Putting Medicaid in the Larger Budget Context: An In-Depth Look at Four States in FY 2014 and 2015


Economic and Budget Outlook


As in nearly all of the states, Utah struggled through the recession. The State’s unemployment rate peaked in December 2009 at 8.4 percent, somewhat below the national average which peaked at 10.0 percent in October of that year, but still high.1 Revenues from sales, income and corporate income taxes dropped precipitously – 15.5 percent – between FY 2008 and FY 2010.2 And like other states, Utah made adjustments by cutting program funding and staff, and utilizing transfers in fund balances and state reserves to bridge the budget shortfalls. Through attrition and early retirement incentives, State Government reduced its workforce by over 9 percent between FY 2009 and FY 2012.3 The State’s Rainy Day Fund fell from $419 million in FY 2009 (8.7% of expenditures)4 to $210 million in FY 2010 (4.7% of expenditures).5

Utah’s turnaround, however, began quickly and progressed steadily. By December 2012, Utah was one of only 11 states with employment at or above pre-recession levels.6 Utah has also enjoyed recent recognition for its business climate, economic growth, and overall state performance. An annual analysis of pro-business metrics ranked Utah as the number one state for three consecutive years from 2012 to 2014.7 The State ranked 5th in the nation in a 2013 survey as one of the “best managed states” based on financial data, services and residents’ standards of living.8 With a stable economy and one of the lowest unemployment rates in the nation – 4.4 percent in 2013, which had fallen to 3.5 percent by June 20149 – Utah anticipates $338 million in new revenue in FY 2015, and now maintains approximately $400 million in its reserve fund balances, representing about seven percent of General Fund/Education Fund appropriations.10

State Budget

Utah enacts a state budget annually and finances operations through its General Fund and Education Fund. As required by Utah’s constitution, all personal and corporate income tax revenue is used to fund K-12 and higher education11 while other state operations and programs, including Medicaid, are funded primarily from sales tax revenue deposited in the State General Fund. Governor Gary Herbert signed the FY 2015 budget into law April 2014. The total (federal and state) $13.5 billion capital and operating budget represents a modest 1.2 percent increase over the revised FY 2014 budget.12 The General Fund/Education Fund appropriations for FY 2015, however, totaled $5.8 billion, an increase of 7.2 percent over FY 2014 appropriations (FY 2014 appropriations had declined by $64 million from FY 2013 due primarily to lower than estimated Medicaid costs.) Governor Herbert has challenged state agencies to achieve a 25 percent increase in efficiency by 2017 through implementing tools and concepts (SUCCESS Framework), to continue to improve government performance.13

The Governor’s proposed budget included $2.1 billion for total spending on Medicaid in FY 2015. This includes $550 million in General Fund appropriations and $1.62 billion in federal funds.14  In his budget recommendations, the Governor noted that Medicaid General Fund appropriations were not fully expended in FY 2012 and FY 2013 due to lower than projected enrollment. Additional FY 2013 savings were achieved through a managed care expansion and through recovery of erroneous Medicaid reimbursements.15 In addition, Utah’s Federal Medical Assistance Percentage (FMAP) – the federal share of Medicaid expenses, increased from 69.6 percent in 2013 to 70.6 percent in 2015.16

ACA Implementation

The 2010 Affordable Care Act (ACA) was designed to expand coverage to most of the 47 million nonelderly uninsured people nationwide, including a portion of the estimated 407,000 uninsured Utah residents.17 The ACA enhances coverage across the income spectrum by expanding Medicaid eligibility for adults earning up to 138 percent of the FPL, including non-custodial and childless adults not previously covered by Medicaid, and by providing premium tax credits to help people with moderate incomes (100-400% FPL) purchase insurance directly through new Health Insurance Marketplaces. While these coverage provisions took effect January 1, 2014, the U.S. Supreme Court’s 2012 ruling18 establishing the constitutionality of the ACA individual mandate to obtain coverage, also held that states could not be forced to expand Medicaid coverage, essentially making the ACA Medicaid expansion optional for states. By the end of August 2014, 27 states and the District of Columbia had opted to implement a Medicaid expansion.19 Utah is one of two states that has not expanded Medicaid but was in open negotiation with CMS as of September 2014.

The Health Insurance Marketplace

Utah took on health insurance reform prior to passage of the ACA. In 2009, state legislation created the Office of Consumer Health Services, which was tasked, in partnership with the Utah Insurance Department, Department of Health and Workforce Services, with creating an internet portal that could:

  • Serve as a single access point for private and government health insurance websites, application forms and submission procedures;
  • Facilitate private sector collection of premium payments for a single policy by multiple payers; and
  • Assist employers to establish mechanisms allowing employees to purchase health insurance with pre-tax dollars.20

The resulting Insurance Exchange, called Avenue H, became the basis for a state Marketplace under the ACA. The State received conditional approval from HHS in January 2013 to run a state Marketplace, but eventually Utah adopted Avenue H as its small business SHOP exchange, and elected to use the Federally Facilitated Marketplace for its individual coverage health exchange.21

In 2014, six insurance providers are offering 99 Qualified Health Plans in Utah’s Individual Marketplace.22 Utah is also one of 23 states offering consumer operated and oriented plans (CO-OPs), a new type of non-profit, member-governed health insurance intended to offer more affordable, consumer friendly, and high quality health insurance options to compete with existing health insurers. As of April 19, 2014, over 84,600 Utahns had selected a Marketplace plan (approximately 26% of the estimated 331,000 individuals eligible for Marketplace coverage23) nearly 90 percent of whom qualified for financial assistance.24

Healthy Utah Plan – Utah’s Alternative Medicaid Expansion Proposal

After agreeing to study its options regarding the Medicaid expansion decision, Utah’s Governor Gary Herbert announced in January 2014 that “doing nothing is no longer an option.”25 Governor Herbert outlined the concepts of the “Healthy Utah Plan” in a February 2014 press release.26 The Healthy Utah Plan calls for a three-year pilot program that would cover those under 138 percent FPL. The plan builds on the principles and strategies of: 27

  • Promoting individual responsibility through charging premiums and copays, offering incentives for healthy behaviors, and requiring a work effort or participation in employment training
  • Supporting private markets through the use of employer-sponsored insurance and premium assistance to purchase private market plans
  • Maximizing flexibility by allowing Utah to use federal savings from Utah’s current waiver to support new quality improvement efforts
  • Respecting the taxpayer by terminating the plan if federal funding does not come as promised.

The legislative session came to a close on March 13, 2014, without passing Medicaid expansion legislation. Governor Herbert has continued negotiations with CMS over the Healthy Utah Plan, which have for several months largely centered around the work effort requirements and participation in employment training. After meeting with HHS Secretary Sylvia Mathews Burwell on September 9, 2014, Governor Herbert announced that they had reached a “conceptual agreement” on the plan. Details and a formal waiver submission are still forthcoming.28 The Governor stated that a special session is his “preferred path to finalize the Healthy Utah plan.”29

Utah’s Primary Care Network Waiver

Utah extended health care benefits to non-custodial and childless adults through a Section 1115 waiver in 2002 – long before the passage of the Affordable Care Act. The waiver allowed the State to slightly reduce state plan Medicaid benefits for certain Medicaid eligible parents to fund a limited benefit package – primary and preventive care – for parents/caretakers and non-custodial or childless adults with family income up to 150 percent of the FPL, previously not eligible for Medicaid. The Primary Care Network (PCN) waiver program also provided working adults and their spouses earning up to 200 percent of the FPL with premium assistance to purchase employer sponsored insurance, or continuation of coverage under COBRA, and covered high-risk pregnant women whose resources exceeded Medicaid eligibility thresholds.

The PCN waiver program was scheduled to sunset in June 2013, but the State requested and received two extensions allowing the program to continue through calendar year 2014 and giving the State time to consider and finalize a plan to expand Medicaid. With the extensions, CMS required certain changes; the State could no longer collect an enrollment fee it had previously imposed; cost-sharing for certain State Plan eligible adults30 was reduced to comply with Medicaid nominal cost-sharing limits; and on January 1, 2014, individuals earning at or above 100 percent of the FPL would no longer be eligible for Medicaid coverage. In the CMS approval letter for the extension, the State was instructed that for individuals earning income at or above 100 percent of the FPL the State was to provide temporary continued coverage through April 30, 2014 and make every effort to assist this population to obtain coverage through the Marketplace by March 31, 2014.

Utah’s Primary Care Network Waiver
PCN Populations Benefits Enrollment Limits Cost-Sharing
Non-Traditional Medicaid Adults eligible through 1925 and 1931; Medically needy non-ABD Slightly reduced Medicaid benefits None May not exceed Medicaid nominal limits
Parent/Caretaker adults with income up to 100% FPL Limited benefits of primary and preventive care 16,000 May not exceed Medicaid nominal limits
Non-custodial parents and childless adults with income up to 100% FPL Limited benefits of primary and preventive care 9,000 May not exceed Medicaid nominal limits
High Risk Pregnant women ineligible for Medicaid All Medicaid state plan benefits related to pregnancy None May not exceed Medicaid nominal limits
Working adults and spouses with family income up to 200% of FPL Premium assistance for ESI or COBRA None Set by qualified health plan/COBRA
Eligible CHIP children with family income up to 200% of FPL Premium assistance for ESI or COBRA plus dental wrap around None Set by qualified health plan/COBRA. Not subject to 5% out of pocket maximum

The waiver allows the State to limit enrollment for some populations as shown in the Table above. Although the limits exist, the transition of higher income individuals to coverage in the Marketplace has freed up waiver slots to cover additional lower income individuals. State officials noted that open enrollment, which typically closes after two weeks, remained open for several months. The State may request an additional PCN extension to accommodate a transitional year allowing the state to get a Medicaid expansion in place in 2015 prior to terminating waiver coverage.

Delivery System Reforms

Utah Transitions to Accountable Care Model of Managed Care

In 2011, Utah passed Medicaid reform legislation directing the administration to implement one or more risk-based delivery models that would, among other goals, “[r]estructure the program’s provider payment provisions to reward health care providers for delivering the most appropriate service at the lowest cost.”31 In January 2013, the State transitioned from traditional managed care to its Accountable Care Organization (ACO) delivery system in the four most populous counties, engaging four ACOs to provide services through a risk-based system. The program covers approximately 70 percent of all Medicaid enrollees. ACOs have flexibility to decide how to reimburse providers, and whether to share savings achieved through improved quality. The State’s focus is on controlling costs but also on improving quality and has incentives within the ACO contracts to achieve these goals. Historically, the State has used HEDIS and CAHPS metrics to monitor quality, but is actively developing Utah Medicaid specific performance measures for ACOs. The State expects to increase the number of ACOs in four additional counties in FY 2015 in order to provide consumer choice and allow for mandatory enrollment.

Long-Term Services and Supports

While behavioral health and long-term services and support benefits are carved out of managed care, all Medicaid participants, except those residing in long-term care facilities, receive their physical medical care through an ACO in service areas with multiple ACOs; individuals in areas with only one ACO may choose to use an ACO for these services. Utah uses a 1915(b) waiver to provide outpatient behavioral health services through pre-paid mental health plans. The State has several ongoing efforts in place to encourage coordination between behavioral health and physical health service providers. The State also administers seven Home and Community- Based Service waivers (including the state’s Medicaid Autism waiver) serving approximately 6,500 individuals. In both 2014 and 2015 the legislature increased funding to expand the number of waiver slots for the State’s ID/DD and Physical Disabilities waivers in part to address a waiting list.

Additional policy actions the state either implemented in FY 2014 or planned to implement in FY 2015 are detailed in the table that follows:

Utah Medicaid Policy Changes FY 2014 and FY 201532
Eligibility, Application and Renewal Changes
  • Reduced eligibility for the state’s existing 1115 waiver (PCN) from 150% to 100% FPL. Enrollment cap remains in place in FY 2014.
  • Implemented Hospital Presumptive Eligibility with nearly all hospitals participating.
Cost Sharing
  • Eliminated a $50 enrollment fee for Primary Care Network (PCN) waiver participants.
  • Reduced cost-sharing for PCN TANF-related waiver participants (1925 and 1931 adults.)
Provider Rates and Provider Taxes/Assessments
  • Increased rates for outpatient hospitals (0.85%), MCOs (2.0%) and 340B pharmacy dispensing fee in FY 2014.
  • Plan to increase rates for dentists (6.0%), MCOs (2%) and nursing homes (3.64%) for FY 2015.
  • Plan to discontinue ACA payment rate increases for primary care physician services beyond 12/31/2014.
  • Plan to increase ICF/ID Provider Tax in FY 2015.
Long-Term Care
  • Expanded the number of intellectual/developmental disability (IDD) and physical disability waivers slots to address a waiting list in FY 2014. Plan to do so again in FY 2015.
Delivery System and Payment Reforms
  • Revised state quality strategy to incorporate Utah specific measures in FY 2014; incorporated new performance measures in ACO contracts in FY 2014.
  • Implemented state plan amendment to allow wider application of 340B policy to pharmacy program in FY 2014.
  • Enhanced use of COGNOS to improve surveillance to identify high utilizers and drug seeking behavior to enroll these individuals in state’s “lock in” program in FY 2014.
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