Progress On Health Coverage Is Threatened As States Continue To Face Growing Pressures To Control Costs

All States Plan More Medicaid Cost-Containment Actions In FY2005

After Recent Gains, Securing Medicaid and SCHIP Coverage Is More Difficult For Low-Income Families In 23 States

WASHINGTON, DC—Medicaid and the State Children’s Health Insurance Program (SCHIP) have helped to offset growth in the uninsured population by providing access to health care amid weak economic conditions. But states continue to face budget pressures that could limit public coverage according to two new 50-state annual surveys released today by the Kaiser Commission on Medicaid and the Uninsured (KCMU).

“These studies show we are at risk of losing the gains in health coverage the nation has achieved for children and low-income families,” said Diane Rowland, executive director of KCMU. “As the candidates debate ways to cover the uninsured, it is clear that closing the coverage gap for low-income families will require additional federal resources if states are to expand coverage and outreach and enrollment efforts.”

The survey of state officials about budget conditions and Medicaid cost containment actions in FY2004-05 shows that Medicaid grew at an average rate of 9.5 percent in fiscal year (FY) 2004, basically unchanged from FY2003, when the growth in spending slowed for the first time since 1996. See Figure 1. This growth rate is due to increases in enrollment as a result of the economic downturn, rising prescription drug costs, and increasing overall health care costs.

Aggressive spending reduction measures taken by the states helped keep the growth in Medicaid spending below the increase in private insurance premiums for 2004. With continuing budget pressure, all states are planning at least one new cost-containment action for their Medicaid programs in FY2005. Thirty-nine Medicaid directors expect pressure on their programs to grow in FY2005 while the remaining 12 expect the pressure to remain constant at current levels.

A second survey of enrollment and eligibility policies in Medicaid and SCHIP for low-income families shows that while these programs played a critical role in ensuring that even more Americans did not become uninsured, states are taking actions to reduce spending, particularly in SCHIP, that reverse efforts to make health coverage more accessible. The survey reveals that nearly half of states (23) took actions that made it more difficult to secure and retain health coverage for children and families from April 2003 until July 2004.

States’ Fiscal Status and Actions to Slow Medicaid Spending

The Continuing Medicaid Budget Challenge: State Medicaid Spending Growth and Cost Containment in Fiscal Years 2004 and 2005 (Pub#7190), is based on a survey conducted by Health Management Associates for KCMU in July and August 2004, at the end of most states’ 2004 fiscal year and the start of FY2005. States experienced 5.2 percent enrollment growth in FY2004 and expect 4.7 percent growth in FY2005. Since 2001, Medicaid enrollment has grown by almost one-third, maintaining its role as a first line of defense against higher uninsured rates for the low-income population, particularly as the economic recession caused erosion in private insurance and increasing poverty. Yet, despite state actions to contain costs, Medicaid spending growth outpaced state tax revenue growth, 9.5 percent versus 3.4 percent in FY2004. Medicaid grew slower than other private health care costs: private health insurance premiums grew 11.2 percent from 2003 and 2004.

The survey reveals that all 50 states and DC implemented Medicaid cost control strategies in FY2004 and all plan new actions for FY2005. The most popular actions remain controlling drug costs and reducing or freezing provider payments. Over the course of four years every state has taken measures in these categories. However, given the fiscal pressure facing states, additional steps over the last four years were taken by 38 states to cut eligibility and by 34 states to limit benefits. Moreover, rising costs for the chronically ill and aged and disabled populations covered by Medicaid led to increased interest in disease management programs and cost controls in both institutional and community-based long-term care services in FY2004. See Figure 2.

Progress in Enrollment and Eligibility Simplifications Being Reversed

States have been on a path since the last decade to increase access to coverage for low-income families, especially children, in their Medicaid and SCHIP programs. Initially spurred by the passage of SCHIP, states expanded eligibility, streamlined enrollment procedures, and focused new outreach initiatives to reach eligible individuals. Beneath the Surface: Barriers Threaten to Slow Progress on Expanding Health Coverage of Children and Families (Pub#7191), is based on a survey of state officials conducted by the Center on Budget and Policy Priorities for KCMU reflecting state actions from April 2003 until July 2004. The survey finds that some states continue to make progress, including:

• Illinois increased coverage of children from 185 to 200 percent of the federal poverty line ($29,360 for a family of 3) and expanded coverage of parents from 90 to 133 percent of the federal poverty line, expedited coverage of children in Medicaid through presumptive eligibility, and reduced verification requirements for parents;
  
• Virginia removed the Medicaid asset test for parents and adopted 12-month continuous eligibility in SCHIP;
  
• Nevada removed the asset test for children;
  
• Iowa eliminated the requirement that a child be uninsured for a period of time prior to applying for SCHIP; and
  
• Hawaii adopted self-declaration of income for children and a joint application for children and their parents.

However, twenty-three states have taken a number of steps that restricted enrollment and retention of coverage for eligible children and parents. Additionally, 11 of these states have reversed previously adopted simplifications. See Figure 3 and 4. The actions by the 23 states include: 

• Freezing enrollment for varying periods of time—all actions were to SCHIP except in the case of Tennessee’s Medicaid waiver program (8 states);
  
• More stringent enrollment and retention procedures like reporting and verification requirements on income and age, reinstatement of face-to-face interviews, elimination of presumptive eligibility, and dropping 12-month continuous eligibility (8 states took at least one of the above actions); and
  
• Increases in premiums or expanded application of premiums to lower-income families, primarily in SCHIP (16 states).

Additionally, cost-sharing burdens on low-income families have increased and are targeted to lower income families than in the past. As of July 2004, 22 states have imposed a co-payment (primarily in SCHIP) for non-preventive physician visits, emergency room care, inpatient hospital care, and/or prescription drugs for children.

Looking Towards FY2005 and Beyond

States face both policy and fiscal challenges to their health coverage programs despite the improving revenue outlook. When Medicaid directors were asked whether pressures on their Medicaid programs were growing, remaining constant, or subsiding, 39 states responded that pressures were growing and 12 felt the pressure would remain constant, but, in many cases, intense. The federal government supplied fiscal relief in FY2004 and that one-time jump in the federal share of Medicaid funding helped maintain eligibility levels (funds were promised only if states did not cut back eligibility in FY2004), but the fiscal relief expired on June 30th of this year. States are now faced with not only budgeting funds for a growing program, but also making up for the drop in the federal matching funds.

Amid discussions on how to address the nation’s 45 million uninsured, policymakers have proposed expanding public coverage programs and spending more money on outreach efforts to help enroll those who are eligible, but not participating in Medicaid and SCHIP. However, state actions reversing simplified enrollment procedures and increasing cost-burdens on low-income families will make coverage gains more difficult to achieve.

A key policy challenge states face with implications for their Medicaid spending is the implementation of the new prescription drug benefit under Medicare. Under the new law, states will be required to pay the federal government for the drug costs associated with over six million low-income seniors who qualify for Medicaid and Medicare and whose prescription drug coverage will be shifted from Medicaid to Medicare in 2006. Over three-fourths of states were concerned about the costs of this payment and the administrative burdens and other net costs they may incur due to the implementation of this benefit.

Today’s released reports are all available online at http://www.kff.org/medicaid/kcmu100404pkg.cfm . In addition, the webcast of a policy briefing in Washington, D.C. on these subjects can be viewed live and then after 5 p.m. EDT today at the following link http://www.kaisernetwork.org/healthcast/kcmu/04oct04  .

The Kaiser Commission on Medicaid and the Uninsured provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid's role and coverage of the uninsured. Begun in 1991 and based in the Kaiser Family Foundation's Washington, DC office, the Commission is the largest operating program of the Foundation. The Commission's work is conducted by Foundation staff under the guidance of a bipartisan group of national leaders and experts in health care and public policy. The Kaiser Family Foundation is a non-profit, private operating foundation dedicated to providing information and analysis on health care issues to policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.

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