Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015

Executive Summary

Medicaid has long-played an important role in the US healthcare system, accounting for one in every six dollars of all US health care spending while providing health and long-term services and supports coverage to over 66 million low-income Americans. However, the years 2014 and 2015 will stand out as a time of significant change and transformation. With the economy improving from the lingering effects of the Great Recession, Medicaid programs across the country were focused primarily on: implementing a myriad of changes included in the Affordable Care Act (ACA); pursuing innovative delivery and payment system reforms to help assure access, improve quality and achieve budget certainty, and continuing to administer this increasingly complex program. (Figure 1)This report provides an in depth examination of the changes taking place in state Medicaid programs across the country. The findings in this report are drawn from the 14^th annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by the Kaiser Commission on Medicaid and the Uninsured and Health Management Associates (HMA), with the support of the National Association of Medicaid Directors. This report highlights policy changes implemented in state Medicaid programs in FY 2014 and those planned for implementation in FY 2015 based on information provided by the nation’s state Medicaid Directors.

Figure 1: Factors Shaping Medicaid Programs Today

Key areas covered include changes in eligibility and enrollment, delivery systems, provider payments and taxes, benefits, pharmacy programs, program integrity and program administration.

In FY 2014 and FY 2015, states were implementing a host of ACA-related eligibility and enrollment changes in Medicaid.

Many of the Affordable Care Act’s provisions affecting Medicaid eligibility and enrollment went into effect during FY 2014, most significantly the Medicaid expansion. Medicaid’s role, as enacted under the ACA, was broadened to become the foundation of coverage for nearly all low-income Americans with incomes up to 138 percent of the federal poverty level (FPL); however, the Supreme Court ruling on the ACA effectively made the decision to implement the Medicaid expansion an option for states. As of September 2014, 28 states (including DC) are implementing the Medicaid expansion. Regardless of the expansion decision, all states were required to streamline Medicaid enrollment and renewal processes, transition to a uniform income eligibility standard (Modified Adjusted Gross Income or MAGI) and coordinate with new Marketplaces.

In addition to changes required by the ACA in all states to streamline Medicaid eligibility and enrollment processes,31 states made eligibility expansions in FY 2014, the most common being implementation of the Medicaid expansion. Twenty-six states implemented the Medicaid expansion in FY 2014. New Hampshire implemented the Medicaid expansion in July 2014 (FY 2015) and Pennsylvania received approval in August 2014 to implement the expansion in January 2015, bringing the total number of states moving forward with the Medicaid expansion to 28 states as of September 2014. Medicaid expansion is under consideration in additional states, notably Indiana which has submitted a request to expand Medicaid under a waiver and Utah which has a request under development. Other states reported that there will be discussion of Medicaid expansion in their next legislative session. (Figure 2)

Figure 2: Current Status of State Medicaid Expansion Decisions

States reported a number of changes to better align new and pre-ACA coverage options. For example, some states that had previously expanded Medicaid coverage to adults with incomes above poverty are eliminating such coverage in light of new coverage options available through the Marketplaces. Four states reported Medicaid eligibility restrictions. Meanwhile, children’s coverage remains strong as maintenance of eligibility for Medicaid and CHIP children is in place through 2019.

Focus on delivery system reforms in Medicaid programs continued to build in FY 2014 and FY 2015. (Figure 3)

Figure 3: Delivery System Activity, FYs 2014 and 2015

Most Medicaid programs use managed care as a means to help assure access, improve quality and achieve budget certainty. As of July 2014, all states except three – Alaska, Connecticut and Wyoming – had in place some form of managed care including risk-based comprehensive managed care organizations (MCO), Primary Care Case Management (PCCM) programs or both. States continued to take actions to increase enrollment in managed care. Of the 39 states (including DC) with MCOs, over half in FY 2014 and FY 2015 reported specific policy changes to increase the number of enrollees in risk-based managed care by adding eligibility groups, making enrollment mandatory or expanding to new regions. In addition to expanding managed care, new quality improvement initiatives such as adding or enhancing pay-for-performance arrangements to their managed care contracts were implemented in 34 states in FYs 2014 or 2015.

Aside from managed care changes, well over half of states reported other delivery system reform initiatives underway (30 states in FY 2014 and 40 states in FY 2015.) Just over half the states (26) planned to implement or expand Medicaid health homes in FY 2015, up from 14 in FY 2014. Nearly half of states had patient centered medical homes in place in FY 2013; an additional 17 states in FY 2014 and 20 in FY 2015 were implementing or expanding such initiatives. Over a third of states (19) plan to implement initiatives focused on coordinating care for those dually eligible for Medicare and Medicaid in FY 2015, up from 10 states in FY 2014 and 5 states in FY 2013. A smaller number of states reported delivery system and payment reforms related to Accountable Care Organizations (ACO), episode of care initiatives, and hospital Delivery System Reform Incentive Payment (DSRIP) programs.

In FY 2014 and FY 2015, 42 and 47 states, respectively, took actions that expanded the number of persons served in a home and community-based services (HCBS) setting, notably higher than the number of states taking such action in FY 2012 (26) and FY 2013 (33). While most states reported using Section 1915(c) waiver authority to expand HCBS, a significant number of states (13 in FY 2014 and 16 in FY 2015) reported that the incentives built into their managed long-term services and support (LTSS) programs were expected to increase the number of people served in community settings. Nineteen states had at least one of the new ACA long-term services and supports options in place in FY 2013; an additional 12 states in FY 2014 and 15 states in FY 2014 plan to implement one or more of these options.

States also reported activity in other areas including provider rates and taxes, premiums and cost sharing, prescription drugs, and program integrity.

Provider Rates. As economic conditions have continued to improve, states have been able to implement program restorations or increases in provider rates. More states implemented provider rate increases across most major provider types (physicians, nursing homes and managed care) in FY 2014 and FY 2015, inpatient hospital rates being the exception. This survey also asked states about plans to extend the primary care physician fee increase beyond December 31, 2014 (at regular FMAP rates); 24 states indicated that they would not be continuing the rate increase while 15 states indicated that they will continue the higher rates at least partially. Some had not decided at the time of the survey. Other states have Medicaid physician rates that are already close to 100 percent of Medicare rates, making the issue less significant in these states.

Benefits. The number of states reporting benefit cuts or restrictions – four in FY 2014 and two in FY 2015 – fell to the lowest level since 2008. A far larger number (21 states in FY 2014 and 22 in FY 2015), reported expanding benefits, most commonly behavioral health, dental and home and community-based services.

Pharmacy. A little over half of the states continue to take steps to refine their pharmacy programs, and almost all states are concerned about the potential future fiscal impact of new and emerging specialty drug therapies. Many states (22) reported that new clinical prior authorization criteria were already in place or under development to help address such concerns.

Cost-Sharing. There was a modest increase in the number states reporting actual or planned cost-sharing increases compared to earlier years. About half of these increases were for higher income expansion groups.

Program Integrity. States continue to implement new or enhanced program integrity initiatives including the use of advanced data analytics and predictive modeling, efforts focused on managed care, enhanced provider screening, and public/private data sharing initiatives.

Looking ahead, states plan to focus on implementing the ACA, putting into place innovative delivery system reforms and continuing to manage a complex program with limited staff and resources.

In the history of Medicaid, the years 2014 and 2015 will stand out as a time of significant change. For most states, implementation of the Medicaid changes under the ACA was transformative for Medicaid from policy, operations and systems perspectives. At the same time, Medicaid programs across states have continued to increase their focus on delivery system and payment reform with the goals of improving quality of care and controlling costs. States are expanding their reliance on managed care but also implementing new innovative delivery system and care coordination arrangements, some of which are new options made available by the ACA. In coordination with these efforts, Medicaid programs are also focused on better ways to deliver long-term care services and supports by expanding home and community-based service programs. More states have been able to implement provider rate increases as well as benefit increases as the economy has continued to slowly recovery. Most Directors reported staffing and resource constraints in the face of the magnitude of changes occurring in the program today. Despite these challenges, Medicaid continues to evolve to meet the needs of the growing number of people it serves and to play a larger role in the broader health care delivery system.

Report

Introduction

This report provides an in depth examination of the changes taking place in state Medicaid programs across the country. The findings in this report are drawn from the 14^th annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by the Kaiser Commission on Medicaid and the Uninsured and Health Management Associates (HMA), with the support of the National Association of Medicaid Directors. This was the fourteenth annual survey, conducted at the beginning of each state fiscal year from FY 2002 through FY 2015.

The KCMU/HMA Medicaid survey on which this report is based was conducted from June through August 2014. Medicaid directors and staff provided data for this report in response to a written survey and a follow-up telephone interview. All 50 states and DC completed surveys and participated in telephone interview discussions between June and August 2014. The survey asked state officials to describe policy changes that occurred in FY 2014 and those adopted for implementation for FY 2015 (which began for most states on July 1, 2014.¹) The survey does not attempt to catalog all Medicaid policies. Experience has shown that adopted policies are sometimes delayed or not implemented, for reasons related to legal, fiscal, administrative, systems or political considerations, or due to delays in approval from CMS. Policy changes under consideration are not included in the survey. A copy of the survey instrument is located in the appendix of this report.

Key findings of this survey, along with 50-state tables providing more detailed information, are described in the following sections of this report:

• Eligibility and Enrollment
• Delivery System Reforms
  • Managed Care
  • Other Delivery System Reforms
  • Balancing Institutional and Community-Based Long-Term Services and Supports
• Provider Rates and Taxes or Fees
• Benefits Changes
• Premiums and Cost-Sharing
• Prescription Drug Utilization and Cost Control Initiatives
• Program Integrity Initiatives
• Medicaid Administration and Priorities

Eligibility and Enrollment

The ACA included a number of significant changes for Medicaid eligibility and enrollment. One of the most significant changes extends Medicaid coverage to nearly all non-elderly low-income adults with incomes up to 138 percent of the federal poverty level (FPL) ($16,104 per year for an individual in 2014), ending the Medicaid eligibility exclusion for adults without dependent children or childless adults regardless of their income. However, the June 2012 Supreme Court ruling on the ACA effectively made the decision to implement the Medicaid expansion optional for states. The ACA also required states to transition to the use of Modified Adjusted Gross Income (MAGI) to determine Medicaid financial eligibility for children, pregnant women, parents and low income adults; eliminate asset limits for these same groups; transition children with income between 100 and 133 percent FPL from the Children’s Health Insurance Program (CHIP) to Medicaid; and to use new streamlined application, enrollment, and renewal processes. In addition, Medicaid agencies were required to coordinate enrollment processes with the new Marketplaces. Altogether, the eligibility changes in 2014 represent historic program changes.

Eligibility Standards

A total of 31 states reported at least one eligibility expansion in FY 2014 and eight states reported planned eligibility expansions in FY 2015; the ACA Medicaid expansion was the most commonly reported change. In contrast, four states made eligibility restrictions in FY 2014; no states reported restrictions in FY 2015. However, many states (24 in FY 2014, 6 in FY 2015) made changes to existing Medicaid eligibility pathways due to the availability of new coverage through the Marketplace; these changes are not counted as restrictions or expansions in this report.

Adult Coverage Changes Under the ACA

In FY 2014, 26 states including the District of Columbia expanded Medicaid for low-income adults, either under the direct provisions of the ACA or through waivers (Arkansas, Iowa, and Michigan). For FY 2015, New Hampshire implemented the Medicaid expansion in July 2014, and Pennsylvania received CMS approval of the Healthy Pennsylvania waiver that will expand Medicaid eligibility for low-income adults as of January 1, 2015. As of September 2014, the total number of states implementing the Medicaid expansion is 28 (including DC.) (Figure 4) Two states (Indiana and Utah) continue discussions about implementing the Medicaid expansion. Indiana has submitted a formal waiver application that is under review at CMS; elements of this waiver proposal are discussed throughout the report in relevant sections. Utah’s Governor continues to negotiate with CMS but has not yet made a formal submission. Medicaid officials in several states noted that expanding Medicaid to more low-income adults would be discussed in the next legislative session.

Figure 4: Current Status of State Medicaid Expansion Decisions

With more coverage options available across the income spectrum, some states made changes to existing Medicaid eligibility pathways to better conform to those options. These changes are included in Tables 1 and 2, but are not regarded as restrictions unless individuals previously covered through these pathways would not be expected to have access to coverage through these new options. States making these changes largely fall into three groups: 1) Medicaid expansion states changing Medicaid waiver coverage over 138 percent FPL; 2) States that have not adopted the expansion reducing Medicaid coverage over 100 percent FPL; and 3) States reducing or eliminating certain optional eligibility groups.

Medicaid expansion states changing Medicaid waiver coverage over 138 percent FPL

A few states had expanded eligibility to adults above 138 percent FPL prior to the ACA under waiver authority. With the availability of new coverage options in the Marketplace, seven states (California, Iowa, Massachusetts, New Mexico, New York, Rhode Island and Vermont) eliminated Medicaid coverage in their waivers for adults with incomes over 138 percent FPL. Three of these states (Massachusetts, New York and Vermont) have received or are seeking approval under a Medicaid waiver to use Medicaid funds to provide premium assistance that further subsidizes Marketplace coverage for individuals previously covered under their waiver.

In contrast, three states (Connecticut, DC and Minnesota) maintained coverage of adults with incomes over 138 percent FPL at the state’s regular match (FMAP.) Connecticut is maintaining its eligibility level for parents at 201 percent FPL.¹ The District of Columbia is shifting its waiver for adults with income between 138 and 200 percent FPL to its state plan. Minnesota, which previously covered adults up to 275 percent FPL in MinnesotaCare, is maintaining waiver coverage for those up to 200 percent FPL and plans to shift this group to the new Basic Health Plan option in 2015.

States that have not adopted the expansion reducing Medicaid coverage over 100 percent FPL

A few states that have not adopted the Medicaid expansion covered adults above 100 percent FPL before the ACA was enacted, largely through waivers. Some of these states made eligibility changes in response to the availability of new Marketplace coverage options in 2014. In states not adopting the Medicaid expansion in 2014, those with incomes above 100 percent FPL in most cases will be eligible for subsidies to purchase coverage in the Marketplace.

• Indiana² and Oklahoma reduced existing adult eligibility from 200 to 100 percent FPL in waiver renewals.
• Wisconsin reduced eligibility levels for its existing waiver for adults from 200 to 100 percent FPL and expanded coverage to childless adults by eliminating the waiting list for coverage under its existing waiver.
• Maine reduced state plan coverage for parents and caretakers from 133 to 105 percent FPL.

States reducing or eliminating certain optional eligibility groups

The availability of subsidized Marketplace coverage and expanded Medicaid coverage (in 28 states) provides new options for states to reconsider coverage policies for certain optional, limited benefit eligibility groups, such as the family planning group, some spend-down programs, and the Breast and Cervical Cancer Treatment (BCCT) program.³ While most states reported no current plans to change these eligibility pathways; a few states did report eliminations or reductions:

• Nine states reported ending family-planning only coverage (Arizona, Arkansas, Delaware, Michigan, and Oklahoma in FY 2014; Illinois, Louisiana⁴, New Mexico and Pennsylvania in FY 2015.) Virginia also reduced eligibility for this group to 100 percent FPL in 2014 but plans to restore coverage to 200 percent FPL in 2015.
• Five states (Hawaii, Illinois, and North Dakota in FY 2014 and Kentucky and Pennsylvania in FY 2015) reduced or eliminated eligibility for their medically needy programs for non-elderly non-disabled adults. In contrast, Minnesota increased the medically needy income limit for parents, children, and pregnant women.
• Three states (Arkansas, Maryland in FY 2014; Kentucky in FY 2015) ended or plan to end the BCCT program.

Other Eligibility Changes for Adults

Two states made additional changes to Medicaid eligibility levels for adults aside from the changes made in response to the ACA. Montana increased the cap on enrollment in its Mental Health Services Plan (MHSP) waiver from 800 individuals to 2,000 individuals in FY 2014 and to 6,000 in FY 2015. Maine allowed its existing waiver that covered childless adults up to 100 percent FPL to expire, leaving most of the 9,000 individuals affected by this change without a coverage option, since eligibility for subsidies through the Marketplaces is limited to individuals with incomes above 100 percent FPL.

Eligibility Changes for Elderly Individuals and Those with Disabilities

Few states reported eligibility expansions or restrictions for this group. Two states (Florida in FY 2014 and New Jersey in FY 2015) reported expanding eligibility by increasing income and asset limits while two states (Arkansas and Louisiana) reported reducing or eliminating buy-in programs that allow working individuals with disabilities with higher amounts of income and assets than other elderly or disabled individuals to obtain Medicaid coverage. Two additional states reported more complex changes:

• Indiana’s spend-down program was eliminated as a result of changing its methods for determining disability for Medicaid coverage.⁵ The spend-down program allowed those that otherwise qualified except for their income/assets to qualify after taking into account their medical expenses. Some of the 31,500 individuals affected by this decision obtained coverage in the Marketplace but some lost coverage. Some of the 31,500 that lost coverage also got assistance from the Medicare Savings Program (which provides Medicaid assistance with Medicare premiums and cost-sharing); the state increased the income limit for this program. Indiana also implemented a 1915(i) HCBS state plan amendment that will result in full Medicaid coverage for those with income up to 300 percent FPL and severe mental health conditions which will also cover some of those that lost spend-down coverage.
• Louisiana eliminated optional coverage for aged and disabled individuals with incomes up to 100 percent FPL. Those that qualify for Supplemental Security Income (SSI, about 74 percent FPL) remain eligible for Medicaid, but approximately 8,000 Medicaid cases were closed as a result of the decision. The state also added an optional coverage group which will provide interim Medicaid-only benefits for those awaiting an SSI determination. Separately, the state implemented spend-down eligibility for four HCBS waivers.

Eligibility Changes for Pregnant Women and Children

Two states (Oklahoma and Louisiana) reduced eligibility for pregnant women to 138 percent FPL in FY 2014. Pregnant women losing eligibility in both states are likely eligible for coverage either through the Marketplace or CHIP in Louisiana. (As such, neither of these changes is counted here as a restriction.) Additionally, California and Rhode Island are working on initiatives to assist pregnant women with incomes above 138 percent FPL to purchase Marketplace coverage using Medicaid funding.

For children, the ACA implemented new policies across all states to help strengthen children’s coverage, such as providing Medicaid coverage to children aging out of foster care up to age 26 and requiring states to maintain eligibility thresholds for children that are at least equal to those in place at the time the ACA was enacted through September 30, 2019. In addition, the law established a minimum Medicaid eligibility level of 138 percent FPL for all children up to age 19. Prior to the ACA, the federal minimum eligibility levels for children varied by age, and the federal minimum for older children ages 6 to 18 was 100 percent FPL. As a result of the law, 21 states needed to transition children from CHIP to Medicaid in 2014; states still receive the enhanced CHIP federal matching rate for coverage of these children. (This change was not included in this report as an eligibility change since coverage for these children continues to be financed with Title XXI funds.)

See Tables 1 and 2 for more information on eligibility changes in FY 2014 and FY 2015.

Enrollment Procedures

In addition to changes in eligibility standards, some states were adopting options to further streamline application and renewal processes beyond those required by the ACA. States were also asked to report on implementation of hospital presumptive eligibility, efforts to coordinate with the Marketplaces, status of application backlogs, and plans for the next open enrollment period for Marketplace coverage.

Streamlining Options

Beyond changes required by the ACA, CMS offered states (in a letter dated May 17, 2013) the opportunity for expedited waivers for several new options that would further streamline application and renewal processes and facilitate enrollment. A majority of states implemented one of these options, namely to delay the annual Medicaid eligibility redeterminations that would normally have occurred during the first quarter of calendar 2014. For individuals scheduled for eligibility redetermination during this period, this waiver allowed Medicaid coverage to continue while staff were adjusting to the new MAGI income counting rules in all states and were focused on implementing the ACA Medicaid expansion in about half of states. Several states asked for and received extensions beyond March 31^st that further delayed renewals for Medicaid enrollees. Also, as reported last year, about one third of states adopted an option to implement the MAGI rules before January 1, 2014. As of August 2014, CMS had approved the following states to use the remaining streamlining options:

• Seven states (Arkansas, California, Illinois, Michigan, New Jersey, Oregon, and West Virginia) were approved to facilitate enrollment into Medicaid through administrative data transfer using Supplemental Nutrition Assistance Program (SNAP) data.
• Four states (California, New Jersey, Oregon, and West Virginia) were approved to enroll parents based on income data available from their children’s eligibility application.
• No state had an approved waiver to adopt 12 month continuous eligibility for adults under this option.

States were asked about their plans to adopt these options in FY 2015. Washington reported plans to adopt the administrative data transfer option, and Kansas planned to implement 12 month continuous eligibility for adults. Several states noted that they have adopted strategies (e.g. express lane eligibility) that use SNAP data to facilitate Medicaid enrollment or target outreach. New York also reported having adopted 12 month continuous eligibility for adults, but under their existing 1115 waiver.⁶

Hospital Presumptive Eligibility (HPE)

Starting in January 2014, the ACA allows qualified hospitals to make Medicaid presumptive eligibility determinations in accordance with an approved State Plan Amendment. CMS issued HPE rules governing the state implementation of HPE on January 24, 2014, which delayed adoption in many states.⁷ Only 11 states reported implementing HPE in January (with later CMS approval). At the time of the survey, an additional 18 states had implemented HPE and three other states with approved plans expected to implement in the fall. Another 17 states reported that they had submitted state plan amendments to CMS but had not yet received approval; these states were in various stages of discussions with CMS and were also developing training materials. Four states indicated that their HPE plans were still under development. States reported a great deal of variation in hospital participation levels and in the volume of applications received through HPE. Among states that implemented HPE early, hospital participation ranged from only a few in some states to the majority of Medicaid hospitals. Some states indicated that hospitals were not interested in participating because it was easy to enroll individuals in Medicaid using “real time” on-line eligibility systems.

Delivery System Reforms

Use of Managed Care

Managed care has become the main delivery system for Medicaid in most states, as Medicaid programs increasingly have turned to managed care as a means to help assure access, improve quality and achieve budget certainty. As of July 2014, all states except three – Alaska, Connecticut and Wyoming – had in place some form of managed care. Across the 48 states with some form of managed care, a total of 39 states including DC had contracts with comprehensive risk-based managed care organizations (MCOs); 22 states administered a Primary Care Case Management (PCCM) program, a managed fee-for-service based system in which beneficiaries are enrolled with a primary care providers who are paid a small fee to provide case management services in addition to primary care. Of the 48 states that operate some form of managed care, a total of 13 states operate both MCOs and a PCCM program while 26 states (including DC) operate MCOs only and nine states operate PCCM programs only.¹ (Figure 5) In addition, 20 states contracted with one or more limited-benefit risk-based prepaid health plans to provide behavioral health, dental care, maternity care, non-emergency medical transportation, or other benefits.

Figure 5: Comprehensive Medicaid Managed Care Models in the States, 2014

The share of Medicaid beneficiaries enrolled in MCOs, PCCM programs or remaining in fee-for-service varies widely by state. The share enrolled in MCOs, however, has steadily increased as states have expanded their managed care programs to new regions, to new populations and made MCO enrollment mandatory for additional eligibility groups. Among the 39 states (including DC) with MCOs, 16 states reported that over 75 percent of their beneficiaries were enrolled in MCOs as of July 1, 2014.

Notable shifts to increase the use of risk-based managed care during FY 2014 and FY 2015 include two states (New Hampshire and North Dakota) that implemented new risk-based managed care programs. In addition, states like Florida and New Mexico, which have many years of experience with managed care, implemented new expansive statewide managed care programs in FY 2014. Six states (Florida, Indiana, Louisiana, Oregon, South Carolina, and Utah) have ended or plan to end their PCCM programs in FY 2014 or FY 2015 and are transitioning these groups to risk-based managed care organizations. However, not every state has moved in this direction. For example, Vermont currently operates an enhanced-PCCM program and is expanding its use of ACOs as part of its State Innovation Model (SIM) grant.² Connecticut terminated its MCO contracts in 2012 and now operates its program on a fee-for-service basis using four administrative services only (ASO) entities to manage medical, behavioral health, dental and non-emergency transportation services. The ASOs are accountable for specific performance metrics common to managed care, but the state does not describe its system as managed care.

Risk Based Managed Care Expansions

In both FY 2014 and in FY 2015, states continued to take actions to increase enrollment in managed care. Of the 39 states (including DC) with MCOs, a total of 34 states indicated that they made specific policy changes to increase the number of enrollees in MCOs; no states with MCOs took any action designed to restrict MCO enrollment. The most common strategy was to expand voluntary or mandatory enrollment to additional eligibility groups (25 states in FY 2014 and 19 states in FY 2015.) The eligibility group most commonly added to MCOs was the newly eligible adult group in states adopting the ACA Medicaid expansion.

Other commonly noted eligibility groups added to managed care included children (such as those in foster care, adoption subsidy or juvenile justice systems in Florida, Georgia, Nebraska, Texas, and Virginia as well as other groups of children in California, Florida, and Mississippi); those dually eligible for Medicare and Medicaid (California, Florida, Illinois, New York, Ohio, Rhode Island, South Carolina and Virginia); and other elderly individuals or those with disabilities (Indiana, Louisiana, Nebraska, New York, New Jersey, Ohio, South Carolina, Texas, and Virginia). In addition, six states made enrollment mandatory for specific eligibility groups in FY 2014, and nine states are doing so in FY 2015. Geographic expansions for MCO service areas occurred in eight states in FY 2014, and in six states in FY 2015. (Figure 6)

Figure 6: Managed Care Expansions and Quality Initiatives, FYs 2014 and 2015

Managed Care Quality. As states expand risk-based managed care, they continue to undertake efforts to improve managed care quality and outcomes. New quality improvement initiatives were implemented in 34 states in either FY 2014 or FY 2015. These initiatives include the use of new quality metrics focused on specific conditions (e.g., behavioral health conditions, childhood obesity, hypertension, asthma, and diabetes) and the addition or enhancement of pay-for-performance arrangements, including changes in amounts withheld from monthly capitation payments that are at risk based on each MCO’s performance on specified quality measures. In addition, some states are introducing or expanding public reporting of quality metrics.

Additional information on states that reported managed care changes implemented in FY 2014 or planned for FY 2015 can be found in Table 3.

Primary Care Case Management Programs

Of the 22 states with PCCM programs, six indicated they enacted policies to increase PCCM enrollment in FY 2014 or FY 2015. The state actions include: Arkansas implemented the Delta Pilot Program, an enhanced PCCM. Colorado and Rhode Island are expanding enrollment in their PCCM programs as part of integrated care initiatives for those dually eligible for Medicare and Medicaid; Rhode Island is also expanding enrollment in their PCCM program for other populations who are elderly or disabled. Iowa is using the PCCM for the expansion of the Wellness Plan, part of their ACA Medicaid expansion waiver. Nevada has launched a new PCCM model targeted to those currently in fee-for-service with co-morbid conditions (about 39,000 members.)

In contrast, eight states (Florida, Illinois, Indiana, Louisiana, Oklahoma, Oregon, Utah and South Carolina) have taken actions that decreased enrollment in their PCCM programs.³ Six of these states (Florida, Indiana, Louisiana, Oregon, South Carolina, and Utah) have ended or plan to end their PCCM programs and transition PCCM enrollees to risk-based managed care. In June 2014, Illinois began transitioning 1.5 million PCCM enrollees to “managed care entities” in the five mandatory enrollment regions. In Oklahoma, effective July 2014 individuals with creditable primary coverage are no longer eligible for the SoonerCare Choice PCCM program.

Other Delivery System and Payment Reform

States are increasingly interested in new approaches that hold the promise of improving health outcomes and constraining costs by redesigning the way that care is delivered and paid for. These emerging models which seek to align payment and delivery systems to reward quality and promote more integrated care include initiatives to coordinate physical and behavioral health care, efforts to coordinate acute and long-term care and care management approaches that target persons with multiple chronic conditions. These delivery system and payment reform approaches are sometimes implemented outside of managed care and sometimes within it. This year’s survey asked states which delivery system and payment reform models were in place in FY 2013, or if they had adopted or were enhancing such models in FY 2014 or FY 2015. (Figure 7)

Figure 7: States Delivery System Reform Activity, FYs 2013-2015

Patient-Centered Medicaid Homes (PCMH). In 2007, four leading physician groups released key principles that define a PCMH: (1) the personal physician leads a team that is collectively responsible for the patient’s ongoing care; (2) the physician is responsible for the whole person in all stages of life; (3) care is coordinated and/or integrated; (4) quality and safety are hallmarks of a medical home; (5) enhanced access to care is available through all systems; and (6) payment appropriately recognizes the added value to the patient. In addition, the National Committee for Quality Assurance (NCQA) has issued specific standards to be recognized as a PCMH.⁵ In this survey, 24 states said that PCMHs were “in place” in FY 2013, 17 states reported having adopted or expanding PCMHs in FY 2014 and 20 states indicated plans to do so in FY 2015.

Health Homes. Section 2703 of the ACA provides a new state plan option for Medicaid programs to establish “health homes,” designed to be person-centered systems of care that facilitate access to and coordination of the full array of primary and acute physical health services, behavioral health care, and community-based long-term services and supports, for beneficiaries who have at least two chronic conditions, or one and at risk of a second or a serious and persistent mental health condition. To implement a health home program, a state must obtain CMS approval of a state plan amendment (SPA). A 90 percent federal match rate is available for qualified expenditures for health home services for the first eight quarters of a state’s program.⁶ The ACA defines health home services to include: comprehensive care management; care coordination and health promotion; transitional care from inpatient to other settings; support for patients and families; referral to community and social support services; and use of Health Information Technology (HIT) to link services.⁷ In this survey, 12 states said that health homes were “in place” in FY 2013, 14 states reported having adopted or expanded health homes in FY 2014 and 26 states reported plans to do so in FY 2015. Many states noted that they were focusing their health home programs on populations with behavioral health conditions as well as populations with multiple chronic conditions.

Accountable Care Organizations (ACOs). An ACO is a provider-led group of health care providers that agree to share responsibility for the delivery of care to and health outcomes of a defined group of people and the cost of their care. The organizational structure of ACOs varies, but all ACOs include primary and specialty care physicians and at least one hospital. Providers in an ACO are expected to coordinate care for their shared patients to enhance quality and efficiency, and the ACO as an entity is accountable for that care. An ACO that meets quality performance standards that have been set by the payer and achieves savings relative to a benchmark can share savings with the payer and distribute them among its providers. Some states that are pursuing ACOs for Medicaid beneficiaries are building on existing care delivery programs (e.g., PCCM, medical homes, MCOs) which already involve some degree of coordination among providers and may have some of the infrastructure (e.g., electronic medical records) necessary to support coordination among ACO providers. States use different terms for their Medicaid ACO initiatives, such as Coordinated Care Organizations (CCOs) in Oregon and Accountable Care Collaboratives (ACCs) in Colorado.⁸

In this survey, five states reported that ACOs were “in place” in FY 2013, six states reported adopting or expanding ACOs in FY 2014 and ten states reported such activity in FY 2015. Some states have sought or are seeking to reorganize some or all of their Medicaid delivery system into ACOs (Colorado, Illinois, Iowa, Minnesota, Oregon, Utah, and Vermont,) while ACO efforts in other states have been more provider-driven (California, New Jersey, and South Carolina.) Also, a number of states noted that their ACO initiatives are part of larger State Innovation Model (SIM) grants that involve multiple payers.

Care Coordination and Integration of Care for Dual Eligible Beneficiaries. Coordinating care for those dually-eligible for Medicare and Medicaid (dual eligible beneficiaries) is a significant issue for Medicaid programs. Dual eligible beneficiaries comprise just 14 percent of Medicaid enrollees but accounted for 36 percent of Medicaid spending in 2010. For Medicare, dual eligible beneficiaries accounted for 20 percent of all enrollees but 33 percent of all spending in 2009.⁹ About 65 percent of all spending for dual eligible individuals is for long-term services and supports, covered largely by Medicaid, and about 25 percent is for acute care services, primarily covered by Medicare.¹⁰ These individuals tend to have significant health needs, a high prevalence of chronic conditions and substantial use of long-term services and supports.

Prior to the ACA, coordination of care for individuals with dual enrollment in Medicaid and Medicare had been difficult to pursue for states in part because of misalignment between Medicare and Medicaid laws. In addition, when states did develop approaches to better coordinate care, any resulting savings from improvements in acute care (such as reduced inpatient admissions, re-admissions and emergency room visits) most often accrued to Medicare and were not shared with state Medicaid programs. Under Section 2602 of the ACA, CMS established the Medicare-Medicaid Coordination Office (MMCO) and initiated financial alignment demonstrations with interested states seeking to coordinate and improve care and control costs for those dually eligible for Medicare and Medicaid.

In this survey, five states indicated that initiatives to coordinate care for dual eligible beneficiaries were in place in FY 2013; all of these initiatives were outside the CMS financial alignment demonstration and centered on enrolling this population in comprehensive MCOs or in managed long-term care plans. In FY 2014, ten states noted new or expanded initiatives for dual eligible beneficiaries, five of which related to the implementation of a financial alignment demonstration. In FY 2015, 19 states noted plans to implement an initiative focused on this population, of which 13 planned to implement a financial alignment demonstration.¹¹ Initiatives outside of the financial alignment demonstrations included alignment of Medicare Advantage Special Needs Plans for dual eligible beneficiaries (D-SNPs) with Medicaid MCOs and enrollment of dual eligible beneficiaries in comprehensive Medicaid MCOs (for acute care services) or managed long-term care.

Additional information on states that reported delivery system and payment reform initiatives implemented in FY 2014 or planned for FY 2015 can be found in Table 4.

Balancing Institutional and Community Based Long-term services and supports

Medicaid is the nation’s primary payer for long-term services and supports (LTSS) covering a continuum of services ranging from home and community-based services (HCBS) that allow persons to live independently in their own homes or in the community, to institutional care provided in nursing facilities and intermediate care facilities for individuals with intellectual disabilities (ICF-ID). LTSS consumes nearly one-third of total Medicaid spending and therefore remain an important focus for state policymakers.¹² This year’s survey shows that the long-term trend of expanding HCBS has accelerated with states employing a variety of tools and strategies including traditional Section 1915(c) HCBS waivers, PACE programs¹³, and managed LTSS.

The number of states taking actions to expand the number of persons served in community settings increased substantially in FY 2014 (42 states) and again in FY2015 (47 states) compared to earlier years (26 states in FY 2012 and 33 in FY 2013.) While most states reported using Section 1915(c) waiver or Section 1915(i) state plan authority to expand HCBS, a significant number of states (13 in FY 2014 and 16 in FY 2015) reported that the incentives built into their managed care programs were expected to increase the availability of HCBS. Also, 15 states in FY 2014 and 21 states in FY 2015 reported implementing or expanding PACE programs.¹⁴ (Figure 8) A number of states (10 states in FY 2014; 14 in FY 2015) reported closing or downsizing institutions that led to more community placements. States also reported increased take up of the ACA options to expand community-based LTSS (discussed below.)

Figure 8: State Long-Term Care Actions to Serve More Individuals in Community Settings, FY 2014-2015

Several states reported a number of other rebalancing initiatives. Connecticut reported implementing a first of its kind balancing bond funding program to help the state’s nursing home industry diversify services to meet the changing needs of older adults and other people with disabilities. Governor Malloy announced the first round of awards (a total of $9 million for seven proposals) in March 2014 as part of the state’s strategic plan to rebalance its LTSS system.¹⁵ Georgia reported that it is working to design a quality incentive payment program that would incent shifts toward person-centered care in some HCBS waivers. Hawaii reported implementing an LTSS program in FY 2014 that allows those who meet “at-risk” criteria to receive several home and community-based services. Several states also noted the implementation of conflict-free case management and single points of entry.¹⁶ No state reported new HCBS restrictions or limitations in FY 2014 or FY 2015.¹⁷ Two states reported other policy changes affecting institutional LTSS. Indiana liberalized its Certificate of Need statute effective in FY 2015 and Rhode Island reported that in FY 2014 it accepted applications to authorize new nursing home beds as “Resident-directed homes,” which are defined as nursing facilities that include programs and physical structures that adhere to the “Eden Alternative™”, “Green House™”, “Small House”, or any other resident-directed operational model where residents and their family members participate in making decisions that may be directly influenced by residents’ individual preferences and that involve the day-to-day activities and operations of the nursing facility.

Long-Term Services and Supports Options in the ACA

The ACA created and expanded several LTSS-related options intended to promote LTSS rebalancing. Nineteen states reported having at least one of the options discussed below in place in FY 2013; an additional 12 states reported implementing at least one of the these options in FY 2014 and 15 reported plans to do so in FY 2015. (Figure 9) State utilization of each of these options is discussed below.

Figure 9: State Participation in new ACA LTSS Options, FY 2013-2015

Section 1915(i) HCBS State Plan Option. This option allows states to offer HCBS through a Medicaid state plan amendment rather than through a Section 1915(c) waiver. As a result of changes made in the ACA, income eligibility for this option was extended up to 300 percent of the maximum SSI federal benefit rate and states were permitted to target benefits to specific populations and offer the same range of HCBS under Section 1915(i) as are available under Section 1915(c) waivers. Unlike Section 1915(c) waivers, however, states are not permitted to cap enrollment or maintain a waiting list and, if offered, the benefit must be available statewide. If enrollment exceeds the state’s projections, the state may tighten their Section 1915(i) needs-based eligibility criteria, subject to advance notice and grandfathering of existing beneficiaries. Eleven states reported having an HCBS state plan option in place in FY 2013. Two states (Indiana and Mississippi) reported implementing in FY 2014, seven states (District of Columbia, Delaware, Maryland, Minnesota, Texas, South Carolina and Washington) reported plans to implement in FY 2015, and one state (Indiana) reported plans to implement a second HCBS state plan option amendment in FY 2015.

Balancing Incentive Program (BIP). Beginning in October 2011, BIP makes enhanced Medicaid matching funds available to certain states that meet requirements for expanding the share of LTSS spending for HCBS (and reducing the share of LTSS spending for institutional services). Funding is available through September 2015.¹⁸ To qualify, states must have devoted less than 50 percent of their LTSS spending to HCBS in FFY 2009, develop a “no wrong door/single entry point” system for all LTSS, create conflict-free case management services, and develop core standardized assessment instruments to determine eligibility for non-institutionally based LTSS. In this year’s survey, 11 states reported having BIP in place in FY 2013, six states reported implementing in FY 2014 (Connecticut, Kentucky, Massachusetts, Maine, Nevada, and New York), and four states reported plans to implement in FY 2015 (Nebraska, New Hampshire, Ohio and Pennsylvania.¹⁹)

Community First Choice (CFC) State Plan Option. Beginning in October 2011, states electing this state plan option to provide Medicaid-funded home and community-based attendant services and supports will receive an FMAP increase of six percentage points for CFC services. However, the final federal rule implementing this option was not released by CMS until May 2012²⁰, inhibiting state take-up of this option prior to FY 2013. In this year’s survey, California was the only state to report having CFC in place in FY 2013.²¹ Four states reported implementing this option in FY 2014 (Maryland, Minnesota, Montana and Oregon) and five states reported plans to implement in FY 2015 (Arkansas, Connecticut, New York, Texas and Washington).

Additional information on LTSS expansions implemented in FY 2014 or planned for FY 2015 can be found in Tables 5 and 6.

Provider Rates and Taxes or Fees

Provider Rates

Medicaid provider rates are affected by state fiscal conditions. During economic downturns, states often turn to provider rate cuts to control costs. This was the case during the Great Recession and during the economic downturn from 2001 to 2004. Improving state finances in recent years have resulted in more states enhancing rates than restricting rates overall. In FY 2014, 34 states reported one or more rate restrictions across provider types and 46 states reported one or more rate increases. For FY 2015, 33 states have planned at least one provider rate restriction while 45 states are planning at least one rate increase. Reflecting improvements in the economy, there were more rate increases in FY 2014 and FY 2015 across all major categories of providers (physicians, MCOs and nursing homes) except for inpatient rates for hospitals than in previous years.¹ (Figure 10) Twelve states (Colorado, Hawaii, Idaho, Kentucky, Massachusetts, Nebraska, New Jersey, North Dakota, South Carolina, Vermont, Wisconsin, and West Virginia) reported no rate restrictions either year. In addition to these 12, five states had no restrictions in FY 2014, and six states reported no restrictions in FY 2015.

Figure 10: Provider Rate Changes Implemented in FY 2014 and Adopted for FY 2015

Institutional providers like hospitals and nursing homes are more likely than other providers to have inflation adjustments built into their rates, so historically they have been more likely than other groups to have rate increases. States are also more likely to use provider tax arrangements to support Medicaid payment rates for these provider groups. However, even with improvements in the economy and the use of hospital provider taxes in most states, hospitals are not seeing increases in their Medicaid rates in the majority of states while more than half of states report restrictions in hospital rates; nearly all of these states held inpatient hospital rates flat with a small number of states cutting such rates. Managed Care Organizations (MCOs) are generally bolstered by the federal requirement that states pay actuarially sound rates. In FY 2014 and FY 2015, the majority of states reported increases or planned increases in MCO rates with few states reporting restrictions.

Overall, about half of states increased rates for one or more physician groups in both FY 2014 and FY 2015 while fewer states imposed rate cuts for such groups; a sharp change from recent years. The survey asked more specifically about rates for specialists, dentists and for outpatient services. For each of these categories, states reported more rate increases than rate restrictions. (See following table).

Provider Taxes and Fees

States continue to rely on provider taxes and fees to provide a portion of the non-federal share of the costs of Medicaid. At the beginning of FY 2003, a total of 21 states had at least one provider tax in place; the most common provider tax was a tax on nursing facilities (44 states.) Over the past decade, a majority of states imposed new taxes and increased existing tax rates to raise revenue. By FY 2013, all but one state (Alaska) had one or more provider taxes in place.

Since FY 2013 there have been few changes in the number of provider taxes. In FY 2014, one provider tax (MCO tax in Oregon) was eliminated and two provider taxes (hospital tax in Arizona and a MCO tax in New Mexico²) were added. Arizona’s hospital fee will be used to fund costs related to their coverage restoration and eventually costs related to the Medicaid expansion in later years. In FY 2015, two states (Oregon and the District of Columbia) reported plans to eliminate hospital taxes and two states reported plans to add provider taxes. Illinois plans to implement a tax on providers in the Supportive Living Program; New Hampshire plans to implement a new MCO tax. A limited number of states reported changes to tax rates in FY 2014 and FY 2015, most notable were increases to rates for hospital taxes and fees (6 states in FY 2014 and 8 states in FY 2015) as well as increases to rates for nursing home taxes and fees in five states each year. A small number of states also reported reducing tax rates, again mostly for hospital and nursing home taxes and fees.

Tables 7 and 8 provide a complete listing of Medicaid provider rate changes for FY 2014 and FY 2015. Table 9 provides a complete listing of Medicaid provider taxes in place for FYs 2014 and 2015.

Benefits Changes

In this year’s survey, the number of states reporting benefit cuts or restrictions – four in FY 2014 and two in FY 2015 – fell to the lowest level since 2008. (Figure 11) A far larger number of states, 21 states in FY 2014 and 22 in FY 2015, reported enhancing or adding new benefits. (Figure 11) The most common benefit enhancements or additions reported were for behavioral health services (10 in FY 2014; 5 in FY 2015.)

Figure 11: Benefit Changes Reported by States, FY 2007-2015

Other common benefit enhancements reported include home and community-based services (4 states in FY 2014; 9 states in FY 2015) such as Delaware’s new Pathways Program that provides supported employment services for those with disabilities, as well as dental services (7 states in FY 2014; 4 states in FY 2015.) Some states also reported expanding preventive services (adding coverage of vaccines and tobacco cessation services beyond ACA requirements.) South Carolina is planning to expand preventive services (e.g. diabetes screening, physical and behavioral health assessments, HIV screenings) covered under its family planning program. California is planning a notable benefit expansion for pregnant women in FY 2015: since this group will not qualify as “newly eligible” under the ACA, the state is planning to provide the full Medicaid benefit package to pregnant women up to 138 percent FPL in place of the current, more limited pregnancy-related benefit package.

Benefit restrictions reflect the elimination of a covered benefit or the application of utilization controls for existing benefits. Of the four states in FY 2014 reporting cuts or eliminations, two (New York and West Virginia) reported narrowly targeted benefit eliminations. Three states (including New York) applied narrowly targeted limits or utilization controls to existing benefits.

Pennsylvania included several far-reaching benefit changes as part of its original Healthy Pennsylvania waiver proposal. The original waiver proposal would have resulted in two reformed Medicaid benefit packages for all adults: a “high-risk” plan (for medically frail, disabled, pregnant, institutionalized and dual-eligible enrollees) and a “low-risk” plan with fewer benefits. The waiver approved in August 2014 included a one-year waiver that allows the state to not cover non-emergency medical transportation but did not ultimately include most of these benefit changes; instead these changes will be pursued under state plan amendments, based on the agreement reached by CMS and the state on “the overall benefits approach.¹” The benefit changes originally proposed included eliminating coverage of some services (e.g. optometry, podiatry, chiropractic, and some long term care services) while also limiting other services (e.g. physician and clinic visits, radiology, laboratory, long-term services.) At the time of this report, state plan amendments had not yet been submitted to CMS.

Table 10 provides a complete listing of Medicaid benefit changes for FYs 2014 and 2015.