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Putting Medicaid in the Larger Budget Context: An In-Depth Look at Three States in FY 2017 and FY 2018

North Carolina

Economic and Budget Outlook

Economy and State Revenues

North Carolina’s economy is ranked 10th in the nation, with a Gross Domestic Product (GDP) of $517.9 billion in 2016. Finance, insurance, real estate, rental, and leasing is the dominant industry, followed by government.1 Compared to the rest of the nation, North Carolina’s economy has experienced slower growth since the recession. This is associated with the state’s large manufacturing industry, which has experienced a sharp decline over the last several years. Only recently, from 2015 to 2016, is the state’s economy showing positive signs of change.2

North Carolina’s unemployment rate hit a high of 11.3 percent in 2010, following the end of the recession, but has steadily declined since then. The state’s unemployment rate was 4.1 percent in August 2017, down from 5.0 percent in August 2016 and below the U.S. average of 4.4 percent. 3,4

State Budget

North Carolina operates under a biennial budget. Cutting taxes and saving for future expenses are priorities for the Republican-led General Assembly. The state started 2017 with a surplus and, as of February, was anticipating moderate, steady economic growth that will yield a 4.5 percent increase in general fund revenues in 2017-18 and another 4.7 percent increase in 2018-19.5,6 In 2017, the state’s “rainy day” fund exceeded $1.8 billion.7

Since taking control of the North Carolina General Assembly in 2011, Republican legislators have passed sweeping tax reforms that include replacing a progressive income tax with a flat tax and cutting the corporate tax rate by more than half. Proponents of the tax cuts say they are providing a needed boost to North Carolina’s economy. Others worry about investments not being made in areas like education and the long-term impact that $2 billion in lost revenue will have on the state.8

The final budget for 2017-19, totaling $23 billion for FY 2018 and $23.6 billion for FY 2019, features a new set of controversial tax cuts that will take effect in 2019. The personal income tax rate will drop from 5.499 percent to 5.25 percent and the standard deduction will increase from $17,500 to $20,000. The budget also lowers the corporate income tax rate from 3 percent to 2.5 percent. Although Governor Roy Cooper vetoed this Republican-led plan citing fiscal concerns, the General Assembly swiftly overrode his veto.9

In the final budget bill, the General Assembly retained a portion of the governor’s recommendation for raising teacher’s salaries, created a jobs incentives program to encourage new businesses to locate in the state, and provided some of the funding recommended by the governor to expand opioid and substance abuse treatment services.10

Demographic Characteristics and Medicaid’s Role

The percentage of North Carolinians living in poverty in 2016 (14 percent) was slightly above the national percentage (13 percent).11 Per capita personal income in the state is $39,171, the 12th lowest among states and below the national average of $46,049.12 Consequently, the state’s federal medical assistance percentage (FMAP) is relatively high at 68 percent.13 In FY 2015, Medicaid accounted for 67 percent of federal funds received by the state, followed by K-12 education accounting for 12 percent of federal funds.14

Twenty-two percent of the nonelderly population lives in rural areas in North Carolina (compared to a national average of 19 percent), and research shows that Americans in rural areas often face unique challenges in health care coverage and access, including low density of providers and longer travel times to care, limited access to employer-sponsored coverage, and greater health care needs due to older age and lower income.15

Medicaid plays an important role in North Carolina’s health system, covering 18 percent of the population in 2016.16 However, North Carolina is one of 19 states that has chosen not to expand Medicaid up to 138 percent of the federal poverty level (FPL) with enhanced federal funding provided under the ACA. Due to this decision, many adults in the state fall into a “coverage gap” because their incomes are above Medicaid eligibility limits but below the lower limit (100 percent FPL) for Marketplace insurance premium tax credits. In 2016, North Carolina had the fourth largest number of adults in the coverage gap (219,000) among states, following Texas, Florida, and Georgia.17 Overall, 11 percent of North Carolina’s total population remained uninsured in 2016 (compared to nine percent nationally).18

North Carolina performs worse than the national average on a number of health status measures. It had the 13th highest percentage of people reporting fair or poor health status in 2015 (19.2 percent)19 and ranked 32nd among states in overall health status in 2016.20 The state’s opioid overdose death rate was higher than the national rate in 2015 (11.9 deaths per 100,000 people compared to 10.4 nationally).21 The rate of new HIV diagnoses among adults and adolescents was also higher than the national rate in 2015 (15.9 deaths per 100,000 people compared to 14.7 nationally).22 North Carolina had the eighth highest percentage among states of people reporting not seeing a doctor due to cost in 2015 (15.5 percent, tied with Arkansas and Tennessee),23 and had the 10th highest percentage of adults reporting a serious mental illness in the last year in 2014-2015 (tied with Oregon and Missouri).24

North Carolina’s Medicaid Expansion Efforts

North Carolina is one of the 19 states that has not expanded Medicaid.25 Shortly after taking office in January 2017, Governor Cooper announced his intention to take immediate executive action to expand Medicaid under the Affordable Care Act (ACA). He planned to do so by filing an amendment to the state Medicaid plan, seeking approval from the Obama administration in the waning days before the presidential transition.26 However, on January 13, 2017, Republican legislative leaders in the state House and Senate filed a federal lawsuit challenging the governor’s plan to expand without legislative approval27 and on January 14, 2017, a federal judge issued an order to temporarily suspend Cooper’s effort to expand for 14 days or until the court took further action.28 Given the timing, the temporary suspension prevented the expansion plan from moving forward before the Trump Administration took power.29

The lawsuit pointed to a 2013 state law that prohibits the executive branch from expanding Medicaid unilaterally, however, Governor Cooper contended that the statute impinges on the “core executive authority” of the executive branch. Although the state legislators ultimately dropped the lawsuit in July 2017 because the governor’s office never officially submitted an expansion proposal to the Centers for Medicare and Medicaid Services (CMS),30 the president of the state Senate and speaker of the state House pledged to renew the lawsuit if the governor makes further attempts to expand Medicaid without legislative approval.31

In 2017, a group of Republican lawmakers introduced legislation called Carolina Cares. This legislation would increase eligibility for Medicaid up to 138 percent of FPL, impose premiums and co-payments, implement work requirements, and encourage preventive care and wellness activities.32  If it passes, implementation will occur in coordination with other delivery system transformation activities underway.

Managed Care in North Carolina Today

Community Care of North Carolina (CCNC) is North Carolina’s provider-led enhanced primary care case management (PCCM) program. Over 1,800 physician practices participate, and North Carolina’s program is often cited as a national model for PCCM. It assigns eligible beneficiaries to a medical home that coordinates their care. It also offers access to local care managers who provide complex case management to high risk beneficiaries and education to help all beneficiaries self-manage their chronic conditions. The model is designed to reduce potentially preventable hospital admissions and readmissions, improve access to primary care, and better manage chronic conditions.

As part of the CCNC model, 14 regional Community Care networks receive a monthly administrative fee in exchange for providing population health management tools, case management, data analysis, and quality improvement support for participating medical homes. Behavioral health services are not included in the PCCM program. They are managed separately by Local Management Entities (LMEs) under 1915(b) and (c) waiver authority.

Many studies have evaluated CCNC’s impact and estimate savings ranging from $105 to $2,290 annually across different eligibility groups.33 One study showed that certain measures of health outcomes, such as reduction in hospital admissions and reduction in emergency department visits for asthma, also improved.34

Medicaid Redesign in North Carolina

In 2015, the state General Assembly passed Session Law 2015-245. This legislation requires the state’s Medicaid program to transition from the enhanced PCCM model to capitated managed care.35 Session Law 2015-245 envisions a competitive bid process with participation by commercial plans, which would operate statewide, and regional, provider-led entities licensed by the state Department of Insurance. It requires that cost growth not exceed two percentage points below the national Medicaid spending growth rate and requires submission of a Section 1115 demonstration waiver.

Under Governor Pat McCrory (R), the state crafted a Section 1115 demonstration waiver to implement the statute’s reforms. The waiver was submitted to CMS on June 1, 2016. It reflected the vision of the prior administration, and closely tracked the program design established in state statute.

While the waiver was pending, Governor Cooper, a Democrat, took office on January 1, 2017. Waiver negotiations have resumed, and Governor Cooper’s administration indicated they plan to submit an amended Section 1115 demonstration waiver request. The Cooper administration’s initial plan for implementing capitated Medicaid managed care was outlined in a program design document recently released by the Department for Health and Human Services (DHHS) for public comment.36 The main features of the new administration’s plan are outlined below.

MCO Types And Enrollment Requirements

DHHS’s plan calls for participation by both commercial plans and regional, provider-led entities. State law specified three commercial plans would offer products statewide. Additionally, providers with a history of serving Medicaid beneficiaries can own and operate regional risk-based Medicaid managed care plans. Most Medicaid and CHIP beneficiaries will be mandatorily enrolled in capitated managed care. There will be limited exceptions for certain populations.37 However, specified special populations will be phased into mandatory managed care after program launch, ranging from one year for foster children to four years for dual eligibles and Medicaid-only beneficiaries receiving long-stay nursing home services.

Plan Types And Behavioral Health Integration

Pending legislative approval, DHHS intends to allow commercial MCOs and provider-led entities to offer two plan types: standard plans and tailored plans. Standard plans would cover most Medicaid and CHIP beneficiaries and would provide integrated physical health, behavioral health, and pharmacy services. Standard plan enrollees would have access to all state plan behavioral health benefits including inpatient and outpatient behavioral health services and enhanced behavioral health services. Tailored plans would cover special populations with complex health care needs including individuals with serious mental illness (SMI), substance use disorder, or intellectual or developmental disabilities (I/DD)) (and eventually other populations like dual eligibles).38 Tailored plans would provide integrated physical health, behavioral health, and pharmacy services but would also offer enhanced services, including facility-based crisis services, partial hospitalization ambulatory detoxifications, outpatient opioid treatment, and substance abuse intensive outpatient services.39

Medical Homes, Value Based Payment, and Provider Transformation Support

DHHS will certify “Advanced Medical Homes,” initially based on the state’s existing Carolina Access program, which over time must provide expanded care management activities, such as addressing social determinants of health or opioid addiction, to receive additional reimbursement. Health plans will work closely with the providers, and be responsible for monitoring their care management activities and filling in any gaps. They will also be incentivized to adopt value-based payment reimbursement models to improve population health and telehealth initiatives to expand access in rural parts of the state. DHHS will create standardized social needs screening tools and will seek Section 1115 waiver expenditure authority to establish Regional Provider Support Centers. These new centers will provide tools, resources, and other supports to help providers, especially small and rural providers, achieve their care goals.

Safety Net Funding

DHHS indicates it will develop an alternative payment approach to support safety net providers in compliance with new federal rules as it transitions to managed care.40

Redesign Next Steps and Implementation Timeline

For the next two fiscal years, implementing managed care is DHHS’ number one priority. It pervades everything the Medicaid program is doing, and requires preparing staff, beneficiaries, and providers for the change. The state is currently working with the state legislature to obtain additional statutory authority required by their revised plan. Later this year the state will seek additional stakeholder input through a Request for Information (RFI) to assess the market’s readiness to implement managed care. The state will also need to submit an updated waiver request to CMS, negotiate waiver terms, develop a Request for Proposal (RFP) to select participating commercial and regional provider-led health plans, and conduct readiness reviews. The state has set a target implementation date of July 2019.

Addressing the Opioid Abuse Crisis

North Carolina has been hit hard by the nation’s opioid abuse crisis. More than 12,000 people have died from opioid-related overdoses since 1999 and from 2013 to 2015 the opioid death rate has grown by 37 percent.41,42 Opioid-related overdose deaths cost the state $1.3 billion in 2015. Governor Cooper’s goal is to reduce opioid-related deaths by 20 percent. An Opioid Action Plan supports this goal, and includes recommendations for building a coordinated infrastructure, expanding treatment and recovery services, improving access to Naloxone, reducing oversupply and diversion of prescription drugs, and increasing community awareness. 43

In June 2017, the General Assembly passed the Strengthen Opioid Misuse Prevention (STOP) Act. The STOP Act limits initial opioid prescriptions for acute pain, supports needle exchange programs, and requires prescribers and pharmacies to check the state’s prescription drug monitoring system prior to prescribing or filling an opioid prescription. The legislation also expands access to Naloxone through local health departments and law enforcement agencies, and requires electronic prescribing for opioids.44

North Carolina’s Medicaid program has adopted its own efforts to combat opioid abuse. In FY 2017, it decreased daily dose limits (from 750 morphine milligram equivalents (MMEs) to 120 MMEs); established quantity limits (14-day quantity limit) for initial opioid prescriptions; increased the refill threshold for opioids and benzodiazepines from 75 percent to 85 percent; and made it easier to obtain Naloxone. It also expanded its lock-in program capacity to ensure that all individuals who meet program criteria are enrolled, and extended the required lock-in period from one to two years.45

Going forward, DHHS hopes to implement additional initiatives to enhance prevention and treatment. Strategies outlined in DHHS’s recently proposed program redesign for Medicaid managed care include:

  • Adding low intensity residential services to improve transitions between inpatient and outpatient care
  • Establishing behavioral health homes for individuals with SMI, serious emotional disturbance, and substance use disorders
  • Using the state’s prescription drug monitoring system to issue care alerts to providers when patients have opioid prescriptions through multiple providers
  • Offering bundled payments for buprenorphine treatment to support effective care management and medication and counseling services
  • Using community pharmacies to help screen, identify, and refer individuals to available resources
  • Incorporating opioid prescribing performance metrics into future health plan contracts, and requiring health plans to design and implement an opioid misuse prevention program
North Carolina Medicaid Policy Changes FY 2017 and FY 2018
Provider Rates
  • 4 percent rate increase for nursing facilities in FY 2017
  • Anticipate targeted provider rate increases in FY 2018 for physician-administered vaccines and contraceptives and personal care services
Benefits and Pharmacy
  • Implementing new pharmacy utilization controls in FY 2017 and FY 2018
  • Planning to adopt Centers for Disease Prevention and Control (CDC) opioid prescribing guidelines in FY 2018
  • Strengthening pharmacy benefit management policies to prevent opioid-related harms, decreasing daily dose limits (from 750 MMEs to 120 MMEs); establishing quantity limits (14-day quantity limit) for initial opioid prescriptions; increasing the refill threshold for opioids and benzodiazepines from 75 percent to 85 percent; and making it easier to obtain Naloxone. In FY 2018, North Carolina will further decrease the quantity limit for initial opioid prescriptions to five days for acute pain and seven days for post-operative pain as required by state law.
  • Planning to remove prior authorization requirements for SUD treatment (i.e., Suboxone) to ensure immediate access in FY 2018
Long-term Services and Supports (LTSS) Rebalancing
  • Increasing the number of individuals receiving home and community-based services (HCBS) in the community by adding a total of 320 slots to a 1915(c) waiver for adults with disabilities in FY 2018
  • Planning to add two new PACE locations in FY 2018
  • Renewed the 1915(c) waiver for medically frail children, which includes consumer-directed care, in FY 2017, and increased the number of slots to 4,000
  • Increased slots in the intellectual and developmental disabilities (IDD) waiver by 400 in FY 2018
Nevada West Virginia

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Filling the need for trusted information on national health issues, the Kaiser Family Foundation is a nonprofit organization based in Menlo Park, California.