A stronger economy was a primary factor driving lower Medicaid enrollment growth and relatively steady spending growth as states finished state fiscal year (FY) 2018 and adopted budgets for FY 2019. This brief analyzes Medicaid enrollment and spending trends for FY 2018 and FY 2019 based on interviews and data provided by state Medicaid directors as part of the 18th annual survey of Medicaid directors in all 50 states and the District of Columbia. 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. Key findings are described below and in a companion report.

Enrollment: A stronger economy, elimination of redetermination delays in states that had previously implemented new or upgraded eligibility systems, and enhanced verifications and data matching in a number of states resulted in flat enrollment growth in FY 2018 (-0.6%) and projected for FY 2019 (0.9%) (Figure 1). Since peaking in FY 2015, enrollment growth has continued to slow due, in part, to the tapering of ACA enrollment growth.

50-state Medicaid survey finds average spending growth outpaces enrollment due to pressure from rising costs for prescription drugs and long-term services and supports

Spending: Compared to FY 2017, total spending growth was steady in FY 2018 (4.2%) but is projected to accelerate modestly in FY 2019 (5.3%). While slower caseload growth helped to mitigate spending growth in FYs 2018 and 2019, higher costs for prescription drugs, long-term services and supports and behavioral health services, and policy decisions to implement targeted provider rate increases were cited as factors putting upward pressures on total Medicaid spending.

ACA Expansion Financing: After receiving a 100% federal match rate for the expansion group for CYs 2014-2016, states began paying 5% of the costs of the Affordable Care Act (ACA) Medicaid expansion group starting in January 2017 and 6% beginning in January 2018. The declining federal match for the expansion group (which will continue to phase down to 90% by 2020) resulted in state Medicaid spending growth outpacing total spending growth (4.9% compared to 4.2%) in FY 2018, the first full state fiscal year that states were required to pay a share of expansion costs. States anticipate, however, that total spending growth will increase faster than state spending growth for FY 2019. While most states reported financing the state share of expansion costs with general fund dollars, a number of states listed other sources of financing including new or increased provider taxes / fees or savings that accrue from the expansion.

Looking ahead, economic conditions and the outcome of federal and state elections are likely to have implications for Medicaid policymaking as well as for spending and enrollment trends. Potential federal efforts to further change the ACA or cap Medicaid financing as well as state ballot initiatives and other state efforts to adopt the Medicaid expansion are key issues to watch.

Context

Medicaid provided coverage to about one in five Americans, or about 73 million people, as of June 2018.¹  Total Medicaid spending was $557 billion in FY 2017 with 62% paid by the federal government and 38% financed by states.²  Medicaid accounts for one in six dollars spent in the health care system, but more than 50% of long-term care spending.³  Key factors affecting total Medicaid spending and enrollment trends over the last decade include the lingering effects of the Great Recession followed by the implementation of the Affordable Care Act (ACA). As of September 2018, 34 states including DC have adopted the ACA Medicaid expansion with Virginia implementation planned for January 1, 2019 and Maine implementation planned for sometime in FY 2019 (the exact date is to be determined).⁴ 

As states finished FY 2018, the economy was still improving compared to prior years. The unemployment rate continued to decline to 3.7% in September 2018, relieving pressure on Medicaid enrollment growth.⁵  Revenue collections were strong in the 4^th quarter of 2017 (halfway through FY 2018), increasing by 9.3% over the same quarter in the prior year (Figure 2). This increase was largely due to accelerated state personal income tax and local property tax payments, as individuals sought to take advantage of state and local tax deductions that became subject to a cap beginning in January 2018 (due to the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017).⁶  Data from the National Association of State Budget Officers (NASBO) show estimated state revenue growth of 4.9% for FY 2018 with collections at or above original budget projections in 39 states, and 5% or greater in 15 states.⁷ 

For most states, revenue growth in FY 2019 is expected to be more moderate than in FY 2018. Most enacted budgets reflect moderate growth in both state revenues and spending. While complete data is not available, governors’ proposed budgets for FY 2019, on average, proposed an increase in nominal general fund revenues of 2.1% and spending of 3.2%.⁸  New spending allocations in adopted budgets for FY 2019 were frequently directed toward elementary and secondary education (including teacher pay). Other key priorities across states included expanding postsecondary educational opportunities, controlling health care costs, addressing infrastructure demands, reforming corrections systems, and focusing on efforts to address the opioid crisis.⁹ 

The economy was still lagging in FY 2018 and FY 2019 in some states. Underneath national trends lies considerable state variation, with a number of states still dealing with economic and/or state budget challenges. For example, Alaska, DC, West Virginia, Louisiana, and Mississippi had the highest state unemployment rates in August 2018, exceeding the national rate by one percentage point or more.¹⁰  According to NASBO, seven states estimated zero or negative general fund revenue growth in FY 2018 and 10 states were projecting similar growth rates in FY 2019 at the time of the governor’s budget release; 11 states estimated zero or negative general fund expenditure growth in FY 2018 and eight states were projecting similar expenditure growth in FY 2019 at the time of the governor’s budget release.¹¹ 

Key Findings

Trends in Enrollment Growth FY 2018 and FY 2019

Medicaid enrollment growth was flat in in FY 2018 and FY 2019. Historically, Medicaid enrollment drives growth in Medicaid spending, and enrollment increases during economic downturns and in response to major policy changes. High growth in FY 2015 was largely due to the implementation of the ACA while trends in subsequent years reflect the tapering of ACA-related enrollment and an improving economy. In FY 2018, overall enrollment growth declined slightly (-0.6%). For FY 2019, states similarly project relatively flat enrollment growth of 0.9% (Figure 3).

In addition to the economy and similar to findings reported last year, a number of states that had previously implemented new or upgraded eligibility systems noted that they had eliminated redetermination delays and backlogs, which also contributed to slower, flat, or declining enrollment growth. In addition, some states noted that upgraded systems enabled enhanced verifications of enrollment data that resulted in further downward enrollment pressure. Some states reporting positive enrollment growth noted overall population growth as a factor contributing to upward enrollment growth. About half the states (27 states) reported enrollment declines for FY 2018 and 10 states reported declines for FY 2019.

Relative to other groups, expansion adults had the highest median growth rate in both FY 2018 and FY 2019, followed by the median growth rate for the aged and persons with disabilities. In contrast, many states reported slow or negative growth for children and non-expansion adults in FY 2018 and FY 2019. Lower enrollment growth for children and adults (lower-cost populations) relative to the aged and persons with disabilities (more costly groups) changes the case mix of the overall Medicaid population with implications for spending growth.

Trends in Spending Growth FY 2018 and FY 2019

Growth in total Medicaid spending was relatively steady in FY 2018 and 2019. High rates of enrollment growth, tied first to the Great Recession and later to the implementation of the ACA, were the primary drivers of total Medicaid spending growth over the last decade. Compared to FY 2017, total Medicaid spending growth held steady at 4.2% in FY 2018 but is projected to accelerate modestly to 5.3% in FY 2019. State Medicaid directors noted that slower enrollment growth driven by an improved economy and low unemployment as well as care management and other cost containment measures were helping to curb growth in Medicaid spending.

Medicaid officials identified increasing costs for prescription drugs (particularly for specialty drugs), long-term services and supports and behavioral health services, and policy decisions to increase payment rates to specific provider groups as factors putting upward pressure on total Medicaid spending. A few states mentioned enrollment growth overall or for particular groups as a spending driver, sometimes citing expansion adults or high cost populations. Other states noted that medical inflation, which trends higher than general inflation, pushes Medicaid spending growth higher than spending growth in other programs. When asked about trends in spending per enrollee, about one in four states reported that per enrollee costs for the aged and persons with disabilities was growing faster than for other groups, potentially amplifying underlying changes in the case mix of the overall Medicaid population.

Total spending and the state share of Medicaid spending grow in tandem unless there is a change in the federal match rate. Following the implementation of the ACA, the enrollment of millions of expansion adults at a 100% federal match rate resulted in lower overall state spending growth compared to total spending growth. Mid-way through FY 2017, expansion states began paying 5% of the costs of the new group, and this amount increased to 6% in January 2018. FY 2018 was therefore the first full state fiscal year that states were responsible for paying for a share of the Medicaid expansion. As a result, state Medicaid spending growth slightly outpaced total Medicaid spending growth in FY 2018 (4.9% growth in state spending compared to 4.2% overall). While states will begin to pay 7% of the costs of the expansion group in January 2019, total Medicaid spending growth is nevertheless projected to outpace state Medicaid spending growth (5.3% growth in total spending compared to 3.5% state spending growth) (Figure 4).

State spending growth for Medicaid typically outpaces overall state general fund growth as medical costs have historically grown faster than inflation. During the first three years of ACA implementation (2014-2016), however, state spending for Medicaid grew at a slower pace compared to overall state general fund growth due to the enhanced federal match rate for expansion adults. In FY 2017 and FY 2018, the historic trend resumed with average general fund spending growth of 3.0% and 3.4%, respectively, slightly lower than state Medicaid spending growth of 3.6% and 4.9%, respectively.

While most states reported financing the state share of expansion costs with general fund dollars, a number of states listed other sources of financing including new or increased provider taxes / fees or savings accrued as a result of the expansion. Some states listed other funding including local government funds in Illinois, cigarette taxes in Indiana, increases in drug rebates in Kentucky, and “other revenue” in New Hampshire. Several expansion states reported multiple sources of financing (Exhibit 1).

Conclusion and Looking Ahead

States started FY 2019 bolstered by strong revenue growth in FY 2018 and projecting continued revenue and spending growth for FY 2019. A stronger economy contributed to flat enrollment growth, which in turn mitigated Medicaid spending growth. However, rising costs for prescription drugs and long-term services and supports as well as targeted provider rate increases and medical inflation were cited as factors contributing to upward spending growth. Looking ahead, federal and state elections in November 2018 are likely to have important implications for Medicaid. The outcome of federal elections could determine whether Congress takes up legislation to make further changes to the ACA or to reform and cap Medicaid financing. State-level gubernatorial and legislative elections could have implications for states considering Medicaid expansion or Section 1115 demonstration waivers. Thirty-six states have gubernatorial elections this year and three states (Idaho, Nebraska, and Utah) have ballot initiatives to newly adopt the ACA Medicaid expansion. FY 2019 will be a year to watch how Medicaid’s role evolves on the ground in the 50 states and DC.

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 of 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.

Methodology. The Kaiser Family Foundation (KFF) commissioned Health Management Associates (HMA) to survey Medicaid directors in all 50 states and DC 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 eighteenth 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 2018. Medicaid directors and staff responded to the written survey and participated in follow-up telephone interviews from June through September 2018. The telephone discussions are an integral part of the survey to ensure complete and accurate responses and to record the complexities of state actions. Forty-nine states and DC completed surveys and participated in telephone discussions, while the survey responses for one state (North Dakota) reflect information gathered during a telephone interview in early September 2018 and related research.

For FY 2018 and FY 2019, 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 2017, 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, however, wide, inexplicable variation across the states 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 2018 published by CMS. 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. Enrollment trend data for FY 2014 to FY 2018 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 2018 and FY 2019 for Medicaid spending and FY 2019 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 2018 and FY 2019 can be found in the companion report.

Background on Medicaid Financing

Medicaid Financing Structure. The federal government jointly funds the Medicaid program with states by matching qualifying state Medicaid expenditures. The federal match rate (known as the Federal Medical Assistance percentage, or FMAP) is calculated annually for each state using a statutory formula based on a state’s average personal income relative to the national average which results in higher FMAP rates for poorer states. The FMAP formula relies on three years of lagged personal income data, so data for FFYs 2014 to 2016 was used to calculate FFY 2019 FMAP rates which range from a floor of 50% (applicable to 14 states) to a high of 76.3% (for Mississippi).¹²  As a result of the federal matching structure, Medicaid is both a state budget expenditure item and a source of federal revenue for states. In FY 2016 (the latest year of actual data), Medicaid accounted for 28.7% of total state spending, but 15.6% of state funds (general fund plus other state funds), a far second to spending on K-12 education (25.3% of state funds). Medicaid is the largest single source of federal funds for states, accounting for half (57.7%) of all federal funds for states. (Figure 5).¹³ 

Medicaid and the Economy. Medicaid is a countercyclical program. During economic downturns, more people qualify and enroll in Medicaid, increasing program spending at the same time that state tax revenues may be stagnating or falling. To mitigate these budget pressures, Congress has twice passed temporary FMAP increases to help support states during economic downturns, most recently in 2009 as part of the American Recovery and Reinvestment Act (ARRA). The ARRA-enhanced FMAP 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 2011.¹⁴ 

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% of the federal poverty level (FPL) – about $16,753 per year for an individual in 2018. The law also provided 100% federal funding for expansion adults through 2016, phasing down to 90% in 2020 and future years. While the June 2012 Supreme Court ruling on the ACA effectively made the Medicaid expansion optional for states, as of September 2018, 34 states (including the District of Columbia) had adopted the 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) and eliminating asset tests 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 July 2018 (accessed September 2018) https://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 October 2018. https://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. Kaiser Family Foundation estimates based on 2016 National Health Expenditure Accounts data from CMS, Office of the Actuary. ↩︎
4. The Kaiser Family Foundation State Health Facts. Status of State Action on the Medicaid Expansion Decision (accessed September 2018). https://modern.kff.org/health-reform/state-indicator/state-activity-around-expanding-medicaid-under-the-affordable-care-act/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D . ↩︎
5. Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics. Data extracted on October 15, 2018, https://data.bls.gov/timeseries/LNS14000000. ↩︎
6. Lucy Dadayan, Robust State and Local Revenue Growth in the Fourth Quarter of 2017; Federal Tax Cuts Cloud Horizon (Albany, NY: Nelson A. Rockefeller Institute of Government, May 2018), http://rockinst.org/issue-area/robust-state-and-local-revenue-growth-in-the-fourth-quarter-of-2017-federal-tax-cuts-cloud-horizon/. ↩︎
7. Fiscal Survey of the States, Spring 2018. National Association of State Budget Officers, https://www.nasbo.org/reports-data/fiscal-survey-of-states. ↩︎
8. Fiscal Survey of the States, Spring 2018. National Association of State Budget Officers, https://www.nasbo.org/reports-data/fiscal-survey-of-states. ↩︎
9. Summaries of Fiscal Year 2019 Proposed & Enacted Budgets, August 31, 2018. National Association of State Budget Officers, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Issue%20Briefs%20/Summaries_of_FY19_Proposed__Enacted_Budgets.pdf. ↩︎
10. Bureau of Labor Statistics, Unemployment Rates for States, Seasonally Adjusted, August 2018. https://www.bls.gov/web/laus/laumstrk.htm. ↩︎
11. Fiscal Survey of the States, Spring 2018. National Association of State Budget Officers, https://www.nasbo.org/reports-data/fiscal-survey-of-states. ↩︎
12. The Kaiser Family Foundation State Health Facts. Data Source: Federal Register, November 21, 2017 (Vol 82, No. 223), pp 80078-80080. https://modern.kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/?currentTimeframe=0&sortModel=%7B%22colId%22:%22FMAP%20%age%22,%22sort%22:%22desc%22%7D. ↩︎
13. Kaiser Family Foundation estimates based on the data reported in: National Association of State Budget Officers, State Expenditure Report – Examining Fiscal 2015-2017 State Spending (Washington, DC: National Association of State Budget Officers, November 2017), https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/State_Expenditure_Report__Fiscal_2015-2017_-S.pdf. ↩︎
14. 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 makes up more than half of all spending on long-term services and supports. Medicaid is a state budget driver as well as the largest source of federal revenue to states. The program is constantly evolving in response to federal policy changes, the economy, and state budget and policy priorities. As states began state fiscal year (FY) 2019, the economy in most states was stable or improving and 36 states faced upcoming gubernatorial elections. With fewer budget pressures, a number of states reported expansions or enhancements to provider rates and benefits (including expansions for community-based long-term services and supports (LTSS) and behavioral health services). In addition, ballot initiatives in three states could result in adoption of the ACA Medicaid expansion. States also continue to focus on improvements in outcomes and value through delivery system changes and managed care requirements. In response to policy directions promoted by the Trump administration, an increasing number of states are pursuing demonstration waivers that include work requirements and the elimination or restriction of retroactive eligibility — policies that could result in enrollment declines (ES 1).

This report provides an in-depth examination of the changes taking place in Medicaid programs across the country. The findings are drawn from the 18th 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 2018 and policy changes implemented or planned for FY 2019. 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 but a separate survey was fielded and results will be released in another report. Key findings include the following:

A growing number of states are pursuing federal waivers to add work requirements in Medicaid, impose new or increased premiums and lock-out periods, and waive retroactive eligibility

A growing number of states are implementing or planning Section 1115 waivers with policies that have or could result in enrollment declines, while three states (Idaho, Nebraska, and Utah) could adopt the ACA Medicaid expansion through ballot initiatives. Policies that have or are likely to result in enrollment declines are counted as restrictions in this report. Eligibility restrictions implemented in FY 2018 (by six states) or planned for implementation in FY 2019 (in 11 states) generally target broad Medicaid populations, including parents/caretakers and expansion adults. These changes are primarily occurring through Section 1115 waiver demonstration authority because they are not allowed under current law. Restrictions for FY 2018 or FY 2019 include eight states implementing or planning to implement work or community engagement requirements as a condition of Medicaid eligibility, eight states eliminating or restricting retroactive eligibility, and three states implementing or proposing lock-out periods for non-payment of premiums, failure to complete redetermination, and/or failure to timely report changes affecting eligibility. In contrast, with the exception of planned implementation of the ACA Medicaid expansion in Maine and Virginia in FY 2019, most Medicaid eligibility expansions for FY 2018 or FY 2019 are narrow and targeted to a limited number of beneficiaries. Most states are working with corrections agencies and with local jails to facilitate Medicaid enrollment prior to release and the majority of states do not terminate Medicaid coverage for enrollees who become incarcerated.

What to Watch: Three states have proposals to adopt the Medicaid expansion on the November 2018 ballot (Idaho, Nebraska, and Utah) and many states have Section 1115 waivers pending or under development that could be implemented after FY 2019 and would impact eligibility, if approved by CMS.

Risk-based managed care continues to be the predominant delivery system for Medicaid services, and states are focused on implementing alternative payment models and improving quality within MCOs. Among the 39 states with comprehensive risk-based managed care organizations (MCOs), 33 states reported that 75% or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2018. Although many states still carve-out behavioral health services from MCO contracts, movement to carve-in these services continues. Nearly all states have managed care quality initiatives in place such as pay for performance or capitation withholds and an increasing number of states (23 in FY 2018) set a target percentage of MCO provider payments that must be in alternative payment models (APMs).

What to Watch: Alaska and Arkansas reported plans to implement an MCO program for the first time in FY 2019. States continue to focus on improving value, quality, and outcomes through managed care arrangements. CMS has announced plans to release revised Medicaid managed care regulations for public comment later this fall.

States are working to address social determinants of health both within and outside of MCO contract requirements. Medicaid programs have been expanding their use of other service delivery and payment reform models to achieve better outcomes and lower costs. Forty-three states had one or more delivery system or payment reform initiatives in place in FY 2018 (e.g., patient-centered medical homes (PCMHs), ACA Health Homes, accountable care organizations (ACOs), episode of care payments, or delivery system reform incentive programs (DSRIPs)).

What to Watch: About one-third of the states reported a wide variety of initiatives implemented in FY 2018 or planned for FY 2019 that address the social determinants of health (SDOH) outside of managed care and more than one-third reported collecting or plans to collect SDOH data from various sources including screenings and assessments, data collected for other state programs, claims data, beneficiary surveys, or as part of a care management or home visiting program.

Nearly all states in FY 2018 (46 states) and FY 2019 (48 states) are employing one or more strategies to expand the number of people served in home and community-based settings. Almost all states continue to report using home and community-based services (HCBS) waivers and/or state plan options (i.e., 1915(c), 1115, 1915(i), and 1915(k)) to serve more individuals in the community. As of July 1, 2018, 24 states covered LTSS through one or more capitated managed care arrangements (“MLTSS”). Pennsylvania introduced MLTSS in FY 2018, with a plan to phase-in statewide over time. Virginia ended its Financial Alignment Demonstration (FAD) but adopted statewide MLTSS for a broader population, including dual eligible individuals. To address challenges in finding and retaining LTSS direct care workers, a number of states reported wage increases for these workers in FY 2018 and/or FY 2019.

What to Watch: Housing-related supports remain an important part of state LTSS benefits, even as Money Follows the Person (MFP) grant funds expire. While 30 states reported that they expect to continue to offer housing-related supports after MFP funds are exhausted, about half of states reported plans to discontinue at least some housing-related services or administrative functions when MFP ends.

In FY 2018 and FY 2019, with favorable economic conditions in most states, more states made or are planning provider rate increases compared to restrictions, and there is little new activity around provider taxes. More rate increases relative to decreases holds true across major provider types, with the exception of inpatient hospitals (where inpatient hospital rate “restrictions” are primarily rate freezes that are counted as restrictions in this report). About half of MCO states (21 of 39) require MCO payments to some or all types of providers to follow percent or level changes in fee-for-service (FFS) rates. Twenty-seven states require minimum MCO payments (rate floors) for some provider types, and five states reported minimum MCO payment requirements for all types of Medicaid providers. All states except Alaska rely on provider taxes and fees to fund a portion of the non-federal share of the costs of Medicaid. Two states indicated plans for new provider taxes in FY 2019, including Virginia that plans a new hospital provider tax to finance state costs of the newly adopted Medicaid expansion.

What to Watch: As enrollees are predominantly in MCOs, the significance of changes in FFS payment rates is difficult to assess without a better understanding of how changes in FFS rates affect changes in MCO rates paid to providers. Twenty-nine states have at least one provider tax that is at or above 5.5% of net patient revenues (close to the maximum safe harbor threshold of 6%). Therefore, federal action to lower that threshold as proposed in the past would have financial implications for many states.

Positive economic conditions and state priorities resulted in a number of states increasing benefits, particularly for mental health and substance use disorder (SUD) treatment. A total of 19 states expanded or enhanced covered benefits in FY 2018 and 24 states plan to add or enhance benefits in FY 2019. The most common benefit enhancements reported were for mental health/SUD services (including waiver of the IMD exclusion). A handful of states also reported expansions related to dental services, telemonitoring/telehealth, physical or occupational therapy services, and screening or home visiting services for pregnant women and/or children.

What to Watch: Medicaid continues to play an important role in addressing the opioid epidemic and more broadly in connecting Medicaid beneficiaries to behavioral health services. Going forward, it will be important to follow trends and innovations in how states use Medicaid to increase access to behavioral health services and contain the growth of the opioid and broader SUD crisis.

States continue to focus on cost containment efforts to address rising prescription drug costs and on pharmacy benefit management strategies to address the opioid crisis. Prescription drug costs continue to exert pressure on Medicaid spending, and most states identified specialty and high-cost drugs (individually or in general) as the most significant driver of these costs. Many states reported implementing or making changes to a wide variety of prescription drug cost containment initiatives in FY 2018 or FY 2019, especially initiatives to generate greater rebate revenue and implement new utilization controls (e.g., prior authorization requirements, step therapy, other clinical criteria, or dose optimization). Almost all MCO states generally carve the pharmacy benefit into managed care, and many MCO states are moving to align MCO pharmacy policies with FFS policies. In FY 2018, all states report implementing one or more FFS pharmacy management strategies targeted at opioid harm reduction, including quantity limits, clinical criteria claim system edits, step therapy, other prior authorization requirements, and requirements for Medicaid prescribers to check their states’ Prescription Drug Monitoring Program before prescribing opioids to a Medicaid patient. States continue to increase access to Medication Assisted Treatment (MAT) for opioid use disorder, and 38 states reported coverage of methadone in FY 2018.

What to Watch: Several states noted the emerging cost challenge posed by gene therapies and immunotherapies like “CAR-T” (Chimeric Antigen Receptor-T cell) therapies,¹  designated by CMS as covered outpatient drugs. While states are expanding coverage of MAT, many reported access challenges, especially in rural areas.

Challenges and Priorities FY 2019 and Beyond: Continuing to tackle the opioid epidemic is a key priority for states in FY 2019 and beyond. New federal legislation expected to be signed into law as this report was being finalized, the Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act, contains a number of provisions related to Medicaid’s role in helping states provide coverage and services to people who need SUD treatment,²  particularly those needing opioid use disorder (OUD) treatment. These provisions include the ability to use federal Medicaid funds for services in “institutions for mental disease” (IMDs) for nonelderly adults for up to 30 days from October 1, 2019 to September 30, 2023; required coverage of all FDA-approved drugs for medication-assisted treatment (MAT) as well as counseling and behavioral therapy services from October 2020 through September 2025; required suspension of Medicaid eligibility for individuals under age 21 or former foster care youth up to age 26 while incarcerated, and restoration of coverage upon release; creation of new demonstrations to help states increase Medicaid SUD provider capacity; and tighter prescription drug oversight.

In addition, states reported a wide variety of other priorities for FY 2019 and beyond, including implementing managed care, payment, and delivery system reform initiatives; undertaking major information technology system procurements and upgrades; pursuing new Section 1115 demonstration waivers, and managing their Medicaid budgets. The trajectory of the economy, the direction of federal policies around Medicaid Section 1115 waivers, and the outcomes of state and federal elections in November 2018 will be factors that shape Medicaid in FY 2019 and beyond.

Medicaid now provides health insurance coverage to one in five Americans and accounts for nearly one-sixth of all U.S. health care expenditures.³  The Medicaid program constantly evolves due to changes in federal and state policies, the economy, and other state budget and policy priorities. As of July 26, 2018, all states had enacted a new or revised budget for FY 2019 with only three states enacting a budget after the fiscal year began.^4 ,5  This represented a significant improvement from the prior year when a number of states called special sessions in 2017 to complete their FY 2018 budgets and 11 states started FY 2018 without a fully enacted budget.⁶  A stable economy and improvements in state revenue growth resulted in surpluses in many states at the beginning of FY 2019 when this survey was conducted.⁷ 

Report findings are drawn from the 18^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). (Previous reports are archived here.⁸ ) This year’s KFF/HMA Medicaid budget survey was conducted from June through September 2018 via a survey sent to each state Medicaid director in June 2018 and then a follow-up telephone interview. An acronym glossary and the survey instrument are included as appendices to this report.

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). All 50 states and DC completed surveys and participated in telephone interview discussions between July and September 2018.⁹  Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis but a separate survey was fielded and results will be released in another report.

This report examines Medicaid policies in place or implemented in FY 2018, policy changes implemented at the beginning of FY 2019, and policy changes for which a definite decision has been made to implement in FY 2019 (which began for most states on July 1, 2018¹⁰ ). 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. Key findings of this survey, along with state-by-state tables, are included 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 and Copayments
• Pharmacy and Opioid Strategies
• Challenges and Priorities in FY 2019 and Beyond Reported by Medicaid Directors

Changes to Eligibility Standards

Eligibility Restrictions

A growing number of states are pursuing Section 1115 waivers that include policies that would result in eligibility restrictions in FY 2018 and FY 2019 (Exhibit 1). Some of these policies are in response to January 2018 CMS guidance¹¹  indicating the agency’s support for Section 1115 waiver proposals that would require certain Medicaid enrollees to meet a work requirement in order to maintain coverage. Policies that have or are likely to result in enrollment declines are counted as restrictions in this report.

Six states reported implementing restrictions in FY 2018 and 11 states reported restrictions already implemented or planned for implementation in FY 2019 (Exhibit 1 and Table 1). This year’s survey reports changes that states plan to implement in FY 2019, even if the changes are in Section 1115 waiver proposals that are still pending approval¹²  at CMS. Waiver provisions that states plan to implement in FY 2020 or after are described later in the “Challenges and Priorities” section of this report.

Eight states reported implementing or plans to implement work requirements under Section 1115 waiver authority in FY 2018 or FY 2019 (Table 2).¹³  These policies generally require beneficiaries to verify their participation in approved activities, such as employment, job search, or job training programs, for a certain number of hours per week or month to receive health coverage or qualify for an exemption. Data show, however, that most Medicaid enrollees are already working or would qualify for exemptions from these requirements, yet these individuals would still need to navigate a reporting or exemption process to retain their Medicaid coverage. In this report, work requirement policies are counted based on the initial date of implementation rather than the date on which the first coverage terminations will occur.

• Three states have approved waivers to implement a work requirement, including one state (Arkansas) that implemented the policy in June of FY 2018 and two states (Indiana and New Hampshire) that plan to implement in FY 2019.
• Five additional states reported pending work requirement proposals that they plan to implement in FY 2019. Four of these states (Alabama, Maine, Ohio, and South Dakota) have proposals pending approval by CMS and one state (Kentucky) received approval for a work requirement waiver that was set aside by court order. That waiver is now back with CMS for reconsideration (see the Kentucky HEALTH waiver box below). Kentucky’s waiver is referred to as “pending” throughout the rest of this report.

Many of these states reported new administrative requirements or costs associated with implementation of work requirement policies, including those related to vendor contracts for call centers, systems modifications, increased state and local office staff, outreach to beneficiaries and providers, and increased MCO personnel costs.

Eight states indicated that they have eliminated or propose to eliminate or restrict retroactive eligibility for one or more groups in FY 2018 and FY 2019 (Table 2).¹⁴  In FY 2018, Arkansas limited retroactive eligibility from 90 to 30 days, Iowa eliminated retroactive eligibility for all groups other than children under age one and pregnant women (but restored retroactive eligibility for nursing facility residents in July 2018), and Utah eliminated retroactive eligibility for Primary Care Network (PCN) waiver adults. In FY 2019, five states (Florida, Kentucky, Maine, New Hampshire, and New Mexico) plan to eliminate retroactive eligibility or limit it to a single month for most enrollees.

Other examples of reported eligibility restrictions in FY 2018 or FY 2019 include:

• In FY 2018, as part of their HIP 2.0 waiver renewal (a waiver that already included other eligibility restrictions), Indiana¹⁵  imposed a three-month lock-out from coverage on expansion adults who fail to comply with redetermination. Enrollees who do not verify eligibility at renewal are disenrolled but can re-enroll without a new application if they provide necessary documentation within 90 days. After 90 days, individuals are subject to a three-month lock-out before they can re-enroll.¹⁶ 
• In FY 2019, New Mexico plans to implement proposals included in a pending waiver application to disenroll and lock-out expansion adults who do not pay required Medicaid premiums and a “reasonable promptness” waiver that would delay coverage until the first day of the first month following receipt of required premiums.
• In FY 2019, Maine¹⁷  plans to implement (if their pending waiver is approved) several restrictions on their traditional Medicaid populations in addition to their planned waiver of retroactive eligibility and the work requirement. These include applying a $5,000 asset test to all coverage groups that currently do not have an asset test and eliminating hospital presumptive eligibility for all coverage groups. The state’s pending waiver application proposes to implement these initiatives within six months of demonstration approval.

Eligibility expansions

Aside from planned implementation of the ACA Medicaid expansion in two states in FY 2019, most other eligibility expansions for FY 2018 and FY 2019 are narrow in scope. Overall, ten states implemented Medicaid eligibility expansions in FY 2018, and seven states plan to implement expansions in FY 2019.

Two states (Maine and Virginia) plan to implement the ACA Medicaid expansion in FY 2019. These expansions will add to the 32 states that had already implemented the ACA Medicaid expansion as of July 2018 (Figure 1). In Virginia, the expansion was adopted as part of the FY 2019-2020 Medicaid budget, with implementation planned for January 1, 2019. Maine voters adopted the Medicaid expansion through a ballot initiative in November 2017 that required submission of a state plan amendment (SPA) within 90 days and implementation of expansion within 180 days of the measure’s effective date.¹⁸  After failing to meet the SPA submission deadline (April 3, 2018), Maine’s Governor complied with a Maine Supreme Judicial Court order to submit an expansion SPA on September 4, 2018 but also sent a letter to the federal government asking CMS to reject the SPA. The expansion had not yet been implemented at the time of the survey, and implementation will fall to the new governor after the November 2018 election.

Three additional states (Idaho, Nebraska, and Utah) will have referendum initiatives to adopt the Medicaid expansion on the November 2018 ballot. Montana also has an expansion-related initiative for voters on the November ballot that would eliminate the state’s June 2019 expansion program sunset date and raise tobacco taxes to fund the state’s share of expansion costs.

Ten states implemented more narrow eligibility expansions in FY 2018 and five states plan to implement more limited expansions in FY 2019. In contrast to eligibility restrictions, which states are primarily implementing under Section 1115 authority, most states implementing or planning eligibility expansions in FY 2018 or FY 2019 are doing so through optional authority using a state plan amendment (SPA) (Exhibit 2). Some examples of these other expansions include the following:

• In FY 2018 under Section 1115 waiver authority, Utah implemented coverage for individuals with income below 5% of the federal poverty level (FPL) who are chronically homeless, justice-involved, or in need of substance use and/or mental health treatment. The state also has approval to implement 12 month continuous eligibility for this population.
• Missouri increased asset limits in both FY 2018 and FY 2019 for aged and disabled beneficiaries and Vermont increased asset limits in FY 2018 for their Working People with Disabilities Program.
• In FY 2018, Arkansas and South Carolina eliminated the five-year waiting period on Medicaid eligibility for lawfully-residing immigrant children and pregnant women.¹⁹ 

Premiums

The Medicaid statute generally does not allow states to charge premiums to most Medicaid beneficiaries. Historically, premiums were limited to special higher income categories of beneficiaries such as expanded Medicaid for the working disabled. However, some states have obtained waiver authority to charge higher premiums and/or copayments than otherwise allowed.

Only Indiana reported activity related to Medicaid premiums in FY 2018 (Table 2). Effective January 1, 2018, the state changed its monthly premiums (which are paid into a health account) for expansion adults from 2% of income to tiered amounts based on income ranges (expressed as a percentage of the FPL). The result is reduced fluctuation of premiums. This report considers the change neutral from the beneficiary’s perspective.

Seven states report proposed implementation of new premium programs or changes to existing premiums for FY 2019 (Table 2). Three of these states (Idaho, Indiana, and Iowa) have already received approval for these changes, while they are still pending as part of Section 1115 waiver requests in four states (Kentucky, Maine, Michigan, and New Mexico). Notable FY 2019 premium policy changes include an approved waiver provision in Indiana to implement a premium surcharge for tobacco users and a pending waiver request in Michigan to require premiums of up to 5% of income (a higher amount than CMS has ever approved for any state) for expansion adults after 48 cumulative months of expansion eligibility.

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, as the Medicaid expansion extended new coverage to these individuals in many states (especially childless adults who were not previously eligible in most states). Connecting these individuals to health coverage²⁰  can facilitate their integration back into the community upon release. While individuals may be enrolled in Medicaid while they are incarcerated, Medicaid cannot cover the cost of their care during incarceration, except for inpatient services. Nearly all states have policies in place to cover inpatient care under Medicaid for eligible, incarcerated individuals (Exhibit 3 and Table 3). Most states are also working with corrections agencies and with local jails to facilitate Medicaid enrollment prior to release. The majority of states do not terminate Medicaid coverage for enrollees who become incarcerated: states either maintain the eligibility of the incarcerated individual with benefits limited to inpatient hospital care, or they suspend eligibility. When coverage is suspended, it can be reinstated more easily and quickly upon release from incarceration or when an inpatient hospital stay occurs.

As this report was being finalized, the Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act was expected to be signed into law. Beginning in October 2019, the Act would prohibit states from terminating Medicaid eligibility for an individual under age 21 or former foster care youth up to age 26 while incarcerated. States would also be required to redetermine eligibility prior to release without requiring a new application and restore coverage upon release.

While both Medicaid expansion and non-expansion states have adopted strategies to connect justice-involved individuals to Medicaid coverage, these initiatives affect many more people in expansion states compared to non-expansion states where Medicaid eligibility for adults remains restrictive.

Table 1: Changes to Eligibility Standards in all 50 States and DC, FY 2018 and FY 2019

Table 2: States Reporting Eligibility²¹  and/or Premium²²  Changes in FY 2018 and FY 2019²³ 

Table 3: Corrections-Related Enrollment Policies in all 50 States and DC, in Place in FY 2018 And Actions Taken in FY 2019

NEW: 50-state Medicaid survey finds that states are increasingly relying on managed care. In 33 states of 39 states with managed care organizations (MCOs), at least 75% of all Medicaid beneficiaries are in managed care.

Managed care remains the predominant delivery system for Medicaid in most states. As of July 2018, all states except three – Alaska, Connecticut,²⁷  and Wyoming – had some form of managed care in place, unchanged from July 2017. Compared to the prior year, the number of states contracting with comprehensive risk-based managed care organizations (MCOs) (39 states) also remained unchanged while two fewer states reported operating a Primary Care Case Management (PCCM) program (14 states). 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, five operate both MCOs and a PCCM program while 34 states operate MCOs only and nine states operate PCCM programs only²⁸  (Figure 2 and Table 4). In total, 28 states 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).

The current administration is expected to release revised Medicaid managed care regulations for public comment. Under the previous administration in April 2016, CMS issued a final rule on Medicaid managed care providing a framework of plan standards and requirements designed to improve the quality, performance, and accountability of these programs.^29 ,30  The new rule represented a major revision and modernization of federal regulations in this area. The Trump Administration, however, is expected to release revised Medicaid managed care regulations before the end of CY 2018.³¹ 

In advance of releasing revised Medicaid managed care regulations, CMS released an Informational Bulletin³²  in June 2017 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.” In this year’s survey, MCO states were asked whether they have asked CMS for flexibility in meeting managed care regulation deadlines. States answering “yes” most frequently reported requesting relief on deadlines related to member services (e.g., grievance and appeals procedures or member handbooks and enrollment requirements) and provider/network requirements (e.g., screening and enrollment of network providers or provider directory requirements).

Populations Covered by Risk-Based Managed Care

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 notable growth. Among the 39 states with MCOs, 33 states³³  reported that 75% or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2018 (up from 29 states in last year’s survey), including nine of the ten states with the largest total Medicaid enrollment. These nine states (California, New York, Texas, Florida, Pennsylvania, Illinois, Ohio, Michigan, and Georgia) account for over half of all Medicaid beneficiaries across the country (Figure 3 and Table 4).³⁴ 

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 persons with disabilities. Thirty-five³⁵  of the 39 MCO states reported covering 75% or more of all children through MCOs. Of the 32 states that had implemented the ACA Medicaid expansion as of July 1, 2018, 27 were using MCOs to cover newly eligible adults.³⁶  The large majority of these states (23 states) covered more than 75% of beneficiaries in this group through capitated managed care. New Hampshire reported that most of its ACA expansion adults are enrolled in Qualified Health Plans (with premium assistance, under Section 1115 authority) and only 20% are enrolled in MCOs.³⁷  The state reported, however, that it will end its premium assistance waiver (as of December 31, 2018) and will transition QHP-enrolled members to MCOs. Thirty-one of the 39 MCO states reported covering 75% or more of low-income adults in pre-ACA expansion groups (e.g., parents, pregnant women) through MCOs. In contrast, the elderly and people with disabilities were the group least likely to be covered through managed care contracts, with only 20 of the 39 MCO states reporting coverage of 75% or more such enrollees through MCOs (Figure 3).

In states with both MCOs and PCCM programs, MCOs cover a larger share of beneficiaries than PCCM programs in a majority of these states. However, Colorado is an exception: as of July 1, 2018, a majority of Colorado’s enrollees were in the PCCM program, which is the foundation of the state’s “Accountable Care Collaboratives.”

Alaska and Arkansas reported plans to implement an MCO program for the first time in FY 2019. Alaska is contracting with one MCO to serve one geographic area that includes Anchorage and the Mat-Su Valley, and Arkansas will begin making actuarially sound “global payments” (beginning January 1, 2019) to “Provider-led Arkansas Shared Savings Entities” (PASSEs) that will serve Medicaid beneficiaries who have complex behavioral health and intellectual and developmental disabilities service needs. Only one state reported policies that reduced the state’s reliance on the MCO model of managed care: Massachusetts reported that the implementation of its Accountable Care Organization (ACO) program beginning in FY 2018 has resulted in decreased MCO enrollment as MCO enrollees may choose to enroll in ACOs instead.

Populations with Special Needs

For geographic areas where MCOs operate, this year’s survey asked MCO states whether, as of July 1, 2018, certain subpopulations with special needs were enrolled in MCOs for their acute care services on a mandatory or voluntary basis or were always excluded. This year’s survey further grouped subpopulations by dual eligible and by LTSS status (Exhibit 4 and Table 5).

Pregnant women were the group most likely to be enrolled on a mandatory basis while persons with I/DD were among the least likely to be enrolled on mandatory basis. As a group, foster children were 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, the location of LTSS services provided (residential versus community-based) was a frequently cited basis of variation. States with Financial Alignment Demonstrations for dual eligibles in addition to other managed care programs also often cited varying enrollment criteria for dual eligibles.

Acute Care Managed Care Population Changes

In both FY 2018 and FY 2019, 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. As described above, Alaska and Arkansas reported plans to implement an MCO program for the first time in FY 2019. Of the 39 states with MCOs already in place as of July 1, 2018, five states in FY 2018 and five states in FY 2019 indicated that they made specific policy changes 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 5). Thirty-seven states reported that acute care MCOs were operating statewide as of July 2018, including Illinois, which expanded MCOs statewide in FY 2018. The remaining two MCO states without statewide programs (Colorado and Nevada) did not report a geographic expansion planned for FY 2019.

Two notable acute care MCO expansions relate to programs that combine both acute care and LTSS:

• In January 2018, Pennsylvania began to phase-in its Community HealthChoices (CHC) program which provides both physical health and long-term services and supports through newly contracted MCOs. CHC enrollees 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.
• Virginia implemented its CCC Plus (Commonwealth Coordinated Care) program in FY 2018 making MCO enrollment mandatory for most LTSS populations.

In FY 2018 and FY 2019, states expanded MCO enrollment (either voluntary or mandatory) to other groups including state wards and foster children (Illinois), expansion adults transitioning from the state’s premium assistance program to MCO coverage (New Hampshire), workers with disabilities and persons receiving Specialized Recovery Services (Ohio), the Breast and Cervical Cancer and Adoption Assistance eligibility groups (Texas), and persons with third party liability coverage (Virginia).

Only one state made enrollment mandatory for a specific eligibility group that was formerly enrolled on a voluntary basis: Wisconsin made enrollment mandatory in FY 2018 for SSI adults with disabilities that do not have long-term care needs, are not enrolled in HCBS or MLTSS, are not tribal members, and are not dual eligibles.

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, frequently behavioral health services. 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 the carve-in status varies by geographic or other factors. 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 6 and Table 6).

In FY 2018, Mississippi and South Carolina reported actions to carve behavioral health services into their MCO contracts and Washington reported implementing integrated MCO contracts in additional geographic areas.

In FY 2019, 11 states reported actions impacting the coverage of behavioral health services under MCO contracts:

• Six states (Mississippi, New Jersey, New York, South Carolina, Virginia, and West Virginia) reported actions to carve behavioral health services into their MCO contracts.
• Arizona and Washington reported plans to implement additional integrated MCO contracts.
• Michigan reported a plan to implement pilot programs that would provide both physical and behavioral health services.
• Ohio reported a full carve-in of behavioral health services as of July 1, 2018.
• Arkansas reported plans to implement a new MCO program to serve beneficiaries who have complex behavioral health and intellectual and developmental disabilities needs.

Institutions for Mental Disease (IMD) “In Lieu OF” Rule

The 2016 Medicaid Managed Care Final Rule³⁸  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 (SUD) treatment or crisis residential services in an IMD for no more than 15 days in a month.³⁹  States were asked whether or not they planned to use this new authority. Of the 39 states with MCOs as of July 1, 2018, 28 states answered “yes” for both FYs 2018 and 2019; three states reported plans to begin using this authority in FY 2019; and five states answered “no.”⁴⁰  Also, North Carolina reported using “in lieu of” authority in its PHP contract and Arkansas reported plans to use this authority when it launches its new MCO program in January 2019. At the time this report was being finalized, however, the SUPPORT Act⁴¹  was expected to be signed into law creating a new state option from October 1, 2019 to September 30, 2023 to cover IMD services for up to 30 days in a year for individuals with an SUD. The SUPPORT Act also codified the 2016 Medicaid Managed Care Final Rule provision allowing MCOs to offer “in lieu of” IMD coverage for up to 15 days in a month.

Additional Services

Thirty-seven states with MCO contracts as of July 1, 2018, reported that MCO plans in their states may offer a range of services beyond those described in the state plan or waivers. The most common additional services reported were limited or enhanced adult dental services beyond contractually required state plan benefits, enhanced vision services for adults, and enhanced transportation services. Other value-added services reported included enhanced care coordination, wellness incentives, waiving co-payments, routine or school/sports physicals, and diabetic, weight-loss, tobacco cessation, and chiropractic services. Several states noted that MCOs offer services that address social determinants of health, including GED coaching, housing support, mother and baby supports, educational services and food access services. Others reported offering services/items to promote safety, including helmets and infant car seats.

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.⁴² 

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, 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, the 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, 14 indicated that they use or plan to use HEDIS scores as criteria for selecting MCOs.

Nearly all MCO states (35 states) reported using at least one select Medicaid managed care quality initiative in FY 2018 (Figure 4 and Table 7). States were asked to indicate whether they had specific managed care quality strategies (acute and/or MLTSS) in place in FY 2018 and to identify newly added or expanded initiatives for FY 2019. More than three quarters of MCO states reported having initiatives in place in FY 2018 that make MCO comparison data publicly available. More than half of MCO states reported capitation withhold arrangements and/or pay for performance incentives in FY 2018. Fewer states reported use of an auto-assignment algorithm that includes quality performance measures.

In FY 2019, 17 MCO states expect to implement new or expanded quality initiatives (Figure 4). The predominance of states reporting new or expanded activity in FY 2019 reported activity related to enhancing/expanding existing initiatives. However, two states reported new initiatives. Utah is planning to create a public facing dashboard for its acute care MCOs to make comparison data publicly available in FY 2019 and Louisiana is planning to add quality as a component to its auto-assignment algorithm for acute care contracts in calendar year 2019 (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.⁴³  This often includes efforts to implement alternative payment models (APMs) which 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 included a focus on adopting and promoting APMs as part of their federally-supported State Innovation Model (SIM) projects and as part of delivery system reform efforts approved under Section 1115 Medicaid waivers.⁴⁴  A growing number of states are encouraging or requiring Medicaid MCOs to adopt APMs to advance VBP in Medicaid.

More than half of MCO states (23 states) identified a specific target in their MCO contracts for the percentage of provider payments, network providers, or plan members that MCOs must cover via alternative provider payment models in FY 2018 (Exhibit 7). (Only 13 states identified having a target percentage in place in FY 2017 and five states in FY 2016.) Four additional states plan to add a target percentage in FY 2019.

In FY 2018, 10 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 (Exhibit 8). In FY 2019, three additional states plan to require the use of specific APMs while four additional states plan to encourage specific APMs. CMS launched a Learning and Action Network (LAN) in 2015 to encourage alignment across public and private sector payers by providing a forum for sharing best practices and developing common approaches to designing and monitoring of APMs, as well as by developing evidence on the impact of APMs.⁴⁵  Several states reported use of the LAN framework in devising MCO APM requirements (see examples below).

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” (AHC) 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.⁴⁷  As part of this effort, CMS has developed an AHC Health-Related Social Needs Screening Tool. This increased attention to social determinants of health is also seen at the state level, where many states have looked to Medicaid MCOs to develop strategies to identify and address social determinants of health.

The survey found that 16 states required, while 10 states encouraged MCOs to screen enrollees for social needs and/or provide referrals to social services in FY 2018 (Exhibit 9). In FY 2019, three additional states plan to require, while six additional states plan to encourage MCOs to screen/refer enrollees for social needs in FY 2019.

In response to a new survey question, three states (Iowa, Massachusetts, and New Jersey) reported that they tie MCO incentive payments or withholds to a social determinants-related measure. One state (Colorado) reports that Rocky Mountain Health Plan, which participates in the federal AHC pilot described above, will adopt a social determinant-related measure in FY 2019. In Massachusetts, the state’s approach to accountable care organizations includes shared savings and losses that they expect will also be impacted by an organization’s attention to social determinants. In addition, Massachusetts uses a social determinants of health model to risk adjust MCO capitation rates for Medicaid ACO/MCO contracts, and the state plans to have a continuous risk adjuster for Senior Care Options and One Care that will include social determinants of health in a similar manner.

Criminal Justice-Involved PopulationsEngaging 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 2018, six states required MCOs to provide care coordination services to at least some enrollees prior to release from incarceration, while five states encouraged MCOs to provide care coordination services prior to release. Four states intend to use contracts to require or encourage such care coordination in FY 2019 (Exhibit 10). New Mexico will move from encouraging to requiring plans to participate in care coordination to facilitate the transition of members from prisons, jails, and detention facilities into the community.

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% in the rate year, for rating periods and contracts starting on or after July 1, 2019. States must include requirements for plans to calculate and report an MLR for contracts that take effect on or after July 1, 2017.⁴⁹  This 85% minimum MLR is the same standard that applies to 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.

Some states reported that their MLR requirement for acute care contracts and/or MLTSS exceeds the 85% minimum, while other states noted that they do not yet specify an MLR.⁵⁰  States were asked whether they require MCOs that do not meet the minimum MLR requirement to pay remittances. Twenty states reported that they always require MCOs to pay remittances, while five states indicated they sometimes require MCOs to pay remittances (Exhibit 11).

PCCM and PHP Program Changes

Primary Care Case Management (PCCM) Program Changes

Of the 14 states with PCCM programs, two reported enacting policies to increase PCCM enrollment in FY 2018 or FY 2019. Colorado reported growth in its PCCM-based Accountable Care Collaboratives in both FY 2018 and FY 2019. Massachusetts reported that member transitions related to the implementation of its Accountable Care Organization (ACO) program in FY 2018 had the overall effect of increasing PCCM enrollment in FY 2018.

Two other states reported new PCCM programs:

• Alabama reported plans for FY 2019 to replace its current PCCM program (Patient 1^st) and Maternity PHP program with a new PCCM entity program (the Alabama Coordinated Health Network) that will cover care coordination services. Alabama is also planning to implement a second PCCM entity program in FY 2019 (the Alabama Integrated Care Network) that will provide enhanced case management, education, and outreach services to most LTSS recipients in both HCBS and institutional settings.
• Arizona implemented an American Indian Medical Home in FY 2018 using PCCM authority and enrollment is expected to expand in FY 2019.

Four states (Idaho, Illinois, Nevada, and Vermont) reported actions to decrease enrollment in a PCCM program in FY 2018 or FY 2019. Idaho is transitioning dual eligibles from PCCM to its Medicaid-Medicare Coordinated Plan in FY 2019; Illinois reported ending its PCCM program when its MCO program was expanded statewide in FY 2018; Nevada ended its Health Care Guidance Program on June 30, 2018; and Vermont is decreasing its PCCM payment over the first half of FY 2019 and will end the payment effective January 1, 2019.

Limited-Benefit Prepaid Health Plans (PHP) Changes

In this year’s survey, the 28 states contracting with at least one PHP as of July 1, 2018, were asked to indicate whether certain services (listed in Exhibit 12 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 outpatient substance use disorder (SUD) treatment services, non-emergency medical transportation (NEMT), and dental services (13 states each).

Twelve states reported implementing policies to increase PHP enrollment in FY 2018 or FY 2019. Seven states (Arkansas, Florida, Iowa, Nebraska, Nevada, Utah, and Washington) reported new or expanded dental PHPs in FY 2018 or planned for FY 2019. Other states reported the following changes: increased enrollment in its Drug Medi-Cal PHPs (California); increased enrollment in its dual eligible PHP (Idaho); implementation of a NEMT PHP (Indiana); enrollee transitions related to the implementation of its ACO initiative which increased behavioral health PHP enrollment (Massachusetts); and increased enrollment in its LTSS PHPs (New York).

Four states also reported actions that decreased PHP enrollment in FY 2018 or FY 2019. Alabama reported plans to end its maternity care PHP (when its new PCCM-entity program is implemented); Kentucky reported that it is planning to eliminate coverage under its NEMT PHP for expansion adults; Washington reported that enrollment in its behavioral health PHPs is decreasing as the state converts behavioral health PHPs to fully integrated MCO contracts in additional geographic areas; and Wyoming reported ending its PHP arrangement for children with emotional disturbance.

In this year’s survey, states with PHPs were also asked to briefly describe PHP contract quality strategies in place in FY 2018 or planned for FY 2019. Nearly two-thirds of states with PHPs reported a variety of quality strategies including tracking of HEDIS and/or other measures; requiring Performance Improvement Projects; incentive payments; withholds tied to performance measures; public reporting of performance results (e.g., report cards or dashboards); imposition of penalties or liquidated damages; and use of alternative payment methods.

Table 4: Share of the Medicaid Population Covered Under Different Delivery Systems in all 50 States and DC, as of July 1, 2018

Table 5: Enrollment of Special Populations Under Medicaid Managed Care Contracts for Acute Care in all 50 States and DC, as of July 1, 2018

Table 6: Behavioral Health Services Covered Under Acute Care MCO Contracts in all 50 States and DC, as of July 1, 2018

Table 7: Select Medicaid Managed Care Quality Initiatives in all 50 States and DC, In Place in FY 2018 and Actions Taken in FY 2019

Over three-quarters of all state Medicaid programs (43 states) had at least one of the specified delivery system or payment reform models in place in FY 2018, a modest increase over the 40 states reporting at least one model in place in 2017 (Figure 5 and Table 8). This year’s survey asked states whether certain delivery system and payment reform models (defined in the box below) designed to improve health outcomes and constrain cost growth were in place in FY 2018, and whether they planned to adopt or enhance these models in FY 2019. For FY 2019, 19 states (all states with at least one model already in place) 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), ACA Health Homes, and Accountable Care Organizations (ACOs).

PCMH and Health Home initiatives were the most common delivery system reform initiatives in place in states in FY 2018 (Table 8). PCMH initiatives operated in over half (29 states) of Medicaid programs in FY 2018. Nine states reported plans to expand or enhance existing PCMH programs in FY 2019, often citing increased provider participation. Over one-third of states (22 states) had at least one Health Home initiative in place in FY 2018. Six states reported plans to adopt and two states reported plans to expand Health Homes in FY 2019. One state (Alabama) reported that its PCMH and Health Home programs would end in FY 2019 when its new PCCM-entity program is implemented.

About a quarter of states had ACO initiatives in place and fewer states have episode of care initiatives in place in FY 2018 (Table 8). Fourteen states reported having ACOs in place for at least some of their Medicaid beneficiaries in FY 2018.⁵⁷  Six states reported plans to expand an existing initiative in FY 2019. Six states reported that they had episode-of-care payment initiatives in place in FY 2018, unchanged from 2017. Three of these states also reported planned expansions of these initiatives in FY 2019. Idaho reported plans to implement a new episode-of-care payment related to births in FY 2019.

Ten states reported DSRIP initiatives in place in FY 2018, unchanged from FY 2017 (Table 8). DSRIP initiatives, which emerged under the Obama administration, have provided states with significant federal funding to support hospitals and other providers in changing how they provide care to Medicaid beneficiaries. No states reported expansions or enhancements to existing initiatives or reported new DSRIP initiatives planned for FY 2019. One state (Kansas) reported that its DSRIP program would end in FY 2019. These initiatives were not intended to be permanent and the Trump administration has not signaled an intent to promote these initiatives going forward.

OTHER INITIATIVES

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. Seventeen states reported having an APCD in place. Two states (Florida and New York) reported that their APCD would be expanded in FY 2019 and four states (Alaska, Connecticut, Delaware, and Hawaii) reported plans for new APCDs in FY 2019.

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 8), including value-based purchasing initiatives, pay for performance payments, or other incentive arrangements targeted at hospitals, nursing facilities, federally qualified health centers (FQHCs), or other provider types. Examples of other initiatives reported include the following: Alaska is contracting with a health system in FY 2019 to provide case management services on a non-risk basis; Maryland reported on its recently approved Total Cost of Care All-Payer Model (an expansion of the existing all-payer model for hospital services) that will take effect in January 2019; Michigan reported on its Direct Primary Care Pilot that began August 1, 2018 (providing same or next business day primary care appointments for a fixed monthly fee); Rhode Island reported plans to implement a bundled payment for mental health and SUD crisis stabilization services limited to state certified providers; and Wyoming reported on its plans to implement a super-utilizer program targeted at high-cost, high-risk adults.

States with significant populations and/or services delivered outside of contracted MCO arrangements also reported on a wide range of non-MCO quality activities including collection of HEDIS data and other performance measures, conducting beneficiary satisfaction (CAHPS⁵⁸ ) surveys, collecting LTSS measures, conducting performance improvement projects, public reporting quality data, and taking steps to expand the use of health information technology and health information exchange. One state (Connecticut) with a comprehensive quality strategy for its managed fee-for-service delivery system approach is highlighted below.

STATE initiatives to address social Determinants of Health

In addition to imposing requirements on MCOs to screen enrollees for social needs and make referrals to other services, many states have initiatives outside of their MCO programs to address one or more of their enrollees’ social determinants of health (SDOH), such as food insecurity, housing, employment, or education. In this year’s survey, states were asked to briefly describe any initiatives implemented in FY 2018 or planned for FY 2019 that address SDOH outside of managed care and/or the housing supports discussed in the “Long-Term Services and Supports” section below.

About one-third of the states described a wide variety of initiatives including case management strategies that include the identification of social factors and appropriate referrals; initiatives that employ community health workers; and participation in the CMS Accountable Health Communities grant program. Other examples of initiatives reported for non-MCO populations include the following: Colorado reported plans to implement multiple SDOH initiatives in FY 2019, mostly through its Regional Accountable Entities that are responsible for collaborating with community-based organizations and promoting member engagement with SNAP, WIC, and other local programs; DC reported that it is working with its NEMT provider to promote the increased use of transportation benefits for fee-for-service beneficiaries in order to alleviate challenges with transport to urgent care and primary care; Maine reported that employment is a focus area for its behavioral health homes; and Massachusetts is seeking federal approval to allow its ACOs to use “flex funds” (under DSRIP expenditure authority) to pay for certain health-related social services.

States were also asked if the Medicaid agency collected SDOH-related data for enrollees and, if so, how that data was used. Over one-third of states, including both MCO and non-MCO states, reported that SDOH data was collected as of FY 2018 or would be collected beginning in FY 2019. These states reported a variety of SDOH data sources including screenings or assessments at the time of or following the eligibility determination process, data collected for other state programs, data derived from claims or encounter data, beneficiary surveys, information collected as a part of a care management or home visiting program, and other data submitted by providers. The most common uses reported for this data were to inform care coordination or care management, for quality improvement initiatives, and for performance measurement. Other uses mentioned included rate setting, to fulfill federal reporting requirements, and to make referrals.

Several states also reported providing or plans to provide fee-for-service care coordination services to incarcerated persons prior to release. For example, Colorado reported that its Regional Accountable Entities were encouraged, but not required, to provide pre-release care coordination services; Connecticut connects incarcerated individuals, pre-release, with the state’s medical Administrative Services Organization (ASO) to help smooth the transition to community-based medical services; and Kentucky reported plans for a care coordination pilot program targeting incarcerated individuals with SMI.

Access Improvement Focus Areas

This year’s survey included additional questions for states with initiatives to increase access to care in rural areas and to increase access to mental health and SUD services. States were asked to briefly describe initiatives implemented in FY 2018 or planned for FY 2019.

Improving Access to Care in Rural Areas

Medicaid is a vital source of health care coverage in rural areas and small towns that tend to have lower household incomes, lower rates of workforce participation, and higher rates of disability compared to the rest of the nation.⁵⁹  Nearly half of states reported a variety of new or expanded initiatives to improve access to care in rural areas implemented in FY 2018 or FY 2019. The most frequently mentioned type of initiative related to telehealth, including e-Consult, telemedicine, tele-monitoring, and Project ECHO⁶⁰  programs. Strategies mentioned by at least two states included funding increases for rural providers, expanded SUD treatment services in rural areas, expanded funding for primary care residency programs, and participation in multi-payer initiatives that promote rural access to care.

Improving Access to Mental Health and SUD Services

Nearly three-quarters of states reported initiatives to expand access to mental health (MH) or SUD services in FY 2018 or FY 2019 (MH/SUD policy changes that expand access are also discussed in the “Eligibility and Premiums” and “Benefits and Copayments” sections of this report). The most commonly reported actions were seeking waiver authority to expand coverage of services provided in an Institute for Mental Disease (IMD) and adding coverage for new MH or SUD services, often under waiver authority. Several states also reported delivery system reforms expected to improve access, such as adoption of the Hub & Spoke model, MCO integration efforts and establishment of mental health and SUD Health Homes.⁶¹ 

Other initiatives reported included access-related incentive payments; allowing up to 5% of the cost of MCO behavioral health-related “community investments” to be counted as benefit expenditures rather than administrative costs; promoting the use of the SBIRT (Screening, Brief Intervention, and Referral to Treatment) tool in physician offices, FQHCs, and intake areas of institutional settings; participating in the CMS Innovation Accelerator Program, the Opioid Data Analytic Cohort; participating in a state SUD Treatment and Reentry Center Project for offenders; eliminating copays for pharmacy SUD treatment services; and geographically expanding an HCBS program for persons with severe disabling mental illness.

Table 8: Select Delivery System and Payment Reform Initiatives in all 50 States and DC, In Place in FY 2018 and Actions Taken in FY 2019

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 people 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 federal fiscal year 2016, spending on Medicaid LTSS totaled $167 billion, and HCBS represented 57% of these expenditures. In recent years, growth in Medicaid LTSS expenditures has been largely concentrated in HCBS. In 2016, spending on HCBS grew by 10% while spending on institutional LTSS decreased 2%.⁶² 

This year’s survey shows the vast majority of states in FY 2018 (46 states) and the vast majority of states in FY 2019 (48 states) are using one or more strategies to expand the number of people served in home and community-based settings (Figure 6). States were asked about their use of the following rebalancing tools/methods: use of HCBS waivers and/or State Plan Amendments (SPAs) (including 1915(c), Section 1115, 1915(i), and 1915(k)); use of rebalancing incentives in managed care contracts; use of Programs of All-Inclusive Care for the Elderly (PACE); and efforts to downsize state institutions. A large majority of states in FY 2018 (40 states) and in FY 2019 (42 states) reported adopting new HCBS waivers/SPAs and/or serving more individuals through existing HCBS waivers/SPAs. About a third of states reported using rebalancing incentives in managed care contracts and about the same share reported implementing PACE expansions in FY 2018 and FY 2019. Fewer states report efforts to downsize state institutions. Table 9 shows state use of selected LTSS rebalancing tools in FY 2018 and FY 2019.

Few states reported actions to reduce or restrict the number of persons served in home and community-based settings in FY 2018 or in FY 2019. In FY 2018, Missouri increased the state’s institutional level of care standard, which affected the eligibility of 445 waiver participants upon reassessment and of over 1,200 waiver applicants on pre-assessment screening. In FY 2019, Michigan may reduce the number of slots available under its MI Choice 1915(c) waiver, which serves seniors and adults with physical disabilities, to reflect available funding.

In this year’s survey, states were also asked to identify the most significant rebalancing challenges they currently face. Among states that responded, the challenges most frequently cited included lack of affordable and accessible housing, gaps in community-based provider capacity (especially in rural areas) and/or direct care workforce shortages, reimbursement challenges (e.g., rising and/or more favorable rates paid to nursing facilities compared to HCBS providers and the need to risk adjust rates as patterns of utilization change), and the expiration of the Money Follows the Person (MFP) program.

LTSS Direct Care Workforce

Many states are struggling to find sufficient numbers of trained direct care workers to meet the demand for services, including the demand for care in home and community-based settings.^63 ,64  Low wages, few benefits, limited opportunities for career advancement, inadequate training, and high rates of worker injury are factors that also contribute to a workforce shortage and high workforce turnover among paid LTSS direct care workers. The National Center for Health Workforce Analysis projects that demand for direct care workers (including nursing assistants, home health aides, personal care aides, and psychiatric assistants/aides) could grow by 48% between 2015 and 2030, growth that is expected to far exceed the available workforce.⁶⁵ 

To address LTSS direct care workforce shortages and turnover, increasingly states are reporting implementing wage increases and workforce development activities (Exhibit 13). In FY 2018, 15 states reported implementing wage increases for Medicaid-reimbursed direct care workers, while 24 states report implementing wage increases in FY 2019 (14 states in both years). In addition, 12 states had direct care workforce development strategies (e.g., recruiting, training, credentialing) in place in FY 2018, and 10 states reported expanding or implementing new workforce development strategies in FY 2019 (Exhibit 13).

HCBS Benefit Changes

More states reported actions to add or enhance HCBS benefits than states reporting actions to reduce or restrict HCBS benefits in FY 2018 and FY 2019. HCBS benefits include those in Section 1915(c) or Section 1115 waivers, under Section 1915(i) authority or Section 1915(k) authority (“Community First Choice” or “CFC”), PACE, and state plan personal care services, home health services, or private duty nursing. Eighteen states in FY 2018 and 26 states in FY 2019 reported a wide variety of HCBS benefit additions or expansions (Exhibit 14). 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 new housing-related services or embedded post-MFP community transition services in HCBS authorities; changes to increase access to respite services or to provide training for family, consumers, and unpaid caregivers; enhanced transportation services; and pest eradication services.

A few states implemented new HCBS programs in FY 2018 or FY 2019. In FY 2018, Idaho added a new 1915(i) state plan program for children to offer respite and person-specific planning supports. Maryland added two new 1915(c) waivers to provide family and community support for individuals with intellectual and developmental disabilities (I/DD). In FY 2019, California will implement a new 1915(i) program that will add housing access, family support, and other services for individuals with I/DD. Rhode Island proposes to add a Section 1915(k) Community First Choice program, and Alaska plans to add a new Section 1915(k) program. Seven states reported adding new PACE sites in both FY 2018 and FY 2019. Nine additional states will add new PACE sites in FY 2019 (Exhibit 14).

Three states in FY 2018 (Missouri, Montana, and Oregon) and two states in FY 2019 (DC and Montana) implemented or plan to implement benefit changes that will reduce services under HCBS authorities. States reported targeted restrictions, noting they are being introduced to meet budget neutrality requirements or to reflect changes in available state funding. For example, DC proposes restricting the number of personal care assistance hours available under its Section 1915(i) elderly and persons with physical disabilities state plan option, and Montana is eliminating several services from its Section 1915(c) waivers for individuals with I/DD and those with severe disabling mental illness.⁶⁶ 

Money Follows the Person and Housing Supports

Money Follows the Person (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.^67 ,68  Enhanced federal funding under MFP has supported the transition of over 75,151 individuals from institutional to home and community-based long-term care settings as of December 2016.⁶⁹  This includes the transition of older adults, individuals with physical disabilities, individuals with mental illness, and individuals with intellectual and developmental disabilities. Although states are developing sustainability plans and completing tasks to close the current MFP grant program, states can use unexpended MFP grant funds through the end of federal FY 2020. However, a few states reported in this year’s survey that they have already exhausted their MFP grants.

Although many states are still developing sustainability plans and making determinations about whether and which services may continue, 30 states identified specific housing-related services that they plan to continue after MFP funding expires. 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.⁷⁰  In this year’s survey, states were asked to describe housing-related services that will continue (under SPA or waiver authority) after the MFP funding expires.⁷¹  The most common services that states expect to continue are transition or relocation services (e.g., case management, coverage for one-time set up costs etc.) and services designed to help individuals locate and maintain housing in the community (e.g., tenancy supports, housing coordination, or supported housing).

About half of MFP-funded states anticipate they will have to discontinue services or administrative activities due to the expiration of MFP funding. States identified a wide range of services and key administrative functions that they expect to discontinue. Examples of services some states may discontinue include intensive transition case management, supportive living services, community transition/housing relocation services, transitional behavioral health supports, and residential environmental modifications. Examples of administrative functions some states may discontinue include statewide housing coordinator, local housing specialists, transition and outreach workers, options counseling, and assistance for individuals to access Section 811 vouchers.

Capitated Managed Long-Term Services and Supports (MLTSS)

As of July 1, 2018, almost half of states (24 states) covered LTSS through one or more of the following types of capitated managed care arrangements:

• Medicaid MCO covering Medicaid acute care and LTSS (20 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, financially aligned contract under the federal Financial Alignment Demonstration (FAD) (9 states)

Of the 24 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, 17 offered some form of MLTSS plan on a statewide basis for at least some LTSS populations as of July 1, 2018 (Table 10). Almost every MLTSS state includes both institutional and HCBS in the same contractual arrangement, while three states (California, Michigan, and Tennessee) report that this varies by MLTSS arrangement.

Nine states offered an MCO-based FAD (California, Illinois, Massachusetts, Michigan, New York, Ohio, Rhode Island, South Carolina, and Texas) as of July 1, 2018.⁷²  The FAD model involves a three-way contract between an MCO, Medicare, and the state Medicaid program.^73 ,74  Four states have requested an extension of the FAD beyond the current end date of the demonstration at the time of the survey (California, Massachusetts, Ohio, and South Carolina). Virginia closed its FAD at the end of calendar year 2017.

Many states encourage improved coordination and integration of services for the dually eligible population under MCO arrangements outside of the FAD. Massachusetts and Minnesota operate an administrative alignment demonstration (with no financial alignment) for some dually eligible beneficiaries. Nine states⁷⁵  reported that they require Medicaid-contracting MCOs to be Medicare Dual Eligible Special Needs Plans (D-SNP)⁷⁶  or Fully Integrated Dual Eligible (FIDE) Special Needs Plans⁷⁷  in some or all MLTSS models offered in the state, creating an opportunity for improved coordination and integration for beneficiaries. Five states⁷⁸  reported that they 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, 2018, 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 dually eligible and non-dually eligible populations: seniors, persons with I/DD, and nonelderly persons with physical disabilities. Dual eligible and non-dual eligible seniors were most likely to be enrolled on a mandatory basis followed closely by persons with physical disabilities. Dual and non-dual persons with I/DD were most likely to be excluded from MLTSS enrollment. No state offering MLTSS always excludes full benefit dual eligible seniors or persons with physical disabilities from MLTSS enrollment (Exhibit 15).

MLTSS Population Changes

In FY 2018, Pennsylvania implemented MLTSS, with a plan to phase-in statewide over time, and Virginia ended its FAD but adopted statewide MLTSS for a wider population, including dual eligible individuals. Also, one state, Arkansas, reported that it will implement a capitated model of MLTSS for the first time in FY 2019 when it plans to adopt a global payment approach for its new “PASSE” program that provides comprehensive services, including personal care and other HCBS specialty services, for individuals who have the need for an intensive level of community based behavioral health or developmental disabilities services. While the state will exempt individuals who are receiving services under the DD waiver from this model, individuals who are on the waiting list for waiver services will be enrolled, as well as individuals who reside in private ICF-IDs.

In total, two states expanded the geographic reach of MLTSS in FY 2018 and five states are expanding MLTSS geographically in FY 2019 (Exhibit 16). Also, four states added previously excluded populations to MLTSS arrangements in FY 2018 and five states will add previously excluded populations in FY 2019. In all states except for South Carolina (where the state is expanding voluntary enrollment options under its FAD to all Medicare Advantage enrolled seniors statewide), the new populations covered are subject to mandatory enrollment. Rhode Island reported ending its MLTSS contract for individuals who opt out of the FAD, effective September 2018. After that date, individuals who opt out of the FAD will return to Medicaid fee-for-service.

Table 9: Long-Term Care Actions to Serve More Individuals in Community Settings in all 50 States and DC, FY 2018 and FY 2019

Table 10: Capitated MLTSS Models in all 50 States and DC, as of July 1, 2018

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 during periods of recovery and revenue growth, states are more likely to increase rates. This report examines rate changes across major provider categories: inpatient hospitals, nursing facilities, MCOs, outpatient hospitals, primary care physicians, specialists, dentists, home and community-based services (HCBS), and pharmacy dispensing fees. States were asked to report aggregate rate changes for each provider category in their FFS programs.

The number of states that made or are planning rate increases exceeds the number implementing or planning rate restrictions in both FY 2018 and FY 2019. In FY 2018, almost every state implemented rate increases for at least one category of providers (49 states), while fewer implemented rate restrictions (38 states) (Figure 7 and Table 11). For FY 2019, the number of states with at least one implemented or planned rate increase (47 states) is greater than the number of states with at least one implemented or planned rate restriction (31 states) (Figure 7 and Table 12). The number of states that reported at least one rate restriction in FY 2019 is the smallest number since FY 2008.

The number of states with rate increases exceeds the number of states with restrictions in FY 2018 and FY 2019 across all major categories of providers, with the exception of rates for inpatient hospital services (Figure 8 and Tables 11 and 12). For the purposes of this report, cuts or freezes in rates for inpatient hospitals and nursing facilities are counted as restrictions.⁸⁰  Most of the restrictions of inpatient hospital rates are rate freezes. Three states in FY 2018 and three states in FY 2019 had implemented or planned cuts to inpatient hospital rates. While three states cut nursing facility rates in FY 2018, no states indicate plans to cut nursing facility rates in FY 2019.

The number of states planning to increase nursing facility rates in FY 2019 (40 states) is greater than the number of states increasing those rates in FY 2018 (34 states). HCBS providers were also among those most likely to receive rate increases (32 states in FY 2018 and 31 states in FY 2019) (Figure 8).

State authority to adjust capitation payments for MCOs is limited by the federal requirement that states pay actuarially sound rates. In FY 2018 and FY 2019, the majority of the 39 states with Medicaid MCOs either implemented or planned increases in MCO rates. While seven states reported MCO rate cuts in FY 2018, only two states plan to cut MCO rates in FY 2019.⁸¹ 

MCO Rate Requirements

Over half of MCO states require MCOs to change provider payment rates in accordance with FFS payment rate changes. In many states, MCOs make most of the Medicaid payments to providers. This year’s survey asked states to report whether they require their MCOs to make changes to their provider payments that follow percent or level changes in FFS rates. Of the 39 states with MCOs, 18 states indicated that they had no such requirement, 19 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.

Most MCO states mandate minimum provider reimbursement rates in their MCO contracts. Of the 39 MCO states, seven indicated that they had no rate floors, 27 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. Among states with rate floors for some provider types, the most commonly mentioned providers were long term care providers (nursing facilities and home and community-based service providers), community health centers (federally qualified health centers and rural health centers), and various providers of behavioral health services.

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 2018 and FY 2019. 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.⁸²  In FY 2018, 36 states, including DC, had three or more provider taxes in place (Figure 9).

Very few states made or are making any changes to their provider tax structure in FY 2018 or FY 2019. The most common Medicaid provider taxes in place in FY 2018 were taxes on nursing facilities (44 states), followed by taxes on hospitals (42 states) and taxes on intermediate care facilities for people with intellectual disabilities (36 states) (Table 13). Two states reported plans to add new taxes in FY 2019. Virginia is implementing a new hospital tax to fund the state’s share of Medicaid expansion costs, and California is implementing a new tax on Ground Emergency Medical Transportation (GEMT or ambulance).

Eleven states report planned increases to one or more provider taxes in FY 2019, while six states report provider tax decreases. In addition, 29 states reported at least one provider tax that is at or above 5.5% of net patient revenues, which is close to the maximum federal safe harbor threshold of 6%. Federal action to lower that threshold, as has been proposed in the past, would therefore have financial implications for many states.

Twelve states report that they have taxes on MCOs as of FY 2018. Federal Medicaid law was changed⁸³  effective July 1, 2009 to restrict the use of Medicaid provider taxes on managed care organizations such as HMOs. Prior to that date, states could apply a provider tax to Medicaid HMOs that did not apply to MCOs more broadly and could use that revenue to match Medicaid federal funds. In recent years, several states have implemented new MCO taxes that tax member months rather than premiums and that meet the federal statistical requirements for broad-based and uniform taxes. As a result, the number of MCO taxes has increased in recent years. In addition to the 12 states reporting MCO taxes, some states have implemented taxes on health insurers more broadly that generate revenue for their Medicaid programs.

An increasingly common provider tax is a tax on Ground Emergency Medical Transportation, or an ambulance tax. As noted above, California is implementing such a tax in FY 2019, bringing the number of states with an ambulance tax to eight states.

Table 11: Provider Rate Changes in all 50 States and DC, FY 2018