States Push to Contain Health Costs

  • June 15, 2012
  • By Christine Vestal
/uploadedImages/PCS_Assets/Stateline_graphics/Special_Features/Legislative_Review/Legislative-Review-447-IN.png
Stateline's annual look at the major budget and policy developments in state legislatures across the country.

States spent a nervous spring this year wondering how the Supreme Court would rule on the Affordable Care Act. They are still wondering. But despite the uncertainty, they managed to write a good deal of health legislation, especially when it came to Medicaid, the joint state and federal program that covers poor families with children.

Some continued the pattern of Medicaid spending reductions that marked the past few years, while others were in a mood to restore earlier cuts they had made. Some even expanded coverage.

Overall, the health care budget picture in the states is brighter than it has been in a while. Although Medicaid spending continues to grow faster than state revenues, its recent growth curve—as with the rest of health care spending—is not as steep as it was during the recession and immediate post-recession years.

According to a state fiscal survey released this week by the National Association of Budget Officers and the National Governors Association, Medicaid budgets for the fiscal year that starts this coming July 1 assume a growth rate of only 3 percent over fiscal 2012. That compares to an 11 percent increase in 2011 and average annual spending growth of 7 percent from 2007 to 2010.

As a result, a number of states have been able to invest in new efforts designed to save money and improve health outcomes. “We're seeing a shift to longer-term types of cost-containment strategies,” says Stacey Mazer, health care analyst with the association of budget officers.

States are also responding to new federal grant opportunities aimed at encouraging investment in programs that lower costs by providing more efficient care. In some states, injections of federal money for these programs have plugged major gaps in Medicaid budgets.

Experiment in Oregon

Oregon's legislature, for example, gave final approval this year to broad changes in the state's health care delivery system that will channel $1.9 billion in federal dollars to the state over the next five years.

Oregon aims to fully integrate comprehensive medical and dental care with behavioral health and substance abuse services. It plans to do that by setting up so-called “coordinated care organizations,” licensed and monitored by the state, which will help patients navigate the system and ensure patients have access to local support services—all for one fixed fee per customer.

Governor John Kitzhaber, a physician and the author of the overhaul, secured tacit approval from Washington in May—just in time to add $620 million in federal funds to the state's biennial Medicaid budget.

New Jersey and Nevada are seeking federal approval for similar changes in the way health care is delivered under the Medicaid program. Both states plan to target patients with certain chronic illnesses and those who suffer from both medical and behavioral health problems.

California, Delaware, New York and Texas have secured federal approval to include elderly and disabled patients in managed care programs, and Florida, Kansas, New Jersey and New Mexico have similar requests pending, according to a new report from the Kaiser Family Foundation.

And despite the shaky status of the Affordable Care Act, a handful of states have received federal approval to get a head start on the Medicaid enrollment expansion that the Act will require in 2014.

California, Colorado, Minnesota, Missouri, New Jersey, Washington State and the District of Columbia have received federal money to expand Medicaid coverage for low-income, non-disabled adults immediately. Arizona, Ohio and Illinois have applications pending. In most cases, these moves mean more federal money for adults who already are covered by state-funded health programs.

Continued Cutting

But notwithstanding this round of Medicaid expansions, the era of cutbacks to the program has not ended everywhere.

Florida, Missouri and Rhode Island, for example, plan to reduce the fees they pay managed care companies; Massachusetts and Maine are slated to cut payment rates to hospitals.

On the benefits side, Florida's budget will limit Medicaid coverage of emergency room visits to 12 per year and reduce allowable hospital stays from 45 to 23 days per year for most adults. Maine will cut optional reimbursement for podiatry, optometry, dental care and smoking cessation products. Nebraska plans to limit private duty nursing services, and Washington State would eliminate medical interpreter services and adult day health programs, as well as cutting out routine dental care for adults.

Illinois' new budget projects savings of $350 million from tighter screening of Medicaid beneficiaries to determine, among other things, whether they are still state residents. The move to expel ineligible recipients from the rolls is part of a $1.6 billion package of cuts to the state's $15 billion Medicaid program.

At least nine states are proposing to increase or implement new copays or premium payments for Medicaid beneficiaries, according to a survey by the Kaiser Family Foundation. Nebraska has proposed a $50-copay for non-emergency use of hospital emergency rooms. Washington State proposes to charge Medicaid copays for physician services, prescription drugs, and non-emergency use of medical transportation, as well as emergency room visits.

In a few states with Medicaid deficits, lawmakers enacted tax increases to lessen the severity of spending reductions. Illinois generated an estimated $350 million, most of it for Medicaid, by doubling the state's cigarette tax. Maryland enacted a steeper income tax rate for high wage-earners that is expected to generate $500 million, part of which will offset cuts to the state's $7 billion Medicaid program.

Long-term Investments

What most states seem to agree on is the need for new initiatives in cost containment. After four years of budget austerity, 2012 brought a wave of cost-cutting experiments. Many of them build upon cost-containment efforts that were started in earlier years.

Minnesota, for example, has been a national leader in providing humane, cost-effective long-term care for the elderly and disabled. But this year, the state sought new federal authority to shift even more patients to home- and community based care such as chore and companion services, home delivered meals and adult day care.

Likewise, states that have already realized substantial savings from so-called “patient-centered medical homes” are seeking to extend those programs. Considered experimental, medical homes aim to improve health outcomes by paying primary care doctors bonuses to take responsibility for all of their patients' care needs, whether in the office or elsewhere.

The federal health law provides 90 percent of the development costs for a version of the program known as “health homes.” These initiatives, which target people with two or more chronic conditions, were included in Medicaid budgets in Colorado, Idaho, Iowa, Kansas, Maryland, Missouri, New York, Rhode Island and West Virginia.

A handful of states have reported major reductions in per-person costs using medical homes, with a North Carolina study showing savings of $1 billion over four years.

Despite these promising results, the federal agency that oversees the Medicaid program projects Medicaid spending for states and the federal government will increase at an average annual rate of 8 percent over the next 10 years, if the Affordable Care Act and its Medicaid expansion are upheld. Without the expansion, the annual growth rate is projected to be 7 percent. The federal government's actuarial projections are based on prior year spending trends and do not necessarily account for future savings that may result from states' current cost containment efforts.

Explore