (such as those provided by physicians, optometrists and dentists enrolled as a
Medicaid Provider Type 10)
• Prosthetics and orthotics
• Tobacco cessation treatment including pharmaceutical and behavioral support
• Therapies (speech, language, physical, occupational) excluding services provided to persons with development disabilities which are billed through Community Mental Health Services Program (CMHSP) providers or Intermediate School Districts.
• Transplant services
• Transportation for medically necessary covered services
Citizens Research Council of Michigan
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CRC Report
•
•
•
Treatment for sexually transmitted disease (STD)
Vision services
Well child/EPSDT for persons under age 21
Enhanced services:
• Place strong emphasis on programs to enhance the general health and well-being of enrollees
• Make health promotion programs available to the enrollees
• Promote the availability of health education classes for enrollees
• Provide education for enrollees with, or at risk for, a specific disability or illness
• Provide education to enrollees, enrollees’ families, and other health care providers about early intervention
and management strategies for various illnesses and/or exacerbations related to that disability or disabilities
• Upon request from DCH, collaborate with DCH on projects that focus on improvements and efficiency in
the overall delivery of health services
Services covered outside of the contract:
• Dental services
• Services provided by a school district and billed through the Intermediate School District
• Inpatient hospital psychiatric services (the Contractor is not responsible for the physician cost related to
providing psychiatric admission histories and physical. However, if physician services are required for
other than psychiatric care during a psychiatric inpatient admission, the Contractor would be responsible
for covering the cost, provided the service has been prior authorized and is a covered benefit.)
• Intermittent or short-term restorative or rehabilitative services (in a nursing facility), after 45 days
• Outpatient partial hospitalization psychiatric care
• Maternal Infant Health Program (MIHP)
• Mental health services in excess of 20 outpatient visits each calendar year
• Mental health services for enrollees meeting the guidelines under Medicaid Policy for serious mental
illness or severe emotional disturbance.
• Substance abuse services through accredited providers including:
o Screening and assessment
o Detoxification
o Intensive outpatient counseling and other outpatient services
o Methadone treatment and other substance abuse pharmaceuticals indicated exclusively for substance abuse treatment and specified on DCH’s pharmacy vendor’s web site under the “Classes for
Psychotropic and HIV/AIDS Carve Out” at www.michigan.fhsc.com
•
•
•
•
•
•
72
Services, including therapies (speech, language, physical, occupational), provided to persons with developmental disabilities which are billed through CMHSP providers or Intermediate School Districts.
Custodial care in a nursing facility
Home and Community-Based Waiver Program services
Personal care or home help services
Traumatic Brain Injury Program Services
Transportation for services not covered in the CHCP Services, including therapies (speech, language,
physical, occupational), provided to persons with developmental disabilities which are billed through
Community Mental Health Services Program
Citizens Research Council of Michigan
OPTIONS FOR MANAGING MEDICAID FUNDING AND COST GROWTH
Endnotes
For households with non-elderly, non-disabled persons the
TANF gross income cutoff is 130% of the FPL and net income
limit is 100 percent of the FPL. Households must meet both
criteria.
1
Centers for Medicare & Medicaid Services. Mandatory Eligibility Groups. Accessed July 29, 2011. https://www.cms.gov/
medicaideligibility/03_mandatoryeligibilitygroups.asp
2
American Speech-Language-Hearing Association. Frequently
Asked Questions about Medicaid. Accessed on July 28, 2011.
w w w. a s h a . o r g / p r a c t i c e / r e i m b u r s e m e n t / m e d i c a i d /
medicaid_faqs.htm#q6
3
4
medicaidbenefits.kff.org/. Accessed October 6, 2011.
Website for the Centers for Medicare & Medicaid Services,
Research and Demonstration Projects- Section 1115. Accessed
October
13,
2011.
https://www.cms.gov/
M e d i c a i d S t W a i v P r o g D e m o P G I /
03_Research&DemonstrationProjects-Section1115.asp
5
The Kaiser Commission on Medicaid and the Uninsured. Five
Key Questions and Answers about Section 1115 Medicaid Demonstration Waivers. The Kaiser Family Foundation: Publication
#8196. June 2011. www.kff.org/medicaid/upload/8196.pdf
6
6
The Kaiser Family Foundation. www.statehealthfacts.org.
National Governors Association and The National Association
of State Budget Officers. The Fiscal Survey of State: An Update of State Fiscal Conditions. Spring 2011.
If the federal government cuts Medicaid by reducing provider taxes the actual impact is an effective reduction in Medicaid
spending overall unless states choose to supplement the lost
funding with other sources. States would either need to reduce Medicaid spending by $18.4 billion, increase other taxes,
or keep tax rates the same and cover the increased costs with
other own-source revenues effectively crowding out other state
programs. Only if states choose to cut back the Medicaid program would the federal government actually see the savings it
projects; if the states choose to redirect funding from other
sources or increase other broad based taxes to make up for
the short fall in provider tax revenues, the federal government
would still be obligated to match those funds. Reducing provider tax rates is the federal government’s way of downsizing
the Medicaid program as a whole.
14
Congressional Budget Office. Budget Options, Volume I:
Health Care. December 2008
15
The National Commission on Fiscal Responsibility and Reform. The Moment of Truth. December 2010. Pgs. 36-42
16
To be considered public funds, Medicaid funding must be
from state Medicaid appropriations, intergovernmental transfers, or certified public expenditures as defined by statue.
17
Email correspondence with the House Fiscal Agency on October 5, 2011.
18
19
42 CFR 433.68(e)
7
20
State per capita income for the FMAP formula comes from
the three year average personal income as calculated by the
Department of Commerce’s Bureau of Economic Analysis.
The Kaiser Commission on Medicaid and the Uninsured. Medicaid Financing Issues: Provider Taxes. The Kaiser Family Foundation: Publication #8193. May 2011. www.kff.org/medicaid/
8193.cfm
8
9
The Kaiser Commission on Medicaid and the Uninsured. An
Overview of Changes in the Federal Medical Assistance Percentages (FMAPs) for Medicaid. The Kaiser Family Foundation:
Publication #8210. July 2011. www.kff.org/medicaid/upload/
8210.pdf
10
The Kaiser Commission on Medicaid and the Uninsured. An
Overview of Changes in the Federal Medical Assistance Percentages (FMAPs) for Medicaid. The Kaiser Family Foundation:
Publication #8210. July 2011. www.kff.org/medicaid/upload/
8210.pdf
The four states without provider taxes are Alaska, Delaware,
Hawaii and Wyoming.
21
This is in accordance with a federal waiver allowing for nonuniformity of tax assessments.
22
This actual tax rate varies because of different pools of hospitals within the provider class and therefore 4.3% is an average across the provider class rather than an exact levy rate.
23
Email correspondence with the Senate Fiscal Agency on September 15, 2011.
24
National Conference of State Legislatures. Health Provider
and Industry Taxes/Fees. Article #14359. February 2011 (updated July 2011). www.ncsl.org/?tabid=14359
25
More information about Michigan’s per capita income over
time can be found on the website of Michigan’s Department of
Technology, Management and Budget. www.michigan.gov/cgi/
0,4548,7-158-54534-253826—,00.html
Steve Angelotti. Governor Snyder’s Health Claims Tax Proposal. State Notes: Michigan Senate Fiscal Agency. Spring 2011.
Ellyn R. Boukus, Alwyn Cassil, Ann S. O’Malley. “A Snapshot
of U.S. Physicians: Key Findings from the 2008 Health Tracking
Physician Survey.” Center for Studying Health System Change.
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CONTENT/1078/
Steve Angelotti. Bill Analysis: Paid Health Claims Assessment
(S.B. 347 & 348 (S-3)). Senate Fiscal Agency. June 30, 2011.
11
12
Kaiser Commission, Medicaid Financing Issues: Provider Taxes, May 2011
13
26
Steve Angelotti. Bill Analysis: Paid Health Claims Assessment
(S.B. 347 & 348 (S-3)). Senate Fiscal Agency. June 30, 2011.
27
28
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Purchasing Operation. Comprehensive Health Care Program
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Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The
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30
Michigan Health and Hospital Association. “Medicaid Funding Reductions to Michigan’s Community Hospitals, Fiscal Years
(FY) 1996-2011.” Updated December 2010. Accessed October
10, 2011.
45
31
“Reforming Medicaid in New York State: The County Perspective. A report to the New York State Governor’s Medicaid
Redesign Team. “Submitted by the New York State Association
of Counties. February 11, 2011 www.nysac.org/legislative-action/documents/NYSACMedicaidRedesignTeamReport.pdf.
Phil Galewitz. “Nation’s Health Care Bill to Nearly Double by
2020.” Kaiser Health News. July 28, 2011.
47
Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin
Rudowitz, and Laura Snyder. Hoping for Economic Recovery,
Preparing for Health Reform: A Look at Medicaid Spending,
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Kaiser Family Foundation: Publication #8105. September 2010.
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OECD Countries, April 2011.” Snapshots: Health Care Costs:
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www.kff.org/insurance/snapshot/
OECD042111.cfm
32
National Governors Association and The National Association of State Budget Officers. The Fiscal Survey of State: An
Update of State Fiscal Conditions. Spring 2011.
33
34
The Kaiser Family Foundation. www.statehealthfacts.org.
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National Governors Association and the National Association
of State Budget Officers. 2011.
35
The Kaiser Commission on Medicaid and the Uninsured.
Medicaid Enrollment: June 2010 Data Snapshot. The Kaiser
Family Foundation: Publication #8050-03. January 2011.
www.kff.org/medicaid/upload/8050-03.pdf
36
The Kaiser Family Foundation. Distribution of Medicaid Payments by Enrollment Group (in millions), FY2008.
w w w . s t a t e h e a l t h f a c t s . k f f . o r g /
comparemaptable.jsp?ind=858&cat=4
37
The Kaiser Family Foundation. Distribution of Medicaid Payments by Enrollment Group (in millions), FY2007. Accessed on
www.statehealthfacts.kff.org/
July
29,
2011.
comparemaptable.jsp?ind=858&cat=4
38
“A Special Message from Governor Rick Snyder: Health and
Wellness.” September 14, 2011
39
40
The Kaiser Family Foundation. www.statehealthfacts.org.
Those enrolled in capitated care services are usually the
youngest and healthiest enrollees while fee-for-service is mainly
reserved for those with more complicated and severe health
issues such as the disabled and elderly.
41
46
The Earmarking of State Taxes in Michigan. Citizens Research
Council, Council Comments No. 1038. December 1995.
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Josh Verges. “Signature filed for tax hike to benefit education, Medicaid.” Argus Leader. November 1, 2011 (Accessed
November 2, 2011).
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Pleis JR, Lucas JW. Summary health statistics for U.S. adults:
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50
Brian S. Armour, Eric A. Finkelstein, Ian C. Fiebelkorn. Statelevel Medicaid expenditures attributable to smoking. Preventable Chronic Diseases, 6(3):A84 (2009).www.cdc.gov/pcd/issues/2009/jul/08_0153.htm. Accessed October 6, 2011.
51
“A Special Message from Governor Rick Snyder: Health and
Wellness.” September 14, 2011. www.michigan.gov.
52
In the past, Michigan has taxed vending machine purchases
in the context that vending machine foods are prepared and
intended for immediate consumption and therefore meets the
criteria set forth in the constitution. Additionally, soda from the
fountain is taxed under the sales tax. There are several indirect taxing options such as levying a retail sales tax on some
junk food or soda ingredients at the wholesale level.
53
54
Bill Fairgrieve. Managing Medicaid Costs in Michigan. House
Fiscal Agency: Fiscal Forum. January 2007.
Mary K. Reinhart. “Arizona Medicaid Cuts: Key Portions of
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42
David Fosdick. The Role of Medicaid Special Financing in
Changes in State Expenditure, 1991-2007. Issue Paper: Senate Fiscal Agency. January 2008.
55
Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin
Rudowitz, and Laura Snyder. Hoping for Economic Recovery,
Preparing for Health Reform: A Look at Medicaid Spending,
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Kaiser Family Foundation: Publication #8105. September 2010.
56
43
Email correspondence with the Senate Fiscal Agency on September 15, 2011.
44
74
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Services Secretary Kathleen Sebelius. “Sebelius outlines state
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2011)
57
Citizens Research Council of Michigan
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Ending June 2011.” https://www.cms.gov/reimbursement/
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72
“Enclosure: Medicaid Cost-Savings Opportunities.” A letter
sent on February 3, 2011 by Kathleen Sebelius, Secretary of
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73
John Buntin. “What Experts Think of Five Medicaid-Savings
Strategies.” Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html
74
59
60
Anna Sommers, Arunabh Ghosh, and David Rousseau. Medicaid Enrollment and Spending by “Mandatory” and “Optional”
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62
Calculations from Centers for Medicare & Medicaid Services,
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Populations and Services. Publication #7331. June 2005
63
The spend-down category includes individuals and families
that are not eligible for Medicaid but once their medical expenses are subtracted from their income (they have “spentdown” their income) they are now eligible for Medicaid benefits.
64
Timothy Williams. Under an Arizona Plan, Smokers and the
Obese would pay Medicaid Fee. The New York Times. May 30,
2011
65
Sarah Varney. “Public Health Cuts Causing More Pain.“ The
California Report: audio recording. July 20, 2011.
66
Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin
Rudowitz, and Laura Snyder. Hoping for Economic Recovery,
Preparing for Health Reform: A Look at Medicaid Spending,
Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The
Kaiser Family Foundation: Publication #8105. September 2010.
67
“Enclosure: Medicaid Cost-Savings Opportunities.” A letter
sent on February 3, 2011 by Kathleen Sebelius, Secretary of
the United States Department of Health and Human Services.
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68
Matthew Grabowski. “Prescriptions for Cost-Containment:
Michigan’s Efforts to Manage Pharmaceutical Expenditures.”
Senate Fiscal Agency: State Notes. January/February 2008.
69
Step edits or step therapy is a practice that controls prescription drug costs by prescribing the safest and most costeffective drugs first and then progresses to more costly or risky
medications if necessary.
70
The Centers for Medicare and Medicaid Services. “Medicaid
Prescription Reimbursement Information by State—Quarter
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John Buntin. “What Experts Think of Five Medicaid-Savings
Strategies.” Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html
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Citizens Research Council Memorandum 1072. March 2003.
75
Kathleen Gifford, Vernon K. Smith, Dyke Snipes, and Julia
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United States Senate. Statement of Peter R Orszag. “Health
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21, 2007.
77
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Synthesis of 24 Studies. July 2004, Updated March 2009.
78
Mark Duggan and Tamara Hayford. “Has the Shift to Managed Care Reduced Medicaid Expenditures? Evidence from
State and Local Mandates.” National Bureau of Economic Research. No. 17236. July 2011.
79
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Synthesis of 24 Studies. July 2004, Updated March 2009.
80
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for the Michigan Department of Community Health.
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82
Michigan Association of Health Plans. “Performance, Value,
Outcomes: Medicaid Managed Care FY 2011-2013.” Medicaid
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83
84
Brittany Alana Davis. FMA: Reject Medicaid Waiver. Health
News Florida. August 4, 2011.
Suzy Khimm. “Can Managed Care Help Save Medicaid?” The
Washington Post. May 30, 2011. Accessed October 11, 2011.
85
The National Association of State Budget Officers. Medicaid
Cost Containment: Recent Proposals and Trends. April 2011.
86
Centers for Medicare and Medicaid. “Safe and Effective Approaches to Lowering State Prescription Drug Costs: Best Practices Among State Medicaid Drug Programs.” September 2004.
https://www.cms.gov/medicaiddrugrebateprogram/downloads/
StateStrategiestoLowerMedicaidPharmacyCosts.pdf
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Citizens Research Council of Michigan
75
CRC Report
Matthew Grabowski. “Prescriptions for Cost-Containment:
Michigan’s Efforts to Manage Pharmaceutical Expenditures.”
Senate Fiscal Agency: State Notes. January/February 2008.
88
Matthew Grabowski. “Prescriptions for Cost-Containment:
Michigan’s Efforts to Manage Pharmaceutical Expenditures.”
Senate Fiscal Agency: State Notes. January/February 2008.
89
Kathleen Sharp. “To Save on Health Care, First Crack Down
on Fraud.” The New York Times. September 26, 2011 (Accessed September 26, 2011).
90
John Buntin. “What Experts Think of Five Medicaid-Savings
Strategies.” Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html
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John Buntin. “What Experts Think of Five Medicaid-Savings
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John Buntin. “What Experts Think of Five Medicaid-Savings
Strategies.” Governing. August 31, 2011. Accessed September 6, 2011. www.governing.com/topics/health-human-services/what-experts-think-five-medicaid-savings-strategies.html
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94
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and Cost Savings.” Health Costs Containment and Efficiencies:
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95
The National Conference of Sate Legislatures. “Public Health
and Cost Savings.” Health Costs Containment and Efficiencies:
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96
Jason Stein. “State Launches Website on Medicaid Savings.”
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97
Jody Sindelar. “Should We Pay People to Stop Smoking?”
CNN Opinion. October 5, 2011 (Accessed (October 17, 2011).
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index.html?eref=rss_health&utm_source=feedburner&
u t m _ m e d i u m = f e e d & u t m _ c a m p a i g n = Fe e d % 3 A + r s s
%2Fcnn_health+%28RSS%3A+Health%29
98
The 2011 version can be found at www.michigan.gov/documents/QualityCheckupJan03_59423_7.pdf
103
Vernon K. Smith, Kathleen Gifford, Eileen Ellis, Robin
Rudowitz, and Laura Snyder. Hoping for Economic Recovery,
Preparing for Health Reform: A Look at Medicaid Spending,
Coverage and Policy Trends. The Kaiser Commission on Medicaid and the Uninsured & Health Management Associates. The
Kaiser Family Foundation: Publication #8105. September 2010.
104
Bill Fairgrieve. Medicaid Special Financing Payments and
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medicaid.pdf
105
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106
“Medicaid: Intergovernmental Transfers Have Facilitated
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109
David Fosdick. The Role of Medicaid Special Financing in
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110
Margaret Alston, Sudan Frey, and Steve Stauff. Community
Health Background Briefing. House Fiscal Agency. January 2011.
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112
Robin Moody. “Budget woes could hamper Medicaid plan.”
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99
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100
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101
John Buntin. “What Experts Think of Five Medicaid-Savings
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102
76
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