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


Economic and Budget Outlook

When Governor Terry McAuliffe took office in January 2014, Virginia’s economy had largely recovered from the effects of the Great Recession. Virginia’s Gross Domestic Product grew annually throughout the Great Recession,1 the state’s personal income grew for 15 straight quarters through September 2013,2 and by February 2014, unemployment had fallen to 4.9 percent from a high of 7.4 percent in December 2009.3 However, state economic growth began to slow in FYs 2013 and 2014, driven in part by federal spending reductions from the federal sequester and by other federal spending reductions related to deficit negotiations at the national level.4 By November 2013, state revenue forecasters predicted that state economic growth would continue, although at a slower rate than the US economy.5 In December 2013, the state projected a FY 2014 year-end balance of $478.6 million.6

In the last half of FY 2014, however, Virginia’s economy had “stalled,” largely due to federal budget cuts.7 By the fiscal year-end, total general fund revenues fell 1.6 percent (falling short of the official forecast by $438.5 million), marking the first time outside of a national recession that revenues had declined in the state.8 After planned withdrawals from reserves and stabilization funds, an updated revenue forecast released on August 15, 2014 projected a $881.5 million budget shortfall for the current biennium (FYs 2015 and 2016).9

Having already passed the state budget for FYs 2015-2016 at the end of June, the Governor and legislative leaders began discussions to address the newly-realized budget gap. In September 2014, Governor McAuliffe and legislative leaders announced an agreement to address the shortfall by reducing spending across nearly all state agencies by as much as 5 percent in FY 2015 and 7 percent in FY 2016; elementary and secondary education are exempted and reductions for higher education will be lower at 3.3 percent. The agreement also includes $272 million in budget savings in FY 2016 that will be achieved through measures that the Governor will address through budget amendments in December.10 The agreement also allows “flexibility in capturing savings from available unexpected balances” to maintain priority items in health care and economic development.11

The Affordable Care Act

The 2010 Affordable Care Act (ACA) was designed to expand coverage to many of the 47 million nonelderly uninsured people nationwide, including 1 million uninsured Virginians. The ACA enhances coverage across the income spectrum by expanding Medicaid eligibility to low-income adults with incomes up to 138 percent of the FPL and by providing premium tax credits to help people with moderate incomes (100-400% FPL) purchase insurance directly through new Health Insurance Marketplaces.12 While these provisions took effect January 1, 2014, the U.S. Supreme Court’s 2012 ruling establishing the constitutionality of the ACA individual mandate to obtain coverage, also held that states could not be forced to expand Medicaid coverage effectively making the ACA Medicaid expansion optional for states. 13 Virginia is one of the 23 states that have not adopted the Medicaid expansion as of September 2014. In Virginia, childless adults regardless of income and parents with incomes above 41 percent of the FPL ($660 for a family of 3) are ineligible for Medicaid.14 As eligibility for Marketplace subsidies starts at 100 percent of the FPL, the state estimates that approximately 195,000 uninsured Virginians remain without an affordable coverage option.15

Marketplace Coverage

The ACA provided states the option of establishing their own Marketplaces or relying on the federally-facilitated Marketplace (FFM), www.healthcare.gov. Virginia was one of 27 states that opted to rely on the FFM,16 but retained responsibility for managing and reviewing rates for health plans sold on the Marketplace. In 2014, eight insurance providers are offering 106 Qualified Health Plans in Virginia’s Marketplace.17 As of April 19, 2014, over 216,300 Virginians had selected a Marketplace plan (approximately 26% of the estimated 823,000 individuals eligible for Marketplace coverage)18 over 80 percent of whom qualified for financial assistance.19 All funding for outreach and enrollment efforts for the Marketplace has come from the federal government and private organizations, including 22 of Virginia’s Federally Qualified Health Centers and the Virginia Poverty Law Center and Advanced Patient Advocacy.

The Medicaid Expansion Debate in Virginia

Expanding Medicaid was a central policy debate during the 2013 Governor’s race. During the campaign, Republican candidate Ken Cuccinelli said that a vote for him was a vote against the Medicaid expansion while Democratic candidate Terry McAuliffe said that he would not sign a budget unless the Medicaid expansion was included.20 In January 2014, newly elected Governor McAuliffe proposed amendments to the FY 2014 budget in place and to the previous Administration’s budget proposal for FYs 2015 and 2016 that reflected his budget priorities including education, mental health system reform, transportation and job growth, and the Medicaid expansion. One amendment authorized the Governor to act on the Medicaid expansion if the existing Medicaid Innovation and Reform Commission (MIRC) failed to act by the end of the legislative session.21 Established in 2013, the MIRC was comprised of House Appropriations and Senate Finance committee members as well as the state Secretaries of Finance and Health and Human Resources; it was charged with monitoring the development of Medicaid reform proposals, such as the expansion of managed care and the implementation of the Commonwealth Coordinated Care Initiative, among others. If the MIRC determined that specific Medicaid cost-reduction benchmarks had been met, it could then vote to implement the Medicaid expansion.22

In mid-February, the Republican-controlled House proposed a budget that did not include the Medicaid expansion while the Democrat-controlled Senate proposed at budget that included the “Marketplace Virginia” plan, an alternative Medicaid expansion that would utilize premium assistance and require individuals to pay 5 percent of their income in cost-sharing or premiums.23 Federal funding for the plan would be “recaptured” in the Virginia Taxpayer Recovery Fund, estimated to be $1.7 billion a year.24 House leaders opposed the plan, citing concerns over the sustainability of the federal government’s financial commitment.25 After the House and Senate failed to reach a compromise in conference, the session ended March 8 without a budget agreement.

At the start of the special session two weeks later, the Governor issued a new budget proposal containing a number of spending reductions, totaling $204 million, and a two-year Medicaid expansion pilot program that would result in $225 million in net savings, primarily from savings in indigent care and other public health programs; the need for state funding of these programs would be reduced due to expanded Medicaid coverage.26 While the House leadership suggested at the end of the regular session and throughout the special session that the Medicaid expansion be separated from the budget,27 the Governor and Senate leadership insisted that the budget include the Medicaid expansion, noting its importance for the state’s budget and economy.28 The two bodies remained gridlocked, neither side making moves toward reconciliation. The state faced a government shutdown if a budget was not passed before July 1.

In early June, the political dynamics changed when Democratic State Senator Phil Puckett resigned his seat resulting in Republican control of the Senate. Shortly after, the House and Senate reached a budget agreement that did not include the Medicaid expansion. The budget bill also included an amendment, proposed by Senator Stanley, to prevent the governor from implementing the expansion on his own authority without legislative approval.29 Governor McAuliffe signed the budget legislation, but used his line-item veto authority to remove the Stanley amendment along with funding for the MIRC and other line-item vetoes stating:

“We have already lost $852 million as of this morning…. And [the budget] contained reductions in spending that were much deeper than necessary because the General Assembly refused to accept Medicaid funding. Frankly, if it were not June 20th – with only 10 days left in this fiscal year, I may well have vetoed the entire budget. But given the severe difficulties the General Assembly had in getting even this weak budget to me, I seriously doubt that they could have prepared a budget in the next week without disrupting or imperiling critical services or jeopardizing our AAA Bond Rating.”30 – Governor McAuliffe, June 20, 2014

The Speaker of the House later ruled that the line-item veto of the Stanley amendment was outside the Governor’s authority as it did not delete the entire line item but only a portion; the line item in question related to the appropriation for the state’s entire Medicaid program.31 After the General Assembly voted and approved 6 of the 8 line-items vetoes, including the line-item veto that eliminated the MIRC completely, the budget became law with the Stanley amendment intact.

Recent Proposals to Help Close the Coverage Gap

After the passage of the FY 2015 budget without the Medicaid expansion, Governor McAuliffe announced his intent to move forward with his goal of “expanding access to health care for Virginia residents.”32 At his direction, on September 8, 2014, Secretary Hazel of the Virginia Department of Health and Human Resources released “A Healthy Virginia” plan which recommends a number of steps to address the coverage gap. In presenting the plan, Secretary Hazel made clear that “[t]his plan is not a comprehensive cure, nor is it a substitute for a full expansion in Medicaid in accordance with the Affordable Care Act,” but rather “a bridge to true reform.”33 The key features of the plan include:

  • Developing of a Section 1115 waiver proposal that would extend limited benefits focused on behavioral health services to adults with incomes below 100 percent of the FPL with severe mental illness.
  • Investing in outreach for coverage options through Medicaid, FAMIS (Virginia’s CHIP program), and the Marketplace. Outreach will:
    • Target parents of children currently eligible for Medicaid and FAMIS but not enrolled in coverage, particularly parents for whom English is not their primary language.
    • Leverage an existing federal grant to partner with the Virginia Poverty Law Center, one the state’s two navigator organizations, to enhance the existing network of consumer assistance. The state will also develop an outreach campaign about the Federal Marketplace.
    • Include the re-launch of the coverva.org website to provide information on coverage options through the Marketplace, Department of Veterans Affairs, the Virginia Chamber of Commerce’s Virginia Benefits Market and CommonHelp (Medicaid, FAMIS, and other public benefits).
  • Implementing the ACA Health Home option for adults with severe mental illness and children with serious emotional disturbances starting in July 2015.
  • Providing comprehensive dental coverage for pregnant women in Medicaid and FAMIS starting March 2015.
  • Allowing children of lower-income state employees to qualify for FAMIS.
  • Applying for a State Innovation Model grant that, if approved, will bring in $2.6 million in federal funding along with technical support to help transform the health care delivery system in the state. The focus will be on primary care transformation and delivering integrated care models that integrate behavioral health and oral health with primary care
  • Hosting a summit with leaders from the Veterans Health Administration in Virginia and hospital and health system leaders to explore ways to improve timely access to quality care for veterans.34
  • Creating a Task Force to combat prescription drug and heroin abuse, using a number of strategies such as leveraging the state’s prescription monitoring program to identify emerging trends among others.

In response to the Governor’s plan, House Speaker William Howell stated, “I am reviewing Governor McAuliffe’s proposed changes to Virginia’s Medicaid system. The proposal will require General Assembly approval to be made permanent and will, of course, be given due consideration during the 2015 General Assembly session.”35 The General Assembly returned to special session September 18 and quickly recessed.36

Managed Care

While the Medicaid expansion debate has garnered much public attention, the state has been heavily focused on delivery system reform and improved care coordination for Medicaid beneficiaries. Recent efforts have focused on continued expansion of managed care and implementation of the Commonwealth Coordinated Care Initiative for those dually eligible for Medicare and Medicaid.

Managed Care Expansion

Virginia has a long history with Medicaid managed care, both capitated and primary care case management (PCCM) models. In July 2012, the state phased out its PCCM as it completed the statewide rollout of its capitated managed care program, now called “Medallion 3.0.” Over two-thirds of Medicaid beneficiaries in Virginia are now enrolled with managed care organizations (MCOs) including children, parents, pregnant women, those with disabilities, elderly enrollees, children with special health needs and some HCBS waiver enrollees for acute care services. Foster care and adoptive assistance children were added to MCOs in SFY 2014. In December 2014, the state plans to enroll other eligible Elderly and Disabled Consumer Direction HCBS waiver enrollees into managed care (for acute care services only).

In SFY 2014, the state implemented a Behavioral Health Services Administrator (BHSA) to manage the behavioral health services for the fee-for-service (FFS) population as well as certain components of behavioral health for those in managed care. MCOs are required to coordinate with the BHSA. Opioid drugs obtained through a pharmacy are the responsibility of the MCO, but all other substance abuse related treatment services are handled by the BHSA. Traditional behavioral health services, including inpatient and outpatient services, are generally covered through the MCO while non-traditional services are handled by the BHSA. Magellan, which was awarded the BHSA contract, provides enhanced care coordination for eligible members.

Six37 different MCOs – Anthem, Coventry, INTotal (Inova), Kaiser Permanente, Optima (Sentara), and Virginia Premier (VCUHS) currently operate in the state. Five of these plans are NCQA accredited as required under the state’s managed care contracts; the sixth (Kaiser Permanente) was currently under review for accreditation at the time of this report.38 Virginia continues to enhance the quality requirements and service coordination under managed care contracts through the Quality Improvement program activities, Quality Collaborative and three new initiatives:

  • Value Based Purchasing through Pay-for-Performance Initiative: The state has begun to implement a pay-for-performance program with incentive awards for their MCOs based on HEDIS measures which are designed to increase members’ use of preventive services and increase administrative efficiency. Performance incentive scores, based on HEDIS 2015, will be finalized by March 2016.
  • Medallion Care System Partnership: In FY 2014, the state modified existing managed care contract requirements to require the plans to develop two provider partnership projects that allow the MCOs to expand and test different methodologies of provider payment and incentives and support and develop patient centered medial homes (PCMHs).
  • Expedited Enrollment: In August 2014, the state went live with an expedited enrollment process to get MCO-eligible beneficiaries into MCOs more quickly with a special focus on pregnant women to improve birth outcomes as well as reducing churn.39
Commonwealth Coordinated Care Initiative

Virginia began implementation of its Commonwealth Coordinated Care initiative in March 2014; the initiative is one of the ACA-authorized Financial Alignment Demonstrations designed to better coordinate care across Medicare and Medicaid services for those dually eligible for both programs. Commonwealth Coordinated Care will use a capitated managed care model to provide all services (Medicare and Medicaid) through one Medicare-Medicaid Plan, or MMP. The state is rolling out the initiative regionally; each region began with passive enrollment for a period followed by auto-enrollment into managed care plans if one has not been selected. As of August 1, 2014, the state had enrolled 11,176 individuals into the program across the five regions; approximately 13,000 more individuals were auto-enrolled into an MMMP in September. Phased implementation is set to be completed in November 2014.40 An estimated 75,000 beneficiaries are eligible to participate in the program.41

Virginia Medicaid Policy Changes in SFY 2014 and 201542
Eligibility, Application and Renewal Policies43
  • Income eligibility for the Family Planning waiver was reduced down to 100% FPL effective January 1, 2014. The state plans to restore the income limit for family planning waiver to 200% FPL in SFY 2015.
  • Plan to implement 1115 waiver with limited benefits to extend coverage to adults with incomes below 100% FPL with severe mental illness.


Provider Rates and Provider Fees/Taxes
  • Increased payment rates for inpatient and outpatient hospitals, MCOs and nursing homes in SFY 2014. Other rates were held flat.
  • Plan to increase payment rates for outpatient hospitals, MCOs and nursing homes while holding other rates flat in SFY 2015.


Benefits and Pharmacy
  • Added nutritional counseling, inpatient substance abuse services in Medicaid Works program (Jan 2014).
  • Modified the allowable dental deductions for dental expenses in long-term care settings (restriction).
  • Plan to add mental health drugs to the state’s Preferred Drug List in SFY 2015.
  • Plan to expand comprehensive dental benefits to pregnant women (both in Medicaid and FAMIS).


Managed Care and Care Coordination
  • Implemented the Commonwealth Coordinated Care Initiative, Virginia’s Financial Alignment Demonstration to coordinate care for those dually eligible for Medicare and Medicaid in SFY 2014.
  • Enrolled foster care and adoption assistance children into MCOs in SFY 2014. Plan to enroll some qualifying Elderly and Disabled Consumer Direction waiver members into MCOs (for acute care only) in Dec 2014.
  • Implemented a Behavioral Health Services Administrator to manage the behavioral health services for the FFS population as well as certain components of behavioral health for those in managed care in SFY 2014.
  • Starting process to adopt performance incentive awards for MCOs.
  • Modified managed care contract requirements on provider partnerships and incentives to allow MCOs to expand and test different methodologies of payment and incentives and support PCMHs.
  • Enhanced program contact language to support program integrity efforts and collaboration; created new technical manual and reporting requirements to enhance compliance efforts.
  • Created new expedited MCO enrollment process to improve health outcomes, reduce churn and improve provider relations.
  • Developed a capitation adjustment process to handle specialty drugs and reinsurance product for the MCOs.
  • Plan to implement Health Homes for adults with severe mental illness and children with serious emotional disturbances.


Long Term Care
  • Expanded the number of people served in the community by expanding those served in HCBS waivers, PACE programs, and closing/down-sizing state institutions (transitioning residents to the community) in both SFYs.


Utah West Virginia

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