11. Implications For Safety Net Providers

Medicaid’s transition from fee-for-service to managed care has enormous implications for safety net providers – those hospitals and clinics that deliver basic health care to large numbers of the uninsured. Medicaid has been a major revenue source for many of these providers, because it has reimbursed for the care and services they deliver to low-income patients who, without Medicaid coverage, generally would have no other source of payment. The revenues from these Medicaid patients often allow these hospitals and clinics to maintain the staffing, equipment, and other capacity to serve the uninsured. Loss of some or all of these Medicaid revenues due to lower payment rates for beneficiaries or to their diversion elsewhere could lead to the contraction of service capacity or, in extreme cases, closure of safety net facilities. As a result, the uninsured in these communities will have much greater difficulty in accessing needed care.

Current state practices and policies with respect to safety net providers vary. A 1996 survey by the National Academy of State Health Policy found that, in the 38 states with Medicaid risk contracting programs, 30 states reported that federally-qualified health centers participated as contractors or subcontractors in these programs; 22 states reported that community health centers or rural health clinics participated; and 256 states reported that local health departments participated. The survey found that few states reported requiring Medicaid MCOs to contract with any particular safety net providers.⁵⁸

The Balanced Budget Act does not articulate a clear policy for the support of safety net providers. It contains some provisions intended to give states the ability to reduce Medicaid payments to these providers, and it contains some provisions intended to protect these providers from harm at the hands of Medicaid MCOs. The policies toward “safety net” hospitals differ from those toward “safety net” clinics. In each case, the real-world impact of these changes will vary from community to community and state to state.

Disproportionate Share Hospitals

The Balanced Budget Act contains a number of provisions designed to achieve federal savings by reducing Medicaid reimbursement to hospitals generally, and to “disproportionate share” hospitals like public and children’s hospitals in particular. The Act repeals the so-called Boren amendment, which required “reasonable and adequate” payments to hospitals for inpatient care delivered to Medicaid patients. (This change is not likely to have much effect on hospital Medicaid revenues in states with high managed care penetration because, under HCFA interpretation, MCOs were not subject to the Boren amendment in setting payment rates to affiliated hospitals.) The Act still requires states to make additional payments to hospitals serving high volumes of Medicaid or uninsured patients, but it limits the federal Medicaid matching funds available for these DSH payments in each state.⁵⁹

The Act does not require Medicaid MCOs to contract with DSH hospitals or, if they elect to do so, to pay them any particular rate or to guarantee them a certain volume of patient referrals. In general, the Act leaves it to Medicaid MCOs and DSH hospitals to work out any affiliations, subject to the following constraints. (As in the case of other MCO performance standards, these provisions do not apply in states currently operating section 1115 waivers or under current section 1915(b) waivers.)

DSH Payments

States must make DSH payments directly to DSH hospitals rather than funneling them through MCOs.⁶⁰ Direct payment is obviously beneficial to DSH hospitals, as it eliminates any possibility of delay or diversion of DSH payments by an MCO.

Emergency Services

Both MCOs and PCCMs must provide coverage for emergency services “without regard to prior authorization or the emergency care provider’s contractual relationship with” the MCO or the PCCM. Emergency services are defined broadly as those needed to “evaluate or stabilize” an emergency medical condition that a “prudent layperson” could reasonably expect to require immediate medical attention. This requirement should protect DSH hospitals from MCOs that might deny payment to unaffiliated hospital emergency rooms for care provided to Medicaid enrollees (even though the cost of that care is part of the MCO’s Medicaid capitation rate). It applies to MCO or PCCM contracts entered into or renewed on or after October 1, 1997.

Timely Payments

MCOs must pay hospitals and other health care providers on a timely basis for services provided to those Medicaid enrollees who are covered under their risk contract with the state. As with state Medicaid reimbursement to fee-for-service providers, timely means that the MCO pays 90 percent of “clean” claims (for which no further substantiation is required) within 30 days and 99 percent within 90 days. This requirement should help protect DSH hospitals from cash flow problems resulting from long delays in payment by MCOs for emergency care or other covered services, whether or not the hospital is affiliated with the MCO whose enrollee it treats.

Default Enrollments

As described in section 4, the Act contains provisions related to “default” or “auto” enrollment in the case of states implementing mandatory managed care under section 1932. These provisions require that states, in the process of enrolling beneficiaries who do not choose among the MCOs offered to them, “take into consideration maintaining . . . relationships with providers that have traditionally served [Medicaid] beneficiaries.” DSH hospitals are not expressly referenced, but they are surely among the providers that have “traditionally” served beneficiaries. In states that implement this provision, it could make DSH hospitals attractive as affiliates to those managed care plans seeking to increase the number of beneficiaries they enroll through the default enrollment process.

Liberalized Solvency Requirements

The Act’s provisions relating to emergency services and timely payments should be helpful to DSH hospitals that are not themselves MCOs. For those DSH hospitals that choose to operate as an MCO, capitalization and cash reserve requirements relating to state insolvency standards for health maintenance organizations or insurers may be a concern. The Act specifies that, as a general rule, MCOs meet state-established solvency standards for private HMOs or be state-certified as a “risk bearing entity.” However, two exceptions are relevant to DSH hospitals. First, any organization that is a “public entity” is not subject to the solvency standards applicable to private HMOs or risk bearing entities; this is obviously relevant to DSH hospitals operated by counties or localities. Second, any DSH hospital, public or private, that qualifies as a “provider-sponsored organization” is exempt from these solvency standards. Presumably, a DSH hospital could qualify as a PSO under the new Medicare provisions in the Balanced Budget Act or under relevant state law.

Federally-Qualified Health Centers

As in the case of Medicaid DSH hospitals, the Balanced Budget Act contains changes designed to reduce federal spending on payments to federally qualified health centers. Among these are federally funded community and migrant health centers, health clinics run by Indian tribes or urban Indian organizations, and urban or rural primary care clinics that meet the requirements applicable to community health centers but do not receive federal grant funds. These requirements include providing primary care services to people living in an FQHC’s service area, regardless of their ability to pay. Though the Act retains the current legal requirement that state Medicaid programs cover the services provided by FQHCs, it phases out the requirement that states pay FQHCs at a rate that fully reflects their costs of delivering care to Medicaid patients. CBO assumes that states will take advantage of this flexibility to reduce payments to FQHCs, yielding some federal savings as well.

Emergency Services

States may choose to cover FQHC services through contracts with MCOs or “carve out” these services from these contracts. In either case, the Act does not require MCOs to contract with FQHCs, nor does it address the terms of any contractual arrangements MCOs might elect to enter into with FQHCs. The Act does, however, include a few provisions that should help to maintain the fiscal viability of FQHCs as state Medicaid programs transition to managed care. (In contrast to the situation with respect to DSH hospitals, these provisions appear to apply in states operating under section 1115 or section 1915(b) waivers.)

Payment Rates

Under current law, state Medicaid programs must cover the services provided by FQHCs and must pay participating FQHCs 100 percent of the cost of delivering covered services to Medicaid patients. The Act phases out this requirement beginning in fiscal year 2000, when states are allowed to pay only 95 percent of costs. The phase-out continues through fiscal year 2003, when states are permitted to pay only 70 percent of costs, and then repeals the requirement altogether effective October 1, 2003. During this same “transitional” period – October 1, 1997 through October 1, 2003 – the Act sets forth two requirements related to reimbursement of FQHCs subcontracting with Medicaid MCOs.

First, MCOs that enter into contracts with FQHCs must make payments on behalf of Medicaid enrollees treated by the FQHCs that are “not less than the level and amount of payments” the MCO would make for the same services if delivered by another provider within the MCO’s network. Second, the Act requires the state Medicaid program to supplement, on a quarterly basis, the payment made by the MCO to the FQHC, so that the total amount the FQHC receives for treating the MCO’s enrollees equals what it would be entitled to get had the patient been a fee-for-service beneficiary. For example, if in fiscal year 1999 the MCO paid its FQHCs 90 percent of cost, the state would have to provide the other 10 percent. These requirements do not guarantee the FQHC any defined volume of Medicaid patients or any aggregate amount of Medicaid revenues. But they do, however, attempt to ensure that, during the transition period, FQHCs do not receive less for treating MCO Medicaid enrollees than for beneficiaries in fee-for-service arrangements.

Timely Payments

The requirements for timely payment by MCOs to DSH hospitals described above also apply to FQHCs. Thus, MCOs must pay 90 percent of the clean claims submitted by FQHCs for covered services provided to MCO Medicaid enrollees within 30 days of receipt, and 99 percent within 90 days of receipt.

Default Enrollment

As with DSH hospitals, the Act provides for default enrollment processes that have the potential to give some priority to FQHCs. The Act requires that states using the section 1932 route to mandatory managed care assign beneficiaries that do not choose among MCOs offered to them in a way that “takes into consideration maintaining existing provider-individual relationships or relationships with providers that have traditionally served [Medicaid] beneficiaries.” FQHCs have patient relationships with many Medicaid beneficiaries and have traditionally served them. MCOs that contract with, or are owned by, FQHCs, could potentially benefit from this statutory standard by enrolling beneficiaries (including patients who they have served in the past) who have failed to select an MCO.

Liberalized Solvency Requirements

As with DSH hospitals, the Act provides for liberalized solvency requirements for FQHCs that want to operate their own MCOs rather than contract with MCOs owned by hospitals or other providers or by investors. (Currently, FQHCs own or operate between 20 and 30 Medicaid MCOs; in six states, these MCOs have the largest Medicaid enrollment.) The Act provides that the solvency standards generally applicable to MCOs – those set by the state for private HMOs or for risk bearing entities – do not apply to an MCO that “is or (is controlled by)” one or more FQHCs and that meets solvency standards “established by the State for such an organization.”

Conclusion

Implementation of the Medicaid managed care provisions of the Balanced Budget Act presents HCFA and the states with a daunting set of implementation issues. HCFA, which is also responsible for implementing the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), the Medicare provisions of the Balanced Budget Act, and the new Child Health Block Grant, will have significant new responsibilities with respect to Medicaid. A major task will be to issue administrative guidance on these managed care provisions, as well as monitor and enforce state and MCO compliance with that guidance. HCFA action on these Medicaid managed care provisions, is particularly important: without timely federal guidance and monitoring, in some states federal Medicaid dollars may inadvertently finance the underservicing of low-income women and children and other Medicaid beneficiaries who have been required to enroll in MCOs that do business only with Medicaid.

From the state standpoint, the Balanced Budget Act provides broad new flexibility with respect to mandatory managed care. However, the Act also establishes a number of new federal requirements that may make state Medicaid agencies more accountable for their expenditure of federal Medicaid managed care funds. One is a reinstatement of the requirement for federal prior approval of all state managed care contracts in excess of $1 million. Another concerns new conflict-of-interest rules governing state officials involved in Medicaid managed care contracting. Yet others involve new management information system reporting requirements and a new requirement to develop a quality assessment and improvement strategy consistent with federal standards. The extent to which these requirements actually improve the performance of state agencies and ultimately the performance of contracting MCOs depends largely on how clearly and effectively HCFA (and the HHS Inspector General) implement these requirements.

A critical first-priority issue for both HCFA and the Inspector General is the availability of accurate, policy-relevant data. Currently, most states do not report on a quarterly basis the number of beneficiaries enrolled in MCOs or the cost of those enrollees. Similarly, states generally do not report such information by beneficiary group (e.g., children, adults, disabled, or elderly) or by type of managed care arrangement (e.g., MCO or PCCM). Without this basic information, it is extremely difficult for federal officials or policy analysts to monitor the Medicaid program’s transition to managed care.⁶¹ The Secretary of HHS has the statutory authority to require such information; the Medicaid statute has long required state Medicaid agencies to “make such reports, in such form and containing such information, as the Secretary may from time to time require.” This authority was augmented by provisions of the Balanced Budget Act relating to upgrading the state Medicaid management information systems. As the amount of federal Medicaid matching funds flowing through Medicaid MCOs increases, it will become even more essential that the Secretary use this authority to gain a current understanding of the expenditure of those funds and the patterns of enrollment of Medicaid beneficiaries.⁶²

Ultimately, the test of the Balanced Budget Act’s Medicaid managed care changes will come not during the nation’s current economic expansion, but when regional or national economic growth slows significantly, driving down state revenues and increasing the number of people enrolled in MCOs. Will the fiscally pressed states maintain capitation rates high enough to enable even MCOs made up exclusively of Medicaid beneficiaries to provide covered services? If states freeze or even reduce Medicaid capitation rates, how will MCOs react? Will these MCOs leave the program altogether, or will they begin to reduce or withhold covered services from their enrollees? Whatever the response, how will beneficiary access to care, beneficiary health status, and the fiscal capacity of safety net providers be affected? The answers to these questions will not be known for several years. In the interim, careful monitoring of Medicaid’s shift from fee-for-service to managed care will be essential to assess and refine the Balanced Budget Act’s provisions.

Endnotes

58. Jane Horvath and Neva Kaye, Medicaid Managed Care: A Guide for States, 3rd Edition, National Academy for State Health Policy, 1997, pp. I-19 – 1-20. 59. Andy Schneider, Stephen Cha, and Sam Elkin, Overview of Medicaid “DSH” Provisions in the Balanced Budget Act of 1997, P.L. 105-33, Center on Budget and Policy Priorities, September 3, 1997, available on this website 60. An exception is made for “payment arrangements” in effect on July 1, 1997, which appears to apply to Alabama and Wisconsin. 61 As analysts at the Urban Institute recently noted, “Existing national data sources tell us very little about who [Medicaid beneficiaries enrolled in managed care] are, what types of services they use, and how much was spent on these services. As more beneficiaries are enrolled into managed care plans, this problem will be exacerbated.” David Liska et al., Medicaid Expenditures and Beneficiaries: National and State Profiles and Trends, 1990-1995, Kaiser Commission on the Future of Medicaid, November 1997, p. xiii. 62. In connection with the implementation of the Child Health Block Grant, HCFA has issued Medicaid reporting forms calling for the number of unduplicated children and adults enrolled in managed care arrangements, as well as Medicaid payments to MCOs. HCFA, Financing Provisions of the Child Health Insurance Program (CHIP) and Related Medicaid Program Provisions, December 5, 1997 Draft, Forms HCFA-64EC, HCFA-64-EA, and HCFA-37.3.

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Overview of Medicaid Managed Care Provisions in the Balanced Budget Act of 1997

Report Part One Part Two Part Three Part Four Part Five Part Six Part Seven Part EightLibrary Index

Overview of Medicaid Managed Care Provisions in the Balanced Budget Act of 1997

Prepared by Andy SchneiderThe Center on Budget and Policy Priorities

for The Kaiser Commission on the Future of Medicaid

December 1997

This paper was prepared for The Kaiser Commission on the Future of Medicaid with support from The Henry J. Kaiser Family Foundation. The views represented in this report are those of the author and do not necessarily represent the views of The Kaiser Commission on the Future of Medicaid.

Contents

Overview

1. Summary
2. Medicaid Managed Care: An Overview
3. Statutory Pathways to Mandatory Medicaid Managed Care
4. Standards for State Contracting with Medicaid MCOs
5. Payment Rates for Medicaid MCOs
6. Organizational Qualifications for Medicaid MCOs
7. Access and Quality Standards for Medicaid MCOs
8. Beneficiary Protections
9. Accountability of Medicaid MCOs for Compliance with State and Federal Standards
10. Primary Care Case Management Option and Rural Beneficiaries
11. Implications for Safety Net Providers

Conclusion

Appendices:

A. Standards for State Contracts with Medicaid MCOs

B. Index to Statutory Provisions Relating to Medicaid Managed Care

Overview of Medicaid Managed Care Provisions in the Balanced Budget Act of 1997

The Balanced Budget Act of 1997 (P.L. 105-33) dramatically expands the authority of state Medicaid agencies to provide covered health care services through managed care organizations (MCOs). The Act enables states, without obtaining waivers from the Secretary of Health and Human Services, to require most Medicaid beneficiaries to enroll in MCOs that do business only with the Medicaid program. It also allows states, again without obtaining waivers, to limit the number of participating Medicaid MCOs. These provisions are likely to have a major effect on access to covered hospital and physician services by low-income women and children and other Medicaid beneficiary populations.¹ The implications of these provisions for beneficiaries, for states, for “safety net” hospitals and clinics, and for MCOs are the focus of this analysis. The budgetary and policy context in which these changes were enacted is discussed elsewhere.²

1. Summary

The Balanced Budget Act did not launch the shift of Medicaid from fee-for-service to managed care. That transition has been under way for several years, prompted largely by state efforts to restrain Medicaid expenditure growth and nurtured by federal waivers.³ A recent Urban Institute analysis finds that between 1991 and 1996, enrollment of Medicaid beneficiaries in managed care nationally grew from 9.5 percent to 40.1 percent of total Medicaid enrollment.⁴ Even before passage of the Balanced Budget Act, CBO projected that, between fiscal years 1996 and 2002, federal matching payments to Medicaid MCOs would increase, on average, more than 15 percent annually, from $7 billion, or 11 percent of federal spending on Medicaid benefits, to $17 billion, or 14 percent.⁵

What the Balanced Budget Act has done is to alter fundamentally the managed care policy options available to states under the federal Medicaid statute. In the past, states that wanted to require Medicaid beneficiaries to enroll in MCOs that do business mainly or exclusively with Medicaid had to obtain a waiver from the Secretary of Health and Human Services (HHS). Under the Balanced Budget Act, they will now be able to do so without seeking a waiver. State managed care initiatives currently rely heavily on the use of mostly Medicaid MCOs. In 1996, for instance, 7.7 million Medicaid beneficiaries were enrolled in 355 fully capitated managed care plans in 35 states, according to a recent analysis by Mathematica Policy Research. Of these, 3.6 million, or 48 percent, were in 156 managed care plans in which Medicaid beneficiaries accounted for more than 75 percent of total enrollment.⁶ The Balanced Budget Act gives states the flexibility to rely more heavily on MCOs that primarily or exclusively enroll Medicaid beneficiaries. These could include MCOs that are for-profit, MCOs that are owned by non-profit or public “safety net” providers, as well as MCOs specializing in particular services like mental health.

Under the Act, states that want to limit Medicaid beneficiaries living in urban areas to a choice between two MCOs can do so without seeking a waiver from the Secretary of HHS. States can also restrict beneficiaries living in rural areas to a single MCO. In either case, all the MCOs that a state allows to participate may do business primarily or exclusively with Medicaid. For this purpose, the managed care plans with which the state contracts can be fully capitated – that is, at financial risk for providing hospital, physician, and other covered services to Medicaid beneficiaries – or a primary care case manager (PCCM), which does not assume financial risk for the provision of covered hospital services.

This new authority translates into additional bargaining power for state Medicaid programs vis-a-vis managed care plans. States can use this leverage to obtain more favorable rates from participating plans and to limit participants to those that demonstrate the highest levels of quality in services provided. However, this bargaining power can also raise the financial rewards to winning MCOs substantially, by limiting competition, thus giving each MCO a far larger market share and a heftier revenue stream. The Medicaid managed care business can be extremely lucrative.⁷ The potential for favorable results in the Medicaid market has attracted venture capital firms, where, as a rule of thumb, the expected rate of return is roughly one and one-half to three times the normal market rate of return.⁸ This venture capital will help finance new entrants into the Medicaid managed care market as well as the expansion of firms already participating.

One attraction of Medicaid managed care as an investment opportunity is that the conversion of Medicaid beneficiaries into mandatory MCO enrollees creates large monthly flows of capitation payments. An MCO with a mandatory enrollment of, say, 30,000 Medicaid-eligible women and children at an average capitation rate of $90 per month will realize a monthly cash flow of $2.7 million and annual revenues of $32.4 million without accounting for interest. The prospect of such large revenue streams — and the potential returns to be realized in the Medicaid managed care business — are likely to prove highly attractive in many states. As new entrants seek to acquire market share and incumbent plans attempt to protect or expand their existing positions by bringing financial and other resources to bear, the state Medicaid contracting process requires careful monitoring to assure its integrity.

The Medicaid managed care business is not always financially rewarding. There is considerable variation from state to state in the Medicaid payment and regulatory policies toward MCOs. This in turn produces variations in the attraction of Medicaid as a business proposition for managed care plans. A recent review of Medicaid managed care in the trade press indicates that some investor-owned MCOs have either halted new Medicaid enrollment or withdrawn from the Medicaid market altogether in a number of states, including Arizona, Illinois, New York, Ohio, Oregon, and Tennessee. The article attributes this trend primarily to low Medicaid payment rates.⁹

The Balanced Budget Act alters the statutory options available to states with respect to Medicaid managed care, but it does not change the sometimes conflicting interests of states in pursuing this policy path. On the one hand, states have an interest in ensuring that their low-income families have access to basic health care services. Medicaid managed care, when properly implemented, can improve both the accessibility and quality of basic health care services for Medicaid beneficiaries, particularly in those communities in which the quality and continuity of fee-for-service care are substandard.

On the other hand, states want to limit their Medicaid expenditures. The shift from fee-for-service to managed care enables them to curb Medicaid spending on a per beneficiary basis without formally and publicly narrowing the benefits package that they offer under their Medicaid programs. States also have an interest in limiting per beneficiary payments to MCOs and allowing the MCOs to narrow the covered services enrollees actually get. How these sometimes conflicting interests are resolved will vary from state to state.

This analysis describes the new legal and policy framework within which the shift of state Medicaid programs from fee-for-service to managed care will take place over the next few years. The analysis does not duplicate section-by-section summaries of the Balanced Budget Act’s Medicaid managed care provisions.¹⁰ Instead, it focuses on those provisions that are likely to have the most influence in shaping the transition to managed care and its impact on Medicaid beneficiaries:

• standards relating to state procedures for contracting with MCOs,
• standards for MCO organizational qualifications,
• standards relating to Medicaid payment rates for MCOs,
• standards relating to accessibility and quality of care in MCOs,
• beneficiary protections,
• accountability of MCOs for compliance with these standards, and
• provisions affecting safety net providers.

The interpretation of many of these provisions here is necessarily preliminary, since as of December 19, 1997, the Health Care Financing Administration (HCFA) has issued administrative guidance to the states or to MCOs with respect to only some of these amendments.¹¹

Endnotes

1. CBO, Budgetary Implications of the Balanced Budget Act of 1997, August 12, 1997. CBO does not attribute any federal savings to these provisions. In CBO’s view, the only budget effect of the legislation’s Medicaid managed care provisions is to increase federal spending somewhat ($0.1 billion over five years and $0.3 billion over ten) due to the requirement that Medicaid MCOs pay for hospital emergency visits whenever a “prudent layperson” would seek emergency care. 2. Andy Schneider, Overview of Medicaid Provisions in the Balanced Budget Act of 1997, P.L. 105-33, Center on Budget and Policy Priorities, Revised, September 8, 1997. www.cbpp.org/908mcaid.cfm. 3. For a detailed state-by-state survey of the scope of Medicaid managed care, see Jane Horvath et al., Medicaid Managed Care: A Guide for States, 3rd Edition, National Academy for State Health Policy, January 1997 4. Stephen Zuckerman, Alison Evans, and John Holahan, Questions for States as They Turn to Medicaid Managed Care, Urban Institute, August, 1997. 5. CBO Memorandum, Behind the Numbers: An Explanation of CBO’s January 1997 Medicaid Baseline, April 1997, p. 9. 6. Suzanne Felt-Lisk and Sara Yang, “Changes in Health Plans Serving Medicaid, 1993-1996,” Health Affairs, September/October 1997, at 127. 7. A recent report on a Medicaid-only MCO operating in Philadelphia found that between 1989 and 1996, the organization had generated pretax profits of $119 million (a return of 7,600 percent on a $200,000 investment, according to a 1994 audit), and had paid its four founders a total of $26.8 million in bonuses. Craig McCoy and Karl Stark, “An HMO Finds Lots of Money in Poverty,” Philadelphia Inquirer, August 3, 1997. A recent review of a Medicaid MCO contract by the HHS Inspector General found that one contractor realized a profit of $22.9 million over a three-year period, exceeding the IG’s “benchmark for reasonableness” by $4 million. Office of Inspector General, Department of Health and Human Services, State of Wisconsin’s Medicaid Managed Care Program Financial Safeguards, February 1997, p. 3. 8. For example, venture capital firms have invested $38 million in Americaid Community Care, which targets the Medicaid market in large urban areas like Houston and Chicago. A managing partner of Acacia Venture Partners of San Francisco, which has invested $5.5 million in Americaid, believes that Medicaid is “an exciting market, one largely ignored by the large, commercial HMOs.” Debra Gordon, “Virginia Beach-based HMO Takes the Medicaid Gamble,” The Virginian-Pilot, July 26, 1997. 9. The article quotes a health stock analyst as follows: “States have gotten reckless in cutting rates because they couldn’t care less about the Medicaid population. Only the worst HMOs, those that desperately need Medicaid will stay in.” Harris Meyer, “Medicaid: States Serve Up a Real Turkey,” Hospitals and Health Networks, November 20, 1997, p. 22. 10. For a summary section-by-section overview, see Sara Rosenbaum and Julie Darnell, A Comparison of the Medicaid Provisions in the Balanced Budget Act of 1996 (P.L. 105-33) With Prior Law, Kaiser Commission on the Future of Medicaid, September 1997. For a detailed section-by-section analysis, see National Health Law Program, National Center for Youth Law, National Senior Citizens Law Center, and Center for Medicare Advocacy, The Balanced Budget Act of 1997 – Reshaping the Health Safety Net for America’s Poor, October 1997 at www.healthlaw.org. 11. This guidance currently takes the form of letters to state Medicaid Directors. Copies are available on the HCFA Website, www.hcfa.gov/medicaid/bbahmpg.cfm.

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Overview of Medicaid Managed Care Provisions in the Balanced Budget Act of 1997

Report Part One Part Two Part Three Part Four Part Five Part Six Part Seven Part Eight

A national random-sample survey of 1205 adults, 18 years and older, that examines Americans views on AIDS. The findings show that although Americans see growing progress in the fight against the disease, AIDS is still viewed as an urgent health problem for the nation and spending on prevention, research, and treatment is strongly supported. The survey also looks at public support for AIDS prevention efforts, including condoms in schools and needle exchange. The survey was designed by staff at the Foundation and conducted by telephone by Princeton Survey Research Associates (PSRA) between September 17 and October 19, 1997. Additional questions, asked as part of a national omnibus telephone survey of 1,009 adults conducted November 20-23, 1997, are also reported on in the release.

National Perspectives on Medicaid Managed Care

• Report: National Perspectives on Medicaid Managed Care

This report describes the new legal and policy framework within which the shift of state Medicaid programs from fee-for-service to managed care will take place over the next few years.

State Children’s Health Insurance Program Summary

November 1997

Nearly 10 million children are uninsured, often resulting in difficulties in obtaining needed health care. To expand coverage to low-income uninsured children, Congress enacted the State Children’s Health Insurance Program (CHIP) as part of the Balanced Budget Act (BBA) of 1997 (P.L. 105-33). This new program allocates $20.3 billion in federal matching funds over five years to states to expand insurance for children. States can use the federal funds to expand coverage either through a separate state program or by broadening their Medicaid programs — or both.

Eligibility

The intent of CHIP is to expand health insurance coverage to uninsured children under age 19 in families with incomes below 200% of poverty (Figure 1). Children with private insurance or who are covered by or qualify for Medicaid are ineligible for CHIP, as are those who are residents of public institutions or whose families are eligible for state employee health benefits. Undocumented children and legally resident children arriving in the U.S. after August 22, 1996 are ineligible for coverage but may qualify for emergency Medicaid assistance. States that implement their child health insurance programs through Medicaid may use federal funds to cover legally resident children in the country prior to August 22, 1996.

States that choose to operate a separate state child insurance program can establish eligibility based on geographic area, age, income and resources, residency, and disability status, as well as limit duration of coverage. States cannot exclude children based upon a preexisting condition or diagnosis, and cannot cover higher income children before lower income children.

If states use the Medicaid option, children become entitled to full Medicaid coverage. States that have already broadened Medicaid income eligibility levels above 150% of the federal poverty level (FPL) can expand coverage to children up to 50 percentage points above the current level. For example, a state with eligibility set at 175% FPL could expand to 225% FPL.

Benefits and Cost-sharing

The benefit package options available to states fall into three general categories: Benchmark, benchmark-equivalent, or Medicaid.

• Benchmark Packages: States can offer one of three existing benefit packages: including the Federal Employees Blue Cross/Blue Shield PPO plan; coverage available to state employees; or coverage offered by the HMO with the state’s largest commercially enrolled population.
• Benchmark-Equivalent Coverage: States can use a package with aggregate value greater than or equal to a benchmark plan. Hospital, physician, laboratory and x-ray, and well baby/child services must be included at a value at least actuarially equivalent to the benchmark benefit package. If prescription drugs, mental health, vision, and hearing services are included in the benchmark plan, then they must be part of the benchmark-equivalent coverage with a value of at least 75% of the benchmark plan’s actuarial value.
• Medicaid: States that expand Medicaid must provide the complete benefit package, which includes well-child care, immunizations, prescription drugs, doctor visits, hospitalization, and EPSDT, as well as long-term care for disabled children. The Medicaid benefit package for children is broad and should satisfy the benchmark requirement in a state that administers a separate CHIP program.

The Secretary has the authority to approve a different benefit package that is determined to be appropriate for low-income children. The existing New York, Florida, and Pennsylvania child health programs are deemed to satisfy federal requirements for benefits.

Under the new program, states cannot impose cost-sharing for preventive services including well-baby and well-child care and immunizations. For children with family incomes below 150% FPL, cost-sharing must be “nominal” as under the Medicaid statute. Medicaid currently permits premiums of $15 to $19 per month per family and co-payments of up to $3 per service. Cost-sharing for children with incomes above 150% FPL can be imposed based on an income-related sliding scale, but total cost sharing cannot exceed 5% of family income. Coverage can be provided directly by the state Medicaid program, an insurer, or any other entity considered to be qualified by the state.

Financing

The BBA authorizes $20.3 billion in federal funds from FY 1998 through FY 2002 and $19.4 billion over the second five years. Over the ten-year period, the funds are allocated as follows: $4.275 billion per year in FY 1998-2001, falling to $3.15 billion annually in FY 2002 through 2004, and then rising to $4.05 billion from FY 2005 through 2006, and reaching $5 billion for 2007, for a total of $40 billion.

Annual federal allocations to states are based on the states’ share of low-income and uninsured children using estimates from the Current Population Survey, conducted by the U.S. Census Bureau. The allotment formula changes over time to adjust for reductions in the number of uninsured children.

States do not receive their allotments automatically. States must have their child health plan approved by HHS and are required to contribute state funds in order to draw down, or “match” their federal allotment. The state share cannot include beneficiary cost-sharing and is subject to the same provider tax and donation limitations specified in the Medicaid statute.

Under the new state program, states receive an “enhanced” federal matching rate based on their Medicaid matching rate. The CHIP enhanced rate essentially reduces by 30 percent the share states pay as compared to what they would contribute under their Medicaid match. For example, a state with a federal match of 60% under Medicaid would receive an “enhanced” rate of 72% under the new program. In essence, the state would pay 28 cents of every dollar spent under the new children’s program. No state may receive a matching rate greater than 85% and the minimum annual payment for a state is $2 million. States can receive an enhanced matching rate for providing Medicaid coverage to an expanded group of children. All Medicaid rules, including the entitlement to coverage, would apply to the newly covered group of children. States would continue to receive the regular Medicaid matching rate after their CHIP allotment was depleted.

While the states have considerable latitude in designing and structuring their CHIP programs, there are some limits on what federal CHIP payments can be used for:

• No more than 10 percent of federal payments can be used for outreach, administrative costs or direct service payments to clinics or hospitals. The Secretary can authorize waivers to allow states to create community-based programs or to purchase family coverage.
• States cannot adopt Medicaid eligibility criteria that are more restrictive than those in effect as of June 1, 1997.
• Maintenance of effort is also required in state-only programs in New York, Pennsylvania, and Florida.
• Abortions cannot be covered by federal or state funds except to save the life of the mother or in the case of rape or incest.

Child-Related Medicaid Provisions

In addition to the creation of the new state child health insurance program, several changes to Medicaid were made to strengthen coverage for children under the Balanced Budget Act of 1997. States can now opt to:

• Extend presumptive eligibility to children — This means that services provided to uninsured children will be covered by Medicaid before eligibility determination is complete. For children who are determined to be eligible for the new program, the costs will be paid through new program funds.
• Offer 12 month continuous eligibility to children — States can provide up to one year of continuous eligibility for children under Medicaid, regardless of any changes in family income during that period.
• Accelerate the phase-in to cover poor children born before September 30, 1983. In the past, states could cover these children under Section 1902(r)(2) at state option or through a Section 1115 waiver. The BBA of 1997 clarifies this option. Some 27 states have used these options to expand coverage to older children.

States must also restore Medicaid eligibility to disabled children who lost SSI under the 1996 welfare reform legislation. The Balanced Budget Act also includes numerous provisions that grant states increased flexibility over their Medicaid programs. These include the ability to mandate managed care enrollment without a waiver and greater control over provider payment through the repeal the Boren Amendment and a phase-out of cost-based reimbursement for Federally Qualified Health Centers.

New Survey Offers Insight Into Experiences of Managed Care Consumers

Majority of Sacramento Managed Care Consumers Report No Difficulty with Their Plan, But Over a Quarter Had Problems

For Immediate Release:Wednesday, November 19, 1997

Contacts:Heather Balas,Kaiser Family Foundation, (650) 854-9400

Katie Salvas,Sierra Health Foundation, (916) 922-4755

Magdalena Beltran-del Omo,The California Wellness Foundation, (818) 589-6600

Lauren Schaefer,Health Rights Hotline, (916) 551-2147

Medicaid Beneficiaries Report Highest Rate of Difficulty

Sacramento, California — Much national attention is currently focused on managed care issues, with a Presidential advisory commission considering a “bill of rights” for health care consumers and California policy-makers awaiting recommendations from a managed care task force. A new Survey of Consumer Experiences With Managed Care conducted in the Sacramento, California area – a region with one of the highest rates of managed care enrollment in the country – may help inform state and national debates about managed care regulation, offering new insight into difficulties people have with health plans and how they go about resolving them.

The survey finds that the majority of Sacramento managed care consumers cited no difficulties with their health insurance in the previous year, but that more than a quarter (27%) reported some problems. Of those managed care consumers experiencing problems, the most commonly reported difficulties included:

• Delay or denial of care or payment (42%), such as disputes over coverage, delays or denials in authorization for care, and disagreement over the scope of benefits covered by the plan.
• Limited access to physicians (32%), such as difficulty getting an appointment or limited access to specialists.
• Concerns about quality of care (11%), including perceived problems with inappropriate or inadequate treatment, facilities, or diagnoses, or with obtaining test results.

The report found that consumers did not appear to know of the availability of existing resources, particularly from state agencies. Of the 1,014 managed care consumers in the survey who reported difficulties – of whom many had major problems unresolved after over two months – only four individuals reported calling either the California Departments of Corporations or Insurance for assistance or to complain. A total of 2% of consumers with difficulties contacted any state or local agency.

Thirty-eight percent contacted their health plan and 37% contacted their doctor, while a quarter took no action. (32% used two or more resources.) Of those who took no action, 26% didn’t think it would do any good, 24% thought it was not worth the time, and 14% did not know what to do.

About the same number of consumers resolved their difficulty relatively quickly as those whose problem took two months or longer to settle. Over a third of consumers (36%) resolved their difficulty in less than a month, while 13% achieved resolution in one to two months. Another 13% took two months or longer to resolve their problem, and 35% had not resolved their problem at the time of the interviews. (Almost three-fourths of unresolved problems were at least two months old.)

The survey was conducted to provide baseline information for a multi-year evaluation of a pilot consumer assistance program, the Health Rights Hotline, funded by the Kaiser Family Foundation, Sierra Health Foundation, and The California Wellness Foundation with initial support of $1.6 million for the first two years of the project. The program is the largest test of an independent assistance program for consumers in managed care in the nation. Over the next three years, additional data on cases handled by the Health Rights Hotline and a full-scale evaluation of its effectiveness will be conducted.

Len McCandliss, president of Sierra Health Foundation, said, “With over 90% of privately insured Sacramentans enrolled in managed care, the community has long been considered an HMO ‘laboratory.’ We believe that very soon practically every community in the nation will resemble Sacramento in terms of managed care prevalence.”

Medicaid and Medicare

Low-income people enrolled in managed care through Medicaid (called Medi-Cal in California) experienced the highest rate of difficulty (42%). People insured through Medicare managed care (who account for 45% of all elderly and disabled Medicare beneficiaries in Sacramento county) experienced the lowest rate of difficulty (17%).

Reported Consequences of Difficulties

To provide information about the severity of the difficulties consumers experienced, the survey asked people several questions about the consequences they attributed to their difficulties (as opposed to the consequences of any underlying health condition). Of the 27% of people who reported a difficulty with their health plans:

• 30% attributed a personal financial loss to the difficulty, including 12% who reported a financial loss of greater than $200.
• 31% attributed time lost from work, school, or other major activity to the difficulty, including 16% who reported losing two days or more.
• About one in ten (11%) reported experiencing a worsening of a health condition or developing a new condition as a result of the difficulty.

“Quality health care has to work for patients,” said Gary Yates, president and CEO of The California Wellness Foundation. “These results show that while the majority of consumers reported no problems with their care, we must strive to make the system work for everyone. We see that even consumers with long-term continuity and familiarity with managed care have experienced difficulties.”

Consumer services

Most consumers said they would have used the services of an independent group to resolve their difficulty, had the option been available. The most popular requests were: a mechanism for lodging a complaint to prevent future problems for others (66%); information about consumer rights (62%); referral to other resources (60%); and assistance in understanding their health plan’s policies and procedures (54%).

“At a time when people across the country are complaining about managed care, this project is trying to find solutions,” said Drew Altman, president of the Kaiser Family Foundation, referring to the Health Rights Hotline. “It is the leading community-based effort in the nation giving people concrete help for their health plan problems.”

Methodology

The Survey of Consumer Experiences in Managed Care was developed and analyzed by the Lewin Group of Fairfax, Virginia. The survey was administered by Survey Methods Group, Inc., of San Francisco, California. Screening interviews were conducted in June and August, 1997 with representatives from 4,419 Sacramento households contacted at random by phone. Of these 3,768 were managed care consumers, upon whom survey results were based. For Medicare and Medicaid beneficiaries, managed care enrolles were identified based on the names of their plans. Since traditional fee-for-service coverage is virtually non-existent in the Sacramento area, all privately insured people were categorized as being in managed care. The margin of error is +/- 3% for most questions. These findings are preliminary; a final report will be released at a later date.

Additional information, including a complete copy of this preliminary report, can be obtained by calling the Kaiser Family Foundation’s toll-free publication request line at 800-656-4533 and requesting document #1344.

The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, independent national health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries. Sierra Health Foundation, located in Sacramento, supports health and health-related activities in Northern California. Based in Woodland Hills, The California Wellness Foundation’s mission is to improve the health and wellness of the people of California.

Health Rights Hotline

The Survey of Consumer Experiences in Managed Care was conducted as part of a broader program to support and evaluate the Health Rights Hotline, a free, independent source of information and assistance for health care consumers in California’s El Dorado, Placer, Sacramento, and Yolo counties. The Health Rights Hotline, which began providing services in June 1997, is the first program of its kind in the nation to assist consumers regardless of the type of health plan they have and regardless who pays for care – whether an employer, individual, Medicare, Medi-Cal, or CHAMPUS. The Health Rights Hotline – a program of the Center for Health Care Rights in Los Angeles – is funded for a four-year pilot period to:

• improve consumers’ access to health care by educating and assisting them to be responsible, informed, and empowered;
• improve the health care system in the four-county Sacramento area by collecting and analyzing information on the types of issues consumers face, and providing feedback to health plans, health care providers, purchasers, regulators, and the public regarding consumers’ experiences; and
• test this program as a model for other consumer-oriented programs in California and the nation.

“The survey results point to the role that independent consumer assistance organizations like the Health Rights Hotline can play in helping consumers navigate an often confusing system,” noted Peter Lee, Health Rights Hotline Project Director.

The Health Rights Hotline is open 9 a.m. to 6 p.m., and can be reached toll-free by consumers in the four-county service area at (888) 354-4474 or (916) 551-2100.

These resources were prepared for a briefing held for journalists in New York City on November 4, 1997 in New York City as part of a joint program by The Alan Guttmacher Institute, The Kaiser Family Foundation and the National Press Foundation. This program focused on mergers, acquisitions, consolidations, joint ventures, and other affiliations between Catholic and non-Catholic hospitals and health systems and the effect these affiliations have on access to reproductive health services. A report prepared for the Kaiser Family Foundation on this same topic called Is There a Common Ground? Affiliations Between Catholic and Non-Catholic Health Care Providers and the Availability of Reproductive Health Services is online.

Fact Sheet

Q & A

The November/December 1997 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health issues covered by news media, including questions about AIDS and the Health Care Bill of Rights. The survey was based on a national random sample of 1,201 Americans conducted December 4-9, 1997 which measures public knowledge of health stories covered in the news media the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.

Note: This publication is not available on our website. However, the data from these surveys is still available through the Public Opinion and Media Research Group. Please email kaiserpolls@kff.org for more information.