While efforts to pass major federal legislation to repeal and replace the Affordable Care Act (ACA) and restructure and reduce federal Medicaid financing may be on hold temporarily, the focus of the Centers for Medicare and Medicaid Services (CMS) and states is expected to turn to achieving significant Medicaid program changes through Section 1115 demonstration waivers.  Going back to the mid-1990s, each new administration has used discretion to approve and promote different types of demonstration waivers.  Although few waivers have been approved recently, the Trump Administration has signaled its openness to allowing states to test policies that have never before been approved in Medicaid and is considering waivers that seek to impose work requirements, drug screening and testing, eligibility time limits, enforceable premiums, and other eligibility and enrollment restrictions on existing expansion adults and/or traditional Medicaid populations.  The limited waiver activity that has occurred so far in 2017 provides some insights into how the purpose of waivers and their approval process, implementation, and oversight may be evolving.  As of September 2017, there were 33 states with 41 approved waivers and 18 states with 21 pending waivers.  This issue brief presents three questions to help analyze the evolution of federal waiver policy as new waiver proposals and decisions emerge.

1.   How Are Waiver Approval Criteria Changing?

Each administration has some discretion to approve demonstration waivers that will further Medicaid program objectives.  Different administrations have each used waivers to further their particular policy priorities.  For example, the Obama Administration used federal Medicaid funding to promote Delivery System Reform Incentive Payment (DSRIP) waivers, while the Bush Administration introduced Health Insurance Flexibility and Accountability (HIFA) waivers that sought to expand coverage within “current-level” resources and offered states increased flexibility to reduce benefits and charge cost-sharing to offset expansion costs.

However, discretion around waivers has limits.  For example, the HHS Secretary’s Medicaid waiver authority is limited to certain provisions in Section 1902 of the Social Security Act.  Section 1902 sets out the requirements for state Medicaid plans, such as provisions related to eligibility and benefits.  However, many parts of the law are contained in other sections of the Social Security Act and therefore cannot be waived under Section 1115.  For example, the formula that establishes federal Medicaid matching rates for states is outside Section 1902.  In addition, the Secretary must determine that a waiver request will be an experimental, pilot or demonstration project that will further program objectives.  In response to criticism from the General Accounting Office (GAO) about the lack of standards used to make this determination in the past, CMS posted a set of criteria to evaluate waiver requests in 2015.¹   These criteria focus on serving Medicaid eligible and low-income state residents and include whether the waiver would increase coverage; increase access to providers; improve health outcomes; or increase the efficiency and quality of care through delivery system reform initiatives.

Early Insights:  What to Watch

The March 2017 letter to state governors signals that the Trump Administration may change the criteria for waiver approval to impose welfare-like standards that could result in reduced rather than expanded coverage.  While the 2015 waiver approval criteria have not been formally revised or rescinded to date, the Trump Administration’s March 2017 letter to state governors shows some movement toward a different interpretation of Medicaid program objectives.  That letter describes the ACA’s Medicaid expansion as a “clear departure from the core, historical mission of the program” and distinguishes “the truly vulnerable.”  The letter also invites state waiver requests to “support innovate approaches to increase employment and community engagement” and “align Medicaid and private insurance policies for non-disabled adults.”  Some pending state waiver requests that seek policies like work requirements and time limits, such as those in Kentucky, Indiana, Maine, and Wisconsin, estimate that these waivers will result in reduced coverage.  Additionally, a long-standing body of research demonstrates that premiums and cost-sharing result in decreased enrollment and barriers to care for low-income populations.  To change policy that is not in formal regulations, the administration could issue a letter to State Medicaid Directors or other guidance; however, such policy changes could face litigation challenges.

2.  What Are Potential Changes to Public Input and Waiver Policy Development?

The ACA included requirements to allow for public input on waivers at the state and federal level.  While there are no set timeframes for CMS to approve or deny a waiver, the ACA included new transparency rules that require public comment periods at the state level before the waiver is submitted to CMS and a federal comment period after the waiver is submitted.  The intent of this requirement is for states to address public comments and modify their waiver requests to reflect issues raised.

Waivers are generally approved with a detailed set of terms and conditions, although some provisions may be conditionally approved subject to the development of additional protocols or meeting other requirements.  A waiver approval results in a list of specific waiver and expenditure authorities granted by CMS and a detailed set of waiver terms and conditions that includes key implementation dates and reporting and evaluation requirements, posted on Medicaid.gov.  Some waivers may be approved subject to certain conditions that may seek to ensure that certain readiness standards are met or certain beneficiary rights are protected.  Often, details about the implementation of more administratively complex waiver policies, such as premiums, health accounts, or healthy behavior incentives, are specified in protocols that are developed by the state and submitted to CMS after the waiver approval.  Waiver implementation plans include a process to receive public input on implementation within the first six months for new waivers and then annually thereafter.  These procedural elements are ways for stakeholders such as enrollees, providers, and health plans to understand and offer input into the implementation of policies that could significantly change the Medicaid program.

Early Insights:  What to Watch

While the March 2017 letter affirms “reasonable public input processes and transparency guidelines” for waiver applications and renewals, some deviation from the ACA’s public notice and comment process is occurring.  For example, Kentucky did not hold a state-level public comment period before submitting an amendment to its pending new waiver application to CMS, instead indicating that it would “accept CMS’s offer” to hold a “voluntary” state-level public comment period, which will run concurrently with the federal public comment period.² 

CMS may consider removing some conditional approval requirements for existing waivers.   Arkansas’ retroactive eligibility waiver was conditioned on the state completing an eligibility determination mitigation plan, providing benefits during a reasonable opportunity period, and implementing hospital presumptive eligibility.  CMS is considering the state’s request to remove those conditions.  Stakeholders may be interested in assessing whether the policy goals underlying these conditions have been achieved before the conditions are removed.

3.  How Will the Impact of Significant Waiver Changes Be Reported and Measured?

Oversight of waiver implementation is important, particularly for waivers that seek to implement new or complex policies. Waivers terms and conditions typically require states to report on waiver implementation and administration through both quarterly and annual reports to CMS.  This reporting allows CMS and other stakeholders to oversee and understand waiver policy implementation and effects on beneficiaries.  Even renewals of long-standing waivers often involve the addition of new or adjusted policies that may not have been previously implemented.

Although not always addressed in the waiver approval, adequate administrative staff and funding are key to waiver implementation.  Experience with Medicaid expansion waivers involving premiums, health accounts, and healthy behavior incentives in Michigan and Indiana reveals that substantial resources for beneficiary and provider outreach and education and sophisticated information technology systems to track payments and exchange information among the state, health plans, and providers are key to successful implementation.

Despite the challenges in conducting waiver evaluations, timely and publicly available results enable CMS, states, and stakeholders to learn from waivers. Consistent with the statutory requirement that waivers further an experimental or demonstration goal, waiver terms and conditions include requirements for states to conduct independent waiver evaluations.  States may face challenges in waiver evaluations including access to timely data and isolating the effects of administratively complex waivers that evolve during implementation.  The ACA reaffirmed the importance of waiver evaluations by newly requiring that states have a publicly available, approved evaluation strategy with comprehensive research questions.   Evaluation findings allow CMS, states, and stakeholders to make mid-course corrections as necessary, determine whether waiver policies had their intended effect, and if certain provisions could or should be replicated in other states.

Early Insights:  What to Watch

CMS has removed some waiver reporting requirements in a recent extension approval. Florida’s recent waiver approval removes the requirement for the state to provide quarterly updates thereby limiting data available to CMS and other stakeholders to oversee implementation to annual reporting.

Some waiver policies prove to be too costly or complex to implement as originally intended and are reshaped or dropped.  For example, Indiana is seeking to change its premiums to a tiered structure based on income bands instead of a flat 2% of income to improve administrative efficiency in tracking and recalculating premium amounts as enrollee income changes.  Indiana also wants to discontinue its premium assistance program for people with access to employer-sponsored insurance due to low enrollment and high administrative costs.  Arkansas has discontinued its health savings account model with monthly beneficiary contributions due to high administrative costs and administrative complexity.  Although Kentucky has not yet received waiver approval, it already has amended its initial request to change its pending work requirement to a flat 20 hours per week instead of graduated hours increasing from 5 to 20 based on length of program enrollment due to concerns about administrative complexity.  If waivers are not implemented according to the approval parameters, it is not possible to adequately measure the effects of specific policies.

Policy makers and researchers will be watching to see if waiver evaluations are required, conducted and used to inform decisions on future waiver requests.  While there is not much evidence about how the new administration will proceed with waiver evaluations, CMS recently relieved Montana from the requirement to evaluate its expansion waiver based on its participation in a cross-state federal evaluation.  There are also questions about what data will be available for researchers and analysts to assess the impact of waivers on program coverage and on beneficiaries, and how that data and experience will be applied to other state waiver requests.

1. Medicaid.gov, About Section 1115 Demonstrations (last accessed Oct. 24, 2017), https://www.medicaid.gov/medicaid/section-1115-demo/about-1115/index.html. ↩︎
2. Although the final regulations involving public notice do not require a state-level public comment period for amendments to existing/ongoing demonstrations, CMS has historically applied these regulations to amendments. CMS guidance also encourages states to comply with public notice regulations when making changes that affect benefits, cost sharing, eligibility, and delivery systems. CMS, SHO#12-001 (April 27, 2012), https://www.medicaid.gov/federal-policy-guidance/downloads/sho-12-001.pdf. ↩︎

States adopted budgets for state fiscal year (FY) 2018 as Congress debated legislative proposals that created a lot of uncertainty about the future of the Affordable Care Act (ACA), financing for the Medicaid expansion as well as overall financing for the Medicaid program. The federal debate was playing out as states grappled with other Medicaid budget issues related to the economy, health care costs, implementation of delivery system reforms, and addressing emerging public health issues like the opioid epidemic. This brief discusses Medicaid enrollment and spending trends for FY 2017 and FY 2018 based on interviews and data provided by state Medicaid directors as part of the 17^th annual survey of Medicaid directors in all 50 states and the District of Columbia. The survey was conducted by the Kaiser Family Foundation (KFF) and Health Management Associates (HMA) from June 2017 to August 2017, during the same timeframe that Congress was debating legislative proposals with significant implications for Medicaid. Key findings are described below and in a companion report. The methodology used to calculate enrollment and spending growth as well as additional information about Medicaid financing can be found at the end of the brief.

50-state survey finds #Medicaid enrollment growth slowing, with uptick in spending growth projected for FY2018

FY 2017: Following peaks in enrollment and spending growth in 2015 due to the implementation of the ACA, Medicaid enrollment growth slowed to 2.7 percent nationally in FY 2017, down from 3.9 percent in FY 2016 (Figure 1). Total spending growth was stable at 3.9 percent, up only slightly from 3.5 percent the previous year. State Medicaid spending experienced a slight uptick from 2.4 percent in FY 2016 to 3.5 percent in FY 2017, as states that implemented the Medicaid expansion started to pay 5 percent of the costs of those enrollees in January 2017 (mid-way through the state fiscal year). However, state spending growth for Medicaid was slower than overall state general fund growth in FY 2017.

FY 2018: For FY 2018, states on average project Medicaid enrollment growth to dip to 1.5 percent and total spending to increase by 5.2 percent. States attributed slower enrollment growth projections to tapering ACA related enrollment, a stable economy, and the processing of delayed redeterminations. States pointed to high cost prescription drugs and policy decisions to increase payment rates for specific provider groups as factors contributing to higher projected spending growth. Growth in the state share of Medicaid spending is expected to be slightly higher on average than for total spending due to formula-driven FMAP changes (that occur based on lagged personal income data) and, in 32 expansion states, the full-year effect of the state share for expansion enrollees, which increases from 5 percent to 6 percent in January 2018.

Future Outlook: States indicated that they could face budget challenges as reductions to disproportionate share hospital payments go into effect in October 2017, if Congress fails to reauthorize the Children’s Health Insurance Program (CHIP) and if legislative proposals under consideration to restructure Medicaid financing were to be enacted into law. As states started FY 2018 and looking ahead, many were concerned about volatility in state revenues that affects states ability to finance the state share of Medicaid.

Context

Medicaid provided coverage to about one in five Americans, or about 74 million as of June 2017.¹  Total Medicaid spending was $553 billion in FY 2016 with 63 percent paid by the federal government and 37 percent by states.²  Medicaid accounts for one in six dollars spent in the health care system, but more than 50 percent of long-term care spending and 10 percent of prescription drug spending.³  The key factors affecting total Medicaid spending and enrollment changes over the last decade have been the lingering effects of The Great Recession followed by the implementation of the Affordable Care Act (ACA). As of September 2016, 32 states including DC have adopted the ACA Medicaid expansion, with Louisiana implementing at the beginning of FY 2017. Under the law, the federal government provided 100 percent of the cost of expansion for calendar years 2014-2016, gradually phasing down to 95 percent in CY 2017, 94 percent in CY 2018, 93 percent in CY 2019, and 90 percent in CY 2020 and beyond.

Medicaid enrollment and spending growth are counter-cyclical, influenced by broader changes in the economy. For example, during and after the “Great Recession,” which began in 2008, states experienced high unemployment and major declines in revenue along with significant increases in Medicaid enrollment and spending. The U.S. unemployment rate peaked at 10 percent in October 2009. With economic recovery, the unemployment rate has gradually declined to 4.4 percent in August 2017, relieving pressure on Medicaid enrollment growth. In FY 2016, aggregate state general fund spending and revenues surpassed peak levels from 2008 in real terms (after adjusting for inflation).⁴  However, recent analysis of revenues shows slow state revenue growth in 2016 and volatility in revenues at the start of 2017. Changes in income tax revenue may be related to shifts in the timing of payment of these taxes in anticipation of lower tax rates in 2017 from federal tax reform legislation. Sales tax revenue was weak at the start of 2017 and corporate tax revenues were declining (Figure 2).⁵ 

Underneath the national trends is a lot of state variation. Unemployment rates range from below three percent in North Dakota, Colorado, Hawaii, New Hampshire, Nebraska, and Idaho to higher than six percent in New Mexico, the District of Columbia, and Alaska. The Rockefeller Institute estimates total state tax revenue growth of 2 percent for FY 2017 based on three quarters of data. Thirty-eight states reported growth in the first three quarters of FY 2017, while twelve states reported declines, with the greatest declines in North Dakota and Wyoming. Declines in oil prices have resulted in declines in state tax revenue in oil dependent states. Recent hurricanes in Texas and Florida are expected to result in fiscal issues for those states in the months to come.⁶ 

Key Findings

Trends Through FY 2017

Medicaid enrollment growth continued to slow in FY 2017 and spending growth was stable. Historically, Medicaid enrollment drives growth in in Medicaid spending, and enrollment increases during economic downturns or major policy changes (Figure 3). High growth in FY 2015 was due to the implementation of the ACA and recent trends in FY 2016 and FY 2017 reflect the tapering of ACA related enrollment and the delayed effects of improvements in the economy. A number of states noted that the resolution of eligibility redetermination as new systems came online also contributed to slowing enrollment growth.

Slower enrollment growth trends along with efforts to control costs due to budget pressures contributed to lower total spending growth. Slower state revenue growth in FY 2017 added pressure on states to control Medicaid costs. Medicaid officials identified the high costs for prescription drugs, especially for specialty drugs, as well as policy decisions to increase payment rates to specific provider groups as factors putting upward pressures on total Medicaid spending.

State spending growth experienced an uptick in FY 2017 as expansion states were required to start paying for a share of new adults. Historically, total spending and the state share of Medicaid spending grow in tandem except when there have been changes in federal match rate. Following the implementation of the ACA, state spending growth was lower than total spending growth because the federal government was paying 100 percent of the costs of the expansion group. Mid-way through FY 2017, expansion states began to pay 5 percent of the costs of the new group that resulted in slightly higher state spending growth compared to FY 2016; however the rate of growth for state Medicaid spending (3.5 percent) was still below growth for total Medicaid spending (3.9 percent). State spending growth for Medicaid was lower than overall state general fund growth in FY 2017 of 4.8 percent (Figure 4).

Projections for FY 2018

States project low enrollment growth and higher spending growth in FY 2018. For FY 2018, states project that enrollment growth will slow, while total spending growth will increase. While this trend is not typical, this has occurred in the past, particularly a few years after an economic downturn as enrollment continues to trend downward and spending trends up as states restore rate or benefit cuts.  For FY 2018 several factors account for the differential in enrollment and spending growth. A sluggish but stable economy may contribute to slower enrollment growth, and states are no longer seeing the increases associated with the implementation of the ACA. A number of states reported that new eligibility systems were able to process backlogs and delayed redeterminations that also resulted in downward enrollment growth. Factors driving higher spending growth include faster growth in the aged and disabled enrollment groups that account for a larger share of program spending, high cost prescription drugs, and provider rate increases. In addition, high growth projected in a few large states drives the national weighted average higher. (Figure 5)

State spending growth in FY 2018 is expected to slightly exceed total spending growth in FY 2018 due to traditional FMAP changes and phase-in of the state share of Medicaid for the expansion. Twelve states had reductions in the formula driven FMAP for Medicaid which would increase state spending relative to total spending. Kansas, Indiana, and Oklahoma saw reductions in their FMAP of more than 1 percent. The federal match rate (or FMAP) is calculated annually for each state using a formula set in the statute that relies on lagged personal income data. Even small changes in a state’s FMAP can mean large changes in the amount of state funds needed to maintain current programs. In addition, starting in January 2017, expansion states paid five percent of the costs of the new adult group. Since this was implemented part-way into FY 2017, the full effects of the increase will be experienced in FY 2018. The state share for the expansion group will increase from 5 percent to 6 percent for calendar 2018 (Figure 4).

Nearly all states are counting on Congressional action to reauthorize CHIP to avoid budget shortfalls that could have implications for Medicaid. Nearly all (48 of 50) responding states (including DC) assumed continuation of federal CHIP funding in their FY 2018 state budgets. In addition, 34 of 42 responding states assumed that this funding would continue with the 23 percentage point enhanced federal match that was included in the ACA. Nearly two-thirds of states did not budget for scheduled reductions in Medicaid disproportionate share (DSH) payments. While DSH reductions were originally scheduled to go into effect in FY 2014, legislation delayed the reductions to federal FY 2018 (October 1, 2017). CMS released a proposed rule to allocate the $2 billion DSH reduction in July 2017.[endnote 239283-7]

Conclusion and Looking Ahead

As states began the 2018 state fiscal year much was in flux and much uncertainty remains. Revenues were volatile and states were facing major uncertainty about the outcome of federal legislation that would repeal and replace the ACA and fundamentally change the financing structure of Medicaid; both would reduce federal funding for states to operate their Medicaid programs. However, the recent legislative debate highlighted how difficult it is to gain consensus on major changes to Medicaid and the ACA, that these changes have significant implications for individuals as well as states and providers, and that Medicaid has broad general support and intense support from special populations served by the program. The debate also highlighted how current flexibility in the design and structure of the Medicaid program has resulted in variation across states, made greater by state decisions about whether to implement the ACA Medicaid expansion. In addition, health status, demographic and state fiscal circumstance further complicate proposals to impose per enrollee caps or uniform growth rates across all states.

Looking ahead, the federal budget for FY 2018, legislation to improve ACA market stability and other efforts to reform the tax code may open the door to additional debate around Medicaid and its role. Other changes without legislation are likely to occur through administrative actions that change Medicaid through approval new waivers and regulations. Other administrative changes to the Marketplace could also have potential implications for Medicaid. Finally, emergency assistance to provide relief to states and territories hit hardest by recent hurricanes as well as for efforts to address the opioid epidemic could bring additional resources to some states. All of these legislative and administrative actions could have implications for state budgets and the Medicaid program in FY 2018 and beyond.

Definition of Medicaid Spending. Total Medicaid spending includes all payments to Medicaid providers for Medicaid covered services provided to enrolled Medicaid beneficiaries. Medicaid spending also includes special disproportionate share hospital (DSH) payments that subsidize uncompensated hospital care for persons who are uninsured and unreimbursed costs care for persons on Medicaid. Not included in total Medicaid spending are Medicaid administrative costs and federally mandated state “Clawback” payments to Medicare (to help finance the Medicare Part D prescription drug benefit for Medicaid beneficiaries who are also enrolled in Medicare.) States are also asked to exclude costs for the Children’s Health Insurance Program (CHIP) though a few states provided percentage changes for spending that reflected Medicaid and CHIP combined. Total Medicaid spending includes payments financed from all sources, including state funds, local contributions, and federal matching funds. Historical state Medicaid spending refers to all non-federal spending, which may include local funds and provider taxes and fees as well as state general fund dollars. State spending for FYs 2016-2017 collected as part of this survey reflect state spending, largely state general fund dollars.

Methodology. The Kaiser Family Foundation (KFF) commissioned Health Management Associates (HMA) to survey Medicaid directors in all 50 states and the District of Columbia to identify and track trends in Medicaid spending, enrollment, and policy making. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis. This is the seventeenth annual survey, conducted at the beginning of each state fiscal year from FY 2002 through FY 2018.

The KFF/HMA Medicaid survey for this report was sent to each Medicaid director in June 2017. Medicaid directors and staff responded to the written survey and participated in follow-up telephone interviews from June through August 2017. The telephone discussions are an integral part of the survey to ensure complete and accurate responses and to record the complexities of state actions. All 50 states and DC completed surveys and participated in telephone discussions.

For FY 2017 and FY 2018, annual rates of growth for Medicaid spending were calculated as weighted averages across all states. Weights for spending were derived from the most recent state Medicaid expenditure data for FY 2016, based on estimates prepared for KFF by the Urban Institute using CMS Form 64 reports, adjusted for state fiscal years. These data were also used for historic Medicaid spending. In FY 2013, there was wide inexplicable variation between states, which inflated the overall growth rate. To adjust for this anomaly, spending growth from FYs 2012, FY 2013, and FY 2014 was averaged to estimate growth in FY 2013. The resulting estimate is similar to trends reported by the National Association of State Budget Officers (NASBO).

Medicaid average annual growth rates for enrollment were calculated using weights based on Medicaid and CHIP monthly enrollment data for June 2017 published by CMS.⁷  Historical enrollment trend data for FY 1998 to FY 2013 reflects the annual percentage change from June to June of monthly enrollment data for Medicaid beneficiaries collected from states.⁸  Enrollment trend data for FY 2014 to FY 2017 reflects growth in average monthly enrollment based on Medicaid & CHIP Monthly Applications, Eligibility Determinations, and Enrollment Reports from CMS. The baseline for FY 2013 was the monthly average of July 2013 through September 2013 as of August 2015. FY 2014 was estimated by averaging the monthly average of July 2013 through September 2013 with the monthly average of January 2014 through June 2014.

The data reported for FYs 2017 and FY 2018 for Medicaid spending and FY 2018 for Medicaid enrollment are weighted averages, and therefore, data reported for states with larger enrollment and spending have a greater effect on the national average.

Additional information collected in the survey on policy actions taken during FY 2016 and FY 2017 can be found in the companion report at: www.kff.org

Appendix: Background on Medicaid Financing

Medicaid Financing Structure. The Medicaid program is jointly funded by states and the federal government. The federal government guarantees match funds to states for qualifying Medicaid expenditures. The federal match rate (Federal Medical Assistance Percentage, or FMAP) is calculated annually for each state using a formula set in the Social Security Act which is based on a state’s average personal income relative to the national average; poorer states have higher FMAPs. The FMAP in FFY 2017 varies across states from a floor of 50 percent to a high of 75.7 percent.⁹  Personal income data are lagged, so data used for FFY 2018 FMAPs are from the three years of 2013 to 2015. Decreases in the FMAP could increase pressure on state budgets.

As a result of the federal matching structure, Medicaid has a unique role in state budgets as both an expenditure item and a source of federal revenue for states. In FY 2015, Medicaid accounted for 28.2 percent of total state spending for all items in the state budget, but 15.6 percent of state funds (general fund plus other state funds), a far second to spending on K-12 education (24.8 percent of state funds). Medicaid is the largest single source of federal funds for states, accounting for half (56.8 percent) of all federal funds for states in FY 2015 (Figure 6).¹⁰ 

Medicaid and the Economy. Medicaid is a countercyclical program. During economic downturns more people qualify and enroll in Medicaid, which increases program spending at the same time that state tax revenues level or fall. To help mitigate these budget pressures, Congress has twice passed temporary increases to the FMAP to help support states during economic downturns, most recently in 2009 as part of the American Recovery and Reinvestment Act (ARRA). The ARRA-enhanced match rates were the primary vehicle for federal fiscal relief to states during the “Great Recession,” providing states over $100 billion in additional federal funds over 11 quarters, ending in June 2011.¹¹ 

Medicaid and the ACA. Effective January 1, 2014, the ACA expanded Medicaid eligibility to millions of non-elderly adults with income at or below 138 percent of the federal poverty level (FPL) – about $16,643 for an individual in 2017. The law also provided for 100 percent federal funding of the expansion through 2016, declining gradually to 90 percent in 2020 and future years. The Supreme Court ruling on the ACA in June 2012 effectively made the Medicaid expansion optional for states. As of September 2016, 32 states (including the District of Columbia) have implemented the ACA Medicaid expansion. The ACA also required all states to implement new streamlined and coordinated application, enrollment, and renewal processes, including transitioning to a new income standard (Modified Adjusted Gross Income or MAGI) to determine Medicaid financial eligibility for non-elderly, non-disabled populations.

1. The Kaiser Family Foundation State Health Facts. Total Monthly Medicaid and CHIP Enrollment. (September 2017) http://modern.kff.org/health-reform/state-indicator/total-monthly-medicaid-and-chip-enrollment/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D. ↩︎
2. The Kaiser Family Foundation analysis of Centers for Medicare and Medicaid Services, Form CMS-64 Data, accessed September 2017. http://modern.kff.org/medicaid/state-indicator/federalstate-share-of-spending/?dataView=1&currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D. ↩︎
3. Centers for Medicare and Medicaid Services. National Health Expenditures (Washington, DC: Centers for Medicare and Medicaid Services, December 2015). http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/NationalHealthExpendData/NationalHealthAccountsHistorical.html. ↩︎
4. National Association of State Budget Officers, The Fiscal Survey of States (Washington, DC: National Association of State Budget Officers, Spring 2016), http://www.nasbo.org/mainsite/reports-data/fiscal-survey-of-states. ↩︎
5. Lucy Dadayan and Don Boyd, State Revenue Report #108: Volatility in State Tax Revenues; Mounting Fiscal Uncertainties (September 2017).http://www.rockinst.org/pdf/government_finance/state_revenue_report/2017-09-19-srr_108.pdf. ↩︎
6. Lucy Dadayan and Don Boyd, State Revenue Report #108: Volatility in State Tax Revenues; Mounting Fiscal Uncertainties (September 2017).http://www.rockinst.org/pdf/government_finance/state_revenue_report/2017-09-19-srr_108.pdf. ↩︎
7. Centers for Medicare and Medicaid Services, Medicaid & CHIP Monthly Application, Eligibility Determinations, and Enrollment Reports. (Washington, DC: Centers for Medicare and Medicaid Services, June 2016), http://www.medicaid.gov/medicaid-chip-program-information/program-information/medicaid-and-chip-enrollment-data/medicaid-and-chip-application-eligibility-determination-and-enrollment-data.html. ↩︎
8. Laura Snyder, Robin Rudowitz, Eileen Ellis and Dennis Roberts, Medicaid Enrollment: June 2013 Data Snapshot (Washington, DC: Kaiser Commission on Medicaid and the Uninsured, January 29, 2014), https://modern.kff.org/medicaid/issue-brief/medicaid-enrollment-june-2013-data-snapshot/. ↩︎
9. The Kaiser Family Foundation State Health Facts. Data Source: 81 Fed. Reg. 80078 – 80080 (Nov. 15, 2016), https://modern.kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/. ↩︎
10. Kaiser Commission on Medicaid and the Uninsured estimates based on the data reported in: National Association of State Budget Officers, State Expenditure Report – Examining Fiscal 2014-2016 State Spending (Washington, DC: National Association of State Budget Officers, November 2016), http://www.nasbo.org/reports-data/state-expenditure-report. ↩︎
11. To be eligible for ARRA funds, states could not restrict eligibility or tighten enrollment procedures in Medicaid or CHIP. Vic Miller, Impact of the Medicaid Fiscal Relief Provisions in the American Recovery and Reinvestment Act (ARRA) (Washington, DC: Kaiser Commission on Medicaid and the Uninsured, October 2011), https://modern.kff.org/medicaid/issue-brief/impact-of-the-medicaid-fiscal-relief-provisions/. ↩︎

Medicaid covers one in five Americans, accounts for one in six dollars spent on health care in the United States and more than half of all spending for long-term services and supports, and is a state budget driver as well as the largest source of federal revenues to states. Medicaid is constantly evolving as policymakers strive to improve program value and outcomes through delivery system reforms, respond to economic conditions or public health concerns (such as the opioid epidemic), or implement federal policy changes including those in the Affordable Care Act (ACA) or other regulatory changes (like the recent Medicaid managed care rule). As states began state fiscal year (FY) 2018, Congress was debating major ACA repeal and replace legislation generating great uncertainty for states around Medicaid including the future of the ACA and financing for the Medicaid expansion as well as overall financing for the Medicaid program.

KFF #Medicaid budget survey has data on #opioids initiatives, provider rates, #managedcare & more

This report provides an in-depth examination of the changes taking place in Medicaid programs across the country during this time of uncertainty. The findings are drawn from the 17^th annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by the Kaiser Family Foundation (KFF) and Health Management Associates (HMA), in collaboration with the National Association of Medicaid Directors (NAMD). This report highlights certain policies in place in state Medicaid programs in FY 2017 and policy changes implemented or planned for FY 2018. The District of Columbia is counted as a state for the purposes of this report. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis.

Key findings show that despite uncertainty about federal legislative changes, many states were continuing efforts to expand managed care, move ahead with payment and delivery system reforms, increase provider payment rates, and expand benefits as well as community-based long-term services and supports. Emerging trends include proposals to restrict eligibility (e.g., work requirements) and impose premiums through Section 1115 waivers, movement to include value-based purchasing requirements in MCO contracts, and efforts to combat the growing opioid epidemic. Key areas to watch include federal legislative efforts to restructure and limit federal Medicaid financing as well as Section 1115 waiver activity (state waiver proposals and CMS approvals). These issues will have implications for states, providers, and beneficiaries that could shape the future of the Medicaid program in FY 2018 and beyond (Figure ES – 1).

Eligibility Policies

Since 2014, most major eligibility changes have been related to adoption of the ACA Medicaid expansion. To date, 32 states have implemented the expansion (Louisiana was the latest state to adopt the expansion in FY 2017). Largely because the Medicaid expansion made many individuals involved in the criminal justice system newly eligible for coverage (including childless adults who were not previously eligible in most states), many states have implemented policies to facilitate enrollment in Medicaid upon release and to suspend, rather than terminate, Medicaid eligibility for incarcerated individuals. The majority of states also have policies in place to provide Medicaid coverage of inpatient care for those incarcerated in prisons or jails.

What to watch: Several non-expansion states (Idaho, Tennessee, Virginia, and Wyoming) reported this year that consideration of the Medicaid expansion was on hold due to uncertainty about the future of the Medicaid expansion option. For FY 2018, several states are seeking Medicaid eligibility restrictions through Section 1115 waivers, including conditioning eligibility on meeting work requirements,¹  elimination of retroactive eligibility, and elimination of Medicaid expansion coverage for those with incomes above 100 percent of the federal poverty level (FPL).²  Eligibility provisions in proposals in Arkansas and Indiana would apply to ACA Medicaid expansion populations and proposals in Iowa, Maine, and Utah would apply to non-expansion populations. Two states (Arkansas and Indiana) reported activity related to Medicaid premiums in FY 2017 or FY 2018, both through Section 1115 waivers.

Managed Care And Delivery System Reforms

Managed care is the predominant delivery system for Medicaid in most states. Among the 39 states with comprehensive risk-based managed care organizations (MCOs), 29 states reported that 75 percent or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2017. More states continue to carve complex populations as well as behavioral health services into MCO contracts. Twenty-six of the 39 MCO states reported that they plan to use authority to receive federal matching funds for adults receiving inpatient psychiatric or substance use disorder (SUD) treatment in an institution for mental disease (IMD) for no more than 15 days a month included in the 2016 managed care regulations. Close to half of MCO states reported that the day limit is insufficient to meet acute inpatient or residential treatment needs for those with serious mental illness (SMI) or SUD.³  Nearly all states have managed care quality initiatives in place such as pay for performance or capitation withholds. Working in conjunction with or outside of MCO contracts, the majority of states (40) had one or more delivery system or payment reform initiative in place in FY 2017 (e.g., patient-centered medical home, ACA Health Home, accountable care organization, episode of care payment, or delivery system reform incentive program (DSRIP)).

What to watch: States are using MCO arrangements to increase attention to the social determinants of health and to promote value-based payment. States are increasingly requiring MCOs to: screen beneficiaries for social needs (19 states in FY 2017 and two additional states in FY 2018); provide care coordination pre-release to incarcerated individuals (six states in FY 2017 and one additional state in FY 2018); and use alternative payment models (APMs) to reimburse providers (13 states in FY 2017 set a target percentage of MCO provider payments that must be in APM and nine additional states plan to set a target in FY 2018). More than one in three states also have initiatives to expand dental access or improve oral health outcomes (for children and/or adults) and to expand the use of telehealth.

Long-Term Services And Supports (LTSS)

The vast majority of states in FY 2017 (47 states) and all states in FY 2018 are using a variety of tools and strategies to expand the number of people served in home and community-based settings. The most common strategies include using home and community-based services (HCBS) waivers or state plan options, serving more individuals through Programs of All-Inclusive Care for the Elderly (PACE), and building rebalancing incentives into managed long-term services and supports (MLTSS) contracts. Twenty-three states cover LTSS through one or more capitated managed care arrangements as of July 1, 2017.

What to watch: Housing supports are an increasingly important part of state LTSS benefits. Over half of states (27) reported that they implemented or expanded housing-related activities outlined in CMS’s June 2015 Informational Bulletin (e.g., housing transition services or housing and tenancy sustaining services) in FY 2017 or FY 2018 (up from 16 states reported last year). States are also focused on addressing LTSS direct care workforce shortages and turnover: 17 states reported efforts in FY 2017 or 2018 to increase wages for direct care workers and/or engage in targeted workforce development activities (recruiting, training, credentialing, etc.).

Provider Payment Rates And Taxes

In FY 2017 and FY 2018, more states made or are planning provider rate increases compared to restrictions across all provider types, except for inpatient hospital rates (hospital rate restrictions are primarily rate freezes, which are counted as restrictions in this report). All states except Alaska rely on provider taxes and fees to provide a portion of the non-federal share of the costs of Medicaid. Three states indicated plans for new provider taxes in FY 2018 and 13 states plan provider tax increases.

What to watch: Survey responses related to MCO rate setting show that 18 of 39 MCO states require MCO rates to follow fee-for-service (FFS) rate changes for some provider types, and two states require MCO rates to follow FFS rate changes for all provider types. Twenty-four states reported they had MCO rate floors for some provider types, and five states said they had rate floors for all types of Medicaid providers. Federal legislation considered in the Senate proposed limiting the use of provider taxes by lowering the “safe harbor threshold” from the current allowable level, 6.0 percent of net patient revenues, to 5.0 percent of net patient revenues by FY 2025 in one proposal and 4.0 percent by FY 2025 in another. The survey shows that 29 states reported having at least one provider tax exceeding 5.5 percent of net patient revenues and 46 states reported having at least one provider tax exceeding 3.5 percent as of July 1, 2017.

Benefits, Prescription Drugs, and Opioid Strategies

A total of 26 states expanded or enhanced covered benefits in FY 2017 and 17 states plan to add or enhance benefits in FY 2018, most commonly for behavioral health/substance use disorder services and dental services. Thirteen states reported changes to copayment requirements in either FY 2017 or FY 2018, including new or increased copayments for enrollees with income above 100 percent FPL, for non-emergency use of a hospital emergency department, and pharmacy. Most states identified high cost and specialty drugs (including hepatitis C antivirals) as a significant cost driver for state Medicaid programs. The majority reported actions to refine and enhance their pharmacy programs, especially implementation of new utilization controls (e.g., prior authorization requirements, clinical edits, and quantity limits). Thirty-five of 39 MCO states reported that the pharmacy benefit was “generally carved-in.” Of these 35 states, the majority reported requirements that MCOs have uniform clinical protocols (31 states) or uniform preferred drug lists (PDLs) (19 states) that will be in place for one or more drugs as of the end of FY 2018.

What to watch: A growing number of states have chosen to adopt the CDC guidelines for the prescribing of opioid pain medications for adults in primary care settings (34 states as of the end of FY 2018). Nearly all states have various FFS pharmacy management strategies targeted at opioid harm reduction in place as of FY 2017, including quantity limits (48 states); clinical criteria claim system edits (46 states); step therapy (34 states); and other prior authorization requirements (32 states). Somewhat fewer states (28 states) reported requirements in place for Medicaid prescribers to check their states’ Prescription Drug Monitoring Program before prescribing opioids to a Medicaid patient. Among the 35 states that used MCOs to deliver pharmacy benefits, 24 reported that they required MCOs to follow some or all of their FFS pharmacy benefit management policies for opioids. For FY 2017, the vast majority of states (46 states) reported that naloxone (a prescription opioid overdose antidote) was available in at least one formulation without prior authorization (PA) and most states (42) also covered the naloxone nasal spray formulation without PA. The standard of care for opioid use disorder is medication-assisted treatment (MAT), which combines psychosocial treatment with medication. All 49 states that responded to a new question about medication-assisted treatment (MAT) drugs reported coverage of buprenorphine and both oral and injectable naltrexone, but a somewhat smaller number (36 states) reported coverage of methadone in FY 2017.⁴ 

Looking Ahead

Medicaid is constantly evolving as policymakers strive to improve program value and outcomes through delivery system reforms, respond to economic conditions or public health concerns (such as the opioid epidemic), or implement federal policy changes including those in the ACA or other regulatory changes (like the recent Medicaid managed care rule). As states began FY 2018, Congress was debating major ACA repeal and replace legislation generating great uncertainty for states around Medicaid including the future of the ACA and financing for the Medicaid expansion as well as overall financing for the overall Medicaid program. On this year’s survey, Medicaid directors were asked to comment on state-specific implications of federal proposals. Most Medicaid directors from the 32 ACA Medicaid expansion states reported that they would not be able to continue covering the expansion population, or that coverage would be at substantial risk, if the ACA enhanced federal match for this population were terminated. Almost all Medicaid directors expressed concern about the likely negative fiscal consequences tied to proposed limits on federal Medicaid spending. Some directors mentioned that they welcomed potential new state policy flexibility under federal legislative proposals, but a greater number of Medicaid directors expressed concern that proposals to convert Medicaid to a per capita cap or block grant would not provide sufficient flexibility to enable states to make up for the reduction in federal funds.

Despite the uncertain policy environment, many states continue efforts to expand managed care, move ahead with payment and delivery system reforms, increase provider payment rates, expand benefits, and expand community-based LTSS. Emerging trends from this year’s survey include proposals to restrict eligibility (e.g., work requirements) and impose premiums through Section 1115 waivers, movement to include value-based purchasing requirements in MCO contracts, and efforts to combat the growing opioid epidemic. Key areas to watch include federal legislative efforts to restructure and limit federal Medicaid financing as well as Section 1115 waiver activity (state waiver proposals and CMS approvals). These issues will have implications for states, providers, and beneficiaries that could shape the future of the Medicaid program in FY 2018 and beyond.

Medicaid provides health insurance coverage to more than one in five Americans, and accounting for over one-sixth of all U.S. health care expenditures.⁵  The Medicaid program constantly evolves, as policy makers in each state make changes to improve their programs, respond to economic conditions, come into compliance with new federal requirements, and implement other state budget and policy priorities. As fiscal year (FY) 2018 began in most states, legislative proposals to repeal major portions of the Affordable Care Act (ACA), including the Marketplace and Medicaid coverage expansions, were under consideration in Congress. These proposals would also have fundamentally restructured federal Medicaid financing, converting the current open-ended entitlement to a federal block grant or per capita cap. It is within that context that this year’s survey was conducted.

This report examines the reforms, policy changes, and initiatives that occurred in FY 2017 and those adopted for implementation for FY 2018 (which began for most states on July 1, 2017⁶ ). Report findings are drawn from the annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by the Kaiser Family Foundation (KFF) and Health Management Associates (HMA), in collaboration with the National Association of Medicaid Directors (NAMD). This was the 17^th annual survey, which has been conducted from FY 2002 through FY 2018. (Copies of previous reports are archived here.⁷ )

The KFF/HMA Medicaid survey on which this report is based was conducted from June through September 2017. The survey was sent to each state Medicaid director in June 2017. Directors and their staff provided data for this report in their written survey response and through a follow-up telephone interview. All 50 states and DC completed surveys and participated in telephone interview discussions between July and September 2017. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis. An acronym glossary and the survey instrument are included as appendices to this report.

The survey collects data about Medicaid policies in place or implemented in FY 2017, policy changes implemented at the beginning of FY 2018, or policy changes for which a definite decision has been made to implement in FY 2018. Some policies adopted for the upcoming year are occasionally delayed or not implemented for reasons related to legal, fiscal, administrative, systems or political considerations, or due to delays in approval from CMS. The District of Columbia is counted as a state for the purposes of this report; the counts of state policies or policy actions that are interspersed throughout this report include survey responses from the 51 “states” (including DC). Key findings of this survey, along with state-by-state tables providing more detailed information, are described in the following sections of this report:

• Eligibility and Premiums
• Managed Care Initiatives
• Emerging Delivery System and Payment Reforms
• Long-Term Services and Supports Reforms
• Provider Rates and Taxes
• Benefits, Copayments, Pharmacy, and Opioid Strategies
• Challenges and Priorities in FY 2018 and Beyond Reported by Medicaid Directors

Changes to Eligibility Standards

The ACA Medicaid expansion was one of the most significant Medicaid eligibility changes in the history of the program. By FY 2017, 32 states had implemented the ACA Medicaid expansion: 26 states in FY 2014; three states (Indiana, New Hampshire and Pennsylvania) in FY 2015; two states (Alaska and Montana) in FY 2016, and one state (Louisiana) on July 1, 2016 (FY 2017) (Figure 1).

Several non-expansion states (Idaho, Tennessee, Virginia, and Wyoming) reported that consideration of the Medicaid expansion was on hold due to uncertainty about the future of the Medicaid expansion option. North Carolina’s governor announced plans to adopt the expansion shortly after taking office in January 2017. These plans have been delayed, however, by a lawsuit brought by a group of legislators challenging the governor’s authority to expand without legislative approval.⁹  In Maine, voters will decide whether the state will adopt the ACA Medicaid expansion in a referendum this November.¹⁰ 

Other Eligibility Expansions

Beyond the ACA Medicaid expansion, states have made very few changes to expand Medicaid eligibility since 2014, and states reported only a few narrow expansions targeting a limited number of beneficiaries implemented in FY 2017 or planned for FY 2018 (Tables 1 and 2).

In addition to the ACA Medicaid expansion in Louisiana, a total of six other states made changes that expanded Medicaid eligibility in FY 2017. For FY 2018, seven states plan to implement eligibility expansions. Notable expansions reported include the following:

• In FY 2017, both Florida and Utah implemented the option to eliminate the five-year bar on Medicaid eligibility for lawfully-residing immigrant children. Arkansas and Nevada both intend to implement this option in FY 2018 (pending CMS approval of their plans, which were adopted by both states’ legislatures during FY 2017).
• In FY 2018, a pending Section 1115 waiver in Utah proposes covering a new eligibility group: individuals with income below 5 percent of the FPL who are chronically homeless, justice-involved, or individuals in need of substance use and/or mental health treatment.

Eligibility Restrictions

Only one state reported implementing an eligibility restriction in FY 2017: Missouri suspended its family planning waiver¹¹  in FY 2017 following legislative restrictions contained in the state’s FY 2017 appropriations bill.¹²  Although Missouri replaced the Medicaid family planning waiver with a state-funded family planning program, this change eliminated Medicaid coverage for family planning services and placed new restrictions on which providers are accessible to the population. (The new restrictions apply only to individuals eligible through the waiver, however, and do not affect coverage of family planning services for other Medicaid eligible individuals.)

Eight states reported eligibility restrictions for FY 2018 (six states through Section 1115 waivers and two states through state plan authority), some in response to a March 2017 Trump administration letter to state governors¹³  that signaled an openness to approve Section 1115 waivers that include work requirements and more expansive use of premiums and cost sharing. This year’s survey captured changes that states have implemented or plan to implement in FY 2018, even if these changes are included in Section 1115 Waiver proposals that are pending approval ¹⁴  at CMS. Waiver provisions (in approved or pending waivers) that states plan to implement in FY 2019 or after are described later in the “Challenges and Priorities” section of this report.¹⁵  A description of key eligibility restrictions included in pending Section 1115 waivers planned for FY 2018 implementation follows.

FY 2018 restrictions for ACA Medicaid expansion populations:¹⁶ 

• Arkansas ¹⁷  has proposed to amend its “Arkansas Works” Medicaid expansion waiver to: (1) eliminate coverage for persons with income above 100 percent of the FPL while still maintaining the enhanced federal matching rate for the remaining expansion population at or below 100 percent FPL, (2) include a work requirement for the remaining expansion population, and (3) eliminate the conditions CMS placed on the state’s waiver of retroactive eligibility for expansion enrollees (including the medically frail).¹⁸ 
• Indiana ¹⁹  plans to impose a three-month lock-out from coverage on individuals who fail to comply with redetermination requirements. Beneficiaries who fail to verify eligibility at renewal would be disenrolled but could re-enroll without a new application if they provide necessary documentation within 90 days. After 90 days, a three-month lock-out period would follow before individuals could re-enroll.²⁰ 

FY 2018 restrictions for non-ACA expansion Medicaid populations:

• Iowa plans to eliminate retroactive Medicaid eligibility for all Medicaid enrollees with an October 1, 2017 target implementation date.²¹ 
• Maine ²²  plans to: (1) waive retroactive eligibility so that coverage would begin no earlier than the first day of the month of application, (2) impose a work requirement for adults (ages 19 to 64), such as parents and former foster care youth, and a time limit on coverage for those who fail to comply with work requirement, (3) apply a $5,000 asset test to all coverage groups that currently do not have an asset test, and (4) eliminate hospital presumptive eligibility for all coverage groups. The state’s pending waiver application proposes to implement these initiatives within six months of demonstration approval (the state’s estimated start date is January 1, 2018).²³ 
• Utah plans to impose a work requirement for its existing Primary Care Network (PCN) waiver adults,²⁴  impose a 60-month time limit on eligibility for PCN adults, and end hospital presumptive eligibility for all current enrollees.

Premiums

The Medicaid statute generally does not allow states to charge premiums to Medicaid beneficiaries. Only two states reported activity related to Medicaid premiums in either FY 2017 or FY 2018.²⁶  In FY 2017, Arkansas replaced the requirement that expansion enrollees make contributions to “Health Independence Accounts” with a new 2 percent of income premium requirement (up to $13/month) for expansion enrollees above 100 percent FPL. Indiana’s pending waiver includes requests to: (1) add a 1 percent premium surcharge for tobacco users beginning in the second year of enrollment, (2) require Transitional Medical Assistance parents with income up to 138 percent FPL to pay premiums like expansion adults, and (3) change to a tiered premium structure instead of a flat charge of 2 percent of income (this change is planned for FY 2018 and expected to have a neutral effect on beneficiaries) (Table 2). 

Coverage Initiatives for the Criminal Justice Population

In recent years, many states have implemented new policies to connect individuals involved with the criminal justice system to Medicaid given that the Medicaid expansion made many of these individuals newly eligible for coverage (including childless adults who were not previously eligible in most states). Connecting these individuals to health coverage²⁷  can facilitate their integration back into the community. Individuals may be enrolled in Medicaid while they are incarcerated, but Medicaid cannot cover the cost of their care during their period of incarceration, except for inpatient services. Nearly all states have policies in place to cover inpatient care for individuals who are incarcerated under Medicaid. Most states are also working with corrections agencies and with local jails to facilitate enrolling individuals in Medicaid before they are released. In addition, half of the states (25) have enrollment initiatives to facilitate Medicaid enrollment for parolees. Some states train criminal justice employees to assist with Medicaid applications and other states have dedicated Medicaid staff to work with the corrections agencies to facilitate enrollment for inmates or payment for inpatient care of inmates. Finally, the majority of states suspend rather than terminate Medicaid coverage for enrollees who become incarcerated. When coverage is suspended, it can be reinstated more easily and quickly upon release from incarceration or when an inpatient hospital stay occurs.²⁸ 

While both Medicaid expansion and non-expansion states have adopted these strategies to connect justice-involved individuals to Medicaid coverage, these initiatives affect many more people in expansion states because eligibility for adults remains restrictive in non-expansion states. In this year’s survey, one non-expansion state commented that the administrative costs of implementing Medicaid coverage policies for the criminal justice population would be excessive since the policies would apply to such a small number of people in the state.

Details on Medicaid coverage for individuals involved with the criminal justice system are included in Exhibit 1 and Table 3.

Table 1: Changes to Eligibility Standards in all 50 States and DC, FY 2017 and FY 2018

Table 2: States Reporting Eligibility²⁹  and Premium³⁰  Changes in FY 2017 and FY 2018³¹ 

TABLE 3: CORRECTIONS-RELATED ENROLLMENT POLICIES IN ALL 50 STATES AND DC, FY 2017 AND FY 2018

The Centers for Medicare and Medicaid Services (CMS) issued a final rule on managed care in Medicaid and CHIP in April 2016. The new rule represents a major revision and modernization of federal regulations in this area.^{35  36}  On June 30, 2017, CMS released an Informational Bulletin³⁷  indicating they would use “enforcement discretion” to work with states on achieving compliance with the new managed care regulations, except for specific areas that “have significant federal fiscal implications.”

Managed care remains the predominant delivery system for Medicaid in most states. As of July 2017, all states except three – Alaska, Connecticut,³⁸  and Wyoming– had some form of managed care in place, unchanged from July 2016. The number of states contracting with comprehensive risk-based managed care organizations (MCOs) (39 states) or operating a Primary Care Case Management (PCCM) program (16 states) as of July 2017 also remained unchanged from the prior year. PCCM is a managed fee-for-service (FFS) based system in which beneficiaries are enrolled with a primary care provider who is paid a small monthly fee to provide case management services in addition to primary care.

Of the 48 states that operate some form of managed care, seven operate both MCOs and a PCCM program while 32 states operate MCOs only and nine states operate PCCM programs only³⁹  (Figure 2). Wyoming, one of the three states without any managed care (i.e., without either MCOs or a PCCM program), does operate a limited-benefit risk-based prepaid health plan (PHP). In total, 25 states (including Wyoming) contracted with one or more PHPs to provide Medicaid benefits including, behavioral health care, dental care, vision care, non-emergency medical transportation (NEMT), or long-term services and supports (LTSS).

Populations Covered by Risk-Based Managed Care

The share of Medicaid beneficiaries enrolled in MCOs or PCCM programs or remaining in FFS for their acute care varies widely by state. However, the share of Medicaid beneficiaries enrolled in MCOs has steadily increased as states have expanded their managed care programs to new regions and new populations and made MCO enrollment mandatory for additional eligibility groups. This year’s survey showed continued modest growth. The survey asked states to indicate the approximate share of specific Medicaid populations who receive their acute care in MCOs, PCCM programs, and FFS. As shown in Figure 3, among the 39 states with MCOs, 29 states reported that 75 percent or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2017 (up from 28 states in last year’s survey), including four of the five states with the largest total Medicaid enrollment. These four states (California, New York, Texas, and Florida) account for nearly four out of every 10 Medicaid beneficiaries across the country (Figure 3 and Table 4).⁴⁰ 

Consistent with past survey results, this year’s survey found that children and adults (particularly those enrolled through the ACA Medicaid expansion) are much more likely to be enrolled in an MCO than elderly Medicaid beneficiaries or those with disabilities. Thirty-five of the 39 MCO states covered 75 percent or more of all children through MCOs. Twenty-eight of the 39 MCO states covered 75 percent or more of low-income adults in pre-ACA expansion groups (e.g., parents, pregnant women) through MCOs. The elderly and people with disabilities were the group least likely to be covered through managed care contracts, with only 16 of the 39 MCO states covering 75 percent or more such enrollees through MCOs (Figure 3).

Of the 32 states that had implemented the ACA Medicaid expansion as of July 1, 2017, 27 were using MCOs to cover newly eligible adults. (The five Medicaid expansion states without risk-based managed care were Alaska, Arkansas, Connecticut, Montana, and Vermont.) The large majority (24) of these 27 states covered more than 75 percent of beneficiaries in this group through risk-based managed care. New Hampshire, however, reported that approximately 80 percent of its ACA expansion adults receive premium assistance to enroll in Qualified Health Plans in the state’s Marketplace and that only 13.5 percent were enrolled in MCOs. The other two states reporting less than 75 percent MCO penetration for this group were Colorado and Illinois.

Seven of the 16 states with PCCM programs also contract with MCOs. In most of these states, MCOs cover a larger share of beneficiaries than PCCM programs. However, Colorado and North Dakota are exceptions. As of July 1, 2017, a majority of Colorado’s enrollees were in the PCCM program, which is the foundation of the state’s Accountable Care Collaboratives, and 40 percent of enrollees in North Dakota were enrolled in the PCCM program (compared to 25 percent in the MCO program).

Only two states reported policies implemented in FY 2017 or planned for FY 2018 that reduced or will reduce the states’ reliance on the MCO model of managed care: Colorado reported that a small MCO pilot initiated on July 1, 2016 terminated on June 30, 2017, and Massachusetts reported that the implementation of its Accountable Care Organization (ACO) program in FY 2018 will result in the transition of MCO enrollees to ACOs.

Populations with Special Needs

For geographic areas where MCOs operate, this year’s survey asked MCO states whether, as of July 1, 2017, certain subpopulations with special needs were enrolled in MCOs for their acute care services on a mandatory or voluntary basis or were always excluded. On the survey, states selected from “always mandatory,” “always voluntary,” “varies,” or “always excluded” for the following populations: pregnant women, foster children, persons with intellectual and developmental disabilities (ID/DD), children with special health care needs (CSHCNs), persons with a serious mental illness (SMI) or serious emotional disorder (SED), and adults with physical disabilities. This year’s survey found an increase in the number of states reporting that enrollment for these populations is always mandatory (Exhibit 2).

As shown in Exhibit 2 and Table 5, and consistent with results in last year’s survey, pregnant women were the group most likely to be enrolled on a mandatory basis while persons with ID/DD were least likely to be enrolled on mandatory basis and also most likely to be excluded from MCO enrollment. Foster children were the group most likely to be enrolled on a voluntary basis, although they were enrolled on a mandatory basis in a larger number of states. Among states indicating that the enrollment approach for a given group or groups varied, LTSS eligibility was the most frequently cited basis of variation.

Acute Care Managed Care Population Changes

In both FY 2017 and FY 2018, only a few states reported actions to increase enrollment in acute care managed care, reflecting full or nearly full MCO saturation in most MCO states. Of the 39 states with MCOs, a total of 14 states indicated that they made specific policy changes in either FY 2017 (7 states) or FY 2018 (8 states) to increase the number of enrollees in MCOs through geographic expansion, voluntary or mandatory enrollment of new groups into MCOs, or mandatory enrollment of specific eligibility groups that were formerly enrolled on a voluntary basis (Exhibit 3). Thirty-six states reported that acute care MCOs were operating statewide as of July 2017 and Illinois reported plans to expand MCOs statewide in FY 2018. The remaining two states without statewide MCO programs (Colorado and Nevada) did not report a geographic expansion planned for FY 2018.

Some of the notable acute care MCO expansions include:

• West Virginia transitioned its SSI population from FFS to mandatory MCO enrollment in July 2016.
• Missouri extended its MCO program geographically statewide on May 1, 2017 for children, pregnant women, refugees, and custodial parents.
• In January 2018, Pennsylvania will begin to phase-in its Community HealthChoices program which will provide both physical health and long-term services and supports through newly contracted MCOs. CHC enrollees will include individuals in nursing facilities (currently carved out of managed care after 30 days), full benefit dually-eligible individuals, and individuals receiving home and community-based services.

In FY 2017 and FY 2018, states expanded MCO enrollment (either voluntary or mandatory) to additional groups. Some states added multiple groups. Some groups that states added or are planning to add include: foster care or adoption assistance children (New York, Ohio, and Texas); persons eligible for LTSS (Nebraska, New York, Ohio, Pennsylvania, and Texas); ACA expansion, newly eligible adult group and enrollees in the state’s Health Insurance Premium Payment Program (Louisiana); Breast and Cervical Cancer Treatment Program group (Ohio and Texas); children with special health care needs or SSI (Illinois, Ohio, and Texas); SSI population (West Virginia); and persons with intellectual and developmental disabilities (Nebraska and Ohio).

One state in FY 2017 and five in FY 2018 made enrollment mandatory for a specific eligibility group that was formerly enrolled on a voluntary basis: Washington (clients with Third Party Liability (TPL)/other insurance, excluding Medicare); New York (children with special health care needs in 1915(c) waiver programs); Oregon (Medicare/Medicaid dual eligibles); South Carolina (former foster care adults); Virginia (aged, blind, and disabled enrollees); and Wisconsin (SSI adults that do not have LTSS needs).

Services Covered Under MCO Contracts

Behavioral Health Services Covered Under MCO Contracts

Although MCOs are at risk financially for providing a comprehensive set of acute care services, nearly all states exclude or “carve-out” certain services from their MCO contracts, most commonly behavioral health services. In this year’s survey, states with acute care MCOs were asked to indicate whether specialty outpatient mental health (MH) services, inpatient mental health services, and outpatient and inpatient substance use disorder (SUD) services are always carved-in (i.e., virtually all services are covered by the MCO), always carved-out (to PHP or FFS), or carve-in status varies by geographic or other factors.

For purposes of this survey, “specialty outpatient mental health” services mean services used by adults with Serious Mental Illness (SMI) and/or youth with serious emotional disturbance (SED), commonly provided by specialty providers such as community mental health centers. Depending on the service, more than half of the 39 MCO states reported that specific behavioral health service types were carved into their MCO contracts, with specialty outpatient mental health services somewhat less likely to be carved in (Exhibit 4 and Table 6). Also, with the exception of inpatient SUD services, the number of states reporting that the other services were always carved-in increased modestly from last year.

States reporting actions in FY 2017 to carve in behavioral health services into their MCO contracts (in at least some regions/contracts) included six states (Minnesota, Nebraska, South Carolina, Texas, Virginia, and Washington). In FY 2018, ten states (Louisiana, Michigan, Minnesota, Mississippi, New Jersey, New York, Ohio, South Carolina, Washington, and West Virginia) report new/continued actions to carve in behavioral health services.

Institutions for Mental Diseases (IMD) Rule Change

The 2016 Medicaid Managed Care Final Rule⁴²  allows states (under the authority for health plans to cover services “in lieu of” those available under the Medicaid state plan), to receive federal matching funds for capitation payments on behalf of adults who receive inpatient psychiatric or substance use disorder treatment or crisis residential services in an IMD for no more than 15 days in a month.⁴³  States were asked in the survey whether they planned to use this new authority. Of the 39 states with MCOs, 26 states answered “yes” for FY 2017, FY 2018, or both FYs 2017 and 2018, five states answered “no,” and eight states answered “undetermined.”

States were also asked whether they believed the Final Rule allows MCOs sufficient flexibility to provide cost-effective “in lieu of” IMD services to meet acute inpatient or residential treatment needs for members with severe mental illness (SMI) or substance use disorders (SUDs). Only a small number of states (9 for SMI and 8 for SUD) answered “yes.” The remaining MCO states answered “no” (19 for SMI and 19 for SUD) or “don’t know” (11 for SMI and 12 for SUD). Many states commented that the 15-day limit was too restrictive, especially for SUD services, and a number of states indicated plans to seek a Section 1115 waiver to cover more than 15 days per month.⁴⁴ 

Additional Services

States with MCO contracts reported that plans in their states may offer a range of services beyond those described in the state plan or waivers. Eleven states reported that MCOs provide limited or enhanced adult dental services beyond contractually required state plan benefits, and nine states reported enhanced vision services for adults. Several states noted that MCOs offer cell phones for reminder services or other technology supports from scales to telemedicine. Half of MCO states reported that MCOs provide a wide variety of non-clinical supports as value added services, including infant car seats and cribs, nominal gift cards for healthy behavior, air conditioners for asthma treatment, weight management classes or memberships, and even support for obtaining a GED. Health education, wellness supports, and non-traditional therapies were also noted by some states.

Managed Care (Acute and LTSS) Quality, Contract Requirements, and Administration

Quality Initiatives

Over time, the expansion of comprehensive risk-based managed care in Medicaid has been accompanied by greater attention to measuring quality and plan performance and, increasingly, to measuring health outcomes. After years of comprehensive risk-based managed care experience within the Medicaid program, many states now incorporate quality into the procurement process, as well as into ongoing program monitoring.

States procure MCO contracts using different approaches; however, most states use competitive bidding, in part because the dollar value is so large. Under these procurements, states can specify requirements and criteria that go beyond price, and may expect plans to compete on the basis of value-based payment arrangements with network providers, specific policy priorities such as improving birth outcomes, or strategies to address social determinants of health, and/or other specific performance and quality criteria. In this year’s survey, states were asked if they used, or planned to use, National Committee for Quality Assurance’s (NCQA’s) Healthcare Effectiveness Data and Information Set (HEDIS^®) scores as criteria for selecting MCOs. Of the 39 states with MCOs, 18 indicated that they used or plan to use HEDIS scores as criteria for selecting MCOs.

States were asked to indicate whether they had select quality strategies in place in FY 2017 and to indicate newly added or expanded initiatives for FY 2018. Thirty-seven MCO states reported one or more select MCO quality initiatives in place in FY 2017 (Figure 4 and Table 7). The most common strategies were requirements for data collection and reporting (often public reporting) on quality measures and the use of quality-based capitation withholds or penalties. Withhold amounts for acute care services typically ranged from 1 percent (Michigan, Oregon, and Washington) to 5 percent (Minnesota and Missouri); managed long-term services and supports (MLTSS) withhold amounts typically ranged from 0.5 percent (Iowa and Wisconsin) to 3 percent (California and Ohio). Over half the 39 states with managed care contracts reported the use of pay for performance strategies. In addition, several states reported “other” quality initiatives, including the use of liquidated damages for poor performance and the required operation of and reporting on performance improvement projects (PIPs).

In FY 2018, 11 states expect to implement new or expanded quality initiatives (Figure 4). The most common new quality initiatives are pay for performance initiatives while the most common expanded initiatives are data collection and reporting initiatives (Table 7).

Contract Requirements

Alternative [Provider] Payment Models within MCO Contracts

Value-based purchasing (VBP) strategies are important tools for states pursuing improved quality and outcomes and reduced costs of care within Medicaid and across payers. Generally speaking, VBP strategies include activities that hold a provider or MCO accountable for cost and quality of care.⁴⁵  This often includes efforts to implement alternative payment models (APMs). APMs replace FFS/volume-driven provider payments with payment models that incentivize quality, coordination, and value (e.g., shared savings/shared risk arrangements and episode-based payments). Many states have included a focus on adopting and promoting APMs as part of their federally supported State Innovation Models (SIM) projects and as part of delivery system reform efforts approved under Section 1115 Medicaid waivers.⁴⁶  States are increasingly encouraging or requiring Medicaid MCOs to adopt APMs to advance VBP in Medicaid. The survey found that:

• Thirteen states (Arizona, California, Delaware, Hawaii, Nebraska, New Hampshire, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, and Washington) identified a specific target in their MCO contracts for the percentage of provider payments, network providers, or plan members that plans must cover via alternative provider payment models in FY 2017 (compared to five states in FY 2016); and
• Nine additional states (District of Columbia, Iowa, Kansas, Louisiana, Michigan, New Jersey, Oregon, Texas, and West Virginia) will include a target percentage in their contracts for FY 2018.

Further, in FY 2017, eight states had contracts that required Medicaid MCOs to adopt specific alternative provider payment models (e.g., episode of care payments, shared savings/shared risk, etc.), while eight states had contracts that encouraged MCOs to adopt specific APMs. In FY 2018, four additional states plan to require the use of specific APMs while five additional states plan to encourage use of specific APMs. The box below provides state examples of APM requirements.

Social Determinants of Health

In April 2017, the CMS Center for Medicare and Medicaid Innovation selected 32 organizations to implement and test models to support local communities in addressing the health-related social needs of Medicare and Medicaid beneficiaries, aiming to bridge the gap between clinical and community service providers. This “Accountable Health Communities” model represents the first CMS innovation model that focuses on social determinants of health. The goal of the five-year program is to encourage innovation to deliver local solutions that improve access to community-based services.⁴⁸  This development reflects growing awareness and interest on the part of CMS to address other issues, such as housing and food insecurity, by linking beneficiaries to social services and supports, ultimately to improve health and health outcomes. States have also focused on addressing social determinants of health, so federal and state activity are occurring simultaneously.

The survey found that, of the 39 MCO states, 19 states required while 12 states encouraged MCOs to screen enrollees for social needs and provide referrals to other services in FY 2017. Two additional states plan to require and two plan to encourage MCOs to screen/refer enrollees for social needs in FY 2018.

Criminal Justice-Involved Populations

Engaging Medicaid MCOs in efforts to improve continuity of care for individuals released from correctional facilities into the community is important to ensure that individuals with complex or chronic health conditions, including behavioral health needs, have an effective transition to treatment in the community. In FY 2017, of the 39 states that contract with MCOs, six states (Arizona, Iowa, Kansas, Louisiana, Ohio, and Virginia) require MCOs to provide care coordination services to enrollees prior to release from incarceration, while two states (Kentucky and New Mexico) encourage MCOs to provide care coordination services prior to release. Five states intend to use contracts to encourage or require such care coordination in FY 2018. The following are examples of pre-release state requirements: Louisiana requires plans to offer care management at least 30 days prior to scheduled release; Kansas requires pre-release care management for LTSS populations, and new legislation in Washington will require care coordination pre-release and post-incarceration in FY 2018. New Mexico, a state that encourages but does not require pre-release activity, reported that one health plan is piloting a care coordination model through collaboration with a metropolitan detention center to test and learn effective methods to impact recidivism and improve public health and safety.

Administrative Policies

Minimum Medical Loss Ratios

The Medical Loss Ratio (MLR) is the proportion of total capitation payments received by an MCO spent on clinical services and quality improvement. CMS published a final rule in 2016 that requires states to develop capitation rates for Medicaid to achieve an MLR of at least 85 percent in the rate year, for rating periods and contracts starting on or after July 1, 2017.⁴⁹  This 85 percent minimum MLR is the same standard that applies in Medicare Advantage and private large group plans. There is no federal requirement that Medicaid plans must pay remittances to the state if they fail to meet the MLR standard, but states have discretion to require remittances.

As of July 1, 2017, 25 of the 39 states that contract with comprehensive risk-based MCOs specified a minimum MLR in Medicaid MCO contracts. Twenty of these 25 states applied the MLR requirement to all MCO contracts, while five states applied it on a limited basis. Seventeen of the 25 states with minimum MLR requirements always require remittance payments to the state if the minimum MLR is not achieved; one state (Ohio) requires remittance under some circumstances.⁵⁰ 

Medicaid MLRs vary by state but are most commonly set at 85 percent or higher. A few states noted that their minimum MLRs varied by type of plan or population. For example, in New Jersey, the MLR is calculated separately for each population covered, with an MLR of 85 percent set for acute care contracts and an MLR of 90 percent set for MLTSS contracts.

Table 8 provides state-specific information regarding the use of a minimum MLR.

Auto-Enrollment

Generally, beneficiaries who are required to enroll in MCOs must be offered a choice of at least two plans. Those who do not select a plan are auto-enrolled in a plan by the state. The proportion of MCO beneficiaries who are auto-enrolled varies widely across states. State auto-enrollment algorithms also vary, but usually take into consideration variables like previous plan or provider relationships, beneficiary geographic location, and/or plan enrollments of other family members. States may also aim to balance enrollment among plans. As of July 1, 2017, 11 states took plan quality or performance rankings into consideration in the auto-enrollment algorithm (Arizona, California, Hawaii, Michigan, Minnesota, New Mexico, New York, Ohio, South Carolina, Virginia, and Washington).

PCCM and PHP Program Changes

Primary Care Case Management (PCCM) Program Changes

Of the 16 states with PCCM programs, two reported enacting policies to increase PCCM enrollment in FY 2017 or FY 2018: Colorado reported continued growth in its PCCM-based Accountable Care Collaboratives in both FY 2017 and FY 2018, and Arkansas reported implementing new billing software that would auto-assign beneficiaries to a primary care physician. Two other states reported new PCCM programs: Alaska – one of only three states without either an MCO or PCCM program as of July 1, 2017 – reported plans to implement a PCCM program in FY 2018, and Arizona reported plans to implement an American Indian Medical Home effective October 1, 2017 using PCCM authority.

Three states⁵¹  (California, Illinois, and Massachusetts) reported actions to decrease enrollment in a PCCM program in FY 2017 or FY 2018. California plans to transition its one-county HIV PCCM program to a full-risk MCO model in CY 2018; Illinois reported that its Integrated Health Homes would move to managed care under new MCO contracts that would begin in FY 2018, and Massachusetts reported that implementation of its Accountable Care Organization (ACO) program in FY 2018 will include the transition of PCCM members to ACO Plans.

Limited-Benefit Prepaid Health Plans (PHP) Changes

In this year’s survey, the 25 states contracting with at least one PHP as of July 1, 2017, were asked to indicate whether certain services (listed in Exhibit 5 below) were provided under these arrangements. The most frequently cited services provided (of those included in the question) were outpatient mental health services (14 states), followed by non-emergency medical transportation (NEMT) (12 states) and inpatient mental health and outpatient substance use disorder (SUD) treatment services (11 states each).

Nine states reported implementing policies to increase PHP enrollment in FY 2017 or FY 2018. Five states (Arkansas, Iowa, Idaho, Nebraska, and Nevada) reported new or expanded dental PHPs in FY 2018, Indiana reported plans for an NEMT PHP contract in FY 2018, California reported adding inpatient SUD treatment to its PHP program in FY 2018, Louisiana will add “Coordinated System of Care” PHPs in FY 2018 (serving youth with behavioral health challenges and their families), and New York reported increased enrollment in its LTSS PHPs in both FY 2017 an FY 2018.

Four states also reported actions to decrease PHP enrollment in FY 2017 or FY 2018. Nebraska and Texas reported ending a behavioral health PHP and folding the covered services into MCO contracts in FY 2017. Washington reported that PHP enrollment decreased in FY 2017 and will decrease further in FY 2018 when the state converts behavioral health PHPs to fully integrated MCO contracts in additional geographic areas. Massachusetts reported that implementation of its Accountable Care Organization (ACO) program in FY 2018 will reduce enrollments in its behavioral health PHP program.

TABLE 4: SHARE OF THE MEDICAID POPULATION COVERED UNDER DIFFERENT DELIVERY SYSTEMS IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

TABLE 5: ENROLLMENT OF SPECIAL POPULATIONS UNDER MEDICAID MANAGED CARE CONTRACTS FOR ACUTE CARE IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

TABLE 6: BEHAVIORAL HEALTH SERVICES COVERED UNDER ACUTE CARE MCO CONTRACTS IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

TABLE 7: SELECT MEDICAID MANAGED CARE QUALITY INITIATIVES IN ALL 50 STATES AND DC, IN PLACE IN FY 2017 AND ACTIONS TAKEN IN FY 2018

TABLE 8: MINIMUM MEDICAL LOSS RATIO POLICIES FOR MEDICAID MCOs IN ALL 50 STATES AND DC, JULY 1, 2017

This year’s survey asked states whether certain delivery system and payment reform models designed to improve health outcomes and constrain cost growth were in place in FY 2017, and whether they planned to adopt or enhance these models in FY 2018. Over three-quarters of all state Medicaid programs (40) had at least one of the specified delivery system or payment reform models in place in FY 2017 (Figure 5 and Table 9). If all actions reported by states for FY 2018 are implemented as planned, that number will grow to 44 states by the end of FY 2018, demonstrating the continued widespread and growing interest in Medicaid transformation. For FY 2018, a total of 22 states reported plans to adopt or expand one or more of the models to reward quality and encourage integrated care. Key initiatives include patient-centered medical homes (PCMHs), Health Homes, and Accountable Care Organizations (ACOs).

Patient-Centered Medical Homes (PCMHs)

PCMH initiatives operated in over half (30) of Medicaid programs in FY 2017 (Table 9). Under a PCMH model, a physician-led, multi-disciplinary care team holistically manages the patient’s ongoing care, including recommended preventive services, care for chronic conditions, and access to social services and supports. Generally, providers or provider organizations that operate as a PCMH seek recognition from organizations like the National Committee for Quality Assurance (NCQA).⁵³  PCMHs are often paid (by state Medicaid agencies directly or through MCO contracts) a per member per month (PMPM) fee in addition to regular FFS payments for their Medicaid patients.⁵⁴ 

In this year’s survey, 12 states reported plans to adopt or expand PCMHs in FY 2018 (Table 9). A few of these states reported notable expansions. Through its Centennial Care managed care program, New Mexico indicated that it now serves approximately 300,000 members through a PCMH and further expansion is planned for FY 2018. Tennessee reported launching its statewide multi-payer PCMH program (through its TennCare MCOs) with 29 organizations in January 2017 with plans to add practices each year. Wyoming, a state without MCO or PCCM programs, implemented PCMHs prior to FY 2017, but reported that it will continue to recruit and enroll physician practices into the program in FY 2018. Alaska, Delaware, and Illinois are planning to implement new PCMH initiatives in FY 2018 and Georgia’s MCO contracts will support expansion of the number of PCMHs in FY 2018.

In contrast, three states reported the restriction or elimination of a PCMH program: Massachusetts ended a PCMH program in December 2016 as part of its transition towards primary care-led reform through ACO models; Maine reported that the multi-payer PCMH program that it participated in was eliminated at the federal level, and South Carolina reported that it would be restricting its PCMH program by eliminating “level 1” funding after finding that many PCMHs remained in the application phase for more than 18 months.

ACA Health Homes

The ACA Health Homes option, created under Section 2703 of the ACA, builds on the PCMH concept. By design, Health Homes must target beneficiaries who have at least two chronic conditions (or one and risk of a second, or a serious and persistent mental health condition), and provide a person-centered system of care that facilitates access to and coordination of the full array of primary and acute physical health services, behavioral health care, and social and long-term services and supports. This includes services such as comprehensive care management, referrals to community and social support services, and the use of health information technology (HIT) to link services, among others. States receive a 90 percent federal match rate for qualified Health Home service expenditures for the first eight quarters under each Health Home State Plan Amendment; states can (and have) created more than one Health Home program to target different populations.

Over one-third of states (21) had at least one Health Home initiative in place in FY 2017 (Table 9). One of these states (Alabama) specifically noted that it is continuing to operate its Health Home initiative even though the eight quarters of enhanced federal funding has expired. In this survey, seven states also reported plans to adopt or expand Health Homes in FY 2018 (Table 9). Of these seven states, three (Alaska, California, and Illinois) reported new Health Home State Plan Amendments (SPAs) and four states (New Mexico, New York, Vermont, and West Virginia) reported expansions of existing Health Home programs. Ohio, however, reported plans to end its Health Home program in January 2018 as part of a behavioral health redesign initiative.

Accountable Care Organizations (ACOs)

Thirteen states reported having ACOs in place for at least some of their Medicaid beneficiaries in FY 2017 (Table 9).⁵⁵  While there is no uniform, commonly accepted federal definition of an ACO, an ACO generally refers to a group of health care providers or, in some cases, a regional entity that contracts with providers and/or health plans, that agrees to share responsibility for the health care delivery and outcomes for a defined population.⁵⁶  An ACO that meets quality performance standards that have been set by the payer and achieves savings relative to a benchmark can share in the savings. States use different terminology in referring to their Medicaid ACO initiatives, such as Regional Care Collaborative Organizations (RCCOs) in Colorado⁵⁷  and Accountable Entities in Rhode Island.

In this survey, no state reported a new ACO initiative, but six states reported plans to expand an existing initiative in FY 2018 (Table 9). Four states with more mature ACO programs (Colorado, Maine, Minnesota, and Vermont) reported continued expansions of those programs in FY 2018, including Vermont, which also reported that it had aligned its existing ACO model with the design of the Medicare/CMS Next Generation ACO model beginning in January 2017. Two states (Massachusetts and Rhode Island) reported more significant expansions. Massachusetts reported that its ACO pilot program would be expanded statewide in January 2018 employing three different ACO models: an ACO/MCO partnership model; an ACO contracting directly with the state (without an MCO partner), and an exclusively MCO administered model. Massachusetts expects approximately 900,000 Medicaid beneficiaries to be enrolled in an ACO (out of 1.4 million total Medicaid enrollees). Rhode Island also reported plans to expand its current pilot “Accountable Entity” (AE) program in partnership with its existing MCOs with a long-term goal of having at least one-third of its Medicaid eligibles attributed to a certified AE.⁵⁸ 

Episode-of-Care Payment Initiatives

Unlike FFS reimbursement, where providers are paid separately for each service, or capitation, where a health plan receives a PMPM payment for each enrollee intended to cover the costs for all covered services, episode-of-care payment provides a set dollar amount for the care a patient receives in connection with a defined condition or health event (e.g., heart attack or knee replacement). Episode-based payments usually involve payment for multiple services and providers, creating a financial incentive for physicians, hospitals, and other providers to work together to improve patient care and manage costs. Six states (Arkansas, New Mexico, New York, Ohio, Pennsylvania, and Tennessee) reported that they had episode-of-care payment initiatives in place in FY 2017, up from only two states in FY 2015 (Table 9). Four of these states (Arkansas, New Mexico, Ohio, and Tennessee) also reported planned expansions of these initiatives in FY 2018. Another three states (Alaska, Connecticut, and South Carolina) reported plans to implement a new episode-of-care initiative in FY 2018 (Table 9).

Delivery System Reform Incentive Payment (DSRIP) Program

DSRIP initiatives,⁵⁹  which emerged under the Obama administration, provide states with significant federal funding to support hospitals and other providers in changing how they provide care to Medicaid beneficiaries.[endnote 239092-11] DSRIP initiatives link funding for eligible providers to process and performance metrics. Ten states reported DSRIP initiatives in place in FY 2017 (Table 9). Two of these states (Massachusetts and Texas) reported expansions planned for FY 2018: Massachusetts’ expanded DSRIP will support the development of ACOs and Texas reported new protocols for DSRIP activities, subject to CMS approval. Although states continue to show interest in pursuing delivery system reform through Section 1115 waiver authority, the future of DSRIP initiatives remains unclear under the new administration.

Other Initiatives

In addition to the initiatives discussed above, states mentioned a variety of other delivery system and payment reform initiatives (not counted in the totals for Figure 5 and Table 9). For example, DC reported on its pay for performance (P4P) initiatives including a new rate methodology for nursing facilities that includes P4P and an federally qualified health center (FQHC) P4P program focused on reducing inappropriate use of the emergency room, decreasing the rate of potentially avoidable hospital admissions, and addressing the problem of hospital readmissions. Montana reported on the implementation and expansion of a tribal health improvement program. Nevada reported implementing Certified Community Behavioral Health Clinics (CCBHCs) using an integrated behavioral health model, a prospective payment system, and pay for performance measures. Rhode Island reported using Section 1115 waiver authority to receive federal matching funds for services currently provided by various state agencies to support a new Designated State Health Program aimed at supporting quality-based payment programs, and Wisconsin reported plans to implement incentives to reduce potentially preventable hospital readmissions among both managed care and FFS members.

All-payer claims database (APCD) systems are large-scale databases that systematically collect medical claims, pharmacy claims, dental claims (typically, but not always), and eligibility and provider files from both private and public payers. APCDs can be used to help identify areas to focus reform efforts and for other purposes. Sixteen states (up from 11 in FY 2015) reported that an APCD was in place in their states (although Minnesota reported that the Medicaid program did not have access to the APCD in its state); one state (Connecticut) reported an APCD expansion planned for FY 2018; and three states (Delaware, Hawaii, and Washington) reported plans for new APCDs in FY 2018. Tennessee, however, reported that its APCD would be eliminated stating that following the United States Supreme Court’s 2016 decision in Gobeille v. Liberty Mutual Insurance Company,⁶⁰  the Tennessee Attorney General opined that the statute authorizing the Tennessee APCD could no longer be enforced.

Access Improvement Focus Areas

This year’s survey included additional questions for states focusing on initiatives to increase access to dental care or improve oral health outcomes and initiatives to increase access to telehealth. States were asked to briefly describe initiatives implemented in FY 2017 or planned for FY 2018.

Improving Dental Access or Oral Health Outcomes

Oral health is a critical component of overall health and well-being, but the prevalence of dental disease and tooth loss is disproportionately high among people with low income, reflecting lack of access to dental coverage and care.⁶¹  While all state Medicaid programs are required to provide a comprehensive dental benefit for children, dental services remain an optional benefit for adults and securing an adequate number of dental providers is a challenge in many areas. In this year’s survey, 19 states described a variety of new or expanded initiatives to expand dental access or improve oral health outcomes (for children and/or adults) implemented in FY 2017 or FY 2018 (Exhibit 6).

In addition to the strategies noted in Exhibit 6 above, Pennsylvania reported expanded use of mid-level oral healthcare providers; Maryland reported expanded dental coverage to former foster care adults; and South Dakota reported working with its DBM vendor on care coordination initiatives (between primary care and dental care). Also see the “Benefit Changes” section of this report for details on states with dental benefit expansions. A number of other states mentioned ongoing initiatives implemented prior to FY 2017.

Improving Access to Care Through Telehealth

Interest in telehealth has grown across both public and commercial payers as a way to expand access to care, create greater convenience for patients, improve the quality of care, and reduce the costs of care. There are various types of telehealth services including: medical care/consultation between a patient at home and a distant clinician or between a patient in the presence of a clinician and a distant clinician; consultations between two clinicians without the patient present; remote monitoring of a patient at home or in a hospital or other facility; and secure electronic transfer of patient information (e.g., an image or lab results) to a clinician.⁶² 

In this year’s survey, 19 states reported initiatives to expand the use of telehealth in FY 2017 or FY 2018. Nine states reported expanding telehealth by covering additional services, diagnoses, or provider types (Arizona, Minnesota, Mississippi, Montana, and Washington), removing a 20 mile distance restriction (Indiana), adding or encouraging remote patient monitoring (Florida and Maryland) and distant site providers (Maryland), and allowing a patient’s home to be an acceptable patient site and clarifying that an initial in-person visit is not required if the telehealth service is being used to treat a behavioral health condition (Texas). California and Colorado reported telehealth pilot programs; Nevada indicated that its MCOs had implemented “NowClinics” to promote telehealth utilization, and South Dakota reported that it was working with tribal facilities to expand telehealth availability. Other states that reported new or expanded telehealth initiatives include Arkansas, Hawaii, Illinois, New Jersey, New Mexico, and New York.

TABLE 9: SELECT DELIVERY SYSTEM AND PAYMENT REFORM INITIATIVES IN ALL 50 STATES AND DC, IN PLACE IN FY 2017 AND ACTIONS TAKEN IN FY 2018

Medicaid is the nation’s primary payer for long-term services and supports (LTSS), covering a continuum of services ranging from home and community-based services (HCBS) that allow persons to live independently in their own homes or in other community settings to institutional care provided in nursing facilities (NFs) and intermediate care facilities for individuals with intellectual disabilities (ICF-IDs). In 2015, spending on HCBS increased 7 percent while institutional spending decreased slightly, by 0.1 percent. HCBS represented 55 percent of total Medicaid expenditures on LTSS, and institutional LTSS represented 45 percent,⁶⁴  a dramatic shift from 1995, when institutional settings accounted for 82 percent of national Medicaid LTSS expenditures.⁶⁵ 

This year’s survey shows the vast majority of states in FY 2017 (47) and all states in FY 2018 (51) employing one or more strategies to expand the number of people served in home and community-based settings (Figure 6 and Table 10).

• Forty-three states in FY 2017 and 46 states in FY 2018 report using HCBS waivers and/or State Plan Amendments (SPAs) to expand the number of people receiving HCBS.⁶⁶  HCBS waivers and SPAs include Section 1915(c) and Section 1115 waivers⁶⁷  as well as Section 1915(i) and 1915(k) (“Community First Choice”) state plan options.
• Sixteen states in FY 2017⁶⁸  and 17 states in FY 2018 report including specific rebalancing incentives, performance targets and/or financial incentives, in managed care contracts to encourage MCOs that cover LTSS to expand access to HCBS.
• Twenty-one states in FY 2017 and 22 states in FY 2018 report serving more individuals through Programs of All-Inclusive Care for the Elderly (PACE) programs.⁶⁹ 
• Thirteen states in FY 2017 and nine states in FY 2018 are closing or downsizing a state institution and transitioning residents into community settings.
• Four states in FY 2017 and five states in FY 2018 are implementing or tightening a Certificate of Need (CON) program or imposing or extending a moratorium on construction of new NF or ICF-ID beds.

States were also asked whether they have adopted or plan to adopt new restrictions on the number of people served in the community. In FY 2018, Missouri noted they are reducing enrollees’ state plan consumer directed services budgets to equal 60 percent of the cost of nursing home care. In addition, Texas noted that, while the state budget included increased funding to support additional slots in Section 1915(c) waivers, the state has slowed down the rollout of new slots because of unanticipated increases in Community First Choice expenditures.

Table 10 shows state use of LTSS rebalancing tools in FY 2017 and FY 2018.

Housing Supports

In June 2015, CMS issued an Informational Bulletin to clarify when and how Medicaid reimburses for certain housing-related activities, including individual housing transition services, individual housing and tenancy sustaining services, and state-level housing related collaborative activities.⁷⁰  CMS’s intent was to assist states in designing benefits that support community integration for seniors, individuals with disabilities, and individuals experiencing chronic homelessness. Over half of states (27 states) reported that they implemented or expanded a housing-related strategy outlined in the CMS bulletin in FY 2017 and/or FY 2018 (Exhibit 7).

Many of the services outlined in CMS’s Informational Bulletin were developed under the auspices of federal grant programs, including the Money Follows the Person (MFP) rebalancing demonstration. MFP is a federal grant program, enacted under the Deficit Reduction Act of 2005 and extended through September 2016 by the Affordable Care Act, which operated in 44 states.^71 ,72  Enhanced federal funding under MFP has supported the transition of over 63,000 individuals from institutional to home and community-based long-term care settings as of December 2015.⁷³  Under MFP, states identified the lack of affordable and accessible housing as a major barrier to assisting individuals to leave institutional settings of care.⁷⁴  With MFP resources, many states have offered new housing related services, incorporated housing expertise within the Medicaid program to increase the likelihood of successful community living for persons who need supports, and engaged in strategic activities to assist in identifying and securing housing resources for individuals who choose HCBS.⁷⁵ 

After September 2016, with CMS approval, states can continue to transition eligible individuals through 2018 and expend remaining MFP funds through federal FY 2020.⁷⁶  As of July 2017, 30 states report that they currently offer housing-related services under a state plan, Section 1915(c) waiver, or Section 1115 waiver that the state intends to continue after the expiration of the MFP. However, 21 states report some services will likely be discontinued when MFP funding runs out. Examples of MFP services and activities that states may discontinue include: home delivered meals, vehicle modifications, independent living skills training, housing transition services, peer mentorship, and caregiver education, among others.

LTSS Direct Care Workforce

Many states are struggling to find sufficient numbers of trained direct care workers to meet the growing LTSS demand, including the demand for care in home and community-based settings.^77 ,78  Low wages, few benefits, limited opportunities for career advancement, inadequate training, and high rates of worker injury are all factors that contribute to a workforce shortage and high workforce turnover among paid LTSS direct care workers. In this year’s survey, states were asked to describe any Medicaid initiatives intended to address LTSS direct care workforce shortages or turnover. Seventeen states report efforts underway in FY 2017 or FY 2018 related to wage increases for direct care workers or to workforce development (Exhibit 8).⁷⁹ 

HCBS Benefit Changes

Fourteen states in FY 2017 and 13 states in FY 2018 reported a wide variety of HCBS benefit additions or expansions. HCBS benefits include those in Section 1915(c) waivers, under Section 1915(i) authority or Section 1915(k) authority (“Community First Choice” or “CFC”), and state plan personal care services, home health services, or private duty nursing, and PACE (Exhibit 9).⁸⁰  Most HCBS benefit changes reported involve the addition of HCBS services to existing waiver or state plan programs. Examples of HCBS services added by states include assistive technology, home delivered and medically tailored meals, personal supports, unpaid caregiver training, housing transition services and tenancy supports, and supported employment.

Some states implemented new HCBS programs in FY 2017 or FY 2018. Six states report establishing eleven new PACE sites over the reporting period (Exhibit 9). In FY 2017, Tennessee added a new HCBS program for individuals with ID/DD under its Section 1115 waiver (Employment and Community First CHOICES). In FY 2018, Idaho will implement a new Section 1915(i) state plan HCBS option for children with a serious emotional disturbance, Pennsylvania will add a new Community Living waiver for individuals with ID/DD, and Wyoming will implement a new Section 1915(k) (CFC) state plan service.

Only one state, Oregon, reported eliminating an HCBS benefit, proposing to eliminate coverage for a live-in program in FY 2018.

Capitated Managed Long-Term Services and Supports (MLTSS)

As of July 1, 2017, almost half of states (23 states) covered LTSS through one or more of the following types of capitated managed care arrangements:

• Medicaid MCO covering Medicaid acute care and LTSS (18 states)
• PHP covering only Medicaid LTSS (6 states)
• MCO arrangement for dual eligible beneficiaries covering Medicaid and Medicare acute care and Medicaid LTSS services in a single contract under the federal Financial Alignment Demonstration (FAD) (10 states)

Of the 23 states that reported using one or more of these MLTSS models, nine states reported using two models, and one state (New York) reported using all three. Of the states with capitated MLTSS, 15 offered some form of MLTSS plan on a statewide basis for at least some LTSS populations as of July 1, 2017 (Table 11).

Ten states offered an MCO-based FAD (California, Illinois, Massachusetts, Michigan, New York, Ohio, Rhode Island, South Carolina, Texas, and Virginia) as of July 1, 2017.^81 ,82  The FAD model involves a three-way contract between an MCO, Medicare, and the state Medicaid program.^83 ,84  Massachusetts also operates an administrative alignment demonstration (without financial alignment) for dually eligible beneficiaries (Senior Care Options program). Minnesota only operates an administrative alignment demonstration (without financial alignment) for dually eligible beneficiaries (Minnesota Senior Health Options program).

Other states not participating in a formal demonstration have taken action to encourage improved coordination and integration of services for the dually eligible population under MCO arrangements. Eight states⁸⁵  require Medicaid-contracting MCOs to be Medicare Dual Eligible Special Needs Plans (D-SNP)⁸⁶  or Fully Integrated Dual Eligible (FIDE) Special Needs Plans,⁸⁷  creating an opportunity for improved coordination and integration for beneficiaries. Five states⁸⁸  encourage MCOs to be a D-SNP or a FIDE-SNP.

MLTSS Enrollment

For geographic areas where MLTSS operates, this year’s survey asked whether, as of July 1, 2017, certain populations were enrolled in MLTSS on a mandatory or voluntary basis or were always excluded. On the survey, states selected from “always mandatory,” “always voluntary,” “varies,” or “always excluded” for the following populations: seniors, persons with ID/DD, nonelderly adults with physical disabilities, and full benefit dual eligible individuals. As shown in Exhibit 10 below, seniors were most likely to be enrolled on a mandatory basis. Persons with ID/DD were excluded from enrollment in only three MLTSS states, though they were least likely to be enrolled on a mandatory basis. No state offering MLTSS always excludes full benefit dual eligible individuals from MLTSS enrollment.

MLTSS Population Changes

Growth in the use of MLTSS has continued since the prior survey reporting year. South Carolina expanded MLTSS to new regions in FY 2017 while Pennsylvania will expand to new regions in FY 2018 (Exhibit 11). In FY 2018, Virginia will roll out a new MLTSS program. Wisconsin’s Family Care Program will be statewide by the end of FY 2018. Five states extended MLTSS to new populations in FY 2017 (Illinois, New York, South Carolina, Tennessee, and Texas). In FY 2018, two states (New York and Pennsylvania) will extend MLTSS to new populations. No states reported actions or plans to decrease the number of enrollees served in MLTSS in FY 2017 or FY 2018.

MLTSS Benefits

Almost every MLTSS state (21 out of 23 states) includes both institutional and HCBS in the same contractual arrangement, while two states (Michigan and Tennessee) report that this varies by MLTSS arrangement. Only one state reported a MLTSS benefit change in FY 2017 or FY 2018. Michigan added hospice benefits to its FAD in FY 2017.

TABLE 10: LONG-TERM CARE ACTIONS TO SERVE MORE INDIVIDUALS IN COMMUNITY SETTINGS IN ALL 50 STATES AND DC, FY 2017 AND FY 2018

TABLE 11: CAPITATED MLTSS MODELS IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

Provider Rates

Provider rate changes are often tied to the economy. During economic downturns and budget shortfalls, states often turn to rate restrictions to contain costs and are more likely to increase rates during periods of recovery and revenue growth. This report examines rate changes across major provider categories: inpatient hospital, nursing facilities, MCOs, outpatient hospital, primary care physicians, specialists, dentists, and home and community-based services (HCBS). States were asked to report aggregate rate changes for each provider category in their FFS programs. In FY 2017, more states implemented rate increases for at least one category of providers (46 states) compared to rate restrictions (37 states) (Figure 7 and Table 12). Compared with what states projected for FY 2017 on last year’s survey, this year’s survey responses showed that six more states implemented rate increases in FY 2017 and four fewer states implemented rate restrictions.

For FY 2018, the number of states with at least one implemented or planned rate increase (44 states) is greater than the number of states with at least one implemented or planned rate restriction (40 states) (Table 13).

The number of states with rate increases exceeded the number of states with restrictions in FY 2017 and FY 2018 across all major categories of providers (physicians, MCOs, and nursing facilities) with the exception of rates for inpatient hospital services⁸⁹  (Figure 8). For the purposes of this report, cuts or freezes in rates for inpatient hospitals and nursing facilities are counted as restrictions.⁹⁰  Most of the restrictions are for rate freezes. Four states in FY 2017 and five states in FY 2018 had implemented or planned reductions to inpatient hospital rates; only one state cut nursing facility rates in FY 2017, and two states plan to cut nursing facility rates in FY 2018.

The number of states planning to increase nursing facility rates dropped in FY 2018 (28) compared to FY 2017 (36 states). HCBS providers were among those most likely to receive rate increases (27 states in FY 2017 and 29 states in FY 2018).

Capitation payments for MCOs are generally bolstered by the federal requirement that states pay actuarially sound rates. In FY 2017 and FY 2018, the majority of the 39 states with Medicaid MCOs either implemented or planned increases in MCO rates. Five states reported MCO rate cuts in FY 2017, and five states plan to cut MCO rates in FY 2018. Four states were not able to report MCO rate changes for FY 2018 because rate development was not complete. States are increasingly moving to calendar year MCO contracts.

Tables 12 and 13 provide state level details on provider rate changes in FY 2017 and FY 2018.

MCO Rate Requirements

In many states, MCOs make most of the Medicaid payments to providers. States were asked whether they require their MCOs to make changes to their provider payments when the state makes changes to FFS rates (such as rate increases). Of the 39 states with MCOs, 19 states indicated that they had no such requirement, 18 states have such a requirement for some provider types, and two states (Louisiana and Mississippi) required MCOs to make these changes for all types of Medicaid providers. States were also asked if their MCO contracts mandate minimum provider reimbursement rates. Of the 39 MCO states, ten indicated that they had no rate floors, 24 states indicated that they had rate floors for some provider types, and five states said they had minimum MCO payment requirements for all Medicaid provider types.

Provider Taxes and Fees

Provider taxes are an integral source of Medicaid financing. In this year’s survey, states reported continuing or increased reliance on provider taxes and fees to fund a portion of the non-federal share of Medicaid costs in FY 2017 and FY 2018. At the beginning of FY 2003, 21 states had at least one provider tax in place. Over the next decade, a majority of states imposed new taxes or fees and increased existing tax rates and fees to raise revenue to support Medicaid. By FY 2013, all but one state (Alaska) had at least one provider tax or fee in place.⁹¹  In FY 2017, 34 states had three or more provider taxes in place (Figure 9).

The most common Medicaid provider taxes in place in FY 2017 were taxes on nursing facilities (44 states), followed by taxes on hospitals (42 states) and taxes on intermediate care facilities for the intellectually disabled (36 states) (Table 14). Three states reported plans to add new taxes in FY 2018. Oregon reported a new MCO tax, Ohio’s MCO tax transitioned from a sales tax on premium revenues to a member month tax, and Tennessee expects to have a new ground ambulance provider assessment, which was enacted by the Tennessee General Assembly during its 2017 legislative session. Thirteen states reported increases to one or more provider taxes in FY 2018, compared to only five states reporting provider tax decreases.⁹² 

Recent federal health reform legislation⁹³  under consideration in the Senate proposed phasing down the limit on state use of provider taxes (the “safe harbor threshold”) from the current allowable level, 6.0 percent of net patient revenues, to 5.0 percent of net patient revenues by FY 2025.⁹⁴  Another proposal would lower the threshold to 4.0 percent in FY 2025.⁹⁵  In this year’s budget survey, 29 states reported having at least one provider tax exceeding 5.5 percent of net patient revenues and 46 states reported having at least one provider tax exceeding 3.5 percent as of July 1, 2017. These data suggest that federal action to lower the safe harbor threshold would restrict states’ ability to supply the non-federal share to finance Medicaid and could therefore shift additional costs to states. If states were not able to find additional funds to replace provider tax funding, limits on provider taxes could result in program cuts with implications for Medicaid providers and beneficiaries. 

TABLE 12: PROVIDER RATE CHANGES IN ALL 50 STATES AND DC, FY 2017